Fourth Quarter 2022 Financial Summary February 8, 2023
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 Fourth 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. Such statements include those relating to the Company’s future performance, macro outlook, the interest rate and credit environments, tax reform and future opportunities. Actual results could differ materially from those set forth in forward-looking statements due to a variety of factors, including, but not limited to, changes in interest rates; changes in the yield curve; changes in prepayment rates; the availability of mortgage-backed securities (“MBS”) and other securities for purchase; the availability of financing and, if available, the terms of any financing; changes in the market value of the Company’s assets; changes in business conditions and the general economy including cybersecurity incidents; the Company’s ability to grow its residential credit business; the Company's ability to grow its mortgage servicing rights business; credit risks related to the Company’s investments in credit risk transfer securities and residential mortgage-backed securities and related residential mortgage credit assets; risks related to investments in mortgage servicing rights; the Company’s ability to consummate any contemplated investment opportunities; changes in government regulations or policy affecting the Company’s business; the Company’s ability to maintain its qualification as a REIT for U.S. federal income tax purposes; the Company’s ability to maintain its exemption from registration under the Investment Company Act of 1940; operational risks or risk management failures by us or critical third parties, including cybersecurity incidents; and risks and uncertainties related to the COVID-19 pandemic, including as related to adverse economic conditions on real estate-related assets and financing conditions. 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 use our website (www.annaly.com) and LinkedIn account (www.linkedin.com/company/annaly-capital-management) as channels of distribution of company information. The information we post through these channels may be deemed material. Accordingly, investors should monitor these channels, in addition to following our press releases, SEC filings and public conference calls and webcasts. In addition, you may automatically receive email alerts and other information about Annaly when you enroll your email address by visiting the "Investors" section of our website, then clicking on "Investor Resources" and selecting "Email Alerts" to complete the email notification form. Our website, any alerts and social media channels are not incorporated into 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 12/31/2022 9/30/2022 GAAP net income (loss) per average common share (1) ($1.96) ($0.70) Earnings available for distribution per average common share *(1) $0.89 $1.06 Annualized GAAP return (loss) on average equity (31.78%) (9.94%) Annualized EAD return on average equity* 16.19% 17.57% Book value per common share $20.79 $19.94 GAAP leverage at period-end (2) 6.0x 5.8x Economic leverage at period-end *(2) 6.3x 7.1x GAAP capital ratio at period-end (3) 13.9% 12.8% Economic capital ratio at period-end *(3) 13.4% 11.8% Securities $65,789,907 $66,839,353 Loans, net 1,809,832 1,551,707 Mortgage servicing rights (4) 1,748,209 1,705,254 Assets transferred or pledged to securitization vehicles 9,121,912 9,202,014 Assets of disposal group held for sale (5) — 11,371 Total investment portfolio $78,469,860 $79,309,699 Net interest margin (6) 0.65% 1.42% Average yield on interest earning assets (7) 3.86% 3.47% Average GAAP cost of interest bearing liabilities (8) 3.71% 2.38% Net interest spread 0.15% 1.09% Net interest margin (excluding PAA) *(6) 1.90% 1.98% Average yield on interest earning assets (excluding PAA) *(7) 3.82% 3.24% Average economic cost of interest bearing liabilities *(8) 2.11% 1.54% Net interest spread (excluding PAA) * 1.71% 1.70% Operating expenses to earnings available for distribution * 9.60% 7.89% Annualized operating expenses as a % of average total assets 0.21% 0.19% Annualized operating expenses as a % of average total equity 1.54% 1.38% 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 12/31/2022 9/30/2022 6/30/2022 3/31/2022 12/31/2021 Agency mortgage-backed securities $62,274,895 $63,037,241 $55,593,336 $57,787,141 $60,525,605 Residential credit risk transfer securities 997,557 1,056,906 965,714 845,809 936,228 Non-agency mortgage-backed securities 1,991,146 2,156,706 2,026,658 1,737,333 1,663,336 Commercial mortgage-backed securities 526,309 588,500 457,026 357,354 530,505 Total securities $65,789,907 $66,839,353 $59,042,734 $60,727,637 $63,655,674 Residential mortgage loans $1,809,832 $1,551,637 $1,486,811 $1,650,151 $2,272,072 Residential mortgage loan warehouse facility — 70 322 — 980 Corporate debt — — — 1,967,667 1,968,991 Total loans, net $1,809,832 $1,551,707 $1,487,133 $3,617,818 $4,242,043 Mortgage servicing rights $1,748,209 $1,705,254 $1,421,420 $1,108,937 $544,562 Interests in MSR $— $— $83,622 $85,653 $69,316 Agency mortgage-backed securities transferred or pledged to securitization vehicles $— $431,388 $458,268 $544,991 $589,873 Residential mortgage loans transferred or pledged to securitization vehicles 9,121,912 8,770,626 8,418,979 7,264,316 5,496,435 Assets transferred or pledged to securitization vehicles $9,121,912 $9,202,014 $8,877,247 $7,809,307 $6,086,308 Assets of disposal group held for sale (1) $— $11,371 $97,414 $— $194,138 Total investment portfolio $78,469,860 $79,309,699 $71,009,570 $73,349,352 $74,792,041 Total assets $81,850,712 $85,406,764 $73,637,249 $76,185,134 $76,764,064 Period-end TBA contract and CMBX balances, implied market value $10,984,878 $15,587,425 $19,680,003 $18,691,823 $20,739,212 Average TBA contract and CMBX balances, implied market value $11,492,947 $18,718,194 $20,436,269 $19,104,165 $21,155,067 ______________ 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 12/31/2022 9/30/2022 6/30/2022 3/31/2022 12/31/2021 Repurchase agreements $59,512,597 $54,160,731 $51,364,097 $52,626,503 $54,769,643 Other secured financing 250,000 250,000 — 914,255 903,255 Debt issued by securitization vehicles 7,744,160 7,844,518 7,502,483 6,711,953 5,155,633 Participations issued 800,849 745,729 696,944 775,432 1,049,066 Total debt $68,307,606 $63,000,978 $59,563,524 $61,028,143 $61,877,597 Liabilities of disposal group held for sale (1) $— $1,151 $3,608 $— $154,956 Total liabilities $70,481,286 $74,455,209 $62,547,349 $64,706,364 $63,568,739 Cumulative redeemable preferred stock $1,536,569 $1,536,569 $1,536,569 $1,536,569 $1,536,569 Common equity (2) 9,733,874 9,329,550 9,490,182 9,890,673 11,633,257 Total Annaly stockholders' equity 11,270,443 10,866,119 11,026,751 11,427,242 13,169,826 Non-controlling interests 98,983 85,436 63,149 51,528 25,499 Total equity $11,369,426 $10,951,555 $11,089,900 $11,478,770 $13,195,325 Weighted average days to maturity of repurchase agreements 27 57 47 68 52 Weighted average rate on repurchase agreements, for the quarter (3)(4) 3.72% 2.25% 0.81% 0.20% 0.16% Weighted average rate on repurchase agreements, at period-end (4) 4.29% 3.13% 1.60% 0.41% 0.17% GAAP leverage at period-end 6.0x 5.8x 5.4x 5.3x 4.7x Economic leverage at period-end * 6.3x 7.1x 6.6x 6.4x 5.7x GAAP capital ratio at period-end 13.9% 12.8% 15.1% 15.1% 17.2% Economic capital ratio at period-end * 13.4% 11.8% 13.0% 13.1% 14.4% Book value per common share $20.79 $19.94 $23.59 $27.08 $31.88 Total common shares outstanding 468,310 467,911 402,304 365,253 364,934 Hedge ratio (5) 107% 111% 104% 106% 95% Weighted average pay rate on interest rate swaps, at period-end 1.74% 1.53% 1.16% 0.70% 0.59% Weighted average receive rate on interest rate swaps, at period-end 4.28% 2.96% 1.65% 0.50% 0.08% Weighted average net rate on interest rate swaps, at period-end (2.54%) (1.43%) (0.49%) 0.20% 0.51%
______________ * 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 12/31/2022 9/30/2022 6/30/2022 3/31/2022 12/31/2021 Total interest income $798,934 $678,488 $645,615 $655,850 $422,780 Total interest expense 663,847 400,491 170,475 74,922 61,785 Net interest income $135,087 $277,997 $475,140 $580,928 $360,995 Total economic interest expense *(1) $377,247 $259,381 $169,483 $137,463 $120,682 Economic net interest income * $421,687 $419,107 $476,132 $518,387 $302,098 Total interest income (excluding PAA) * $790,798 $633,074 $518,094 $476,334 $480,175 Economic net interest income (excluding PAA) * $413,551 $373,693 $348,611 $338,871 $359,493 GAAP net income (loss) ($886,814) ($273,977) $863,317 $2,023,894 $418,460 GAAP net income (loss) available (related) to common stockholders (2) ($918,336) ($302,147) $839,813 $1,995,372 $388,598 GAAP net income (loss) per average common share (2) ($1.96) ($0.70) $2.21 $5.46 $1.07 Earnings available for distribution * $448,009 $480,696 $490,802 $430,631 $440,043 Earnings available for distribution attributable to common stockholders *(2) $418,035 $453,813 $463,919 $403,748 $413,160 Earnings available for distribution per average common share *(2) $0.89 $1.06 $1.22 $1.11 $1.14 PAA cost (benefit) ($8,136) ($45,414) ($127,521) ($179,516) $57,395 Weighted average experienced CPR for the period 7.5% 9.8% 14.9% 16.7% 21.4% Weighted average projected long-term CPR at period-end 7.8% 7.6% 7.7% 9.5% 12.7% Summary Income Statement
For the quarters ended 12/31/2022 9/30/2022 6/30/2022 3/31/2022 12/31/2021 Dividends declared per common share $0.88 $0.88 $0.88 $0.88 $0.88 Total common and preferred dividends declared (1) $443,513 $440,033 $382,350 $349,080 $348,793 Annualized GAAP return (loss) on average equity (31.78%) (9.94%) 30.60% 65.62% 12.44% Annualized GAAP return (loss) on average equity per unit of GAAP leverage (5.30%) (1.71%) 5.67% 12.38% 2.65% Net interest margin 0.65% 1.42% 2.64% 3.20% 1.97% Average yield on interest earning assets 3.86% 3.47% 3.58% 3.61% 2.31% Average GAAP cost of interest bearing liabilities 3.71% 2.38% 1.12% 0.48% 0.38% Net interest spread 0.15% 1.09% 2.46% 3.13% 1.93% Annualized EAD return on average equity * 16.19% 17.57% 17.49% 14.01% 13.10% Annualized EAD return on average equity per unit of economic leverage * 2.57% 2.47% 2.65% 2.19% 2.30% Net interest margin (excluding PAA) * 1.90% 1.98% 2.20% 2.04% 2.03% Average yield on interest earning assets (excluding PAA) * 3.82% 3.24% 2.87% 2.62% 2.63% Average economic cost of interest bearing liabilities * 2.11% 1.54% 1.11% 0.89% 0.75% Net interest spread (excluding PAA) * 1.71% 1.70% 1.76% 1.73% 1.88% 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 12/31/2022 9/30/2022 6/30/2022 3/31/2022 12/31/2021 Interest income: Agency Securities $607,082 $517,528 $497,135 $522,951 $301,001 Resi Credit Securities 46,673 41,388 30,037 22,122 21,450 Residential mortgage loans 135,116 109,977 91,648 73,488 60,486 Commercial investment portfolio 9,144 8,853 26,575 37,283 39,839 Reverse repurchase agreements 919 742 220 6 4 Total interest income $798,934 $678,488 $645,615 $655,850 $422,780 Economic interest expense: Repurchase agreements $569,141 $324,573 $105,608 $26,879 $22,852 Net interest component of interest rate swaps (286,600) (141,110) (992) 62,541 58,897 Debt issued by securitization vehicles 75,695 64,593 50,303 34,625 24,774 Participations issued 14,408 9,727 9,379 5,852 7,157 Other 4,603 1,598 5,185 7,566 7,002 Total economic interest expense * $377,247 $259,381 $169,483 $137,463 $120,682 Economic net interest income * $421,687 $419,107 $476,132 $518,387 $302,098 PAA cost (benefit) (8,136) (45,414) (127,521) (179,516) 57,395 Economic net interest income (excluding PAA) * $413,551 $373,693 $348,611 $338,871 $359,493
EAD* Reconciliation 9 GAAP Net Income to Earnings Available for Distribution* Reconciliation For the quarters ended 12/31/2022 9/30/2022 6/30/2022 3/31/2022 12/31/2021 GAAP net income (loss) ($886,814) ($273,977) $863,317 $2,023,894 $418,460 Net income (loss) attributable to noncontrolling interests 1,548 1,287 (3,379) 1,639 2,979 Net income (loss) attributable to Annaly (888,362) (275,264) 866,696 2,022,255 415,481 Adjustments to exclude reported realized and unrealized (gains) losses: Net (gains) losses on investments and other 1,124,924 2,702,512 615,216 159,804 40,473 Net (gains) losses on derivatives (1) 202,337 (1,976,130) (1,014,651) (1,704,569) (194,256) Loan loss provision (reversal) (2) 7,258 (1,613) (29,380) 812 1,931 Business divestiture-related (gains) losses (3) 13,013 2,936 23,955 354 16,514 Other adjustments: Depreciation expense related to commercial real estate and amortization of intangibles (4) 758 758 1,302 1,130 1,144 Non-EAD (income) loss allocated to equity method investments (5) (306) (2,003) (3,270) (9,920) (2,345) Transaction expenses and non-recurring items (6) 807 1,712 1,751 3,350 1,533 Income tax effect of non-EAD income (loss) items (418) (9,444) 28,841 27,091 8,380 TBA dollar roll income and CMBX coupon income (7) 34,767 105,543 161,673 129,492 119,657 MSR amortization (8) (38,633) (22,897) (33,810) (19,652) (25,864) Plus: Premium amortization adjustment cost (benefit) (8,136) (45,414) (127,521) (179,516) 57,395 Earnings available for distribution * 448,009 480,696 490,802 430,631 440,043 Dividends on preferred stock 29,974 26,883 26,883 26,883 26,883 Earnings available for distribution attributable to common stockholders * $418,035 $453,813 $463,919 $403,748 $413,160 ______________ * 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 12/31/2022 9/30/2022 6/30/2022 3/31/2022 12/31/2021 Book value per common share, beginning of period $19.94 $23.59 $27.08 $31.88 $33.55 Net income (loss) available (related) to common stockholders (1.96) (0.70) 2.21 5.46 1.07 Other comprehensive income (loss) attributable to common stockholders 3.68 (2.61) (4.85) (9.38) (1.86) Common dividends declared (0.88) (0.88) (0.88) (0.88) (0.88) Issuance / buyback of common stock / redemption of preferred stock 0.01 0.54 0.03 — — Book value per common share, end of period $20.79 $19.94 $23.59 $27.08 $31.88 Prior quarter net interest margin 1.42% 2.64% 3.20% 1.97% 2.01% Quarter-over-quarter changes in contribution: Coupon on average interest earning assets 0.48% (0.18%) 0.22% (0.01%) (0.08%) Net amortization of premiums (0.09%) 0.07% (0.25%) 1.31% 0.10% GAAP interest expense (1.16%) (1.11%) (0.53%) (0.07%) (0.06%) Current quarter net interest margin 0.65% 1.42% 2.64% 3.20% 1.97% Prior quarter net interest spread 1.09% 2.46% 3.13% 1.93% 1.97% Quarter-over-quarter changes in contribution: Coupon on average interest earning assets 0.48% (0.18%) 0.22% (0.01%) (0.08%) Net amortization of premiums (0.09%) 0.07% (0.25%) 1.31% 0.10% GAAP interest expense (1.33%) (1.26%) (0.64%) (0.10%) (0.06%) Current quarter net interest spread 0.15% 1.09% 2.46% 3.13% 1.93% 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 12/31/2022 9/30/2022 6/30/2022 3/31/2022 12/31/2021 Prior quarter net interest margin (excluding PAA) * 1.98% 2.20% 2.04% 2.03% 2.04% Quarter-over-quarter changes in contribution: Coupon on average interest earning assets (including average TBA dollar roll and CMBX balances) 0.67% (0.04%) 0.13% 0.04% (0.01%) Net amortization of premiums (excluding PAA) 0.07% 0.42% 0.03% 0.00% 0.05% TBA dollar roll income and CMBX coupon income (0.29%) (0.26%) 0.13% 0.06% 0.02% Interest expense and net interest component of interest rate swaps (0.53%) (0.34%) (0.13%) (0.09%) (0.07%) Current quarter net interest margin (excluding PAA) * 1.90% 1.98% 2.20% 2.04% 2.03% Prior quarter net interest spread (excluding PAA) * 1.70% 1.76% 1.73% 1.88% 1.97% Quarter-over-quarter changes in contribution: Coupon on average interest earning assets 0.48% (0.17%) 0.22% (0.02%) (0.08%) Net amortization of premiums (excluding PAA) 0.10% 0.54% 0.03% 0.01% 0.08% Interest expense and net interest component of interest rate swaps (0.57%) (0.43%) (0.22%) (0.14%) (0.09%) Current quarter net interest spread (excluding PAA) * 1.71% 1.70% 1.76% 1.73% 1.88% 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 12/31/2022 9/30/2022 6/30/2022 3/31/2022 12/31/2021 Prior quarter annualized GAAP return (loss) on average equity (9.94%) 30.60% 65.62% 12.44% 15.25% Quarter-over-quarter changes in contribution: Coupon income 4.71% 1.40% 3.20% 1.52% 0.15% Net amortization of premiums and accretion of discounts (0.70%) 0.35% (1.58%) 7.17% 0.34% GAAP interest expense (9.26%) (8.49%) (3.61%) (0.59%) (0.36%) Net servicing income 0.25% 0.66% 0.76% 0.20% 0.36% Net gains (losses) on investments and other 57.77% (76.28%) (16.63%) (3.98%) (4.21%) Net gains (losses) on derivatives (73.83%) 40.84% (17.24%) 49.22% 1.54% Business divestiture-related gains (losses) (1) (0.36%) 0.74% (0.84%) 0.48% (0.08%) Loan loss provision (0.32%) (0.90%) 0.97% (0.01%) (0.19%) Other (2) (0.10%) 1.14% (0.05%) (0.83%) (0.36%) Current quarter annualized GAAP return (loss) on average equity (31.78%) (9.94%) 30.60% 65.62% 12.44% Prior quarter annualized EAD return on average equity * 17.57% 17.49% 14.01% 13.10% 12.81% Quarter-over-quarter changes in contribution: Coupon income 4.79% 1.44% 3.26% 1.52% 0.15% Net amortization of premiums (excluding PAA) 0.66% 3.23% (0.29%) (0.32%) 0.27% Interest expense and net interest component of interest rate swaps (4.16%) (3.44%) (1.57%) (0.88%) (0.52%) Net servicing income 0.25% 0.67% 0.76% 0.20% 0.36% TBA dollar roll income and CMBX coupon income (2.60%) (1.90%) 1.55% 0.65% 0.18% Other (3) (0.32%) 0.08% (0.23%) (0.26%) (0.15%) Current quarter annualized EAD return on average equity * 16.19% 17.57% 17.49% 14.01% 13.10%
______________ Detailed endnotes are included within the Appendix at the end of this presentation. Unaudited, dollars in thousands 13 Residential & Other Investments Overview as of December 31, 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) $2,172,227 3.4% 3.83% 101.4% 97.2% 10.9% $2,110,696 20 years 764,709 1.2% 3.70% 103.2% 96.6% 8.2% 738,562 >=30 years (2) 61,837,059 95.4% 3.97% 101.7% 94.9% 7.4% 58,682,469 Total/Weighted Avg. $64,773,995 100.0% 3.96% 101.7% 95.0% 7.5% $61,531,727 TBA Contracts Type Notional Value % (4) Weighted Avg. Coupon Implied Cost Basis Implied Market Value 15-year $640,000 6.1% 4.50% $639,122 $636,200 30-year 9,905,000 93.9% 5.35% 9,991,768 9,942,476 Total/Weighted Avg. $10,545,000 100.0% 5.30% $10,630,890 $10,578,676 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 $232,488 89.2% 3.49% 107.7% 101.7% 13.8% $236,460 25 - 40 months 28,018 10.8% 3.01% 108.9% 95.7% 1.8% 26,825 Total/Weighted Avg. $260,506 100.0% 3.44% 107.8% 101.1% 12.5% $263,285 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 $822,134 8.1% 3.29% 17.8% 13.4% 8.3% $109,837 Inverse interest-only 1,002,205 9.8% 1.75% 29.1% 10.8% 9.6% 108,240 Multifamily interest-only 8,361,402 82.1% 0.51% 3.6% 3.1% 0.2% 261,806 Total/Weighted Avg. $10,185,741 100.0% 0.86% 7.2% 4.7% 6.8% $479,883
______________ Detailed endnotes are included within the Appendix at the end of this presentation. Unaudited, dollars in thousands 14 Residential & Other Investments Overview as of December 31, 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 $128,445,395 0.26% 3.0% 136.1% 9.7% 5.4% $1,748,209 MSR of limited partnership interest (1) 2,814,623 38,945 Total/Weighted Avg. $131,260,018 0.26% 3.0% 136.1% 9.7% 5.4% $1,787,154 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 $1,013,368 7.2% 8.33% 100.2% 98.4% $997,557 Alt-A 111,009 0.7% 4.06% 95.5% 82.2% 91,216 Prime 1,946,186 1.4% 4.87% 100.9% 82.9% 197,870 Subprime 202,304 1.1% 5.09% 84.1% 77.3% 156,313 NPL/RPL 1,426,616 9.5% 3.79% 99.0% 92.3% 1,317,154 Prime jumbo 5,717,558 1.6% 6.78% 103.0% 86.4% 228,593 Residential mortgage loans 12,247,346 78.5% 4.61% 100.1% 89.3% 10,931,744 Total/Weighted Avg. $22,664,387 100.0% 4.84% $13,920,447 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% $406,202 Type Current Face / Notional Value Weighted Avg. Coupon Weighted Avg. Amortized Cost Weighted Avg. Fair Value Estimated Fair Value Multifamily CRT $18,939 8.10% 99.5% 94.5% $17,903 CRE CLO $488,808 5.63% 99.6% 96.1% $469,848 SASB $38,752 6.79% 99.6% 99.5% $38,558
______________ Detailed endnotes are included within the Appendix at the end of this presentation. Unaudited, dollars in thousands 15 Residential Credit Securities Detail as of December 31, 2022 Product Estimated Fair Value Payment Structure Investment Characteristics Senior Subordinate Coupon Credit Enhancement 60+ Delinquencies 3M VPR (1) Credit Risk Transfer $997,557 $— $997,557 8.33% 1.92% 0.95% 6.26% Alt-A 91,216 60,137 31,079 4.06% 14.80% 1.86% 7.11% Prime 197,870 25,912 171,958 4.87% 7.90% 2.94% 5.11% Subprime 156,313 55,817 100,496 5.09% 16.54% 8.32% 6.39% Re-Performing Loan Securitizations 843,949 474,170 369,779 3.94% 28.62% 31.28% 5.97% Non-Performing Loan Securitizations 473,205 447,237 25,968 3.52% 37.69% 79.54% 7.45% Prime Jumbo 228,593 34,292 194,301 6.78% 3.00% 2.05% 4.01% Total (2) $2,988,703 $1,097,565 $1,891,138 5.62% 16.90% 22.46% 5.99% Product Bond Coupon Estimated Fair ValueARM Fixed Floater Interest Only Credit Risk Transfer $— $— $997,557 $— $997,557 Alt-A 3,737 87,150 329 — 91,216 Prime 5,109 176,114 3,574 13,073 197,870 Subprime — 106,894 49,290 129 156,313 Re-Performing Loan Securitizations — 843,949 — — 843,949 Non-Performing Loan Securitizations — 473,205 — — 473,205 Prime Jumbo — 161,453 32,848 34,292 228,593 Total $8,846 $1,848,765 $1,083,598 $47,494 $2,988,703
______________ Detailed endnotes are included within the Appendix at the end of this presentation. 16 Unaudited, dollars in thousands Hedging and Liabilities as of December 31, 2022 Principal Balance Weighted Average Rate Days to Maturity(5)At Period End For the Quarter Repurchase agreements $59,512,597 4.29% 3.72% 27 Other secured financing 250,000 7.07% 7.20% 545 Debt issued by securitization vehicles 9,021,305 3.29% 3.34% 12,475 Participations issued 852,068 5.98% 6.20% 10,995 Total indebtedness $69,635,970 Maturity Current Notional (1)(2) Weighted Avg. Pay Rate Weighted Avg. Receive Rate Weighted Avg. Years to Maturity(3) 0 to 3 years $26,355,700 0.88% 4.33% 0.75 > 3 to 6 years 1,120,400 2.53% 3.95% 4.07 > 6 to 10 years 22,492,200 2.54% 4.24% 8.76 Greater than 10 years 2,309,000 3.49% 4.26% 22.93 Total / Weighted Avg. $52,277,300 1.74% 4.28% 5.25 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 $2,500,000 2.02% 3M LIBOR 8.19 14.28 Long Receive $750,000 1.57% 3M LIBOR 11.07 12.82 Type Long Contracts Short Contracts Net Positions Weighted Avg. Years to Maturity U.S. Treasury Futures - 2 year $— $(8,518,400) $(8,518,400) 1.96 U.S. Treasury Futures - 5 year $— $(5,803,400) $(5,803,400) 4.37 U.S. Treasury Futures - 10 year & Greater $— $(6,866,900) $(6,866,900) 8.15 Total / Weighted Avg. $— $(21,188,700) $(21,188,700) 4.63 Maturity Principal Balance Weighted Avg. Rate At Period End Within 30 days $31,426,193 4.27% 30 to 59 days 22,107,566 4.18% 60 to 89 days 5,262,025 4.59% 90 to 119 days 367,800 5.82% Over 120 days(4) 599,013 6.66% Total / Weighted Avg. $59,762,597 4.30% 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 December 31, 2022 and September 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 December 31, 2022 As of September 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) 0.4% 2.9% 0.5% 3.7% (50) 0.3% 2.5% 0.4% 2.9% (25) 0.2% 1.5% 0.2% 1.7% 25 (0.3%) (1.9%) (0.3%) (2.1%) 50 (0.6%) (4.3%) (0.6%) (4.5%) 75 (0.9%) (6.9%) (0.9%) (7.1%) MBS Spread Sensitivity (1) MBS Spread Shock (bps) As of December 31, 2022 As of September 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) 1.6% 12.1% 1.7% 14.1% (15) 1.0% 7.2% 1.0% 8.4% (5) 0.3% 2.4% 0.3% 2.8% 5 (0.3%) (2.4%) (0.3%) (2.8%) 15 (0.9%) (7.1%) (1.0%) (8.3%) 25 (1.6%) (11.8%) (1.7%) (13.7%)
Appendix
Dollars in thousands, except per share data 19 Consolidated Statements of Financial Condition 12/31/2022 9/30/2022 6/30/2022 3/31/2022 12/31/2021 (unaudited) (unaudited) (unaudited) (unaudited) Assets Cash and cash equivalents $ 1,576,714 $ 1,466,171 $ 853,932 $ 955,840 $ 1,342,090 Securities 65,789,907 66,839,353 59,042,734 60,727,637 63,655,674 Loans, net 1,809,832 1,551,707 1,487,133 3,617,818 4,242,043 Mortgage servicing rights 1,748,209 1,705,254 1,421,420 1,108,937 544,562 Interests in MSR — — 83,622 85,653 69,316 Assets transferred or pledged to securitization vehicles 9,121,912 9,202,014 8,877,247 7,809,307 6,086,308 Assets of disposal group held for sale — 11,371 97,414 — 194,138 Derivative assets 342,064 1,949,530 748,432 964,075 170,370 Receivable for unsettled trades 575,091 2,153,895 434,227 407,225 2,656 Principal and interest receivable 637,301 262,542 300,028 246,739 234,983 Goodwill and intangible assets, net 16,679 17,437 18,195 23,110 24,241 Other assets 233,003 247,490 272,865 238,793 197,683 Total assets $ 81,850,712 $ 85,406,764 $ 73,637,249 $ 76,185,134 $ 76,764,064 Liabilities and stockholders’ equity Liabilities Repurchase agreements $ 59,512,597 $ 54,160,731 $ 51,364,097 $ 52,626,503 $ 54,769,643 Other secured financing 250,000 250,000 — 914,255 903,255 Debt issued by securitization vehicles 7,744,160 7,844,518 7,502,483 6,711,953 5,155,633 Participations issued 800,849 745,729 696,944 775,432 1,049,066 Liabilities of disposal group held for sale — 1,151 3,608 — 154,956 Derivative liabilities 204,172 764,535 379,708 826,972 881,537 Payable for unsettled trades 1,157,846 9,333,646 1,995,960 1,992,568 147,908 Interest payable 325,280 30,242 91,962 80,870 91,176 Dividends payable 412,113 411,762 354,027 321,423 321,142 Other liabilities 74,269 912,895 158,560 456,388 94,423 Total liabilities 70,481,286 74,455,209 62,547,349 64,706,364 63,568,739 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) 4,683 4,679 4,023 3,653 3,649 Additional paid-in capital 22,981,320 22,967,665 21,293,146 20,332,909 20,324,780 Accumulated other comprehensive income (loss) (3,708,896) (5,431,436) (4,310,926) (2,465,482) 958,410 Accumulated deficit (9,543,233) (8,211,358) (7,496,061) (7,980,407) (9,653,582) Total stockholders’ equity 11,270,443 10,866,119 11,026,751 11,427,242 13,169,826 Noncontrolling interests 98,983 85,436 63,149 51,528 25,499 Total equity 11,369,426 10,951,555 11,089,900 11,478,770 13,195,325 Total liabilities and equity $ 81,850,712 $ 85,406,764 $ 73,637,249 $ 76,185,134 $ 76,764,064 ______________ 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 12/31/2022 9/30/2022 6/30/2022 3/31/2022 12/31/2021 Net interest income Interest income $ 798,934 $ 678,488 $ 645,615 $ 655,850 $ 422,780 Interest expense 663,847 400,491 170,475 74,922 61,785 Net interest income 135,087 277,997 475,140 580,928 360,995 Net servicing income Servicing and related income 82,040 74,486 55,685 34,715 31,322 Servicing and related expense 7,659 7,780 5,949 3,757 4,290 Net servicing income 74,381 66,706 49,736 30,958 27,032 Other income (loss) Net gains (losses) on investments and other (1,124,924) (2,702,512) (615,216) (159,804) (40,473) Net gains (losses) on derivatives 84,263 2,117,240 1,015,643 1,642,028 135,359 Loan loss (provision) reversal (7,258) 1,613 26,913 (608) (194) Business divestiture-related gains (losses) (13,013) (2,936) (23,955) (354) (16,514) Other, net 7,569 1,526 (5,486) 3,058 (415) Total other income (loss) (1,053,363) (585,069) 397,899 1,484,320 77,763 General and administrative expenses Compensation expense 29,714 27,744 22,243 33,002 27,061 Other general and administrative expenses 13,291 10,178 13,795 12,762 13,640 Total general and administrative expenses 43,005 37,922 36,038 45,764 40,701 Income (loss) before income taxes (886,900) (278,288) 886,737 2,050,442 425,089 Income taxes (86) (4,311) 23,420 26,548 6,629 Net income (loss) (886,814) (273,977) 863,317 2,023,894 418,460 Net income (loss) attributable to noncontrolling interests 1,548 1,287 (3,379) 1,639 2,979 Net income (loss) attributable to Annaly (888,362) (275,264) 866,696 2,022,255 415,481 Dividends on preferred stock 29,974 26,883 26,883 26,883 26,883 Net income (loss) available (related) to common stockholders $ (918,336) $ (302,147) $ 839,813 $ 1,995,372 $ 388,598 Net income (loss) per share available (related) to common stockholders Basic $ (1.96) $ (0.70) $ 2.21 $ 5.46 $ 1.07 Diluted $ (1.96) $ (0.70) $ 2.20 $ 5.46 $ 1.07 Weighted average number of common shares outstanding Basic 468,250,672 429,858,876 380,609,192 365,340,909 363,534,539 Diluted 468,250,672 429,858,876 380,898,750 365,612,991 363,852,876 Other comprehensive income (loss) Net income (loss) $ (886,814) $ (273,977) $ 863,317 $ 2,023,894 $ 418,460 Unrealized gains (losses) on available-for-sale securities 445,896 (2,578,509) (2,503,250) (3,568,679) (685,699) Reclassification adjustment for net (gains) losses included in net income (loss) 1,276,644 1,457,999 657,806 144,787 5,471 Other comprehensive income (loss) 1,722,540 (1,120,510) (1,845,444) (3,423,892) (680,228) Comprehensive income (loss) 835,726 (1,394,487) (982,127) (1,399,998) (261,768) Comprehensive income (loss) attributable to noncontrolling interests 1,548 1,287 (3,379) 1,639 2,979 Comprehensive income (loss) attributable to Annaly 834,178 (1,395,774) (978,748) (1,401,637) (264,747) Dividends on preferred stock 29,974 26,883 26,883 26,883 26,883 Comprehensive income (loss) attributable to common stockholders $ 804,204 $ (1,422,657) $ (1,005,631) $ (1,428,520) $ (291,630)
Unaudited, dollars in thousands 21 Income Statement Gains (Losses) Detail For the quarters ended 12/31/2022 9/30/2022 6/30/2022 3/31/2022 12/31/2021 Net gains (losses) on disposal of investments and other ($1,289,865) ($1,464,360) ($646,177) ($144,224) ($25,144) Net unrealized gains (losses) on instruments measured at fair value through earnings 164,941 (1,238,152) 30,961 (15,580) (15,329) Net gains (losses) on investments and other ($1,124,924) ($2,702,512) ($615,216) ($159,804) ($40,473) Net interest component of interest rate swaps $286,600 $141,110 $992 ($62,541) ($58,897) Realized gains (losses) on termination or maturity of interest rate swaps (183,018) (83,393) (16) — (39,932) Unrealized gains (losses) on interest rate swaps 8,382 1,251,350 897,537 1,323,439 186,345 Net gains (losses) on other derivatives (27,701) 808,173 117,130 381,130 47,843 Net gains (losses) on derivatives $84,263 $2,117,240 $1,015,643 $1,642,028 $135,359 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 December 31, 2022, September 30, 2022, June 30, 2022, March 31, 2022 and December 31, 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 12/31/2022 9/30/2022 6/30/2022 3/31/2022 12/31/2021 Economic leverage ratio reconciliation Repurchase agreements $59,512,597 $54,160,731 $51,364,097 $52,626,503 $54,769,643 Other secured financing 250,000 250,000 — 914,255 903,255 Debt issued by securitization vehicles 7,744,160 7,844,518 7,502,483 6,711,953 5,155,633 Participations issued 800,849 745,729 696,944 775,432 1,049,066 Debt included in liabilities of disposal group held for sale — — — — 112,144 Total GAAP debt $68,307,606 $63,000,978 $59,563,524 $61,028,143 $61,989,741 Less non-recourse debt: Credit facilities (1) $— $— $— ($914,255) ($903,255) Debt issued by securitization vehicles (7,744,160) (7,844,518) (7,502,483) (6,711,953) (5,155,633) Participations issued (800,849) (745,729) (696,944) (775,432) (1,049,066) Non-recourse debt included in liabilities of disposal group held for sale — — — — (112,144) Total recourse debt $59,762,597 $54,410,731 $51,364,097 $52,626,503 $54,769,643 Plus / (Less): Cost basis of TBA and CMBX derivatives $11,050,351 $16,209,886 $19,723,326 $19,006,949 $20,690,768 Payable for unsettled trades 1,157,846 9,333,646 1,995,960 1,992,568 147,908 Receivable for unsettled trades (575,091) (2,153,895) (434,227) (407,225) (2,656) Economic debt * $71,395,703 $77,800,368 $72,649,156 $73,218,795 $75,605,663 Total equity $11,369,426 $10,951,555 $11,089,900 $11,478,770 $13,195,325 Economic leverage ratio * 6.3x 7.1x 6.6x 6.4x 5.7x ______________ * 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 12/31/2022 9/30/2022 6/30/2022 3/31/2022 12/31/2021 Economic capital ratio reconciliation Total GAAP assets $81,850,712 $85,406,764 $73,637,249 $76,185,134 $76,764,064 Less: Gross unrealized gains on TBA derivatives (1) (17,056) (28,032) (60,661) (24,757) (52,693) Debt issued by securitization vehicles (2) (7,744,160) (7,844,518) (7,502,483) (6,711,953) (5,155,633) Plus: Implied market value of TBA derivatives 10,578,676 15,182,806 19,282,979 18,284,708 20,338,633 Total economic assets * $84,668,172 $92,717,020 $85,357,084 $87,733,132 $91,894,371 Total equity $11,369,426 $10,951,555 $11,089,900 $11,478,770 $13,195,325 Economic capital ratio *(3) 13.4% 11.8% 13.0% 13.1% 14.4% Premium Amortization Reconciliation Premium amortization expense $38,829 $39,406 ($4,869) ($25,353) $219,172 Less: PAA cost (benefit) (8,136) (45,414) (127,521) (179,516) 57,395 Premium amortization expense (excluding PAA) $46,965 $84,820 $122,652 $154,163 $161,777 Interest Income (excluding PAA) Reconciliation GAAP interest income $798,934 $678,488 $645,615 $655,850 $422,780 PAA cost (benefit) (8,136) (45,414) (127,521) (179,516) 57,395 Interest income (excluding PAA) * $790,798 $633,074 $518,094 $476,334 $480,175 Economic Interest Expense Reconciliation GAAP interest expense $663,847 $400,491 $170,475 $74,922 $61,785 Add: Net interest component of interest rate swaps (286,600) (141,110) (992) 62,541 58,897 Economic interest expense * $377,247 $259,381 $169,483 $137,463 $120,682 Economic Net Interest Income (excluding PAA) Reconciliation Interest income (excluding PAA) * $790,798 $633,074 $518,094 $476,334 $480,175 Less: Economic interest expense * 377,247 259,381 169,483 137,463 120,682 Economic net interest income (excluding PAA) * $413,551 $373,693 $348,611 $338,871 $359,493 ______________ * 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 12/31/2022 9/30/2022 6/30/2022 3/31/2022 12/31/2021 Economic Metrics (excluding PAA) Average interest earning assets $82,859,799 $78,143,337 $72,123,055 $72,590,876 $73,134,966 Interest income (excluding PAA) * $790,798 $633,074 $518,094 $476,334 $480,175 Average yield on interest earning assets (excluding PAA) * 3.82% 3.24% 2.87% 2.62% 2.63% Average interest bearing liabilities $69,981,694 $65,755,563 $60,446,528 $61,865,292 $63,342,740 Economic interest expense * $377,247 $259,381 $169,483 $137,463 $120,682 Average economic cost of interest bearing liabilities * 2.11% 1.54% 1.11% 0.89% 0.75% Economic net interest income (excluding PAA)* $413,551 $373,693 $348,611 $338,871 $359,493 Net interest spread (excluding PAA) * 1.71% 1.70% 1.76% 1.73% 1.88% Interest income (excluding PAA) * $790,798 $633,074 $518,094 $476,334 $480,175 TBA dollar roll income and CMBX coupon income 34,767 105,543 161,673 129,492 119,657 Economic interest expense * (377,247) (259,381) (169,483) (137,463) (120,682) Subtotal $448,318 $479,236 $510,284 $468,363 $479,150 Average interest earning assets $82,859,799 $78,143,337 $72,123,055 $72,590,876 $73,134,966 Average TBA contract and CMBX balances, implied cost basis 11,499,881 18,837,475 20,566,553 19,229,537 21,159,120 Subtotal $94,359,680 $96,980,812 $92,689,608 $91,820,413 $94,294,086 Net interest margin (excluding PAA) * 1.90% 1.98% 2.20% 2.04% 2.03% ______________ * 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 of unsettled commitments as of September 30, 2022. 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. There were no unsettled commitments as of December 31, 2022. (5) Includes assets related to the sale of the Company's Middle Market Lending portfolio that were transferred in the fourth quarter of 2022. (6) 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. (7) 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). (8) 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. 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. (2) Consists of common stock, additional paid-in capital, accumulated other comprehensive income (loss) and accumulated deficit. Page 5 (continued) (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 quarter ended December 31, 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 $286.6 million, $141.1 million, $1.0 million, ($62.5) million and ($58.9) million for the quarters ended December 31, 2022, September 30, 2022, June 30, 2022, March 31, 2022 and December 31, 2021, respectively. (2) Includes $0.0 million, $0.0 million, ($2.5) million, $0.2 million and $1.7 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 and December 31, 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 quarters ended December 31, 2022, 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, and December 31, 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 for each of the quarters presented. (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 quarters ended December 31, 2022, 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 and December 31, 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 $1.4 billion. (2) Includes fixed-rate collateralized mortgage obligations with an estimated fair value of $89.6 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 December 31, 2022, 17%, 23% and 60% 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) Less than 1% 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 468,309,810 shares issued and outstanding at December 31, 2022; 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. 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.