10-Q

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:  June 30, 2022

OR

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

FOR THE TRANSITION PERIOD FROM _______________ TO _________________

COMMISSION FILE NUMBER:  1-13447

ANNALY CAPITAL MANAGEMENT INC

(Exact Name of Registrant as Specified in its Charter)

Maryland		22-3479661
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)
1211 Avenue of the Americas
New York,	New York	10036
(Address of principal executive offices)		(Zip Code)

(212) 696-0100

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock, par value $0.01 per share	NLY	New York Stock Exchange
6.95% Series F Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock	NLY.F	New York Stock Exchange
6.50% Series G Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock	NLY.G	New York Stock Exchange
6.75% Series I Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock	NLY.I	New York Stock Exchange

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

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

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

Large accelerated filer ☑ Accelerated
filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐

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

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

The number of shares of the registrant’s Common Stock outstanding on July 22, 2022 was 1,624,307,055.

ANNALY CAPITAL MANAGEMENT, INC.
FORM 10-Q
TABLE OF CONTENTS
PART I  -  FINANCIAL INFORMATION	Page
Item 1.  Financial Statements	1
Consolidated Statements of Financial Condition at June 30, 2022 (Unaudited) and December 31, 2021 (Derived from the audited consolidated financial statements at December 31, 2021)	1
Consolidated Statements of Comprehensive Income (Loss) (Unaudited) for the three and six months ended June 30, 2022 and 2021	2
Consolidated Statements of Stockholders’ Equity (Unaudited) for the three and six months ended June 30, 2022 and 2021	3
Consolidated Statements of Cash Flows (Unaudited) for the six months ended June 30, 2022 and 2021	4
Notes to Consolidated Financial Statements (Unaudited)	5
Note 1. Description of Business	5
Note 2. Basis of Presentation	5
Note 3. Significant Accounting Policies	6
Note 4. Financial Instruments	9
Note 5. Securities	9
Note 6. Loans	13
Note 7. Mortgage Servicing Rights	15
Note 8. Variable Interest Entities	16
Note 9. Sale of Commercial Real Estate Business	19
Note 10. Sale of Middle Market Lending Portfolio	19
Note 11. Derivative Instruments	19
Note 12. Fair Value Measurements	25
Note 13. Goodwill and Intangible Assets	28
Note 14. Secured Financing	29
Note 15. Capital Stock	30
Note 16. Interest Income and Interest Expense	32
Note 17. Net Income (Loss) per Common Share	33
Note 18. Income Taxes	33
Note 19. Risk Management	34
Note 20. Lease Commitments and Contingencies	35
Note 21. Arcola Regulatory Requirements	35
Note 22. Subsequent Events	36
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	37
Special Note Regarding Forward-Looking Statements	37
Overview	39
Business Environment	39
Results of Operations	41
Financial Condition	54
Capital Management	58
Risk Management	59
Critical Accounting Estimates	68
Glossary of Terms	71
Item 3. Quantitative and Qualitative Disclosures about Market Risk	80
Item 4. Controls and Procedures	80
PART II  -  OTHER INFORMATION
Item 1. Legal Proceedings	81
Item 1A. Risk Factors	81
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	81
Item 5. Other Information	81
Item 6. Exhibits	81
SIGNATURES	83

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)
	June 30,		December 31,
	2022		2021 (1)
	(Unaudited)
Assets
Cash and cash equivalents (includes pledged assets of $653,657 and $1,222,505, respectively) (2)	$	853,932	$	1,342,090
Securities (includes pledged assets of $53,145,730 and $56,675,447, respectively) (3)	59,042,734		63,655,674
Loans, net (includes pledged assets of $1,631,103 and $2,462,776, respectively) (4)	1,487,133		4,242,043
Mortgage servicing rights	1,421,420		544,562
Interests in MSR	83,622		69,316
Assets transferred or pledged to securitization vehicles	8,877,247		6,086,308
Assets of disposal group held for sale	97,414		194,138
Derivative assets	748,432		170,370
Receivable for unsettled trades	434,227		2,656
Principal and interest receivable	300,028		234,983
Goodwill and intangible assets, net	18,195		24,241
Other assets	272,865		197,683
Total assets	$	73,637,249	$	76,764,064
Liabilities and stockholders’ equity
Liabilities
Repurchase agreements	$	51,364,097	$	54,769,643
Other secured financing	—		903,255
Debt issued by securitization vehicles	7,502,483		5,155,633
Participations issued	696,944		1,049,066
Liabilities of disposal group held for sale	3,608		154,956
Derivative liabilities	379,708		881,537
Payable for unsettled trades	1,995,960		147,908
Interest payable	91,962		91,176
Dividends payable	354,027		321,142
Other liabilities	158,560		94,423
Total liabilities	62,547,349		63,568,739
Stockholders’ equity
Preferred stock, par value $0.01 per share, 63,500,000 authorized, issued and outstanding	1,536,569		1,536,569
Common stock, par value $0.01 per share, 2,936,500,000 authorized, 1,609,215,497 and 1,459,736,258 issued and outstanding, respectively	16,092		14,597
Additional paid-in capital	21,281,077		20,313,832
Accumulated other comprehensive income (loss)	(4,310,926)		958,410
Accumulated deficit	(7,496,061)		(9,653,582)
Total stockholders’ equity	11,026,751		13,169,826
Noncontrolling interests	63,149		25,499
Total equity	11,089,900		13,195,325
Total liabilities and equity	$	73,637,249	$	76,764,064
(1)Derived from the audited consolidated financial statements at December 31, 2021.
(2)Includes cash of consolidated Variable Interest Entities (“VIEs”) of $2.4 million and $16.2 million at June 30, 2022 and December 31, 2021, respectively.
(3)Excludes $30.1 million and $44.2 million at June 30, 2022 and December 31, 2021, respectively, of Agency mortgage-backed securities and $971.9 million and $350.4 million at June 30, 2022 and December 31, 2021, respectively, of non-Agency mortgage-backed securities in consolidated VIEs pledged as collateral and eliminated from the Company’s Consolidated Statements of Financial Condition.
(4)Includes $1.5 million and $2.3 million of residential mortgage loans held for sale at June 30, 2022 and December 31, 2021, respectively.
See notes to consolidated financial statements.

1

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1. Financial Statements

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (dollars in thousands, except per share data) (Unaudited)
	For The Three Months Ended June 30,				For The Six Months Ended June 30,
	2022		2021		2022		2021
Net interest income
Interest income	$	645,615	$	383,906	$	1,301,465	$	1,147,284
Interest expense	170,475		61,047		245,397		137,020
Net interest income	475,140		322,859		1,056,068		1,010,264
Net servicing income
Servicing and related income	$	55,685	$	10,519	$	90,400	$	19,748
Servicing and related expense	5,949		2,603		9,706		4,900
Net servicing income	49,736		7,916		80,694		14,848
Other income (loss)
Net gains (losses) on investments and other	(615,216)		20,207		(775,020)		58,612
Net gains (losses) on derivatives	1,015,643		(581,962)		2,657,671		587,421
Loan loss (provision) reversal	26,913		(494)		26,305		139,126
Business divestiture-related gains (losses)	(23,955)		1,527		(24,309)		(248,036)
Other, net	(5,486)		(6,241)		(2,428)		295
Total other income (loss)	397,899		(566,963)		1,882,219		537,418
General and administrative expenses
Compensation expense	22,243		32,013		55,245		63,531
Other general and administrative expenses	13,795		21,513		26,557		37,900
Total general and administrative expenses	36,038		53,526		81,802		101,431
Income (loss) before income taxes	886,737		(289,714)		2,937,179		1,461,099
Income taxes	23,420		5,134		49,968		4,813
Net income (loss)	863,317		(294,848)		2,887,211		1,456,286
Net income (loss) attributable to noncontrolling interests	(3,379)		794		(1,740)		1,115
Net income (loss) attributable to Annaly	866,696		(295,642)		2,888,951		1,455,171
Dividends on preferred stock	26,883		26,883		53,766		53,766
Net income (loss) available (related) to common stockholders	$	839,813	$	(322,525)	$	2,835,185	$	1,401,405
Net income (loss) per share available (related) to common stockholders
Basic	$	0.55	$	(0.23)	$	1.90	$	1.00
Diluted	$	0.55	$	(0.23)	$	1.90	$	1.00
Weighted average number of common shares outstanding
Basic	1,522,436,766		1,410,239,138		1,492,068,912		1,404,755,496
Diluted	1,523,595,000		1,410,239,138		1,493,254,890		1,405,764,272
Other comprehensive income (loss)
Net income (loss)	$	863,317	$	(294,848)	$	2,887,211	$	1,456,286
Unrealized gains (losses) on available-for-sale securities	(2,503,250)		(191,541)		(6,071,929)		(1,620,468)
Reclassification adjustment for net (gains) losses included in net income (loss)	657,806		(30,415)		802,593		26,408
Other comprehensive income (loss)	(1,845,444)		(221,956)		(5,269,336)		(1,594,060)
Comprehensive income (loss)	(982,127)		(516,804)		(2,382,125)		(137,774)
Comprehensive income (loss) attributable to noncontrolling interests	(3,379)		794		(1,740)		1,115
Comprehensive income (loss) attributable to Annaly	(978,748)		(517,598)		(2,380,385)		(138,889)
Dividends on preferred stock	26,883		26,883		53,766		53,766
Comprehensive income (loss) attributable to common stockholders	$	(1,005,631)	$	(544,481)	$	(2,434,151)	$	(192,655)
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 June 30,				For The Six Months Ended June 30,
	2022		2021		2022		2021
Preferred stock
Beginning of period	$	1,536,569	$	1,536,569	$	1,536,569	$	1,536,569
End of period	$	1,536,569	$	1,536,569	$	1,536,569	$	1,536,569
Common stock
Beginning of period	$	14,610	$	13,985	$	14,597	$	13,982
Issuance	1,480		456		1,488		456
Stock-based award activity	2		1		7		4
End of period	$	16,092	$	14,442	$	16,092	$	14,442
Additional paid-in capital
Beginning of period	$	20,321,952	$	19,754,826	$	20,313,832	$	19,750,818
Issuance	948,015		419,970		954,111		419,970
Stock-based award activity	11,110		3,896		13,134		7,904
End of period	$	21,281,077	$	20,178,692	$	21,281,077	$	20,178,692
Accumulated other comprehensive income (loss)
Beginning of period	$	(2,465,482)	$	2,002,231	$	958,410	$	3,374,335
Unrealized gains (losses) on available-for-sale securities	(2,503,250)		(191,541)		(6,071,929)		(1,620,468)
Reclassification adjustment for net gains (losses) included in net income (loss)	657,806		(30,415)		802,593		26,408
End of period	$	(4,310,926)	$	1,780,275	$	(4,310,926)	$	1,780,275
Accumulated deficit
Beginning of period	$	(7,980,407)	$	(9,251,804)	$	(9,653,582)	$	(10,667,388)
Net income (loss) attributable to Annaly	866,696		(295,642)		2,888,951		1,455,171
Dividends declared on preferred stock (1)	(26,883)		(26,883)		(53,766)		(53,766)
Dividends and dividend equivalents declared on common stock and stock-based awards (1)	(355,467)		(318,534)		(677,664)		(626,880)
End of period	$	(7,496,061)	$	(9,892,863)	$	(7,496,061)	$	(9,892,863)
Total stockholder’s equity	$	11,026,751	$	13,617,115	$	11,026,751	$	13,617,115
Noncontrolling interests
Beginning of period	$	51,528	$	11,788	$	25,499	$	13,480
Net income (loss) attributable to noncontrolling interests	(3,379)		794		(1,740)		1,115
Equity contributions from (distributions to) noncontrolling interests	15,000		9,479		39,390		7,466
End of period	$	63,149	$	22,061	$	63,149	$	22,061
Total equity	$	11,089,900	$	13,639,176	$	11,089,900	$	13,639,176
(1) Refer to the “Capital Stock” Note for dividends per share for each class of shares.

See notes to consolidated financial statements.

3

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1. Financial Statements

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES  CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
	For The Six Months Ended June 30,
	2022		2021
Cash flows from operating activities
Net income (loss)	$	2,887,211	$	1,456,286
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities
Amortization of premiums and discounts of investments, net	19,404		313,306
Amortization of securitized debt premiums and discounts and deferred financing costs	(4,378)		(4,269)
Depreciation, amortization and other noncash expenses	11,145		17,718
Net (gains) losses on investments and derivatives	(1,944,200)		(808,867)
Business divestiture-related (gains) losses	24,309		248,036
Income (loss) from unconsolidated joint ventures	(10,378)		5,889
Loan loss provision (reversal)	(26,305)		(139,126)
Payments on purchases of loans held for sale	—		(49,586)
Proceeds from sales and repayments of loans held for sale	1,619		84,991
Net receipts (payments) on derivatives	1,639,329		606,454
Net change in
Other assets	(42,741)		(121,876)
Interest receivable	(19,128)		18,677
Interest payable	435		(16,165)
Other liabilities	180,529		(40,425)
Net cash provided by (used in) operating activities	2,716,851		1,571,043
Cash flows from investing activities
Payments on purchases of securities	(14,422,639)		(12,581,731)
Proceeds from sales of securities	8,390,532		6,350,647
Principal payments on securities	5,737,737		10,228,935
Payments on purchases and origination of loans	(3,981,495)		(2,754,376)
Proceeds from sales of loans	1,832,930		116,570
Principal payments on loans	1,073,579		1,498,768
Payments on purchases of MSR	(683,972)		(98,983)
Proceeds from sales of MSR	9,065		376
Payments on purchases of interests in MSR	(4,913)		(47,098)
Investments in real estate	—		(1,815)
Proceeds from sales of real estate	—		53,910
Proceeds from reverse repurchase agreements	7,750,024		12,084,313
Payments on reverse repurchase agreements	(7,750,024)		(12,084,313)
Distributions in excess of cumulative earnings from unconsolidated joint ventures	—		290
Proceeds from sale of equity securities	—		6,957
Net cash provided by (used in) investing activities	(2,049,176)		2,772,450
Cash flows from financing activities
Proceeds from repurchase agreements and other secured financing	1,849,361,390		1,129,837,127
Payments on repurchase agreements and other secured financing	(1,853,629,599)		(1,134,179,055)
Proceeds from issuances of securitized debt	3,946,614		969,165
Principal payments on securitized debt	(843,470)		(863,095)
Payments from relief of securitized debt	(2,990)		—
Net proceeds from stock offerings, direct purchases and dividend reinvestments	955,599		420,426
Proceeds from participations issued	1,216,950		499,864
Payments on repurchases of participations issued	(1,468,384)		(223,828)
Principal payments on participations issued	(31,844)		(4,015)
Net principal receipts (payments) on mortgages payable	—		(659)
Net contributions (distributions) from (to) noncontrolling interests	39,390		7,466
Settlement of stock-based awards in satisfaction of withholding tax requirements	(3,050)		(992)
Dividends paid	(696,439)		(669,144)
Net cash provided by (used in) financing activities	(1,155,833)		(4,206,740)
Net (decrease) increase in cash and cash equivalents	$	(488,158)	$	136,753
Cash and cash equivalents including cash pledged as collateral, beginning of period	1,342,090		1,243,703
Cash and cash equivalents including cash pledged as collateral, end of period	$	853,932	$	1,380,456
Supplemental disclosure of cash flow information
Interest received	$	1,144,124	$	1,478,377
Dividends received	$	—	$	51
Interest paid (excluding interest paid on interest rate swaps)	$	170,594	$	183,952
Net interest received (paid) on interest rate swaps	$	(75,898)	$	(137,018)
Taxes received (paid)	$	(1,661)	$	(333)
Noncash investing and financing activities
Receivable for unsettled trades	$	434,227	$	14,336
Payable for unsettled trades	$	1,995,960	$	154,405
Net change in unrealized gains (losses) on available-for-sale securities, net of reclassification adjustment	$	(5,269,336)	$	(1,594,060)
Dividends declared, not yet paid	$	354,027	$	317,714
Derecognition of assets of consolidated VIEs	$	—	$	976,690
Derecognition of securitized debt of consolidated VIEs	$	—	$	893,500
See notes to consolidated financial statements.

4

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1. Financial Statements

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

1. DESCRIPTION OF BUSINESS

Annaly Capital Management, Inc. (the “Company” or “Annaly”) is a Maryland corporation that commenced operations on February 18, 1997.  The Company is a leading diversified capital manager with investment strategies across mortgage finance. The Company owns a portfolio of real estate related investments, including mortgage pass-through certificates, collateralized mortgage obligations, credit risk transfer (“CRT”) securities, other securities representing interests in or obligations backed by pools of mortgage loans, residential mortgage loans and mortgage servicing rights (“MSR”). The Company’s principal business objective is to generate net income for distribution to its stockholders and optimize its returns through prudent management of its diversified investment strategies.

The Company is an internally-managed company that has elected to be taxed as a Real Estate Investment Trust (“REIT”) as defined under the Internal Revenue Code of 1986, as amended, and regulations promulgated thereunder (the “Code”).

The Company’s investment groups are primarily comprised of the following:

Investment Groups	Description
Annaly Agency Group	Invests in Agency mortgage-backed securities (“MBS”) collateralized by residential mortgages which are guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae and complementary investments within the Agency market, including Agency commercial mortgage-backed securities.
Annaly Residential Credit Group	Invests primarily in non-Agency residential whole loans and securitized products within the residential and commercial markets.
Annaly Mortgage Servicing Rights Group	Invests in MSR, which provide the right to service residential loans in exchange for a portion of the interest payments made on the loans.

In March 2021, the Company announced that it had entered into a definitive agreement to sell and exit its Commercial Real Estate (“CRE”) business. As of June 30, 2022, the CRE assets held for sale and the associated liabilities were transferred. Refer to the “Sale of Commercial Real Estate Business” Note for additional information.

In April 2022, the Company announced that it had entered into a definitive agreement to sell substantially all of the assets that comprise the Annaly Middle Market Lending ("MML") portfolio, including assets held on balance sheet as well as assets managed for third parties. The majority of these assets were legally transferred during the second quarter of 2022 and the remaining assets are expected to be transferred by the end of the third quarter of 2022. Refer to the “Sale of Middle Market Lending Portfolio” Note for additional information on the transaction.

2. BASIS OF PRESENTATION

The accompanying consolidated financial statements and related notes of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”).

The accompanying consolidated financial statements and related notes are unaudited and should be read in conjunction with the audited consolidated financial statements included in the Company’s most recent Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the “2021 Form 10-K”). The consolidated financial information as of December 31, 2021 has been derived from audited consolidated financial statements included in the Company’s 2021 Form 10-K.

The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported balance sheet amounts and/or disclosures at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.

Beginning with the quarter ended March 31, 2022, in light of the continued growth of its mortgage servicing rights portfolio, the Company enhanced its financial disclosures by separately reporting servicing income and servicing expense in its Consolidated Statements of Comprehensive Income (Loss). Servicing income and servicing expense were previously included within Other income (loss). As a result of this change, prior periods have been adjusted to conform to the current presentation.

In addition, beginning with the quarter ended March 31, 2022, the Company consolidated certain line items in its Consolidated Statements of Comprehensive Income (Loss) in an effort to streamline and simplify its financial presentation. Amounts previously reported under Net interest component of interest rate swaps, Realized gains (losses) on termination or maturity of interest rate swaps, Unrealized gains (losses) on interest rate swaps and Net gains (losses) on other derivatives are combined into a single line item titled Net gains (losses) on derivatives. Similarly, amounts previously reported under Net gains (losses) on disposal of investments and other and Net unrealized gains (losses) on instruments measured at fair value through earnings

5

are combined into a single line item titled Net gains (losses) on investments and other. As a result of these changes, prior periods have been adjusted to conform to the current presentation.

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

3. SIGNIFICANT ACCOUNTING POLICIES

The Company’s significant accounting policies are described below or are included elsewhere in these notes to the consolidated financial statements.

Principles of Consolidation – The consolidated financial statements include the accounts of the entities where the Company has a controlling financial interest. In order to determine whether the Company has a controlling financial interest, it first evaluates whether an entity is a voting interest entity (“VOE”) or a variable interest entity (“VIE”). All intercompany balances and transactions have been eliminated in consolidation.

Voting Interest Entities – A VOE is an entity that has sufficient equity and in which equity investors have a controlling financial interest. The Company consolidates VOEs where it has a majority of the voting equity of such VOE.

Variable Interest Entities – A VIE is defined as an entity in which equity investors (i) do not have the characteristics of a controlling financial interest, and/or (ii) do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. A VIE is required to be consolidated by its primary beneficiary, which is defined as the party that has both (i) the power to control the activities that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.

The Company performs ongoing reassessments of whether changes in the facts and circumstances regarding the Company’s involvement with a VIE causes the Company’s consolidation conclusion to change. Refer to the “Variable Interest Entities” Note for further information.

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

Cash and Cash Equivalents – Cash and cash equivalents include cash on hand, cash held in money market funds on an overnight basis and cash pledged as collateral with counterparties. Cash deposited with clearing organizations is carried at cost, which approximates fair value. Cash and securities deposited with clearing organizations and collateral held in the form of cash on margin with counterparties to the Company’s interest rate swaps and other derivatives totaled $0.7 billion and $1.2 billion at June 30, 2022 and December 31, 2021, respectively.

Fair Value Measurements and the Fair Value Option – The Company reports various investments at fair value, including certain eligible financial instruments elected to be accounted for under the fair value option (“FVO”). The Company chooses to elect the FVO in order to simplify the accounting treatment for certain financial instruments. Items for which the FVO has been elected are presented at fair value in the Consolidated Statements of Financial Condition and any change in fair value is recorded in Net gains (losses) on investments and other in the Consolidated Statements of Comprehensive Income (Loss). For additional information regarding financial instruments for which the Company has elected the FVO see the table in the “Financial Instruments” Note.

Refer to the “Fair Value Measurements” Note for a complete discussion on the methodology utilized by the Company to estimate the fair value of certain financial instruments.

Offsetting Assets and Liabilities - The Company elected to present all derivative instruments on a gross basis as discussed in the “Derivative Instruments” Note. Reverse repurchase and repurchase agreements are presented net in the Consolidated Statements of Financial Condition if they meet the offsetting criteria. Please see below and refer to the “Secured Financing” Note for further discussion on reverse repurchase and repurchase agreements.

Derivative Instruments – Derivatives are recognized as either assets or liabilities at fair value in the Consolidated Statements of Financial Condition with changes in fair value recognized in the Consolidated Statements of Comprehensive Income (Loss). The changes in the estimated fair value are presented within Net gains (losses) on derivatives. None of the Company’s

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Item 1. Financial Statements

derivative transactions have been designated as hedging instruments for accounting purposes. Refer to the “Derivative Instruments” Note for further discussion.

Stock-Based Compensation – The Company measures compensation expense for stock-based awards at fair value, which is generally based on the grant-date fair value of the Company’s common stock. Compensation expense is recognized ratably over the vesting or requisite service period of the award. Stock-based awards that contain market-based conditions are valued using a model.

Compensation expense for awards with performance conditions is recognized based on the probable outcome of the performance condition at each reporting date. Compensation expense for awards with market conditions is recognized irrespective of the probability of the market condition being achieved and is not reversed if the market condition is not met. Stock-based awards that do not require future service (i.e., vested awards) are expensed immediately. Forfeitures are recorded when they occur. The Company generally issues new shares of common stock upon delivery of stock-based awards.

Interest Income - The Company recognizes interest income primarily on Residential Securities (as defined in the “Securities” Note), residential mortgage loans, commercial investments and reverse repurchase agreements. Interest accrued but not paid is recognized as Interest receivable on the Consolidated Statements of Financial Condition. Interest income is presented as a separate line item on the Consolidated Statements of Comprehensive Income (Loss). Refer to the “Interest Income and Interest Expense” Note for further discussion.

For its securities, the Company recognizes coupon income, which is a component of interest income, based upon the outstanding principal amounts of the financial instruments and their contractual terms. In addition, the Company amortizes or accretes premiums or discounts into interest income for its Agency mortgage-backed securities (other than interest-only securities, multifamily and reverse mortgages), taking into account estimates of future principal prepayments in the calculation of the effective yield.  The Company recalculates the effective yield as differences between anticipated and actual prepayments occur. Using third party model and market information to project future cash flows and expected remaining lives of securities, the effective interest rate determined for each security is applied as if it had been in place from the date of the security’s acquisition. The amortized cost of the security is then adjusted to the amount that would have existed had the new effective yield been applied since the acquisition date, which results in a cumulative premium amortization adjustment in each period. The adjustment to amortized cost is offset with a charge or credit to interest income. Changes in interest rates and other market factors will impact prepayment speed projections and the amount of premium amortization recognized in any given period.

Premiums or discounts associated with the purchase of Agency interest-only securities, reverse mortgages and residential credit securities are amortized or accreted into interest income based upon current expected future cash flows with any adjustment to yield made on a prospective basis.

Premiums and discounts associated with the purchase of residential mortgage loans and with those transferred or pledged to securitization trusts are primarily amortized or accreted into interest income over their estimated remaining lives using the effective interest rates inherent in the estimated cash flows from the mortgage loans. Amortization of premiums and accretion of discounts are presented in Interest income in the Consolidated Statements of Comprehensive Income (Loss).

If collection of a loan’s principal or interest is in doubt or the loan is 90 days or more past due, interest income is not accrued. For nonaccrual status loans carried at fair value or held for sale, interest is not accrued but is recognized on a cash basis. For nonaccrual status loans carried at amortized cost, if collection of principal is not in doubt but collection of interest is in doubt, interest income is recognized on a cash basis. If collection of principal is in doubt, any interest received is applied against principal until collectability of the remaining balance is no longer in doubt; at that point, any interest income is recognized on a cash basis. Generally, a loan is returned to accrual status when the borrower has resumed paying the full amount of the scheduled contractual obligation, if all principal and interest amounts contractually due are reasonably assured of repayment within a reasonable period of time and there is a sustained period of repayment performance by the borrower. Refer to the “Interest Income and Interest Expense” Note for further discussion on interest.

The Company has made an accounting policy election not to measure an allowance for loans losses on corporate debt for accrued interest receivable. If interest receivable is deemed to be uncollectible or not collected within 120 days for corporate debt carried at amortized cost, it is written off through a reversal of interest income. Any interest written off that is recovered is recognized as interest income.

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.

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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.

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

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Item 1. Financial Statements

4. FINANCIAL INSTRUMENTS

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

Financial Instruments (1)
Balance Sheet Line Item	Type / Form	Measurement Basis	June 30, 2022		December 31, 2021
	Assets	(dollars in thousands)
Securities	Agency mortgage-backed securities (2)	Fair value, with unrealized gains (losses) through other comprehensive income	$	55,059,932	$	59,939,383
Securities	Agency mortgage-backed securities (3)	Fair value, with unrealized gains (losses) through earnings	533,404		586,222
Securities	Residential credit risk transfer securities	Fair value, with unrealized gains (losses) through earnings	965,714		936,228
Securities	Non-agency mortgage-backed securities	Fair value, with unrealized gains (losses) through earnings	2,026,658		1,663,336
Securities	Commercial real estate debt investments - CMBS	Fair value, with unrealized gains (losses) through earnings	439,301		521,440
Securities	Commercial real estate debt investments - credit risk transfer securities	Fair value, with unrealized gains (losses) through earnings	17,725		9,065
Total securities			59,042,734		63,655,674
Loans, net	Residential mortgage loans	Fair value, with unrealized gains (losses) through earnings	1,486,811		2,272,072
Loans, net	Residential mortgage loan warehouse facility	Fair value, with unrealized gains (losses) through earnings	322		980
Loans, net	Corporate debt, held for investment	Amortized cost	—		1,968,991
Total loans, net			1,487,133		4,242,043
Interests in MSR	Interest in net servicing cash flows	Fair value, with unrealized gains (losses) through earnings	83,622		69,316
Assets transferred or pledged to securitization vehicles	Agency mortgage-backed securities	Fair value, with unrealized gains (losses) through other comprehensive income	458,268		589,873
Assets transferred or pledged to securitization vehicles	Residential mortgage loans	Fair value, with unrealized gains (losses) through earnings	8,418,979		5,496,435
Total assets transferred or pledged to securitization vehicles			8,877,247		6,086,308
	Liabilities
Repurchase agreements	Repurchase agreements	Amortized cost	51,364,097		54,769,643
Other secured financing	Loans	Amortized cost	—		903,255
Debt issued by securitization vehicles	Securities	Fair value, with unrealized gains (losses) through earnings	7,502,483		5,155,633
Participations issued	Participations issued	Fair value, with unrealized gains (losses) through earnings	696,944		1,049,066
(1) Receivable for unsettled trades, Principal and interest receivable, Payable for unsettled trades, Interest payable and Dividends payable are accounted for at cost. Interests in MSR are considered financial assets whereas directly held MSR are servicing assets or obligations. (2) Includes Agency pass-through, collateralized mortgage obligation (“CMO”) and multifamily securities. (3) Includes interest-only securities and reverse mortgages.

5. SECURITIES

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

Impairment – Management evaluates available-for-sale securities and held-to-maturity debt securities for impairment at least quarterly, and more frequently when economic or market conditions warrant such evaluation. When the fair value of an available-for-sale security is less than its amortized cost, the security is considered impaired. For securities that are impaired, the Company determines if it (1) has the intent to sell the security, (2) is more likely than not that it will be required to sell the security before recovery of its amortized cost basis, or (3) does not expect to recover the entire amortized cost basis of the

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Item 1. Financial Statements

security.  Further, the security is analyzed for credit loss (the difference between the present value of cash flows expected to be collected and the amortized cost basis). The credit loss, if any, will then be recognized in the Consolidated Statements of Comprehensive Income (Loss) as a securities loss provision and reflected as an allowance for credit losses on securities on the Consolidated Statements of Financial Condition, while the balance of losses related to other factors will be recognized as a component of Other comprehensive income (loss). When the fair value of a held-to-maturity security is less than the cost, the Company performs an analysis to determine whether it expects to recover the entire cost basis of the security. For the three months ended March 31, 2021, the Company recognized a $0.4 million impairment on a commercial mortgage-backed security that was sold subsequently in 2021.

Agency Mortgage-Backed Securities - The Company invests in mortgage pass-through certificates, collateralized mortgage obligations and other MBS representing interests in or obligations backed by pools of residential or multifamily mortgage loans and certificates. Many of the underlying loans and certificates are guaranteed by the Government National Mortgage Association (“Ginnie Mae”), the Federal Home Loan Mortgage Corporation (“Freddie Mac”) or the Federal National Mortgage Association (“Fannie Mae”) (collectively, “Agency mortgage-backed securities”). 

Agency mortgage-backed securities may include forward contracts for Agency mortgage-backed securities purchases or sales of a generic pool, on a to-be-announced basis. TBA securities without intent to accept delivery (“TBA derivatives”) are accounted for as derivatives as discussed in the “Derivative Instruments” Note.

CRT Securities - CRT securities are risk sharing instruments issued by Fannie Mae and Freddie Mac, and similarly structured transactions arranged by third party market participants. CRT securities are designed to synthetically transfer mortgage credit risk from Fannie Mae and Freddie Mac to private investors.

Non-Agency Mortgage-Backed Securities - The Company invests in non-Agency mortgage-backed securities such as those issued in prime loan, prime jumbo loan, Alt-A loan, subprime loan, non-performing loan (“NPL”) and re-performing loan (“RPL”) securitizations.

Agency mortgage-backed securities, non-Agency mortgage-backed securities and residential CRT securities are referred to herein as “Residential Securities.” Although the Company generally intends to hold most of its Residential Securities until maturity, it may, from time to time, sell any of its Residential Securities as part of the overall management of its portfolio.

Commercial Mortgage-Backed Securities (“Commercial Securities”) - Certain commercial mortgage-backed securities (“CMBS”) are classified as available-for-sale and reported at fair value with any credit loss recognized through an allowance for credit losses and any other unrealized gains and losses reported as a component of Other comprehensive income (loss). Management evaluates its Commercial Securities for impairment at least quarterly. The Company elected the fair value option for all other Commercial Securities, including conduit and credit CMBS, to simplify the accounting where the unrealized gains and losses on these financial instruments are recorded through earnings.

The following represents a rollforward of the activity for the Company’s securities, excluding securities transferred or pledged to securitization vehicles, for the six months ended June 30, 2022:

	Agency Securities		Residential Credit Securities		Commercial Securities		Total
	(dollars in thousands)
Beginning balance January 1, 2022	$	60,525,605	$	2,599,564	$	530,505	$	63,655,674
Purchases	14,731,945		1,243,293		112,396		16,087,634
Sales and transfers	(9,042,404)		(352,027)		(169,224)		(9,563,655)
Principal paydowns	(5,385,047)		(323,281)		(3,446)		(5,711,774)
(Amortization) / accretion	28,799		2,358		78		31,235
Fair value adjustment	(5,265,562)		(177,535)		(13,283)		(5,456,380)
Ending balance June 30, 2022	$	55,593,336	$	2,992,372	$	457,026	$	59,042,734

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Item 1. Financial Statements

The following tables present the Company’s securities portfolio, excluding securities transferred or pledged to securitization vehicles, that were carried at their fair value at June 30, 2022 and December 31, 2021:

	June 30, 2022
	Principal / Notional		Remaining Premium		Remaining Discount		Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Agency	(dollars in thousands)
Fixed-rate pass-through	$	55,460,523	$	2,874,749	$	(281,278)	$	58,053,994	$	31,761	$	(4,306,637)	$	53,779,118
Adjustable-rate pass-through	260,238		10,651		(270)		270,619		5,183		(6,292)		269,510
CMO	106,189		1,848		—		108,037		—		(6,692)		101,345
Interest-only	1,662,567		416,404		—		416,404		673		(196,588)		220,489
Multifamily(1)	8,182,519		312,441		(523)		1,243,478		2,596		(55,978)		1,190,096
Reverse mortgages	31,968		3,376		—		35,344		—		(2,566)		32,778
Total agency securities	$	65,704,004	$	3,619,469	$	(282,071)	$	60,127,876	$	40,213	$	(4,574,753)	$	55,593,336
Residential credit
Credit risk transfer (2)	$	1,010,209	$	6,552	$	(2,474)	$	1,014,287	$	390	$	(48,963)	$	965,714
Alt-A	138,473		33		(19,899)		118,607		1,902		(4,931)		115,578
Prime (3)	1,227,193		15,855		(25,681)		297,095		4,989		(32,367)		269,717
Subprime	187,969		221		(17,896)		170,294		4,045		(7,020)		167,319
NPL/RPL	1,300,169		1,275		(6,026)		1,295,418		343		(45,858)		1,249,903
Prime jumbo (>=2010 vintage) (4)	2,193,098		17,814		(26,089)		250,065		2,954		(28,878)		224,141
Total residential credit securities	$	6,057,111	$	41,750	$	(98,065)	$	3,145,766	$	14,623	$	(168,017)	$	2,992,372
Total Residential Securities	$	71,761,115	$	3,661,219	$	(380,136)	$	63,273,642	$	54,836	$	(4,742,770)	$	58,585,708
Commercial
Commercial Securities	$	474,523	$	—	$	(1,776)	$	472,747	$	—	$	(15,721)	$	457,026
Total securities	$	72,235,638	$	3,661,219	$	(381,912)	$	63,746,389	$	54,836	$	(4,758,491)	$	59,042,734
	December 31, 2021
	Principal / Notional		Remaining Premium		Remaining Discount		Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Agency	(dollars in thousands)
Fixed-rate pass-through	$	54,432,252	$	3,008,185	$	(18,314)	$	57,422,123	$	1,349,125	$	(474,643)	$	58,296,605
Adjustable-rate pass-through	305,211		1,965		(2,124)		305,052		16,223		(2)		321,273
CMO	114,533		1,888		—		116,421		5,277		—		121,698
Interest-only	1,912,415		456,683		—		456,683		428		(163,197)		293,914
Multifamily (1)	5,671,138		273,553		—		1,453,946		15,330		(16,563)		1,452,713
Reverse mortgages	36,807		3,550		—		40,357		—		(955)		39,402
Total agency investments	$	62,472,356	$	3,745,824	$	(20,438)	$	59,794,582	$	1,386,383	$	(655,360)	$	60,525,605
Residential credit
Credit risk transfer (2)	$	924,101	$	8,754	$	(1,176)	$	927,555	$	9,641	$	(968)	$	936,228
Alt-A	83,213		31		(17,133)		66,111		3,627		(251)		69,487
Prime (3)	323,062		9,841		(14,757)		268,117		10,853		(3,529)		275,441
Subprime	170,671		349		(16,111)		154,909		8,285		(118)		163,076
NPL/RPL	987,415		950		(1,698)		986,667		2,739		(5,968)		983,438
Prime jumbo (>=2010 vintage) (4)	299,783		5,680		(6,410)		172,598		4,272		(4,976)		171,894
Total residential credit securities	$	2,788,245	$	25,605	$	(57,285)	$	2,575,957	$	39,417	$	(15,810)	$	2,599,564
Total Residential Securities	$	65,260,601	$	3,771,429	$	(77,723)	$	62,370,539	$	1,425,800	$	(671,170)	$	63,125,169
Commercial
Commercial Securities	$	533,071	$	—	$	(127)	$	532,944	$	165	$	(2,604)	$	530,505
Total securities	$	65,793,672	$	3,771,429	$	(77,850)	$	62,903,483	$	1,425,965	$	(673,774)	$	63,655,674
(1) Principal/Notional amount includes $7.3 billion and $4.5 billion of Agency Multifamily interest-only securities as of June 30, 2022 and December 31, 2021, respectively. (2) Principal/Notional amount includes $0.0 million and $4.1 million of a CRT interest-only security as of June 30, 2022 and December 31, 2021, respectively. (3) Principal/Notional amount includes $920.3 million and $50.0 million of Prime interest-only securities as of June 30, 2022 and December 31, 2021, respectively. (4) Principal/Notional amount includes $1.9 billion and $126.5 million of Prime Jumbo interest-only securities as of June 30, 2022 and December 31, 2021, respectively.

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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 June 30, 2022 and December 31, 2021: 

	June 30, 2022		December 31, 2021
Investment Type	(dollars in thousands)
Fannie Mae	$	46,415,070	$	48,404,991
Freddie Mac	9,111,646		10,880,033
Ginnie Mae	66,620		1,240,581
Total	$	55,593,336	$	60,525,605

Actual maturities of the Company’s Residential Securities are generally shorter than stated contractual maturities because actual maturities of the portfolio are affected by periodic payments and prepayments of principal on the underlying mortgages.

The following table summarizes the Company’s Residential Securities, excluding securities transferred or pledged to securitization vehicles, at June 30, 2022 and December 31, 2021, according to their estimated weighted average life classifications:

	June 30, 2022				December 31, 2021
	Estimated Fair Value		Amortized Cost		Estimated Fair Value		Amortized Cost
Estimated weighted average life	(dollars in thousands)
Less than one year	$	149,516	$	150,652	$	253,129	$	250,689
Greater than one year through five years	3,491,952		3,602,865		16,155,017		15,766,307
Greater than five years through ten years	45,977,144		49,646,767		45,470,212		45,102,607
Greater than ten years	8,967,096		9,873,358		1,246,811		1,250,936
Total	$	58,585,708	$	63,273,642	$	63,125,169	$	62,370,539

The estimated weighted average lives of the Residential Securities at June 30, 2022 and December 31, 2021 in the table above are based upon projected principal prepayment rates. The actual weighted average lives of the Residential Securities could be longer or shorter than projected.

The following table presents the gross unrealized losses and estimated fair value of the Company’s Agency mortgage-backed securities, accounted for as available-for-sale where the fair value option has not been elected, by length of time that such securities have been in a continuous unrealized loss position at June 30, 2022 and December 31, 2021.

	June 30, 2022					December 31, 2021
	Estimated Fair Value (1)		Gross Unrealized Losses (1)		Number of Securities (1)	Estimated Fair Value (1)		Gross Unrealized Losses (1)		Number of Securities (1)
	(dollars in thousands)
Less than 12 months	$	43,643,601	$	(2,950,746)	2,712	$	22,828,156	$	(475,064)	571
12 Months or more	8,592,827		(1,399,582)		273	383,815		(10,960)		19
Total	$	52,236,428	$	(4,350,328)	2,985	$	23,211,971	$	(486,024)	590
(1) Excludes interest-only mortgage-backed securities and reverse mortgages.

The decline in value of these securities is solely due to market conditions and not the quality of the assets.  Substantially all of the Agency mortgage-backed securities have an actual or implied credit rating that is the same as that of the U.S. government. An impairment has not been recognized in earnings related to these investments because the decline in value is not related to credit quality, the Company currently has not made a decision to sell the securities nor is it more likely than not that the securities will be required to be sold before recovery.

During the three and six months ended June 30, 2022, the Company disposed of $6.6 billion and $9.4 billion of Residential Securities, respectively. During the three and six months ended June 30, 2021, the Company disposed of $3.3 billion and $6.2 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 six months ended June 30, 2022 and 2021.

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Item 1. Financial Statements

	Gross Realized Gains		Gross Realized Losses		Net Realized Gains (Losses)
For the three months ended	(dollars in thousands)
June 30, 2022	$	27,263	$	(684,560)	$	(657,297)
June 30, 2021	$	52,485	$	(17,680)	$	34,805
For the six months ended
June 30, 2022	$	28,828	$	(830,615)	$	(801,787)
June 30, 2021	$	57,131	$	(83,021)	$	(25,890)

6. LOANS

The Company invests in residential loans. Loans are classified as either held for investment or held for sale. Loans are eligible to be accounted for under the fair value option. If loans are elected under the fair value option, they are carried at fair value with changes in fair value recognized in earnings. Otherwise, loans held for investment are carried at cost less impairment and loans held for sale are accounted for at the lower of cost or fair value.

Excluding loans transferred or pledged to securitization vehicles and loan warehouse facilities, as of June 30, 2022 and December 31, 2021, the Company reported $1.5 billion and $2.3 billion, respectively, of loans for which the fair value option was elected. If the Company intends to sell or securitize the loans and the securitization vehicle is not expected to be consolidated, the loans are classified as held for sale. If loans are held for sale and the fair value option was not elected, they are accounted for at the lower of cost or fair value. Any origination fees and costs or purchase premiums or discounts are deferred and recognized upon sale. The Company determines the fair value of loans held for sale on an individual loan basis. The carrying value of the Company’s residential loans held for sale was $1.5 million and $2.3 million at June 30, 2022 and December 31, 2021, respectively.

Allowance for Losses – The Company evaluates the need for a loss reserve on each of its loans classified as held-for-investment, which primarily include corporate debt, where the fair value option is not elected. Allowance for loan losses are written off in the period the loans are deemed uncollectible.

Given the unique nature of each underlying borrower and any collateral, the Company assesses an allowance for each individual loan held for investment. An allowance is established at origination or acquisition that reflects management’s estimate of the total expected credit loss over the expected life of the loan. In estimating the lifetime expected credit losses, management utilizes a probability of default and loss given default methodology (“Loss Given Default methodology”), which considers projected economic conditions over the reasonable and supportable forecast period. The forecast incorporates primarily market-based assumptions including, but not limited to, forward interest rate curves, unemployment rate estimates and certain indexes sourced from third party vendors. For any remaining period of the expected life of the loan after the reasonable and supportable period, the Company reverts to historical losses on a straight-line basis. Management uses third party vendors’ loan pool data for loans with similar risk characteristics to estimate historical losses given the limited loss history of the Company’s loan portfolio. Changes in the lifetime expected credit loss are reflected in Loan loss (provision) reversal in the Consolidated Statements of Comprehensive Income (Loss). For loans experiencing credit deterioration, the Company may use a different methodology to determine the expected credit losses such as a discounted cash flow analysis.

Management assesses the credit quality of the portfolio and adequacy of loan loss reserves on a quarterly basis, or more frequently as necessary. Significant judgment is required in this analysis. Depending on the expected recovery of its investment, the Company considers the estimated net recoverable value of the loans as well as other factors, including but not limited to the fair value of any collateral, the amount and the status of any senior debt, the prospects for the borrower and the competitive landscape where the borrower conducts business. To determine if loan loss allowances are required on investments in corporate debt, the Company reviews the monthly and/or quarterly financial statements of the borrowers, verifies loan compliance packages, if applicable, and analyzes current results relative to budgets and sensitivities performed at inception of the investment.  Because these determinations are based upon projections of future economic events, which are inherently subjective, the amounts ultimately realized may differ materially from the carrying value as of the reporting date.

The Company may be exposed to various levels of credit risk depending on the nature of its investments and credit enhancements, if any, supporting its assets. The Company’s core investment process includes procedures related to the initial approval and periodic monitoring of credit risk and other risks associated with each investment.  The Company’s investment underwriting procedures include evaluation of the underlying borrowers’ ability to manage and operate their respective properties or companies.  Management reviews loan-to-value metrics at origination or acquisition of a new investment and if events occur that trigger re-evaluation by management.

The Company recorded net loan loss (provisions) reversals of $26.9 million and $26.3 million for the three and six months ended June 30, 2022, respectively. The Company recorded net loan loss (provisions) reversals of ($0.5) million and $139.1

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Item 1. Financial Statements

million for the three and six months ended June 30, 2021, respectively. As of June 30, 2022 and December 31, 2021, the Company’s loan loss allowance was $0.0 million and $27.9 million, respectively.

The following table presents the activity of the Company’s loan investments, excluding loans transferred or pledged to securitization vehicles and loan warehouse facilities, for the six months ended June 30, 2022:

	Residential		Corporate Debt		Total
	(dollars in thousands)
Beginning balance January 1, 2022	$	2,272,072	$	1,968,991	$	4,241,063
Purchases / originations	3,821,483		185,269		4,006,752
Sales and transfers (1)	(4,450,255)		(1,902,444)		(6,352,699)
Principal payments	(66,962)		(231,190)		(298,152)
Gains / (losses) (2)	(80,639)		(23,320)		(103,959)
(Amortization) / accretion	(8,888)		2,694		(6,194)
Ending balance June 30, 2022	$	1,486,811	$	—	$	1,486,811
(1) Includes securitizations, syndications, transfers to securitization vehicles and corporate debt transfers to assets of disposal group held for sale and other assets. Includes transfer of residential loans to securitization vehicles with a carrying value of $4.4 billion during the six months ended June 30, 2022. (2) Includes loan loss allowances.

Residential

The Company’s residential mortgage loans are primarily comprised of performing adjustable-rate and fixed-rate whole loans. The Company’s residential loans are accounted for under the fair value option with changes in fair value reflected in Net gains (losses) on investments and other in the Consolidated Statements of Comprehensive Income (Loss). The Company also consolidates securitization trusts in which it had purchased subordinated securities because it also has certain powers and rights to direct the activities of such trusts. Refer to the “Variable Interest Entities” Note for further information related to the Company’s consolidated residential mortgage loan trusts.

The following table presents the fair value and the unpaid principal balances of the residential mortgage loan portfolio, including loans transferred or pledged to securitization vehicles and excluding loan warehouse facilities, at June 30, 2022 and December 31, 2021:

	June 30, 2022		December 31, 2021
	(dollars in thousands)
Fair value	$	9,905,790	$	7,768,507
Unpaid principal balance	$	10,516,244	$	7,535,855

The following table provides information regarding the line items and amounts recognized in the Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2022 and 2021 for these investments, excluding loan warehouse facilities:

	For the Three Months Ended				For the Six Months Ended
	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
	(dollars in thousands)
Interest income	$	91,645	$	38,963	$	165,110	$	76,072
Net gains (losses) on disposal of investments (1)	(5,321)		(21,721)		(12,658)		(26,941)
Net unrealized gains (losses) on instruments measured at fair value through earnings (1)	(324,481)		14,456		(739,729)		36,911
Total included in net income (loss)	$	(238,157)	$	31,698	$	(587,277)	$	86,042
(1) These amounts are presented in the line item Net gains (losses) on investments and other on the Consolidated Statements of Comprehensive Income (Loss)

The following table provides the geographic concentrations based on the unpaid principal balances at June 30, 2022 and December 31, 2021 for the residential mortgage loans, including loans transferred or pledged to securitization vehicles:

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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1. Financial Statements

Geographic Concentrations of Residential Mortgage Loans
June 30, 2022		December 31, 2021
Property location	% of Balance	Property location	% of Balance
California	47.2%	California	50.2%
New York	10.7%	New York	10.9%
Florida	7.5%	Florida	6.1%
All other (none individually greater than 5%)	34.6%	All other (none individually greater than 5%)	32.8%
Total	100.0%		100.0%

The following table provides additional data on the Company’s residential mortgage loans, including loans transferred or pledged to securitization vehicles, at June 30, 2022 and December 31, 2021:

	June 30, 2022		December 31, 2021
	Portfolio Range	Portfolio Weighted Average	Portfolio Range	Portfolio Weighted Average
	(dollars in thousands)
Unpaid principal balance	$3 - $4,396	$496	$1 - $4,382	$513
Interest rate	1.13% - 15.00%	4.18%	0.75% - 9.24%	4.04%
Maturity	7/1/2029 - 7/1/2062	7/14/2051	7/1/2029 - 12/1/2061	12/22/2050
FICO score at loan origination	588 - 832	761	604 - 831	762
Loan-to-value ratio at loan origination	5% - 100%	67%	8% - 103%	66%

At June 30, 2022 and December 31, 2021, approximately 12% and 16%, respectively, of the carrying value of the Company’s residential mortgage loans, including loans transferred or pledged to securitization vehicles, were adjustable-rate.

The Company participates in an arrangement that provides a residential mortgage loan warehouse facility to a third-party originator. The Company has elected to apply the fair value option to this lending facility in order to simplify the accounting and keep the accounting consistent with other residential credit financial instruments with similar characteristics. At June 30, 2022 and December 31, 2021, the fair value and carrying value of this warehouse facility was $0.3 million and $1.0 million, respectively, and reported as Loans, net in the Consolidated Statements of Financial Condition. As of June 30, 2022, the lending facility was not on nonaccrual status nor past due.

Commercial

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

Corporate Debt

In April 2022, the Company entered into a definitive agreement to sell substantially all of the corporate loan interests held by the MML business operated by the Company, as well as assets managed for third parties (collectively, the "MML Portfolio"), to Ares Capital Management LLC (“Ares”). The majority of these assets were legally transferred to Ares during the three months ended June 30, 2022, and the remaining assets are expected to be transferred by the end of the third quarter of 2022. Refer to the “Sale of Middle Market Lending Portfolio” Note for additional information on the transaction.

7. MORTGAGE SERVICING RIGHTS

The Company owns variable interests in entities that invest in MSR and Interests in MSR. Refer to the “Variable Interest Entities” Note for a detailed discussion on this topic.

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Item 1. Financial Statements

MSR represent the rights and obligations associated with servicing pools of residential mortgage loans. The Company and its subsidiaries do not originate or directly service residential mortgage loans. Rather, these activities are carried out by duly licensed subservicers who perform substantially all servicing functions for the loans underlying the MSR. The Company generally intends to hold the MSR as investments and elected to account for all of its investments in MSR at fair value. As such, they are recognized at fair value on the accompanying Consolidated Statements of Financial Condition with changes in the estimated fair value presented as a component of Net gains (losses) on investments and other in the Consolidated Statements of Comprehensive Income (Loss).

Interests in MSR represent agreements to purchase all, or a component of, net servicing cash flows. A third party acts as a master servicer for the loans providing the net servicing cash flows represented by the Interests in MSR. The Company accounts for its Interests in MSR at fair value with change in fair value presented in Net gains (losses) on investments and other in the Consolidated Statements of Comprehensive Income (Loss). Cash flows received for Interests in MSR are recorded in Other, net in the Consolidated Statements of Comprehensive Income (Loss).

The following tables present activity related to MSR and Interests in MSR for the three and six months ended June 30, 2022 and 2021:  

Mortgage Servicing Rights	Three Months Ended				Six Months Ended
	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
	(dollars in thousands)
Fair value, beginning of period	$	1,108,937	$	113,080	$	544,562	$	100,895
Purchases (1)	262,960		98,983		683,983		98,983
Sales	(9,065)		(376)		(9,075)		(376)
Change in fair value due to:
Changes in valuation inputs or assumptions (2)	79,606		4,621		238,568		32,296
Other changes, including realization of expected cash flows	(21,018)		(13,692)		(36,618)		(29,182)
Fair value, end of period	$	1,421,420	$	202,616	$	1,421,420	$	202,616
(1) Includes adjustments to original purchase price from early payoffs, defaults, or loans that were delivered but were deemed to not be acceptable. (2) Principally represents changes in discount rates and prepayment speed inputs used in valuation model, primarily due to changes in interest rates.

Interests in MSR	Three Months Ended				Six Months Ended
	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
	(dollars in thousands)
Beginning balance	$	85,653	$	—	$	69,316	$	—
Purchases (1)	(53)		47,098		4,860		47,098
Gain (loss) included in net income	(1,978)		1,937		9,446		1,937
Ending balance June 30, 2022	$	83,622	$	49,035	$	83,622	$	49,035
(1) Includes adjustments to original purchase price from early payoffs, defaults, or loans that were delivered but were deemed to not be acceptable.

8. VARIABLE INTEREST ENTITIES

The Company’s exposure to the obligations of its VIEs is generally limited to the Company’s investment in the VIEs of $1.1 billion at June 30, 2022. 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.

Multifamily Securitization

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 this arrangement, the Company determined that it was the primary beneficiary based upon its involvement in the design of this VIE and through the retention of a significant variable interest in the VIE. The Company elected the fair value option for the financial liabilities of this VIE 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.

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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1. Financial Statements

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.

OBX Trusts

Residential securitizations are issued by entities generally 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. Residential securitizations closed during the year are included in the table below.

Securitization	Date of Closing	Face Value at Closing
		(dollars in thousands)
OBX 2022-NQM1	January 2022	$	556,696
OBX 2022-INV1	January 2022	$	377,275
OBX 2022-INV2	February 2022	$	466,686
OBX 2022-NQM2	February 2022	$	439,421
OBX 2022-INV3	March 2022	$	330,823
OBX 2022-NQM3	March 2022	$	315,843
OBX 2022-NQM4	May 2022	$	457,285
OBX 2022-J1	May 2022	$	389,334
OBX 2022-NQM5	June 2022	$	390,775
OBX 2022-INV4	June 2022	$	335,900
OBX 2022-NQM6	June 2022	$	387,913

As of June 30, 2022 and December 31, 2021, a total carrying value of $7.1 billion and $4.6 billion, respectively, of bonds were held by third parties and the Company retained $998.4 million and $780.8 million, respectively, 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 $1.8 million and $1.2 million of costs during the three months ended June 30, 2022 and 2021, respectively, and $5.1 million and $1.8 million of costs during the six months ended June 30, 2022 and 2021, 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 $7.8 billion and $4.6 billion at June 30, 2022 and December 31, 2021, respectively.

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 connection with the sale of substantially all of the assets that comprise the MML Portfolio, these credit facilities which provided financing for the Company’s corporate debt were paid-off and terminated during the three months ended June 30, 2022. Refer to the “Sale of Middle Market Lending Portfolio” Note for additional information on the transaction.

MSR VIEs

The Company owns variable interests in an entity that invests in MSR 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.

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Item 1. Financial Statements

The Company also owns variable interests in entities that invest in Interests in MSR. These entities are VIEs because they do not have sufficient equity at risk to finance their activities and the Company is the primary beneficiary because it has power to remove the decision makers with or without cause and holds substantially all of the variable interests in the entities.

The statements of financial condition of the Company’s VIEs, excluding the multifamily securitization, 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 June 30, 2022 and December 31, 2021 are as follows:

June 30, 2022
	MSR VIEs
Assets
Cash and cash equivalents	$	2,446
Loans	1,548
Mortgage servicing rights	41
Interests in MSR	83,622
Other assets	6,271
Total assets	$	93,928
Liabilities
Payable for unsettled trades	$	2,152
Other liabilities	5,470
Total liabilities	$	7,622

December 31, 2021
	MSR VIEs
Assets
Cash and cash equivalents	$	16,187
Loans	2,347
Mortgage servicing rights	7,254
Interests in MSR	69,316
Other assets	10,406
Total assets	$	105,510
Liabilities
Payable for unsettled trades	$	1,911
Other liabilities	14,582
Total liabilities	$	16,493

 

Corporate Debt Funds

The Company managed parallel funds investing in senior secured first and second lien corporate loans (the “Fund Entities”). The Fund Entities were considered VIEs because the investors did not have substantive liquidation, kick-out or participating rights. The fees that the Company earned were not considered variable interests of the VIE. The Company was not the primary beneficiary of the Fund Entities and therefore did not consolidate the Fund Entities. The corporate loans in the Fund Entities were assets managed for third parties and were part of the MML Portfolio transferred to Ares during the three months ended June 30, 2022. Refer to the “Sale of Middle Market Lending Portfolio” Note for additional information on the transaction.

Residential Credit Fund

The Company manages a fund investing in participations in residential mortgage loans. The residential credit fund is deemed to be a VIE because the entity does not have sufficient equity at risk to permit the legal entity to finance its activities without additional subordinated financial support provided by any parties, including equity holders, as capital commitments are not considered equity at risk. The Company is not the primary beneficiary and does not consolidate the residential credit fund as its only interest in the fund is the management and performance fees that it earns, which are not considered variable interests in the entity. As of June 30, 2022 and December 31, 2021, the Company had outstanding participating interests in residential mortgage loans of $0.7 billion and $1.0 billion, respectively. These transfers do not meet the criteria for sale accounting and are accounted for as secured borrowings, thus the residential loans are reported as Loans, net and the associated liability is reported as Participations issued in the Consolidated Statements of Financial Condition. The Company elected to fair value the participations issued through earnings to more accurately reflect the economics of the transfers as the underlying loans are carried at fair value through earnings.

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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1. Financial Statements

9. SALE OF COMMERCIAL REAL ESTATE BUSINESS

On March 25, 2021, the Company entered into a definitive agreement to sell substantially all of the assets that comprise its CRE business to Slate Asset Management L.P. and Slate Grocery REIT (together, “Slate”) for $2.33 billion. The transaction included equity interests, loan assets and associated liabilities, and CMBS (other than commercial CRTs). The Company also sold nearly all of the remaining CRE business assets that are not included in the transaction with Slate. Certain employees who primarily supported the CRE business joined Slate in connection with the sale. In connection with the execution of the definitive agreement to sell the CRE business, during the three months ended March 31, 2021, the Company performed an assessment of goodwill, which was related to the Company’s 2013 acquisition of CreXus Investment Corp., and recognized an impairment of $71.8 million. During the six months ended June 30, 2021, the Company reported Business divestiture-related gains (losses) of ($248.0) million, in its Consolidated Statements of Comprehensive Income (Loss) which includes the aforementioned goodwill impairment as well as valuation adjustments resulting from classifying the CRE assets as held for sale and estimated transaction costs. As of June 30, 2022, the assets held for sale and the associated liabilities were transferred to Slate.

10. SALE OF MIDDLE MARKET LENDING PORTFOLIO

In April 2022, the Company entered into a definitive agreement to sell substantially all of the corporate loan interests held by the MML business operated by the Company, as well as assets managed for third parties (collectively, the "MML Portfolio"), to Ares Capital Management LLC (“Ares”) for $2.4 billion. The Company’s loans, having an unpaid principal balance of $1.8 billion, were transferred to Ares for cash proceeds of $1.8 billion and a realized gain of $40.1 million was recorded during the three months ended June 30, 2022. As of June 30, 2022, loans with an unpaid principal balance of $121.2 million were classified as held for sale pending receipt of required consents to assign the loans to Ares. The loans classified as held for sale are carried at lower of cost or fair value measured using a discounted cash flow methodology. This methodology is considered to be Level 3 in the fair value measurement hierarchy because the valuation requires inputs (i.e., the discount rate) that are both significant to the measurement and unobservable. The nature of the Company’s continuing involvement with the transferred loans is primarily administrative, including providing customary representations and warranties regarding the transferred loans.

11. 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 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 Net gains (losses) on derivatives 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 recognized as either assets or liabilities at fair value in the Consolidated Statements of Financial Condition with changes in fair value recognized in the Consolidated Statements of Comprehensive Income (Loss). The changes in the estimated fair value are presented within Net gains (losses) on derivatives. None of the Company’s derivative transactions have been designated as hedging instruments for accounting purposes. 

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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1. Financial Statements

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 June 30, 2022 and December 31, 2021, ($2.1) billion and ($0.4) billion, respectively, 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 have outstanding 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 (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.

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.

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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1. Financial Statements

The table below summarizes fair value information about our derivative assets and liabilities at June 30, 2022 and December 31, 2021:

Derivatives Instruments	June 30, 2022		December 31, 2021
Assets	(dollars in thousands)
Interest rate swaps	$	9,408	$	—
Interest rate swaptions	333,318		105,710
TBA derivatives	60,661		52,693
Futures contracts	341,430		9,028
Purchase commitments	3,615		1,779
Credit derivatives (1)	—		1,160
Total derivative assets	$	748,432	$	170,370
Liabilities
Interest rate swaps	$	272,055	$	747,036
TBA derivatives	91,124		3,916
Futures contracts	3,020		129,134
Purchase commitments	532		870
Credit derivatives (1)	12,977		581
Total derivative liabilities	$	379,708	$	881,537
(1) The maximum potential amount of future payments is the notional amount of credit derivatives in which the Company sold protection of $410.0 million and $400.0 million at June 30, 2022 and December 31, 2021, respectively, plus any coupon shortfalls on the underlying tranche. As of June 30, 2022 and December 31, 2021 the credit derivative tranches referencing the basket of bonds had a range of ratings between AAA and AA.

The following table summarizes certain characteristics of the Company’s interest rate swaps at June 30, 2022 and December 31, 2021:

June 30, 2022
Maturity	Current Notional (1)(2)		Weighted Average Pay Rate		Weighted Average Receive Rate		Weighted Average Years to Maturity (3)
(dollars in thousands)
0 - 3 years	$	20,807,400	0.79	%	1.62	%	1.16
3 - 6 years	1,420,400		1.62	%	1.80	%	4.26
6 - 10 years	11,583,200		1.72	%	1.71	%	9.32
Greater than 10 years	1,411,000		3.88	%	1.39	%	19.11
Total / Weighted average	$	35,222,000	1.16	%	1.65	%	4.69
December 31, 2021
Maturity	Current Notional (1)(2)		Weighted Average Pay Rate		Weighted Average Receive Rate		Weighted Average Years to Maturity (3)
(dollars in thousands)
0 - 3 years	$	32,709,300	0.25	%	0.06	%	1.10
3 - 6 years	2,780,000		0.21	%	0.07	%	3.46
6 - 10 years	9,118,000		1.43	%	0.13	%	9.05
Greater than 10 years	1,300,000		4.04	%	0.11	%	18.70
Total / Weighted average	$	45,907,300	0.59	%	0.08	%	3.32
(1) As of June 30, 2022, 23%, 35% and 42% 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, 2021, 18%, 53% and 29% of the Company’s interest rate swaps were linked to LIBOR, the Federal funds rate and the Secured Overnight Financing Rate, respectively. (2) There were no forward starting swaps at June 30, 2022 and December 31, 2021. (3) At June 30, 2022 and December 31, 2021, 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.

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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1. Financial Statements

The following table summarizes certain characteristics of the Company’s swaptions at June 30, 2022 and December 31, 2021:

June 30, 2022
	Current Underlying Notional	Weighted Average Underlying Fixed Rate	Weighted Average Underlying Floating Rate	Weighted Average Underlying Years to Maturity	Weighted Average Months to Expiration
(dollars in thousands)
Long pay	$4,050,000	2.00%	3M LIBOR	9.15	13.46
Long receive	$1,000,000	1.49%	3M LIBOR	11.20	14.46
December 31, 2021
	Current Underlying Notional	Weighted Average Underlying Fixed Rate	Weighted Average Underlying Floating Rate	Weighted Average Underlying Years to Maturity	Weighted Average Months to Expiration
(dollars in thousands)
Long pay	$4,050,000	2.00%	3M LIBOR	9.65	19.50
Long receive	$2,000,000	1.47%	3M LIBOR	10.95	11.38

The following table summarizes certain characteristics of the Company’s TBA derivatives at June 30, 2022 and December 31, 2021:

June 30, 2022
Purchase and sale contracts for derivative TBAs	Notional		Implied Cost Basis		Implied Market Value		Net Carrying Value
(dollars in thousands)
Purchase contracts	$	19,455,000	$	19,313,442	$	19,282,979	$	(30,463)
December 31, 2021
Purchase and sale contracts for derivative TBAs	Notional		Implied Cost Basis		Implied Market Value		Net Carrying Value
(dollars in thousands)
Purchase contracts	$	20,133,000	$	20,289,856	$	20,338,633	$	48,777

The following table summarizes certain characteristics of the Company’s futures derivatives at June 30, 2022 and December 31, 2021: 

June 30, 2022
	Notional - Long Positions		Notional - Short Positions		Weighted Average Years to Maturity
	(dollars in thousands)
U.S. Treasury futures - 2 year	$	—	$	(10,264,200)	1.97
U.S. Treasury futures - 5 year	—		(5,903,400)		4.40
U.S. Treasury futures - 10 year and greater	—		(19,832,600)		7.31
Total	$	—	$	(36,000,200)	5.31
December 31, 2021
	Notional - Long Positions		Notional - Short Positions		Weighted Average Years to Maturity
	(dollars in thousands)
U.S. Treasury futures - 2 year	$	—	$	(7,509,200)	1.96
U.S. Treasury futures - 5 year	—		(5,644,900)		4.38
U.S. Treasury futures - 10 year and greater	—		(9,381,000)		6.84
Total	$	—	$	(22,535,100)	4.60

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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1. Financial Statements

The Company presents derivative contracts on a gross basis in 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.

The following tables present information about derivative assets and liabilities that are subject to such provisions and can be offset in our Consolidated Statements of Financial Condition at June 30, 2022 and December 31, 2021, respectively.

June 30, 2022
			Amounts Eligible for Offset
	Gross Amounts		Financial Instruments		Cash Collateral		Net Amounts
Assets	(dollars in thousands)
Interest rate swaps, at fair value	$	9,408	$	(5,195)	$	—	$	4,213
Interest rate swaptions, at fair value	333,318		—		—		333,318
TBA derivatives, at fair value	60,661		(32,631)		—		28,030
Futures contracts, at fair value	341,430		(3,020)		—		338,410
Purchase commitments	3,615		—		—		3,615
Liabilities
Interest rate swaps, at fair value	$	272,055	$	(5,195)	$	(13,910)	$	252,950
TBA derivatives, at fair value	91,124		(32,631)		—		58,493
Futures contracts, at fair value	3,020		(3,020)		—		—
Purchase commitments	532		—		—		532
Credit derivatives	12,977		—		(12,977)		—
December 31, 2021
			Amounts Eligible for Offset
	Gross Amounts		Financial Instruments		Cash Collateral		Net Amounts
Assets	(dollars in thousands)
Interest rate swaptions, at fair value	$	105,710	$	—	$	—	$	105,710
TBA derivatives, at fair value	52,693		(3,876)		—		48,817
Futures contracts, at fair value	9,028		(9,028)		—		—
Purchase commitments	1,779		—		—		1,779
Credit derivatives	1,160		(516)		—		644
Liabilities
Interest rate swaps, at fair value	$	747,036	$	—	$	(77,607)	$	669,429
TBA derivatives, at fair value	3,916		(3,876)		(40)		—
Futures contracts, at fair value	129,134		(9,028)		(120,106)		—
Purchase commitments	870		—		—		870
Credit derivatives	581		(516)		(65)		—

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

Location on Consolidated Statements of Comprehensive Income (Loss)
	Net Interest Component of Interest Rate Swaps (1)		Realized Gains (Losses) on Termination of Interest Rate Swaps (1)		Unrealized Gains (Losses) on Interest Rate Swaps (1)
For the three months ended	(dollars in thousands)
June 30, 2022	$	992	$	(16)	$	897,537
June 30, 2021	$	(83,087)	$	—	$	(141,067)
For the six months ended
June 30, 2022	$	(61,549)	$	(16)	$	2,220,976
June 30, 2021	$	(162,834)	$	—	$	631,195
(1) Included in Net gains (losses) on derivatives in the Consolidated Statements of Comprehensive Income (Loss).

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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1. Financial Statements

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

Three Months Ended June 30, 2022
Derivative Instruments	Realized Gain (Loss)		Unrealized Gain (Loss)		Amount of Gain/(Loss) Recognized in Net Gains (Losses) on Derivatives
(dollars in thousands)
Net TBA derivatives	$	(1,064,242)	$	280,992	$	(783,250)
Net interest rate swaptions	—		119,436		119,436
Futures	1,167,524		(380,436)		787,088
Purchase commitments	—		2,671		2,671
Credit derivatives	374		(9,189)		(8,815)
Total					$	117,130

Three Months Ended June 30, 2021
Derivative Instruments	Realized Gain (Loss)		Unrealized Gain (Loss)		Amount of Gain/(Loss) Recognized in Net Gains (Losses) on Derivatives
(dollars in thousands)
Net TBA derivatives	$	10,045	$	275,226	$	285,271
Net interest rate swaptions	(22,787)		(232,860)		(255,647)
Futures	183,383		(577,899)		(394,516)
Purchase commitments	—		2,376		2,376
Credit derivatives	2,777		1,931		4,708
Total					$	(357,808)

Six Months Ended June 30, 2022
Derivative Instruments	Realized Gain (Loss)		Unrealized Gain (Loss)		Amount of Gain/(Loss) Recognized in Net Gains (Losses) on Other Derivatives
(dollars in thousands)
Net TBA derivatives	$	(1,820,381)	$	(79,239)	$	(1,899,620)
Net interest rate swaptions	(14,450)		242,058		227,608
Futures	1,720,678		458,516		2,179,194
Purchase commitments	—		2,172		2,172
Credit derivatives	1,434		(12,528)		(11,094)
Total					$	498,260

Six Months Ended June 30, 2021
Derivative Instruments	Realized Gain (Loss)		Unrealized Gain (Loss)		Amount of Gain/(Loss) Recognized in Net Gains (Losses) on Other Derivatives
(dollars in thousands)
Net TBA derivatives	$	(277,844)	$	(67,002)	$	(344,846)
Net interest rate swaptions	(44,997)		73,130		28,133
Futures	479,547		(60,766)		418,781
Purchase commitments	—		469		469
Credit derivatives	4,408		10,954		15,362
Total					$	117,899

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

24

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1. Financial Statements

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.

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 were in a net asset position at June 30, 2022.

12. FAIR VALUE MEASUREMENTS

The Company follows fair value guidance in accordance with GAAP to account for its financial instruments and MSR 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 between market participants at the measurement date.

GAAP requires classification of financial instruments and MSR 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 instrument and MSR 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.

25

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1. Financial Statements

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.

For the fair value of debt issued by securitization vehicles, refer to the “Variable Interest Entities” Note for additional information.

The Company classifies its investments in MSR and Interests in MSR 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 discount rates, prepayment rates, delinquency levels and costs to service. 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 MSR and Interests in MSR require 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 MSR measured at fair value on a recurring basis. There were no transfers between levels of the fair value hierarchy during the periods presented.

June 30, 2022
	Level 1		Level 2		Level 3		Total
Assets	(dollars in thousands)
Securities
Agency mortgage-backed securities	$	—	$	55,593,336	$	—	$	55,593,336
Credit risk transfer securities	—		965,714		—		965,714
Non-Agency mortgage-backed securities	—		2,026,658		—		2,026,658
Commercial mortgage-backed securities	—		457,026		—		457,026
Loans
Residential mortgage loans	—		1,486,811		—		1,486,811
Residential mortgage loan warehouse facility	—		322		—		322
Mortgage servicing rights	—		—		1,421,420		1,421,420
Interests in MSR	—		—		83,622		83,622
Assets transferred or pledged to securitization vehicles	—		8,877,247		—		8,877,247
Derivative assets
Interest rate swaps	—		9,408		—		9,408
Other derivatives	341,430		397,594		—		739,024
Total assets	$	341,430	$	69,814,116	$	1,505,042	$	71,660,588
Liabilities
Debt issued by securitization vehicles	—		7,502,483		—		7,502,483
Participations issued	—		696,944		—		696,944
Derivative liabilities
Interest rate swaps	—		272,055		—		272,055
Other derivatives	3,020		104,633		—		107,653
Total liabilities	$	3,020	$	8,576,115	$	—	$	8,579,135

26

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1. Financial Statements

December 31, 2021
	Level 1		Level 2		Level 3		Total
Assets	(dollars in thousands)
Securities
Agency mortgage-backed securities	$	—	$	60,525,605	$	—	$	60,525,605
Credit risk transfer securities	—		936,228		—		936,228
Non-Agency mortgage-backed securities	—		1,663,336		—		1,663,336
Commercial mortgage-backed securities	—		530,505		—		530,505
Loans
Residential mortgage loans	—		2,272,072		—		2,272,072
Residential mortgage loan warehouse facility	—		980		—		980
Mortgage servicing rights	—		—		544,562		544,562
Interests in MSR	—		—		69,316		69,316
Assets transferred or pledged to securitization vehicles	—		6,086,308		—		6,086,308
Derivative assets
Other derivatives	9,028		161,342		—		170,370
Total assets	$	9,028	$	72,176,376	$	613,878	$	72,799,282
Liabilities
Debt issued by securitization vehicles	$	—	$	5,155,633	$	—	$	5,155,633
Participations issued	—		1,049,066		—		1,049,066
Derivative liabilities
Interest rate swaps	—		747,036		—		747,036
Other derivatives	129,134		5,367		—		134,501
Total liabilities	$	129,134	$	6,957,102	$	—	$	7,086,236

Qualitative and 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 MSR and Interests in MSR, 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 MSR and Interests in MSR, which in turn could result in a decline in the estimated fair value of MSR and Interests in MSR. Refer to the “Mortgage Servicing Rights” Note for additional information, including rollforwards.

The table below presents information about the significant unobservable inputs used for recurring fair value measurements for Level 3 MSR and Interests in MSR. The table does not give effect to the Company’s risk management practices that might offset risks inherent in these Level 3 investments.

27

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1. Financial Statements

	June 30, 2022
	Unobservable Input (1) / Range (Weighted Average) (2)
	Discount rate	Prepayment rate	Delinquency rate	Cost to service
MSR held directly	5.8% - 9.8% (8.2%)	4.8% - 8.3% (5.4%)	0.1% - 1.8% (0.8%)	$89 - $110 ($93)
Interests in MSR	8.0% - 8.0% (8.0%)	4.0% - 9.6% (6.8%)	0.4% - 4.3% (1.4%)	$82 - $87 ($84)

	December 31, 2021
	Unobservable Input (1) / Range (Weighted Average) (2)
	Discount rate	Prepayment rate	Delinquency rate	Cost to service
MSR held directly	3.3% - 11.1% (7.0%)	7.3% - 15.9% (9.4%)	0.2% - 2.5% (1.2%)	$90 - $103 ($96)
Interests in MSR	8.4% - 8.4% (8.4%)	5.0% - 14.4% (9.1%)	0.0% - 0.2% (0.1%)	$78 - $84 ($81)
(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 MSR, weighted average prepayment rate, delinquency rate and cost to service based on unpaid principal balances of loans underlying the MSR.

The following table summarizes the estimated fair values for financial assets and liabilities that are not carried at fair value at June 30, 2022 and December 31, 2021.

	June 30, 2022		December 31, 2021
	Carrying Value	Fair Value	Carrying Value	Fair Value
Financial assets	(dollars in thousands)
Corporate debt, held for investment	—	—	1,968,991	1,986,379
Financial liabilities
Repurchase agreements	$51,364,097	$51,364,097	$54,769,643	$54,769,643
Other secured financing	—	—	903,255	903,255

Corporate debt, held for investment and corporate debt, held for sale are valued using Level 3 inputs. The carrying values of repurchase agreements and short term other secured financing approximate fair value and are considered Level 2 fair value measurements. Long term other secured financing is valued using Level 2 inputs.

13.  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 compares the fair value of a reporting unit with its carrying value, including goodwill. If the carrying value of a reporting unit exceeds its fair value, an impairment loss is recognized in amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. At June 30, 2022 and December 31, 2021, there was no goodwill balance. During the three months ended March 31, 2021, the Company recognized an impairment on goodwill in connection with the sale of the CRE business. Refer to the “Sale of Commercial Real Estate Business” Note for additional information.

Intangible assets, net

Finite life intangible assets are amortized over their expected useful lives. As part of the Company’s management internalization transaction, which closed on June 30, 2020, the Company recognized an intangible asset for the acquired assembled workforce of approximately $41.2 million based on the replacement cost of the employee base acquired by the Company.

The following table presents the activity of finite lived intangible assets for the six months ended June 30, 2022.

28

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1. Financial Statements

Intangible Assets, net
(dollars in thousands)
Balance at December 31, 2021	$	24,241
Impairment	(4,157)
Less: amortization expense	(1,889)
Balance at June 30, 2022	18,195

14. 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 should be treated as a securing financing.

The Company enters into reverse repurchase agreements to earn a yield on excess cash balances. To mitigate credit exposure, the Company monitors the market value of these securities and delivers or obtains additional collateral based on changes in market value of these securities. Generally, the Company receives or posts collateral with a fair value approximately equal to or greater than the value of the secured financing.

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 $51.4 billion and $54.8 billion of repurchase agreements with weighted average remaining maturities of 47 days and 52 days at June 30, 2022 and December 31, 2021, respectively. The Company has select arrangements with counterparties to enter into repurchase agreements for $1.8 billion with remaining capacity of $1.3 billion at June 30, 2022.

At June 30, 2022 and December 31, 2021, the repurchase agreements had the following remaining maturities, collateral types and weighted average rates: 

June 30, 2022
	Agency Mortgage-Backed Securities		CRTs		Non-Agency Mortgage-Backed Securities		Residential Mortgage Loans		Commercial Mortgage-Backed Securities		Total Repurchase Agreements		Weighted Average Rate
	(dollars in thousands)
1 day	$	14,651,402	$	—	$	35,360	$	—	$	—	$	14,686,762	1.61	%
2 to 29 days	25,217,859		2,406		297,845		—		9,069		25,527,179		1.58	%
30 to 59 days	1,059,120		—		531,852		—		—		1,590,972		1.33	%
60 to 89 days	936,214		244,947		533,106		—		51,304		1,765,571		1.55	%
90 to 119 days	772,314		349,867		648,369		—		—		1,770,550		1.43	%
Over 119 days (1)	4,657,042		126,354		346,242		533,435		359,990		6,023,063		1.84	%
Total	$	47,293,951	$	723,574	$	2,392,774	$	533,435	$	420,363	$	51,364,097	1.60	%

29

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1. Financial Statements

December 31, 2021
	Agency Mortgage-Backed Securities		CRTs		Non-Agency Mortgage-Backed Securities		Residential Mortgage Loans		Commercial Mortgage-Backed Securities		Total Repurchase Agreements		Weighted Average Rate
	(dollars in thousands)
1 day	$	—	$	—	$	—	$	—	$	—	$	—	—	%
2 to 29 days	26,435,408		133,525		246,707		—		197,834		27,013,474		0.14	%
30 to 59 days	9,743,872		38,854		270,377		159,350		—		10,212,453		0.19	%
60 to 89 days	6,021,850		4,071		351,426		—		—		6,377,347		0.17	%
90 to 119 days	4,812,345		—		12,573		—		—		4,824,918		0.15	%
Over 119 days (1)	5,711,448		—		96,283		345,651		188,069		6,341,451		0.27	%
Total	$	52,724,923	$	176,450	$	977,366	$	505,001	$	385,903	$	54,769,643	0.17	%
(1) No repurchase agreements had a remaining maturity over 1 year at June 30, 2022 and December 31, 2021.

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 June 30, 2022 and December 31, 2021. Refer to the “Derivative Instruments” Note for information related to the effect of netting arrangements on the Company’s derivative instruments.

	June 30, 2022				December 31, 2021
	Reverse Repurchase Agreements		Repurchase Agreements		Reverse Repurchase Agreements		Repurchase Agreements
	(dollars in thousands)
Gross amounts	$	—	$	51,364,097	$	—	$	54,769,643
Amounts offset	—		—		—		—
Netted amounts	$	—	$	51,364,097	$	—	$	54,769,643

Other Secured Financing - Refer to the “Variable Interest Entities” Note 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 mortgage loans of consolidated VIEs, had an estimated fair value and accrued interest of $54.8 billion and $166.3 million, respectively, at June 30, 2022 and $59.2 billion and $160.8 million, respectively, at December 31, 2021.

15. CAPITAL STOCK

(A)    Common Stock

The following table provides a summary of the Company’s common shares authorized, and issued and outstanding at June 30, 2022 and December 31, 2021.

	Shares authorized		Shares issued and outstanding
	June 30, 2022	December 31, 2021	June 30, 2022	December 31, 2021	Par Value
Common stock	2,936,500,000	2,936,500,000	1,609,215,497	1,459,736,258	$0.01

In December 2020, the Company announced that its board of directors (“Board”) authorized the repurchase of up to $1.5 billion of its outstanding common shares through December 31, 2021 (the “Prior Share Repurchase Program”). In January 2022, the Company announced that its Board authorized the repurchase of up to $1.5 billion of its outstanding shares of common stock through December 31, 2024 (the “Current Share Repurchase Program”). The Current Share Repurchase Program replaced the Prior Share Repurchase Program. During the three and six months ended June 30, 2022 and 2021, no shares were purchased under the Current Share Repurchase Program or Prior Share Repurchase Program.

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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1. Financial Statements

During the three and six months ended June 30, 2022, the Company closed the public offering of an original issuance of 100.0 million shares of common stock for proceeds of $645.0 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 15.0 million shares of common stock, which the underwriters exercised in full resulting in an additional $96.8 million in proceeds before deducting offering expenses.

In January 2018, the Company entered into separate Distribution Agency Agreements (as amended and restated on August 6, 2021 and 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.

During the three and six months ended June 30, 2022, the Company issued 33.0 million shares for proceeds of $214.9 million, net of commissions and fees, and 33.8 million shares for proceeds of $221.1 million, net of commissions and fees, respectively, under the at-the-market sales program. During the three and six months ended June 30, 2021, the Company issued 45.5 million shares for proceeds of $420.4 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 June 30, 2022 and December 31, 2021. 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 Authorized		Shares Issued And Outstanding		Carrying Value				Contractual Rate	Earliest Redemption Date (1)	Date At Which Dividend Rate Becomes Floating	Floating Annual Rate
	June 30, 2022	December 31, 2021	June 30, 2022	December 31, 2021	June 30, 2022		December 31, 2021
Fixed-to-floating rate
Series F	28,800,000	28,800,000	28,800,000	28,800,000	696,910		696,910		6.95%	9/30/2022	9/30/2022	3M LIBOR + 4.993%
Series G	17,000,000	17,000,000	17,000,000	17,000,000	411,335		411,335		6.50%	3/31/2023	3/31/2023	3M LIBOR + 4.172%
Series I	17,700,000	17,700,000	17,700,000	17,700,000	428,324		428,324		6.75%	6/30/2024	6/30/2024	3M LIBOR + 4.989%
Total	63,500,000	63,500,000	63,500,000	63,500,000	$	1,536,569	$	1,536,569
(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 June 30, 2022, the Company had declared and paid all required quarterly dividends on the Company’s preferred stock.

The Series F Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, Series G Fixed-to-Floating Rate Cumulative Preferred Stock and Series I Fixed-to-Floating Rate Cumulative 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:

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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1. Financial Statements

	For the Three Months Ended				For the Six Months Ended
	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
	(dollars in thousands, except per share data)
Dividends and dividend equivalents declared on common stock and share-based awards	$	355,467	$	318,534	$	677,664	$	626,880
Distributions declared per common share	$	0.22	$	0.22	$	0.44	$	0.44
Distributions paid to common stockholders after period end	$	354,027	$	317,714	$	354,027	$	317,714
Distributions paid per common share after period end	$	0.22	$	0.22	$	0.22	$	0.22
Date of distributions paid to common stockholders after period end	July 29, 2022		July 30, 2021		July 29, 2022		July 30, 2021
Dividends declared to series F preferred stockholders	$	12,510	$	12,510	$	25,020	$	25,020
Dividends declared per share of series F preferred stock	$	0.434	$	0.434	$	0.869	$	0.869
Dividends declared to series G preferred stockholders	$	6,906	$	6,906	$	13,812	$	13,812
Dividends declared per share of series G preferred stock	$	0.406	$	0.406	$	0.813	$	0.813
Dividends declared to series I preferred stockholders	$	7,467	$	7,467	$	14,934	$	14,934
Dividends declared per share of series I preferred stock	$	0.422	$	0.422	$	0.844	$	0.844

16.  INTEREST INCOME AND INTEREST EXPENSE

Refer to the “Significant Accounting Policies” Note 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
(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 gains (losses) on investments and other 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.

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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 six months ended June 30, 2022 and June 30, 2021.

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2022		2021		2022		2021
Interest income	(dollars in thousands)
Agency securities	$	497,135	$	255,801	$	1,020,086	$	883,455
Residential credit securities	30,037		19,477		52,159		36,457
Residential mortgage loans (1)	91,648		38,963		165,136		76,072
Commercial investment portfolio (1) (2)	26,575		69,663		63,858		151,264
Reverse repurchase agreements	220		2		226		36
Total interest income	$	645,615	$	383,906	$	1,301,465	$	1,147,284
Interest expense
Repurchase agreements	105,608		29,140		132,487		71,725
Debt issued by securitization vehicles	50,303		23,216		84,928		49,492
Participations issued	9,379		1,739		15,231		2,336
Other	5,185		6,952		12,751		13,467
Total interest expense	170,475		61,047		245,397		137,020
Net interest income	$	475,140	$	322,859	$	1,056,068	$	1,010,264
(1) Includes assets transferred or pledged to securitization vehicles. (2) Includes commercial real estate debt and preferred equity and corporate debt.

17.  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 six months ended June 30, 2022 and June 30, 2021.

	For the Three Months Ended				For the Six Months Ended
	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
	(dollars in thousands, except per share data)
Net income (loss)	$	863,317	$	(294,848)	$	2,887,211	$	1,456,286
Net income (loss) attributable to noncontrolling interests	(3,379)		794		(1,740)		1,115
Net income (loss) attributable to Annaly	866,696		(295,642)		2,888,951		1,455,171
Dividends on preferred stock	26,883		26,883		53,766		53,766
Net income (loss) available (related) to common stockholders	$	839,813	$	(322,525)	$	2,835,185	$	1,401,405
Weighted average shares of common stock outstanding-basic	1,522,436,766		1,410,239,138		1,492,068,912		1,404,755,496
Add: Effect of stock awards, if dilutive	1,158,234		—		1,185,978		1,008,776
Weighted average shares of common  stock outstanding-diluted	1,523,595,000		1,410,239,138		1,493,254,890		1,405,764,272
Net income (loss) per share available (related) to common share
Basic	$	0.55	$	(0.23)	$	1.90	$	1.00
Diluted	$	0.55	$	(0.23)	$	1.90	$	1.00

The computations of diluted net income (loss) per share available (related) to common share for the three and six months ended June 30, 2022 excludes 3.2 million and 2.6 million, respectively, and the three months ended June 30, 2021 excludes 3.2 million of potentially dilutive restricted and performance stock units because their effect would have been anti-dilutive.

18.  INCOME TAXES

For the three months ended June 30, 2022 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.

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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 June 30, 2022 and December 31, 2021.

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 six months ended June 30, 2022, the Company recorded $23.4 million and $50.0 million, respectively, of income tax expense attributable to its TRSs. During the three and six months ended June 30, 2021, the Company recorded $5.1 million and $4.8 million, respectively, of income tax expense attributable to its TRSs. The Company’s federal, state and local tax returns from 2018 and forward remain open for examination.

19.  RISK MANAGEMENT

The primary risks to the Company are capital, liquidity and funding risk, investment/market risk, credit risk and operational 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, changes in the expectations for the volatility of future interest rates and deterioration of financial conditions in general 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.

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 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 by rising borrower delinquencies which would reduce servicing income and increase overall costs to service the underlying mortgage loans. The Company is exposed to risk of loss if an issuer, borrower or counterparty fails to perform its obligations under contractual terms. The Company has established policies and procedures for mitigating credit risk, including reviewing and establishing limits for credit exposure, limiting transactions with specific counterparties, pre-purchase due diligence, maintaining qualifying collateral and continually assessing the creditworthiness of issuers, borrowers and counterparties, credit rating monitoring and active servicer oversight.

The Company depends on third-party service providers to perform various business processes related to its operations, including mortgage loan servicers and sub-servicers. The Company’s vendor management policy establishes procedures for

34

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1. Financial Statements

engaging, onboarding and monitoring the performance of third-party vendors. These procedures include assessing a vendor’s financial health as well as oversight of its compliance with applicable laws and regulations, cybersecurity and business continuity programs and security of personally identifiable information.

20.  LEASE COMMITMENTS AND CONTINGENCIES

The Company’s operating leases are primarily comprised of a corporate office lease with a remaining lease term of approximately three 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 six months ended June 30, 2022 and 2021 was $0.8 million and $1.6 million, and $0.7 million and $1.6 million, respectively.

Supplemental information related to leases as of and for the six months ended June 30, 2022 was as follows:

Operating Leases	Classification	June 30, 2022
Assets	(dollars in thousands)
Operating lease right-of-use assets	Other assets	$	9,221
Liabilities
Operating lease liabilities (1)	Other liabilities	$	11,969
Lease term and discount rate
Weighted average remaining lease term		3.2 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		$	1,931
(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)
2022 (remaining)	$	1,931
2023	3,862
2024	3,862
2025	2,896
Total lease payments	$	12,551
Less imputed interest	582
Present value of lease liabilities	$	11,969

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 June 30, 2022 and December 31, 2021.

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. 

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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1. Financial Statements

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 June 30, 2022, 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 June 30, 2022 was $502.5 million with excess net capital of $502.2 million.

22.  SUBSEQUENT EVENTS

In July 2022, the Company closed a $500 million credit facility for Annaly’s MSR platform, which includes a $250 million committed credit facility and a $250 million incremental facility provision.

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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis

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

Special Note Regarding Forward-Looking Statements

Certain statements contained in this quarterly report, and certain statements contained in our future filings with the Securities and Exchange Commission (the “SEC” or the “Commission”), in our press releases or in our other public or stockholder communications 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,” “should,” “estimate,” “project,” “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; operational risks or risk management failures by us or critical third parties, including cybersecurity incidents; our ability to grow our residential credit business; credit risks related to our investments in credit risk transfer securities, residential mortgage-backed securities, and related residential mortgage credit assets; risks related to investments in mortgage servicing rights (“MSR”); 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.

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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis

INDEX TO ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	Page
Overview	39
Business Environment	39
Economic Environment	39
London Interbank Offered Rate (“LIBOR”) Transition	40
Results of Operations	41
Net Income (Loss) Summary	42
Non-GAAP Financial Measures	44
Earnings Available for Distribution, Earnings Available for Distribution Attributable to Common Stockholders, Earnings Available for Distribution Per Average Common Share and Annualized EAD Return on Average Equity	44
Premium Amortization Expense	46
Economic Leverage and Economic Capital Ratios	46
Interest Income (excluding PAA), Economic Interest Expense and Economic Net Interest Income (excluding PAA)	48
Experienced and Projected Long-term CPR	48
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	49
Economic Interest Expense and Average Economic Cost of Interest Bearing Liabilities	50
Other Income (Loss)	51
General and Administrative Expenses	53
Return on Average Equity	53
Unrealized Gains and Losses - Available-for-Sale Investments	54
Financial Condition	54
Residential Securities	55
Contractual Obligations	57
Off-Balance Sheet Arrangements	58
Capital Management	58
Stockholders’ Equity	58
Capital Stock	58
Leverage and Capital	59
Risk Management	59
Risk Appetite	59
Governance	60
Description of Risks	60
Capital, Liquidity and Funding Risk Management	61
Funding	61
Excess Liquidity	62
Maturity Profile	63
Stress Testing	65
Liquidity Management Policies	65
Investment/Market Risk Management	65
Credit Risk Management	66
Counterparty Risk Management	67
Operational Risk Management	67
Compliance, Regulatory and Legal Risk Management	68
Critical Accounting Estimates	68
Valuation of Financial Instruments	69
Residential Securities	69
Residential Mortgage Loans	69
MSR	69
Interest Rate Swaps	70
Revenue Recognition	70
Consolidation of Variable Interest Entities	70
Use of Estimates	70
Glossary of Terms	71

38

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis

Overview

We are a leading diversified capital manager with investment strategies across mortgage finance. 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. 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

The first half of 2022 has been an exceptionally challenging investment environment, with fixed income returns marking the most negative half-year return in more than 40 years. The poor performance was driven by significantly elevated inflation, geopolitical uncertainty, and the fastest monetary policy tightening in recent memory. Economic activity remained relatively strong in recent months as consumers benefited from rising wages in a strong labor market and continued to have excess savings accumulated over the past two years. In light of these developments, it has become increasingly clear that economic activity is too strong for inflation to decline more meaningfully in the near term. As a result, the Federal Reserve has increased the Federal Funds Target Rate (“Fed Funds Rate”) by 125 basis points (“bps”) in the second quarter, announced runoff of its balance sheet, and signaled an additional 175 bps of increases to the Fed Funds Rate during the second half of the year. The realized and forecasted rate hikes appear to have begun slowing economic activity, which can be best seen by the decline in activity in interest rate sensitive sectors such as housing.

Although home prices have continued to rise sharply in 2022 thus far, activity has slowed recently as higher mortgage rates and record home price levels have weighed on both consumer and builder sentiment. Monthly mortgage payments are an estimated 50% higher in June 2022 compared to a year earlier. This is curbing consumers’ ability to purchase homes and, in turn, reducing demand for mortgages. We expect that the housing activity slowdown will lead to waning home price appreciation in the coming months. However, a systematic shortage of single-family homes relative to longer term demand, low leverage as measured by outstanding mortgage debt-to-equity, historically tight underwriting standards, and the majority of mortgage borrowers locked in a low, fixed rate mortgage suggest that a moderation in home price growth is more likely than pronounced declines. Slower home price appreciation will be supportive to our Agency business, as less mortgage supply will need to be absorbed by investors. While our MSR and Residential Credit businesses have benefited from strong home price appreciation in the past, we maintain a constructive outlook given the underlying composition of our portfolios and continued support from the long-term supply/ demand imbalance in the housing market.

In light of the challenging economic environment, Annaly produced a negative 9.6 percent economic return as the portfolio generated earnings available for distribution of $0.30 per share. Economic leverage increased slightly to end the quarter at 6.6x. Beyond the challenging portfolio performance, we achieved several strategic milestones during the quarter, including the completion of the accretive sale of our Middle Market Lending portfolio, which enabled us to monetize a less liquid, non-core business and culminate our natural evolution toward becoming a dedicated housing finance REIT.

Annaly’s Residential Credit and Mortgage Servicing Rights businesses have gained market share and built on their strategic capabilities in 2022 while maintaining an intentional focus on credit and risk management. Within Residential Credit, Onslow Bay, Annaly’s wholly owned subsidiary, remains a programmatic securitization issuer. The platform was the largest non-bank issuer of prime-jumbo and expanded credit MBS in the first half of 2022. Issuance has benefited from momentum in Onslow Bay’s residential whole loan correspondent channel, which generated substantial year-to-date activity. Our 2022 Non-QM loan lock commitments are nearly 50 percent ahead of total 2021 volume as of the end of the second quarter. The MSR business has grown substantially in a short period of time with Onslow Bay establishing itself as the fourth largest purchaser of MSR year-to-date and a top-20 servicer of Agency MBS.

Economic Environment

The pace of economic growth continued to slow with U.S. gross domestic product (“GDP”) declined 0.9 percent on a seasonally adjusted annualized rate in the second quarter. Growth moderated as higher goods and services prices contributed to somewhat reduced consumer confidence and spending. This, combined with tighter financial conditions and reduced government spending, slowed economic activity.

According to the Bureau of Labor Statistics, seasonally adjusted total non-farm payroll employment rose by an average 375 thousand workers during the second quarter. This was below the 539 thousand workers added during the first quarter 2022.

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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis

Overall, employment gains remain strong, but the unemployment rate remained unchanged during the quarter at the historically low level of 3.6%. Meanwhile, U.S. job openings remain near all-time record levels. Wage growth, as measured by the year-over-year change in private sector average hourly earnings, slowed somewhat during the quarter, reading 5.1% in June compared to 5.6% in March 2022.

Inflation readings, as measured by the year-over-year changes in the Personal Consumption Expenditure Chain Price Index (“PCE”), remained meaningfully above the Fed’s 2% inflation target. The headline PCE measure increased by 6.8% year-over-year in June 2022. Meanwhile, the more stable core PCE measure, which excludes volatile food and energy prices, registered a 4.8% year-over-year increase. Prices remain meaningfully elevated, which is driven by continued strong demand for goods and services. The Russian invasion of Ukraine and related Western economic sanctions have also led to a sharp increase in food and commodity prices. Inflation pressures remain a major challenge for the United States and the broader global economy as price pressures have failed to ease thus far. While forecasts continue to see a slowdown in coming months, the degree of the slowdown remains very uncertain.

The Federal Open Market Committee (“FOMC”) conducts monetary policy with a dual mandate: to ensure full employment and stable prices. Given continued strong labor markets and significantly elevated inflation, the FOMC is aggressively tightening monetary policy to ensure it meets its mandate. As such, the FOMC raised the Federal Funds Target Rate by 125 bps to the 1.50% - 1.75% range during the second quarter. It also signaled that additional rate increases of potentially similar magnitudes will be necessary in the coming months. Regarding its balance sheet, the FOMC set forth a policy to let assets mature at an aggregate pace of up to $95 billion per month across U.S. Treasuries and Agency MBS following a brief ramp-up period.

During the second quarter of 2022, the 10-year U.S. Treasury rate continued to rise from 2.34% on March 31, 2022 to 3.01% on June 30, 2022. The mortgage basis, or the spread between the 30-year Agency MBS coupon and 10-year U.S. Treasury rate, widened further over the course of the quarter to 137 bps on June 30, 2022. This widening occurred as a result of the shift in monetary policy, elevated financial market volatility, and reduced investor demand for Agency MBS weighing on the sector.

The following table below presents interest rates and spreads at each date presented:

	June 30, 2022	December 31, 2021	June 30, 2021
30-Year mortgage current coupon	4.38%	2.07%	1.83%
Mortgage basis	137 bps	56 bps	36 bps
10-Year U.S. Treasury rate	3.01%	1.51%	1.47%
LIBOR
1-Month	1.79%	0.10%	0.10%
6-Month	2.94%	0.34%	0.16%
OIS SOFR Swaps
1-Month	1.68%	0.05%	0.05%
6-Month	2.59%	0.19%	0.05%

London Interbank Offered Rate (“LIBOR”) Transition

The United Kingdom Financial Conduct Authority (“FCA”), which regulates LIBOR, announced that all LIBOR tenors relevant to us will cease to be published or will no longer be representative after June 30, 2023. The FCA's announcement coincided with the announcement of LIBOR's administrator, the ICE Benchmark Administration Limited (“IBA”), indicating that, as a result of not having access to input data necessary to calculate LIBOR tenors relevant to us on a representative basis after June 30, 2023, IBA would have to cease publication of such LIBOR tenors immediately after the last publication on June 30, 2023. These announcements mean that any of our LIBOR-based borrowings that extend beyond June 30, 2023 will need to be converted to a replacement rate.

In 2018, the firm established a cross-functional LIBOR Transition Committee to define a plan facilitating an orderly conversion to alternative reference rates. The plan included steps to evaluate exposure; review contracts; assess impact to our business; process and technology and outline a communication strategy with shareholders; regulators and other stakeholders. As LIBOR cessation enters its final stages, we continue to remain on track with our transition plan, which requires different solutions depending on the underlying asset or liability. The U.S. federal government enacted a legislative solution for certain LIBOR contracts, which in some cases inserts fallback language into the contract or provides a determining party with a safe harbor from litigation. Under the legislation, the Board of Governors of the Federal Reserve (the “Federal Reserve”) is required to

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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis

promulgate rules designating a SOFR-based rate and incorporating the statutory spread adjustments for each LIBOR tenor (which match the ARRC/ISDA spread adjustments, including the 1-year transition period for consumer loans) as the replacement rates for covered LIBOR contracts. The Federal Reserve has proposed (i) SOFR compounded in arrears for derivatives, using the same methodology as the ISDA protocol, (ii) CME Term SOFR for all other covered non-GSE cash products and (iii) a 30-day compounded SOFR average for certain GSE contracts, but the proposed rules remain subject to public comment. We are evaluating the potential impact of the proposed rules on assets and liabilities covered by the legislation and considering all available options with respect to our preferred stock, which include liability management actions such as tenders, calls, exchange offers, language amendments, changing the calculation agent, and/or allowing fallbacks to trigger. Some of these options fall within the safe harbor of the federal legislation. As of June 30, 2022, we had $1.5 billion of USD LIBOR-linked preferred stock that may remain outstanding beyond the June 30, 2023 cessation date.

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.

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.

Refer to the “Non-GAAP Financial Measures” section for additional information.

Beginning with the quarter ended March 31, 2022, in light of the continued growth of our mortgage servicing rights portfolio, we enhanced our financial disclosures by separately reporting servicing income and servicing expense in our Consolidated Statements of Comprehensive Income (Loss). Servicing income and servicing expense were previously included within Other income (loss). As a result of this change, prior periods have been adjusted to conform to the current presentation.

In addition, beginning with the quarter ended March 31, 2022, we consolidated certain line items in our Consolidated Statements of Comprehensive Income (Loss) in an effort to streamline and simplify its financial presentation. Amounts previously reported under Net interest component of interest rate swaps, Realized gains (losses) on termination or maturity of interest rate swaps, Unrealized gains (losses) on interest rate swaps and Net gains (losses) on other derivatives are combined into a single line item titled Net gains (losses) on derivatives. Similarly, amounts previously reported under Net gains (losses) on disposal of investments and other and Net unrealized gains (losses) on instruments measured at fair value through earnings are combined into a single line item titled Net gains (losses) on investments and other. As a result of these changes, prior periods have been adjusted to conform to the current presentation.

Earnings Available for Distribution (“EAD”), which is a non-GAAP financial measure intended to supplement our financial results computed in accordance with GAAP, is defined as the sum of (a) economic net interest income, (b) TBA dollar roll income and CMBX coupon income, (c) net servicing income less realized amortization of MSR, (d) other income (loss) (excluding depreciation expense related to commercial real estate and amortization of intangibles, non-EAD income allocated to equity method investments and other non-EAD 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-EAD 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.

Earnings Available for Distribution should not be considered a substitute for, or superior to, GAAP net income. Please refer to the “Non-GAAP Financial Measures” section for a detailed discussion of Earnings Available for Distribution.

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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis

Net Income (Loss) Summary

The following table presents financial information related to our results of operations as of and for the three and six months ended June 30, 2022 and 2021.

	As of and for the Three Months Ended June 30,						As of and for the Six Months Ended June 30,
	2022			2021			2022			2021
	(dollars in thousands, except per share data)
Interest income	$	645,615		$	383,906		$	1,301,465		$	1,147,284
Interest expense	170,475			61,047			245,397			137,020
Net interest income	475,140			322,859			1,056,068			1,010,264
Servicing and related income	55,685			10,519			90,400			19,748
Servicing and related expense	5,949			2,603			9,706			4,900
Net servicing income	49,736			7,916			80,694			14,848
Other income (loss)	397,899			(566,963)			1,882,219			537,418
Less: Total general and administrative expenses	36,038			53,526			81,802			101,431
Income (loss) before income taxes	886,737			(289,714)			2,937,179			1,461,099
Income taxes	23,420			5,134			49,968			4,813
Net income (loss)	863,317			(294,848)			2,887,211			1,456,286
Less: Net income (loss) attributable to noncontrolling interests	(3,379)			794			(1,740)			1,115
Net income (loss) attributable to Annaly	866,696			(295,642)			2,888,951			1,455,171
Less: Dividends on preferred stock	26,883			26,883			53,766			53,766
Net income (loss) available (related) to common stockholders	$	839,813		$	(322,525)		$	2,835,185		$	1,401,405
Net income (loss) per share available (related) to common stockholders
Basic	$	0.55		$	(0.23)		$	1.90		$	1.00
Diluted	$	0.55		$	(0.23)		$	1.90		$	1.00
Weighted average number of common shares outstanding
Basic	1,522,436,766			1,410,239,138			1,492,068,912			1,404,755,496
Diluted	1,523,595,000			1,410,239,138			1,493,254,890			1,405,764,272
Other information
Investment portfolio at period-end	$	71,009,570		$	80,222,151		$	71,009,570		$	80,222,151
Average total assets	$	74,911,192		$	83,872,947		$	75,528,816		$	85,400,332
Average equity	$	11,284,335		$	13,853,386		$	11,921,332		$	13,909,522
GAAP leverage at period-end (1)	5.4:1			4.7:1			5.4:1			4.7:1
GAAP capital ratio at period-end (2)	15.1		%	16.6		%	15.1		%	16.6		%
Annualized return on average total assets	4.61		%	(1.41		%)	7.65		%	3.41		%
Annualized return on average equity	30.60		%	(8.51		%)	48.44		%	20.94		%
Net interest margin (3)	2.64		%	1.66		%	2.92		%	2.54		%
Average yield on interest earning assets (4)	3.58		%	1.97		%	3.60		%	2.89		%
Average GAAP cost of interest bearing liabilities (5)	1.12		%	0.35		%	0.80		%	0.39		%
Net interest spread	2.46		%	1.62		%	2.80		%	2.50		%
Weighted average experienced CPR for the period	14.9		%	26.4		%	15.8		%	25.2		%
Weighted average projected long-term CPR at period-end	7.7		%	12.9		%	7.7		%	12.9		%
Common stock book value per share	$	5.90		$	8.37		$	5.90		$	8.37
Non-GAAP metrics *
Interest income (excluding PAA)	$	518,094		$	537,513		$	994,428		$	1,086,321
Economic interest expense (5)	$	169,483		$	144,134		$	306,946		$	299,854
Economic net interest income (excluding PAA)	$	348,611		$	393,379		$	687,482		$	786,467
Premium amortization adjustment cost (benefit)	$	(127,521)		$	153,607		$	(307,037)		$	(60,963)
Earnings available for distribution (6)	$	490,802		$	451,358		$	921,433		$	890,877
Earnings available for distribution per average common share	$	0.30		$	0.30		$	0.58		$	0.59
Annualized EAD return on average equity (excluding PAA)	17.49		%	13.05		%	15.52		%	12.82		%
Economic leverage at period-end (1)	6.6:1			5.8:1			6.6:1			5.8:1
Economic capital ratio at period-end (2)	13.0		%	14.3		%	13.0		%	14.3		%
Net interest margin (excluding PAA) (3)	2.20		%	2.09		%	2.12		%	2.00		%
Average yield on interest earning assets (excluding PAA) (4)	2.87		%	2.76		%	2.75		%	2.73		%
Average economic cost of interest bearing liabilities (5)	1.11		%	0.83		%	1.00		%	0.85		%
Net interest spread (excluding PAA)	1.76		%	1.93		%	1.75		%	1.88		%

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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis

* Represents a non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures” section for additional information.

(1) GAAP leverage is computed as the sum of repurchase agreements, other secured financing, debt issued by securitization vehicles, participations issued and mortgages payable divided by total equity. Economic leverage is computed as the sum of recourse debt, cost basis of to-be-announced (“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). Certain credit facilities (included within other secured financing), debt issued by securitization vehicles, participations issued, and mortgages payable are non-recourse to the Company and are excluded from economic leverage.

(2) GAAP capital ratio is computed as total equity divided by total assets. Economic capital ratio is computed as total equity divided by total economic assets. Total economic assets include the implied market value of TBA derivatives and net of debt issued by securitization vehicles.

(3) 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.

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

(5) 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.

(6) Excludes dividends on preferred stock.

GAAP

Net income (loss) was $863.3 million, which includes ($3.4) million attributable to noncontrolling interests, or $0.55 per average basic common share, for the three months ended June 30, 2022 compared to ($294.8) million, which includes $0.8 million attributable to noncontrolling interests, or ($0.23) per average basic common share, for the same period in 2021. We attribute the majority of the change in net income (loss) to favorable changes net gains (losses) on derivatives and net interest income, partially offset by an unfavorable change in net gains (losses) on investments and other. Net gains (losses) on derivatives was $1.0 billion for the three months ended June 30, 2022 compared to ($0.6) billion for the same period in 2021. Net interest income for the three months ended June 30, 2022 was $475.1 million compared to $322.9 million for the same period in 2021. Net gains (losses) on investments and other was ($615.2) million for the three months ended June 30, 2022 compared to $20.2 million for the same period in 2021. Refer to the section titled “Other income (loss)” located within this Item 2 for additional information related to these changes.

Net income (loss) was $2.9 billion, which includes ($1.7) million attributable to noncontrolling interests, or $1.90 per average basic common share, for the six months ended June 30, 2022 compared to $1.5 billion which includes $1.1 million attributable to noncontrolling interests, or $1.00 per average basic common share, for the same period in 2021. We attribute the majority of the change in net income (loss) to higher net gains on derivatives and lower business divestiture-related losses, partially offset by an unfavorable change in net gains (losses) on investments and other. Net gains on derivatives was for the six months ended June 30, 2022 was $2.7 billion compared to $587.4 million for the same period in 2021. Business divestiture-related (losses) was ($24.3) million for the six months ended June 30, 2022 compared to ($248.0) million for the same period in 2021. Net gains (losses) on investments and other was ($775.0) million for the six months ended June 30, 2022 compared to $58.6 million for the same period in 2021. Refer to the section titled “Other income (loss)” located within this Item 2 for additional information related to these changes.

Non-GAAP

Earnings available for distribution were $490.8 million, or $0.30 per average common share, for the three months ended June 30, 2022, compared to $451.4 million, or $0.30 per average common share, for the same period in 2021. The change in earnings available for distribution during the three months ended June 30, 2022 compared to the same period in 2021 was primarily due to lower amortization expense, excluding PAA, resulting from lower prepayment speed projections, a favorable change in the net interest component of interest rate swaps, higher TBA dollar roll income and higher net servicing income, partially offset by higher interest expense from an increase in borrowing rates.

Earnings available for distribution were $921.4 million, or $0.58 per average common share, for the six months ended June 30, 2022, compared to $890.9 million, or $0.59 per average common share, for the same period in 2021. The change in earnings available for distribution during the six months ended June 30, 2022 compared to the same period in 2021 was primarily due to lower amortization expense, excluding PAA, resulting from lower prepayment speed projections, a favorable change in the net interest component of interest rate swaps, higher TBA dollar roll income and higher net servicing income, partially offset by higher interest expense from an increase in borrowing rates.

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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis

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:

•earnings available for distribution (“EAD”);

•earnings available for distribution attributable to common stockholders;

•earnings available for distribution per average common share;

•annualized EAD return on average equity;

•economic leverage;

•economic capital ratio;

•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 earnings available for distribution, 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.

Earnings Available for Distribution, Earnings Available for Distribution Attributable to Common Stockholders, Earnings Available for Distribution Per Average Common Share and Annualized EAD Return on Average Equity

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. Earnings available for distribution, which is defined as the sum of (a) economic net interest income, (b) TBA dollar roll income and CMBX coupon income, (c) net servicing income less realized amortization of MSR, (d) other income (loss) (excluding depreciation and amortization expense on real estate and related intangibles, non-EAD income allocated to equity method investments and other non-EAD 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-EAD income (loss) items), and excludes (g) the PAA representing the cumulative impact on prior periods, but not the current period, of quarter-over-quarter changes in estimated long-term prepayment speeds related to 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.

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. In addition, EAD serves as a useful indicator for investors in evaluating the Company's performance and ability to pay dividends. Annualized EAD return on average equity, which is calculated by dividing earnings available for distribution over average stockholders’ equity, provides investors with additional detail on the earnings available for distribution generated by our invested equity capital.

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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis

The following table presents a reconciliation of GAAP financial results to non-GAAP earnings available for distribution for the periods presented:

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2022			2021			2022			2021
	(dollars in thousands, except per share data)
GAAP net income (loss)	$	863,317		$	(294,848)		$	2,887,211		$	1,456,286
Net income (loss) attributable to noncontrolling interests	(3,379)			794			(1,740)			1,115
Net income (loss) attributable to Annaly	866,696			(295,642)			2,888,951			1,455,171
Adjustments to exclude reported realized and unrealized (gains) losses
Net (gains) losses on investments and other	615,216			(20,207)			775,020			(58,612)
Net (gains) losses on derivatives (1)	(1,014,651)			498,875			(2,719,220)			(750,255)
Loan loss provision (reversal) (2)	(29,380)			1,078			(28,568)			(143,792)
Business divestiture-related (gains) losses	23,955			(1,527)			24,309			248,036
Other adjustments
Depreciation expense related to commercial real estate and amortization of intangibles (3)	1,302			5,635			2,432			12,959
Non-EAD (income) loss allocated to equity method investments (4)	(3,270)			3,141			(13,190)			(6,539)
Transaction expenses and non-recurring items (5)	1,751			1,150			5,101			1,845
Income tax effect of non-EAD income (loss) items	28,841			7,147			55,932			11,481
TBA dollar roll income and CMBX coupon income (6)	161,673			111,592			291,165			210,525
MSR amortization (7)	(33,810)			(13,491)			(53,462)			(28,979)
Plus:
Premium amortization adjustment cost (benefit)	(127,521)			153,607			(307,037)			(60,963)
Earnings available for distribution *	490,802			451,358			921,433			890,877
Dividends on preferred stock	26,883			26,883			53,766			53,766
Earnings available for distribution attributable to common stockholders *	$	463,919		$	424,475		$	867,667		$	837,111
GAAP net income (loss) per average common share	$	0.55		$	(0.23)		$	1.90		$	1.00
Earnings available for distribution per average common share *	$	0.30		$	0.30		$	0.58		$	0.59
Annualized GAAP return (loss) on average equity	30.60		%	(8.51		%)	48.44		%	20.94		%
Annualized EAD return on average equity *	17.49		%	13.05		%	15.52		%	12.82		%
* Represents a non-GAAP financial measure. Refer to the disclosure within this section above for additional information on non-GAAP financial measures. (1) The adjustment to add back Net (gains) losses on derivatives does not include the net interest component of interest rate swaps which is reflected in earnings available for distribution. The net interest component of interest rate swaps totaled $1.0 million and ($83.1) million for the three months ended June 30, 2022 and June 30, 2021, respectively and ($61.5) million and ($162.8) million for the six months ended June 30, 2022 and June 30, 2021, respectively. (2) Includes ($2.5) million and $0.6 million for the three months ended June 30, 2022 and 2021, respectively, and ($2.3) million and ($4.7) million for the six months ended June 30, 2022 and 2021, respectively, of loss provision (reversal) on unfunded loan commitments which is reported in Other, net in the Consolidated Statements of Comprehensive Income (Loss). (3) Includes depreciation and amortization expense related to equity method investments. (4) Represents unrealized (gains) losses allocated to equity interests in a portfolio of MSR which is a component of Other, net in the Consolidated Statements of Comprehensive Income (Loss). (5) The three and six months ended June 30, 2022 and 2021 includes costs incurred in connection with securitizations of residential whole loans. (6) TBA dollar roll income and CMBX coupon income each represent a component of Net gains (losses) on derivatives in the Consolidated Statements of Comprehensive Income (Loss). CMBX coupon income totaled $1.1 million and $1.4 million for the three months ended June 30, 2022 and 2021, respectively and $2.1 million and $2.9 million for the six months ended June 30, 2022 and 2021, respectively. (7) MSR amortization utilizes purchase date cash flow assumptions and actual unpaid principal balances and is calculated as the difference between projected MSR yield income and net servicing income for the period.

From time to time, we enter into TBA forward contracts as an alternate means of investing in and financing Agency MBS. A TBA contract is an agreement to purchase or sell, for future delivery, an Agency MBS 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 MBS, 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 MBS less an implied financing cost.

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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis

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 MBS. 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 derivatives in the Consolidated Statements of Comprehensive Income (Loss), which includes both unrealized and realized gains and losses on derivatives (excluding interest rate swaps).

TBA dollar roll income is calculated as the difference in price between two TBA contracts with the same terms but different settlement dates multiplied by the notional amount of the TBA contract. Although accounted for as derivatives, TBA dollar rolls capture the economic equivalent of net interest income, or carry, on the underlying Agency MBS (interest income less an implied cost of financing). TBA dollar roll income is reported as a component of Net gains (losses) on 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 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 earnings available for distribution.

Premium Amortization Expense

In accordance with GAAP, we amortize or accrete premiums or discounts into interest income for our Agency MBS, 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 June 30,				For the Six Months Ended June 30,
	2022		2021		2022		2021
	(dollars in thousands)
Premium amortization expense	$	(4,869)	$	320,108	$	(30,222)	$	308,217
Less: PAA cost (benefit)	(127,521)		153,607		(307,037)		(60,963)
Premium amortization expense (excluding PAA)	$	122,652	$	166,501	$	276,815	$	369,180

Economic Leverage and Economic Capital Ratios

We use 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. Our capital structure is designed to offer an efficient complement of funding sources to generate positive risk-adjusted returns for our stockholders while maintaining appropriate liquidity to support our business and meet our financial obligations under periods of market stress. To maintain our desired capital profile, we utilize a mix of debt and equity funding. Debt funding may include the use of repurchase agreements, loans, securitizations, participations issued, lines of credit, asset backed lending facilities, corporate bond issuance, convertible bonds, mortgages payable or other liabilities. Equity capital primarily consists of common and preferred stock.

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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis

Our economic leverage ratio is 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. Recourse debt consists of repurchase agreements and other secured financing (excluding certain non-recourse credit facilities). Certain credit facilities (included within other secured financing), debt issued by securitization vehicles, participations issued, and mortgages payable are non-recourse to us and are excluded from economic leverage.

The following table presents a reconciliation of GAAP debt to economic debt for purposes of calculating our economic leverage ratio for the periods presented:

	As of
	June 30, 2022		June 30, 2021
Economic leverage ratio reconciliation	(dollars in thousands)
Repurchase agreements	$	51,364,097	$	60,221,067
Other secured financing	—		909,655
Debt issued by securitization vehicles	7,502,483		3,315,087
Participations issued	696,944		315,810
Debt included in liabilities of disposal group held for sale	—		2,306,633
Total GAAP debt	$	59,563,524	$	67,068,252
Less Non-Recourse Debt:
Credit facilities (1)	—		(909,655)
Debt issued by securitization vehicles	(7,502,483)		(3,315,087)
Participations issued	(696,944)		(315,810)
Non-recourse debt included in liabilities of disposal group held for sale	—		(2,035,982)
Total recourse debt	$	51,364,097	$	60,491,718
Plus / (Less):
Cost basis of TBA and CMBX derivatives	19,723,326		18,107,549
Payable for unsettled trades	1,995,960		154,405
Receivable for unsettled trades	(434,227)		(14,336)
Economic debt *	$	72,649,156	$	78,739,336
Total equity	$	11,089,900	$	13,639,176
Economic leverage ratio *	6.6:1		5.8:1
* Represents a non-GAAP financial measure. Refer to the disclosure within this section above for additional information on non-GAAP financial measures. (1) Included in Other secured financing in the Consolidated Statements of Financial Condition.

The following table presents a reconciliation of GAAP total assets to economic total assets for purposes of calculating our economic capital ratio for the periods presented:

	As of
	June 30, 2022		June 30, 2021
Economic capital ratio reconciliation	(dollars in thousands)
Total GAAP assets	$	73,637,249	$	82,376,305
Less:
Gross unrealized gains on TBA derivatives (1)	(60,661)		(31,943)
Debt issued by securitization vehicles (2)	(7,502,483)		(4,925,196)
Plus:
Implied market value of TBA derivatives	19,282,979		17,691,150
Total economic assets *	$	85,357,084	$	95,110,316
Total equity	$	11,089,900	$	13,639,176
Economic capital ratio * (3)	13.0%		14.3%
* Represents a non-GAAP financial measure. Refer to the disclosure within this section above for additional information on non-GAAP financial measures. (1) Included in Derivative assets in the Consolidated Statements of Financial Condition. (2) Includes debt issued by securitization vehicles reported in Liabilities of disposal group held for sale in the Consolidated Statements of Financial Condition. (3) Economic capital ratio is computed as total equity divided by total economic assets.

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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 MBS (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, which is presented in Net gains (losses) on derivatives in the Consolidated Statements of Comprehensive Income (Loss). We did not enter into any MAC interest rate swaps during the three and six months ended June 30, 2022.

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 present a reconciliation of GAAP interest income and GAAP interest expense to non-GAAP interest income (excluding PAA), economic interest expense and economic net interest income (excluding PAA), respectively, for the periods presented:

Interest Income (excluding PAA)

	GAAP Interest Income		PAA Cost (Benefit)		Interest Income (excluding PAA) *
For the three months ended	(dollars in thousands)
June 30, 2022	$	645,615	$	(127,521)	$	518,094
June 30, 2021	$	383,906	$	153,607	$	537,513
For the six months ended
June 30, 2022	$	1,301,465	$	(307,037)	$	994,428
June 30, 2021	$	1,147,284	$	(60,963)	$	1,086,321
* Represents a non-GAAP financial measure. Refer to disclosures within this section above for additional information on non-GAAP financial measures.

Economic Interest Expense and Economic Net Interest Income (excluding PAA)

	GAAP Interest Expense			Add: Net Interest Component of Interest Rate Swaps		Economic Interest Expense *		GAAP Net Interest Income		Less: Net Interest Component of Interest Rate Swaps		Economic Net Interest Income *		Add: PAA Cost (Benefit)		Economic Net Interest Income (excluding PAA) *
For the three months ended			(dollars in thousands)
June 30, 2022	$	170,475		$	(992)	$	169,483	$	475,140	$	(992)	$	476,132	$	(127,521)	$	348,611
June 30, 2021	$	61,047		$	83,087	$	144,134	$	322,859	$	83,087	$	239,772	$	153,607	$	393,379
For the six months ended
June 30, 2022	$	245,397		$	61,549	$	306,946	$	1,056,068	$	61,549	$	994,519	$	(307,037)	$	687,482
June 30, 2021	$	137,020		$	162,834	$	299,854	$	1,010,264	$	162,834	$	847,430	$	(60,963)	$	786,467
* Represents a non-GAAP financial measure. Refer to disclosures within this section above for additional information on non-GAAP financial measures.

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

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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis

expectations of prepayment speeds on our Agency MBS portfolio increase, related purchase premium amortization increases, thereby reducing the yield on such assets. The following table presents the weighted average experienced CPR and weighted average projected long-term CPR on our Agency MBS portfolio as of and for the periods presented.

	Experienced CPR (1)		Projected Long-term CPR (2)
For the three months ended
June 30, 2022	14.9	%	7.7	%
June 30, 2021	26.4	%	12.9	%
For the six months ended
June 30, 2022	15.8	%	7.7	%
June 30, 2021	25.2	%	12.9	%
(1) For the three and six months ended June 30, 2022 and 2021, respectively. (2) At June 30, 2022 and 2021, 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) *		Average Yield on Interest Earning Assets (excluding PAA) *		Average Interest Bearing Liabilities		Economic Interest Expense * (2)		Average Economic Cost of Interest Bearing Liabilities * (2)		Economic Net Interest Income (excluding PAA) *	Net Interest Spread (excluding PAA) *
For the three months ended	(dollars in thousands)
June 30, 2022	$	72,123,055	$	518,094	2.87	%	$	60,446,528	$	169,483	1.11	%	348,611	1.76	%
June 30, 2021	$	77,916,766	$	537,513	2.76	%	$	68,469,413	144,134		0.83	%	393,379	1.93	%
For the six months ended
June 30, 2022	$	72,356,966	$	994,428	2.75	%	$	61,155,910	$	306,946	1.00	%	687,482	1.75	%
June 30, 2021	$	79,519,053	$	1,086,321	2.73	%	$	70,235,722	$	299,854	0.85	%	786,467	1.88	%
* Represents a non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures” section for additional information. (1) Based on amortized cost. (2) 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.

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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis

Net Interest Margin (excluding PAA)

	Interest Income (excluding PAA) *		TBA Dollar Roll and CMBX Coupon Income (1)	Economic Interest Expense *	Subtotal		Average Interest Earnings Assets		Average TBA Contract and CMBX Balances	Subtotal		Net Interest Margin (excluding PAA) *
For the three months ended			(dollars in thousands)
June 30, 2022	$	518,094	161,673	(169,483)	$	510,284	$	72,123,055	20,566,553	$	92,689,608	2.20	%
June 30, 2021	$	537,513	111,592	(144,134)	$	504,971	$	77,916,766	18,761,062	$	96,677,828	2.09	%
For the six months ended
June 30, 2022	$	994,428	291,165	(306,946)	$	978,647	$	72,356,966	19,898,046	$	92,255,012	2.12	%
June 30, 2021	$	1,086,321	210,525	(299,854)	$	996,992	$	79,519,053	20,313,516	$	99,832,569	2.00	%
* Represents a non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures” section for additional information. (1) TBA dollar roll income and CMBX coupon income each represent a component of Net gains (losses) on derivatives. CMBX coupon income totaled $1.1 million and $1.4 million for the three months ended June 30, 2022 and 2021, respectively and $2.1 million and $2.9 million for the six months ended June 30, 2022 and 2021, 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.

Average Economic Cost of Interest Bearing Liabilities

	Average Interest Bearing Liabilities		Interest Bearing Liabilities at Period End		Economic Interest Expense * (1)		Average Economic Cost of Interest Bearing Liabilities *		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
June 30, 2022	$	60,446,528	$	59,563,524	$	169,483	1.11	%	1.02	%	2.11	%	(1.09	%)	0.09	%	(1.00	%)
June 30, 2021	$	68,469,413	$	66,642,378	$	144,134	0.83	%	0.10	%	0.19	%	(0.09	%)	0.73	%	0.64	%
For the six months ended
June 30, 2022	$	61,155,910	$	59,563,524	$	306,946	1.00	%	0.61	%	1.44	%	(0.83	%)	0.39	%	(0.44	%)
June 30, 2021	$	70,235,722	$	66,642,378	$	299,854	0.85	%	0.11	%	0.20	%	(0.09	%)	0.74	%	0.65	%
* Represents a non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures” section for additional information. (1) Economic interest expense is comprised of GAAP interest expense and the net interest component of interest rate swaps.

Economic interest expense increased by $25.3 million for the three months ended June 30, 2022 compared to the same period in 2021, primarily due to higher interest expense on repurchase agreements reflecting higher borrowing rates, partially offset by lower average interest bearing liabilities and the change in the net interest component of interest rate swaps, which was $1.0 million for the three months ended June 30, 2022 compared to ($83.1) million for the same period in 2021.

Economic interest expense increased by $7.1 million for the six months ended June 30, 2022 compared to the same period in 2021, primarily due to higher interest expense on repurchase agreements reflecting higher borrowing rates, partially offset by lower average interest bearing liabilities and the change in the net interest component of interest rate swaps, which was ($61.5) million for the six months ended June 30, 2022 compared to ($162.8) million for the same period in 2021.

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

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Item 2. Management’s Discussion and Analysis

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 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 June 30, 2022 and December 31, 2021, the majority of our debt represented repurchase agreements and other secured financing arrangements collateralized by a pledge of our Residential Securities, residential mortgage loans, 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.

Other Income (Loss)

Other income (loss) is comprised of net gains (losses) on investments and other, net gains (losses) on derivatives, loan loss (provision) reversal, business divestiture-related gains (losses) and other, net. These components of realized and unrealized gains (losses) for the three and six months ended June 30, 2022 and 2021 were as follows:

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2022		2021		2022		2021
	(dollars in thousands)
Net gains (losses) on investments and other	$	(615,216)	$	20,207	$	(775,020)	$	58,612
Net gains (losses) on derivatives	1,015,643		(581,962)		2,657,671		587,421
Loan loss (provision) reversal	26,913		(494)		26,305		139,126
Business divestiture-related gains (losses)	(23,955)		1,527		(24,309)		(248,036)
Other, net	(5,486)		(6,241)		(2,428)		295
Total	$	397,899	$	(566,963)	$	1,882,219	$	537,418

For the Three Months Ended June 30, 2022 and 2021

Net Gains (Losses) on Investments and Other

Net gains (losses) on disposal of investments was ($646.2) million for the three months ended June 30, 2022 compared to $16.2 million for the same period in 2021. For the three months ended June 30, 2022, we disposed of Residential Securities with a carrying value of $6.6 billion for an aggregate net loss of ($657.3) million. For the same period in 2021, we disposed of Residential Securities with a carrying value of $3.3 billion for an aggregate net gain of $34.8 million.

Net unrealized gains (losses) on instruments measured at fair value through earnings was $31.0 million for the three months ended June 30, 2022 compared to $4.0 million for the same period in 2021, primarily due to favorable changes in unrealized gains (losses) on residential securitized debt of consolidated VIEs of $386.8 million, MSR, including interests in MSR, of $73.9 million and Agency interest-only securities of $28.3 million, partially offset by unfavorable changes on securitized residential whole loans of consolidated VIEs of ($340.7) million, non-Agency MBS of ($65.9) million and credit risk transfer securities of ($52.4) million.

Net Gains (Losses) on Derivatives

Net gains (losses) on interest rate swaps for the three months ended June 30, 2022 was $898.5 million compared to ($224.2) million for the same period in 2021, primarily attributable to a favorable change in unrealized gains (losses) on interest rate swaps. Unrealized gains (losses) on interest rate swaps was $897.5 million for the three months ended June 30, 2022, reflecting a rise in forward interest rates during the period, compared to ($141.1) million for the same period in 2021, reflecting a decline in forward interest rates during the period.

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Item 2. Management’s Discussion and Analysis

Net gains (losses) on other derivatives was $117.1 million for the three months ended June 30, 2022 compared to ($357.8) million for the same period in 2021. The change in net gains (losses) on other derivatives was primarily due to favorable changes in net gains (losses) on futures, which was $787.1 million for the three months ended June 30, 2022 compared to ($394.5) million for the same period in 2021, and interest rate swaptions, which was $119.4 million for the three months ended June 30, 2022 compared to ($255.6) million for the same period in 2021, partially offset by an unfavorable change in net gains (losses) on TBA derivatives, which was ($783.3) million for the three months ended June 30, 2022 compared to $285.3 million for the same period in 2021.

Loan Loss (Provision) Reversal

For the three months ended June 30, 2022 and 2021, net loan loss (provision) reversal were $26.9 million and ($0.5) million on corporate loans, respectively. Refer to the “Loans” Note located within Item 1 for additional information related to the loan loss (provisions) reversals.

Business Divestiture-Related Gains (Losses)

For the three months ended June 30, 2022, the majority of business divestiture-related gains (losses) was associated with the sale of our corporate loan interests, in connection with the announcement of the sale of our MML Portfolio. Refer to the “Sale of Middle Market Lending Portfolio” Note and the “Loans” Note located within Item 1 for additional information related to the transaction. For the three months ended June 30, 2021, business divestiture-related gains (losses) was associated with the sale of our commercial real estate business. Refer to the “Sale of Commercial Real Estate Business” Note located within Item 1 for additional information related to the transaction.

Other, Net

Other, net includes brokerage and commission fees, due diligence costs, securitization expenses and certain revenues and costs associated with our investments in commercial real estate, including rental income and recoveries, operating costs as well as depreciation and amortization expense. We also report in Other, net 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.

For the Six Months Ended June 30, 2022 and 2021

Net Gains (Losses) on Investments and Other

Net gains (losses) on disposal of investments and other was ($790.4) million for the six months ended June 30, 2022 compared to ($49.6) million for the same period in 2021. For the six months ended June 30, 2022, we disposed of Residential Securities with a carrying value of $9.4 billion for an aggregate net loss of ($801.8) million. For the same period in 2021, we disposed of Residential Securities with a carrying value of $6.2 billion for an aggregate net loss of ($25.9) million.

Net unrealized gains (losses) on instruments measured at fair value through earnings was $15.4 million for the six months ended June 30, 2022 compared to $108.2 million for the same period in 2021, primarily due to unfavorable changes in unrealized gains (losses) on securitized residential whole loans of consolidated VIEs of ($717.2) million, securitized commercial loans of ($129.8) million and non-Agency MBS of ($125.9) million, partially offset by favorable changes on residential securitized debt of consolidated VIEs of $672.0 million and MSR, including Interests in MSR, of $225.4 million.

Net Gains (Losses) on Derivatives

Net gains (losses) on interest rate swaps for the six months ended June 30, 2022 was $2.2 billion compared to $468.4 million for the same period in 2021, primarily attributable to favorable changes in unrealized gains (losses) on interest rate swaps. Unrealized gains (losses) on interest rate swaps was $2.2 billion for the six months ended June 30, 2022 compared to $631.2 million for the same period in 2021, reflecting a sharper rise in forward interest rates during the current period.

Net gains (losses) on other derivatives was $498.3 million for the six months ended June 30, 2022 compared to $119.1 million for the same period in 2021. The change in net gains (losses) on other derivatives was primarily due to the favorable changes in net gains (losses) on futures derivatives, which was $2.2 billion for the six months ended June 30, 2022 compared to $418.8 million for the same period in 2021, and interest rate swaptions, which was $227.6 million for the six months ended

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Item 2. Management’s Discussion and Analysis

June 30, 2022 compared to $28.1 million for the same period in 2021, partially offset by an unfavorable change in TBA derivatives, which was ($1.9) billion for the six months ended June 30, 2022 compared to ($344.8) million for the same period in 2021.

Loan Loss (Provision) Reversal

For the six months ended June 30, 2022 and 2021, net loan loss reversals of $26.3 million on corporate loans and $139.1 million on commercial mortgage and corporate loans, respectively. Refer to the “Loans” Note located within Item 1 for additional information related to these loan loss provisions.

Business Divestiture-Related Gains (Losses)

For the six months ended June 30, 2022, the majority of business divestiture-related gains (losses) was associated with the sale of our corporate loan interests. Refer to the “Sale of Middle Market Lending Portfolio” Note and located within Item 1 for additional information related to the transaction. For the six months ended June 30, 2021, business divestiture-related gains (losses) was associated with the sale of our commercial real estate business. Refer to the “Sale of Commercial Real Estate Business” Note located within Item 1 for additional information related to the transaction.

General and Administrative Expenses

General and administrative (“G&A”) expenses consist of compensation 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		Total G&A Expenses/Average Assets		Total G&A Expenses/Average Equity
For the three months ended	(dollars in thousands)
June 30, 2022	$	36,038	0.19	%	1.28	%
June 30, 2021	$	53,526	0.26	%	1.55	%
For the six months ended
June 30, 2022	$	81,802	0.22	%	1.37	%
June 30, 2021	$	101,431	0.24	%	1.46	%

G&A expenses were $36.0 million for the three months ended June 30, 2022, a decrease of $17.5 million compared to the same period in 2021. G&A expenses were $81.8 million for the six months ended June 30, 2022, a decrease of $19.6 million compared to the same period in 2021. The change in each period was primarily due to lower expenses on our commercial portfolio during the three and six months ended June 30, 2022 as a result of the sale of the commercial real estate business, which was announced in the first quarter of 2021, compared with the same periods in 2021.

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)		Net Servicing Income/Average Equity		Other Income (Loss)/Average Equity (2)		G&A Expenses/ Average Equity		Income Taxes/ Average Equity		Return on Average Equity
For the three months ended
June 30, 2022	16.88	%	1.76	%	14.07	%	(1.28	%)	(0.83	%)	30.60	%
June 30, 2021	6.92	%	0.23	%	(13.96	%)	(1.55	%)	(0.15	%)	(8.51	%)
For the six months ended
June 30, 2022	16.68	%	1.35	%	32.62	%	(1.37	%)	(0.84	%)	48.44	%
June 30, 2021	12.18	%	0.21	%	10.08	%	(1.46	%)	(0.07	%)	20.94	%
(1) Economic net interest income includes the net interest component of interest rate swaps. (2) Other income (loss) excludes the net interest component of interest rate swaps.

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Item 2. Management’s Discussion and Analysis

Unrealized Gains and Losses - Available-for-Sale Investments

With our available-for-sale accounting treatment on our Agency MBS, 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 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.

	June 30, 2022		December 31, 2021
	(dollars in thousands)
Unrealized gain	$	41,661	$	1,444,434
Unrealized loss	(4,352,587)		(486,024)
Accumulated other comprehensive income (loss)	$	(4,310,926)	$	958,410

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 June 30, 2022 is solely due to market conditions and not the quality of the assets. Substantially all of the Agency MBS have an actual or implied credit rating that is the same as that of the U.S. government. The investments do not require an allowance for credit losses 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 $73.6 billion and $76.8 billion at June 30, 2022 and December 31, 2021, respectively. The change was primarily due to decreases in Agency MBS of $4.9 billion and corporate loans of $2.0 billion, partially offset by increases in residential mortgage loans, including assets transferred or pledged to securitization vehicles, of $2.1 billion, MSR of $0.9 billion and derivative assets of $0.6 billion. Our portfolio composition, net equity allocation and debt-to-net equity ratio by asset class were as follows at June 30, 2022:

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Item 2. Management’s Discussion and Analysis

	Residential									Commercial
	Agency MBS			MSR			Residential Credit (1)				Commercial Real Estate			Corporate Debt			Total
Assets	(dollars in thousands)
Fair value/carrying value	$	56,051,604		$	1,505,042		$	12,898,484			$	457,026		$	97,414		$	71,009,570
Implied market value of derivatives (2)	19,282,979			—			—				397,024			—			19,680,003
Debt
Repurchase agreements	47,293,951			—			3,649,783				420,363			—			51,364,097
Implied cost basis of derivatives (2)	19,313,442			—			—				409,884			—			19,723,326
Debt issued by securitization vehicles	421,939			—			7,080,544				—			—			7,502,483
Participations issued	—			—			696,944				—			—			696,944
Net forward purchases	1,477,029			67,463			17,241				—			—			1,561,733
Other
Other assets / liabilities (3)	924,651			191,636			45,069				98,660			(11,106)			1,248,910
Net equity allocated	$	7,752,873		$	1,629,215		$	1,499,041			$	122,463		$	86,308		$	11,089,900
Net equity allocated (%)	70		%	15		%	14		%		1		%	—		%	100		%
Debt/net equity ratio	6.2:1			NM			7.6:1				3.4:1			NM			5.4:1			(4)
(1) Fair value/carrying includes residential loans held for sale. (2) Derivatives include TBA contracts under Agency MBS and CMBX balances under Commercial Real Estate. (3) Dedicated capital allocations assume capital related to held for sale assets will be redeployed within the Agency business line. (4) 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 MBS at June 30, 2022 and December 31, 2021 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 have an actual or implied credit rating that is the same as that of the U.S. government. We carry all of our Agency MBS 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 June 30, 2022 and December 31, 2021 we had on our Consolidated Statements of Financial Condition a total of $380.1 million and $77.7 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 $3.7 billion and $3.8 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 MBS portfolio for the three months ended June 30, 2022 and 2021 was 14.9% and 26.4%, respectively. The weighted average projected long-term prepayment speed on our Agency MBS portfolio as of June 30, 2022 and 2021 was 7.7% and 12.9%, 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 June 30, 2022 and December 31, 2021.

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Item 2. Management’s Discussion and Analysis

	June 30, 2022		December 31, 2021
	Estimated Fair Value
Agency
Fixed-rate pass-through	$	53,779,118	$	58,296,605
Adjustable-rate pass-through	269,510		321,273
CMO	101,345		121,698
Interest-only	220,489		293,914
Multifamily	1,190,096		1,452,713
Reverse mortgages	32,778		39,402
Total agency securities	$	55,593,336	$	60,525,605
Residential credit
Credit risk transfer	$	965,714	$	936,228
Alt-A	115,578		69,487
Prime	269,717		275,441
Subprime	167,319		163,076
NPL/RPL	1,249,903		983,438
Prime jumbo (>= 2010 vintage)	224,141		171,894
Total residential credit securities	$	2,992,372	$	2,599,564
Total Residential Securities	$	58,585,708	$	63,125,169

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 June 30, 2022 and December 31, 2021.

	June 30, 2022			December 31, 2021
Residential Securities (1)	(dollars in thousands)
Principal amount	$	59,992,559		$	58,676,833
Net premium	2,534,979			2,973,471
Amortized cost	62,527,539			61,650,304
Amortized cost / principal amount	104.23		%	105.07		%
Carrying value	58,063,187			62,577,398
Carrying value / principal amount	96.78		%	106.65		%
Weighted average coupon rate	3.46		%	3.35		%
Weighted average yield	2.79		%	2.69		%
Adjustable-rate Residential Securities (1)
Principal amount	$	1,486,192		$	1,476,250
Weighted average coupon rate	4.51		%	2.81		%
Weighted average yield	4.85		%	6.57		%
Weighted average term to next adjustment (2)	9 Months			11 Months
Weighted average lifetime cap (3)	9.31		%	0.18		%
Principal amount at period end as % of total residential securities	2.48		%	2.52		%
Fixed-rate Residential Securities (1)
Principal amount	$	58,506,367		$	57,200,583
Weighted average coupon rate	3.43		%	3.36		%
Weighted average yield	2.74		%	2.60		%
Principal amount at period end as % of total residential securities	97.52		%	97.48		%
Interest-only Residential Securities
Notional amount	$	11,768,556		$	6,583,768
Net premium	746,104			720,235
Amortized cost	746,104			720,235
Amortized cost / notional amount	6.34		%	10.94		%
Carrying value	522,521			547,771
Carrying value / notional amount	4.44		%	8.32		%
Weighted average coupon rate	1.05		%	2.01		%
Weighted average yield	0.83		%	NM
(1) Excludes interest-only MBS. (2) Excludes non-Agency MBS and CRT securities. (3) Excludes non-Agency MBS and CRT securities as this attribute is not applicable to these asset classes. NM Not meaningful.

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Item 2. Management’s Discussion and Analysis

The following tables summarize certain characteristics of our Residential Credit portfolio at June 30, 2022.

			Payment Structure				Investment Characteristics
Product	Total		Senior		Subordinate		Coupon		Credit Enhancement		60+ Delinquencies		3M VPR (1)
(dollars in thousands)
Credit risk transfer	$	965,714	$	—	$	965,714	5.35	%	1.99	%	1.18	%	18.95	%
Alt-A	115,578		65,972		49,606		3.91	%	12.99	%	5.45	%	24.05	%
Prime	269,717		44,757		224,960		4.29	%	8.67	%	2.21	%	12.08	%
Subprime	167,319		71,918		95,401		3.57	%	19.10	%	9.12	%	15.25	%
Re-performing loan securitizations	740,630		350,667		389,963		3.94	%	26.44	%	23.47	%	10.70	%
Non-performing loan securitizations	509,273		486,405		22,868		3.47	%	33.98	%	76.20	%	15.22	%
Prime jumbo (>=2010 vintage)	224,141		14,859		209,282		4.64	%	2.99	%	2.12	%	8.88	%
Total/weighted average (2)	$	2,992,372	$	1,034,578	$	1,957,794	4.37	%	15.37	%	19.80	%	14.33	%
(1) Represents the 3 month voluntary prepayment rate (“VPR”) and excludes the impact of interest-only securities. (2) Total investment characteristics exclude the impact of interest-only securities.

	Bond Coupon
Product	ARM		Fixed		Floater		Interest-Only		Estimated Fair Value
(dollars in thousands)
Credit risk transfer	$	—	$	—	$	965,714	$	—	$	965,714
Alt-A	4,275		103,711		7,592		—		115,578
Prime	25,939		232,205		4,537		7,036		269,717
Subprime	—		95,453		71,725		141		167,319
Re-performing loan securitizations	—		740,630		—		—		740,630
Non-performing loan securitizations	—		509,273		—		—		509,273
Prime jumbo (>=2010 vintage)	—		169,678		39,604		14,859		224,141
Total	$	30,214	$	1,850,950	$	1,089,172	$	22,036	$	2,992,372

Contractual Obligations

The following table summarizes the effect on our liquidity and cash flows from contractual obligations at June 30, 2022. 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 receive rate. At June 30, 2022, the interest rate swaps had a net fair value of ($0.3) billion.

	Within One Year		One to Three Years		Three to Five Years		More than Five Years		Total
	(dollars in thousands)
Repurchase agreements	$	51,364,097	$	—	$	—	$	—	$	51,364,097
Interest expense on repurchase agreements (1)	115,099		—		—		—		115,099
Debt issued by securitization vehicles (principal)	—		—		—		8,286,317		8,286,317
Interest expense on debt issued by securitization vehicles	234,465		468,930		468,930		6,702,287		7,874,612
Participations issued (principal)	—		—		—		717,110		717,110
Interest expense on participations issued	35,491		70,983		70,983		911,764		1,089,221
Long-term operating lease obligations	3,862		7,724		965		—		12,551
Total	$	51,753,014	$	547,637	$	540,878	$	16,617,478	$	69,459,007
(1) Interest expense on repurchase agreements calculated based on rates at June 30, 2022.

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, or other term financing structures to finance certain of our assets. During the six months ended June 30, 2022, we received $5.7 billion from principal repayments and $8.4 billion in cash from disposal of Residential securities. During the six months ended June 30, 2021, we received $10.2 billion from principal repayments and $6.4 billion in cash from disposal of Residential Securities.

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Item 2. Management’s Discussion and Analysis

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 June 30, 2022.

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.

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.

Stockholders’ Equity

The following table provides a summary of total stockholders’ equity at June 30, 2022 and December 31, 2021:

	June 30, 2022		December 31, 2021
Stockholders’ equity	(dollars in thousands)
6.95% Series F fixed-to-floating rate cumulative redeemable preferred stock	696,910		696,910
6.50% Series G fixed-to-floating rate cumulative redeemable preferred stock	411,335		411,335
6.75% Series I fixed-to-floating rate cumulative redeemable preferred stock	428,324		428,324
Common stock	16,092		14,597
Additional paid-in capital	21,281,077		20,313,832
Accumulated other comprehensive income (loss)	(4,310,926)		958,410
Accumulated deficit	(7,496,061)		(9,653,582)
Total stockholders’ equity	$	11,026,751	$	13,169,826

Capital Stock

Common Stock

In December 2020, we announced that our Board authorized the repurchase of up to $1.5 billion of our outstanding common shares, which expired on December 31, 2021 (the “Prior Share Repurchase Program”). In January 2022, we announced that our Board authorized the repurchase of up to $1.5 billion of our outstanding shares of common stock through December 31, 2024 (the “Current Share Repurchase Program”). The Current Share Repurchase Program replaced the Prior Share Repurchase Program. During the three and six months ended June 30, 2022 and 2021, no shares were purchased under the Current Share Repurchase Program or Prior Share Repurchase Program.

During the three and six months ended June 30, 2022, we closed the public offering of an original issuance of 100.0 million shares of common stock for proceeds of $645.0 million before deducting offering expenses. In connection with the offering, we granted the underwriters a thirty-day option to purchase up to an additional 15.0 million shares of common stock, which the underwriters exercised in full resulting in an additional $96.8 million in proceeds before deducting offering expenses.

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Item 2. Management’s Discussion and Analysis

In January 2018, we entered into separate Distribution Agency Agreements (as amended and restated on August 6, 2021 and 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”). We may offer and sell shares of our common stock, having an aggregate offering price of up to $1.5 billion, from time to time through any of the Sales Agents.

During the three and six months ended June 30, 2022, we issued issued 33.0 million shares for proceeds of $214.9 million, net of commissions and fees, and 33.8 million shares for proceeds of $221.1 million, net of commissions and fees, respectively, under the at-the-market sales program. During the three and six months ended June 30, 2021, we issued 45.5 million shares for proceeds of $420.4 million, net of commissions and fees, under the at-the-market sales program. Refer to the “Capital Stock” Note located within Item 1 for additional information related to the at-the-market sales program.

Leverage and Capital

We believe that it is prudent to maintain conservative GAAP leverage ratios and economic leverage ratios as there may be continued 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 management’s opinion of the level of risk of our assets and liabilities, our liquidity position, our level of unused borrowing capacity, the availability of credit, over-collateralization levels required by lenders when we pledge assets to secure borrowings and our assessment of domestic and international market conditions.

Our GAAP leverage ratio at June 30, 2022 and December 31, 2021 was 5.4:1 and 4.7:1, respectively. Our economic leverage ratio, which is 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 was 6.6:1 and 5.7:1, at June 30, 2022 and December 31, 2021, respectively. Our GAAP capital ratio at June 30, 2022 and December 31, 2021 was 15.1% and 17.2%, respectively. Our economic capital ratio, which represents our ratio of stockholders’ equity to total economic assets (inclusive of the implied market value of TBA derivatives and net of debt issued by securitization vehicles), was 13.0% and 14.4% at June 30, 2022 and December 31, 2021, respectively. Economic leverage ratio and economic capital ratio are non-GAAP financial measures. Refer to the “Non-GAAP Financial Measures” section for additional information, including reconciliations to their most directly comparable GAAP results.

Risk Management

We are subject to a variety of risks in the ordinary conduct of our business. The effective management of these risks is of critical importance to the overall success of 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 believe 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:

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Item 2. Management’s Discussion and Analysis

Risk Parameter	Description
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 considerate of our overall capital allocation framework.
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.
Operational	We will seek to limit impacts to our business through disciplined operational risk management practices addressing areas including but not limited to, management of key third party relationships (i.e. originators, sub-servicers), human capital management, cybersecurity and technology related matters, business continuity and financial reporting risk.
Compliance, Regulatory and Legal	We will seek to comply with regulatory requirements needed to maintain our REIT status and our exemption from registration under the Investment Company Act and the licenses and approvals of our regulated and licensed subsidiaries.

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”) with support from the other Board Committees. The BRC is responsible for oversight of our risk governance structure, risk management (operational and market risk) 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. The Management Development and Compensation Committee is responsible for oversight of risk related to our compensation policies and practices and other human capital matters such as succession and culture. The Corporate Responsibility Committee assists the Board in its oversight of any matters that may present reputational or Environment, Social, and Governance risk to us, and the Nominating/Corporate Governance Committee assists the Board in its oversight of our corporate governance framework and the annual self-evaluation of the Board.

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.

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Item 2. Management’s Discussion and Analysis

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 business continuity planning), human factors or external events. This risk also applies to our use of proprietary and third party models, software vendors and data providers, and oversight of third-party service providers such as sub-servicers, due diligence firms etc.
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.

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:

Element	Description
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 borrows funds through direct repurchase agreements.

To reduce our liquidity risk we maintain a laddered approach to our repurchase agreements. At June 30, 2022 and December 31, 2021, the weighted average days to maturity was 47 days and 52 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.

At June 30, 2022, we had total financial assets and cash pledged against existing liabilities of $55.5 billion. The weighted average haircut was approximately 3% on repurchase agreements, primarily attributable to Agency MBS. The quality and character of the Residential Securities that we pledge as collateral under the repurchase agreements and interest rate swaps did

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Item 2. Management’s Discussion and Analysis

not materially change at June 30, 2022 compared to the same period in 2021, 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 June 30, 2022.

The following table presents our quarterly average and quarter-end repurchase agreement and reverse repurchase agreement balances outstanding for the periods presented:

	Repurchase Agreements				Reverse Repurchase Agreements
	Average Daily Amount Outstanding		Ending Amount Outstanding		Average Daily Amount Outstanding		Ending Amount Outstanding
For the three months ended	(dollars in thousands)
June 30, 2022	$	51,606,720	$	51,364,097	$	117,903	$	—
March 31, 2022	53,961,689		52,626,503		39,535		—
December 31, 2021	56,977,019		54,769,643		39,247		—
September 30, 2021	57,504,986		55,475,420		44,964		—
June 30, 2021	62,440,803		60,221,067		42,581		—
March 31, 2021	65,461,539		61,202,477		143,395		—
December 31, 2020	65,528,297		64,825,239		210,484		—
September 30, 2020	67,542,187		64,633,447		286,792		—
June 30, 2020	68,468,813		67,163,598		183,423		—

The following table provides information on our repurchase agreements by maturity date at June 30, 2022. The weighted average remaining maturity on our repurchase agreements was 47 days at June 30, 2022:

	June 30, 2022
	Principal Balance		Weighted Average Rate		% of Total
	(dollars in thousands)
1 day	$	14,686,762	1.61	%	28.6	%
2 to 29 days	25,527,179		1.58	%	49.8	%
30 to 59 days	1,590,972		1.33	%	3.1	%
60 to 89 days	1,765,571		1.55	%	3.4	%
90 to 119 days	1,770,550		1.43	%	3.4	%
Over 120 days (1)	6,023,063		1.84	%	11.7	%
Total	$	51,364,097	1.60	%	100.0	%
(1) Approximately 0% of the total repurchase agreements 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 June 30, 2022:

			Weighted Average Rate
	Principal Balance		As of Period End		For the Quarter		Weighted Average Days to Maturity (1)
	(dollars in thousands)
Repurchase agreements	$	51,364,097	1.60	%	0.81	%	47
Other secured financing (2) (3)	—		—	%	3.38	%	—
Debt issued by securitization vehicles (3)	8,286,317		2.79	%	2.69	%	11,989
Participations issued (3)	717,110		4.95	%	4.39	%	11,202
Total indebtedness	$	60,367,524
(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

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.

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Item 2. Management’s Discussion and Analysis

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 June 30, 2022:

	Encumbered Assets		Unencumbered Assets		Total
Financial assets	(dollars in thousands)
Cash and cash equivalents	$	653,657	$	200,275	$	853,932
Investments, at carrying value (1)
Agency mortgage-backed securities (2)	50,383,252		4,290,748		54,674,000
Credit risk transfer securities	881,743		67,409		949,152
Non-agency mortgage-backed securities	1,885,610		141,048		2,026,658
Commercial mortgage-backed securities	453,392		3,634		457,026
Residential mortgage loans (2)	9,874,397		31,393		9,905,790
MSR	—		1,353,957		1,353,957
Interests in MSR	—		83,622		83,622
Assets of disposal group held for sale (3)	97,414		—		97,414
Other assets (4)	43,330		91,198		134,528
Total financial assets	$	64,272,795	$	6,263,284	$	70,536,079
(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) Comprised of corporate loans held for sale (4) Includes corporate loans, commercial real estate investments and interests in certain joint ventures.

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 June 30, 2022:

	Carrying Value (1)
Liquid assets	(dollars in thousands)
Cash and cash equivalents	$	853,932
Residential Securities (2) (3)	57,191,401
Commercial mortgage-backed securities	457,026
Residential mortgage loans (4)	1,486,811
Total liquid assets	$	59,989,170
Percentage of liquid assets to carrying amount of encumbered and unencumbered financial assets (5)	97.36		%
(1) Carrying value approximates the market value of assets. The assets listed in this table include $55.5 billion of assets that have been pledged as collateral against existing liabilities at June 30, 2022. 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 MBS of consolidated VIEs carried at fair value of $0.5 billion. (4) Excludes securitized residential mortgage loans transferred or pledged to consolidated VIEs carried at fair value of $8.4 billion. (5) Denominator is computed based on the carrying amount of encumbered and unencumbered financial assets, excluding assets transferred or pledged to securitization vehicles, of $8.9 billion.

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

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Item 2. Management’s Discussion and Analysis

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.

The interest rate sensitivity of our assets and liabilities in the following table at June 30, 2022 could vary substantially based on actual prepayment experience.

	Less than 3 Months		3-12  Months		More than 1 Year to 3 Years		3 Years and Over		Total
Financial assets	(dollars in thousands)
Cash and cash equivalents	$	853,932	$	—	$	—	$	—	$	853,932
Agency mortgage-backed securities (principal)	75		1,340		722,846		56,066,217		56,790,478
Residential credit risk transfer securities (principal)	—		11,068		73,832		925,309		1,010,209
Non-agency mortgage-backed securities (principal)	60,809		77,421		907,710		1,145,932		2,191,872
Commercial mortgage-backed securities (principal)	—		6,409		449,114		19,000		474,523
Total securities	60,884		96,238		2,153,502		58,156,458		60,467,082
Residential mortgage loans (principal)	—		1,678		—		1,525,779		1,527,457
Total loans	—		1,678		—		1,525,779		1,527,457
Assets transferred or pledged to securitization vehicles (principal)	—		—		—		9,444,111		9,444,111
Total financial assets - maturity	914,816		97,916		2,153,502		69,126,348		72,292,582
Effect of utilizing reset dates (1)	11,162,986		335,114		(375,709)		(11,122,391)		—
Total financial assets - interest rate sensitive	$	12,077,802	$	433,030	$	1,777,793	$	58,003,957	$	72,292,582
Financial liabilities
Repurchase agreements	$	43,790,881	$	7,573,216	$	—	$	—	$	51,364,097
Debt issued by securitization vehicles (principal)	—		—		—		8,286,317		8,286,317
Participations issued (principal)	—		—		—		717,110		717,110
Total financial liabilities - maturity	43,790,881		7,573,216		—		9,003,427		60,367,524
Effect of utilizing reset dates (1)(2)	(36,696,980)		10,807,796		12,608,350		13,280,834
Total financial liabilities - interest rate sensitive	$	7,093,901	$	18,381,012	$	12,608,350	$	22,284,261	$	60,367,524
Maturity gap	$	(42,876,065)	$	(7,475,300)	$	2,153,502	$	60,122,921	$	11,925,058
Cumulative maturity gap	$	(42,876,065)	$	(50,351,365)	$	(48,197,863)	$	11,925,058
Interest rate sensitivity gap	$	4,983,901	$	(17,947,982)	$	(10,830,557)	$	35,719,696	$	11,925,058
Cumulative rate sensitivity gap	$	4,983,901	$	(12,964,081)	$	(23,794,638)	$	11,925,058
(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.

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Item 2. Management’s Discussion and Analysis

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. 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 the 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.

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 assets 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 June 30, 2022. Actual results could differ materially from these estimates.

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Item 2. Management’s Discussion and Analysis

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	5.4%	0.1%	0.5%
-50 Basis points	3.6%	0.2%	1.0%
-25 Basis points	1.8%	0.1%	0.8%
+25 Basis points	(1.8%)	(0.2%)	(1.4%)
+50 Basis points	(3.7%)	(0.5%)	(3.2%)
+75 Basis points	(5.6%)	(0.8%)	(5.4%)
MBS Spread Shock (1)	Estimated Change in Portfolio Market Value	Estimated Change as a  % on NAV (3)(4)
-25 Basis points	1.9%	12.9%
-15 Basis points	1.1%	7.7%
-5 Basis points	0.4%	2.6%
+5 Basis points	(0.4%)	(2.5%)
+15 Basis points	(1.1%)	(7.6%)
+25 Basis points	(1.8%)	(12.6%)
(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 securities, residential mortgage loans, repurchase agreements, and interest rate swaps. Economic net interest income includes the net interest component of interest rate swaps. (3) Scenarios include securities, residential mortgage loans, MSR and derivative instruments. (4) NAV represents book value of equity.

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 to 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 and commercial real estate investments. MSR values may also be impacted through reduced servicing fees and higher costs to service the underlying mortgage loans due to borrower performance. Generally, 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. In the case of residential mortgage loans and MSR, we may engage a third party to perform due diligence on a sample of loans that we believe sufficiently represents the entire pool. Once an 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 June 30, 2022 and December 31, 2021 was as follows:

	June 30, 2022		December 31, 2021
Category
Agency mortgage-backed securities (1)	79.0	%	81.9	%
Credit risk transfer securities	1.4	%	1.3	%
Non-agency mortgage-backed securities	2.9	%	2.2	%
Residential mortgage loans (1)	14.0	%	10.4	%
Mortgage servicing rights	2.0	%	0.7	%
Interests in MSR	0.1	%	0.1	%
Commercial real estate (2)	0.6	%	0.7	%
Corporate debt (3)	—	%	2.7	%
(1) Includes assets transferred or pledged to securitization vehicles. (2) Excludes commercial real estate assets held for sale as of December 31, 2021. (3) Excludes corporate loans held for sale as of June 30, 2022.

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Item 2. Management’s Discussion and Analysis

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 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.The following table summarizes our exposure to counterparties by geography at June 30, 2022:

	Number of Counterparties	Secured Financing (1)		Interest Rate Swaps at Fair Value		Exposure (2)
Geography	(dollars in thousands)
North America	20	$	42,769,140	$	(95,425)	$	4,725,320
Europe	11	6,730,402		(167,222)		1,701,559
Japan	4	1,864,555		—		133,507
Total	35	$	51,364,097	$	(262,647)	$	6,560,386
(1) Represents repurchase agreements. (2) Represents the amount of cash and/or securities pledged as collateral to each counterparty less the aggregate of repurchase agreement and other secured financing and derivatives 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 relevant Board committees. 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 our current policy will cover all cybersecurity breaches or our related losses, or that we will be able to continue to maintain cybersecurity insurance in the future.

We depend on third party service providers to perform various business processes related to our operations, including mortgage loan servicers and sub-servicers. Our vendor management policy establishes procedures for engaging, onboarding and monitoring the performance of third party vendors. These procedures include assessing a vendor’s financial health as well as

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Item 2. Management’s Discussion and Analysis

oversight of its compliance with applicable laws and regulations, cybersecurity and business continuity programs and security of personally identifiable information.

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 and our subsidiary that operates as a licensed mortgage aggregator and master servicer.

The financial services industry is highly regulated and receives significant attention from regulators, which may impact both our company and our business strategy. Our investments in residential whole loans and MSR require us to comply with applicable state and federal laws and regulations and maintain appropriate governmental licenses, approvals and exemptions. 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.

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 Estimates

The preparation of our consolidated financial statement in accordance with generally accepted accounting principles in the United States requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Actual results may differ materially from these estimates and changes in assumptions could have a significant effect on the consolidated financial statements. 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 the Note titled “Significant Accounting Policies” in the Notes to the Consolidated Financial Statements included in Item 1. “Financial Statements.”

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Item 2. Management’s Discussion and Analysis

Valuation of Financial Instruments

Residential Securities

Description: We carry residential securities at estimated fair value. There is an active market for our Agency mortgage-backed securities, CRT securities and non-Agency mortgage-backed securities.

Judgments and Uncertainties: Since we primarily invest in securities that can be valued using 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.

Sensitivity of Estimates to Change: Changes in underlying assumptions used in estimating fair value impact the carrying value of the residential securities as well as their yield. For example, an increase in CPR would decrease the carrying value and yield of our Agency mortgage-backed securities. Our valuations are most sensitive to changes in interest rate, which also impacts prepayment speeds. See Experienced and Projected Long-Term CPR, Financial Condition – Residential Securities and the interest rate sensitivity and interest rate and MBS spread shock analysis and discussions within this Item 2. for further information.

Residential Mortgage Loans

Description: We elected to account for Residential Mortgage Loans at fair value. There is an active market for the residential whole loans in which we invest.

Judgments and Uncertainties: 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.

Sensitivity of Estimates to Change: Changes to model assumptions, including prepayment speeds may significantly impact the fair value estimate of residential mortgage loans as well as unrealized gains and losses and yield on these assets. Our valuations are most sensitive to changes in interest rate, which also impacts prepayment speeds. See the interest rate sensitivity and interest rate shock analysis and discussions within this Item 2. for further information.

MSR

Description: We elected to account for MSR at fair value. The market for mortgage servicing rights is considered less active and transparent compared to securities. As such fair value estimates for our investment in MSR are obtained from models, which use significant unobservable inputs in their valuations.

Judgments and Uncertainties: 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 MSR requires significant judgment by management and the third party pricing providers.

Sensitivity of Estimates to Change: Changes in the underlying assumptions used to estimate the fair value of MSR impact the carrying value as well as the related unrealized gains and losses recognized. For further discussion of the sensitivity of the model inputs see the Note titled “Fair Value Measurements” in the Notes to the Consolidated Financial Statements included in Item 1. “Financial Statements.”

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Item 2. Management’s Discussion and Analysis

Interest Rate Swaps

Description: We are required to account for its derivative assets and liabilities at fair value, which may or may not be cleared through a derivative clearing organization. We value our cleared interest rate swaps using the prices provided by the derivatives clearing organization.

Judgments and Uncertainties: 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.

Sensitivity of Estimates to Change: Changes in the OIS curve will impact the carrying value of our interest rate swap assets and liabilities. Our valuations are most sensitive to changes in interest rate, which also impacts prepayment speeds. See the interest rate sensitivity and interest rate shock analysis and discussions within this Item 2. for further information.

Revenue Recognition

Description: 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. Gains or losses on sales of Residential Securities are recorded on trade date based on the specific identification method.

Judgments and Uncertainties: 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.

Sensitivity of Estimates to Change: 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. The sensitivity of changes in interest rates to our economic net interest income is included in the interest rate shock analysis and discussions within this Item 2 for further information.

Consolidation of Variable Interest Entities

Description: We are required to determine if it is required to consolidate entities in which it holds a variable interest.

Judgments and Uncertainties: 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.

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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” or “bps”)

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.

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.

C

Capital Buffer

Includes unencumbered financial assets which can be either sold or utilized as collateral to meet liquidity needs.

Capital Ratio (GAAP Capital Ratio)

Calculated as total stockholders’ equity divided by total assets. 

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Item 2. Management’s Discussion and Analysis

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 (“CMBS” or “Commercial Securities”)

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.

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.

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.

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Item 2. Management’s Discussion and Analysis

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

Earnings available for distribution (“EAD”) and Earnings available for distribution Per Average Common Share

Earnings available for distribution is defined as the sum of (a) economic net interest income, (b) TBA dollar roll income and CMBX coupon income, (c) net servicing income less realized amortization of MSR, (d) other income (loss) (excluding depreciation expense related to commercial real estate and amortization of intangibles, non-EAD income allocated to equity method investments and other non-EAD 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-EAD 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. Earnings available for distribution per average common share is calculated by dividing earnings available for distribution by average basic common shares for the period.

This metric was previously labeled Core Earnings (excluding PAA) and Core Earnings (excluding PAA) Per Average Common Share). The definition of EAD is identical to the definition of Core Earnings (excluding PAA) from prior reporting periods.

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 Capital Ratio

Non-GAAP financial measure that is calculated as total stockholders’ equity divided by total economic assets. Total economic assets includes the implied market value of TBA derivatives and are net of debt issued by securitization vehicles.

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)

Non-GAAP financial measure that is 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). Certain credit facilities (included within other secured financing), debt issued by securitization vehicles, participations issued, 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.

Economic Return

Refers to the Company’s change in book value plus dividends declared divided by the prior period’s book value.

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.

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Item 2. Management’s Discussion and Analysis

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.

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 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.

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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis

Interests in MSR

Represents agreements to purchase all, or a component of, net servicing cash flows.

Interest Rate Risk

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

Interest Rate Swap

A binding agreement between counterparties to exchange periodic interest payments on some predetermined dollar principal, which is called the notional principal amount. For example, one party will pay fixed and receive a variable rate.

Interest Rate Swaption

Options on interest rate swaps. The buyer of a swaption has the right to enter into an interest rate swap agreement at some specified date in the future. The swaption agreement will specify whether the buyer of the swaption will be a fixed-rate receiver or a fixed-rate payer.

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 (GAAP Leverage Ratio or 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, participations issued and mortgages payable. Certain credit facilities (included within other secured financing), debt issued by securitization vehicles, participations issued 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. The United Kingdom Financial Conduct Authority, which regulates LIBOR, announced that all LIBOR tenors relevant to us will cease to be published or will no longer be representative after June 30, 2023.

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.

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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis

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 (“MSR”)

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.

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.

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Item 2. Management’s Discussion and Analysis

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.

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.

Primary Market

Market for offers or sales of new bonds by the issuer.

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). Certain credit facilities (included within other secured financing), debt issued by securitization vehicles, participations issued 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.

77

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis

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.

T

Target Assets

Includes Agency mortgage-backed securities, to-be-announced forward contracts, CRT securities, MSR, non-Agency mortgage-backed securities, residential mortgage loans, and commercial real estate investments.

Tangible Economic Return

Refers to the Company’s change in tangible book value (calculated by summing common stock, additional paid-in capital, accumulated other comprehensive income (loss) and accumulated deficit less intangible assets) plus dividends declared divided by the prior period’s tangible book value.

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 (“TBA”) Securities

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.

78

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis

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.

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.

79

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 June 30, 2022 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

80

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 June 30, 2022, we were not party to any pending material legal proceedings.

ITEM 1A. RISK FACTORS

Other than the risk factor relating to the announced sale of the MML Portfolio disclosed in Item 1A. “Risk Factors” of our quarterly report on Form 10-Q for the quarter ended March 31, 2022, 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

In January 2022, we announced that our Board authorized the repurchase of up to $1.5 billion of our outstanding common shares through December 31, 2024. No shares were repurchased with respect to this share repurchase program during the quarter ended June 30, 2022. As of June 30, 2022, the maximum dollar value of shares that may yet be purchased under this plan was $1.5 billion.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

Exhibits:

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

81

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Exhibit Number	Exhibit Description
31.1	Certification of David L. Finkelstein, Chief Executive Officer and President (Principal Executive Officer) of the Registrant, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. †
31.2	Certification of Serena Wolfe, Chief Financial Officer (Principal Financial Officer) of the Registrant, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. †
32.1	Certification of David L. Finkelstein, Chief Executive Officer and President (Principal Executive Officer) of the Registrant, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. †
32.2	Certification of Serena Wolfe, Chief Financial Officer (Principal Financial Officer) of the Registrant, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. †
101.INS XBRL	The 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 June 30, 2022 (Unaudited) and December 31, 2021 (Derived from the audited Consolidated Statement of Financial Condition at December 31, 2021); (ii) Consolidated Statements of Comprehensive Income (Loss) (Unaudited) for the three and six months ended June 30, 2022 and 2021; (iii) Consolidated Statements of Stockholders’ Equity (Unaudited) for the three and six months ended June 30, 2022 and 2021; (iv) Consolidated Statements of Cash Flows (Unaudited) for the six months ended June 30, 2022 and 2021; and (v) Notes to Consolidated Financial Statements (Unaudited).
101.SCH XBRL	Taxonomy Extension Schema Document †
101.CAL XBRL	Taxonomy Extension Calculation Linkbase Document †
101.DEF XBRL	Additional Taxonomy Extension Definition Linkbase Document Created †
101.LAB XBRL	Taxonomy Extension Label Linkbase Document †
101.PRE XBRL	Taxonomy Extension Presentation Linkbase Document †
104	The cover page for the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2022 (formatted in Inline XBRL and contained in Exhibit 101).

† Submitted electronically herewith.

82

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.

		ANNALY CAPITAL MANAGEMENT, INC.
Dated:	August 1, 2022	By: /s/ David L. Finkelstein
		David L. Finkelstein
		Chief Executive Officer, President and Director (Principal Executive Officer)
Dated:	August 1, 2022	By: /s/ Serena Wolfe
		Serena Wolfe
		Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

II-1

EX-31.1

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Exhibit 31.1

CERTIFICATIONS

I, David L. Finkelstein, certify that:

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

Date: August 1, 2022

/s/ David L. Finkelstein

Chief Executive Officer and President (Principal Executive Officer)

EX-31.2

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Exhibit 31.2

CERTIFICATIONS

I, Serena Wolfe, certify that:

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

Date: August 1, 2022

/s/ Serena Wolfe

Chief Financial Officer (Principal Financial Officer)

EX-32.1

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Exhibit 32.1

ANNALY CAPITAL MANAGEMENT, INC.

1211 AVENUE OF THE AMERICAS

NEW YORK, NEW YORK 10036

CERTIFICATION

PURSUANT TO SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002, 18 U.S.C. SECTION 1350

In connection with the quarterly report on Form 10-Q of Annaly Capital Management, Inc. (the “Company”) for the quarter ended June 30, 2022 to be filed with the Securities and Exchange Commission on or about the date hereof (the “Report”), I, David L. Finkelstein, Chief Executive Officer of the Company, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

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

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

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

/s/ David L. Finkelstein

David L. Finkelstein

Chief Executive Officer and President (Principal Executive Officer)

August 1, 2022

EX-32.2

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Exhibit 32.2

ANNALY CAPITAL MANAGEMENT, INC.

1211 AVENUE OF THE AMERICAS

NEW YORK, NEW YORK 10036

CERTIFICATION

PURSUANT TO SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002, 18 U.S.C. SECTION 1350

In connection with the quarterly report on Form 10-Q of Annaly Capital Management, Inc. (the “Company”) for the quarter ended June 30, 2022 to be filed with the Securities and Exchange Commission on or about the date hereof (the “Report”), I, Serena Wolfe, Chief Financial Officer of the Company, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

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

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

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

/s/ Serena Wolfe

Serena Wolfe

Chief Financial Officer (Principal Financial Officer)

August 1, 2022

XML

COVER PAGE - shares	6 Months Ended
	Jun. 30, 2022	Jul. 22, 2022
Document Information [Line Items]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Jun. 30, 2022
Document Transition Report	false
Entity File Number	1-13447
Entity Registrant Name	ANNALY CAPITAL MANAGEMENT INC
Entity Incorporation, State or Country Code	MD
Entity Tax Identification Number	22-3479661
Entity Address, Address Line One	1211 Avenue of the Americas
Entity Address, City or Town	New York,
Entity Address, State or Province	NY
Entity Address, Postal Zip Code	10036
City Area Code	212
Local Phone Number	696-0100
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		1,624,307,055
Amendment Flag	false
Document Fiscal Year Focus	2022
Document Fiscal Period Focus	Q2
Entity Central Index Key	0001043219
Current Fiscal Year End Date	--12-31
Common Stock, par value $0.01 per share
Document Information [Line Items]
Title of Each Class	Common Stock, par value $0.01 per share
Trading Symbol	NLY
Name of Each Exchange on Which Registered	NYSE
6.95% Series F Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock
Document Information [Line Items]
Title of Each Class	6.95% Series F Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock
Trading Symbol	NLY.F
Name of Each Exchange on Which Registered	NYSE
6.50% Series G Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock
Document Information [Line Items]
Title of Each Class	6.50% Series G Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock
Trading Symbol	NLY.G
Name of Each Exchange on Which Registered	NYSE
6.75% Series I Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock
Document Information [Line Items]
Title of Each Class	6.75% Series I Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock
Trading Symbol	NLY.I
Name of Each Exchange on Which Registered	NYSE

XML

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION - USD ($) $ in Thousands		Jun. 30, 2022		Dec. 31, 2021
Assets
Cash and cash equivalents (includes pledged assets of $653,657 and $1,222,505, respectively)		$ 853,932	[1]	$ 1,342,090
Securities (includes pledged assets of $53,145,730 and $56,675,447, respectively)	[2]	59,042,734		63,655,674	[3]
Loans, net (includes pledged assets of $1,631,103 and $2,462,776, respectively)	[4]	1,487,133		4,242,043	[3]
Mortgage servicing rights		1,421,420		544,562	[3]
Interests in MSR		83,622		69,316	[3]
Assets transferred or pledged to securitization vehicles		8,877,247		6,086,308	[3]
Assets of disposal group held for sale		97,414		194,138	[3]
Derivative assets		748,432		170,370	[3]
Receivable for unsettled trades		434,227		2,656	[3]
Principal and interest receivable		300,028		234,983	[3]
Goodwill and intangible assets, net		18,195		24,241	[3]
Other assets		272,865		197,683	[3]
Total assets		73,637,249		76,764,064	[3]
Liabilities
Repurchase agreements		51,364,097		54,769,643	[3]
Other secured financing		0		903,255	[3]
Debt issued by securitization vehicles		7,502,483		5,155,633	[3]
Participations issued		696,944		1,049,066	[3]
Liabilities of disposal group held for sale		3,608		154,956	[3]
Derivative liabilities		379,708		881,537	[3]
Payable for unsettled trades		1,995,960		147,908	[3]
Interest payable		91,962		91,176	[3]
Dividends payable		354,027		321,142	[3]
Other liabilities		158,560		94,423	[3]
Total liabilities		62,547,349		63,568,739	[3]
Stockholders’ equity
Preferred stock, par value $0.01 per share, 63,500,000 authorized, issued and outstanding		1,536,569		1,536,569	[3]
Common stock, par value $0.01 per share, 2,936,500,000 authorized, 1,609,215,497 and 1,459,736,258 issued and outstanding, respectively		16,092		14,597	[3]
Additional paid-in capital		21,281,077		20,313,832	[3]
Accumulated other comprehensive income (loss)		(4,310,926)		958,410	[3]
Accumulated deficit		(7,496,061)		(9,653,582)	[3]
Total stockholders’ equity		11,026,751		13,169,826	[3]
Noncontrolling interests		63,149		25,499	[3]
Total equity		11,089,900		13,195,325	[3]
Total liabilities and equity		$ 73,637,249		$ 76,764,064	[3]

[1] (2)Includes cash of consolidated Variable Interest Entities (“VIEs”) of $2.4 million and $16.2 million at June 30, 2022 and December 31, 2021, respectively.

[2] (3)Excludes $30.1 million and $44.2 million at June 30, 2022 and December 31, 2021, respectively, of Agency mortgage-backed securities and $971.9 million and $350.4 million at June 30, 2022 and December 31, 2021, respectively, of non-Agency mortgage-backed securities in consolidated VIEs pledged as collateral and eliminated from the Company’s Consolidated Statements of Financial Condition. 

[3] (1)Derived from the audited consolidated financial statements at December 31, 2021.

[4] (4)Includes $1.5 million and $2.3 million of residential mortgage loans held for sale at June 30, 2022 and December 31, 2021, respectively.

XML

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Parenthetical) - USD ($) $ in Thousands		Jun. 30, 2022	Dec. 31, 2021
Pledged assets included in cash and cash equivalents		$ 653,657	$ 1,222,505
Preferred stock, par value (USD per share)		$ 0.01	$ 0.01
Preferred stock authorized (shares)		63,500,000	63,500,000
Preferred stock issued (shares)		63,500,000	63,500,000
Preferred stock outstanding (shares)		63,500,000	63,500,000
Common stock, par value (USD per share)		$ 0.01	$ 0.01
Common stock authorized (shares)		2,936,500,000	2,936,500,000
Common stock issued (shares)		1,609,215,497	1,459,736,258
Common stock outstanding (shares)		1,609,215,497	1,459,736,258
Mortgage-backed securities	[1]	$ 59,042,734	$ 63,655,674	[2]
Asset Pledged as Collateral without Right
Pledged assets included in loans, net		1,631,103	2,462,776
Consolidated VIEs
Cash and cash equivalents		2,400	16,200
Agency Mortgage-Backed Securities
Pledged assets		53,145,730	56,675,447
Agency Mortgage-Backed Securities | Consolidated VIEs
Mortgage-backed securities		30,100	44,200
Non-Agency Mortgage-Backed Securities | Consolidated VIEs
Mortgage-backed securities		971,900	350,400
Residential Mortgage Loans
Loans held-for-sale		$ 1,500	$ 2,300

[1] (3)Excludes $30.1 million and $44.2 million at June 30, 2022 and December 31, 2021, respectively, of Agency mortgage-backed securities and $971.9 million and $350.4 million at June 30, 2022 and December 31, 2021, respectively, of non-Agency mortgage-backed securities in consolidated VIEs pledged as collateral and eliminated from the Company’s Consolidated Statements of Financial Condition. 

[2] (1)Derived from the audited consolidated financial statements at December 31, 2021.

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021
Net interest income
Interest income	$ 645,615	$ 383,906	$ 1,301,465	$ 1,147,284
Interest expense	170,475	61,047	245,397	137,020
Net interest income	475,140	322,859	1,056,068	1,010,264
Net servicing income
Servicing and related income	55,685	10,519	90,400	19,748
Servicing and related expense	5,949	2,603	9,706	4,900
Net servicing income	49,736	7,916	80,694	14,848
Other income (loss)
Net gains (losses) on investments and other	(615,216)	20,207	(775,020)	58,612
Net gains (losses) on derivatives	1,015,643	(581,962)	2,657,671	587,421
Financing Receivable, Credit Loss, Expense (Reversal)	26,913	(494)	26,305	139,126
Business divestiture-related gains (losses)	(23,955)	1,527	(24,309)	(248,036)
Other, net	(5,486)	(6,241)	(2,428)	295
Total other income (loss)	397,899	(566,963)	1,882,219	537,418
General and administrative expenses
Compensation expense	22,243	32,013	55,245	63,531
Other general and administrative expenses	13,795	21,513	26,557	37,900
Total general and administrative expenses	36,038	53,526	81,802	101,431
Income (loss) before income taxes	886,737	(289,714)	2,937,179	1,461,099
Income taxes	23,420	5,134	49,968	4,813
Net income (loss)	863,317	(294,848)	2,887,211	1,456,286
Net income (loss) attributable to noncontrolling interests	(3,379)	794	(1,740)	1,115
Net income (loss) attributable to Annaly	866,696	(295,642)	2,888,951	1,455,171
Dividends on preferred stock	26,883	26,883	53,766	53,766
Net income (loss) available (related) to common stockholders	$ 839,813	$ (322,525)	$ 2,835,185	$ 1,401,405
Net income (loss) per share available (related) to common stockholders
Basic (in dollars per share)	$ 0.55	$ (0.23)	$ 1.90	$ 1.00
Diluted (in dollars per share)	$ 0.55	$ (0.23)	$ 1.90	$ 1.00
Weighted average number of common shares outstanding
Basic (in shares)	1,522,436,766	1,410,239,138	1,492,068,912	1,404,755,496
Diluted (in shares)	1,523,595,000	1,410,239,138	1,493,254,890	1,405,764,272
Other comprehensive income (loss)
Net income (loss)	$ 863,317	$ (294,848)	$ 2,887,211	$ 1,456,286
Unrealized gains (losses) on available-for-sale securities	(2,503,250)	(191,541)	(6,071,929)	(1,620,468)
Reclassification adjustment for net (gains) losses included in net income (loss)	657,806	(30,415)	802,593	26,408
Other comprehensive income (loss)	(1,845,444)	(221,956)	(5,269,336)	(1,594,060)
Comprehensive income (loss)	(982,127)	(516,804)	(2,382,125)	(137,774)
Comprehensive income (loss) attributable to noncontrolling interests	(3,379)	794	(1,740)	1,115
Comprehensive income (loss) attributable to Annaly	(978,748)	(517,598)	(2,380,385)	(138,889)
Dividends on preferred stock	26,883	26,883	53,766	53,766
Comprehensive income (loss) attributable to common stockholders	$ (1,005,631)	$ (544,481)	$ (2,434,151)	$ (192,655)

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - USD ($) $ in Thousands		Total		Total stockholder’s equity	Preferred stock	Common stock	Additional paid-in capital	Accumulated other comprehensive income (loss)	Accumulated deficit		Noncontrolling interests
Beginning of period at Dec. 31, 2020					$ 1,536,569	$ 13,982	$ 19,750,818	$ 3,374,335	$ (10,667,388)		$ 13,480
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance						456	419,970
Stock-based award activity						4	7,904
Unrealized gains (losses) on available-for-sale securities		$ (1,620,468)						(1,620,468)
Reclassification adjustment for net gains (losses) included in net income (loss)		26,408						26,408
Net income (loss) attributable to Annaly		1,455,171							1,455,171
Dividends declared on preferred stock	[1]								(53,766)
Dividends and dividend equivalents declared on common stock and share-based awards		(626,880)							(626,880)	[1]
Net income (loss) attributable to noncontrolling interests		(1,115)									1,115
Equity contributions from (distributions to) noncontrolling interests											7,466
End of period at Jun. 30, 2021		13,639,176		$ 13,617,115	1,536,569	14,442	20,178,692	1,780,275	(9,892,863)		22,061
Beginning of period at Mar. 31, 2021					1,536,569	13,985	19,754,826	2,002,231	(9,251,804)		11,788
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance						456	419,970
Stock-based award activity						1	3,896
Unrealized gains (losses) on available-for-sale securities		(191,541)						(191,541)
Reclassification adjustment for net gains (losses) included in net income (loss)		(30,415)						(30,415)
Net income (loss) attributable to Annaly		(295,642)							(295,642)
Dividends declared on preferred stock	[1]								(26,883)
Dividends and dividend equivalents declared on common stock and share-based awards		(318,534)							(318,534)	[1]
Net income (loss) attributable to noncontrolling interests		(794)									794
Equity contributions from (distributions to) noncontrolling interests											9,479
End of period at Jun. 30, 2021		13,639,176		13,617,115	1,536,569	14,442	20,178,692	1,780,275	(9,892,863)		22,061
Beginning of period at Dec. 31, 2021		13,195,325	[2]		1,536,569	14,597	20,313,832	958,410	(9,653,582)		25,499
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance						1,488	954,111
Stock-based award activity						7	13,134
Unrealized gains (losses) on available-for-sale securities		(6,071,929)						(6,071,929)
Reclassification adjustment for net gains (losses) included in net income (loss)		802,593						802,593
Net income (loss) attributable to Annaly		2,888,951							2,888,951
Dividends declared on preferred stock	[1]								(53,766)
Dividends and dividend equivalents declared on common stock and share-based awards		(677,664)							(677,664)	[1]
Net income (loss) attributable to noncontrolling interests		1,740									(1,740)
Equity contributions from (distributions to) noncontrolling interests											39,390
End of period at Jun. 30, 2022		11,089,900		11,026,751	1,536,569	16,092	21,281,077	(4,310,926)	(7,496,061)		63,149
Beginning of period at Mar. 31, 2022					1,536,569	14,610	20,321,952	(2,465,482)	(7,980,407)		51,528
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance						1,480	948,015
Stock-based award activity						2	11,110
Unrealized gains (losses) on available-for-sale securities		(2,503,250)						(2,503,250)
Reclassification adjustment for net gains (losses) included in net income (loss)		657,806						657,806
Net income (loss) attributable to Annaly		866,696							866,696
Dividends declared on preferred stock	[1]								(26,883)
Dividends and dividend equivalents declared on common stock and share-based awards		(355,467)							(355,467)	[1]
Net income (loss) attributable to noncontrolling interests		3,379									(3,379)
Equity contributions from (distributions to) noncontrolling interests											15,000
End of period at Jun. 30, 2022		$ 11,089,900		$ 11,026,751	$ 1,536,569	$ 16,092	$ 21,281,077	$ (4,310,926)	$ (7,496,061)		$ 63,149

[1] (1) Refer to the “Capital Stock” Note for dividends per share for each class of shares.

[2] (1)Derived from the audited consolidated financial statements at December 31, 2021.

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CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2022		Jun. 30, 2021
Cash flows from operating activities
Net income (loss)	$ 2,887,211		$ 1,456,286
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities
Amortization of premiums and discounts of investments, net	19,404		313,306
Amortization of securitized debt premiums and discounts and deferred financing costs	(4,378)		(4,269)
Depreciation, amortization and other noncash expenses	11,145		17,718
Net (gains) losses on investments and derivatives	(1,944,200)		(808,867)
Business divestiture-related (gains) losses	24,309		248,036
Income (loss) from unconsolidated joint ventures	(10,378)		5,889
Loan loss (provision) reversal	(26,305)		(139,126)
Payments on purchases of loans held for sale	0		(49,586)
Proceeds from sales and repayments of loans held for sale	1,619		84,991
Net receipts (payments) on derivatives	1,639,329		606,454
Net change in
Other assets	(42,741)		(121,876)
Interest receivable	(19,128)		18,677
Interest payable	435		(16,165)
Other liabilities	180,529		(40,425)
Net cash provided by (used in) operating activities	2,716,851		1,571,043
Cash flows from investing activities
Payments on purchases of securities	(14,422,639)		(12,581,731)
Proceeds from sales of securities	8,390,532		6,350,647
Principal payments on securities	5,737,737		10,228,935
Payments on purchases and origination of loans	(3,981,495)		(2,754,376)
Proceeds from sales of loans	1,832,930		116,570
Principal payments on loans	1,073,579		1,498,768
Payments on purchases of MSR	(683,972)		(98,983)
Proceeds from sales of MSR	9,065		376
Payments on purchases of interests in MSR	(4,913)		(47,098)
Investments in real estate	0		(1,815)
Proceeds from sales of real estate	0		53,910
Proceeds from reverse repurchase agreements	7,750,024		12,084,313
Payments on reverse repurchase agreements	(7,750,024)		(12,084,313)
Distributions in excess of cumulative earnings from unconsolidated joint ventures	0		290
Proceeds from sale of equity securities	0		6,957
Net cash provided by (used in) investing activities	(2,049,176)		2,772,450
Cash flows from financing activities
Proceeds from repurchase agreements and other secured financing	1,849,361,390		1,129,837,127
Payments on repurchase agreements and other secured financing	(1,853,629,599)		(1,134,179,055)
Proceeds from issuances of securitized debt	3,946,614		969,165
Principal payments on securitized debt	(843,470)		(863,095)
Payments from relief of securitized debt	(2,990)		0
Net proceeds from stock offerings, direct purchases and dividend reinvestments	955,599		420,426
Proceeds from participations issued	1,216,950		499,864
Payments on repurchases of participations issued	(1,468,384)		(223,828)
Principal payments on participations issued	(31,844)		(4,015)
Net principal receipts (payments) on mortgages payable	0		(659)
Net contributions (distributions) from (to) noncontrolling interests	39,390		7,466
Settlement of stock-based awards in satisfaction of withholding tax requirements	(3,050)		(992)
Dividends paid	(696,439)		(669,144)
Net cash provided by (used in) financing activities	(1,155,833)		(4,206,740)
Net (decrease) increase in cash and cash equivalents	(488,158)		136,753
Cash and cash equivalents including cash pledged as collateral, beginning of period	1,342,090		1,243,703
Cash and cash equivalents including cash pledged as collateral, end of period	853,932	[1]	1,380,456
Supplemental disclosure of cash flow information
Interest received	1,144,124		1,478,377
Dividends received	0		51
Interest paid (excluding interest paid on interest rate swaps)	170,594		183,952
Net interest received (paid) on interest rate swaps	(75,898)		(137,018)
Taxes received (paid)	(1,661)		(333)
Noncash investing and financing activities
Receivable for unsettled trades	434,227		14,336
Payable for unsettled trades	1,995,960		154,405
Net change in unrealized gains (losses) on available-for-sale securities, net of reclassification adjustment	(5,269,336)		(1,594,060)
Dividends declared, not yet paid	354,027		317,714
Derecognition of assets of consolidated VIEs	0		976,690
Derecognition of securitized debt of consolidated VIEs	$ 0		$ 893,500

[1] (2)Includes cash of consolidated Variable Interest Entities (“VIEs”) of $2.4 million and $16.2 million at June 30, 2022 and December 31, 2021, respectively.

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DESCRIPTION OF BUSINESS

6 Months Ended

Jun. 30, 2022

Accounting Policies [Abstract]

DESCRIPTION OF BUSINESS

1. DESCRIPTION OF BUSINESS

Annaly Capital Management, Inc. (the “Company” or “Annaly”) is a Maryland corporation that commenced operations on February 18, 1997.  The Company is a leading diversified capital manager with investment strategies across mortgage finance. The Company owns a portfolio of real estate related investments, including mortgage pass-through certificates, collateralized mortgage obligations, credit risk transfer (“CRT”) securities, other securities representing interests in or obligations backed by pools of mortgage loans, residential mortgage loans and mortgage servicing rights (“MSR”). The Company’s principal business objective is to generate net income for distribution to its stockholders and optimize its returns through prudent management of its diversified investment strategies.

The Company is an internally-managed company that has elected to be taxed as a Real Estate Investment Trust (“REIT”) as defined under the Internal Revenue Code of 1986, as amended, and regulations promulgated thereunder (the “Code”).

The Company’s investment groups are primarily comprised of the following:

Investment Groups	Description
Annaly Agency Group	Invests in Agency mortgage-backed securities (“MBS”) collateralized by residential mortgages which are guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae and complementary investments within the Agency market, including Agency commercial mortgage-backed securities.
Annaly Residential Credit Group	Invests primarily in non-Agency residential whole loans and securitized products within the residential and commercial markets.
Annaly Mortgage Servicing Rights Group	Invests in MSR, which provide the right to service residential loans in exchange for a portion of the interest payments made on the loans.

In March 2021, the Company announced that it had entered into a definitive agreement to sell and exit its Commercial Real Estate (“CRE”) business. As of June 30, 2022, the CRE assets held for sale and the associated liabilities were transferred. Refer to the “Sale of Commercial Real Estate Business” Note for additional information.

In April 2022, the Company announced that it had entered into a definitive agreement to sell substantially all of the assets that comprise the Annaly Middle Market Lending ("MML") portfolio, including assets held on balance sheet as well as assets managed for third parties. The majority of these assets were legally transferred during the second quarter of 2022 and the remaining assets are expected to be transferred by the end of the third quarter of 2022. Refer to the “Sale of Middle Market Lending Portfolio” Note for additional information on the transaction.

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BASIS OF PRESENTATION

6 Months Ended

Jun. 30, 2022

Organization, Consolidation and Presentation of Financial Statements [Abstract]

BASIS OF PRESENTATION

2. BASIS OF PRESENTATION

The accompanying consolidated financial statements and related notes of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”).

The accompanying consolidated financial statements and related notes are unaudited and should be read in conjunction with the audited consolidated financial statements included in the Company’s most recent Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the “2021 Form 10-K”). The consolidated financial information as of December 31, 2021 has been derived from audited consolidated financial statements included in the Company’s 2021 Form 10-K.

The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported balance sheet amounts and/or disclosures at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.

Beginning with the quarter ended March 31, 2022, in light of the continued growth of its mortgage servicing rights portfolio, the Company enhanced its financial disclosures by separately reporting servicing income and servicing expense in its Consolidated Statements of Comprehensive Income (Loss). Servicing income and servicing expense were previously included within Other income (loss). As a result of this change, prior periods have been adjusted to conform to the current presentation.

In addition, beginning with the quarter ended March 31, 2022, the Company consolidated certain line items in its Consolidated Statements of Comprehensive Income (Loss) in an effort to streamline and simplify its financial presentation. Amounts previously reported under Net interest component of interest rate swaps, Realized gains (losses) on termination or maturity of interest rate swaps, Unrealized gains (losses) on interest rate swaps and Net gains (losses) on other derivatives are combined into a single line item titled Net gains (losses) on derivatives. Similarly, amounts previously reported under Net gains (losses) on disposal of investments and other and Net unrealized gains (losses) on instruments measured at fair value through earnings

are combined into a single line item titled Net gains (losses) on investments and other. As a result of these changes, prior periods have been adjusted to conform to the current presentation.

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.

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SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Jun. 30, 2022

Accounting Policies [Abstract]

SIGNIFICANT ACCOUNTING POLICIES

3. SIGNIFICANT ACCOUNTING POLICIES

The Company’s significant accounting policies are described below or are included elsewhere in these notes to the consolidated financial statements.

Principles of Consolidation – The consolidated financial statements include the accounts of the entities where the Company has a controlling financial interest. In order to determine whether the Company has a controlling financial interest, it first evaluates whether an entity is a voting interest entity (“VOE”) or a variable interest entity (“VIE”). All intercompany balances and transactions have been eliminated in consolidation.

Voting Interest Entities – A VOE is an entity that has sufficient equity and in which equity investors have a controlling financial interest. The Company consolidates VOEs where it has a majority of the voting equity of such VOE.

Variable Interest Entities – A VIE is defined as an entity in which equity investors (i) do not have the characteristics of a controlling financial interest, and/or (ii) do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. A VIE is required to be consolidated by its primary beneficiary, which is defined as the party that has both (i) the power to control the activities that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.

The Company performs ongoing reassessments of whether changes in the facts and circumstances regarding the Company’s involvement with a VIE causes the Company’s consolidation conclusion to change. Refer to the “Variable Interest Entities” Note for further information.

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

Cash and Cash Equivalents – Cash and cash equivalents include cash on hand, cash held in money market funds on an overnight basis and cash pledged as collateral with counterparties. Cash deposited with clearing organizations is carried at cost, which approximates fair value. Cash and securities deposited with clearing organizations and collateral held in the form of cash on margin with counterparties to the Company’s interest rate swaps and other derivatives totaled $0.7 billion and $1.2 billion at June 30, 2022 and December 31, 2021, respectively.

Fair Value Measurements and the Fair Value Option – The Company reports various investments at fair value, including certain eligible financial instruments elected to be accounted for under the fair value option (“FVO”). The Company chooses to elect the FVO in order to simplify the accounting treatment for certain financial instruments. Items for which the FVO has been elected are presented at fair value in the Consolidated Statements of Financial Condition and any change in fair value is recorded in Net gains (losses) on investments and other in the Consolidated Statements of Comprehensive Income (Loss). For additional information regarding financial instruments for which the Company has elected the FVO see the table in the “Financial Instruments” Note.

Refer to the “Fair Value Measurements” Note for a complete discussion on the methodology utilized by the Company to estimate the fair value of certain financial instruments.

Offsetting Assets and Liabilities - The Company elected to present all derivative instruments on a gross basis as discussed in the “Derivative Instruments” Note. Reverse repurchase and repurchase agreements are presented net in the Consolidated Statements of Financial Condition if they meet the offsetting criteria. Please see below and refer to the “Secured Financing” Note for further discussion on reverse repurchase and repurchase agreements.

Derivative Instruments – Derivatives are recognized as either assets or liabilities at fair value in the Consolidated Statements of Financial Condition with changes in fair value recognized in the Consolidated Statements of Comprehensive Income (Loss). The changes in the estimated fair value are presented within Net gains (losses) on derivatives. None of the Company’s

derivative transactions have been designated as hedging instruments for accounting purposes. Refer to the “Derivative Instruments” Note for further discussion.

Stock-Based Compensation – The Company measures compensation expense for stock-based awards at fair value, which is generally based on the grant-date fair value of the Company’s common stock. Compensation expense is recognized ratably over the vesting or requisite service period of the award. Stock-based awards that contain market-based conditions are valued using a model.

Compensation expense for awards with performance conditions is recognized based on the probable outcome of the performance condition at each reporting date. Compensation expense for awards with market conditions is recognized irrespective of the probability of the market condition being achieved and is not reversed if the market condition is not met. Stock-based awards that do not require future service (i.e., vested awards) are expensed immediately. Forfeitures are recorded when they occur. The Company generally issues new shares of common stock upon delivery of stock-based awards.

Interest Income - The Company recognizes interest income primarily on Residential Securities (as defined in the “Securities” Note), residential mortgage loans, commercial investments and reverse repurchase agreements. Interest accrued but not paid is recognized as Interest receivable on the Consolidated Statements of Financial Condition. Interest income is presented as a separate line item on the Consolidated Statements of Comprehensive Income (Loss). Refer to the “Interest Income and Interest Expense” Note for further discussion.

For its securities, the Company recognizes coupon income, which is a component of interest income, based upon the outstanding principal amounts of the financial instruments and their contractual terms. In addition, the Company amortizes or accretes premiums or discounts into interest income for its Agency mortgage-backed securities (other than interest-only securities, multifamily and reverse mortgages), taking into account estimates of future principal prepayments in the calculation of the effective yield.  The Company recalculates the effective yield as differences between anticipated and actual prepayments occur. Using third party model and market information to project future cash flows and expected remaining lives of securities, the effective interest rate determined for each security is applied as if it had been in place from the date of the security’s acquisition. The amortized cost of the security is then adjusted to the amount that would have existed had the new effective yield been applied since the acquisition date, which results in a cumulative premium amortization adjustment in each period. The adjustment to amortized cost is offset with a charge or credit to interest income. Changes in interest rates and other market factors will impact prepayment speed projections and the amount of premium amortization recognized in any given period.

Premiums or discounts associated with the purchase of Agency interest-only securities, reverse mortgages and residential credit securities are amortized or accreted into interest income based upon current expected future cash flows with any adjustment to yield made on a prospective basis.

Premiums and discounts associated with the purchase of residential mortgage loans and with those transferred or pledged to securitization trusts are primarily amortized or accreted into interest income over their estimated remaining lives using the effective interest rates inherent in the estimated cash flows from the mortgage loans. Amortization of premiums and accretion of discounts are presented in Interest income in the Consolidated Statements of Comprehensive Income (Loss).

If collection of a loan’s principal or interest is in doubt or the loan is 90 days or more past due, interest income is not accrued. For nonaccrual status loans carried at fair value or held for sale, interest is not accrued but is recognized on a cash basis. For nonaccrual status loans carried at amortized cost, if collection of principal is not in doubt but collection of interest is in doubt, interest income is recognized on a cash basis. If collection of principal is in doubt, any interest received is applied against principal until collectability of the remaining balance is no longer in doubt; at that point, any interest income is recognized on a cash basis. Generally, a loan is returned to accrual status when the borrower has resumed paying the full amount of the scheduled contractual obligation, if all principal and interest amounts contractually due are reasonably assured of repayment within a reasonable period of time and there is a sustained period of repayment performance by the borrower. Refer to the “Interest Income and Interest Expense” Note for further discussion on interest.

The Company has made an accounting policy election not to measure an allowance for loans losses on corporate debt for accrued interest receivable. If interest receivable is deemed to be uncollectible or not collected within 120 days for corporate debt carried at amortized cost, it is written off through a reversal of interest income. Any interest written off that is recovered is recognized as interest income.

Refer to the “Interest Income and Interest Expense” Note for further discussion of interest income.

Income Taxes – The Company has elected to be taxed as a REIT and intends to comply with the provisions of the Code, with respect thereto. As a REIT, the Company will not incur federal income tax to the extent that it distributes its taxable income to its stockholders. The Company and certain of its direct and indirect subsidiaries have made separate joint elections to treat these subsidiaries as taxable REIT subsidiaries (“TRSs”).  As such, each of these TRSs is taxable as a domestic C corporation and subject to federal, state and local income taxes based upon its taxable income. Refer to the “Income Taxes” Note for further discussion on income taxes.

Recent Accounting Pronouncements

The Company considers the applicability and impact of all Accounting Standards Updates (“ASUs”).  ASUs not listed below were not applicable, not expected to have a significant impact on the Company’s consolidated financial statements when adopted or did not have a significant impact on the Company’s consolidated financial statements upon adoption.

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

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FINANCIAL INSTRUMENTS

6 Months Ended

Jun. 30, 2022

Investments, All Other Investments [Abstract]

FINANCIAL INSTRUMENTS

4. FINANCIAL INSTRUMENTS

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

Financial Instruments (1)
Balance Sheet Line Item	Type / Form	Measurement Basis	June 30, 2022		December 31, 2021
	Assets	(dollars in thousands)
Securities	Agency mortgage-backed securities (2)	Fair value, with unrealized gains (losses) through other comprehensive income	$	55,059,932	$	59,939,383
Securities	Agency mortgage-backed securities (3)	Fair value, with unrealized gains (losses) through earnings	533,404		586,222
Securities	Residential credit risk transfer securities	Fair value, with unrealized gains (losses) through earnings	965,714		936,228
Securities	Non-agency mortgage-backed securities	Fair value, with unrealized gains (losses) through earnings	2,026,658		1,663,336
Securities	Commercial real estate debt investments - CMBS	Fair value, with unrealized gains (losses) through earnings	439,301		521,440
Securities	Commercial real estate debt investments - credit risk transfer securities	Fair value, with unrealized gains (losses) through earnings	17,725		9,065
Total securities			59,042,734		63,655,674
Loans, net	Residential mortgage loans	Fair value, with unrealized gains (losses) through earnings	1,486,811		2,272,072
Loans, net	Residential mortgage loan warehouse facility	Fair value, with unrealized gains (losses) through earnings	322		980
Loans, net	Corporate debt, held for investment	Amortized cost	—		1,968,991
Total loans, net			1,487,133		4,242,043
Interests in MSR	Interest in net servicing cash flows	Fair value, with unrealized gains (losses) through earnings	83,622		69,316
Assets transferred or pledged to securitization vehicles	Agency mortgage-backed securities	Fair value, with unrealized gains (losses) through other comprehensive income	458,268		589,873
Assets transferred or pledged to securitization vehicles	Residential mortgage loans	Fair value, with unrealized gains (losses) through earnings	8,418,979		5,496,435
Total assets transferred or pledged to securitization vehicles			8,877,247		6,086,308
	Liabilities
Repurchase agreements	Repurchase agreements	Amortized cost	51,364,097		54,769,643
Other secured financing	Loans	Amortized cost	—		903,255
Debt issued by securitization vehicles	Securities	Fair value, with unrealized gains (losses) through earnings	7,502,483		5,155,633
Participations issued	Participations issued	Fair value, with unrealized gains (losses) through earnings	696,944		1,049,066
(1) Receivable for unsettled trades, Principal and interest receivable, Payable for unsettled trades, Interest payable and Dividends payable are accounted for at cost. Interests in MSR are considered financial assets whereas directly held MSR are servicing assets or obligations. (2) Includes Agency pass-through, collateralized mortgage obligation (“CMO”) and multifamily securities. (3) Includes interest-only securities and reverse mortgages.

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SECURITIES

6 Months Ended

Jun. 30, 2022

Investments, Debt and Equity Securities [Abstract]

SECURITIES

5. SECURITIES

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

Impairment – Management evaluates available-for-sale securities and held-to-maturity debt securities for impairment at least quarterly, and more frequently when economic or market conditions warrant such evaluation. When the fair value of an available-for-sale security is less than its amortized cost, the security is considered impaired. For securities that are impaired, the Company determines if it (1) has the intent to sell the security, (2) is more likely than not that it will be required to sell the security before recovery of its amortized cost basis, or (3) does not expect to recover the entire amortized cost basis of the

security.  Further, the security is analyzed for credit loss (the difference between the present value of cash flows expected to be collected and the amortized cost basis). The credit loss, if any, will then be recognized in the Consolidated Statements of Comprehensive Income (Loss) as a securities loss provision and reflected as an allowance for credit losses on securities on the Consolidated Statements of Financial Condition, while the balance of losses related to other factors will be recognized as a component of Other comprehensive income (loss). When the fair value of a held-to-maturity security is less than the cost, the Company performs an analysis to determine whether it expects to recover the entire cost basis of the security. For the three months ended March 31, 2021, the Company recognized a $0.4 million impairment on a commercial mortgage-backed security that was sold subsequently in 2021.

Agency Mortgage-Backed Securities - The Company invests in mortgage pass-through certificates, collateralized mortgage obligations and other MBS representing interests in or obligations backed by pools of residential or multifamily mortgage loans and certificates. Many of the underlying loans and certificates are guaranteed by the Government National Mortgage Association (“Ginnie Mae”), the Federal Home Loan Mortgage Corporation (“Freddie Mac”) or the Federal National Mortgage Association (“Fannie Mae”) (collectively, “Agency mortgage-backed securities”). 

Agency mortgage-backed securities may include forward contracts for Agency mortgage-backed securities purchases or sales of a generic pool, on a to-be-announced basis. TBA securities without intent to accept delivery (“TBA derivatives”) are accounted for as derivatives as discussed in the “Derivative Instruments” Note.

CRT Securities - CRT securities are risk sharing instruments issued by Fannie Mae and Freddie Mac, and similarly structured transactions arranged by third party market participants. CRT securities are designed to synthetically transfer mortgage credit risk from Fannie Mae and Freddie Mac to private investors.

Non-Agency Mortgage-Backed Securities - The Company invests in non-Agency mortgage-backed securities such as those issued in prime loan, prime jumbo loan, Alt-A loan, subprime loan, non-performing loan (“NPL”) and re-performing loan (“RPL”) securitizations.

Agency mortgage-backed securities, non-Agency mortgage-backed securities and residential CRT securities are referred to herein as “Residential Securities.” Although the Company generally intends to hold most of its Residential Securities until maturity, it may, from time to time, sell any of its Residential Securities as part of the overall management of its portfolio.

Commercial Mortgage-Backed Securities (“Commercial Securities”) - Certain commercial mortgage-backed securities (“CMBS”) are classified as available-for-sale and reported at fair value with any credit loss recognized through an allowance for credit losses and any other unrealized gains and losses reported as a component of Other comprehensive income (loss). Management evaluates its Commercial Securities for impairment at least quarterly. The Company elected the fair value option for all other Commercial Securities, including conduit and credit CMBS, to simplify the accounting where the unrealized gains and losses on these financial instruments are recorded through earnings.

The following represents a rollforward of the activity for the Company’s securities, excluding securities transferred or pledged to securitization vehicles, for the six months ended June 30, 2022:

	Agency Securities		Residential Credit Securities		Commercial Securities		Total
	(dollars in thousands)
Beginning balance January 1, 2022	$	60,525,605	$	2,599,564	$	530,505	$	63,655,674
Purchases	14,731,945		1,243,293		112,396		16,087,634
Sales and transfers	(9,042,404)		(352,027)		(169,224)		(9,563,655)
Principal paydowns	(5,385,047)		(323,281)		(3,446)		(5,711,774)
(Amortization) / accretion	28,799		2,358		78		31,235
Fair value adjustment	(5,265,562)		(177,535)		(13,283)		(5,456,380)
Ending balance June 30, 2022	$	55,593,336	$	2,992,372	$	457,026	$	59,042,734

The following tables present the Company’s securities portfolio, excluding securities transferred or pledged to securitization vehicles, that were carried at their fair value at June 30, 2022 and December 31, 2021:

	June 30, 2022
	Principal / Notional		Remaining Premium		Remaining Discount		Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Agency	(dollars in thousands)
Fixed-rate pass-through	$	55,460,523	$	2,874,749	$	(281,278)	$	58,053,994	$	31,761	$	(4,306,637)	$	53,779,118
Adjustable-rate pass-through	260,238		10,651		(270)		270,619		5,183		(6,292)		269,510
CMO	106,189		1,848		—		108,037		—		(6,692)		101,345
Interest-only	1,662,567		416,404		—		416,404		673		(196,588)		220,489
Multifamily(1)	8,182,519		312,441		(523)		1,243,478		2,596		(55,978)		1,190,096
Reverse mortgages	31,968		3,376		—		35,344		—		(2,566)		32,778
Total agency securities	$	65,704,004	$	3,619,469	$	(282,071)	$	60,127,876	$	40,213	$	(4,574,753)	$	55,593,336
Residential credit
Credit risk transfer (2)	$	1,010,209	$	6,552	$	(2,474)	$	1,014,287	$	390	$	(48,963)	$	965,714
Alt-A	138,473		33		(19,899)		118,607		1,902		(4,931)		115,578
Prime (3)	1,227,193		15,855		(25,681)		297,095		4,989		(32,367)		269,717
Subprime	187,969		221		(17,896)		170,294		4,045		(7,020)		167,319
NPL/RPL	1,300,169		1,275		(6,026)		1,295,418		343		(45,858)		1,249,903
Prime jumbo (>=2010 vintage) (4)	2,193,098		17,814		(26,089)		250,065		2,954		(28,878)		224,141
Total residential credit securities	$	6,057,111	$	41,750	$	(98,065)	$	3,145,766	$	14,623	$	(168,017)	$	2,992,372
Total Residential Securities	$	71,761,115	$	3,661,219	$	(380,136)	$	63,273,642	$	54,836	$	(4,742,770)	$	58,585,708
Commercial
Commercial Securities	$	474,523	$	—	$	(1,776)	$	472,747	$	—	$	(15,721)	$	457,026
Total securities	$	72,235,638	$	3,661,219	$	(381,912)	$	63,746,389	$	54,836	$	(4,758,491)	$	59,042,734
	December 31, 2021
	Principal / Notional		Remaining Premium		Remaining Discount		Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Agency	(dollars in thousands)
Fixed-rate pass-through	$	54,432,252	$	3,008,185	$	(18,314)	$	57,422,123	$	1,349,125	$	(474,643)	$	58,296,605
Adjustable-rate pass-through	305,211		1,965		(2,124)		305,052		16,223		(2)		321,273
CMO	114,533		1,888		—		116,421		5,277		—		121,698
Interest-only	1,912,415		456,683		—		456,683		428		(163,197)		293,914
Multifamily (1)	5,671,138		273,553		—		1,453,946		15,330		(16,563)		1,452,713
Reverse mortgages	36,807		3,550		—		40,357		—		(955)		39,402
Total agency investments	$	62,472,356	$	3,745,824	$	(20,438)	$	59,794,582	$	1,386,383	$	(655,360)	$	60,525,605
Residential credit
Credit risk transfer (2)	$	924,101	$	8,754	$	(1,176)	$	927,555	$	9,641	$	(968)	$	936,228
Alt-A	83,213		31		(17,133)		66,111		3,627		(251)		69,487
Prime (3)	323,062		9,841		(14,757)		268,117		10,853		(3,529)		275,441
Subprime	170,671		349		(16,111)		154,909		8,285		(118)		163,076
NPL/RPL	987,415		950		(1,698)		986,667		2,739		(5,968)		983,438
Prime jumbo (>=2010 vintage) (4)	299,783		5,680		(6,410)		172,598		4,272		(4,976)		171,894
Total residential credit securities	$	2,788,245	$	25,605	$	(57,285)	$	2,575,957	$	39,417	$	(15,810)	$	2,599,564
Total Residential Securities	$	65,260,601	$	3,771,429	$	(77,723)	$	62,370,539	$	1,425,800	$	(671,170)	$	63,125,169
Commercial
Commercial Securities	$	533,071	$	—	$	(127)	$	532,944	$	165	$	(2,604)	$	530,505
Total securities	$	65,793,672	$	3,771,429	$	(77,850)	$	62,903,483	$	1,425,965	$	(673,774)	$	63,655,674
(1) Principal/Notional amount includes $7.3 billion and $4.5 billion of Agency Multifamily interest-only securities as of June 30, 2022 and December 31, 2021, respectively. (2) Principal/Notional amount includes $0.0 million and $4.1 million of a CRT interest-only security as of June 30, 2022 and December 31, 2021, respectively. (3) Principal/Notional amount includes $920.3 million and $50.0 million of Prime interest-only securities as of June 30, 2022 and December 31, 2021, respectively. (4) Principal/Notional amount includes $1.9 billion and $126.5 million of Prime Jumbo interest-only securities as of June 30, 2022 and December 31, 2021, respectively.

The following table presents the Company’s Agency mortgage-backed securities portfolio, excluding securities transferred or pledged to securitization vehicles, by issuing Agency at June 30, 2022 and December 31, 2021: 

	June 30, 2022		December 31, 2021
Investment Type	(dollars in thousands)
Fannie Mae	$	46,415,070	$	48,404,991
Freddie Mac	9,111,646		10,880,033
Ginnie Mae	66,620		1,240,581
Total	$	55,593,336	$	60,525,605

Actual maturities of the Company’s Residential Securities are generally shorter than stated contractual maturities because actual maturities of the portfolio are affected by periodic payments and prepayments of principal on the underlying mortgages.

The following table summarizes the Company’s Residential Securities, excluding securities transferred or pledged to securitization vehicles, at June 30, 2022 and December 31, 2021, according to their estimated weighted average life classifications:

	June 30, 2022				December 31, 2021
	Estimated Fair Value		Amortized Cost		Estimated Fair Value		Amortized Cost
Estimated weighted average life	(dollars in thousands)
Less than one year	$	149,516	$	150,652	$	253,129	$	250,689
Greater than one year through five years	3,491,952		3,602,865		16,155,017		15,766,307
Greater than five years through ten years	45,977,144		49,646,767		45,470,212		45,102,607
Greater than ten years	8,967,096		9,873,358		1,246,811		1,250,936
Total	$	58,585,708	$	63,273,642	$	63,125,169	$	62,370,539

The estimated weighted average lives of the Residential Securities at June 30, 2022 and December 31, 2021 in the table above are based upon projected principal prepayment rates. The actual weighted average lives of the Residential Securities could be longer or shorter than projected.

The following table presents the gross unrealized losses and estimated fair value of the Company’s Agency mortgage-backed securities, accounted for as available-for-sale where the fair value option has not been elected, by length of time that such securities have been in a continuous unrealized loss position at June 30, 2022 and December 31, 2021.

	June 30, 2022					December 31, 2021
	Estimated Fair Value (1)		Gross Unrealized Losses (1)		Number of Securities (1)	Estimated Fair Value (1)		Gross Unrealized Losses (1)		Number of Securities (1)
	(dollars in thousands)
Less than 12 months	$	43,643,601	$	(2,950,746)	2,712	$	22,828,156	$	(475,064)	571
12 Months or more	8,592,827		(1,399,582)		273	383,815		(10,960)		19
Total	$	52,236,428	$	(4,350,328)	2,985	$	23,211,971	$	(486,024)	590
(1) Excludes interest-only mortgage-backed securities and reverse mortgages.

The decline in value of these securities is solely due to market conditions and not the quality of the assets.  Substantially all of the Agency mortgage-backed securities have an actual or implied credit rating that is the same as that of the U.S. government. An impairment has not been recognized in earnings related to these investments because the decline in value is not related to credit quality, the Company currently has not made a decision to sell the securities nor is it more likely than not that the securities will be required to be sold before recovery.

During the three and six months ended June 30, 2022, the Company disposed of $6.6 billion and $9.4 billion of Residential Securities, respectively. During the three and six months ended June 30, 2021, the Company disposed of $3.3 billion and $6.2 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 six months ended June 30, 2022 and 2021.

	Gross Realized Gains		Gross Realized Losses		Net Realized Gains (Losses)
For the three months ended	(dollars in thousands)
June 30, 2022	$	27,263	$	(684,560)	$	(657,297)
June 30, 2021	$	52,485	$	(17,680)	$	34,805
For the six months ended
June 30, 2022	$	28,828	$	(830,615)	$	(801,787)
June 30, 2021	$	57,131	$	(83,021)	$	(25,890)

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LOANS

6 Months Ended

Jun. 30, 2022

SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Abstract]

LOANS

6. LOANS

The Company invests in residential loans. Loans are classified as either held for investment or held for sale. Loans are eligible to be accounted for under the fair value option. If loans are elected under the fair value option, they are carried at fair value with changes in fair value recognized in earnings. Otherwise, loans held for investment are carried at cost less impairment and loans held for sale are accounted for at the lower of cost or fair value.

Excluding loans transferred or pledged to securitization vehicles and loan warehouse facilities, as of June 30, 2022 and December 31, 2021, the Company reported $1.5 billion and $2.3 billion, respectively, of loans for which the fair value option was elected. If the Company intends to sell or securitize the loans and the securitization vehicle is not expected to be consolidated, the loans are classified as held for sale. If loans are held for sale and the fair value option was not elected, they are accounted for at the lower of cost or fair value. Any origination fees and costs or purchase premiums or discounts are deferred and recognized upon sale. The Company determines the fair value of loans held for sale on an individual loan basis. The carrying value of the Company’s residential loans held for sale was $1.5 million and $2.3 million at June 30, 2022 and December 31, 2021, respectively.

Allowance for Losses – The Company evaluates the need for a loss reserve on each of its loans classified as held-for-investment, which primarily include corporate debt, where the fair value option is not elected. Allowance for loan losses are written off in the period the loans are deemed uncollectible.

Given the unique nature of each underlying borrower and any collateral, the Company assesses an allowance for each individual loan held for investment. An allowance is established at origination or acquisition that reflects management’s estimate of the total expected credit loss over the expected life of the loan. In estimating the lifetime expected credit losses, management utilizes a probability of default and loss given default methodology (“Loss Given Default methodology”), which considers projected economic conditions over the reasonable and supportable forecast period. The forecast incorporates primarily market-based assumptions including, but not limited to, forward interest rate curves, unemployment rate estimates and certain indexes sourced from third party vendors. For any remaining period of the expected life of the loan after the reasonable and supportable period, the Company reverts to historical losses on a straight-line basis. Management uses third party vendors’ loan pool data for loans with similar risk characteristics to estimate historical losses given the limited loss history of the Company’s loan portfolio. Changes in the lifetime expected credit loss are reflected in Loan loss (provision) reversal in the Consolidated Statements of Comprehensive Income (Loss). For loans experiencing credit deterioration, the Company may use a different methodology to determine the expected credit losses such as a discounted cash flow analysis.

Management assesses the credit quality of the portfolio and adequacy of loan loss reserves on a quarterly basis, or more frequently as necessary. Significant judgment is required in this analysis. Depending on the expected recovery of its investment, the Company considers the estimated net recoverable value of the loans as well as other factors, including but not limited to the fair value of any collateral, the amount and the status of any senior debt, the prospects for the borrower and the competitive landscape where the borrower conducts business. To determine if loan loss allowances are required on investments in corporate debt, the Company reviews the monthly and/or quarterly financial statements of the borrowers, verifies loan compliance packages, if applicable, and analyzes current results relative to budgets and sensitivities performed at inception of the investment.  Because these determinations are based upon projections of future economic events, which are inherently subjective, the amounts ultimately realized may differ materially from the carrying value as of the reporting date.

The Company may be exposed to various levels of credit risk depending on the nature of its investments and credit enhancements, if any, supporting its assets. The Company’s core investment process includes procedures related to the initial approval and periodic monitoring of credit risk and other risks associated with each investment.  The Company’s investment underwriting procedures include evaluation of the underlying borrowers’ ability to manage and operate their respective properties or companies.  Management reviews loan-to-value metrics at origination or acquisition of a new investment and if events occur that trigger re-evaluation by management.

The Company recorded net loan loss (provisions) reversals of $26.9 million and $26.3 million for the three and six months ended June 30, 2022, respectively. The Company recorded net loan loss (provisions) reversals of ($0.5) million and $139.1

million for the three and six months ended June 30, 2021, respectively. As of June 30, 2022 and December 31, 2021, the Company’s loan loss allowance was $0.0 million and $27.9 million, respectively.

The following table presents the activity of the Company’s loan investments, excluding loans transferred or pledged to securitization vehicles and loan warehouse facilities, for the six months ended June 30, 2022:

	Residential		Corporate Debt		Total
	(dollars in thousands)
Beginning balance January 1, 2022	$	2,272,072	$	1,968,991	$	4,241,063
Purchases / originations	3,821,483		185,269		4,006,752
Sales and transfers (1)	(4,450,255)		(1,902,444)		(6,352,699)
Principal payments	(66,962)		(231,190)		(298,152)
Gains / (losses) (2)	(80,639)		(23,320)		(103,959)
(Amortization) / accretion	(8,888)		2,694		(6,194)
Ending balance June 30, 2022	$	1,486,811	$	—	$	1,486,811
(1) Includes securitizations, syndications, transfers to securitization vehicles and corporate debt transfers to assets of disposal group held for sale and other assets. Includes transfer of residential loans to securitization vehicles with a carrying value of $4.4 billion during the six months ended June 30, 2022. (2) Includes loan loss allowances.

Residential

The Company’s residential mortgage loans are primarily comprised of performing adjustable-rate and fixed-rate whole loans. The Company’s residential loans are accounted for under the fair value option with changes in fair value reflected in Net gains (losses) on investments and other in the Consolidated Statements of Comprehensive Income (Loss). The Company also consolidates securitization trusts in which it had purchased subordinated securities because it also has certain powers and rights to direct the activities of such trusts. Refer to the “Variable Interest Entities” Note for further information related to the Company’s consolidated residential mortgage loan trusts.

The following table presents the fair value and the unpaid principal balances of the residential mortgage loan portfolio, including loans transferred or pledged to securitization vehicles and excluding loan warehouse facilities, at June 30, 2022 and December 31, 2021:

	June 30, 2022		December 31, 2021
	(dollars in thousands)
Fair value	$	9,905,790	$	7,768,507
Unpaid principal balance	$	10,516,244	$	7,535,855

The following table provides information regarding the line items and amounts recognized in the Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2022 and 2021 for these investments, excluding loan warehouse facilities:

	For the Three Months Ended				For the Six Months Ended
	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
	(dollars in thousands)
Interest income	$	91,645	$	38,963	$	165,110	$	76,072
Net gains (losses) on disposal of investments (1)	(5,321)		(21,721)		(12,658)		(26,941)
Net unrealized gains (losses) on instruments measured at fair value through earnings (1)	(324,481)		14,456		(739,729)		36,911
Total included in net income (loss)	$	(238,157)	$	31,698	$	(587,277)	$	86,042
(1) These amounts are presented in the line item Net gains (losses) on investments and other on the Consolidated Statements of Comprehensive Income (Loss)

The following table provides the geographic concentrations based on the unpaid principal balances at June 30, 2022 and December 31, 2021 for the residential mortgage loans, including loans transferred or pledged to securitization vehicles:

Geographic Concentrations of Residential Mortgage Loans
June 30, 2022		December 31, 2021
Property location	% of Balance	Property location	% of Balance
California	47.2%	California	50.2%
New York	10.7%	New York	10.9%
Florida	7.5%	Florida	6.1%
All other (none individually greater than 5%)	34.6%	All other (none individually greater than 5%)	32.8%
Total	100.0%		100.0%

The following table provides additional data on the Company’s residential mortgage loans, including loans transferred or pledged to securitization vehicles, at June 30, 2022 and December 31, 2021:

	June 30, 2022		December 31, 2021
	Portfolio Range	Portfolio Weighted Average	Portfolio Range	Portfolio Weighted Average
	(dollars in thousands)
Unpaid principal balance	$3 - $4,396	$496	$1 - $4,382	$513
Interest rate	1.13% - 15.00%	4.18%	0.75% - 9.24%	4.04%
Maturity	7/1/2029 - 7/1/2062	7/14/2051	7/1/2029 - 12/1/2061	12/22/2050
FICO score at loan origination	588 - 832	761	604 - 831	762
Loan-to-value ratio at loan origination	5% - 100%	67%	8% - 103%	66%

At June 30, 2022 and December 31, 2021, approximately 12% and 16%, respectively, of the carrying value of the Company’s residential mortgage loans, including loans transferred or pledged to securitization vehicles, were adjustable-rate.

The Company participates in an arrangement that provides a residential mortgage loan warehouse facility to a third-party originator. The Company has elected to apply the fair value option to this lending facility in order to simplify the accounting and keep the accounting consistent with other residential credit financial instruments with similar characteristics. At June 30, 2022 and December 31, 2021, the fair value and carrying value of this warehouse facility was $0.3 million and $1.0 million, respectively, and reported as Loans, net in the Consolidated Statements of Financial Condition. As of June 30, 2022, the lending facility was not on nonaccrual status nor past due.

Commercial

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

Corporate Debt

In April 2022, the Company entered into a definitive agreement to sell substantially all of the corporate loan interests held by the MML business operated by the Company, as well as assets managed for third parties (collectively, the "MML Portfolio"), to Ares Capital Management LLC (“Ares”). The majority of these assets were legally transferred to Ares during the three months ended June 30, 2022, and the remaining assets are expected to be transferred by the end of the third quarter of 2022. Refer to the “Sale of Middle Market Lending Portfolio” Note for additional information on the transaction.

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MORTGAGE SERVICING RIGHTS

6 Months Ended

Jun. 30, 2022

Transfers and Servicing [Abstract]

MORTGAGE SERVICING RIGHTS

7. MORTGAGE SERVICING RIGHTS

The Company owns variable interests in entities that invest in MSR and Interests in MSR. Refer to the “Variable Interest Entities” Note for a detailed discussion on this topic.

MSR represent the rights and obligations associated with servicing pools of residential mortgage loans. The Company and its subsidiaries do not originate or directly service residential mortgage loans. Rather, these activities are carried out by duly licensed subservicers who perform substantially all servicing functions for the loans underlying the MSR. The Company generally intends to hold the MSR as investments and elected to account for all of its investments in MSR at fair value. As such, they are recognized at fair value on the accompanying Consolidated Statements of Financial Condition with changes in the estimated fair value presented as a component of Net gains (losses) on investments and other in the Consolidated Statements of Comprehensive Income (Loss).

Interests in MSR represent agreements to purchase all, or a component of, net servicing cash flows. A third party acts as a master servicer for the loans providing the net servicing cash flows represented by the Interests in MSR. The Company accounts for its Interests in MSR at fair value with change in fair value presented in Net gains (losses) on investments and other in the Consolidated Statements of Comprehensive Income (Loss). Cash flows received for Interests in MSR are recorded in Other, net in the Consolidated Statements of Comprehensive Income (Loss).

The following tables present activity related to MSR and Interests in MSR for the three and six months ended June 30, 2022 and 2021:  

Mortgage Servicing Rights	Three Months Ended				Six Months Ended
	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
	(dollars in thousands)
Fair value, beginning of period	$	1,108,937	$	113,080	$	544,562	$	100,895
Purchases (1)	262,960		98,983		683,983		98,983
Sales	(9,065)		(376)		(9,075)		(376)
Change in fair value due to:
Changes in valuation inputs or assumptions (2)	79,606		4,621		238,568		32,296
Other changes, including realization of expected cash flows	(21,018)		(13,692)		(36,618)		(29,182)
Fair value, end of period	$	1,421,420	$	202,616	$	1,421,420	$	202,616
(1) Includes adjustments to original purchase price from early payoffs, defaults, or loans that were delivered but were deemed to not be acceptable. (2) Principally represents changes in discount rates and prepayment speed inputs used in valuation model, primarily due to changes in interest rates.

Interests in MSR	Three Months Ended				Six Months Ended
	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
	(dollars in thousands)
Beginning balance	$	85,653	$	—	$	69,316	$	—
Purchases (1)	(53)		47,098		4,860		47,098
Gain (loss) included in net income	(1,978)		1,937		9,446		1,937
Ending balance June 30, 2022	$	83,622	$	49,035	$	83,622	$	49,035
(1) Includes adjustments to original purchase price from early payoffs, defaults, or loans that were delivered but were deemed to not be acceptable.

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VARIABLE INTEREST ENTITIES

6 Months Ended

Jun. 30, 2022

Organization, Consolidation and Presentation of Financial Statements [Abstract]

VARIABLE INTEREST ENTITIES

8. VARIABLE INTEREST ENTITIES

The Company’s exposure to the obligations of its VIEs is generally limited to the Company’s investment in the VIEs of $1.1 billion at June 30, 2022. 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.

Multifamily Securitization

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 this arrangement, the Company determined that it was the primary beneficiary based upon its involvement in the design of this VIE and through the retention of a significant variable interest in the VIE. The Company elected the fair value option for the financial liabilities of this VIE 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.

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.

OBX Trusts

Residential securitizations are issued by entities generally 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. Residential securitizations closed during the year are included in the table below.

Securitization	Date of Closing	Face Value at Closing
		(dollars in thousands)
OBX 2022-NQM1	January 2022	$	556,696
OBX 2022-INV1	January 2022	$	377,275
OBX 2022-INV2	February 2022	$	466,686
OBX 2022-NQM2	February 2022	$	439,421
OBX 2022-INV3	March 2022	$	330,823
OBX 2022-NQM3	March 2022	$	315,843
OBX 2022-NQM4	May 2022	$	457,285
OBX 2022-J1	May 2022	$	389,334
OBX 2022-NQM5	June 2022	$	390,775
OBX 2022-INV4	June 2022	$	335,900
OBX 2022-NQM6	June 2022	$	387,913

As of June 30, 2022 and December 31, 2021, a total carrying value of $7.1 billion and $4.6 billion, respectively, of bonds were held by third parties and the Company retained $998.4 million and $780.8 million, respectively, 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 $1.8 million and $1.2 million of costs during the three months ended June 30, 2022 and 2021, respectively, and $5.1 million and $1.8 million of costs during the six months ended June 30, 2022 and 2021, 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 $7.8 billion and $4.6 billion at June 30, 2022 and December 31, 2021, respectively.

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 connection with the sale of substantially all of the assets that comprise the MML Portfolio, these credit facilities which provided financing for the Company’s corporate debt were paid-off and terminated during the three months ended June 30, 2022. Refer to the “Sale of Middle Market Lending Portfolio” Note for additional information on the transaction.

MSR VIEs

The Company owns variable interests in an entity that invests in MSR 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 also owns variable interests in entities that invest in Interests in MSR. These entities are VIEs because they do not have sufficient equity at risk to finance their activities and the Company is the primary beneficiary because it has power to remove the decision makers with or without cause and holds substantially all of the variable interests in the entities.

The statements of financial condition of the Company’s VIEs, excluding the multifamily securitization, 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 June 30, 2022 and December 31, 2021 are as follows:

June 30, 2022
	MSR VIEs
Assets
Cash and cash equivalents	$	2,446
Loans	1,548
Mortgage servicing rights	41
Interests in MSR	83,622
Other assets	6,271
Total assets	$	93,928
Liabilities
Payable for unsettled trades	$	2,152
Other liabilities	5,470
Total liabilities	$	7,622

December 31, 2021
	MSR VIEs
Assets
Cash and cash equivalents	$	16,187
Loans	2,347
Mortgage servicing rights	7,254
Interests in MSR	69,316
Other assets	10,406
Total assets	$	105,510
Liabilities
Payable for unsettled trades	$	1,911
Other liabilities	14,582
Total liabilities	$	16,493

 

Corporate Debt Funds

The Company managed parallel funds investing in senior secured first and second lien corporate loans (the “Fund Entities”). The Fund Entities were considered VIEs because the investors did not have substantive liquidation, kick-out or participating rights. The fees that the Company earned were not considered variable interests of the VIE. The Company was not the primary beneficiary of the Fund Entities and therefore did not consolidate the Fund Entities. The corporate loans in the Fund Entities were assets managed for third parties and were part of the MML Portfolio transferred to Ares during the three months ended June 30, 2022. Refer to the “Sale of Middle Market Lending Portfolio” Note for additional information on the transaction.

Residential Credit Fund

The Company manages a fund investing in participations in residential mortgage loans. The residential credit fund is deemed to be a VIE because the entity does not have sufficient equity at risk to permit the legal entity to finance its activities without additional subordinated financial support provided by any parties, including equity holders, as capital commitments are not considered equity at risk. The Company is not the primary beneficiary and does not consolidate the residential credit fund as its only interest in the fund is the management and performance fees that it earns, which are not considered variable interests in the entity. As of June 30, 2022 and December 31, 2021, the Company had outstanding participating interests in residential mortgage loans of $0.7 billion and $1.0 billion, respectively. These transfers do not meet the criteria for sale accounting and are accounted for as secured borrowings, thus the residential loans are reported as Loans, net and the associated liability is reported as Participations issued in the Consolidated Statements of Financial Condition. The Company elected to fair value the participations issued through earnings to more accurately reflect the economics of the transfers as the underlying loans are carried at fair value through earnings.

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SALE OF COMMERCIAL REAL ESTATE BUSINESS

6 Months Ended

Jun. 30, 2022

Discontinued Operations and Disposal Groups [Abstract]

SALE OF COMMERCIAL REAL ESTATE BUSINESS

9. SALE OF COMMERCIAL REAL ESTATE BUSINESS

On March 25, 2021, the Company entered into a definitive agreement to sell substantially all of the assets that comprise its CRE business to Slate Asset Management L.P. and Slate Grocery REIT (together, “Slate”) for $2.33 billion. The transaction included equity interests, loan assets and associated liabilities, and CMBS (other than commercial CRTs). The Company also sold nearly all of the remaining CRE business assets that are not included in the transaction with Slate. Certain employees who primarily supported the CRE business joined Slate in connection with the sale. In connection with the execution of the definitive agreement to sell the CRE business, during the three months ended March 31, 2021, the Company performed an assessment of goodwill, which was related to the Company’s 2013 acquisition of CreXus Investment Corp., and recognized an impairment of $71.8 million. During the six months ended June 30, 2021, the Company reported Business divestiture-related gains (losses) of ($248.0) million, in its Consolidated Statements of Comprehensive Income (Loss) which includes the aforementioned goodwill impairment as well as valuation adjustments resulting from classifying the CRE assets as held for sale and estimated transaction costs. As of June 30, 2022, the assets held for sale and the associated liabilities were transferred to Slate.

10. SALE OF MIDDLE MARKET LENDING PORTFOLIO

In April 2022, the Company entered into a definitive agreement to sell substantially all of the corporate loan interests held by the MML business operated by the Company, as well as assets managed for third parties (collectively, the "MML Portfolio"), to Ares Capital Management LLC (“Ares”) for $2.4 billion. The Company’s loans, having an unpaid principal balance of $1.8 billion, were transferred to Ares for cash proceeds of $1.8 billion and a realized gain of $40.1 million was recorded during the three months ended June 30, 2022. As of June 30, 2022, loans with an unpaid principal balance of $121.2 million were classified as held for sale pending receipt of required consents to assign the loans to Ares. The loans classified as held for sale are carried at lower of cost or fair value measured using a discounted cash flow methodology. This methodology is considered to be Level 3 in the fair value measurement hierarchy because the valuation requires inputs (i.e., the discount rate) that are both significant to the measurement and unobservable. The nature of the Company’s continuing involvement with the transferred loans is primarily administrative, including providing customary representations and warranties regarding the transferred loans.

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SALE OF MIDDLE MARKET LENDING PORTFOLIO

6 Months Ended

Jun. 30, 2022

Discontinued Operations and Disposal Groups [Abstract]

SALE OF MIDDLE MARKET LENDING PORTFOLIO

9. SALE OF COMMERCIAL REAL ESTATE BUSINESS

On March 25, 2021, the Company entered into a definitive agreement to sell substantially all of the assets that comprise its CRE business to Slate Asset Management L.P. and Slate Grocery REIT (together, “Slate”) for $2.33 billion. The transaction included equity interests, loan assets and associated liabilities, and CMBS (other than commercial CRTs). The Company also sold nearly all of the remaining CRE business assets that are not included in the transaction with Slate. Certain employees who primarily supported the CRE business joined Slate in connection with the sale. In connection with the execution of the definitive agreement to sell the CRE business, during the three months ended March 31, 2021, the Company performed an assessment of goodwill, which was related to the Company’s 2013 acquisition of CreXus Investment Corp., and recognized an impairment of $71.8 million. During the six months ended June 30, 2021, the Company reported Business divestiture-related gains (losses) of ($248.0) million, in its Consolidated Statements of Comprehensive Income (Loss) which includes the aforementioned goodwill impairment as well as valuation adjustments resulting from classifying the CRE assets as held for sale and estimated transaction costs. As of June 30, 2022, the assets held for sale and the associated liabilities were transferred to Slate.

10. SALE OF MIDDLE MARKET LENDING PORTFOLIO

In April 2022, the Company entered into a definitive agreement to sell substantially all of the corporate loan interests held by the MML business operated by the Company, as well as assets managed for third parties (collectively, the "MML Portfolio"), to Ares Capital Management LLC (“Ares”) for $2.4 billion. The Company’s loans, having an unpaid principal balance of $1.8 billion, were transferred to Ares for cash proceeds of $1.8 billion and a realized gain of $40.1 million was recorded during the three months ended June 30, 2022. As of June 30, 2022, loans with an unpaid principal balance of $121.2 million were classified as held for sale pending receipt of required consents to assign the loans to Ares. The loans classified as held for sale are carried at lower of cost or fair value measured using a discounted cash flow methodology. This methodology is considered to be Level 3 in the fair value measurement hierarchy because the valuation requires inputs (i.e., the discount rate) that are both significant to the measurement and unobservable. The nature of the Company’s continuing involvement with the transferred loans is primarily administrative, including providing customary representations and warranties regarding the transferred loans.

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DERIVATIVE INSTRUMENTS

6 Months Ended

Jun. 30, 2022

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE INSTRUMENTS

11. 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 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 Net gains (losses) on derivatives 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 recognized as either assets or liabilities at fair value in the Consolidated Statements of Financial Condition with changes in fair value recognized in the Consolidated Statements of Comprehensive Income (Loss). The changes in the estimated fair value are presented within Net gains (losses) on derivatives. None of the Company’s derivative transactions have been designated as hedging instruments for accounting purposes. 

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 June 30, 2022 and December 31, 2021, ($2.1) billion and ($0.4) billion, respectively, 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 have outstanding 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 (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.

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 June 30, 2022 and December 31, 2021:

Derivatives Instruments	June 30, 2022		December 31, 2021
Assets	(dollars in thousands)
Interest rate swaps	$	9,408	$	—
Interest rate swaptions	333,318		105,710
TBA derivatives	60,661		52,693
Futures contracts	341,430		9,028
Purchase commitments	3,615		1,779
Credit derivatives (1)	—		1,160
Total derivative assets	$	748,432	$	170,370
Liabilities
Interest rate swaps	$	272,055	$	747,036
TBA derivatives	91,124		3,916
Futures contracts	3,020		129,134
Purchase commitments	532		870
Credit derivatives (1)	12,977		581
Total derivative liabilities	$	379,708	$	881,537
(1) The maximum potential amount of future payments is the notional amount of credit derivatives in which the Company sold protection of $410.0 million and $400.0 million at June 30, 2022 and December 31, 2021, respectively, plus any coupon shortfalls on the underlying tranche. As of June 30, 2022 and December 31, 2021 the credit derivative tranches referencing the basket of bonds had a range of ratings between AAA and AA.

The following table summarizes certain characteristics of the Company’s interest rate swaps at June 30, 2022 and December 31, 2021:

June 30, 2022
Maturity	Current Notional (1)(2)		Weighted Average Pay Rate		Weighted Average Receive Rate		Weighted Average Years to Maturity (3)
(dollars in thousands)
0 - 3 years	$	20,807,400	0.79	%	1.62	%	1.16
3 - 6 years	1,420,400		1.62	%	1.80	%	4.26
6 - 10 years	11,583,200		1.72	%	1.71	%	9.32
Greater than 10 years	1,411,000		3.88	%	1.39	%	19.11
Total / Weighted average	$	35,222,000	1.16	%	1.65	%	4.69
December 31, 2021
Maturity	Current Notional (1)(2)		Weighted Average Pay Rate		Weighted Average Receive Rate		Weighted Average Years to Maturity (3)
(dollars in thousands)
0 - 3 years	$	32,709,300	0.25	%	0.06	%	1.10
3 - 6 years	2,780,000		0.21	%	0.07	%	3.46
6 - 10 years	9,118,000		1.43	%	0.13	%	9.05
Greater than 10 years	1,300,000		4.04	%	0.11	%	18.70
Total / Weighted average	$	45,907,300	0.59	%	0.08	%	3.32
(1) As of June 30, 2022, 23%, 35% and 42% 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, 2021, 18%, 53% and 29% of the Company’s interest rate swaps were linked to LIBOR, the Federal funds rate and the Secured Overnight Financing Rate, respectively. (2) There were no forward starting swaps at June 30, 2022 and December 31, 2021. (3) At June 30, 2022 and December 31, 2021, 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 summarizes certain characteristics of the Company’s swaptions at June 30, 2022 and December 31, 2021:

June 30, 2022
	Current Underlying Notional	Weighted Average Underlying Fixed Rate	Weighted Average Underlying Floating Rate	Weighted Average Underlying Years to Maturity	Weighted Average Months to Expiration
(dollars in thousands)
Long pay	$4,050,000	2.00%	3M LIBOR	9.15	13.46
Long receive	$1,000,000	1.49%	3M LIBOR	11.20	14.46
December 31, 2021
	Current Underlying Notional	Weighted Average Underlying Fixed Rate	Weighted Average Underlying Floating Rate	Weighted Average Underlying Years to Maturity	Weighted Average Months to Expiration
(dollars in thousands)
Long pay	$4,050,000	2.00%	3M LIBOR	9.65	19.50
Long receive	$2,000,000	1.47%	3M LIBOR	10.95	11.38

The following table summarizes certain characteristics of the Company’s TBA derivatives at June 30, 2022 and December 31, 2021:

June 30, 2022
Purchase and sale contracts for derivative TBAs	Notional		Implied Cost Basis		Implied Market Value		Net Carrying Value
(dollars in thousands)
Purchase contracts	$	19,455,000	$	19,313,442	$	19,282,979	$	(30,463)
December 31, 2021
Purchase and sale contracts for derivative TBAs	Notional		Implied Cost Basis		Implied Market Value		Net Carrying Value
(dollars in thousands)
Purchase contracts	$	20,133,000	$	20,289,856	$	20,338,633	$	48,777

The following table summarizes certain characteristics of the Company’s futures derivatives at June 30, 2022 and December 31, 2021: 

June 30, 2022
	Notional - Long Positions		Notional - Short Positions		Weighted Average Years to Maturity
	(dollars in thousands)
U.S. Treasury futures - 2 year	$	—	$	(10,264,200)	1.97
U.S. Treasury futures - 5 year	—		(5,903,400)		4.40
U.S. Treasury futures - 10 year and greater	—		(19,832,600)		7.31
Total	$	—	$	(36,000,200)	5.31
December 31, 2021
	Notional - Long Positions		Notional - Short Positions		Weighted Average Years to Maturity
	(dollars in thousands)
U.S. Treasury futures - 2 year	$	—	$	(7,509,200)	1.96
U.S. Treasury futures - 5 year	—		(5,644,900)		4.38
U.S. Treasury futures - 10 year and greater	—		(9,381,000)		6.84
Total	$	—	$	(22,535,100)	4.60

The Company presents derivative contracts on a gross basis in 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.

The following tables present information about derivative assets and liabilities that are subject to such provisions and can be offset in our Consolidated Statements of Financial Condition at June 30, 2022 and December 31, 2021, respectively.

June 30, 2022
			Amounts Eligible for Offset
	Gross Amounts		Financial Instruments		Cash Collateral		Net Amounts
Assets	(dollars in thousands)
Interest rate swaps, at fair value	$	9,408	$	(5,195)	$	—	$	4,213
Interest rate swaptions, at fair value	333,318		—		—		333,318
TBA derivatives, at fair value	60,661		(32,631)		—		28,030
Futures contracts, at fair value	341,430		(3,020)		—		338,410
Purchase commitments	3,615		—		—		3,615
Liabilities
Interest rate swaps, at fair value	$	272,055	$	(5,195)	$	(13,910)	$	252,950
TBA derivatives, at fair value	91,124		(32,631)		—		58,493
Futures contracts, at fair value	3,020		(3,020)		—		—
Purchase commitments	532		—		—		532
Credit derivatives	12,977		—		(12,977)		—
December 31, 2021
			Amounts Eligible for Offset
	Gross Amounts		Financial Instruments		Cash Collateral		Net Amounts
Assets	(dollars in thousands)
Interest rate swaptions, at fair value	$	105,710	$	—	$	—	$	105,710
TBA derivatives, at fair value	52,693		(3,876)		—		48,817
Futures contracts, at fair value	9,028		(9,028)		—		—
Purchase commitments	1,779		—		—		1,779
Credit derivatives	1,160		(516)		—		644
Liabilities
Interest rate swaps, at fair value	$	747,036	$	—	$	(77,607)	$	669,429
TBA derivatives, at fair value	3,916		(3,876)		(40)		—
Futures contracts, at fair value	129,134		(9,028)		(120,106)		—
Purchase commitments	870		—		—		870
Credit derivatives	581		(516)		(65)		—

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

Location on Consolidated Statements of Comprehensive Income (Loss)
	Net Interest Component of Interest Rate Swaps (1)		Realized Gains (Losses) on Termination of Interest Rate Swaps (1)		Unrealized Gains (Losses) on Interest Rate Swaps (1)
For the three months ended	(dollars in thousands)
June 30, 2022	$	992	$	(16)	$	897,537
June 30, 2021	$	(83,087)	$	—	$	(141,067)
For the six months ended
June 30, 2022	$	(61,549)	$	(16)	$	2,220,976
June 30, 2021	$	(162,834)	$	—	$	631,195
(1) Included in Net gains (losses) on derivatives in the Consolidated Statements of Comprehensive Income (Loss).

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

Three Months Ended June 30, 2022
Derivative Instruments	Realized Gain (Loss)		Unrealized Gain (Loss)		Amount of Gain/(Loss) Recognized in Net Gains (Losses) on Derivatives
(dollars in thousands)
Net TBA derivatives	$	(1,064,242)	$	280,992	$	(783,250)
Net interest rate swaptions	—		119,436		119,436
Futures	1,167,524		(380,436)		787,088
Purchase commitments	—		2,671		2,671
Credit derivatives	374		(9,189)		(8,815)
Total					$	117,130

Three Months Ended June 30, 2021
Derivative Instruments	Realized Gain (Loss)		Unrealized Gain (Loss)		Amount of Gain/(Loss) Recognized in Net Gains (Losses) on Derivatives
(dollars in thousands)
Net TBA derivatives	$	10,045	$	275,226	$	285,271
Net interest rate swaptions	(22,787)		(232,860)		(255,647)
Futures	183,383		(577,899)		(394,516)
Purchase commitments	—		2,376		2,376
Credit derivatives	2,777		1,931		4,708
Total					$	(357,808)

Six Months Ended June 30, 2022
Derivative Instruments	Realized Gain (Loss)		Unrealized Gain (Loss)		Amount of Gain/(Loss) Recognized in Net Gains (Losses) on Other Derivatives
(dollars in thousands)
Net TBA derivatives	$	(1,820,381)	$	(79,239)	$	(1,899,620)
Net interest rate swaptions	(14,450)		242,058		227,608
Futures	1,720,678		458,516		2,179,194
Purchase commitments	—		2,172		2,172
Credit derivatives	1,434		(12,528)		(11,094)
Total					$	498,260

Six Months Ended June 30, 2021
Derivative Instruments	Realized Gain (Loss)		Unrealized Gain (Loss)		Amount of Gain/(Loss) Recognized in Net Gains (Losses) on Other Derivatives
(dollars in thousands)
Net TBA derivatives	$	(277,844)	$	(67,002)	$	(344,846)
Net interest rate swaptions	(44,997)		73,130		28,133
Futures	479,547		(60,766)		418,781
Purchase commitments	—		469		469
Credit derivatives	4,408		10,954		15,362
Total					$	117,899

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.

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 were in a net asset position at June 30, 2022.

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FAIR VALUE MEASUREMENTS

6 Months Ended

Jun. 30, 2022

Fair Value Disclosures [Abstract]

FAIR VALUE MEASUREMENTS

12. FAIR VALUE MEASUREMENTS

The Company follows fair value guidance in accordance with GAAP to account for its financial instruments and MSR 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 between market participants at the measurement date.

GAAP requires classification of financial instruments and MSR 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 instrument and MSR 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.

For the fair value of debt issued by securitization vehicles, refer to the “Variable Interest Entities” Note for additional information.

The Company classifies its investments in MSR and Interests in MSR 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 discount rates, prepayment rates, delinquency levels and costs to service. 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 MSR and Interests in MSR require 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 MSR measured at fair value on a recurring basis. There were no transfers between levels of the fair value hierarchy during the periods presented.

June 30, 2022
	Level 1		Level 2		Level 3		Total
Assets	(dollars in thousands)
Securities
Agency mortgage-backed securities	$	—	$	55,593,336	$	—	$	55,593,336
Credit risk transfer securities	—		965,714		—		965,714
Non-Agency mortgage-backed securities	—		2,026,658		—		2,026,658
Commercial mortgage-backed securities	—		457,026		—		457,026
Loans
Residential mortgage loans	—		1,486,811		—		1,486,811
Residential mortgage loan warehouse facility	—		322		—		322
Mortgage servicing rights	—		—		1,421,420		1,421,420
Interests in MSR	—		—		83,622		83,622
Assets transferred or pledged to securitization vehicles	—		8,877,247		—		8,877,247
Derivative assets
Interest rate swaps	—		9,408		—		9,408
Other derivatives	341,430		397,594		—		739,024
Total assets	$	341,430	$	69,814,116	$	1,505,042	$	71,660,588
Liabilities
Debt issued by securitization vehicles	—		7,502,483		—		7,502,483
Participations issued	—		696,944		—		696,944
Derivative liabilities
Interest rate swaps	—		272,055		—		272,055
Other derivatives	3,020		104,633		—		107,653
Total liabilities	$	3,020	$	8,576,115	$	—	$	8,579,135

December 31, 2021
	Level 1		Level 2		Level 3		Total
Assets	(dollars in thousands)
Securities
Agency mortgage-backed securities	$	—	$	60,525,605	$	—	$	60,525,605
Credit risk transfer securities	—		936,228		—		936,228
Non-Agency mortgage-backed securities	—		1,663,336		—		1,663,336
Commercial mortgage-backed securities	—		530,505		—		530,505
Loans
Residential mortgage loans	—		2,272,072		—		2,272,072
Residential mortgage loan warehouse facility	—		980		—		980
Mortgage servicing rights	—		—		544,562		544,562
Interests in MSR	—		—		69,316		69,316
Assets transferred or pledged to securitization vehicles	—		6,086,308		—		6,086,308
Derivative assets
Other derivatives	9,028		161,342		—		170,370
Total assets	$	9,028	$	72,176,376	$	613,878	$	72,799,282
Liabilities
Debt issued by securitization vehicles	$	—	$	5,155,633	$	—	$	5,155,633
Participations issued	—		1,049,066		—		1,049,066
Derivative liabilities
Interest rate swaps	—		747,036		—		747,036
Other derivatives	129,134		5,367		—		134,501
Total liabilities	$	129,134	$	6,957,102	$	—	$	7,086,236

Qualitative and 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 MSR and Interests in MSR, 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 MSR and Interests in MSR, which in turn could result in a decline in the estimated fair value of MSR and Interests in MSR. Refer to the “Mortgage Servicing Rights” Note for additional information, including rollforwards.

The table below presents information about the significant unobservable inputs used for recurring fair value measurements for Level 3 MSR and Interests in MSR. The table does not give effect to the Company’s risk management practices that might offset risks inherent in these Level 3 investments.

	June 30, 2022
	Unobservable Input (1) / Range (Weighted Average) (2)
	Discount rate	Prepayment rate	Delinquency rate	Cost to service
MSR held directly	5.8% - 9.8% (8.2%)	4.8% - 8.3% (5.4%)	0.1% - 1.8% (0.8%)	$89 - $110 ($93)
Interests in MSR	8.0% - 8.0% (8.0%)	4.0% - 9.6% (6.8%)	0.4% - 4.3% (1.4%)	$82 - $87 ($84)

	December 31, 2021
	Unobservable Input (1) / Range (Weighted Average) (2)
	Discount rate	Prepayment rate	Delinquency rate	Cost to service
MSR held directly	3.3% - 11.1% (7.0%)	7.3% - 15.9% (9.4%)	0.2% - 2.5% (1.2%)	$90 - $103 ($96)
Interests in MSR	8.4% - 8.4% (8.4%)	5.0% - 14.4% (9.1%)	0.0% - 0.2% (0.1%)	$78 - $84 ($81)
(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 MSR, weighted average prepayment rate, delinquency rate and cost to service based on unpaid principal balances of loans underlying the MSR.

The following table summarizes the estimated fair values for financial assets and liabilities that are not carried at fair value at June 30, 2022 and December 31, 2021.

	June 30, 2022		December 31, 2021
	Carrying Value	Fair Value	Carrying Value	Fair Value
Financial assets	(dollars in thousands)
Corporate debt, held for investment	—	—	1,968,991	1,986,379
Financial liabilities
Repurchase agreements	$51,364,097	$51,364,097	$54,769,643	$54,769,643
Other secured financing	—	—	903,255	903,255

Corporate debt, held for investment and corporate debt, held for sale are valued using Level 3 inputs. The carrying values of repurchase agreements and short term other secured financing approximate fair value and are considered Level 2 fair value measurements. Long term other secured financing is valued using Level 2 inputs.

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GOODWILL AND INTANGIBLE ASSETS

6 Months Ended

Jun. 30, 2022

Goodwill and Intangible Assets Disclosure [Abstract]

GOODWILL AND INTANGIBLE ASSETS

13.  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 compares the fair value of a reporting unit with its carrying value, including goodwill. If the carrying value of a reporting unit exceeds its fair value, an impairment loss is recognized in amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. At June 30, 2022 and December 31, 2021, there was no goodwill balance. During the three months ended March 31, 2021, the Company recognized an impairment on goodwill in connection with the sale of the CRE business. Refer to the “Sale of Commercial Real Estate Business” Note for additional information.

Intangible assets, net

Finite life intangible assets are amortized over their expected useful lives. As part of the Company’s management internalization transaction, which closed on June 30, 2020, the Company recognized an intangible asset for the acquired assembled workforce of approximately $41.2 million based on the replacement cost of the employee base acquired by the Company.

The following table presents the activity of finite lived intangible assets for the six months ended June 30, 2022.

Intangible Assets, net
(dollars in thousands)
Balance at December 31, 2021	$	24,241
Impairment	(4,157)
Less: amortization expense	(1,889)
Balance at June 30, 2022	18,195

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SECURED FINANCING

6 Months Ended

Jun. 30, 2022

Debt Disclosure [Abstract]

SECURED FINANCING

14. 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 should be treated as a securing financing.

The Company enters into reverse repurchase agreements to earn a yield on excess cash balances. To mitigate credit exposure, the Company monitors the market value of these securities and delivers or obtains additional collateral based on changes in market value of these securities. Generally, the Company receives or posts collateral with a fair value approximately equal to or greater than the value of the secured financing.

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 $51.4 billion and $54.8 billion of repurchase agreements with weighted average remaining maturities of 47 days and 52 days at June 30, 2022 and December 31, 2021, respectively. The Company has select arrangements with counterparties to enter into repurchase agreements for $1.8 billion with remaining capacity of $1.3 billion at June 30, 2022.

At June 30, 2022 and December 31, 2021, the repurchase agreements had the following remaining maturities, collateral types and weighted average rates: 

June 30, 2022
	Agency Mortgage-Backed Securities		CRTs		Non-Agency Mortgage-Backed Securities		Residential Mortgage Loans		Commercial Mortgage-Backed Securities		Total Repurchase Agreements		Weighted Average Rate
	(dollars in thousands)
1 day	$	14,651,402	$	—	$	35,360	$	—	$	—	$	14,686,762	1.61	%
2 to 29 days	25,217,859		2,406		297,845		—		9,069		25,527,179		1.58	%
30 to 59 days	1,059,120		—		531,852		—		—		1,590,972		1.33	%
60 to 89 days	936,214		244,947		533,106		—		51,304		1,765,571		1.55	%
90 to 119 days	772,314		349,867		648,369		—		—		1,770,550		1.43	%
Over 119 days (1)	4,657,042		126,354		346,242		533,435		359,990		6,023,063		1.84	%
Total	$	47,293,951	$	723,574	$	2,392,774	$	533,435	$	420,363	$	51,364,097	1.60	%

December 31, 2021
	Agency Mortgage-Backed Securities		CRTs		Non-Agency Mortgage-Backed Securities		Residential Mortgage Loans		Commercial Mortgage-Backed Securities		Total Repurchase Agreements		Weighted Average Rate
	(dollars in thousands)
1 day	$	—	$	—	$	—	$	—	$	—	$	—	—	%
2 to 29 days	26,435,408		133,525		246,707		—		197,834		27,013,474		0.14	%
30 to 59 days	9,743,872		38,854		270,377		159,350		—		10,212,453		0.19	%
60 to 89 days	6,021,850		4,071		351,426		—		—		6,377,347		0.17	%
90 to 119 days	4,812,345		—		12,573		—		—		4,824,918		0.15	%
Over 119 days (1)	5,711,448		—		96,283		345,651		188,069		6,341,451		0.27	%
Total	$	52,724,923	$	176,450	$	977,366	$	505,001	$	385,903	$	54,769,643	0.17	%
(1) No repurchase agreements had a remaining maturity over 1 year at June 30, 2022 and December 31, 2021.

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 June 30, 2022 and December 31, 2021. Refer to the “Derivative Instruments” Note for information related to the effect of netting arrangements on the Company’s derivative instruments.

	June 30, 2022				December 31, 2021
	Reverse Repurchase Agreements		Repurchase Agreements		Reverse Repurchase Agreements		Repurchase Agreements
	(dollars in thousands)
Gross amounts	$	—	$	51,364,097	$	—	$	54,769,643
Amounts offset	—		—		—		—
Netted amounts	$	—	$	51,364,097	$	—	$	54,769,643

Other Secured Financing - Refer to the “Variable Interest Entities” Note 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 mortgage loans of consolidated VIEs, had an estimated fair value and accrued interest of $54.8 billion and $166.3 million, respectively, at June 30, 2022 and $59.2 billion and $160.8 million, respectively, at December 31, 2021.

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CAPITAL STOCK

6 Months Ended

Jun. 30, 2022

Equity [Abstract]

CAPITAL STOCK

15. CAPITAL STOCK

(A)    Common Stock

The following table provides a summary of the Company’s common shares authorized, and issued and outstanding at June 30, 2022 and December 31, 2021.

	Shares authorized		Shares issued and outstanding
	June 30, 2022	December 31, 2021	June 30, 2022	December 31, 2021	Par Value
Common stock	2,936,500,000	2,936,500,000	1,609,215,497	1,459,736,258	$0.01

In December 2020, the Company announced that its board of directors (“Board”) authorized the repurchase of up to $1.5 billion of its outstanding common shares through December 31, 2021 (the “Prior Share Repurchase Program”). In January 2022, the Company announced that its Board authorized the repurchase of up to $1.5 billion of its outstanding shares of common stock through December 31, 2024 (the “Current Share Repurchase Program”). The Current Share Repurchase Program replaced the Prior Share Repurchase Program. During the three and six months ended June 30, 2022 and 2021, no shares were purchased under the Current Share Repurchase Program or Prior Share Repurchase Program.

During the three and six months ended June 30, 2022, the Company closed the public offering of an original issuance of 100.0 million shares of common stock for proceeds of $645.0 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 15.0 million shares of common stock, which the underwriters exercised in full resulting in an additional $96.8 million in proceeds before deducting offering expenses.

In January 2018, the Company entered into separate Distribution Agency Agreements (as amended and restated on August 6, 2021 and 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.

During the three and six months ended June 30, 2022, the Company issued 33.0 million shares for proceeds of $214.9 million, net of commissions and fees, and 33.8 million shares for proceeds of $221.1 million, net of commissions and fees, respectively, under the at-the-market sales program. During the three and six months ended June 30, 2021, the Company issued 45.5 million shares for proceeds of $420.4 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 June 30, 2022 and December 31, 2021. 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 Authorized		Shares Issued And Outstanding		Carrying Value				Contractual Rate	Earliest Redemption Date (1)	Date At Which Dividend Rate Becomes Floating	Floating Annual Rate
	June 30, 2022	December 31, 2021	June 30, 2022	December 31, 2021	June 30, 2022		December 31, 2021
Fixed-to-floating rate
Series F	28,800,000	28,800,000	28,800,000	28,800,000	696,910		696,910		6.95%	9/30/2022	9/30/2022	3M LIBOR + 4.993%
Series G	17,000,000	17,000,000	17,000,000	17,000,000	411,335		411,335		6.50%	3/31/2023	3/31/2023	3M LIBOR + 4.172%
Series I	17,700,000	17,700,000	17,700,000	17,700,000	428,324		428,324		6.75%	6/30/2024	6/30/2024	3M LIBOR + 4.989%
Total	63,500,000	63,500,000	63,500,000	63,500,000	$	1,536,569	$	1,536,569
(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 June 30, 2022, the Company had declared and paid all required quarterly dividends on the Company’s preferred stock.

The Series F Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, Series G Fixed-to-Floating Rate Cumulative Preferred Stock and Series I Fixed-to-Floating Rate Cumulative 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:

	For the Three Months Ended				For the Six Months Ended
	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
	(dollars in thousands, except per share data)
Dividends and dividend equivalents declared on common stock and share-based awards	$	355,467	$	318,534	$	677,664	$	626,880
Distributions declared per common share	$	0.22	$	0.22	$	0.44	$	0.44
Distributions paid to common stockholders after period end	$	354,027	$	317,714	$	354,027	$	317,714
Distributions paid per common share after period end	$	0.22	$	0.22	$	0.22	$	0.22
Date of distributions paid to common stockholders after period end	July 29, 2022		July 30, 2021		July 29, 2022		July 30, 2021
Dividends declared to series F preferred stockholders	$	12,510	$	12,510	$	25,020	$	25,020
Dividends declared per share of series F preferred stock	$	0.434	$	0.434	$	0.869	$	0.869
Dividends declared to series G preferred stockholders	$	6,906	$	6,906	$	13,812	$	13,812
Dividends declared per share of series G preferred stock	$	0.406	$	0.406	$	0.813	$	0.813
Dividends declared to series I preferred stockholders	$	7,467	$	7,467	$	14,934	$	14,934
Dividends declared per share of series I preferred stock	$	0.422	$	0.422	$	0.844	$	0.844

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INTEREST INCOME AND INTEREST EXPENSE

6 Months Ended

Jun. 30, 2022

Banking and Thrift, Interest [Abstract]

INTEREST INCOME AND INTEREST EXPENSE

16.  INTEREST INCOME AND INTEREST EXPENSE

Refer to the “Significant Accounting Policies” Note 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
(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 gains (losses) on investments and other 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.

The following presents the components of the Company’s interest income and interest expense for the three and six months ended June 30, 2022 and June 30, 2021.

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2022		2021		2022		2021
Interest income	(dollars in thousands)
Agency securities	$	497,135	$	255,801	$	1,020,086	$	883,455
Residential credit securities	30,037		19,477		52,159		36,457
Residential mortgage loans (1)	91,648		38,963		165,136		76,072
Commercial investment portfolio (1) (2)	26,575		69,663		63,858		151,264
Reverse repurchase agreements	220		2		226		36
Total interest income	$	645,615	$	383,906	$	1,301,465	$	1,147,284
Interest expense
Repurchase agreements	105,608		29,140		132,487		71,725
Debt issued by securitization vehicles	50,303		23,216		84,928		49,492
Participations issued	9,379		1,739		15,231		2,336
Other	5,185		6,952		12,751		13,467
Total interest expense	170,475		61,047		245,397		137,020
Net interest income	$	475,140	$	322,859	$	1,056,068	$	1,010,264
(1) Includes assets transferred or pledged to securitization vehicles. (2) Includes commercial real estate debt and preferred equity and corporate debt.

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NET INCOME (LOSS) PER COMMON SHARE

6 Months Ended

Jun. 30, 2022

Earnings Per Share [Abstract]

NET INCOME (LOSS) PER COMMON SHARE

17.  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 six months ended June 30, 2022 and June 30, 2021.

	For the Three Months Ended				For the Six Months Ended
	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
	(dollars in thousands, except per share data)
Net income (loss)	$	863,317	$	(294,848)	$	2,887,211	$	1,456,286
Net income (loss) attributable to noncontrolling interests	(3,379)		794		(1,740)		1,115
Net income (loss) attributable to Annaly	866,696		(295,642)		2,888,951		1,455,171
Dividends on preferred stock	26,883		26,883		53,766		53,766
Net income (loss) available (related) to common stockholders	$	839,813	$	(322,525)	$	2,835,185	$	1,401,405
Weighted average shares of common stock outstanding-basic	1,522,436,766		1,410,239,138		1,492,068,912		1,404,755,496
Add: Effect of stock awards, if dilutive	1,158,234		—		1,185,978		1,008,776
Weighted average shares of common  stock outstanding-diluted	1,523,595,000		1,410,239,138		1,493,254,890		1,405,764,272
Net income (loss) per share available (related) to common share
Basic	$	0.55	$	(0.23)	$	1.90	$	1.00
Diluted	$	0.55	$	(0.23)	$	1.90	$	1.00

The computations of diluted net income (loss) per share available (related) to common share for the three and six months ended June 30, 2022 excludes 3.2 million and 2.6 million, respectively, and the three months ended June 30, 2021 excludes 3.2 million of potentially dilutive restricted and performance stock units because their effect would have been anti-dilutive.

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INCOME TAXES

6 Months Ended

Jun. 30, 2022

Income Tax Disclosure [Abstract]

INCOME TAXES

18.  INCOME TAXES

For the three months ended June 30, 2022 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.

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 June 30, 2022 and December 31, 2021.

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 six months ended June 30, 2022, the Company recorded $23.4 million and $50.0 million, respectively, of income tax expense attributable to its TRSs. During the three and six months ended June 30, 2021, the Company recorded $5.1 million and $4.8 million, respectively, of income tax expense attributable to its TRSs. The Company’s federal, state and local tax returns from 2018 and forward remain open for examination.

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RISK MANAGEMENT

6 Months Ended

Jun. 30, 2022

Risk Management [Abstract]

RISK MANAGEMENT

19.  RISK MANAGEMENT

The primary risks to the Company are capital, liquidity and funding risk, investment/market risk, credit risk and operational 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, changes in the expectations for the volatility of future interest rates and deterioration of financial conditions in general 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.

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 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 by rising borrower delinquencies which would reduce servicing income and increase overall costs to service the underlying mortgage loans. The Company is exposed to risk of loss if an issuer, borrower or counterparty fails to perform its obligations under contractual terms. The Company has established policies and procedures for mitigating credit risk, including reviewing and establishing limits for credit exposure, limiting transactions with specific counterparties, pre-purchase due diligence, maintaining qualifying collateral and continually assessing the creditworthiness of issuers, borrowers and counterparties, credit rating monitoring and active servicer oversight.

The Company depends on third-party service providers to perform various business processes related to its operations, including mortgage loan servicers and sub-servicers. The Company’s vendor management policy establishes procedures for

engaging, onboarding and monitoring the performance of third-party vendors. These procedures include assessing a vendor’s financial health as well as oversight of its compliance with applicable laws and regulations, cybersecurity and business continuity programs and security of personally identifiable information.

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LEASE COMMITMENTS AND CONTINGENCIES

6 Months Ended

Jun. 30, 2022

Leases [Abstract]

LEASE COMMITMENTS AND CONTINGENCIES

20.  LEASE COMMITMENTS AND CONTINGENCIES

The Company’s operating leases are primarily comprised of a corporate office lease with a remaining lease term of approximately three 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 six months ended June 30, 2022 and 2021 was $0.8 million and $1.6 million, and $0.7 million and $1.6 million, respectively.

Supplemental information related to leases as of and for the six months ended June 30, 2022 was as follows:

Operating Leases	Classification	June 30, 2022
Assets	(dollars in thousands)
Operating lease right-of-use assets	Other assets	$	9,221
Liabilities
Operating lease liabilities (1)	Other liabilities	$	11,969
Lease term and discount rate
Weighted average remaining lease term		3.2 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		$	1,931
(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)
2022 (remaining)	$	1,931
2023	3,862
2024	3,862
2025	2,896
Total lease payments	$	12,551
Less imputed interest	582
Present value of lease liabilities	$	11,969

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 June 30, 2022 and December 31, 2021.

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ARCOLA REGULATORY REQUIREMENTS

6 Months Ended

Jun. 30, 2022

Broker-Dealer, Net Capital Requirement, SEC Regulation [Abstract]

ARCOLA REGULATORY REQUIREMENTS

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 June 30, 2022, 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 June 30, 2022 was $502.5 million with excess net capital of $502.2 million.

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SUBSEQUENT EVENTS

6 Months Ended

Jun. 30, 2022

Subsequent Events [Abstract]

Subsequent Events

22.  SUBSEQUENT EVENTS

In July 2022, the Company closed a $500 million credit facility for Annaly’s MSR platform, which includes a $250 million committed credit facility and a $250 million incremental facility provision.

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SIGNIFICANT ACCOUNTING POLICIES (Policies)

6 Months Ended

Jun. 30, 2022

Accounting Policies [Abstract]

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”).

Principles of Consolidation

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

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

Variable Interest Entities – A VIE is defined as an entity in which equity investors (i) do not have the characteristics of a controlling financial interest, and/or (ii) do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. A VIE is required to be consolidated by its primary beneficiary, which is defined as the party that has both (i) the power to control the activities that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.

The Company performs ongoing reassessments of whether changes in the facts and circumstances regarding the Company’s involvement with a VIE causes the Company’s consolidation conclusion to change. Refer to the “Variable Interest Entities” Note for further information.

Equity Method Investments

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

Cash and Cash Equivalents

Cash and Cash Equivalents – 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.

Fair Value Measurements and the Fair Value Option

Fair Value Measurements and the Fair Value Option – The Company reports various investments at fair value, including certain eligible financial instruments elected to be accounted for under the fair value option (“FVO”). The Company chooses to elect the FVO in order to simplify the accounting treatment for certain financial instruments. Items for which the FVO has been elected are presented at fair value in the Consolidated Statements of Financial Condition and any change in fair value is recorded in Net gains (losses) on investments and other in the Consolidated Statements of Comprehensive Income (Loss). For additional information regarding financial instruments for which the Company has elected the FVO see the table in the “Financial Instruments” Note.

Refer to the “Fair Value Measurements” Note for a complete discussion on the methodology utilized by the Company to estimate the fair value of certain financial instruments.

The Company follows fair value guidance in accordance with GAAP to account for its financial instruments and MSR 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 between market participants at the measurement date.

GAAP requires classification of financial instruments and MSR 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 instrument and MSR 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.

Offsetting Assets and Liabilities

Offsetting Assets and Liabilities - The Company elected to present all derivative instruments on a gross basis as discussed in the “Derivative Instruments” Note. Reverse repurchase and repurchase agreements are presented net in the Consolidated Statements of Financial Condition if they meet the offsetting criteria. Please see below and refer to the “Secured Financing” Note for further discussion on reverse repurchase and repurchase agreements.

Derivative Instruments

Derivative Instruments – Derivatives are recognized as either assets or liabilities at fair value in the Consolidated Statements of Financial Condition with changes in fair value recognized in the Consolidated Statements of Comprehensive Income (Loss). The changes in the estimated fair value are presented within Net gains (losses) on derivatives. None of the Company’s derivative transactions have been designated as hedging instruments for accounting purposes. Refer to the “Derivative Instruments” Note for further discussion.

Stock-Based Compensation

Stock-Based Compensation – The Company measures compensation expense for stock-based awards at fair value, which is generally based on the grant-date fair value of the Company’s common stock. Compensation expense is recognized ratably over the vesting or requisite service period of the award. Stock-based awards that contain market-based conditions are valued using a model.

Compensation expense for awards with performance conditions is recognized based on the probable outcome of the performance condition at each reporting date. Compensation expense for awards with market conditions is recognized irrespective of the probability of the market condition being achieved and is not reversed if the market condition is not met. Stock-based awards that do not require future service (i.e., vested awards) are expensed immediately. Forfeitures are recorded when they occur. The Company generally issues new shares of common stock upon delivery of stock-based awards.

Interest Income

Interest Income - The Company recognizes interest income primarily on Residential Securities (as defined in the “Securities” Note), residential mortgage loans, commercial investments and reverse repurchase agreements. Interest accrued but not paid is recognized as Interest receivable on the Consolidated Statements of Financial Condition. Interest income is presented as a separate line item on the Consolidated Statements of Comprehensive Income (Loss). Refer to the “Interest Income and Interest Expense” Note for further discussion.

For its securities, the Company recognizes coupon income, which is a component of interest income, based upon the outstanding principal amounts of the financial instruments and their contractual terms. In addition, the Company amortizes or accretes premiums or discounts into interest income for its Agency mortgage-backed securities (other than interest-only securities, multifamily and reverse mortgages), taking into account estimates of future principal prepayments in the calculation of the effective yield.  The Company recalculates the effective yield as differences between anticipated and actual prepayments occur. Using third party model and market information to project future cash flows and expected remaining lives of securities, the effective interest rate determined for each security is applied as if it had been in place from the date of the security’s acquisition. The amortized cost of the security is then adjusted to the amount that would have existed had the new effective yield been applied since the acquisition date, which results in a cumulative premium amortization adjustment in each period. The adjustment to amortized cost is offset with a charge or credit to interest income. Changes in interest rates and other market factors will impact prepayment speed projections and the amount of premium amortization recognized in any given period.

Premiums or discounts associated with the purchase of Agency interest-only securities, reverse mortgages and residential credit securities are amortized or accreted into interest income based upon current expected future cash flows with any adjustment to yield made on a prospective basis.

Premiums and discounts associated with the purchase of residential mortgage loans and with those transferred or pledged to securitization trusts are primarily amortized or accreted into interest income over their estimated remaining lives using the effective interest rates inherent in the estimated cash flows from the mortgage loans. Amortization of premiums and accretion of discounts are presented in Interest income in the Consolidated Statements of Comprehensive Income (Loss).

If collection of a loan’s principal or interest is in doubt or the loan is 90 days or more past due, interest income is not accrued. For nonaccrual status loans carried at fair value or held for sale, interest is not accrued but is recognized on a cash basis. For nonaccrual status loans carried at amortized cost, if collection of principal is not in doubt but collection of interest is in doubt, interest income is recognized on a cash basis. If collection of principal is in doubt, any interest received is applied against principal until collectability of the remaining balance is no longer in doubt; at that point, any interest income is recognized on a cash basis. Generally, a loan is returned to accrual status when the borrower has resumed paying the full amount of the scheduled contractual obligation, if all principal and interest amounts contractually due are reasonably assured of repayment within a reasonable period of time and there is a sustained period of repayment performance by the borrower. Refer to the “Interest Income and Interest Expense” Note for further discussion on interest.

The Company has made an accounting policy election not to measure an allowance for loans losses on corporate debt for accrued interest receivable. If interest receivable is deemed to be uncollectible or not collected within 120 days for corporate debt carried at amortized cost, it is written off through a reversal of interest income. Any interest written off that is recovered is recognized as interest income.

Refer to the “Interest Income and Interest Expense” Note for further discussion of interest income.

Income Taxes

Income Taxes – The Company has elected to be taxed as a REIT and intends to comply with the provisions of the Code, with respect thereto. As a REIT, the Company will not incur federal income tax to the extent that it distributes its taxable income to its stockholders. The Company and certain of its direct and indirect subsidiaries have made separate joint elections to treat these subsidiaries as taxable REIT subsidiaries (“TRSs”).  As such, each of these TRSs is taxable as a domestic C corporation and subject to federal, state and local income taxes based upon its taxable income. Refer to the “Income Taxes” Note for further discussion on income taxes.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

The Company considers the applicability and impact of all Accounting Standards Updates (“ASUs”).  ASUs not listed below were not applicable, not expected to have a significant impact on the Company’s consolidated financial statements when adopted or did not have a significant impact on the Company’s consolidated financial statements upon adoption.

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

Residential Mortgage Loans

The Company’s residential mortgage loans are primarily comprised of performing adjustable-rate and fixed-rate whole loans. The Company’s residential loans are accounted for under the fair value option with changes in fair value reflected in Net gains (losses) on investments and other in the Consolidated Statements of Comprehensive Income (Loss). The Company also consolidates securitization trusts in which it had purchased subordinated securities because it also has certain powers and rights to direct the activities of such trusts. Refer to the “Variable Interest Entities” Note for further information related to the Company’s consolidated residential mortgage loan trusts.

Fair Value of Financial Instruments

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.

For the fair value of debt issued by securitization vehicles, refer to the “Variable Interest Entities” Note for additional information.

The Company classifies its investments in MSR and Interests in MSR 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 discount rates, prepayment rates, delinquency levels and costs to service. 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 MSR and Interests in MSR require 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.

Goodwill and Intangible Assets

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 compares the fair value of a reporting unit with its carrying value, including goodwill. If the carrying value of a reporting unit exceeds its fair value, an impairment loss is recognized in amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.

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 should be treated as a securing financing.

The Company enters into reverse repurchase agreements to earn a yield on excess cash balances. To mitigate credit exposure, the Company monitors the market value of these securities and delivers or obtains additional collateral based on changes in market value of these securities. Generally, the Company receives or posts collateral with a fair value approximately equal to or greater than the value of the secured financing.

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.

Contingencies

ContingenciesFrom 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.

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SEC Schedule, Article 12-29, Mortgage Loans on Real Estate (Policies)

6 Months Ended

Jun. 30, 2022

SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Abstract]

Allowance for Credit Losses, Policy for Uncollectible Amounts

Allowance for Losses – The Company evaluates the need for a loss reserve on each of its loans classified as held-for-investment, which primarily include corporate debt, where the fair value option is not elected. Allowance for loan losses are written off in the period the loans are deemed uncollectible.

Given the unique nature of each underlying borrower and any collateral, the Company assesses an allowance for each individual loan held for investment. An allowance is established at origination or acquisition that reflects management’s estimate of the total expected credit loss over the expected life of the loan. In estimating the lifetime expected credit losses, management utilizes a probability of default and loss given default methodology (“Loss Given Default methodology”), which considers projected economic conditions over the reasonable and supportable forecast period. The forecast incorporates primarily market-based assumptions including, but not limited to, forward interest rate curves, unemployment rate estimates and certain indexes sourced from third party vendors. For any remaining period of the expected life of the loan after the reasonable and supportable period, the Company reverts to historical losses on a straight-line basis. Management uses third party vendors’ loan pool data for loans with similar risk characteristics to estimate historical losses given the limited loss history of the Company’s loan portfolio. Changes in the lifetime expected credit loss are reflected in Loan loss (provision) reversal in the Consolidated Statements of Comprehensive Income (Loss). For loans experiencing credit deterioration, the Company may use a different methodology to determine the expected credit losses such as a discounted cash flow analysis.

Management assesses the credit quality of the portfolio and adequacy of loan loss reserves on a quarterly basis, or more frequently as necessary. Significant judgment is required in this analysis. Depending on the expected recovery of its investment, the Company considers the estimated net recoverable value of the loans as well as other factors, including but not limited to the fair value of any collateral, the amount and the status of any senior debt, the prospects for the borrower and the competitive landscape where the borrower conducts business. To determine if loan loss allowances are required on investments in corporate debt, the Company reviews the monthly and/or quarterly financial statements of the borrowers, verifies loan compliance packages, if applicable, and analyzes current results relative to budgets and sensitivities performed at inception of the investment.  Because these determinations are based upon projections of future economic events, which are inherently subjective, the amounts ultimately realized may differ materially from the carrying value as of the reporting date.

The Company may be exposed to various levels of credit risk depending on the nature of its investments and credit enhancements, if any, supporting its assets. The Company’s core investment process includes procedures related to the initial approval and periodic monitoring of credit risk and other risks associated with each investment.  The Company’s investment underwriting procedures include evaluation of the underlying borrowers’ ability to manage and operate their respective properties or companies.  Management reviews loan-to-value metrics at origination or acquisition of a new investment and if events occur that trigger re-evaluation by management.

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DESCRIPTION OF BUSINESS (Tables)

6 Months Ended

Jun. 30, 2022

Accounting Policies [Abstract]

Schedule of Investment Groups

The Company’s investment groups are primarily comprised of the following:

Investment Groups	Description
Annaly Agency Group	Invests in Agency mortgage-backed securities (“MBS”) collateralized by residential mortgages which are guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae and complementary investments within the Agency market, including Agency commercial mortgage-backed securities.
Annaly Residential Credit Group	Invests primarily in non-Agency residential whole loans and securitized products within the residential and commercial markets.
Annaly Mortgage Servicing Rights Group	Invests in MSR, which provide the right to service residential loans in exchange for a portion of the interest payments made on the loans.

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SIGNIFICANT ACCOUNTING POLICIES (Tables)

6 Months Ended

Jun. 30, 2022

Accounting Policies [Abstract]

Recent Accounting Pronouncements

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

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FINANCIAL INSTRUMENTS (Tables)

6 Months Ended

Jun. 30, 2022

Investments, All Other Investments [Abstract]

Schedule of Characteristics of Financial Instruments

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

Financial Instruments (1)
Balance Sheet Line Item	Type / Form	Measurement Basis	June 30, 2022		December 31, 2021
	Assets	(dollars in thousands)
Securities	Agency mortgage-backed securities (2)	Fair value, with unrealized gains (losses) through other comprehensive income	$	55,059,932	$	59,939,383
Securities	Agency mortgage-backed securities (3)	Fair value, with unrealized gains (losses) through earnings	533,404		586,222
Securities	Residential credit risk transfer securities	Fair value, with unrealized gains (losses) through earnings	965,714		936,228
Securities	Non-agency mortgage-backed securities	Fair value, with unrealized gains (losses) through earnings	2,026,658		1,663,336
Securities	Commercial real estate debt investments - CMBS	Fair value, with unrealized gains (losses) through earnings	439,301		521,440
Securities	Commercial real estate debt investments - credit risk transfer securities	Fair value, with unrealized gains (losses) through earnings	17,725		9,065
Total securities			59,042,734		63,655,674
Loans, net	Residential mortgage loans	Fair value, with unrealized gains (losses) through earnings	1,486,811		2,272,072
Loans, net	Residential mortgage loan warehouse facility	Fair value, with unrealized gains (losses) through earnings	322		980
Loans, net	Corporate debt, held for investment	Amortized cost	—		1,968,991
Total loans, net			1,487,133		4,242,043
Interests in MSR	Interest in net servicing cash flows	Fair value, with unrealized gains (losses) through earnings	83,622		69,316
Assets transferred or pledged to securitization vehicles	Agency mortgage-backed securities	Fair value, with unrealized gains (losses) through other comprehensive income	458,268		589,873
Assets transferred or pledged to securitization vehicles	Residential mortgage loans	Fair value, with unrealized gains (losses) through earnings	8,418,979		5,496,435
Total assets transferred or pledged to securitization vehicles			8,877,247		6,086,308
	Liabilities
Repurchase agreements	Repurchase agreements	Amortized cost	51,364,097		54,769,643
Other secured financing	Loans	Amortized cost	—		903,255
Debt issued by securitization vehicles	Securities	Fair value, with unrealized gains (losses) through earnings	7,502,483		5,155,633
Participations issued	Participations issued	Fair value, with unrealized gains (losses) through earnings	696,944		1,049,066
(1) Receivable for unsettled trades, Principal and interest receivable, Payable for unsettled trades, Interest payable and Dividends payable are accounted for at cost. Interests in MSR are considered financial assets whereas directly held MSR are servicing assets or obligations. (2) Includes Agency pass-through, collateralized mortgage obligation (“CMO”) and multifamily securities. (3) Includes interest-only securities and reverse mortgages.

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SECURITIES (Tables)

6 Months Ended

Jun. 30, 2022

Investments, Debt and Equity Securities [Abstract]

Rollforward of Company's Securities

The following represents a rollforward of the activity for the Company’s securities, excluding securities transferred or pledged to securitization vehicles, for the six months ended June 30, 2022:

	Agency Securities		Residential Credit Securities		Commercial Securities		Total
	(dollars in thousands)
Beginning balance January 1, 2022	$	60,525,605	$	2,599,564	$	530,505	$	63,655,674
Purchases	14,731,945		1,243,293		112,396		16,087,634
Sales and transfers	(9,042,404)		(352,027)		(169,224)		(9,563,655)
Principal paydowns	(5,385,047)		(323,281)		(3,446)		(5,711,774)
(Amortization) / accretion	28,799		2,358		78		31,235
Fair value adjustment	(5,265,562)		(177,535)		(13,283)		(5,456,380)
Ending balance June 30, 2022	$	55,593,336	$	2,992,372	$	457,026	$	59,042,734

Schedule of Available-for-sale Securities Reconciliation

The following tables present the Company’s securities portfolio, excluding securities transferred or pledged to securitization vehicles, that were carried at their fair value at June 30, 2022 and December 31, 2021:

	June 30, 2022
	Principal / Notional		Remaining Premium		Remaining Discount		Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Agency	(dollars in thousands)
Fixed-rate pass-through	$	55,460,523	$	2,874,749	$	(281,278)	$	58,053,994	$	31,761	$	(4,306,637)	$	53,779,118
Adjustable-rate pass-through	260,238		10,651		(270)		270,619		5,183		(6,292)		269,510
CMO	106,189		1,848		—		108,037		—		(6,692)		101,345
Interest-only	1,662,567		416,404		—		416,404		673		(196,588)		220,489
Multifamily(1)	8,182,519		312,441		(523)		1,243,478		2,596		(55,978)		1,190,096
Reverse mortgages	31,968		3,376		—		35,344		—		(2,566)		32,778
Total agency securities	$	65,704,004	$	3,619,469	$	(282,071)	$	60,127,876	$	40,213	$	(4,574,753)	$	55,593,336
Residential credit
Credit risk transfer (2)	$	1,010,209	$	6,552	$	(2,474)	$	1,014,287	$	390	$	(48,963)	$	965,714
Alt-A	138,473		33		(19,899)		118,607		1,902		(4,931)		115,578
Prime (3)	1,227,193		15,855		(25,681)		297,095		4,989		(32,367)		269,717
Subprime	187,969		221		(17,896)		170,294		4,045		(7,020)		167,319
NPL/RPL	1,300,169		1,275		(6,026)		1,295,418		343		(45,858)		1,249,903
Prime jumbo (>=2010 vintage) (4)	2,193,098		17,814		(26,089)		250,065		2,954		(28,878)		224,141
Total residential credit securities	$	6,057,111	$	41,750	$	(98,065)	$	3,145,766	$	14,623	$	(168,017)	$	2,992,372
Total Residential Securities	$	71,761,115	$	3,661,219	$	(380,136)	$	63,273,642	$	54,836	$	(4,742,770)	$	58,585,708
Commercial
Commercial Securities	$	474,523	$	—	$	(1,776)	$	472,747	$	—	$	(15,721)	$	457,026
Total securities	$	72,235,638	$	3,661,219	$	(381,912)	$	63,746,389	$	54,836	$	(4,758,491)	$	59,042,734
	December 31, 2021
	Principal / Notional		Remaining Premium		Remaining Discount		Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Agency	(dollars in thousands)
Fixed-rate pass-through	$	54,432,252	$	3,008,185	$	(18,314)	$	57,422,123	$	1,349,125	$	(474,643)	$	58,296,605
Adjustable-rate pass-through	305,211		1,965		(2,124)		305,052		16,223		(2)		321,273
CMO	114,533		1,888		—		116,421		5,277		—		121,698
Interest-only	1,912,415		456,683		—		456,683		428		(163,197)		293,914
Multifamily (1)	5,671,138		273,553		—		1,453,946		15,330		(16,563)		1,452,713
Reverse mortgages	36,807		3,550		—		40,357		—		(955)		39,402
Total agency investments	$	62,472,356	$	3,745,824	$	(20,438)	$	59,794,582	$	1,386,383	$	(655,360)	$	60,525,605
Residential credit
Credit risk transfer (2)	$	924,101	$	8,754	$	(1,176)	$	927,555	$	9,641	$	(968)	$	936,228
Alt-A	83,213		31		(17,133)		66,111		3,627		(251)		69,487
Prime (3)	323,062		9,841		(14,757)		268,117		10,853		(3,529)		275,441
Subprime	170,671		349		(16,111)		154,909		8,285		(118)		163,076
NPL/RPL	987,415		950		(1,698)		986,667		2,739		(5,968)		983,438
Prime jumbo (>=2010 vintage) (4)	299,783		5,680		(6,410)		172,598		4,272		(4,976)		171,894
Total residential credit securities	$	2,788,245	$	25,605	$	(57,285)	$	2,575,957	$	39,417	$	(15,810)	$	2,599,564
Total Residential Securities	$	65,260,601	$	3,771,429	$	(77,723)	$	62,370,539	$	1,425,800	$	(671,170)	$	63,125,169
Commercial
Commercial Securities	$	533,071	$	—	$	(127)	$	532,944	$	165	$	(2,604)	$	530,505
Total securities	$	65,793,672	$	3,771,429	$	(77,850)	$	62,903,483	$	1,425,965	$	(673,774)	$	63,655,674
(1) Principal/Notional amount includes $7.3 billion and $4.5 billion of Agency Multifamily interest-only securities as of June 30, 2022 and December 31, 2021, respectively. (2) Principal/Notional amount includes $0.0 million and $4.1 million of a CRT interest-only security as of June 30, 2022 and December 31, 2021, respectively. (3) Principal/Notional amount includes $920.3 million and $50.0 million of Prime interest-only securities as of June 30, 2022 and December 31, 2021, respectively. (4) Principal/Notional amount includes $1.9 billion and $126.5 million of Prime Jumbo interest-only securities as of June 30, 2022 and December 31, 2021, respectively.

Types of Agency Mortgage Backed Securities

The following table presents the Company’s Agency mortgage-backed securities portfolio, excluding securities transferred or pledged to securitization vehicles, by issuing Agency at June 30, 2022 and December 31, 2021: 

	June 30, 2022		December 31, 2021
Investment Type	(dollars in thousands)
Fannie Mae	$	46,415,070	$	48,404,991
Freddie Mac	9,111,646		10,880,033
Ginnie Mae	66,620		1,240,581
Total	$	55,593,336	$	60,525,605

Schedule of Residential Investment Securities by Estimated Weighted Average Life Classification

The following table summarizes the Company’s Residential Securities, excluding securities transferred or pledged to securitization vehicles, at June 30, 2022 and December 31, 2021, according to their estimated weighted average life classifications:

	June 30, 2022				December 31, 2021
	Estimated Fair Value		Amortized Cost		Estimated Fair Value		Amortized Cost
Estimated weighted average life	(dollars in thousands)
Less than one year	$	149,516	$	150,652	$	253,129	$	250,689
Greater than one year through five years	3,491,952		3,602,865		16,155,017		15,766,307
Greater than five years through ten years	45,977,144		49,646,767		45,470,212		45,102,607
Greater than ten years	8,967,096		9,873,358		1,246,811		1,250,936
Total	$	58,585,708	$	63,273,642	$	63,125,169	$	62,370,539

Schedule of Unrealized Losses on Investments

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 June 30, 2022 and December 31, 2021.

	June 30, 2022					December 31, 2021
	Estimated Fair Value (1)		Gross Unrealized Losses (1)		Number of Securities (1)	Estimated Fair Value (1)		Gross Unrealized Losses (1)		Number of Securities (1)
	(dollars in thousands)
Less than 12 months	$	43,643,601	$	(2,950,746)	2,712	$	22,828,156	$	(475,064)	571
12 Months or more	8,592,827		(1,399,582)		273	383,815		(10,960)		19
Total	$	52,236,428	$	(4,350,328)	2,985	$	23,211,971	$	(486,024)	590
(1) Excludes interest-only mortgage-backed securities and reverse mortgages.

Schedule of Realized Gain (Loss)

The following table presents the Company’s net gains (losses) from the disposal of Residential Securities for the three and six months ended June 30, 2022 and 2021.

	Gross Realized Gains		Gross Realized Losses		Net Realized Gains (Losses)
For the three months ended	(dollars in thousands)
June 30, 2022	$	27,263	$	(684,560)	$	(657,297)
June 30, 2021	$	52,485	$	(17,680)	$	34,805
For the six months ended
June 30, 2022	$	28,828	$	(830,615)	$	(801,787)
June 30, 2021	$	57,131	$	(83,021)	$	(25,890)

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LOANS (Tables)

6 Months Ended

Jun. 30, 2022

SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Abstract]

Loan Investment Activity

The following table presents the activity of the Company’s loan investments, excluding loans transferred or pledged to securitization vehicles and loan warehouse facilities, for the six months ended June 30, 2022:

	Residential		Corporate Debt		Total
	(dollars in thousands)
Beginning balance January 1, 2022	$	2,272,072	$	1,968,991	$	4,241,063
Purchases / originations	3,821,483		185,269		4,006,752
Sales and transfers (1)	(4,450,255)		(1,902,444)		(6,352,699)
Principal payments	(66,962)		(231,190)		(298,152)
Gains / (losses) (2)	(80,639)		(23,320)		(103,959)
(Amortization) / accretion	(8,888)		2,694		(6,194)
Ending balance June 30, 2022	$	1,486,811	$	—	$	1,486,811
(1) Includes securitizations, syndications, transfers to securitization vehicles and corporate debt transfers to assets of disposal group held for sale and other assets. Includes transfer of residential loans to securitization vehicles with a carrying value of $4.4 billion during the six months ended June 30, 2022. (2) Includes loan loss allowances.

Fair Value and Unpaid Principal of Residential Mortgage Loan Portfolio

The following table presents the fair value and the unpaid principal balances of the residential mortgage loan portfolio, including loans transferred or pledged to securitization vehicles and excluding loan warehouse facilities, at June 30, 2022 and December 31, 2021:

	June 30, 2022		December 31, 2021
	(dollars in thousands)
Fair value	$	9,905,790	$	7,768,507
Unpaid principal balance	$	10,516,244	$	7,535,855

Summary of Comprehensive Income (Loss)

The following table provides information regarding the line items and amounts recognized in the Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2022 and 2021 for these investments, excluding loan warehouse facilities:

	For the Three Months Ended				For the Six Months Ended
	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
	(dollars in thousands)
Interest income	$	91,645	$	38,963	$	165,110	$	76,072
Net gains (losses) on disposal of investments (1)	(5,321)		(21,721)		(12,658)		(26,941)
Net unrealized gains (losses) on instruments measured at fair value through earnings (1)	(324,481)		14,456		(739,729)		36,911
Total included in net income (loss)	$	(238,157)	$	31,698	$	(587,277)	$	86,042
(1) These amounts are presented in the line item Net gains (losses) on investments and other on the Consolidated Statements of Comprehensive Income (Loss)

Geographic Concentrations Based on Unpaid Principal Balances

The following table provides the geographic concentrations based on the unpaid principal balances at June 30, 2022 and December 31, 2021 for the residential mortgage loans, including loans transferred or pledged to securitization vehicles:

Geographic Concentrations of Residential Mortgage Loans
June 30, 2022		December 31, 2021
Property location	% of Balance	Property location	% of Balance
California	47.2%	California	50.2%
New York	10.7%	New York	10.9%
Florida	7.5%	Florida	6.1%
All other (none individually greater than 5%)	34.6%	All other (none individually greater than 5%)	32.8%
Total	100.0%		100.0%

Residential Mortgage Loans

The following table provides additional data on the Company’s residential mortgage loans, including loans transferred or pledged to securitization vehicles, at June 30, 2022 and December 31, 2021:

	June 30, 2022		December 31, 2021
	Portfolio Range	Portfolio Weighted Average	Portfolio Range	Portfolio Weighted Average
	(dollars in thousands)
Unpaid principal balance	$3 - $4,396	$496	$1 - $4,382	$513
Interest rate	1.13% - 15.00%	4.18%	0.75% - 9.24%	4.04%
Maturity	7/1/2029 - 7/1/2062	7/14/2051	7/1/2029 - 12/1/2061	12/22/2050
FICO score at loan origination	588 - 832	761	604 - 831	762
Loan-to-value ratio at loan origination	5% - 100%	67%	8% - 103%	66%

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MORTGAGE SERVICING RIGHTS (Tables)

6 Months Ended

Jun. 30, 2022

Transfers and Servicing [Abstract]

Presentation of Activity Related to MSR

The following tables present activity related to MSR and Interests in MSR for the three and six months ended June 30, 2022 and 2021:  

Mortgage Servicing Rights	Three Months Ended				Six Months Ended
	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
	(dollars in thousands)
Fair value, beginning of period	$	1,108,937	$	113,080	$	544,562	$	100,895
Purchases (1)	262,960		98,983		683,983		98,983
Sales	(9,065)		(376)		(9,075)		(376)
Change in fair value due to:
Changes in valuation inputs or assumptions (2)	79,606		4,621		238,568		32,296
Other changes, including realization of expected cash flows	(21,018)		(13,692)		(36,618)		(29,182)
Fair value, end of period	$	1,421,420	$	202,616	$	1,421,420	$	202,616
(1) Includes adjustments to original purchase price from early payoffs, defaults, or loans that were delivered but were deemed to not be acceptable. (2) Principally represents changes in discount rates and prepayment speed inputs used in valuation model, primarily due to changes in interest rates.

Interests in MSR	Three Months Ended				Six Months Ended
	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
	(dollars in thousands)
Beginning balance	$	85,653	$	—	$	69,316	$	—
Purchases (1)	(53)		47,098		4,860		47,098
Gain (loss) included in net income	(1,978)		1,937		9,446		1,937
Ending balance June 30, 2022	$	83,622	$	49,035	$	83,622	$	49,035
(1) Includes adjustments to original purchase price from early payoffs, defaults, or loans that were delivered but were deemed to not be acceptable.

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VARIABLE INTEREST ENTITIES (Tables)

6 Months Ended

Jun. 30, 2022

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Fair Value of OBX Trusts

Residential securitizations are issued by entities generally 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. Residential securitizations closed during the year are included in the table below.

Securitization	Date of Closing	Face Value at Closing
		(dollars in thousands)
OBX 2022-NQM1	January 2022	$	556,696
OBX 2022-INV1	January 2022	$	377,275
OBX 2022-INV2	February 2022	$	466,686
OBX 2022-NQM2	February 2022	$	439,421
OBX 2022-INV3	March 2022	$	330,823
OBX 2022-NQM3	March 2022	$	315,843
OBX 2022-NQM4	May 2022	$	457,285
OBX 2022-J1	May 2022	$	389,334
OBX 2022-NQM5	June 2022	$	390,775
OBX 2022-INV4	June 2022	$	335,900
OBX 2022-NQM6	June 2022	$	387,913

Statement of Financial Condition of VIEs Reflected in Consolidated Statements of Financial Condition

The statements of financial condition of the Company’s VIEs, excluding the multifamily securitization, 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 June 30, 2022 and December 31, 2021 are as follows:

June 30, 2022
	MSR VIEs
Assets
Cash and cash equivalents	$	2,446
Loans	1,548
Mortgage servicing rights	41
Interests in MSR	83,622
Other assets	6,271
Total assets	$	93,928
Liabilities
Payable for unsettled trades	$	2,152
Other liabilities	5,470
Total liabilities	$	7,622

December 31, 2021
	MSR VIEs
Assets
Cash and cash equivalents	$	16,187
Loans	2,347
Mortgage servicing rights	7,254
Interests in MSR	69,316
Other assets	10,406
Total assets	$	105,510
Liabilities
Payable for unsettled trades	$	1,911
Other liabilities	14,582
Total liabilities	$	16,493

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DERIVATIVE INSTRUMENTS (Tables)

6 Months Ended

Jun. 30, 2022

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Summarizes Fair Value Information about Derivative Assets Liabilities

The table below summarizes fair value information about our derivative assets and liabilities at June 30, 2022 and December 31, 2021:

Derivatives Instruments	June 30, 2022		December 31, 2021
Assets	(dollars in thousands)
Interest rate swaps	$	9,408	$	—
Interest rate swaptions	333,318		105,710
TBA derivatives	60,661		52,693
Futures contracts	341,430		9,028
Purchase commitments	3,615		1,779
Credit derivatives (1)	—		1,160
Total derivative assets	$	748,432	$	170,370
Liabilities
Interest rate swaps	$	272,055	$	747,036
TBA derivatives	91,124		3,916
Futures contracts	3,020		129,134
Purchase commitments	532		870
Credit derivatives (1)	12,977		581
Total derivative liabilities	$	379,708	$	881,537
(1) The maximum potential amount of future payments is the notional amount of credit derivatives in which the Company sold protection of $410.0 million and $400.0 million at June 30, 2022 and December 31, 2021, respectively, plus any coupon shortfalls on the underlying tranche. As of June 30, 2022 and December 31, 2021 the credit derivative tranches referencing the basket of bonds had a range of ratings between AAA and AA.

Summary of Certain Characteristics of Derivatives

The following table summarizes certain characteristics of the Company’s interest rate swaps at June 30, 2022 and December 31, 2021:

June 30, 2022
Maturity	Current Notional (1)(2)		Weighted Average Pay Rate		Weighted Average Receive Rate		Weighted Average Years to Maturity (3)
(dollars in thousands)
0 - 3 years	$	20,807,400	0.79	%	1.62	%	1.16
3 - 6 years	1,420,400		1.62	%	1.80	%	4.26
6 - 10 years	11,583,200		1.72	%	1.71	%	9.32
Greater than 10 years	1,411,000		3.88	%	1.39	%	19.11
Total / Weighted average	$	35,222,000	1.16	%	1.65	%	4.69
December 31, 2021
Maturity	Current Notional (1)(2)		Weighted Average Pay Rate		Weighted Average Receive Rate		Weighted Average Years to Maturity (3)
(dollars in thousands)
0 - 3 years	$	32,709,300	0.25	%	0.06	%	1.10
3 - 6 years	2,780,000		0.21	%	0.07	%	3.46
6 - 10 years	9,118,000		1.43	%	0.13	%	9.05
Greater than 10 years	1,300,000		4.04	%	0.11	%	18.70
Total / Weighted average	$	45,907,300	0.59	%	0.08	%	3.32
(1) As of June 30, 2022, 23%, 35% and 42% 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, 2021, 18%, 53% and 29% of the Company’s interest rate swaps were linked to LIBOR, the Federal funds rate and the Secured Overnight Financing Rate, respectively. (2) There were no forward starting swaps at June 30, 2022 and December 31, 2021. (3) At June 30, 2022 and December 31, 2021, 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 summarizes certain characteristics of the Company’s swaptions at June 30, 2022 and December 31, 2021:

June 30, 2022
	Current Underlying Notional	Weighted Average Underlying Fixed Rate	Weighted Average Underlying Floating Rate	Weighted Average Underlying Years to Maturity	Weighted Average Months to Expiration
(dollars in thousands)
Long pay	$4,050,000	2.00%	3M LIBOR	9.15	13.46
Long receive	$1,000,000	1.49%	3M LIBOR	11.20	14.46
December 31, 2021
	Current Underlying Notional	Weighted Average Underlying Fixed Rate	Weighted Average Underlying Floating Rate	Weighted Average Underlying Years to Maturity	Weighted Average Months to Expiration
(dollars in thousands)
Long pay	$4,050,000	2.00%	3M LIBOR	9.65	19.50
Long receive	$2,000,000	1.47%	3M LIBOR	10.95	11.38

The following table summarizes certain characteristics of the Company’s TBA derivatives at June 30, 2022 and December 31, 2021:

June 30, 2022
Purchase and sale contracts for derivative TBAs	Notional		Implied Cost Basis		Implied Market Value		Net Carrying Value
(dollars in thousands)
Purchase contracts	$	19,455,000	$	19,313,442	$	19,282,979	$	(30,463)
December 31, 2021
Purchase and sale contracts for derivative TBAs	Notional		Implied Cost Basis		Implied Market Value		Net Carrying Value
(dollars in thousands)
Purchase contracts	$	20,133,000	$	20,289,856	$	20,338,633	$	48,777

The following table summarizes certain characteristics of the Company’s futures derivatives at June 30, 2022 and December 31, 2021: 

June 30, 2022
	Notional - Long Positions		Notional - Short Positions		Weighted Average Years to Maturity
	(dollars in thousands)
U.S. Treasury futures - 2 year	$	—	$	(10,264,200)	1.97
U.S. Treasury futures - 5 year	—		(5,903,400)		4.40
U.S. Treasury futures - 10 year and greater	—		(19,832,600)		7.31
Total	$	—	$	(36,000,200)	5.31
December 31, 2021
	Notional - Long Positions		Notional - Short Positions		Weighted Average Years to Maturity
	(dollars in thousands)
U.S. Treasury futures - 2 year	$	—	$	(7,509,200)	1.96
U.S. Treasury futures - 5 year	—		(5,644,900)		4.38
U.S. Treasury futures - 10 year and greater	—		(9,381,000)		6.84
Total	$	—	$	(22,535,100)	4.60

Offsetting of Derivative Assets and Liabilities

The following tables present information about derivative assets and liabilities that are subject to such provisions and can be offset in our Consolidated Statements of Financial Condition at June 30, 2022 and December 31, 2021, respectively.

June 30, 2022
			Amounts Eligible for Offset
	Gross Amounts		Financial Instruments		Cash Collateral		Net Amounts
Assets	(dollars in thousands)
Interest rate swaps, at fair value	$	9,408	$	(5,195)	$	—	$	4,213
Interest rate swaptions, at fair value	333,318		—		—		333,318
TBA derivatives, at fair value	60,661		(32,631)		—		28,030
Futures contracts, at fair value	341,430		(3,020)		—		338,410
Purchase commitments	3,615		—		—		3,615
Liabilities
Interest rate swaps, at fair value	$	272,055	$	(5,195)	$	(13,910)	$	252,950
TBA derivatives, at fair value	91,124		(32,631)		—		58,493
Futures contracts, at fair value	3,020		(3,020)		—		—
Purchase commitments	532		—		—		532
Credit derivatives	12,977		—		(12,977)		—
December 31, 2021
			Amounts Eligible for Offset
	Gross Amounts		Financial Instruments		Cash Collateral		Net Amounts
Assets	(dollars in thousands)
Interest rate swaptions, at fair value	$	105,710	$	—	$	—	$	105,710
TBA derivatives, at fair value	52,693		(3,876)		—		48,817
Futures contracts, at fair value	9,028		(9,028)		—		—
Purchase commitments	1,779		—		—		1,779
Credit derivatives	1,160		(516)		—		644
Liabilities
Interest rate swaps, at fair value	$	747,036	$	—	$	(77,607)	$	669,429
TBA derivatives, at fair value	3,916		(3,876)		(40)		—
Futures contracts, at fair value	129,134		(9,028)		(120,106)		—
Purchase commitments	870		—		—		870
Credit derivatives	581		(516)		(65)		—

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

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

Location on Consolidated Statements of Comprehensive Income (Loss)
	Net Interest Component of Interest Rate Swaps (1)		Realized Gains (Losses) on Termination of Interest Rate Swaps (1)		Unrealized Gains (Losses) on Interest Rate Swaps (1)
For the three months ended	(dollars in thousands)
June 30, 2022	$	992	$	(16)	$	897,537
June 30, 2021	$	(83,087)	$	—	$	(141,067)
For the six months ended
June 30, 2022	$	(61,549)	$	(16)	$	2,220,976
June 30, 2021	$	(162,834)	$	—	$	631,195
(1) Included in Net gains (losses) on derivatives in the Consolidated Statements of Comprehensive Income (Loss).

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

Three Months Ended June 30, 2022
Derivative Instruments	Realized Gain (Loss)		Unrealized Gain (Loss)		Amount of Gain/(Loss) Recognized in Net Gains (Losses) on Derivatives
(dollars in thousands)
Net TBA derivatives	$	(1,064,242)	$	280,992	$	(783,250)
Net interest rate swaptions	—		119,436		119,436
Futures	1,167,524		(380,436)		787,088
Purchase commitments	—		2,671		2,671
Credit derivatives	374		(9,189)		(8,815)
Total					$	117,130

Three Months Ended June 30, 2021
Derivative Instruments	Realized Gain (Loss)		Unrealized Gain (Loss)		Amount of Gain/(Loss) Recognized in Net Gains (Losses) on Derivatives
(dollars in thousands)
Net TBA derivatives	$	10,045	$	275,226	$	285,271
Net interest rate swaptions	(22,787)		(232,860)		(255,647)
Futures	183,383		(577,899)		(394,516)
Purchase commitments	—		2,376		2,376
Credit derivatives	2,777		1,931		4,708
Total					$	(357,808)

Six Months Ended June 30, 2022
Derivative Instruments	Realized Gain (Loss)		Unrealized Gain (Loss)		Amount of Gain/(Loss) Recognized in Net Gains (Losses) on Other Derivatives
(dollars in thousands)
Net TBA derivatives	$	(1,820,381)	$	(79,239)	$	(1,899,620)
Net interest rate swaptions	(14,450)		242,058		227,608
Futures	1,720,678		458,516		2,179,194
Purchase commitments	—		2,172		2,172
Credit derivatives	1,434		(12,528)		(11,094)
Total					$	498,260

Six Months Ended June 30, 2021
Derivative Instruments	Realized Gain (Loss)		Unrealized Gain (Loss)		Amount of Gain/(Loss) Recognized in Net Gains (Losses) on Other Derivatives
(dollars in thousands)
Net TBA derivatives	$	(277,844)	$	(67,002)	$	(344,846)
Net interest rate swaptions	(44,997)		73,130		28,133
Futures	479,547		(60,766)		418,781
Purchase commitments	—		469		469
Credit derivatives	4,408		10,954		15,362
Total					$	117,899

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FAIR VALUE MEASUREMENTS (Tables)

6 Months Ended

Jun. 30, 2022

Fair Value Disclosures [Abstract]

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

The following tables present the estimated fair values of financial instruments and MSR measured at fair value on a recurring basis. There were no transfers between levels of the fair value hierarchy during the periods presented.

June 30, 2022
	Level 1		Level 2		Level 3		Total
Assets	(dollars in thousands)
Securities
Agency mortgage-backed securities	$	—	$	55,593,336	$	—	$	55,593,336
Credit risk transfer securities	—		965,714		—		965,714
Non-Agency mortgage-backed securities	—		2,026,658		—		2,026,658
Commercial mortgage-backed securities	—		457,026		—		457,026
Loans
Residential mortgage loans	—		1,486,811		—		1,486,811
Residential mortgage loan warehouse facility	—		322		—		322
Mortgage servicing rights	—		—		1,421,420		1,421,420
Interests in MSR	—		—		83,622		83,622
Assets transferred or pledged to securitization vehicles	—		8,877,247		—		8,877,247
Derivative assets
Interest rate swaps	—		9,408		—		9,408
Other derivatives	341,430		397,594		—		739,024
Total assets	$	341,430	$	69,814,116	$	1,505,042	$	71,660,588
Liabilities
Debt issued by securitization vehicles	—		7,502,483		—		7,502,483
Participations issued	—		696,944		—		696,944
Derivative liabilities
Interest rate swaps	—		272,055		—		272,055
Other derivatives	3,020		104,633		—		107,653
Total liabilities	$	3,020	$	8,576,115	$	—	$	8,579,135

December 31, 2021
	Level 1		Level 2		Level 3		Total
Assets	(dollars in thousands)
Securities
Agency mortgage-backed securities	$	—	$	60,525,605	$	—	$	60,525,605
Credit risk transfer securities	—		936,228		—		936,228
Non-Agency mortgage-backed securities	—		1,663,336		—		1,663,336
Commercial mortgage-backed securities	—		530,505		—		530,505
Loans
Residential mortgage loans	—		2,272,072		—		2,272,072
Residential mortgage loan warehouse facility	—		980		—		980
Mortgage servicing rights	—		—		544,562		544,562
Interests in MSR	—		—		69,316		69,316
Assets transferred or pledged to securitization vehicles	—		6,086,308		—		6,086,308
Derivative assets
Other derivatives	9,028		161,342		—		170,370
Total assets	$	9,028	$	72,176,376	$	613,878	$	72,799,282
Liabilities
Debt issued by securitization vehicles	$	—	$	5,155,633	$	—	$	5,155,633
Participations issued	—		1,049,066		—		1,049,066
Derivative liabilities
Interest rate swaps	—		747,036		—		747,036
Other derivatives	129,134		5,367		—		134,501
Total liabilities	$	129,134	$	6,957,102	$	—	$	7,086,236

Information about Significant Unobservable Inputs Used for Recurring Fair Value Measurements for Level 3 MSRs

The table below presents information about the significant unobservable inputs used for recurring fair value measurements for Level 3 MSR and Interests in MSR. The table does not give effect to the Company’s risk management practices that might offset risks inherent in these Level 3 investments.

	June 30, 2022
	Unobservable Input (1) / Range (Weighted Average) (2)
	Discount rate	Prepayment rate	Delinquency rate	Cost to service
MSR held directly	5.8% - 9.8% (8.2%)	4.8% - 8.3% (5.4%)	0.1% - 1.8% (0.8%)	$89 - $110 ($93)
Interests in MSR	8.0% - 8.0% (8.0%)	4.0% - 9.6% (6.8%)	0.4% - 4.3% (1.4%)	$82 - $87 ($84)

	December 31, 2021
	Unobservable Input (1) / Range (Weighted Average) (2)
	Discount rate	Prepayment rate	Delinquency rate	Cost to service
MSR held directly	3.3% - 11.1% (7.0%)	7.3% - 15.9% (9.4%)	0.2% - 2.5% (1.2%)	$90 - $103 ($96)
Interests in MSR	8.4% - 8.4% (8.4%)	5.0% - 14.4% (9.1%)	0.0% - 0.2% (0.1%)	$78 - $84 ($81)
(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 MSR, weighted average prepayment rate, delinquency rate and cost to service based on unpaid principal balances of loans underlying the MSR.

Schedule of Estimated Fair Value for All Financial Assets and Liabilities

The following table summarizes the estimated fair values for financial assets and liabilities that are not carried at fair value at June 30, 2022 and December 31, 2021.

	June 30, 2022		December 31, 2021
	Carrying Value	Fair Value	Carrying Value	Fair Value
Financial assets	(dollars in thousands)
Corporate debt, held for investment	—	—	1,968,991	1,986,379
Financial liabilities
Repurchase agreements	$51,364,097	$51,364,097	$54,769,643	$54,769,643
Other secured financing	—	—	903,255	903,255

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GOODWILL AND INTANGIBLE ASSETS (Tables)

6 Months Ended

Jun. 30, 2022

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Finite-Lived Intangible Assets

The following table presents the activity of finite lived intangible assets for the six months ended June 30, 2022.

Intangible Assets, net
(dollars in thousands)
Balance at December 31, 2021	$	24,241
Impairment	(4,157)
Less: amortization expense	(1,889)
Balance at June 30, 2022	18,195

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SECURED FINANCING (Tables)

6 Months Ended

Jun. 30, 2022

Debt Disclosure [Abstract]

Schedule of Repurchase Agreements Remaining Maturity ,Collateral Types and Weighted Average Rates

At June 30, 2022 and December 31, 2021, the repurchase agreements had the following remaining maturities, collateral types and weighted average rates: 

June 30, 2022
	Agency Mortgage-Backed Securities		CRTs		Non-Agency Mortgage-Backed Securities		Residential Mortgage Loans		Commercial Mortgage-Backed Securities		Total Repurchase Agreements		Weighted Average Rate
	(dollars in thousands)
1 day	$	14,651,402	$	—	$	35,360	$	—	$	—	$	14,686,762	1.61	%
2 to 29 days	25,217,859		2,406		297,845		—		9,069		25,527,179		1.58	%
30 to 59 days	1,059,120		—		531,852		—		—		1,590,972		1.33	%
60 to 89 days	936,214		244,947		533,106		—		51,304		1,765,571		1.55	%
90 to 119 days	772,314		349,867		648,369		—		—		1,770,550		1.43	%
Over 119 days (1)	4,657,042		126,354		346,242		533,435		359,990		6,023,063		1.84	%
Total	$	47,293,951	$	723,574	$	2,392,774	$	533,435	$	420,363	$	51,364,097	1.60	%

December 31, 2021
	Agency Mortgage-Backed Securities		CRTs		Non-Agency Mortgage-Backed Securities		Residential Mortgage Loans		Commercial Mortgage-Backed Securities		Total Repurchase Agreements		Weighted Average Rate
	(dollars in thousands)
1 day	$	—	$	—	$	—	$	—	$	—	$	—	—	%
2 to 29 days	26,435,408		133,525		246,707		—		197,834		27,013,474		0.14	%
30 to 59 days	9,743,872		38,854		270,377		159,350		—		10,212,453		0.19	%
60 to 89 days	6,021,850		4,071		351,426		—		—		6,377,347		0.17	%
90 to 119 days	4,812,345		—		12,573		—		—		4,824,918		0.15	%
Over 119 days (1)	5,711,448		—		96,283		345,651		188,069		6,341,451		0.27	%
Total	$	52,724,923	$	176,450	$	977,366	$	505,001	$	385,903	$	54,769,643	0.17	%
(1) No repurchase agreements had a remaining maturity over 1 year at June 30, 2022 and December 31, 2021.

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

The following table summarizes the gross amounts of reverse repurchase agreements and repurchase agreements, amounts offset in accordance with netting arrangements and net amounts of repurchase agreements and reverse repurchase agreements as presented in the Consolidated Statements of Financial Condition at June 30, 2022 and December 31, 2021. Refer to the “Derivative Instruments” Note for information related to the effect of netting arrangements on the Company’s derivative instruments.

	June 30, 2022				December 31, 2021
	Reverse Repurchase Agreements		Repurchase Agreements		Reverse Repurchase Agreements		Repurchase Agreements
	(dollars in thousands)
Gross amounts	$	—	$	51,364,097	$	—	$	54,769,643
Amounts offset	—		—		—		—
Netted amounts	$	—	$	51,364,097	$	—	$	54,769,643

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CAPITAL STOCK (Tables)

6 Months Ended

Jun. 30, 2022

Equity [Abstract]

Schedule of Stock by Class

The following table provides a summary of the Company’s common shares authorized, and issued and outstanding at June 30, 2022 and December 31, 2021.

	Shares authorized		Shares issued and outstanding
	June 30, 2022	December 31, 2021	June 30, 2022	December 31, 2021	Par Value
Common stock	2,936,500,000	2,936,500,000	1,609,215,497	1,459,736,258	$0.01

The following is a summary of the Company’s cumulative redeemable preferred stock outstanding at June 30, 2022 and December 31, 2021. 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 Authorized		Shares Issued And Outstanding		Carrying Value				Contractual Rate	Earliest Redemption Date (1)	Date At Which Dividend Rate Becomes Floating	Floating Annual Rate
	June 30, 2022	December 31, 2021	June 30, 2022	December 31, 2021	June 30, 2022		December 31, 2021
Fixed-to-floating rate
Series F	28,800,000	28,800,000	28,800,000	28,800,000	696,910		696,910		6.95%	9/30/2022	9/30/2022	3M LIBOR + 4.993%
Series G	17,000,000	17,000,000	17,000,000	17,000,000	411,335		411,335		6.50%	3/31/2023	3/31/2023	3M LIBOR + 4.172%
Series I	17,700,000	17,700,000	17,700,000	17,700,000	428,324		428,324		6.75%	6/30/2024	6/30/2024	3M LIBOR + 4.989%
Total	63,500,000	63,500,000	63,500,000	63,500,000	$	1,536,569	$	1,536,569
(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.

Summary of Dividend Distribution Activity

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

	For the Three Months Ended				For the Six Months Ended
	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
	(dollars in thousands, except per share data)
Dividends and dividend equivalents declared on common stock and share-based awards	$	355,467	$	318,534	$	677,664	$	626,880
Distributions declared per common share	$	0.22	$	0.22	$	0.44	$	0.44
Distributions paid to common stockholders after period end	$	354,027	$	317,714	$	354,027	$	317,714
Distributions paid per common share after period end	$	0.22	$	0.22	$	0.22	$	0.22
Date of distributions paid to common stockholders after period end	July 29, 2022		July 30, 2021		July 29, 2022		July 30, 2021
Dividends declared to series F preferred stockholders	$	12,510	$	12,510	$	25,020	$	25,020
Dividends declared per share of series F preferred stock	$	0.434	$	0.434	$	0.869	$	0.869
Dividends declared to series G preferred stockholders	$	6,906	$	6,906	$	13,812	$	13,812
Dividends declared per share of series G preferred stock	$	0.406	$	0.406	$	0.813	$	0.813
Dividends declared to series I preferred stockholders	$	7,467	$	7,467	$	14,934	$	14,934
Dividends declared per share of series I preferred stock	$	0.422	$	0.422	$	0.844	$	0.844

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INTEREST INCOME AND INTEREST EXPENSE (Tables)

6 Months Ended

Jun. 30, 2022

Banking and Thrift, Interest [Abstract]

Summary of Interest Income Recognition Methodology for Residential Investment Securities

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
(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 gains (losses) on investments and other 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.

Components of Company's Interest Income and Interest Expense

The following presents the components of the Company’s interest income and interest expense for the three and six months ended June 30, 2022 and June 30, 2021.

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2022		2021		2022		2021
Interest income	(dollars in thousands)
Agency securities	$	497,135	$	255,801	$	1,020,086	$	883,455
Residential credit securities	30,037		19,477		52,159		36,457
Residential mortgage loans (1)	91,648		38,963		165,136		76,072
Commercial investment portfolio (1) (2)	26,575		69,663		63,858		151,264
Reverse repurchase agreements	220		2		226		36
Total interest income	$	645,615	$	383,906	$	1,301,465	$	1,147,284
Interest expense
Repurchase agreements	105,608		29,140		132,487		71,725
Debt issued by securitization vehicles	50,303		23,216		84,928		49,492
Participations issued	9,379		1,739		15,231		2,336
Other	5,185		6,952		12,751		13,467
Total interest expense	170,475		61,047		245,397		137,020
Net interest income	$	475,140	$	322,859	$	1,056,068	$	1,010,264
(1) Includes assets transferred or pledged to securitization vehicles. (2) Includes commercial real estate debt and preferred equity and corporate debt.

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NET INCOME (LOSS) PER COMMON SHARE (Tables)

6 Months Ended

Jun. 30, 2022

Earnings Per Share [Abstract]

Schedule of Net Income (Loss) Per Share Reconciliation

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 six months ended June 30, 2022 and June 30, 2021.

	For the Three Months Ended				For the Six Months Ended
	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
	(dollars in thousands, except per share data)
Net income (loss)	$	863,317	$	(294,848)	$	2,887,211	$	1,456,286
Net income (loss) attributable to noncontrolling interests	(3,379)		794		(1,740)		1,115
Net income (loss) attributable to Annaly	866,696		(295,642)		2,888,951		1,455,171
Dividends on preferred stock	26,883		26,883		53,766		53,766
Net income (loss) available (related) to common stockholders	$	839,813	$	(322,525)	$	2,835,185	$	1,401,405
Weighted average shares of common stock outstanding-basic	1,522,436,766		1,410,239,138		1,492,068,912		1,404,755,496
Add: Effect of stock awards, if dilutive	1,158,234		—		1,185,978		1,008,776
Weighted average shares of common  stock outstanding-diluted	1,523,595,000		1,410,239,138		1,493,254,890		1,405,764,272
Net income (loss) per share available (related) to common share
Basic	$	0.55	$	(0.23)	$	1.90	$	1.00
Diluted	$	0.55	$	(0.23)	$	1.90	$	1.00

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LEASE COMMITMENTS AND CONTINGENCIES (Tables)

6 Months Ended

Jun. 30, 2022

Leases [Abstract]

Supplemental Information Regarding Leases

Supplemental information related to leases as of and for the six months ended June 30, 2022 was as follows:

Operating Leases	Classification	June 30, 2022
Assets	(dollars in thousands)
Operating lease right-of-use assets	Other assets	$	9,221
Liabilities
Operating lease liabilities (1)	Other liabilities	$	11,969
Lease term and discount rate
Weighted average remaining lease term		3.2 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		$	1,931
(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.

Operating Lease Liability Schedule of Maturity

The following table provides details related to maturities of lease liabilities:

	Maturity of Lease Liabilities
Years ending December 31,	(dollars in thousands)
2022 (remaining)	$	1,931
2023	3,862
2024	3,862
2025	2,896
Total lease payments	$	12,551
Less imputed interest	582
Present value of lease liabilities	$	11,969

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SIGNIFICANT ACCOUNTING POLICIES - Narrative (Details) - USD ($) $ in Billions	Jun. 30, 2022	Dec. 31, 2021
Interest rate swaps, at fair value
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Margin deposit assets	$ 0.7	$ 1.2

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FINANCIAL INSTRUMENTS - Summary of Characteristics of Financial Instruments (Details) - USD ($) $ in Thousands	Jun. 30, 2022	Dec. 31, 2021
SEC Schedule, 12-15, Insurance Companies, Summary of Investments, Other than Investments in Related Parties [Line Items]
Assets	$ 73,637,249	$ 76,764,064	[1]
Liabilities	62,547,349	63,568,739	[1]
Total securities
SEC Schedule, 12-15, Insurance Companies, Summary of Investments, Other than Investments in Related Parties [Line Items]
Assets	59,042,734	63,655,674
Agency mortgage-backed securities, recognized through comprehensive income
SEC Schedule, 12-15, Insurance Companies, Summary of Investments, Other than Investments in Related Parties [Line Items]
Assets	55,059,932	59,939,383
Agency mortgage-backed securities, recognized through earnings
SEC Schedule, 12-15, Insurance Companies, Summary of Investments, Other than Investments in Related Parties [Line Items]
Assets	533,404	586,222
Residential credit risk transfer securities
SEC Schedule, 12-15, Insurance Companies, Summary of Investments, Other than Investments in Related Parties [Line Items]
Assets	965,714	936,228
Non-agency mortgage-backed securities
SEC Schedule, 12-15, Insurance Companies, Summary of Investments, Other than Investments in Related Parties [Line Items]
Assets	2,026,658	1,663,336
Commercial real estate debt investments - CMBS
SEC Schedule, 12-15, Insurance Companies, Summary of Investments, Other than Investments in Related Parties [Line Items]
Assets	439,301	521,440
Commercial real estate debt investments - credit risk transfer securities
SEC Schedule, 12-15, Insurance Companies, Summary of Investments, Other than Investments in Related Parties [Line Items]
Assets	17,725	9,065
Total loans, net
SEC Schedule, 12-15, Insurance Companies, Summary of Investments, Other than Investments in Related Parties [Line Items]
Assets	1,487,133	4,242,043
Residential mortgage loans
SEC Schedule, 12-15, Insurance Companies, Summary of Investments, Other than Investments in Related Parties [Line Items]
Assets	1,486,811	2,272,072
Residential mortgage loan warehouse facility
SEC Schedule, 12-15, Insurance Companies, Summary of Investments, Other than Investments in Related Parties [Line Items]
Assets	322	980
Corporate debt, held for investment
SEC Schedule, 12-15, Insurance Companies, Summary of Investments, Other than Investments in Related Parties [Line Items]
Assets	0	1,968,991
Total assets transferred or pledged to securitization vehicles
SEC Schedule, 12-15, Insurance Companies, Summary of Investments, Other than Investments in Related Parties [Line Items]
Assets	8,877,247	6,086,308
Interest in net servicing cash flows
SEC Schedule, 12-15, Insurance Companies, Summary of Investments, Other than Investments in Related Parties [Line Items]
Assets	83,622	69,316
Agency mortgage-backed securities
SEC Schedule, 12-15, Insurance Companies, Summary of Investments, Other than Investments in Related Parties [Line Items]
Assets	458,268	589,873
Residential mortgage loans
SEC Schedule, 12-15, Insurance Companies, Summary of Investments, Other than Investments in Related Parties [Line Items]
Assets	8,418,979	5,496,435
Repurchase agreements
SEC Schedule, 12-15, Insurance Companies, Summary of Investments, Other than Investments in Related Parties [Line Items]
Liabilities	51,364,097	54,769,643
Other secured financing
SEC Schedule, 12-15, Insurance Companies, Summary of Investments, Other than Investments in Related Parties [Line Items]
Liabilities	0	903,255
Debt issued by securitization vehicles
SEC Schedule, 12-15, Insurance Companies, Summary of Investments, Other than Investments in Related Parties [Line Items]
Liabilities	7,502,483	5,155,633
Participations issued
SEC Schedule, 12-15, Insurance Companies, Summary of Investments, Other than Investments in Related Parties [Line Items]
Liabilities	$ 696,944	$ 1,049,066

[1] (1)Derived from the audited consolidated financial statements at December 31, 2021.

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SECURITIES - Narrative (Details) - USD ($) $ in Millions	3 Months Ended			6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Mar. 31, 2021	Jun. 30, 2022	Jun. 30, 2021
Debt Securities, Available-for-sale [Line Items]
Residential Investment securities sold, carrying value	$ 6,600.0	$ 3,300.0		$ 9,400.0	$ 6,200.0
Commercial Mortgage-Backed Securities
Debt Securities, Available-for-sale [Line Items]
Impairment, available-for-sale debt security			$ 0.4

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SECURITIES - Summary of Residential Securities and CMBS (Details) $ in Thousands	6 Months Ended
	Jun. 30, 2022 USD ($)
Debt Securities, Available-For-Sale [Roll Forward]
Beginning balance January 1, 2022	$ 63,655,674
Purchases	16,087,634
Sales and transfers	(9,563,655)
Principal paydowns	(5,711,774)
(Amortization) / accretion	31,235
Fair value adjustment	(5,456,380)
Ending balance June 30, 2022	59,042,734
Agency Securities
Debt Securities, Available-For-Sale [Roll Forward]
Beginning balance January 1, 2022	60,525,605
Purchases	14,731,945
Sales and transfers	(9,042,404)
Principal paydowns	(5,385,047)
(Amortization) / accretion	28,799
Fair value adjustment	(5,265,562)
Ending balance June 30, 2022	55,593,336
Residential Credit Securities
Debt Securities, Available-For-Sale [Roll Forward]
Beginning balance January 1, 2022	2,599,564
Purchases	1,243,293
Sales and transfers	(352,027)
Principal paydowns	(323,281)
(Amortization) / accretion	2,358
Fair value adjustment	(177,535)
Ending balance June 30, 2022	2,992,372
Commercial Securities
Debt Securities, Available-For-Sale [Roll Forward]
Beginning balance January 1, 2022	530,505
Purchases	112,396
Sales and transfers	(169,224)
Principal paydowns	(3,446)
(Amortization) / accretion	78
Fair value adjustment	(13,283)
Ending balance June 30, 2022	$ 457,026

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SECURITIES - Portfolio (Details) - USD ($) $ in Thousands	Jun. 30, 2022	Dec. 31, 2021
Mortgage-Backed Securities Portfolio [Line Items]
Principal / Notional	$ 72,235,638	$ 65,793,672
Remaining Premium	3,661,219	3,771,429
Remaining Discount	(381,912)	(77,850)
Amortized Cost	63,746,389	62,903,483
Unrealized Gains	54,836	1,425,965
Unrealized Losses	(4,758,491)	(673,774)
Estimated Fair Value	59,042,734	63,655,674
Total Residential Securities
Mortgage-Backed Securities Portfolio [Line Items]
Principal / Notional	71,761,115	65,260,601
Remaining Premium	3,661,219	3,771,429
Remaining Discount	(380,136)	(77,723)
Amortized Cost	63,273,642	62,370,539
Unrealized Gains	54,836	1,425,800
Unrealized Losses	(4,742,770)	(671,170)
Estimated Fair Value	58,585,708	63,125,169
Agency
Mortgage-Backed Securities Portfolio [Line Items]
Principal / Notional	65,704,004	62,472,356
Remaining Premium	3,619,469	3,745,824
Remaining Discount	(282,071)	(20,438)
Amortized Cost	60,127,876	59,794,582
Unrealized Gains	40,213	1,386,383
Unrealized Losses	(4,574,753)	(655,360)
Estimated Fair Value	55,593,336	60,525,605
Agency | Fixed-rate pass-through
Mortgage-Backed Securities Portfolio [Line Items]
Principal / Notional	55,460,523	54,432,252
Remaining Premium	2,874,749	3,008,185
Remaining Discount	(281,278)	(18,314)
Amortized Cost	58,053,994	57,422,123
Unrealized Gains	31,761	1,349,125
Unrealized Losses	(4,306,637)	(474,643)
Estimated Fair Value	53,779,118	58,296,605
Agency | Adjustable-rate pass-through
Mortgage-Backed Securities Portfolio [Line Items]
Principal / Notional	260,238	305,211
Remaining Premium	10,651	1,965
Remaining Discount	(270)	(2,124)
Amortized Cost	270,619	305,052
Unrealized Gains	5,183	16,223
Unrealized Losses	(6,292)	(2)
Estimated Fair Value	269,510	321,273
Agency | CMO
Mortgage-Backed Securities Portfolio [Line Items]
Principal / Notional	106,189	114,533
Remaining Premium	1,848	1,888
Remaining Discount	0	0
Amortized Cost	108,037	116,421
Unrealized Gains	0	5,277
Unrealized Losses	(6,692)	0
Estimated Fair Value	101,345	121,698
Agency | Interest-only
Mortgage-Backed Securities Portfolio [Line Items]
Principal / Notional	1,662,567	1,912,415
Remaining Premium	416,404	456,683
Remaining Discount	0	0
Amortized Cost	416,404	456,683
Unrealized Gains	673	428
Unrealized Losses	(196,588)	(163,197)
Estimated Fair Value	220,489	293,914
Agency | Multifamily
Mortgage-Backed Securities Portfolio [Line Items]
Principal / Notional	8,182,519	5,671,138
Remaining Premium	312,441	273,553
Remaining Discount	(523)	0
Amortized Cost	1,243,478	1,453,946
Unrealized Gains	2,596	15,330
Unrealized Losses	(55,978)	(16,563)
Estimated Fair Value	1,190,096	1,452,713
Agency | Reverse mortgages
Mortgage-Backed Securities Portfolio [Line Items]
Principal / Notional	31,968	36,807
Remaining Premium	3,376	3,550
Remaining Discount	0	0
Amortized Cost	35,344	40,357
Unrealized Gains	0	0
Unrealized Losses	(2,566)	(955)
Estimated Fair Value	32,778	39,402
Agency | Multifamily Interest-Only Security
Mortgage-Backed Securities Portfolio [Line Items]
Principal / Notional	7,300,000	4,500,000
Residential credit
Mortgage-Backed Securities Portfolio [Line Items]
Principal / Notional	6,057,111	2,788,245
Remaining Premium	41,750	25,605
Remaining Discount	(98,065)	(57,285)
Amortized Cost	3,145,766	2,575,957
Unrealized Gains	14,623	39,417
Unrealized Losses	(168,017)	(15,810)
Estimated Fair Value	2,992,372	2,599,564
Residential credit | Credit risk transfer
Mortgage-Backed Securities Portfolio [Line Items]
Principal / Notional	1,010,209	924,101
Remaining Premium	6,552	8,754
Remaining Discount	(2,474)	(1,176)
Amortized Cost	1,014,287	927,555
Unrealized Gains	390	9,641
Unrealized Losses	(48,963)	(968)
Estimated Fair Value	965,714	936,228
Residential credit | Alt-A
Mortgage-Backed Securities Portfolio [Line Items]
Principal / Notional	138,473	83,213
Remaining Premium	33	31
Remaining Discount	(19,899)	(17,133)
Amortized Cost	118,607	66,111
Unrealized Gains	1,902	3,627
Unrealized Losses	(4,931)	(251)
Estimated Fair Value	115,578	69,487
Residential credit | Prime
Mortgage-Backed Securities Portfolio [Line Items]
Principal / Notional	1,227,193	323,062
Remaining Premium	15,855	9,841
Remaining Discount	(25,681)	(14,757)
Amortized Cost	297,095	268,117
Unrealized Gains	4,989	10,853
Unrealized Losses	(32,367)	(3,529)
Estimated Fair Value	269,717	275,441
Residential credit | Subprime
Mortgage-Backed Securities Portfolio [Line Items]
Principal / Notional	187,969	170,671
Remaining Premium	221	349
Remaining Discount	(17,896)	(16,111)
Amortized Cost	170,294	154,909
Unrealized Gains	4,045	8,285
Unrealized Losses	(7,020)	(118)
Estimated Fair Value	167,319	163,076
Residential credit | NPL/RPL
Mortgage-Backed Securities Portfolio [Line Items]
Principal / Notional	1,300,169	987,415
Remaining Premium	1,275	950
Remaining Discount	(6,026)	(1,698)
Amortized Cost	1,295,418	986,667
Unrealized Gains	343	2,739
Unrealized Losses	(45,858)	(5,968)
Estimated Fair Value	1,249,903	983,438
Residential credit | Prime jumbo (>=2010 vintage)
Mortgage-Backed Securities Portfolio [Line Items]
Principal / Notional	2,193,098	299,783
Remaining Premium	17,814	5,680
Remaining Discount	(26,089)	(6,410)
Amortized Cost	250,065	172,598
Unrealized Gains	2,954	4,272
Unrealized Losses	(28,878)	(4,976)
Estimated Fair Value	224,141	171,894
Residential credit | CRT interest-only security
Mortgage-Backed Securities Portfolio [Line Items]
Principal / Notional	0	4,100
Residential credit | Prime interest-only
Mortgage-Backed Securities Portfolio [Line Items]
Principal / Notional	920,300	50,000
Residential credit | Prime Jumbo interest-only
Mortgage-Backed Securities Portfolio [Line Items]
Principal / Notional	1,900,000	126,500
Commercial Securities
Mortgage-Backed Securities Portfolio [Line Items]
Principal / Notional	474,523	533,071
Remaining Premium	0	0
Remaining Discount	(1,776)	(127)
Amortized Cost	472,747	532,944
Unrealized Gains	0	165
Unrealized Losses	(15,721)	(2,604)
Estimated Fair Value	$ 457,026	$ 530,505

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SECURITIES - Component of Agency Mortgage-Backed Securities Portfolio by Issuing Agency Concentration (Details) - USD ($) $ in Thousands		Jun. 30, 2022	Dec. 31, 2021
Mortgage-Backed Securities Portfolio [Line Items]
Mortgage-backed securities	[1]	$ 59,042,734	$ 63,655,674	[2]
Agency Mortgage-Backed Securities
Mortgage-Backed Securities Portfolio [Line Items]
Mortgage-backed securities		55,593,336	60,525,605
Agency Mortgage-Backed Securities | Fannie Mae
Mortgage-Backed Securities Portfolio [Line Items]
Mortgage-backed securities		46,415,070	48,404,991
Agency Mortgage-Backed Securities | Freddie Mac
Mortgage-Backed Securities Portfolio [Line Items]
Mortgage-backed securities		9,111,646	10,880,033
Agency Mortgage-Backed Securities | Ginnie Mae
Mortgage-Backed Securities Portfolio [Line Items]
Mortgage-backed securities		$ 66,620	$ 1,240,581

[1] (3)Excludes $30.1 million and $44.2 million at June 30, 2022 and December 31, 2021, respectively, of Agency mortgage-backed securities and $971.9 million and $350.4 million at June 30, 2022 and December 31, 2021, respectively, of non-Agency mortgage-backed securities in consolidated VIEs pledged as collateral and eliminated from the Company’s Consolidated Statements of Financial Condition. 

[2] (1)Derived from the audited consolidated financial statements at December 31, 2021.

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SECURITIES - Weighted Average Life (Details) - USD ($) $ in Thousands		Jun. 30, 2022	Dec. 31, 2021
Estimated Fair Value
Total	[1]	$ 59,042,734	$ 63,655,674	[2]
Amortized Cost
Amortized Cost		63,746,389	62,903,483
Total Residential Securities
Estimated Fair Value
Less than one year		149,516	253,129
Greater than one year through five years		3,491,952	16,155,017
Greater than five years through ten years		45,977,144	45,470,212
Greater than ten years		8,967,096	1,246,811
Total		58,585,708	63,125,169
Amortized Cost
Less than one year		150,652	250,689
Greater than one year through five years		3,602,865	15,766,307
Greater than five years through ten years		49,646,767	45,102,607
Greater than ten years		9,873,358	1,250,936
Amortized Cost		$ 63,273,642	$ 62,370,539

[1] (3)Excludes $30.1 million and $44.2 million at June 30, 2022 and December 31, 2021, respectively, of Agency mortgage-backed securities and $971.9 million and $350.4 million at June 30, 2022 and December 31, 2021, respectively, of non-Agency mortgage-backed securities in consolidated VIEs pledged as collateral and eliminated from the Company’s Consolidated Statements of Financial Condition. 

[2] (1)Derived from the audited consolidated financial statements at December 31, 2021.

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SECURITIES - Unrealized Loss Position (Details) $ in Thousands	Jun. 30, 2022 USD ($) security	Dec. 31, 2021 USD ($) security
Unrealized Loss Position For:
Estimated Fair Value	$ 59,042,734	$ 63,655,674
Gross Unrealized Losses	(4,758,491)	(673,774)
Agency Mortgage-Backed Securities
Unrealized Loss Position For:
Estimated Fair Value	52,236,428	23,211,971
Gross Unrealized Losses	$ (4,350,328)	$ (486,024)
Number of Securities | security	2,985	590
Agency Mortgage-Backed Securities | Less than 12 months
Unrealized Loss Position For:
Estimated Fair Value	$ 43,643,601	$ 22,828,156
Gross Unrealized Losses	$ (2,950,746)	$ (475,064)
Number of Securities | security	2,712	571
Agency Mortgage-Backed Securities | 12 Months or more
Unrealized Loss Position For:
Estimated Fair Value	$ 8,592,827	$ 383,815
Gross Unrealized Losses	$ (1,399,582)	$ (10,960)
Number of Securities | security	273	19

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SECURITIES - Realized Gain (Loss) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021
Investments, Debt and Equity Securities [Abstract]
Gross Realized Gains	$ 27,263	$ 52,485	$ 28,828	$ 57,131
Gross Realized Losses	(684,560)	(17,680)	(830,615)	(83,021)
Net Realized Gains (Losses)	$ (657,297)	$ 34,805	$ (801,787)	$ (25,890)

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LOANS - Narrative (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021	Dec. 31, 2021
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Assets	$ 73,637,249		$ 73,637,249		$ 76,764,064	[1]
Loan loss (provision) reversal	(26,913)	$ 494	(26,305)	$ (139,126)
Allowance for loan loss	0		0		27,900
Residential Mortgage Loans
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Assets	1,500,000		1,500,000		2,300,000
Loans held-for-sale	$ 1,500		$ 1,500		$ 2,300
Percent of adjustable-rate loans	12.00%		12.00%		16.00%
Residential mortgage loan warehouse facility
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Assets	$ 322		$ 322		$ 980

[1] (1)Derived from the audited consolidated financial statements at December 31, 2021.

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LOANS - Investment Loan Activity (Details) $ in Thousands	6 Months Ended
	Jun. 30, 2022 USD ($)
SEC Schedule, 12-29, Real Estate Companies, Investment in Movement in Mortgage Loans on Real Estate [Roll Forward]
Beginning balance January 1, 2022	$ 4,242,043	[1],[2]
Ending balance June 30, 2022	1,487,133	[2]
Transfer of residential loans to securitization vehicles, carrying value, noncash	4,400,000
Total
SEC Schedule, 12-29, Real Estate Companies, Investment in Movement in Mortgage Loans on Real Estate [Roll Forward]
Beginning balance January 1, 2022	4,241,063
Purchases / originations	4,006,752
Sales and transfers	(6,352,699)
Principal payments	(298,152)
Gains / (losses)	(103,959)
(Amortization) / accretion	(6,194)
Ending balance June 30, 2022	1,486,811
Residential
SEC Schedule, 12-29, Real Estate Companies, Investment in Movement in Mortgage Loans on Real Estate [Roll Forward]
Beginning balance January 1, 2022	2,272,072
Purchases / originations	3,821,483
Sales and transfers	(4,450,255)
Principal payments	(66,962)
Gains / (losses)	(80,639)
(Amortization) / accretion	(8,888)
Ending balance June 30, 2022	1,486,811
Corporate Debt
SEC Schedule, 12-29, Real Estate Companies, Investment in Movement in Mortgage Loans on Real Estate [Roll Forward]
Beginning balance January 1, 2022	1,968,991
Purchases / originations	185,269
Sales and transfers	(1,902,444)
Principal payments	(231,190)
Gains / (losses)	(23,320)
(Amortization) / accretion	2,694
Ending balance June 30, 2022	$ 0

[1] (1)Derived from the audited consolidated financial statements at December 31, 2021.

[2] (4)Includes $1.5 million and $2.3 million of residential mortgage loans held for sale at June 30, 2022 and December 31, 2021, respectively.

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LOANS - Fair Value and Unpaid Principal of Residential Mortgage Loan Portfolio (Details) - Residential Mortgage Loans - USD ($) $ in Thousands	Jun. 30, 2022	Dec. 31, 2021
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Fair value	$ 9,905,790	$ 7,768,507
Unpaid principal balance	$ 10,516,244	$ 7,535,855

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LOANS - Summary of Comprehensive Income (Loss) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Interest income	$ 475,140	$ 322,859	$ 1,056,068	$ 1,010,264
Total included in net income (loss)	866,696	(295,642)	2,888,951	1,455,171
Residential Mortgage Loans
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Interest income	91,645	38,963	165,110	76,072
Net gains (losses) on disposal of investments	(5,321)	(21,721)	(12,658)	(26,941)
Net unrealized gains (losses) on instruments measured at fair value through earnings	(324,481)	14,456	(739,729)	36,911
Total included in net income (loss)	$ (238,157)	$ 31,698	$ (587,277)	$ 86,042

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LOANS - Geographic Concentrations Based on Unpaid Principal Balances (Details) - Residential mortgage loans - Geographic Concentration Risk	6 Months Ended	12 Months Ended
	Jun. 30, 2022	Dec. 31, 2021
California
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Geographic Concentrations of Residential Mortgage Loans	47.20%	50.20%
New York
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Geographic Concentrations of Residential Mortgage Loans	10.70%	10.90%
Florida
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Geographic Concentrations of Residential Mortgage Loans	7.50%	6.10%
All other (none individually greater than 5%)
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Geographic Concentrations of Residential Mortgage Loans	34.60%	32.80%
All Locations
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Geographic Concentrations of Residential Mortgage Loans	100.00%	100.00%

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LOANS - Additional Data On Residential Mortgage Loans (Details) - Residential Mortgage Loans $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2022 USD ($) point	Dec. 31, 2021 USD ($) point
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Unpaid principal balance	$ 10,516,244	$ 7,535,855
Minimum
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Unpaid principal balance	$ 3	$ 1
Interest rate	1.13%	0.75%
FICO score at loan origination | point	588	604
Loan-to-value ratio at loan origination	5.00%	8.00%
Maximum
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Unpaid principal balance	$ 4,396	$ 4,382
Interest rate	15.00%	9.24%
FICO score at loan origination | point	832	831
Loan-to-value ratio at loan origination	100.00%	103.00%
Weighted Average
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Unpaid principal balance	$ 496	$ 513
Interest rate	4.18%	4.04%
FICO score at loan origination | point	761	762
Loan-to-value ratio at loan origination	67.00%	66.00%

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MORTGAGE SERVICING RIGHTS - MSR Activity Rollforward (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021
Servicing Asset at Fair Value, Amount [Roll Forward]
Fair value, beginning of period	$ 1,108,937	$ 113,080	$ 544,562	$ 100,895
Purchases	262,960	98,983	683,983	98,983
Sales	(9,065)	(376)	(9,075)	(376)
Changes in valuation inputs or assumptions	79,606	4,621	238,568	32,296
Other changes, including realization of expected cash flows	(21,018)	(13,692)	(36,618)	(29,182)
Fair value, end of period	$ 1,421,420	$ 202,616	$ 1,421,420	$ 202,616

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MORTGAGE SERVICING RIGHTS - Interest in MSR Rollfoward (Details) - Level 3 - Interests in MSR - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021
Servicing Asset at Fair Value, Amount [Roll Forward]
Beginning balance	$ 85,653	$ 0	$ 69,316	$ 0
Purchases	(53)	47,098	4,860	47,098
Gain (loss) included in net income	(1,978)	1,937	9,446	1,937
Ending balance June 30, 2022	$ 83,622	$ 49,035	$ 83,622	$ 49,035

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VARIABLE INTEREST ENTITIES - Narrative (Details) - USD ($) $ in Thousands		1 Months Ended	3 Months Ended		6 Months Ended
		Aug. 31, 2017	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021	Dec. 31, 2021		Mar. 31, 2020
Variable Interest Entity [Line Items]
Securitized debt of consolidated VIEs			$ 7,502,483		$ 7,502,483		$ 5,155,633	[1]
Mortgage-backed securities	[2]		59,042,734		59,042,734		63,655,674	[1]
Costs incurred in connection with securitization			36,038	$ 53,526	81,802	$ 101,431
Participations issued			696,944		696,944		1,049,066	[1]
MSR Silo
Variable Interest Entity [Line Items]
Variable interest entity, ownership percentage		100.00%
Consolidated VIEs
Variable Interest Entity [Line Items]
Exposure to obligations of VIEs			1,100,000		1,100,000
Consolidated VIEs | OBX Trust
Variable Interest Entity [Line Items]
Securitized debt of consolidated VIEs			7,100,000		7,100,000		4,600,000
Costs incurred in connection with securitization			1,800	$ 1,200	5,100	$ 1,800
Contractual principal amount of debt held by third parties			7,800,000		7,800,000		4,600,000
Consolidated VIEs | Consolidation, Eliminations | OBX Trust
Variable Interest Entity [Line Items]
Mortgage-backed securities			998,400		998,400		780,800
VIE, Not Primary Beneficiary | Residential mortgage loans
Variable Interest Entity [Line Items]
Participations issued			$ 700,000		$ 700,000		$ 1,000,000
Multifamily | Consolidated VIEs
Variable Interest Entity [Line Items]
Cut-off date principal balance									$ 500,000
Multifamily | Retained Interest | Consolidated VIEs
Variable Interest Entity [Line Items]
Retained interest notional balance									$ 500,000

[1] (1)Derived from the audited consolidated financial statements at December 31, 2021.

[2] (3)Excludes $30.1 million and $44.2 million at June 30, 2022 and December 31, 2021, respectively, of Agency mortgage-backed securities and $971.9 million and $350.4 million at June 30, 2022 and December 31, 2021, respectively, of non-Agency mortgage-backed securities in consolidated VIEs pledged as collateral and eliminated from the Company’s Consolidated Statements of Financial Condition. 

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VARIABLE INTEREST ENTITIES - Schedule of the Fair Value of OBX Trusts Closed (Details) - OBX Trust - Consolidated VIEs - USD ($) $ in Thousands	Jun. 30, 2022	May 31, 2022	Mar. 31, 2022	Feb. 28, 2022	Jan. 31, 2022
Variable Interest Entity [Line Items]
Loans	$ 335,900	$ 389,334	$ 315,843	$ 439,421	$ 556,696
OBX 2022-INV1
Variable Interest Entity [Line Items]
Loans					$ 377,275
OBX 2022-INV2
Variable Interest Entity [Line Items]
Loans				$ 466,686
OBX 2022-INV3
Variable Interest Entity [Line Items]
Loans			$ 330,823
OBX 2022-NQM4
Variable Interest Entity [Line Items]
Loans		$ 457,285
OBX 2022-NQM5
Variable Interest Entity [Line Items]
Loans	390,775
OBX 2022-NQM6
Variable Interest Entity [Line Items]
Loans	$ 387,913

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VARIABLE INTEREST ENTITIES - Schedule of Financial Condition of VIEs Reflected in Consolidated Statements of Financial Condition (Details) - USD ($) $ in Thousands	Jun. 30, 2022	Dec. 31, 2021
Assets
Mortgage servicing rights	$ 1,421,420	$ 544,562	[1]
Interests in MSR	83,622	69,316	[1]
Other assets	272,865	197,683	[1]
Total assets	73,637,249	76,764,064	[1]
Liabilities
Other liabilities	158,560	94,423	[1]
Total liabilities	62,547,349	63,568,739	[1]
Consolidated VIEs
Assets
Cash and cash equivalents	2,400	16,200
Consolidated VIEs | MSR VIEs
Assets
Cash and cash equivalents	2,446	16,187
Loans	1,548	2,347
Mortgage servicing rights	41	7,254
Interests in MSR	83,622	69,316
Other assets	6,271	10,406
Total assets	93,928	105,510
Liabilities
Payable for unsettled trades	2,152	1,911
Other liabilities	5,470	14,582
Total liabilities	$ 7,622	$ 16,493

[1] (1)Derived from the audited consolidated financial statements at December 31, 2021.

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SALE OF COMMERCIAL REAL ESTATE BUSINESS - Narrative (Details) - USD ($) $ in Thousands	3 Months Ended			6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Mar. 31, 2021	Jun. 30, 2022	Jun. 30, 2021	Mar. 25, 2021
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Business divestiture-related gains (losses)	$ (23,955)	$ 1,527		$ (24,309)	$ (248,036)
CRE Business | Discontinued Operations, Disposed of by Sale
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Sale of business						$ 2,330,000
Impairment of goodwill			$ 71,800
Business divestiture-related gains (losses)			$ (248,000)

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SALE OF MIDDLE MARKET LENDING PORTFOLIO (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021	Apr. 22, 2022
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Business divestiture-related gains (losses)	$ (23,955)	$ 1,527	$ (24,309)	$ (248,036)
Discontinued Operations, Disposed of by Sale | Middle Market Lending Portfolio
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Sale of business					$ 2,400,000
Loans sold	1,800,000		1,800,000
Cash proceeds	1,800,000
Business divestiture-related gains (losses)	40,100
Discontinued Operations, Held-for-sale | Middle Market Lending Portfolio
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Loans sold	$ 121,200		$ 121,200

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DERIVATIVE INSTRUMENTS - Narrative (Details) - USD ($) $ in Billions	Jun. 30, 2022	Dec. 31, 2021
Interest rate swaps, at fair value
Derivative [Line Items]
Variation margin	$ (2.1)	$ (0.4)

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DERIVATIVE INSTRUMENTS - Summary of Fair Value Information about Derivative Assets and Liabilities (Details) - USD ($) $ in Thousands	Jun. 30, 2022	Dec. 31, 2021
Assets
Total derivative assets	$ 748,432	$ 170,370	[1]
Liabilities
Interest rate swaps	272,055	747,036
Total derivative liabilities	379,708	881,537	[1]
Futures contracts
Assets
Other derivative assets	341,430	9,028
Total derivative assets	341,430	9,028
Liabilities
Other derivative liabilities	3,020	129,134
Total derivative liabilities	3,020	129,134
Purchase commitments
Assets
Other derivative assets	3,615	1,779
Total derivative assets	3,615	1,779
Liabilities
Other derivative liabilities	532	870
Total derivative liabilities	532	870
Interest rate swaps
Assets
Total derivative assets	9,408
Liabilities
Total derivative liabilities	272,055	747,036
Current notional	35,222,000	45,907,300
Interest rate swaps	9,408	0
Interest rate swaptions
Assets
Other derivative assets	333,318	105,710
Total derivative assets	333,318	105,710
TBA derivatives
Assets
Other derivative assets	60,661	52,693
Total derivative assets	60,661	52,693
Liabilities
Other derivative liabilities	91,124	3,916
Total derivative liabilities	91,124	3,916
Credit derivatives
Assets
Other derivative assets	0	1,160
Total derivative assets		1,160
Liabilities
Other derivative liabilities	12,977	581
Total derivative liabilities	12,977	581
Credit derivatives | Maximum
Liabilities
Current notional	$ 410,000	$ 400,000

[1] (1)Derived from the audited consolidated financial statements at December 31, 2021.

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DERIVATIVE INSTRUMENTS - Summary of Characteristics of Interest Rate Swaps (Details) - USD ($)	6 Months Ended	12 Months Ended
	Jun. 30, 2022	Dec. 31, 2021
Interest rate swaps, at fair value
Derivative [Line Items]
Current notional	$ 35,222,000,000	$ 45,907,300,000
Weighted Average Pay Rate	1.16%	0.59%
Weighted Average Receive Rate	1.65%	0.08%
Weighted average years to maturity	4 years 8 months 8 days	3 years 3 months 25 days
Interest rate swaps, at fair value | LIBOR
Derivative [Line Items]
Notional amount, percentage	0.23	0.18
Interest rate swaps, at fair value | Federal funds index swap
Derivative [Line Items]
Notional amount, percentage	0.35	0.53
Interest rate swaps, at fair value | Secured Overnight Financing Rate
Derivative [Line Items]
Notional amount, percentage	0.42	0.29
Interest rate swaps, at fair value | 0 - 3 years
Derivative [Line Items]
Minimum maturity period	0 years	0 years
Maximum maturity period	3 years	3 years
Current notional	$ 20,807,400,000	$ 32,709,300,000
Weighted Average Pay Rate	0.79%	0.25%
Weighted Average Receive Rate	1.62%	0.06%
Weighted average years to maturity	1 year 1 month 28 days	1 year 1 month 6 days
Interest rate swaps, at fair value | 3 - 6 years
Derivative [Line Items]
Minimum maturity period	3 years	3 years
Maximum maturity period	6 years	6 years
Current notional	$ 1,420,400,000	$ 2,780,000,000
Weighted Average Pay Rate	1.62%	0.21%
Weighted Average Receive Rate	1.80%	0.07%
Weighted average years to maturity	4 years 3 months 3 days	3 years 5 months 15 days
Interest rate swaps, at fair value | 6 - 10 years
Derivative [Line Items]
Minimum maturity period	6 years	6 years
Maximum maturity period	10 years	10 years
Current notional	$ 11,583,200,000	$ 9,118,000,000
Weighted Average Pay Rate	1.72%	1.43%
Weighted Average Receive Rate	1.71%	0.13%
Weighted average years to maturity	9 years 3 months 25 days	9 years 18 days
Interest rate swaps, at fair value | Greater than 10 years
Derivative [Line Items]
Minimum maturity period	10 years	10 years
Current notional	$ 1,411,000,000	$ 1,300,000,000
Weighted Average Pay Rate	3.88%	4.04%
Weighted Average Receive Rate	1.39%	0.11%
Weighted average years to maturity	19 years 1 month 9 days	18 years 8 months 12 days
Forward starting pay fixed swaps
Derivative [Line Items]
Current notional	$ 0	$ 0

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DERIVATIVE INSTRUMENTS - Summary of Swaptions Outstanding (Details) - Notional - Long Positions - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2022	Dec. 31, 2021
Long pay
Derivative [Line Items]
Notional amount of credit derivatives	$ 4,050,000	$ 4,050,000
Weighted Average Underlying Fixed Rate	2.00%	2.00%
Weighted Average Underlying Years to Maturity	9 years 1 month 24 days	9 years 7 months 24 days
Weighted Average Months to Expiration	13 years 5 months 15 days	19 years 6 months
Long receive
Derivative [Line Items]
Notional amount of credit derivatives	$ 1,000,000	$ 2,000,000
Weighted Average Underlying Fixed Rate	1.49%	1.47%
Weighted Average Underlying Years to Maturity	11 years 2 months 12 days	10 years 11 months 12 days
Weighted Average Months to Expiration	14 years 5 months 15 days	11 years 4 months 17 days

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DERIVATIVE INSTRUMENTS - Summary of Characteristics of TBA Derivatives (Details) - TBA derivatives - Purchase contracts - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2022	Dec. 31, 2021
Derivative [Line Items]
Notional	$ 19,455,000	$ 20,133,000
Implied Cost Basis	19,313,442	20,289,856
Implied Market Value	19,282,979	20,338,633
Net Carrying Value	$ (30,463)	$ 48,777

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DERIVATIVE INSTRUMENTS - Summary of Certain Characteristics of Futures Derivatives (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2022	Dec. 31, 2021
Futures contracts
Derivative [Line Items]
Weighted Average Underlying Years to Maturity	5 years 3 months 21 days	4 years 7 months 6 days
Futures contracts | Notional - Long Positions
Derivative [Line Items]
Notional amount long (short)	$ 0	$ 0
Futures contracts | Notional - Short Positions
Derivative [Line Items]
Notional amount long (short)	$ 36,000,200	$ 22,535,100
U.S. Treasury futures - 2 year
Derivative [Line Items]
Maturity period	2 years	2 years
Weighted Average Underlying Years to Maturity	1 year 11 months 19 days	1 year 11 months 15 days
U.S. Treasury futures - 2 year | Notional - Long Positions
Derivative [Line Items]
Notional amount long (short)	$ 0	$ 0
U.S. Treasury futures - 2 year | Notional - Short Positions
Derivative [Line Items]
Notional amount long (short)	$ 10,264,200	$ 7,509,200
U.S. Treasury futures - 5 year
Derivative [Line Items]
Maturity period	5 years	5 years
Weighted Average Underlying Years to Maturity	4 years 4 months 24 days	4 years 4 months 17 days
U.S. Treasury futures - 5 year | Notional - Long Positions
Derivative [Line Items]
Notional amount long (short)	$ 0	$ 0
U.S. Treasury futures - 5 year | Notional - Short Positions
Derivative [Line Items]
Notional amount long (short)	$ 5,903,400	$ 5,644,900
U.S. Treasury futures - 10 year and greater
Derivative [Line Items]
Maturity period	10 years	10 years
Weighted Average Underlying Years to Maturity	7 years 3 months 21 days	6 years 10 months 2 days
U.S. Treasury futures - 10 year and greater | Notional - Long Positions
Derivative [Line Items]
Notional amount long (short)	$ 0	$ 0
U.S. Treasury futures - 10 year and greater | Notional - Short Positions
Derivative [Line Items]
Notional amount long (short)	$ 19,832,600	$ 9,381,000

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DERIVATIVE INSTRUMENTS - Offsetting of Derivative Assets and Liabilities (Details) - USD ($) $ in Thousands	Jun. 30, 2022	Dec. 31, 2021
Assets
Gross Amounts	$ 748,432	$ 170,370	[1]
Liabilities
Gross Amounts	379,708	881,537	[1]
Futures contracts, at fair value
Assets
Gross Amounts	341,430	9,028
Financial Instruments	(3,020)	(9,028)
Cash Collateral	0	0
Net Amounts	338,410	0
Liabilities
Gross Amounts	3,020	129,134
Financial Instruments	(3,020)	(9,028)
Cash Collateral	0	(120,106)
Net Amounts	0	0
Purchase commitments
Assets
Gross Amounts	3,615	1,779
Financial Instruments	0	0
Cash Collateral	0	0
Net Amounts	3,615	1,779
Liabilities
Gross Amounts	532	870
Financial Instruments	0	0
Cash Collateral	0	0
Net Amounts	532	870
Interest rate swaps, at fair value
Assets
Gross Amounts	9,408
Financial Instruments	(5,195)
Cash Collateral	0
Net Amounts	4,213
Liabilities
Gross Amounts	272,055	747,036
Financial Instruments	(5,195)	0
Cash Collateral	(13,910)	(77,607)
Net Amounts	252,950	669,429
Interest rate swaptions, at fair value
Assets
Gross Amounts	333,318	105,710
Financial Instruments	0	0
Cash Collateral	0	0
Net Amounts	333,318	105,710
TBA derivatives, at fair value
Assets
Gross Amounts	60,661	52,693
Financial Instruments	(32,631)	(3,876)
Cash Collateral	0	0
Net Amounts	28,030	48,817
Liabilities
Gross Amounts	91,124	3,916
Financial Instruments	(32,631)	(3,876)
Cash Collateral	0	(40)
Net Amounts	58,493	0
Credit derivatives
Assets
Gross Amounts		1,160
Financial Instruments		(516)
Cash Collateral		0
Net Amounts		644
Liabilities
Gross Amounts	12,977	581
Financial Instruments	0	(516)
Cash Collateral	(12,977)	(65)
Net Amounts	$ 0	$ 0

[1] (1)Derived from the audited consolidated financial statements at December 31, 2021.

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DERIVATIVE INSTRUMENTS - Effect of Interest Rate Swaps on Consolidated Statements of Comprehensive Income (Loss) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021
Derivative Instruments and Hedging Activities Disclosure [Abstract]
Net Interest Component of Interest Rate Swaps	$ 992	$ (83,087)	$ (61,549)	$ (162,834)
Realized Gains (Losses) on Termination of Interest Rate Swaps	(16)	0	(16)	0
Unrealized Gain (Losses) on Interest Rate Swaps	$ 897,537	$ (141,067)	$ 2,220,976	$ 631,195

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DERIVATIVE INSTRUMENTS - Effect of Other Derivative Contracts on the Consolidated Statements of Operations and Comprehensive Income (Loss) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021
Derivative [Line Items]
Unrealized Gain (Loss)	$ 897,537	$ (141,067)	$ 2,220,976	$ 631,195
Amount of Gain/(Loss) Recognized in Net Gains (Losses) on Derivatives	117,130	(357,808)	498,260	117,899
Futures
Derivative [Line Items]
Realized Gain (Loss)	1,167,524	183,383	1,720,678	479,547
Unrealized Gain (Loss)	(380,436)	(577,899)	458,516	(60,766)
Amount of Gain/(Loss) Recognized in Net Gains (Losses) on Derivatives	787,088	(394,516)	2,179,194	418,781
Purchase commitments
Derivative [Line Items]
Realized Gain (Loss)	0	0	0	0
Unrealized Gain (Loss)	2,671	2,376	2,172	469
Amount of Gain/(Loss) Recognized in Net Gains (Losses) on Derivatives	2,671	2,376	2,172	469
TBA derivatives
Derivative [Line Items]
Realized Gain (Loss)	(1,064,242)	10,045	(1,820,381)	(277,844)
Unrealized Gain (Loss)	280,992	275,226	(79,239)	(67,002)
Amount of Gain/(Loss) Recognized in Net Gains (Losses) on Derivatives	(783,250)	285,271	(1,899,620)	(344,846)
Interest rate swaptions, at fair value
Derivative [Line Items]
Realized Gain (Loss)	0	(22,787)	(14,450)	(44,997)
Unrealized Gain (Loss)	119,436	(232,860)	242,058	73,130
Amount of Gain/(Loss) Recognized in Net Gains (Losses) on Derivatives	119,436	(255,647)	227,608	28,133
Credit derivatives
Derivative [Line Items]
Realized Gain (Loss)	374	2,777	1,434	4,408
Unrealized Gain (Loss)	(9,189)	1,931	(12,528)	10,954
Amount of Gain/(Loss) Recognized in Net Gains (Losses) on Derivatives	$ (8,815)	$ 4,708	$ (11,094)	$ 15,362

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FAIR VALUE MEASUREMENTS - Estimated Fair Values of Financial Instruments (Details) - USD ($) $ in Thousands		Jun. 30, 2022	Mar. 31, 2022	Dec. 31, 2021		Jun. 30, 2021	Mar. 31, 2021	Dec. 31, 2020
Assets
Mortgage-backed securities	[1]	$ 59,042,734		$ 63,655,674	[2]
Loans
Mortgage servicing rights		1,421,420	$ 1,108,937	544,562		$ 202,616	$ 113,080	$ 100,895
Derivative assets
Derivative assets		748,432		170,370	[2]
Liabilities
Participations issued		696,944		1,049,066	[2]
Derivative liabilities
Interest rate swaps		272,055		747,036
Residential Mortgage Loans
Loans
Residential mortgage loans		9,905,790		7,768,507
Fair Value, Measurements, Recurring
Assets
Agency mortgage-backed securities		55,593,336		60,525,605
Credit risk transfer securities		965,714		936,228
Loans
Mortgage servicing rights		1,421,420		544,562
Interests in MSR		83,622		69,316
Assets transferred or pledged to securitization vehicles				6,086,308
Derivative assets
Other derivatives		739,024		170,370
Total assets		71,660,588		72,799,282
Liabilities
Debt issued by securitization vehicles		7,502,483		5,155,633
Participations issued		696,944		1,049,066
Derivative liabilities
Interest rate swaps		272,055		747,036
Other derivatives		107,653		134,501
Total liabilities		8,579,135		7,086,236
Fair Value, Measurements, Recurring | Asset Transferred or Pledged
Loans
Assets transferred or pledged to securitization vehicles		8,877,247
Fair Value, Measurements, Recurring | Non-Agency Mortgage-Backed Securities
Assets
Mortgage-backed securities		2,026,658		1,663,336
Fair Value, Measurements, Recurring | Commercial Mortgage-Backed Securities
Assets
Mortgage-backed securities		457,026		530,505
Fair Value, Measurements, Recurring | Residential Mortgage Loans
Loans
Residential mortgage loans		1,486,811		2,272,072
Residential mortgage loan warehouse facility		322		980
Fair Value, Measurements, Recurring | Interest rate swaps
Derivative assets
Derivative assets		9,408
Fair Value, Measurements, Recurring | Level 1
Assets
Agency mortgage-backed securities		0		0
Credit risk transfer securities		0		0
Loans
Mortgage servicing rights		0		0
Interests in MSR		0		0
Derivative assets
Other derivatives		341,430		9,028
Total assets		341,430		9,028
Liabilities
Debt issued by securitization vehicles		0		0
Participations issued		0		0
Derivative liabilities
Interest rate swaps		0		0
Other derivatives		3,020		129,134
Total liabilities		3,020		129,134
Fair Value, Measurements, Recurring | Level 1 | Asset Transferred or Pledged
Loans
Assets transferred or pledged to securitization vehicles		0		0
Fair Value, Measurements, Recurring | Level 1 | Non-Agency Mortgage-Backed Securities
Assets
Mortgage-backed securities		0		0
Fair Value, Measurements, Recurring | Level 1 | Commercial Mortgage-Backed Securities
Assets
Mortgage-backed securities		0		0
Fair Value, Measurements, Recurring | Level 1 | Residential Mortgage Loans
Loans
Residential mortgage loans		0		0
Residential mortgage loan warehouse facility		0		0
Fair Value, Measurements, Recurring | Level 1 | Interest rate swaps
Derivative assets
Derivative assets		0
Fair Value, Measurements, Recurring | Level 2
Assets
Agency mortgage-backed securities		55,593,336		60,525,605
Credit risk transfer securities		965,714		936,228
Loans
Mortgage servicing rights		0		0
Interests in MSR		0		0
Assets transferred or pledged to securitization vehicles				6,086,308
Derivative assets
Other derivatives		397,594		161,342
Total assets		69,814,116		72,176,376
Liabilities
Debt issued by securitization vehicles		7,502,483		5,155,633
Participations issued		696,944		1,049,066
Derivative liabilities
Interest rate swaps		272,055		747,036
Other derivatives		104,633		5,367
Total liabilities		8,576,115		6,957,102
Fair Value, Measurements, Recurring | Level 2 | Asset Transferred or Pledged
Loans
Assets transferred or pledged to securitization vehicles		8,877,247
Fair Value, Measurements, Recurring | Level 2 | Non-Agency Mortgage-Backed Securities
Assets
Mortgage-backed securities		2,026,658		1,663,336
Fair Value, Measurements, Recurring | Level 2 | Commercial Mortgage-Backed Securities
Assets
Mortgage-backed securities		457,026		530,505
Fair Value, Measurements, Recurring | Level 2 | Residential Mortgage Loans
Loans
Residential mortgage loans		1,486,811		2,272,072
Residential mortgage loan warehouse facility		322		980
Fair Value, Measurements, Recurring | Level 2 | Interest rate swaps
Derivative assets
Derivative assets		9,408
Fair Value, Measurements, Recurring | Level 3
Assets
Agency mortgage-backed securities		0		0
Credit risk transfer securities		0		0
Loans
Mortgage servicing rights		1,421,420		544,562
Interests in MSR		83,622		69,316
Assets transferred or pledged to securitization vehicles				0
Derivative assets
Other derivatives		0		0
Total assets		1,505,042		613,878
Liabilities
Debt issued by securitization vehicles		0		0
Participations issued		0		0
Derivative liabilities
Interest rate swaps		0		0
Other derivatives		0		0
Total liabilities		0		0
Fair Value, Measurements, Recurring | Level 3 | Asset Transferred or Pledged
Loans
Assets transferred or pledged to securitization vehicles		0
Fair Value, Measurements, Recurring | Level 3 | Non-Agency Mortgage-Backed Securities
Assets
Mortgage-backed securities		0		0
Fair Value, Measurements, Recurring | Level 3 | Commercial Mortgage-Backed Securities
Assets
Mortgage-backed securities		0		0
Fair Value, Measurements, Recurring | Level 3 | Residential Mortgage Loans
Loans
Residential mortgage loans		0		0
Residential mortgage loan warehouse facility		0		$ 0
Fair Value, Measurements, Recurring | Level 3 | Interest rate swaps
Derivative assets
Derivative assets		$ 0

[1] (3)Excludes $30.1 million and $44.2 million at June 30, 2022 and December 31, 2021, respectively, of Agency mortgage-backed securities and $971.9 million and $350.4 million at June 30, 2022 and December 31, 2021, respectively, of non-Agency mortgage-backed securities in consolidated VIEs pledged as collateral and eliminated from the Company’s Consolidated Statements of Financial Condition. 

[2] (1)Derived from the audited consolidated financial statements at December 31, 2021.

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FAIR VALUE MEASUREMENTS - Information about Significant Unobservable Inputs Used for Recurring Fair Value Measurements for Level 3 MSRs (Detail) - Fair Value, Measurements, Recurring - Level 3	6 Months Ended	12 Months Ended
	Jun. 30, 2022 USD ($)	Dec. 31, 2021 USD ($)
MSR held directly | Minimum
Fair Value, Option, Quantitative Disclosures [Line Items]
Cost to service	$ 89	$ 90
MSR held directly | Maximum
Fair Value, Option, Quantitative Disclosures [Line Items]
Cost to service	110	103
MSR held directly | Weighted Average
Fair Value, Option, Quantitative Disclosures [Line Items]
Cost to service	93	96
Interests in MSR | Minimum
Fair Value, Option, Quantitative Disclosures [Line Items]
Cost to service	82	78
Interests in MSR | Maximum
Fair Value, Option, Quantitative Disclosures [Line Items]
Cost to service	87	84
Interests in MSR | Weighted Average
Fair Value, Option, Quantitative Disclosures [Line Items]
Cost to service	$ 84	$ 81
Discount rate | MSR held directly | Minimum
Fair Value, Option, Quantitative Disclosures [Line Items]
MSR measurement inputs	0.058	0.033
Discount rate | MSR held directly | Maximum
Fair Value, Option, Quantitative Disclosures [Line Items]
MSR measurement inputs	0.098	0.111
Discount rate | MSR held directly | Weighted Average
Fair Value, Option, Quantitative Disclosures [Line Items]
MSR measurement inputs	0.082	0.070
Discount rate | Interests in MSR | Minimum
Fair Value, Option, Quantitative Disclosures [Line Items]
MSR measurement inputs	0.080	0.084
Discount rate | Interests in MSR | Maximum
Fair Value, Option, Quantitative Disclosures [Line Items]
MSR measurement inputs	0.080	0.084
Discount rate | Interests in MSR | Weighted Average
Fair Value, Option, Quantitative Disclosures [Line Items]
MSR measurement inputs	0.080	0.084
Prepayment rate | MSR held directly | Minimum
Fair Value, Option, Quantitative Disclosures [Line Items]
MSR measurement inputs	0.048	0.073
Prepayment rate | MSR held directly | Maximum
Fair Value, Option, Quantitative Disclosures [Line Items]
MSR measurement inputs	0.083	0.159
Prepayment rate | MSR held directly | Weighted Average
Fair Value, Option, Quantitative Disclosures [Line Items]
MSR measurement inputs	0.054	0.094
Prepayment rate | Interests in MSR | Minimum
Fair Value, Option, Quantitative Disclosures [Line Items]
MSR measurement inputs	0.040	0.050
Prepayment rate | Interests in MSR | Maximum
Fair Value, Option, Quantitative Disclosures [Line Items]
MSR measurement inputs	0.096	0.144
Prepayment rate | Interests in MSR | Weighted Average
Fair Value, Option, Quantitative Disclosures [Line Items]
MSR measurement inputs	0.068	0.091
Delinquency rate | MSR held directly | Minimum
Fair Value, Option, Quantitative Disclosures [Line Items]
MSR measurement inputs	0.001	0.002
Delinquency rate | MSR held directly | Maximum
Fair Value, Option, Quantitative Disclosures [Line Items]
MSR measurement inputs	0.018	0.025
Delinquency rate | MSR held directly | Weighted Average
Fair Value, Option, Quantitative Disclosures [Line Items]
MSR measurement inputs	0.008	0.012
Delinquency rate | Interests in MSR | Minimum
Fair Value, Option, Quantitative Disclosures [Line Items]
MSR measurement inputs	0.004	0.000
Delinquency rate | Interests in MSR | Maximum
Fair Value, Option, Quantitative Disclosures [Line Items]
MSR measurement inputs	0.043	0.002
Delinquency rate | Interests in MSR | Weighted Average
Fair Value, Option, Quantitative Disclosures [Line Items]
MSR measurement inputs	0.014	0.001

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FAIR VALUE MEASUREMENTS - Estimated Fair Values for All Financial Assets and Liabilities (Detail) - USD ($) $ in Thousands	Jun. 30, 2022	Dec. 31, 2021
Financial liabilities
Other secured financing	$ 0	$ 903,255	[1]
Carrying Value | Level 3
Financial assets
Corporate debt, held for investment	0	1,968,991
Carrying Value | Level 2
Financial liabilities
Repurchase agreements	51,364,097	54,769,643
Other secured financing	0	903,255
Fair Value | Level 3
Financial assets
Corporate debt, held for investment	0	1,986,379
Fair Value | Level 2
Financial liabilities
Repurchase agreements	51,364,097	54,769,643
Other secured financing	$ 0	$ 903,255

[1] (1)Derived from the audited consolidated financial statements at December 31, 2021.

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GOODWILL AND INTANGIBLE ASSETS - Narrative (Details) $ in Millions	Jun. 30, 2020 USD ($)
Assembled workforce
Finite-Lived Intangible Assets [Line Items]
Intangible assets acquired	$ 41.2

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GOODWILL AND INTANGIBLE ASSETS - Summary of Indefinite and Finite-Lived Intangible Assets (Details) $ in Thousands	6 Months Ended
	Jun. 30, 2022 USD ($)
Intangible Assets, net
Balance at December 31, 2021	$ 24,241
Impairment	(4,157)
Less: amortization expense	(1,889)
Balance at June 30, 2022	$ 18,195

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SECURED FINANCING - Narrative (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2022	Dec. 31, 2021
Debt Disclosure [Abstract]
Netted amounts	$ 51,364,097	$ 54,769,643	[1]
Repurchase agreements - weighted average remaining maturities	47 days	52 days
Repurchase agreement amount	$ 1,800,000
Remaining capacity of repurchase agreement	1,300,000
Secured financings and interest rate swaps - collateral held, estimated fair value	54,800,000	$ 59,200,000
Secured financings and interest rate swaps - collateral held, accrued interest	$ 166,300	$ 160,800

[1] (1)Derived from the audited consolidated financial statements at December 31, 2021.

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SECURED FINANCING - Repurchase Agreements - Remaining Maturities, Collateral Types and Weighted Average Rate (Details) - USD ($) $ in Thousands	Jun. 30, 2022	Dec. 31, 2021
Repurchase Agreements:
Netted amounts	$ 51,364,097	$ 54,769,643	[1]
Weighted Average Rate	1.60%	0.17%
Repurchase agreements, remaining maturities, percentage	0.00%
CRTs
Repurchase Agreements:
Netted amounts	$ 723,574	$ 176,450
Non-Agency Mortgage-Backed Securities
Repurchase Agreements:
Netted amounts	2,392,774	977,366
Residential Mortgage Loans
Repurchase Agreements:
Netted amounts	533,435	505,001
Agency Mortgage-Backed Securities
Repurchase Agreements:
Netted amounts	47,293,951	52,724,923
Commercial Mortgage-Backed Securities
Repurchase Agreements:
Netted amounts	420,363	385,903
1 day
Repurchase Agreements:
Netted amounts	$ 14,686,762	$ 0
Weighted Average Rate	1.61%	0.00%
1 day | CRTs
Repurchase Agreements:
Netted amounts	$ 0	$ 0
1 day | Non-Agency Mortgage-Backed Securities
Repurchase Agreements:
Netted amounts	35,360	0
1 day | Residential Mortgage Loans
Repurchase Agreements:
Netted amounts	0	0
1 day | Agency Mortgage-Backed Securities
Repurchase Agreements:
Netted amounts	14,651,402	0
1 day | Commercial Mortgage-Backed Securities
Repurchase Agreements:
Netted amounts	0	0
2 to 29 days
Repurchase Agreements:
Netted amounts	$ 25,527,179	$ 27,013,474
Weighted Average Rate	1.58%	0.14%
2 to 29 days | CRTs
Repurchase Agreements:
Netted amounts	$ 2,406	$ 133,525
2 to 29 days | Non-Agency Mortgage-Backed Securities
Repurchase Agreements:
Netted amounts	297,845	246,707
2 to 29 days | Residential Mortgage Loans
Repurchase Agreements:
Netted amounts	0	0
2 to 29 days | Agency Mortgage-Backed Securities
Repurchase Agreements:
Netted amounts	25,217,859	26,435,408
2 to 29 days | Commercial Mortgage-Backed Securities
Repurchase Agreements:
Netted amounts	9,069	197,834
30 to 59 days
Repurchase Agreements:
Netted amounts	$ 1,590,972	$ 10,212,453
Weighted Average Rate	1.33%	0.19%
30 to 59 days | CRTs
Repurchase Agreements:
Netted amounts	$ 0	$ 38,854
30 to 59 days | Non-Agency Mortgage-Backed Securities
Repurchase Agreements:
Netted amounts	531,852	270,377
30 to 59 days | Residential Mortgage Loans
Repurchase Agreements:
Netted amounts	0	159,350
30 to 59 days | Agency Mortgage-Backed Securities
Repurchase Agreements:
Netted amounts	1,059,120	9,743,872
30 to 59 days | Commercial Mortgage-Backed Securities
Repurchase Agreements:
Netted amounts	0	0
60 to 89 days
Repurchase Agreements:
Netted amounts	$ 1,765,571	$ 6,377,347
Weighted Average Rate	1.55%	0.17%
60 to 89 days | CRTs
Repurchase Agreements:
Netted amounts	$ 244,947	$ 4,071
60 to 89 days | Non-Agency Mortgage-Backed Securities
Repurchase Agreements:
Netted amounts	533,106	351,426
60 to 89 days | Residential Mortgage Loans
Repurchase Agreements:
Netted amounts	0	0
60 to 89 days | Agency Mortgage-Backed Securities
Repurchase Agreements:
Netted amounts	936,214	6,021,850
60 to 89 days | Commercial Mortgage-Backed Securities
Repurchase Agreements:
Netted amounts	51,304	0
90 to 119 days
Repurchase Agreements:
Netted amounts	$ 1,770,550	$ 4,824,918
Weighted Average Rate	1.43%	0.15%
90 to 119 days | CRTs
Repurchase Agreements:
Netted amounts	$ 349,867	$ 0
90 to 119 days | Non-Agency Mortgage-Backed Securities
Repurchase Agreements:
Netted amounts	648,369	12,573
90 to 119 days | Residential Mortgage Loans
Repurchase Agreements:
Netted amounts	0	0
90 to 119 days | Agency Mortgage-Backed Securities
Repurchase Agreements:
Netted amounts	772,314	4,812,345
90 to 119 days | Commercial Mortgage-Backed Securities
Repurchase Agreements:
Netted amounts	0	0
Over 119 days
Repurchase Agreements:
Netted amounts	$ 6,023,063	$ 6,341,451
Weighted Average Rate	1.84%	0.27%
Over 119 days | CRTs
Repurchase Agreements:
Netted amounts	$ 126,354	$ 0
Over 119 days | Non-Agency Mortgage-Backed Securities
Repurchase Agreements:
Netted amounts	346,242	96,283
Over 119 days | Residential Mortgage Loans
Repurchase Agreements:
Netted amounts	533,435	345,651
Over 119 days | Agency Mortgage-Backed Securities
Repurchase Agreements:
Netted amounts	4,657,042	5,711,448
Over 119 days | Commercial Mortgage-Backed Securities
Repurchase Agreements:
Netted amounts	$ 359,990	$ 188,069

[1] (1)Derived from the audited consolidated financial statements at December 31, 2021.

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SECURED FINANCING - Summary of Gross Amounts, Amounts Offset and Net Amounts of Repurchase Agreement and Reverse Repurchase Agreement (Details) - USD ($) $ in Thousands	Jun. 30, 2022	Dec. 31, 2021
Reverse Repurchase Agreements
Gross amounts	$ 0	$ 0
Amounts offset	0	0
Netted amounts	0	0
Repurchase Agreements
Gross amounts	51,364,097	54,769,643
Amounts offset	0	0
Netted amounts	$ 51,364,097	$ 54,769,643	[1]

[1] (1)Derived from the audited consolidated financial statements at December 31, 2021.

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CAPITAL STOCK - Schedule of Common Stock (Details) - $ / shares	Jun. 30, 2022	Dec. 31, 2021
Equity [Abstract]
Shares authorized (in shares)	2,936,500,000	2,936,500,000
Shares issued (in shares)	1,609,215,497	1,459,736,258
Shares outstanding (in shares)	1,609,215,497	1,459,736,258
Par Value (in dollars per share)	$ 0.01	$ 0.01

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CAPITAL STOCK - Narrative (Details) - USD ($)	1 Months Ended	3 Months Ended		6 Months Ended
	Jan. 31, 2018	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021	Jan. 31, 2022	Dec. 31, 2021	Dec. 31, 2020
Class of Stock [Line Items]
Authorized amount of stock available for repurchase (up to)								$ 1,500,000,000
Shares repurchased (in shares)		0	0	0	0
Sale of stock, option to purchase additional shares, period (in years)				30 days
Preferred stock, par value (USD per share)		$ 0.01		$ 0.01			$ 0.01
Preferred stock, redemption price (in dollars per share)		$ 25.00		$ 25.00
Current Share Repurchase Program
Class of Stock [Line Items]
Authorized amount of stock available for repurchase (up to)						$ 1,500,000,000
At-the-market Sale Program
Class of Stock [Line Items]
Sale of stock, shares issued (in shares)		33,000,000	45,500,000	33,800,000	45,500,000
Proceeds from sale of stock		$ 214,900,000	$ 420,400,000	$ 221,100,000	$ 420,400,000
Aggregate stock offering price (up to)	$ 1,500,000,000
Public Offering
Class of Stock [Line Items]
Sale of stock, shares issued (in shares)		100,000,000		100,000,000
Proceeds from sale of stock		$ 645,000,000		$ 645,000,000
Public Offering Additional Share Purchase Option
Class of Stock [Line Items]
Sale of stock, shares issued (in shares)				15,000,000
Proceeds from sale of stock				$ 96,800,000

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CAPITAL STOCK - Schedule of Preferred Stock (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2022	Dec. 31, 2021
Class of Stock [Line Items]
Shares Authorized (in shares)	63,500,000	63,500,000
Shares Issued (in shares)	63,500,000	63,500,000
Shares Outstanding (in shares)	63,500,000	63,500,000
Carrying Value	$ 1,536,569	$ 1,536,569	[1]
Series F
Class of Stock [Line Items]
Shares Authorized (in shares)	28,800,000	28,800,000
Shares Issued (in shares)	28,800,000	28,800,000
Shares Outstanding (in shares)	28,800,000	28,800,000
Carrying Value	$ 696,910	$ 696,910
Contractual Rate	6.95%
Floating Annual Rate	4.993%
Series G
Class of Stock [Line Items]
Shares Authorized (in shares)	17,000,000	17,000,000
Shares Issued (in shares)	17,000,000	17,000,000
Shares Outstanding (in shares)	17,000,000	17,000,000
Carrying Value	$ 411,335	$ 411,335
Contractual Rate	6.50%
Floating Annual Rate	4.172%
Series I
Class of Stock [Line Items]
Shares Authorized (in shares)	17,700,000	17,700,000
Shares Issued (in shares)	17,700,000	17,700,000
Shares Outstanding (in shares)	17,700,000	17,700,000
Carrying Value	$ 428,324	$ 428,324
Contractual Rate	6.75%
Floating Annual Rate	4.989%

[1] (1)Derived from the audited consolidated financial statements at December 31, 2021.

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CAPITAL STOCK - Summary of Dividend Distribution Activity (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021
Dividends Payable [Line Items]
Dividends and dividend equivalents declared on common stock and share-based awards	$ 355,467	$ 318,534	$ 677,664	$ 626,880
Distributions declared per common share (in dollars per share)	$ 0.22	$ 0.22	$ 0.44	$ 0.44
Distributions paid to common stockholders after period end	$ 354,027	$ 317,714	$ 354,027	$ 317,714
Distributions paid per common share after period end (in dollars per share)	$ 0.22	$ 0.22	$ 0.22	$ 0.22
Series F
Dividends Payable [Line Items]
Preferred dividends declared	$ 12,510	$ 12,510	$ 25,020	$ 25,020
Preferred series dividends declared (in dollars per share)	$ 0.434	$ 0.434	$ 0.869	$ 0.869
Series G
Dividends Payable [Line Items]
Preferred dividends declared	$ 6,906	$ 6,906	$ 13,812	$ 13,812
Preferred series dividends declared (in dollars per share)	$ 0.406	$ 0.406	$ 0.813	$ 0.813
Series I
Dividends Payable [Line Items]
Preferred dividends declared	$ 7,467	$ 7,467	$ 14,934	$ 14,934
Preferred series dividends declared (in dollars per share)	$ 0.422	$ 0.422	$ 0.844	$ 0.844

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INTEREST INCOME AND INTEREST EXPENSE - Components of Company's Interest Income and Interest Expense (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021
Interest income
Agency securities	$ 497,135	$ 255,801	$ 1,020,086	$ 883,455
Residential credit securities	30,037	19,477	52,159	36,457
Residential mortgage loans	91,648	38,963	165,136	76,072
Commercial investment portfolio	26,575	69,663	63,858	151,264
Reverse repurchase agreements	220	2	226	36
Total interest income	645,615	383,906	1,301,465	1,147,284
Interest expense
Repurchase agreements	105,608	29,140	132,487	71,725
Debt issued by securitization vehicles	50,303	23,216	84,928	49,492
Participations issued	9,379	1,739	15,231	2,336
Other	5,185	6,952	12,751	13,467
Total interest expense	170,475	61,047	245,397	137,020
Net interest income	$ 475,140	$ 322,859	$ 1,056,068	$ 1,010,264

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NET INCOME (LOSS) PER COMMON SHARE - Schedule of Net Income (Loss) per Share Reconciliation (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021
Earnings Per Share [Abstract]
Net income (loss)	$ 863,317	$ (294,848)	$ 2,887,211	$ 1,456,286
Net income (loss) attributable to noncontrolling interests	(3,379)	794	(1,740)	1,115
Net income (loss) attributable to Annaly	866,696	(295,642)	2,888,951	1,455,171
Dividends on preferred stock	26,883	26,883	53,766	53,766
Net income (loss) available (related) to common stockholders	$ 839,813	$ (322,525)	$ 2,835,185	$ 1,401,405
Weighted average shares of common stock outstanding-basic (in shares)	1,522,436,766	1,410,239,138	1,492,068,912	1,404,755,496
Add: Effect of stock awards, if dilutive (in shares)	1,158,234	0	1,185,978	1,008,776
Weighted average shares of common stock outstanding-diluted (in shares)	1,523,595,000	1,410,239,138	1,493,254,890	1,405,764,272
Net income (loss) per share available (related) to common share
Basic (in dollars per share)	$ 0.55	$ (0.23)	$ 1.90	$ 1.00
Diluted (in dollars per share)	$ 0.55	$ (0.23)	$ 1.90	$ 1.00

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NET INCOME (LOSS) PER COMMON SHARE - Narrative (Details) - shares shares in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021
Earnings Per Share [Abstract]
Options to purchase common stock (in shares)	3.2	3.2	2.6	3.2

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INCOME TAXES - Narrative (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021
Income Taxes:
REIT Taxable income distributed			100.00%
Income tax expense (benefit)	$ 23,420	$ 5,134	$ 49,968	$ 4,813
Taxable REIT Subsidiary
Income Taxes:
Income tax expense (benefit)	$ 23,400	$ 5,100	$ 50,000	$ 4,800

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LEASE COMMITMENTS AND CONTINGENCIES - Narrative (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021	Dec. 31, 2021
Leases [Abstract]
Remaining lease term, in years	3 years
Option to extend, in years	5 years		5 years
Lease cost	$ 0.8	$ 0.7	$ 1.6	$ 1.6
Material contingencies	$ 0.0		$ 0.0		$ 0.0

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LEASE COMMITMENTS AND CONTINGENCIES - Supplemental Information Regarding Leases (Details) $ in Thousands	6 Months Ended
	Jun. 30, 2022 USD ($)
Leases [Abstract]
Operating lease right-of-use assets	$ 9,221
Operating Lease, Right-of-Use Asset, Statement of Financial Position [Extensible Enumeration]	Other assets
Operating lease liabilities	$ 11,969
Operating Lease, Liability, Statement of Financial Position [Extensible Enumeration]	Other Liabilities
Weighted average remaining lease term	3 years 2 months 12 days
Weighted average discount rate	2.90%
Operating cash flows from operating leases	$ 1,931

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LEASE COMMITMENTS AND CONTINGENCIES - Details of Future Lease Payments (Details) $ in Thousands	Jun. 30, 2022 USD ($)
Leases [Abstract]
2022 (remaining)	$ 1,931
2023	3,862
2024	3,862
2025	2,896
Total lease payments	12,551
Less imputed interest	582
Present value of lease liabilities	$ 11,969

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ARCOLA REGULATORY REQUIREMENTS - Additional Information (Details) - Arcola $ in Millions	Jun. 30, 2022 USD ($)
Compliance with Regulatory Capital Requirements for Mortgage Companies [Line Items]
Minimum net capital requirement	$ 0.3
Regulatory net capital	502.5
Regulatory net capital, excess net capital	$ 502.2

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SUBSEQUENT EVENTS (Details) - Subsequent Event - Line of Credit $ in Millions	Jul. 31, 2022 USD ($)
Mortgage Servicing Rights Facility
Subsequent Event [Line Items]
Credit facility, maximum borrowing capacity	$ 500
Mortgage Servicing Rights Committed Credit Facility
Subsequent Event [Line Items]
Credit facility, maximum borrowing capacity	250
Mortgage Servicing Rights Incremental Facility
Subsequent Event [Line Items]
Credit facility, maximum borrowing capacity	$ 250