Third Quarter 2022 Financial Summary October 26, 2022
This presentation is issued by Annaly Capital Management, Inc. ("Annaly"), an internally managed, publicly traded company that has elected to be taxed as a real estate investment trust for federal income tax purposes, and is being furnished in connection with Annaly’s Third Quarter 2022 earnings release. This presentation is provided for investors in Annaly for informational purposes only and is not an offer to sell, or a solicitation of an offer to buy, any security or instrument. Forward-Looking Statements This presentation, other written or oral communications, and our public documents to which we refer contain or incorporate by reference certain forward-looking statements which are based on various assumptions (some of which are beyond our control) and may be identified by reference to a future period or periods or by the use of forward- looking terminology, such as “may,” “will,” “believe,” “expect,” “anticipate,” “continue,” or similar terms or variations on those terms or the negative of those terms. Actual results could differ materially from those set forth in forward-looking statements due to a variety of factors, including, but not limited to, 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 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 any subsequent Quarterly Reports on Form 10-Q. The Company does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements, except as required by law. We routinely post important information for investors on our website, www.annaly.com. We intend to use this webpage as a means of disclosing material information, for complying with our disclosure obligations under Regulation FD and to post and update investor presentations and similar materials on a regular basis. Annaly encourages investors, analysts, the media and others interested in Annaly to monitor the Investors section of our website, in addition to following our press releases, SEC filings, public conference calls, presentations, webcasts and other information we post from time to time on our website. To sign-up for email-notifications, please visit the “Email Alerts” section of our website, www.annaly.com, under the “Investors” section and enter the required information to enable notifications. The information contained on, or that may be accessed through, our webpage is not incorporated by reference into, and is not a part of, this document. Past performance is no guarantee of future results. There is no guarantee that any investment strategy referenced herein will work under all market conditions. Prior to making any investment decision, you should evaluate your ability to invest for the long-term, especially during periods of downturns in the market. You alone assume the responsibility of evaluating the merits and risks associated with any potential investment or investment strategy referenced herein. To the extent that this material contains reference to any past specific investment recommendations or strategies which were or would have been profitable to any person, it should not be assumed that recommendations made in the future will be profitable or will equal the performance of such past investment recommendations or strategies. The information contained herein is not intended to provide, and should not be relied upon for accounting, legal or tax advice or investment recommendations for Annaly or any of its affiliates. Regardless of source, information is believed to be reliable for purposes used herein, but Annaly makes no representation or warranty as to the accuracy or completeness thereof and does not take any responsibility for information obtained from sources outside of Annaly. Certain information contained in the presentation discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice. 1 Important Notices
Basis of Presentation On September 8, 2022, the Company announced that its Board of Directors had unanimously approved a reverse stock split of the Company’s common stock at a ratio of 1- for-4 (the “Reverse Stock Split”). The Reverse Stock Split was effective following the close of business on September 23, 2022 (the “Effective Time”). Accordingly, at the Effective Time, every four issued and outstanding shares of the Company’s common stock were converted into one share of the Company’s common stock. No fractional shares were issued in connection with the Reverse Stock Split. Instead, each stockholder that would have held fractional shares as a result of the Reverse Stock Split received cash in lieu of such fractional shares. The par value per share of the Company’s common stock remained unchanged at $0.01 per share after the Reverse Stock Split. Accordingly, for all historical periods presented, an amount equal to the par value of the reduced number of shares resulting from the Reverse Stock Split was reclassified from Common stock to Additional paid in capital in the Company’s Consolidated Statements of Financial Condition. All other references made to share or per share amounts in the accompanying consolidated financial statements and disclosures have also been retroactively adjusted, where applicable, to reflect the effects of the Reverse Stock Split. Updates to Financial Disclosures 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. 2 Important Notices (continued)
Portfolio Efficiency GAAP Key Statistics Income Statement Balance Sheet For the quarters ended 9/30/2022 6/30/2022 GAAP net income (loss) per average common share (1) ($0.70) $2.21 Earnings available for distribution per average common share *(1) $1.06 $1.22 Annualized GAAP return (loss) on average equity (9.94%) 30.60% Annualized EAD return on average equity* 17.57% 17.49% Book value per common share $19.94 $23.59 GAAP Leverage at period-end (2) 5.8x 5.4x Economic leverage at period-end *(2) 7.1x 6.6x GAAP capital ratio at period-end (3) 12.8% 15.1% Economic capital ratio at period-end *(3) 11.8% 13.0% Securities $66,839,353 $59,042,734 Loans, net 1,551,707 1,487,133 Mortgage servicing rights (4) 1,705,254 1,421,420 Interests in MSR (5) — 83,622 Assets transferred or pledged to securitization vehicles 9,202,014 8,877,247 Assets of disposal group held for sale (6) 11,371 97,414 Total investment portfolio $79,309,699 $71,009,570 Net interest margin (7) 1.42% 2.64% Average yield on interest earning assets (8) 3.47% 3.58% Average GAAP cost of interest bearing liabilities (9) 2.38% 1.12% Net interest spread 1.09% 2.46% Net interest margin (excluding PAA) *(7) 1.98% 2.20% Average yield on interest earning assets (excluding PAA) *(8) 3.24% 2.87% Average economic cost of interest bearing liabilities *(9) 1.54% 1.11% Net interest spread (excluding PAA) * 1.70% 1.76% Operating expenses to earnings available for distribution * 7.89% 7.34% Annualized operating expenses as a % of average total assets 0.19% 0.19% Annualized operating expenses as a % of average total equity 1.38% 1.28% Unaudited, dollars in thousands except per share amounts 3 Financial Snapshot Non-GAAP Key Statistics ______________ * Represents a non-GAAP financial measure. Detailed endnotes are included within the Appendix at the end of this presentation.
Portfolio- Related Data Unaudited, dollars in thousands 4 Portfolio Data For the quarters ended 9/30/2022 6/30/2022 3/31/2022 12/31/2021 9/30/2021 Agency mortgage-backed securities $63,037,241 $55,593,336 $57,787,141 $60,525,605 $62,818,079 Residential credit risk transfer securities 1,056,906 965,714 845,809 936,228 787,235 Non-agency mortgage-backed securities 2,156,706 2,026,658 1,737,333 1,663,336 1,747,932 Commercial mortgage-backed securities 588,500 457,026 357,354 530,505 269,106 Total securities $66,839,353 $59,042,734 $60,727,637 $63,655,674 $65,622,352 Residential mortgage loans $1,551,637 $1,486,811 $1,650,151 $2,272,072 $1,686,268 Residential mortgage loan warehouse facility 70 322 — 980 1,431 Corporate debt — — 1,967,667 1,968,991 1,890,709 Corporate debt, held for sale — — — — 2,113 Total loans, net $1,551,707 $1,487,133 $3,617,818 $4,242,043 $3,580,521 Mortgage servicing rights $1,705,254 $1,421,420 $1,108,937 $544,562 $572,259 Interests in MSR $— $83,622 $85,653 $69,316 $57,530 Agency mortgage-backed securities transferred or pledged to securitization vehicles $431,388 $458,268 $544,991 $589,873 $597,923 Residential mortgage loans transferred or pledged to securitization vehicles 8,770,626 8,418,979 7,264,316 5,496,435 4,140,558 Assets transferred or pledged to securitization vehicles $9,202,014 $8,877,247 $7,809,307 $6,086,308 $4,738,481 Assets of disposal group held for sale (1) $11,371 $97,414 $— $194,138 $238,042 Total investment portfolio $79,309,699 $71,009,570 $73,349,352 $74,792,041 $74,809,185 Total assets $85,406,764 $73,637,249 $76,185,134 $76,764,064 $76,662,433 Period-end TBA contract and CMBX balances, implied market value $15,587,425 $19,680,003 $18,691,823 $20,739,212 $24,050,318 Average TBA contract and CMBX balances, implied market value $18,718,194 $20,436,269 $19,104,165 $21,155,067 $22,695,035 ______________ Detailed endnotes are included within the Appendix at the end of this presentation.
Financing Data Key Capital and Hedging Metrics ______________ * Represents a non-GAAP financial measure. Detailed endnotes are included within the Appendix at the end of this presentation. Unaudited, dollars in thousands except per share amounts 5 Financing and Capital Data For the quarters ended 9/30/2022 6/30/2022 3/31/2022 12/31/2021 9/30/2021 Repurchase agreements $54,160,731 $51,364,097 $52,626,503 $54,769,643 $55,475,420 Other secured financing 250,000 — 914,255 903,255 729,555 Debt issued by securitization vehicles 7,844,518 7,502,483 6,711,953 5,155,633 3,935,410 Participations issued 745,729 696,944 775,432 1,049,066 641,006 Total debt $63,000,978 $59,563,524 $61,028,143 $61,877,597 $60,781,391 Liabilities of disposal group held for sale (1) $1,151 $3,608 $— $154,956 $159,508 Total liabilities $74,455,209 $62,547,349 $64,706,364 $63,568,739 $62,944,566 Cumulative redeemable preferred stock $1,536,569 $1,536,569 $1,536,569 $1,536,569 $1,536,569 Common equity (2) 9,329,550 9,490,182 9,890,673 11,633,257 12,161,233 Total Annaly stockholders' equity 10,866,119 11,026,751 11,427,242 13,169,826 13,697,802 Non-controlling interests 85,436 63,149 51,528 25,499 20,065 Total equity $10,951,555 $11,089,900 $11,478,770 $13,195,325 $13,717,867 Weighted average days to maturity of repurchase agreements 57 47 68 52 75 Weighted average rate on repurchase agreements, for the quarter (3)(4) 2.25% 0.81% 0.20% 0.16% 0.15% Weighted average rate on repurchase agreements, at period-end (4) 3.13% 1.60% 0.41% 0.17% 0.15% GAAP leverage at period-end 5.8x 5.4x 5.3x 4.7x 4.4x Economic leverage at period-end * 7.1x 6.6x 6.4x 5.7x 5.8x GAAP capital ratio at period-end 12.8% 15.1% 15.1% 17.2% 17.9% Economic capital ratio at period-end * 11.8% 13.0% 13.1% 14.4% 14.2% Book value per common share $19.94 $23.59 $27.08 $31.88 $33.55 Total common shares outstanding 467,911 402,304 365,253 364,934 362,484 Hedge ratio (5) 111% 104% 106% 95% 80% Weighted average pay rate on interest rate swaps, at period-end 1.53% 1.16% 0.70% 0.59% 0.60% Weighted average receive rate on interest rate swaps, at period-end 2.96% 1.65% 0.50% 0.08% 0.07% Weighted average net rate on interest rate swaps, at period-end (1.43%) (0.49%) 0.20% 0.51% 0.53%
______________ * Represents a non-GAAP financial measure. Detailed endnotes are included within the Appendix at the end of this presentation. Unaudited, dollars in thousands except per share amounts 6 Income Statement Data For the quarters ended 9/30/2022 6/30/2022 3/31/2022 12/31/2021 9/30/2021 Total interest income $678,488 $645,615 $655,850 $422,780 $412,972 Total interest expense 400,491 170,475 74,922 61,785 50,438 Net interest income $277,997 $475,140 $580,928 $360,995 $362,534 Total economic interest expense *(1) $259,381 $169,483 $137,463 $120,682 $104,849 Economic net interest income * $419,107 $476,132 $518,387 $302,098 $308,123 Total interest income (excluding PAA) * $633,074 $518,094 $476,334 $480,175 $473,698 Economic net interest income (excluding PAA) * $373,693 $348,611 $338,871 $359,493 $368,849 GAAP net income (loss) ($273,977) $863,317 $2,023,894 $418,460 $521,534 GAAP net income (loss) available (related) to common stockholders (2) ($302,147) $839,813 $1,995,372 $388,598 $492,361 GAAP net income (loss) per average common share (2) ($0.70) $2.21 $5.46 $1.07 $1.36 Earnings available for distribution * $480,696 $490,802 $430,631 $440,043 $437,471 Earnings available for distribution attributable to common stockholders *(2) $453,813 $463,919 $403,748 $413,160 $410,588 Earnings available for distribution per average common share *(2) $1.06 $1.22 $1.11 $1.14 $1.14 PAA cost (benefit) ($45,414) ($127,521) ($179,516) $57,395 $60,726 Weighted average experienced CPR for the period 9.8% 14.9% 16.7% 21.4% 23.1% Weighted average projected long-term CPR at period-end 7.6% 7.7% 9.5% 12.7% 12.7% Summary Income Statement
For the quarters ended 9/30/2022 6/30/2022 3/31/2022 12/31/2021 9/30/2021 Dividends declared per common share $0.88 $0.88 $0.88 $0.88 $0.88 Total common and preferred dividends declared (1) $440,033 $382,350 $349,080 $348,793 $346,651 Annualized GAAP return (loss) on average equity (9.94%) 30.60% 65.62% 12.44% 15.25% Annualized GAAP return (loss) on average equity per unit of GAAP leverage (1.71%) 5.67% 12.38% 2.65% 3.47% Net interest margin 1.42% 2.64% 3.20% 1.97% 2.01% Average yield on interest earning assets 3.47% 3.58% 3.61% 2.31% 2.29% Average GAAP cost of interest bearing liabilities 2.38% 1.12% 0.48% 0.38% 0.32% Net interest spread 1.09% 2.46% 3.13% 1.93% 1.97% Annualized EAD return on average equity * 17.57% 17.49% 14.01% 13.10% 12.81% Annualized EAD return on average equity per unit of economic leverage * 2.47% 2.65% 2.19% 2.30% 2.21% Net interest margin (excluding PAA) * 1.98% 2.20% 2.04% 2.03% 2.04% Average yield on interest earning assets (excluding PAA) * 3.24% 2.87% 2.62% 2.63% 2.63% Average economic cost of interest bearing liabilities * 1.54% 1.11% 0.89% 0.75% 0.66% Net interest spread (excluding PAA) * 1.70% 1.76% 1.73% 1.88% 1.97% Key GAAP Earnings Metrics ______________ * Represents a non-GAAP financial measure. Detailed endnotes are included within the Appendix at the end of this presentation. Unaudited, dollars in thousands except per share amounts 7 Key Earnings Metrics Key Non-GAAP Earnings Metrics
Economic Net Interest Income * ______________ * Represents a non-GAAP financial measure. Unaudited, dollars in thousands 8 Components of Economic Net Interest Income * For the quarters ended 9/30/2022 6/30/2022 3/31/2022 12/31/2021 9/30/2021 Interest income: Agency Securities $517,528 $497,135 $522,951 $301,001 $299,898 Resi Credit Securities 41,388 30,037 22,122 21,450 20,774 Residential mortgage loans 109,977 91,648 73,488 60,486 45,801 Commercial investment portfolio 8,853 26,575 37,283 39,839 46,494 Reverse repurchase agreements 742 220 6 4 5 Total interest income $678,488 $645,615 $655,850 $422,780 $412,972 Economic interest expense: Repurchase agreements $324,573 $105,608 $26,879 $22,852 $22,397 Net interest component of interest rate swaps (141,110) (992) 62,541 58,897 54,411 Debt issued by securitization vehicles 64,593 50,303 34,625 24,774 18,740 Participations issued 9,727 9,379 5,852 7,157 2,578 Other 1,598 5,185 7,566 7,002 6,723 Total economic interest expense * $259,381 $169,483 $137,463 $120,682 $104,849 Economic net interest income * $419,107 $476,132 $518,387 $302,098 $308,123 PAA cost (benefit) (45,414) (127,521) (179,516) 57,395 60,726 Economic net interest income (excluding PAA) * $373,693 $348,611 $338,871 $359,493 $368,849
EAD* Reconciliation 9 GAAP Net Income to Earnings Available for Distribution* Reconciliation For the quarters ended 9/30/2022 6/30/2022 3/31/2022 12/31/2021 9/30/2021 GAAP net income (loss) ($273,977) $863,317 $2,023,894 $418,460 $521,534 Net income (loss) attributable to noncontrolling interests 1,287 (3,379) 1,639 2,979 2,290 Net income (loss) attributable to Annaly (275,264) 866,696 2,022,255 415,481 519,244 Adjustments to exclude reported realized and unrealized (gains) losses: Net (gains) losses on investments and other 2,702,512 615,216 159,804 40,473 (102,819) Net (gains) losses on derivatives (1) (1,976,130) (1,014,651) (1,704,569) (194,256) (139,361) Loan loss provision (reversal) (2) (1,613) (29,380) 812 1,931 (6,771) Business divestiture-related (gains) losses (3) 2,936 23,955 354 16,514 14,009 Other adjustments: Depreciation expense related to commercial real estate and amortization of intangibles (4) 758 1,302 1,130 1,144 1,122 Non-EAD (income) loss allocated to equity method investments (5) (2,003) (3,270) (9,920) (2,345) (2,046) Transaction expenses and non-recurring items (6) 1,712 1,751 3,350 1,533 2,201 Income tax effect of non-EAD income (loss) items (9,444) 28,841 27,091 8,380 (6,536) TBA dollar roll income and CMBX coupon income (7) 105,543 161,673 129,492 119,657 115,586 MSR amortization (8) (22,897) (33,810) (19,652) (25,864) (17,884) Plus: Premium amortization adjustment cost (benefit) (45,414) (127,521) (179,516) 57,395 60,726 Earnings available for distribution * 480,696 490,802 430,631 440,043 437,471 Dividends on preferred stock 26,883 26,883 26,883 26,883 26,883 Earnings available for distribution attributable to common stockholders * $453,813 $463,919 $403,748 $413,160 $410,588 ______________ * Represents a non-GAAP financial measure. Detailed endnotes are included within the Appendix at the end of this presentation. Unaudited, dollars in thousands
Book Value Rollforward Net Interest Margin Unaudited 10 Quarter-Over-Quarter Changes in Key Metrics For the quarters ended 9/30/2022 6/30/2022 3/31/2022 12/31/2021 9/30/2021 Book value per common share, beginning of period $23.59 $27.08 $31.88 $33.55 $33.46 Net income (loss) available (related) to common stockholders (0.70) 2.21 5.46 1.07 1.36 Other comprehensive income (loss) attributable to common stockholders (2.61) (4.85) (9.38) (1.86) (0.39) Common dividends declared (0.88) (0.88) (0.88) (0.88) (0.88) Issuance / buyback of common stock / redemption of preferred stock 0.54 0.03 — — — Book value per common share, end of period $19.94 $23.59 $27.08 $31.88 $33.55 Prior quarter net interest margin 2.64% 3.20% 1.97% 2.01% 1.66% Quarter-over-quarter changes in contribution: Coupon on average interest earning assets (0.18%) 0.22% (0.01%) (0.08%) 0.01% Net amortization of premiums 0.07% (0.25%) 1.31% 0.10% 0.31% GAAP interest expense (1.11%) (0.53%) (0.07%) (0.06%) 0.03% Current quarter net interest margin 1.42% 2.64% 3.20% 1.97% 2.01% Prior quarter net interest spread 2.46% 3.13% 1.93% 1.97% 1.62% Quarter-over-quarter changes in contribution: Coupon on average interest earning assets (0.18%) 0.22% (0.01%) (0.08%) 0.01% Net amortization of premiums 0.07% (0.25%) 1.31% 0.10% 0.31% GAAP interest expense (1.26%) (0.64%) (0.10%) (0.06%) 0.03% Current quarter net interest spread 1.09% 2.46% 3.13% 1.93% 1.97% Net Interest Spread
Net Interest Margin (excluding PAA)* Unaudited 11 Quarter-Over-Quarter Changes in Key Metrics (continued) ______________ * Represents a non-GAAP financial measure. For the quarters ended 9/30/2022 6/30/2022 3/31/2022 12/31/2021 9/30/2021 Prior quarter net interest margin (excluding PAA) * 2.20% 2.04% 2.03% 2.04% 2.09% Quarter-over-quarter changes in contribution: Coupon on average interest earning assets (including average TBA dollar roll and CMBX balances) (0.04%) 0.13% 0.04% (0.01%) (0.16%) Net amortization of premiums (excluding PAA) 0.42% 0.03% 0.00% 0.05% (0.07%) TBA dollar roll income and CMBX coupon income (0.26%) 0.13% 0.06% 0.02% 0.03% Interest expense and net interest component of interest rate swaps (0.34%) (0.13%) (0.09%) (0.07%) 0.15% Current quarter net interest margin (excluding PAA) * 1.98% 2.20% 2.04% 2.03% 2.04% Prior quarter net interest spread (excluding PAA) * 1.76% 1.73% 1.88% 1.97% 1.93% Quarter-over-quarter changes in contribution: Coupon on average interest earning assets (0.17%) 0.22% (0.02%) (0.08%) 0.01% Net amortization of premiums (excluding PAA) 0.54% 0.03% 0.01% 0.08% (0.14%) Interest expense and net interest component of interest rate swaps (0.43%) (0.22%) (0.14%) (0.09%) 0.17% Current quarter net interest spread (excluding PAA) * 1.70% 1.76% 1.73% 1.88% 1.97% Net Interest Spread (excluding PAA)*
Annualized GAAP Return (Loss) on Average Equity Annualized EAD Return on Average Equity* ______________ * Represents a non-GAAP financial measure. Detailed endnotes are included within the Appendix at the end of this presentation. Unaudited 12 Quarter-Over-Quarter Changes in Annualized Return on Average Equity For the quarters ended 9/30/2022 6/30/2022 3/31/2022 12/31/2021 9/30/2021 Prior quarter annualized GAAP return (loss) on average equity 30.60% 65.62% 12.44% 15.25% (8.51%) Quarter-over-quarter changes in contribution: Coupon income 1.40% 3.20% 1.52% 0.15% (1.24%) Net amortization of premiums and accretion of discounts 0.35% (1.58%) 7.17% 0.34% 2.23% GAAP interest expense (8.49%) (3.61%) (0.59%) (0.36%) 0.29% Net servicing income 0.66% 0.76% 0.20% 0.36% 0.21% Net gains (losses) on investments and other (76.28%) (16.63%) (3.98%) (4.21%) 2.42% Net gains (losses) on derivatives 40.84% (17.24%) 49.22% 1.54% 19.29% Business divestiture-related gains (losses) (1) 0.74% (0.84%) 0.48% (0.08%) (0.45%) Loan loss provision (0.90%) 0.97% (0.01%) (0.19%) 0.19% Other (2) 1.14% (0.05%) (0.83%) (0.36%) 0.82% Current quarter annualized GAAP return (loss) on average equity (9.94%) 30.60% 65.62% 12.44% 15.25% Prior quarter annualized EAD return on average equity * 17.49% 14.01% 13.10% 12.81% 13.05% Quarter-over-quarter changes in contribution: Coupon income 1.44% 3.26% 1.52% 0.15% (1.24%) Net amortization of premiums (excluding PAA) 3.23% (0.29%) (0.32%) 0.27% (0.43%) Interest expense and net interest component of interest rate swaps (3.44%) (1.57%) (0.88%) (0.52%) 1.10% Net servicing income 0.67% 0.76% 0.20% 0.36% 0.21% TBA dollar roll income and CMBX coupon income (1.90%) 1.55% 0.65% 0.18% 0.16% Other (3) 0.08% (0.23%) (0.26%) (0.15%) (0.04%) Current quarter annualized EAD return on average equity * 17.57% 17.49% 14.01% 13.10% 12.81%
______________ Detailed endnotes are included within the Appendix at the end of this presentation. Unaudited, dollars in thousands 13 Residential & Other Investments Overview as of September 30, 2022 Agency Fixed-Rate Securities (Pools) Original Weighted Avg. Years to Maturity Current Face Value % (3) Weighted Avg. Coupon Weighted Avg. Amortized Cost Weighted Avg. Fair Value Weighted Avg. 3-Month CPR Estimated Fair Value <=15 years (1) $2,600,840 3.9% 3.47% 101.0% 93.3% 13.6% $2,425,346 20 years 1,195,272 1.8% 3.36% 103.6% 93.9% 10.4% 1,122,765 >=30 years (2) 63,555,510 94.3% 3.87% 102.8% 93.2% 9.5% 59,209,500 Total/Weighted Avg. $67,351,622 100.0% 3.85% 102.7% 93.2% 9.6% $62,757,611 TBA Contracts Type Notional Value % (4) Weighted Avg. Coupon Implied Cost Basis Implied Market Value 15-year $633,000 3.9% 3.85% $627,195 $607,474 30-year 15,451,000 96.1% 4.33% 15,163,230 14,575,332 Total/Weighted Avg. $16,084,000 100.0% 4.32% $15,790,425 $15,182,806 Agency Adjustable-Rate Securities Weighted Avg. Months to Reset Current Face Value % (3) Weighted Avg. Coupon Weighted Avg. Amortized Cost Weighted Avg. Fair Value Weighted Avg. 3-Month CPR Estimated Fair Value 0 - 24 months $244,009 89.6% 2.91% 106.4% 102.9% 21.6% $251,064 25 - 40 months 24,140 8.9% 3.00% 107.3% 98.1% 18.7% 23,691 41 - 60 months 4,203 1.5% 3.04% 106.8% 97.7% 11.1% 4,106 Total/Weighted Avg. $272,352 100.0% 2.92% 106.5% 102.4% 21.2% $278,861 Agency Interest-Only Collateralized Mortgage-Backed Obligations Type Current Notional Value % (4) Weighted Avg. Coupon Weighted Avg. Amortized Cost Weighted Avg. Fair Value Weighted Avg. 3-Month CPR Estimated Fair Value Interest-only $564,491 6.4% 3.35% 18.0% 11.1% 12.4% $62,731 Inverse interest-only 1,012,007 11.5% 3.12% 29.5% 10.9% 14.0% 110,114 Multifamily interest-only 7,247,481 82.1% 0.69% 4.1% 3.6% —% 259,312 Total/Weighted Avg. $8,823,979 100.0% 1.14% 7.9% 4.9% 11.7% $432,157
______________ Detailed endnotes are included within the Appendix at the end of this presentation. Unaudited, dollars in thousands 14 Residential & Other Investments Overview as of September 30, 2022 (continued) Mortgage Servicing Rights Type Unpaid Principal Balance Servicing Fee Weighted Avg. Note Rate Valuation Discount Rate Projected CPR Estimated Fair Value MSR held directly $118,497,242 0.26% 2.9% 143.9% 8.7% 5.3% $1,705,254 MSR of limited partnership interest (1) 2,895,493 40,371 Total/Weighted Avg. $121,392,735 0.26% 2.9% 143.9% 8.7% 5.3% $1,745,625 Residential Credit Portfolio Sector Current Face / Notional Value % (2) Weighted Avg. Coupon Weighted Avg. Amortized Cost Weighted Avg. Fair Value Estimated Fair Value Residential credit risk transfer $1,100,944 7.8% 6.77% 100.3% 96.0% $1,056,906 Alt-A 145,718 0.9% 4.15% 86.3% 80.9% 117,844 Prime 2,038,622 1.9% 4.78% 98.9% 86.6% 262,835 Subprime 206,413 1.3% 4.68% 90.7% 86.1% 177,819 NPL/RPL 1,456,013 10.2% 3.77% 99.0% 95.0% 1,383,488 Prime jumbo 2,165,973 1.6% 4.81% 95.4% 80.6% 214,720 Residential mortgage loans 11,469,486 76.3% 4.41% 100.3% 90.0% 10,322,263 Total/Weighted Avg. $18,583,169 100.0% 4.54% $13,535,875 Other Credit Products Type Net Notional Range of Ratings Net Weighted Avg Coupon Implied Market Value CMBX (3) $420,000 AAA to AA 1.0% $404,619 Type Current Face / Notional Value Weighted Avg. Coupon Weighted Avg. Amortized Cost Weighted Avg. Fair Value Estimated Fair Value Multifamily CRT $18,970 6.53% 99.5% 94.2% $17,867 CRE CLO $553,411 4.33% 99.5% 96.1% $531,629 SASB $39,200 5.30% 99.5% 99.5% $39,004
______________ Detailed endnotes are included within the Appendix at the end of this presentation. Unaudited, dollars in thousands 15 Residential Credit Securities Detail as of September 30, 2022 Product Estimated Fair Value Payment Structure Investment Characteristics Senior Subordinate Coupon Credit Enhancement 60+ Delinquencies 3M VPR (1) Credit Risk Transfer $1,056,906 $— $1,056,906 6.77% 1.98% 0.94% 9.49% Alt-A 117,844 69,693 48,151 4.15% 13.30% 5.46% 10.17% Prime 262,835 50,206 212,629 4.78% 8.96% 2.14% 8.03% Subprime 177,819 65,282 112,537 4.68% 18.76% 7.70% 11.21% Re-Performing Loan Securitizations 885,654 493,083 392,571 3.89% 28.07% 25.10% 8.94% Non-Performing Loan Securitizations 497,834 470,343 27,491 3.56% 36.20% 77.41% 13.65% Prime Jumbo 214,720 14,218 200,502 4.81% 2.96% 1.58% 5.57% Total (2) $3,213,612 $1,162,825 $2,050,787 4.96% 16.27% 19.65% 9.25% Product Bond Coupon Estimated Fair ValueARM Fixed Floater Interest Only Credit Risk Transfer $— $— $1,056,906 $— $1,056,906 Alt-A 4,216 106,443 7,185 — 117,844 Prime 24,859 219,792 4,457 13,727 262,835 Subprime — 110,618 67,066 135 177,819 Re-Performing Loan Securitizations — 885,654 — — 885,654 Non-Performing Loan Securitizations — 497,834 — — 497,834 Prime Jumbo — 167,144 33,358 14,218 214,720 Total $29,075 $1,987,485 $1,168,972 $28,080 $3,213,612
______________ Detailed endnotes are included within the Appendix at the end of this presentation. 16 Unaudited, dollars in thousands Hedging and Liabilities as of September 30, 2022 Principal Balance Weighted Average Rate Days to Maturity(5)At Period End For the Quarter Repurchase agreements $ 54,160,731 3.13 % 2.25 % 57 Other secured financing 250,000 5.81 % 7.15 % 638 Debt issued by securitization vehicles 9,018,805 3.07 % 2.99 % 12,042 Participations issued 789,498 5.58 % 4.48 % 11,082 Total indebtedness $ 64,219,034 Maturity Current Notional (1)(2) Weighted Avg. Pay Rate Weighted Avg. Receive Rate Weighted Avg. Years to Maturity(3) 0 to 3 years $ 21,501,900 1.08 % 2.95 % 0.66 > 3 to 6 years 1,120,400 2.20 % 2.95 % 4.32 > 6 to 10 years 15,936,200 2.06 % 2.99 % 9.29 Greater than 10 years 2,309,000 3.49 % 2.89 % 23.18 Total / Weighted Avg. $ 40,867,500 1.53 % 2.96 % 5.40 Type Current Underlying Notional Weighted Avg. Underlying Fixed Rate Weighted Avg. Underlying Floating Rate Weighted Avg. Underlying Years to Maturity Weighted Avg. Months to Expiration Long Pay $ 3,000,000 2.03 % 3M LIBOR 8.71 14.56 Long Receive $ 750,000 1.57 % 3M LIBOR 11.32 15.89 Type Long Contracts Short Contracts Net Positions Weighted Avg. Years to Maturity U.S. Treasury Futures - 2 year $ — $ (17,391,000) $ (17,391,000) 1.97 U.S. Treasury Futures - 5 year $ — $ (6,503,400) $ (6,503,400) 4.38 U.S. Treasury Futures - 10 year & Greater $ — $ (18,376,900) $ (18,376,900) 7.40 Total / Weighted Avg. $ — $ (42,271,300) $ (42,271,300) 4.70 Maturity Principal Balance Weighted Avg. Rate At Period End Within 30 days $ 23,789,105 2.95 % 30 to 59 days 13,141,434 3.04 % 60 to 89 days 1,097,481 3.72 % 90 to 119 days 3,292,070 3.12 % Over 120 days(4) 13,090,641 3.29 % Total / Weighted Avg. $ 54,410,731 3.08 % Interest Rate Swaps Interest Rate Swaptions Futures Positions Repurchase Agreements and Other Secured Financing Total Indebtedness
______________ Detailed endnotes are included within the Appendix at the end of this presentation. Unaudited 17 Quarter-Over-Quarter Interest Rate and MBS Spread Sensitivity Assumptions: ▪ The interest rate sensitivity and MBS spread sensitivity are based on the portfolios as of September 30, 2022 and June 30, 2022 ▪ The interest rate sensitivity reflects instantaneous parallel shifts in rates ▪ The MBS spread sensitivity shifts MBS spreads instantaneously and reflects exposure to MBS basis risk ▪ All tables assume no active management of the portfolio in response to rate or spread changes Interest Rate Sensitivity (1) Interest Rate Change (bps) As of September 30, 2022 As of June 30, 2022 Estimated Percentage Change in Portfolio Market Value (2) Estimated Change as a % of NAV (2)(3) Estimated Percentage Change in Portfolio Market Value (2) Estimated Change as a % of NAV (2)(3) (75) 0.5% 3.7% 0.1% 0.5% (50) 0.4% 2.9% 0.2% 1.0% (25) 0.2% 1.7% 0.1% 0.8% 25 (0.3%) (2.1%) (0.2%) (1.4%) 50 (0.6%) (4.5%) (0.5%) (3.2%) 75 (0.9%) (7.1%) (0.8%) (5.4%) MBS Spread Sensitivity (1) MBS Spread Shock (bps) As of September 30, 2022 As of June 30, 2022 Estimated Change in Portfolio Market Value (2) Estimated Change as a % of NAV (2)(3) Estimated Change in Portfolio Market Value (2) Estimated Change as a % of NAV (2)(3) (25) 1.7% 14.1% 1.9% 12.9% (15) 1.0% 8.4% 1.1% 7.7% (5) 0.3% 2.8% 0.4% 2.6% 5 (0.3%) (2.8%) (0.4%) (2.5%) 15 (1.0%) (8.3%) (1.1%) (7.6%) 25 (1.7%) (13.7%) (1.8%) (12.6%)
Appendix
Dollars in thousands, except per share data 19 Consolidated Statements of Financial Condition 9/30/2022 6/30/2022 3/31/2022 12/31/2021 9/30/2021 (unaudited) (unaudited) (unaudited) (unaudited) Assets Cash and cash equivalents $ 1,466,171 $ 853,932 $ 955,840 $ 1,342,090 $ 1,046,300 Securities 66,839,353 59,042,734 60,727,637 63,655,674 65,622,352 Loans, net 1,551,707 1,487,133 3,617,818 4,242,043 3,580,521 Mortgage servicing rights 1,705,254 1,421,420 1,108,937 544,562 572,259 Interests in MSR — 83,622 85,653 69,316 57,530 Assets transferred or pledged to securitization vehicles 9,202,014 8,877,247 7,809,307 6,086,308 4,738,481 Assets of disposal group held for sale 11,371 97,414 — 194,138 238,042 Derivative assets 1,949,530 748,432 964,075 170,370 331,395 Receivable for unsettled trades 2,153,895 434,227 407,225 2,656 42,482 Principal and interest receivable 262,542 300,028 246,739 234,983 234,810 Goodwill and intangible assets, net 17,437 18,195 23,110 24,241 25,371 Other assets 247,490 272,865 238,793 197,683 172,890 Total assets $ 85,406,764 $ 73,637,249 $ 76,185,134 $ 76,764,064 $ 76,662,433 Liabilities and stockholders’ equity Liabilities Repurchase agreements $ 54,160,731 $ 51,364,097 $ 52,626,503 $ 54,769,643 $ 55,475,420 Other secured financing 250,000 — 914,255 903,255 729,555 Debt issued by securitization vehicles 7,844,518 7,502,483 6,711,953 5,155,633 3,935,410 Participations issued 745,729 696,944 775,432 1,049,066 641,006 Liabilities of disposal group held for sale 1,151 3,608 — 154,956 159,508 Derivative liabilities 764,535 379,708 826,972 881,537 912,134 Payable for unsettled trades 9,333,646 1,995,960 1,992,568 147,908 571,540 Interest payable 30,242 91,962 80,870 91,176 109,586 Dividends payable 411,762 354,027 321,423 321,142 318,986 Other liabilities 912,895 158,560 456,388 94,423 91,421 Total liabilities 74,455,209 62,547,349 64,706,364 63,568,739 62,944,566 Stockholders’ equity Preferred stock, par value $0.01 per share (2) 1,536,569 1,536,569 1,536,569 1,536,569 1,536,569 Common stock, par value $0.01 per share (3) 4,679 4,023 3,653 3,649 3,625 Additional paid-in capital 22,967,665 21,293,146 20,332,909 20,324,780 20,239,240 Accumulated other comprehensive income (loss) (5,431,436) (4,310,926) (2,465,482) 958,410 1,638,638 Accumulated deficit (8,211,358) (7,496,061) (7,980,407) (9,653,582) (9,720,270) Total stockholders’ equity 10,866,119 11,026,751 11,427,242 13,169,826 13,697,802 Noncontrolling interests 85,436 63,149 51,528 25,499 20,065 Total equity 10,951,555 11,089,900 11,478,770 13,195,325 13,717,867 Total liabilities and equity $ 85,406,764 $ 73,637,249 $ 76,185,134 $ 76,764,064 $ 76,662,433 ______________ Detailed endnotes are included within the Appendix at the end of this presentation. (1)
Unaudited, dollars in thousands, except per share data 20 Consolidated Statements of Comprehensive Income (Loss) For the quarters ended 9/30/2022 6/30/2022 3/31/2022 12/31/2021 9/30/2021 Net interest income Interest income $ 678,488 $ 645,615 $ 655,850 $ 422,780 $ 412,972 Interest expense 400,491 170,475 74,922 61,785 50,438 Net interest income 277,997 475,140 580,928 360,995 362,534 Net servicing income Servicing and related income 74,486 55,685 34,715 31,322 17,948 Servicing and related expense 7,780 5,949 3,757 4,290 3,012 Net servicing income 66,706 49,736 30,958 27,032 14,936 Other income (loss) Net gains (losses) on investments and other (2,702,512) (615,216) (159,804) (40,473) 102,819 Net gains (losses) on derivatives 2,117,240 1,015,643 1,642,028 135,359 84,950 Loan loss (provision) reversal 1,613 26,913 (608) (194) 6,134 Business divestiture-related gains (losses) (2,936) (23,955) (354) (16,514) (14,009) Other, net 1,526 (5,486) 3,058 (415) 1,285 Total other income (loss) (585,069) 397,899 1,484,320 77,763 181,179 General and administrative expenses Compensation expense 27,744 22,243 33,002 27,061 27,859 Other general and administrative expenses 10,178 13,795 12,762 13,640 16,023 Total general and administrative expenses 37,922 36,038 45,764 40,701 43,882 Income (loss) before income taxes (278,288) 886,737 2,050,442 425,089 514,767 Income taxes (4,311) 23,420 26,548 6,629 (6,767) Net income (loss) (273,977) 863,317 2,023,894 418,460 521,534 Net income (loss) attributable to noncontrolling interests 1,287 (3,379) 1,639 2,979 2,290 Net income (loss) attributable to Annaly (275,264) 866,696 2,022,255 415,481 519,244 Dividends on preferred stock 26,883 26,883 26,883 26,883 26,883 Net income (loss) available (related) to common stockholders $ (302,147) $ 839,813 $ 1,995,372 $ 388,598 $ 492,361 Net income (loss) per share available (related) to common stockholders Basic $ (0.70) $ 2.21 $ 5.46 $ 1.07 $ 1.36 Diluted $ (0.70) $ 2.20 $ 5.46 $ 1.07 $ 1.36 Weighted average number of common shares outstanding Basic 429,858,876 380,609,192 365,340,909 363,534,539 361,328,979 Diluted 429,858,876 380,898,750 365,612,991 363,852,876 361,589,467 Other comprehensive income (loss) Net income (loss) $ (273,977) $ 863,317 $ 2,023,894 $ 418,460 $ 521,534 Unrealized gains (losses) on available-for-sale securities (2,578,509) (2,503,250) (3,568,679) (685,699) (113,451) Reclassification adjustment for net (gains) losses included in net income (loss) 1,457,999 657,806 144,787 5,471 (28,186) Other comprehensive income (loss) (1,120,510) (1,845,444) (3,423,892) (680,228) (141,637) Comprehensive income (loss) (1,394,487) (982,127) (1,399,998) (261,768) 379,897 Comprehensive income (loss) attributable to noncontrolling interests 1,287 (3,379) 1,639 2,979 2,290 Comprehensive income (loss) attributable to Annaly (1,395,774) (978,748) (1,401,637) (264,747) 377,607 Dividends on preferred stock 26,883 26,883 26,883 26,883 26,883 Comprehensive income (loss) attributable to common stockholders $ (1,422,657) $ (1,005,631) $ (1,428,520) $ (291,630) $ 350,724
Unaudited, dollars in thousands 21 Income Statement Gains (Losses) Detail For the quarters ended 9/30/2022 6/30/2022 3/31/2022 12/31/2021 9/30/2021 Net gains (losses) on disposal of investments and other ($1,464,360) ($646,177) ($144,224) ($25,144) $12,002 Net unrealized gains (losses) on instruments measured at fair value through earnings (1,238,152) 30,961 (15,580) (15,329) 90,817 Net gains (losses) on investments and other ($2,702,512) ($615,216) ($159,804) ($40,473) $102,819 Net interest component of interest rate swaps $141,110 $992 ($62,541) ($58,897) ($54,411) Realized gains (losses) on termination or maturity of interest rate swaps (83,393) (16) — (39,932) (1,196,417) Unrealized gains (losses) on interest rate swaps 1,251,350 897,537 1,323,439 186,345 1,380,946 Net gains (losses) on other derivatives 808,173 117,130 381,130 47,843 (45,168) Net gains (losses) on derivatives $2,117,240 $1,015,643 $1,642,028 $135,359 $84,950 Other Income Statement Details
22 Non-GAAP Reconciliations To supplement its consolidated financial statements, which are prepared and presented in accordance with GAAP, the Company provides non-GAAP financial measures. These measures should not be considered a substitute for, or superior to, financial measures computed in accordance with GAAP. While intended to offer a fuller understanding of the Company’s results and operations, non-GAAP financial measures also have limitations. For example, the Company may calculate its non-GAAP metrics, such as Earnings Available for Distribution ("EAD"), or the premium amortization adjustment ("PAA"), differently than its peers making comparative analysis difficult. Additionally, in the case of non-GAAP measures that exclude the PAA, the amount of amortization expense excluding the PAA is not necessarily representative of the amount of future periodic amortization nor is it indicative of the term over which the Company will amortize the remaining unamortized premium. Changes to actual and estimated prepayments will impact the timing and amount of premium amortization and, as such, both GAAP and non-GAAP results. These non-GAAP measures provide additional detail to enhance investor understanding of the Company’s period-over-period operating performance and business trends, as well as for assessing the Company’s performance versus that of industry peers. Additional information pertaining to these non-GAAP financial measures and reconciliations to their most directly comparable GAAP results are provided on the following pages. A reconciliation of GAAP net income (loss) to non-GAAP Earnings available for distribution for the quarters ended September 30, 2022, June 30, 2022, March 31, 2022, December 31, 2021 and September 30, 2021, is provided on page 9 of this financial summary. 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 the Company’s Agency mortgage-backed securities.
Unaudited, dollars in thousands 23 Non-GAAP Reconciliations (continued) For the quarters ended 9/30/2022 6/30/2022 3/31/2022 12/31/2021 9/30/2021 Economic leverage ratio reconciliation Repurchase agreements $54,160,731 $51,364,097 $52,626,503 $54,769,643 $55,475,420 Other secured financing 250,000 — 914,255 903,255 729,555 Debt issued by securitization vehicles 7,844,518 7,502,483 6,711,953 5,155,633 3,935,410 Participations issued 745,729 696,944 775,432 1,049,066 641,006 Debt included in liabilities of disposal group held for sale — — — 112,144 113,362 Total GAAP debt $63,000,978 $59,563,524 $61,028,143 $61,989,741 $60,894,753 Less non-recourse debt: Credit facilities (1) $— $— ($914,255) ($903,255) ($729,555) Debt issued by securitization vehicles (7,844,518) (7,502,483) (6,711,953) (5,155,633) (3,935,410) Participations issued (745,729) (696,944) (775,432) (1,049,066) (641,006) Non-recourse debt included in liabilities of disposal group held for sale — — — (112,144) (113,362) Total recourse debt $54,410,731 $51,364,097 $52,626,503 $54,769,643 $55,475,420 Plus / (Less): Cost basis of TBA and CMBX derivatives $16,209,886 $19,723,326 $19,006,949 $20,690,768 $24,202,686 Payable for unsettled trades 9,333,646 1,995,960 1,992,568 147,908 571,540 Receivable for unsettled trades (2,153,895) (434,227) (407,225) (2,656) (42,482) Economic debt * $77,800,368 $72,649,156 $73,218,795 $75,605,663 $80,207,164 Total equity $10,951,555 $11,089,900 $11,478,770 $13,195,325 $13,717,867 Economic leverage ratio * 7.1x 6.6x 6.4x 5.7x 5.8x ______________ * Represents a non-GAAP financial measure. Detailed endnotes are included within the Appendix at the end of this presentation.
Unaudited, dollars in thousands 24 Non-GAAP Reconciliations (continued) For the quarters ended 9/30/2022 6/30/2022 3/31/2022 12/31/2021 9/30/2021 Economic capital ratio reconciliation Total GAAP assets $85,406,764 $73,637,249 $76,185,134 $76,764,064 $76,662,433 Less: Gross unrealized gains on TBA derivatives (1) (28,032) (60,661) (24,757) (52,693) (1,776) Debt issued by securitization vehicles (2) (7,844,518) (7,502,483) (6,711,953) (5,155,633) (3,935,410) Plus: Implied market value of TBA derivatives 15,182,806 19,282,979 18,284,708 20,338,633 23,622,635 Total economic assets * $92,717,020 $85,357,084 $87,733,132 $91,894,371 $96,347,882 Total equity $10,951,555 $11,089,900 $11,478,770 $13,195,325 $13,717,867 Economic capital ratio *(3) 11.8% 13.0% 13.1% 14.4% 14.2% Premium Amortization Reconciliation Premium amortization expense $39,406 ($4,869) ($25,353) $219,172 $233,429 Less: PAA cost (benefit) (45,414) (127,521) (179,516) 57,395 60,726 Premium amortization expense (excluding PAA) $84,820 $122,652 $154,163 $161,777 $172,703 Interest Income (excluding PAA) Reconciliation GAAP interest income $678,488 $645,615 $655,850 $422,780 $412,972 PAA cost (benefit) (45,414) (127,521) (179,516) 57,395 60,726 Interest income (excluding PAA) * $633,074 $518,094 $476,334 $480,175 $473,698 Economic Interest Expense Reconciliation GAAP interest expense $400,491 $170,475 $74,922 $61,785 $50,438 Add: Net interest component of interest rate swaps (141,110) (992) 62,541 58,897 54,411 Economic interest expense * $259,381 $169,483 $137,463 $120,682 $104,849 Economic Net Interest Income (excluding PAA) Reconciliation Interest income (excluding PAA) * $633,074 $518,094 $476,334 $480,175 $473,698 Less: Economic interest expense * 259,381 169,483 137,463 120,682 104,849 Economic net interest income (excluding PAA) * $373,693 $348,611 $338,871 $359,493 $368,849 ______________ * Represents a non-GAAP financial measure. Detailed endnotes are included within the Appendix at the end of this presentation.
Unaudited, dollars in thousands 25 Non-GAAP Reconciliations (continued) For the quarters ended 9/30/2022 6/30/2022 3/31/2022 12/31/2021 9/30/2021 Economic Metrics (excluding PAA) Average interest earning assets $78,143,337 $72,123,055 $72,590,876 $73,134,966 $72,145,283 Interest income (excluding PAA) * $633,074 $518,094 $476,334 $480,175 $473,698 Average yield on interest earning assets (excluding PAA) * 3.24% 2.87% 2.62% 2.63% 2.63% Average interest bearing liabilities $65,755,563 $60,446,528 $61,865,292 $63,342,740 $62,614,042 Economic interest expense * $259,381 $169,483 $137,463 $120,682 $104,849 Average economic cost of interest bearing liabilities * 1.54% 1.11% 0.89% 0.75% 0.66% Economic net interest income (excluding PAA)* $373,693 $348,611 $338,871 $359,493 $368,849 Net interest spread (excluding PAA) * 1.70% 1.76% 1.73% 1.88% 1.97% Interest income (excluding PAA) * $633,074 $518,094 $476,334 $480,175 $473,698 TBA dollar roll income and CMBX coupon income 105,543 161,673 129,492 119,657 115,586 Economic interest expense * (259,381) (169,483) (137,463) (120,682) (104,849) Subtotal $479,236 $510,284 $468,363 $479,150 $484,435 Average interest earning assets $78,143,337 $72,123,055 $72,590,876 $73,134,966 $72,145,283 Average TBA contract and CMBX balances, implied cost basis 18,837,475 20,566,553 19,229,537 21,159,120 22,739,226 Subtotal $96,980,812 $92,689,608 $91,820,413 $94,294,086 $94,884,509 Net interest margin (excluding PAA) * 1.98% 2.20% 2.04% 2.03% 2.04% ______________ * Represents a non-GAAP financial measure.
26 Endnotes Page 3 (1) Net of dividends on preferred stock. (2) 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. (3) 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 are net of debt issued by securitization vehicles. (4) Excludes $151 million and $190 million of unsettled commitments as of September 30, 2022 and June 30, 2022, respectively. MSR commitments represent the market value of deals where Annaly has executed a letter of intent. There can be no assurance whether these deals will close or when they will close. (5) Excludes $40.4 million and $39.9 million related to a limited partnership interest in an MSR fund included in Other assets in the Company’s Consolidated Statements of Financial Condition as of September 30, 2022 and June 30, 2022, respectively. (6) Includes assets related to the sale of the Company's Middle Market Lending portfolio that are expected to be transferred by the fourth quarter of 2022. (7) Net interest margin represents interest income less interest expense divided by average interest earning assets. Net interest margin (excluding PAA) represents the sum of the Company's 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. (8) 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). (9) 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. Page 4 (1) Includes assets related to the sale of the Company's Middle Market Lending portfolio at September 30, 2022 and June 30, 2022 and assets related to the sale of the Company's Commercial Real Estate business at December 31, 2021 and September 30, 2021. Page 5 (1) Includes liabilities related to the sale of the Company's Middle Market Lending portfolio at September 30, 2022 and June 30, 2022 and liabilities related to the sale of the Company's Commercial Real Estate business at December 31, 2021 and September 30, 2021 . (2) Consists of common stock, additional paid-in capital, accumulated other comprehensive income (loss) and accumulated deficit. (3) Utilizes an actual/360 factor. (4) The average and period-end rates are net of reverse repurchase agreements. Without netting reverse repurchase agreements, the average rate and the period-end rate was unchanged for each period. (5) Measures total notional balances of interest rate swaps, interest rate swaptions (excluding receiver swaptions) and futures relative to repurchase agreements, other secured financing, cost basis of TBA derivatives outstanding and net forward purchases (sales) of investments; excludes MSR and the effects of term financing, both of which serve to reduce interest rate risk. Additionally, the hedge ratio does not take into consideration differences in duration between assets and liabilities. Prior to the quarter ended September 30, 2022, the hedge ratio excluded the impact of net forward purchases (sales) of investments from the calculation; all prior periods have been updated to conform to the current presentation resulting in a reduction of 3% to the hedge ratio for each of the quarters ended June 30, 2022 and March 31, 2022 and no impact for the quarters ended December 31, 2021 and September 30, 2021. Page 6 (1) Includes GAAP interest expense and the net interest component of interest rate swaps. (2) Net of dividends on preferred stock. Page 7 (1) Includes dividend equivalents on share-based awards. Page 9 (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 $141.1 million, $1.0 million, ($62.5) million, ($58.9) million and ($54.4) million for the quarters ended September 30, 2022, June 30, 2022, March 31, 2022, December 31, 2021 and September 30, 2021, respectively. (2) Includes $0.0 million, ($2.5) million, $0.2 million, $1.7 million and ($0.6) million of loss provision (reversal) on the Company’s unfunded loan commitments for the quarters ended September 30, 2022, June 30, 2022, March 31, 2022, December 31, 2021, and September 30, 2021, respectively, which is reported in Other, net in the Company’s Consolidated Statement of Comprehensive Income (Loss). (3) Includes losses (gains) related to the sale of the Company's Middle Market Lending portfolio for the quarter ended September 30, 2022 and June 30, 2022 and losses (gains) related to the sale of the Company's Commercial Real Estate business for the quarters ended March 31, 2022, December 31, 2021 and September 30, 2021. (4) Includes depreciation and amortization expense related to equity method investments. (5) The Company excludes non-EAD (income) loss allocated to equity method investments, which represents the unrealized (gains) losses allocated to equity interests in a portfolio of MSR, which is reported in Other, net in the Company’s Consolidated Statement of Comprehensive Income (Loss).
27 Endnotes (continued) Page 9 (continued) (6) All quarters presented include costs incurred in connection with securitizations of residential whole loans. (7) 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, $1.1 million, $1.1 million, $1.1 million and $1.2 million for the quarters ended September 30, 2022, June 30, 2022, March 31, 2022, December 31, 2021 and September 30, 2021, respectively. (8) 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. Page 12 (1) Includes gains (losses) related to the sale of the Company's Middle Market Lending portfolio for the quarter ended September 30, 2022 and June 30, 2022 and gains (losses) related to the sale of the Company's Commercial Real Estate business for the quarters ended March 31, 2022, December 31, 2021 and September 30, 2021. (2) Includes other, net, general and administrative expenses and income taxes. (3) Includes other, net (excluding non-EAD items), MSR amortization (a component of net gains (losses) on investments and other), general and administrative expenses (excluding transaction related expenses) and income taxes (excluding non-EAD income tax). Page 13 (1) Includes Agency-backed multifamily securities with an estimated fair value of $1.7 billion ($0.4 billion of which have been transferred or pledged to securitization vehicles). (2) Includes fixed-rate collateralized mortgage obligations with an estimated fair value of $92.3 million. (3) Weighted by current face value. (4) Weighted by current notional value. Page 14 (1) Included in Other assets in the Company’s Consolidated Statements of Financial Condition. (2) Weighted by estimated fair value. (3) The Company sells/buys protection on CMBX tranches referencing baskets of Conduit CMBS bonds with various ratings. Positive net notional indicates selling protection and being long the exposure to the underlying CMBS. CMBX positions are accounted for as derivatives with changes in fair value presented in Net gains (losses) on derivatives. Page 15 (1) Represents the 3 month voluntary prepayment rate and excludes the impact of interest- only securities. (2) Total investment characteristics exclude the impact of interest-only securities. Page 16 (1) Current notional is presented net of receiver swaps. (2) As of September 30, 2022, 22%, 30% and 48% of the Company's interest rate swaps were linked to LIBOR, the Federal funds rate and the Secured Overnight Financing Rate, respectively. (3) 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. (4) 0% of the total repurchase agreements and other secured financing have a remaining maturity over one year. (5) Determined based on estimated weighted average lives of the underlying debt instruments. Page 17 (1) Interest rate and MBS spread sensitivity are based on results from third party models in conjunction with internally derived inputs. Actual results could differ materially from these estimates. (2) Scenarios include Residential Investment Securities, residential mortgage loans, MSR and derivative instruments. (3) Net asset value (“NAV”) represents book value of common equity. Page 19 (1) Derived from the audited consolidated financial statements at December 31, 2021. (2) 6.95% Series F Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock - Includes 28,800,000 shares authorized, issued and outstanding. 6.50% Series G Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock - Includes 17,000,000 shares authorized, issued and outstanding. 6.75% Series I Preferred Stock - Includes 17,700,000 shares authorized, issued and outstanding. (3) Includes 2,936,500,000 shares authorized. Includes 467,911,144 shares issued and outstanding at September 30, 2022; Includes 402,303,874 shares issued and outstanding at June 30, 2022; Includes 365,253,063 shares issued and outstanding at March 31, 2022; Includes 364,934,065 shares issued and outstanding at December 31, 2021; Includes 362,483,754 shares issued and outstanding at September 30, 2021. Page 23 (1) Included in Other secured financing in the Company's Consolidated Statements of Financial Condition. Page 24 (1) Included in Derivative assets in the Company’s Consolidated Statements of Financial Condition. (2) Includes debt issued by securitization vehicles reported in Liabilities of disposal group held for sale in the Company's Consolidated Statements of Financial Condition. (3) Economic capital ratio is computed as total equity divided by total economic assets.