Annaly Capital Management, Inc. Reports 3rd Quarter 2022 Results

October 26, 2022 04:15 PM Eastern Daylight Time

NEW YORK--(BUSINESS WIRE)--Annaly Capital Management, Inc. (NYSE: NLY) ("Annaly" or the "Company") today announced its financial results for the quarter ended September 30, 2022.

Financial Highlights

GAAP net income (loss) of ($0.70) per average common share for the quarter
Earnings available for distribution (“EAD”) of $1.06 per average common share for the quarter; dividend coverage of 120%
Economic return (loss) of (11.7%) for the third quarter
Annualized GAAP return (loss) on average equity of (9.9%) and annualized EAD return on average equity of 17.6%
Book value per common share of $19.94
GAAP leverage of 5.8x, up from 5.4x in the prior quarter; economic leverage of 7.1x, up from 6.6x in the prior quarter
Declared quarterly common stock cash dividend of $0.88 per share

Business Highlights

Investment and Strategy

Total assets of $86.2 billion⁽¹⁾, up from $82.3 billion in the prior quarter
Annaly's Agency Portfolio increased by 4.5% to $78.2 billion⁽¹⁾ in assets at the end of the third quarter
- Portfolio activity focused on shifting upwards in coupon, primarily adding 4.5% and 5.0% coupons, while also increasing exposure to specified pools, which increased seven percentage points to 81% of the Agency portfolio
Hedging strategy was focused on managing duration with yields reaching multi-year highs and volatility persisting; activity primarily consisted of adding long-end swap hedges and Treasury futures in the front end of the curve
Annaly’s Mortgage Servicing Rights (“MSR”) platform grew assets by 9% to $1.9 billion⁽²⁾ in the third quarter with MSR representing 15% of dedicated equity capital
- Annaly is the second largest purchaser of MSR year-to-date⁽³⁾
Annaly’s Residential Credit Group portfolio increased 6% during the quarter to $5.1 billion⁽¹⁾, driven by retention of OBX securities and opportunistic third party purchases
- Purchased approximately $900 million of whole loans during the quarter and Annaly’s correspondent channel achieved over $2 billion in aggregated loans since inception in April 2021
Annaly was added to the S&P MidCap 400 Index on September 19, 2022, representing the only mortgage REIT in the index

Financing and Capital

$6.1 billion of unencumbered assets⁽⁴⁾, including cash and unencumbered Agency MBS of $4.3 billion
Average GAAP cost of interest bearing liabilities increased 126 basis points to 2.38% and average economic cost of interest bearing liabilities increased 43 basis points to 1.54%
Annaly Residential Credit Group remains the largest non-bank issuer of Prime Jumbo and Expanded Credit MBS⁽⁵⁾ with three residential whole loan securitizations totaling $1.1 billion priced in the third quarter
Raised nearly $1.7 billion of accretive common equity during the third quarter⁽⁶⁾

“During the third quarter of 2022, financial markets continued to experience elevated volatility previously only seen during periods of crisis. Our book value came under pressure as a result of substantial spread widening in Agency MBS and the significant moves in interest rates,” said David Finkelstein, Annaly’s Chief Executive Officer and President. “Our strong capital base, disciplined portfolio and risk management, and deep financing sources have enabled us to weather this persistent volatility and prepare us for further sustained macroeconomic uncertainty. While we expect to maintain our defensive positioning due to the difficult operating environment, we continue to view asset valuations as attractive and are poised to take advantage of opportunities when technical factors improve.

“With Annaly marking 25 years as a public company subsequent to quarter end, I am reminded of our resilience and proven ability to successfully manage and adapt through numerous market cycles and I remain confident that we will emerge from this current period stronger than ever.”

(1)		Total portfolio represents Annaly’s investments that are on-balance sheet as well as investments that are off-balance sheet in which Annaly has economic exposure. Total assets include commercial real estate related assets, including CMBX derivatives (market value) of $0.4 billion, which are excluded from capital allocation calculations. Agency assets exclude assets transferred or pledged to securitization vehicles of $0.4 billion and include TBA purchase contracts (market value) of $15.2 billion and $27 million of retained securities that are eliminated in consolidation. Residential Credit assets exclude assets transferred or pledged to securitization vehicles of $8.8 billion, include $1.0 billion of retained securities that are eliminated in consolidation and are shown net of participations issued totaling $0.7 billion. MSR assets include limited partnership interests in a MSR fund, which is reported in Other Assets, and unsettled commitments of $151 million. 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.
(2)		Includes limited partnership interests in a MSR fund, which is reported in Other Assets, and unsettled commitments of $151 million. 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.
(3)		eMBS servicing transfer data through September 30, 2022.
(4)		Represents Annaly’s excess liquidity and defined as assets that have not been pledged or securitized (generally including cash and cash equivalents, Agency MBS, CRT, Non-Agency MBS, residential mortgage loans, MSR, reverse repurchase agreements, other unencumbered financial assets and capital stock).
(5)		Issuer ranking data from Inside Nonconforming Markets for 2021 to 2022 year-to-date.
(6)		These amounts include $914 million raised through the Company’s at-the-market sales program for its common stock, net of sales agent commissions and excluding other offering expenses, and $765 million raised through a common equity offering, excluding any applicable underwriting discounts and other offering expenses and including the underwriters’ full exercise of their overallotment option to purchase additional shares of stock.

Financial Performance

The following table summarizes certain key performance indicators as of and for the quarters ended September 30, 2022, June 30, 2022 and September 30, 2021:

	September 30, 2022			June 30, 2022			September 30, 2021
Book value per common share	$	19.94		$	23.59		$	33.55
GAAP leverage at period-end ⁽¹⁾		5.8:1			5.4:1			4.4:1
GAAP net income (loss) per average common share ⁽²⁾	$	(0.70	)	$	2.21		$	1.36
Annualized GAAP return (loss) on average equity		(9.94	%)		30.60	%		15.25	%
Net interest margin ⁽³⁾		1.42	%		2.64	%		2.01	%
Average yield on interest earning assets ⁽⁴⁾		3.47	%		3.58	%		2.29	%
Average GAAP cost of interest bearing liabilities ⁽⁵⁾		2.38	%		1.12	%		0.32	%
Net interest spread		1.09	%		2.46	%		1.97	%
Non-GAAP metrics *
Earnings available for distribution per average common share ⁽²⁾	$	1.06		$	1.22		$	1.14
Annualized EAD return on average equity		17.57	%		17.49	%		12.81	%
Economic leverage at period-end ⁽¹⁾		7.1:1			6.6:1			5.8:1
Net interest margin (excluding PAA) ⁽³⁾		1.98	%		2.20	%		2.04	%
Average yield on interest earning assets (excluding PAA) ⁽⁴⁾		3.24	%		2.87	%		2.63	%
Average economic cost of interest bearing liabilities ⁽⁵⁾		1.54	%		1.11	%		0.66	%
Net interest spread (excluding PAA)		1.70	%		1.76	%		1.97	%
* Represents a non-GAAP financial measure. Please refer to the "Non-GAAP Financial Measures" section for additional information. ⁽¹⁾ GAAP leverage is computed as the sum of repurchase agreements, other secured financing, debt issued by securitization vehicles, participations issued and mortgages payable divided by total equity. Economic leverage is computed as the sum of recourse debt, cost basis of to-be-announced ("TBA") and CMBX derivatives outstanding, and net forward purchases (sales) of investments divided by total equity. Recourse debt consists of repurchase agreements and other secured financing (excluding certain non-recourse credit facilities). Certain credit facilities (included within other secured financing), debt issued by securitization vehicles, participations issued, and mortgages payable are non-recourse to the Company and are excluded from economic leverage. ⁽²⁾ Net of dividends on preferred stock. ⁽³⁾ Net interest margin represents interest income less interest expense divided by average Interest Earning Assets. Net interest margin (excluding PAA) represents the sum of interest income (excluding PAA) plus TBA dollar roll income and CMBX coupon income less interest expense and the net interest component of interest rate swaps divided by the sum of average Interest Earning Assets plus average outstanding TBA contract and CMBX balances. PAA represents 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. ⁽⁴⁾ Average yield on interest earning assets represents annualized interest income divided by average interest earning assets. Average interest earning assets reflects the average amortized cost of our investments during the period. Average yield on interest earning assets (excluding PAA) is calculated using annualized interest income (excluding PAA). ⁽⁵⁾ Average GAAP cost of interest bearing liabilities represents annualized interest expense divided by average interest bearing liabilities. Average interest bearing liabilities reflects the average balances during the period. Average economic cost of interest bearing liabilities represents annualized economic interest expense divided by average interest bearing liabilities. Economic interest expense is comprised of GAAP interest expense and the net interest component of interest rate swaps.

Updates to Financial Disclosures

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.

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.

Other Information

This news release and our public documents to which we refer contain or incorporate by reference certain forward-looking statements which are based on various assumptions (some of which are beyond our control) and may be identified by reference to a future period or periods or by the use of forward-looking terminology, such as "may," "will," "believe," "expect," "anticipate," "continue," or similar terms or variations on those terms or the negative of those terms. Actual results could differ materially from those set forth in forward-looking statements due to a variety of factors, including, but not limited to, risks and uncertainties related to the COVID-19 pandemic, including as related to adverse economic conditions on real estate-related assets and financing conditions; changes in interest rates; changes in the yield curve; changes in prepayment rates; the availability of mortgage-backed securities and other securities for purchase; the availability of financing and, if available, the terms of any financing; changes in the market value of our assets; changes in business conditions and the general economy; operational risks or risk management failures by us or critical third parties, including cybersecurity incidents; our ability to grow our residential credit business; credit risks related to our investments in credit risk transfer securities, residential mortgage-backed securities, and related residential mortgage credit assets; risks related to investments in mortgage servicing rights; 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.

Annaly is a leading diversified capital manager with investment strategies across mortgage finance. Annaly’s principal business objective is to generate net income for distribution to its stockholders and to optimize its returns through prudent management of its diversified investment strategies. Annaly is internally managed and has elected to be taxed as a real estate investment trust, or REIT, for federal income tax purposes. Additional information on the company can be found at www.annaly.com.

Annaly routinely posts important information for investors on the Company’s website, www.annaly.com. Annaly intends to use this webpage as a means of disclosing material, non-public information, for complying with the Company’s 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 Company’s website, in addition to following Annaly’s press releases, SEC filings, public conference calls, presentations, webcasts and other information it posts from time to time on its website. To sign-up for email-notifications, please visit the "Investors" section of our website, www.annaly.com, then click on "Investor Resources" and select "Email Alerts" to complete the email notification form. The information contained on, or that may be accessed through, the Company’s webpage is not incorporated by reference into, and is not a part of, this document.

The Company prepares a supplemental investor presentation and a financial summary for the benefit of its shareholders. Both the Third Quarter 2022 Investor Presentation and the Third Quarter 2022 Financial Summary can be found at the Company’s website (www.annaly.com) in the Investors section under Investor Presentations.

Conference Call

The Company will hold the third quarter 2022 earnings conference call on October 27, 2022 at 9:00 a.m. Eastern Time. Participants are encouraged to pre-register for the conference call to receive a unique PIN to gain immediate access to the call and bypass the live operator. Pre-registration may be completed by accessing the pre-registration link found on the homepage or "Investors" section of the Company's website at www.annaly.com, or by using the following link: https://dpregister.com/sreg/10171506/f491665b6c. Pre-registration may be completed at any time, including up to and after the call start time.

For participants who would like to join the call but have not pre-registered, access is available by dialing 844-735-3317 within the U.S., or 412-317-5703 internationally, and requesting the "Annaly Earnings Call."

There will also be an audio webcast of the call on www.annaly.com. A replay of the call will be available for one week following the conference call. The replay number is 877-344-7529 for domestic calls and 412-317-0088 for international calls and the conference passcode is 6415389. If you would like to be added to the e-mail distribution list, please visit www.annaly.com, click on Investors, then select Email Alerts and complete the email notification form.

Financial Statements


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(dollars in thousands, except per share data)


	September 30, 2022			June 30, 2022			March 31, 2022			December 31, 2021 ⁽¹⁾			September 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

⁽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; 402,303,874 shares issued and outstanding at June 30, 2022; 365,253,063 shares issued and outstanding at March 31, 2022; 364,934,065 shares issued and outstanding at December 31, 2021; 362,483,754 shares issued and outstanding at September 30, 2021.


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(dollars in thousands, except per share data)
(Unaudited)
	For the quarters ended
	September 30, 2022			June 30, 2022			March 31, 2022			December 31, 2021			September 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

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(dollars in thousands, except per share data)
	For the nine months ended
	September 30, 2022			September 30, 2021
	(unaudited)			(unaudited)
Net interest income
Interest income	$	1,979,953		$	1,560,256
Interest expense		645,888			187,458
Net interest income		1,334,065			1,372,798
Net servicing income
Servicing and related income		164,886			37,696
Servicing and related expense		17,486			7,912
Net servicing income		147,400			29,784
Other income (loss)
Net gains (losses) on investments and other		(3,477,532	)		161,431
Net gains (losses) on derivatives		4,774,911			672,371
Loan loss (provision) reversal		27,918			145,260
Business divestiture-related gains (losses)		(27,245	)		(262,045	)
Other, net		(902	)		1,580
Total other income (loss)		1,297,150			718,597
General and administrative expenses
Compensation expense		82,989			91,390
Other general and administrative expenses		36,735			53,923
Total general and administrative expenses		119,724			145,313
Income (loss) before income taxes		2,658,891			1,975,866
Income taxes		45,657			(1,954	)
Net income (loss)		2,613,234			1,977,820
Net income (loss) attributable to noncontrolling interests		(453	)		3,405
Net income (loss) attributable to Annaly		2,613,687			1,974,415
Dividends on preferred stock		80,649			80,649
Net income (loss) available (related) to common stockholders	$	2,533,038		$	1,893,766
Net income (loss) per share available (related) to common stockholders
Basic	$	6.46		$	5.34
Diluted	$	6.45		$	5.34
Weighted average number of common shares outstanding
Basic		392,172,655			354,606,052
Diluted		392,445,034			354,875,551
Other comprehensive income (loss)
Net income (loss)	$	2,613,234		$	1,977,820
Unrealized gains (losses) on available-for-sale securities		(8,650,438	)		(1,733,919	)
Reclassification adjustment for net (gains) losses included in net income (loss)		2,260,592			(1,778	)
Other comprehensive income (loss)		(6,389,846	)		(1,735,697	)
Comprehensive income (loss)		(3,776,612	)		242,123
Comprehensive income (loss) attributable to noncontrolling interests		(453	)		3,405
Comprehensive income (loss) attributable to Annaly		(3,776,159	)		238,718
Dividends on preferred stock		80,649			80,649
Comprehensive income (loss) attributable to common stockholders	$	(3,856,808	)	$	158,069

Key Financial Data

The following table presents key metrics of the Company’s portfolio, liabilities and hedging positions, and performance as of and for the quarters ended September 30, 2022, June 30, 2022, and September 30, 2021:

	September 30, 2022			June 30, 2022			September 30, 2021
Portfolio related metrics
Fixed-rate Residential Securities as a percentage of total Residential Securities		98	%		97	%		98	%
Adjustable-rate and floating-rate Residential Securities as a percentage of total Residential Securities		2	%		3	%		2	%
Weighted average experienced CPR for the period		9.8	%		14.9	%		23.1	%
Weighted average projected long-term CPR at period-end		7.6	%		7.7	%		12.7	%
Liabilities and hedging metrics
Weighted average days to maturity on repurchase agreements outstanding at period-end		57			47			75
Hedge ratio ⁽¹⁾		111	%		104	%		80	%
Weighted average pay rate on interest rate swaps at period-end ⁽²⁾		1.53	%		1.16	%		0.60	%
Weighted average receive rate on interest rate swaps at period-end ⁽²⁾		2.96	%		1.65	%		0.07	%
Weighted average net rate on interest rate swaps at period-end ⁽²⁾		(1.43	%)		(0.49	%)		0.53	%
GAAP leverage at period-end ⁽³⁾		5.8:1			5.4:1			4.4:1
GAAP capital ratio at period-end ⁽⁴⁾		12.8	%		15.1	%		17.9	%
Performance related metrics
Book value per common share	$	19.94		$	23.59		$	33.55
GAAP net income (loss) per average common share ⁽⁵⁾	$	(0.70	)	$	2.21		$	1.36
Annualized GAAP return (loss) on average equity		(9.94	%)		30.60	%		15.25	%
Net interest margin⁽⁶⁾		1.42	%		2.64	%		2.01	%
Average yield on interest earning assets ⁽⁷⁾		3.47	%		3.58	%		2.29	%
Average GAAP cost of interest bearing liabilities⁽⁸⁾		2.38	%		1.12	%		0.32	%
Net interest spread		1.09	%		2.46	%		1.97	%
Dividend declared per common share	$	0.88		$	0.88		$	0.88
Annualized dividend yield ⁽⁹⁾		20.51	%		14.89	%		10.45	%
Non-GAAP metrics *
Earnings available for distribution per average common share ⁽⁵⁾	$	1.06		$	1.22		$	1.14
Annualized EAD return on average equity (excluding PAA)		17.57	%		17.49	%		12.81	%
Economic leverage at period-end ⁽³⁾		7.1:1			6.6:1			5.8:1
Economic capital ratio at period end ⁽⁴⁾		11.8	%		13.0	%		14.2	%
Net interest margin (excluding PAA) ⁽⁶⁾		1.98	%		2.20	%		2.04	%
Average yield on interest earning assets (excluding PAA) ⁽⁷⁾		3.24	%		2.87	%		2.63	%
Average economic cost of interest bearing liabilities ⁽⁸⁾		1.54	%		1.11	%		0.66	%
Net interest spread (excluding PAA)		1.70	%		1.76	%		1.97	%
* Represents a non-GAAP financial measure. Please refer to the "Non-GAAP Financial Measures" section for additional information. ⁽¹⁾ Measures total notional balances of interest rate swaps, interest rate swaptions (excluding receiver swaptions) and futures relative to repurchase agreements, other secured financing and 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 the quarter ended June 30, 2022 and no impact for the quarter ended September 30, 2021. ⁽²⁾ Excludes forward starting swaps. ⁽³⁾ 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. ⁽⁴⁾ 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. ⁽⁵⁾ Net of dividends on preferred stock. ⁽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 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. ⁽⁹⁾ Based on the closing price of the Company’s common stock of $17.16, $23.64 and $33.68 at September 30, 2022, June 30, 2022 and September 30, 2021, respectively.

The following table contains additional information on our investment portfolio as of the dates presented:

	For the quarters ended
	September 30, 2022		June 30, 2022		September 30, 2021
Agency mortgage-backed securities	$	63,037,241	$	55,593,336	$	62,818,079
Residential credit risk transfer securities		1,056,906		965,714		787,235
Non-agency mortgage-backed securities		2,156,706		2,026,658		1,747,932
Commercial mortgage-backed securities		588,500		457,026		269,106
Total securities	$	66,839,353	$	59,042,734	$	65,622,352
Residential mortgage loans	$	1,551,637	$	1,486,811	$	1,686,268
Residential mortgage loan warehouse facility		70		322		1,431
Corporate debt		—		—		1,890,709
Corporate debt, held for sale		—		—		2,113
Total loans, net	$	1,551,707	$	1,487,133	$	3,580,521
Mortgage servicing rights	$	1,705,254	$	1,421,420	$	572,259
Interests in MSR	$	—	$	83,622	$	57,530
Agency mortgage-backed securities transferred or pledged to securitization vehicles	$	431,388	$	458,268	$	597,923
Residential mortgage loans transferred or pledged to securitization vehicles		8,770,626		8,418,979		4,140,558
Assets transferred or pledged to securitization vehicles	$	9,202,014	$	8,877,247	$	4,738,481
Assets of disposal group held for sale	$	11,371	$	97,414	$	238,042
Total investment portfolio	$	79,309,699	$	71,009,570	$	74,809,185

Non-GAAP Financial Measures

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

earnings available for distribution (“EAD”);

earnings available for distribution attributable to common stockholders;

earnings available for distribution per average common share;

annualized EAD return on average equity;

economic leverage;

economic capital ratio;

interest income (excluding PAA);

economic interest expense;

economic net interest income (excluding PAA);

average yield on interest earning assets (excluding PAA);

average economic cost of interest bearing liabilities;

net interest margin (excluding PAA); and

net interest spread (excluding PAA).

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

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

Earnings available for distribution, earnings available for distribution attributable to common stockholders, earnings available for distribution per average common share and annualized EAD return on average equity

The Company's principal business objective is to generate net income for distribution to its stockholders and to preserve capital through prudent selection of investments and continuous management of its portfolio. The Company generates net income by earning a net interest spread on its investment portfolio, which is a function of interest income from its investment portfolio less financing, hedging and operating costs. Earnings available for distribution, which is defined as the sum of (a) economic net interest income, (b) TBA dollar roll income and CMBX coupon income, (c) net servicing income less realized amortization of MSR, (d) other income (loss) (excluding depreciation expense related to commercial real estate and amortization of intangibles, non-EAD income allocated to equity method investments and other non-EAD components of other income (loss)), (e) general and administrative expenses (excluding transaction expenses and non-recurring items), and (f) income taxes (excluding the income tax effect of non-EAD income (loss) items) and excludes (g) the premium amortization adjustment ("PAA") representing the cumulative impact on prior periods, but not the current period, of quarter-over-quarter changes in estimated long-term prepayment speeds related to the Company’s Agency mortgage-backed securities is used by the Company's management and, the Company believes, used by analysts and investors to measure its progress in achieving its principal business objective.

The Company seeks to fulfill this objective through a variety of factors including portfolio construction, the degree of market risk exposure and related hedge profile, and the use and forms of leverage, all while operating within the parameters of the Company's capital allocation policy and risk governance framework.

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

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

	For the quarters ended
	September 30, 2022			June 30, 2022			September 30, 2021
	(dollars in thousands, except per share data)
GAAP net income (loss)	$	(273,977	)	$	863,317		$	521,534
Net income (loss) attributable to noncontrolling interests		1,287			(3,379	)		2,290
Net income (loss) attributable to Annaly		(275,264	)		866,696			519,244
Adjustments to exclude reported realized and unrealized (gains) losses
Net (gains) losses on investments and other		2,702,512			615,216			(102,819	)
Net (gains) losses on derivatives ⁽¹⁾		(1,976,130	)		(1,014,651	)		(139,361	)
Loan loss provision (reversal)⁽²⁾		(1,613	)		(29,380	)		(6,771	)
Business divestiture-related (gains) losses		2,936			23,955			14,009
Other adjustments
Depreciation expense related to commercial real estate and amortization of intangibles ⁽³⁾		758			1,302			1,122
Non-EAD (income) loss allocated to equity method investments ⁽⁴⁾		(2,003	)		(3,270	)		(2,046	)
Transaction expenses and non-recurring items⁽⁵⁾		1,712			1,751			2,201
Income tax effect of non-EAD income (loss) items		(9,444	)		28,841			(6,536	)
TBA dollar roll income and CMBX coupon income ⁽⁶⁾		105,543			161,673			115,586
MSR amortization ⁽⁷⁾		(22,897	)		(33,810	)		(17,884	)
Plus:
Premium amortization adjustment cost (benefit)		(45,414	)		(127,521	)		60,726
Earnings available for distribution *		480,696			490,802			437,471
Dividends on preferred stock		26,883			26,883			26,883
Earnings available for distribution attributable to common stockholders *	$	453,813		$	463,919		$	410,588
GAAP net income (loss) per average common share	$	(0.70	)	$	2.21		$	1.36
Earnings available for distribution per average common share *	$	1.06		$	1.22		$	1.14
Annualized GAAP return (loss) on average equity		(9.94	%)		30.60	%		15.25	%
Annualized EAD return on average equity *		17.57	%		17.49	%		12.81	%
* Represents a non-GAAP financial measure. ⁽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 and ($54.4) million for the quarters ended September 30, 2022, June 30, 2022 and September 30, 2021, respectively. ⁽²⁾ Includes $0.0 million, ($2.5) 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 and September 30, 2021, respectively, which is reported in Other, net in the Company’s Consolidated Statements of Comprehensive Income (Loss). ⁽³⁾ Includes depreciation and amortization expense related to equity method investments. ⁽⁴⁾ 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 a component of Other, net. ⁽⁵⁾ The quarters ended September 30, 2022, June 30, 2022 and September 30, 2021 include costs incurred in connection with securitizations of residential whole loans. ⁽⁶⁾ TBA dollar roll income and CMBX coupon income each represent a component of Net gains (losses) on derivatives. CMBX coupon income totaled $1.1 million, $1.1 million and $1.2 million for the quarters ended September 30, 2022, June 30, 2022 and September 30, 2021, respectively. ⁽⁷⁾ MSR amortization utilizes purchase date cash flow assumptions and actual unpaid principal balances and is calculated as the difference between projected MSR yield income and net servicing income for the period.

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

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

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

The CMBX index is a synthetic tradable index referencing a basket of 25 commercial mortgage-backed securities ("CMBS") of a particular rating and vintage. The CMBX index allows investors to take a long exposure (referred to as selling protection) or short exposure (referred to as buying protection) on the respective basket of CMBS securities and is structured as a "pay-as-you-go" contract whereby the protection buyer pays to the protection seller a standardized running coupon on the contracted notional amount. The Company reports income (expense) on CMBX positions in Net gains (losses) on derivatives in the Consolidated Statements of Comprehensive Income (Loss). The coupon payments received or paid on CMBX positions are equivalent to interest income (expense) and therefore included in earnings available for distribution.

Premium Amortization Expense

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

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

The following table illustrates the impact of the PAA on premium amortization expense for the Company’s Residential Securities portfolio and residential securities transferred or pledged to securitization vehicles, for the quarters ended September 30, 2022, June 30, 2022, and September 30, 2021:

	For the quarters ended
	September 30, 2022			June 30, 2022			September 30, 2021
	(dollars in thousands)
Premium amortization expense (accretion)	$	39,406		$	(4,869	)	$	233,429
Less: PAA cost (benefit)		(45,414	)		(127,521	)		60,726
Premium amortization expense (excluding PAA)	$	84,820		$	122,652		$	172,703

Economic leverage and economic capital ratios

The Company uses capital coupled with borrowed funds to invest primarily in real estate related investments, earning the spread between the yield on its assets and the cost of its borrowings and hedging activities. The Company’s capital structure is designed to offer an efficient complement of funding sources to generate positive risk-adjusted returns for its stockholders while maintaining appropriate liquidity to support its business and meet the Company’s financial obligations under periods of market stress. To maintain its desired capital profile, the Company utilizes a mix of debt and equity funding. Debt funding may include the use of repurchase agreements, loans, securitizations, participations issued, lines of credit, asset backed lending facilities, corporate bond issuance, convertible bonds, mortgages payable or other liabilities. Equity capital primarily consists of common and preferred stock.

The Company’s economic leverage ratio is computed as the sum of recourse debt, cost basis of TBA and CMBX derivatives outstanding, and net forward purchases (sales) of investments divided by total equity. Recourse debt consists of repurchase agreements and other secured financing (excluding certain non-recourse credit facilities). Certain credit facilities (included within other secured financing), debt issued by securitization vehicles, participations issued, and mortgages payable are non-recourse to the Company and are excluded from economic leverage.

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

	As of
	September 30, 2022			June 30, 2022			September 30, 2021
Economic leverage ratio reconciliation	(dollars in thousands)
Repurchase agreements	$	54,160,731		$	51,364,097		$	55,475,420
Other secured financing		250,000			—			729,555
Debt issued by securitization vehicles		7,844,518			7,502,483			3,935,410
Participations issued		745,729			696,944			641,006
Debt included in liabilities of disposal group held for sale		—			—			113,362
Total GAAP debt	$	63,000,978		$	59,563,524		$	60,894,753
Less Non-Recourse Debt:
Credit facilities ⁽¹⁾	$	—		$	—		$	(729,555	)
Debt issued by securitization vehicles		(7,844,518	)		(7,502,483	)		(3,935,410	)
Participations issued		(745,729	)		(696,944	)		(641,006	)
Non-recourse debt included in liabilities of disposal group held for sale		—			—			(113,362	)
Total recourse debt	$	54,410,731		$	51,364,097		$	55,475,420
Plus / (Less):
Cost basis of TBA and CMBX derivatives	$	16,209,886		$	19,723,326		$	24,202,686
Payable for unsettled trades		9,333,646			1,995,960			571,540
Receivable for unsettled trades		(2,153,895	)		(434,227	)		(42,482	)
Economic debt *	$	77,800,368		$	72,649,156		$	80,207,164
Total equity	$	10,951,555		$	11,089,900		$	13,717,867
Economic leverage ratio *	7.1:1			6.6:1			5.8:1

* Represents a non-GAAP financial measure. ⁽¹⁾ Included in Other secured financing in the Company’s Consolidated Statements of Financial Condition.

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

	As of
	September 30, 2022			June 30, 2022			September 30, 2021
Economic capital ratio reconciliation	(dollars in thousands)
Total GAAP assets	$	85,406,764		$	73,637,249		$	76,662,433
Less:
Gross unrealized gains on TBA derivatives ⁽¹⁾		(28,032	)		(60,661	)		(1,776	)
Debt issued by securitization vehicles ⁽²⁾		(7,844,518	)		(7,502,483	)		(3,935,410	)
Plus:
Implied market value of TBA derivatives		15,182,806			19,282,979			23,622,635
Total economic assets *	$	92,717,020		$	85,357,084		$	96,347,882
Total equity	$	10,951,555		$	11,089,900		$	13,717,867
Economic capital ratio ⁽³⁾*		11.8	%		13.0	%		14.2	%

* Represents a non-GAAP financial measure. ⁽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.

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

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

Economic interest expense includes GAAP interest expense and the net interest component of interest rate swaps. The Company uses interest rate swaps to manage its exposure to changing interest rates on its repurchase agreements by economically hedging cash flows associated with these borrowings. Accordingly, adding the net interest component of interest rate swaps to interest expense, as computed in accordance with GAAP, reflects the total contractual interest expense and thus, provides investors with additional information about the cost of the Company's financing strategy. The Company may use market agreed coupon (“MAC”) interest rate swaps in which the Company may receive or make a payment at the time of entering into such interest rate swap to compensate for the off-market nature of such interest rate swap. In accordance with GAAP, upfront payments associated with MAC interest rate swaps are not reflected in the net interest component of interest rate swaps in the Company's Consolidated Statements of Comprehensive Income (Loss). The Company did not enter into any MAC interest rate swaps during the quarter ended September 30, 2022.

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

	For the quarters ended
	September 30, 2022			June 30, 2022			September 30, 2021
Interest income (excluding PAA) reconciliation	(dollars in thousands)
GAAP interest income	$	678,488		$	645,615		$	412,972
Premium amortization adjustment		(45,414	)		(127,521	)		60,726
Interest income (excluding PAA) *	$	633,074		$	518,094		$	473,698
Economic interest expense reconciliation
GAAP interest expense	$	400,491		$	170,475		$	50,438
Add:
Net interest component of interest rate swaps		(141,110	)		(992	)		54,411
Economic interest expense *	$	259,381		$	169,483		$	104,849
Economic net interest income (excluding PAA) reconciliation
Interest income (excluding PAA) *	$	633,074		$	518,094		$	473,698
Less:
Economic interest expense *		259,381			169,483			104,849
Economic net interest income (excluding PAA) *	$	373,693		$	348,611		$	368,849

* Represents a non-GAAP financial measure.

Average yield on interest earning assets (excluding PAA), net interest spread (excluding PAA), net interest margin (excluding PAA) and average economic cost of interest bearing liabilities

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

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

	For the quarters ended
	September 30, 2022			June 30, 2022			September 30, 2021
Economic metrics (excluding PAA)	(dollars in thousands)
Average interest earning assets	$	78,143,337		$	72,123,055		$	72,145,283
Interest income (excluding PAA) *	$	633,074		$	518,094		$	473,698
Average yield on interest earning assets (excluding PAA) *		3.24	%		2.87	%		2.63	%
Average interest bearing liabilities	$	65,755,563		$	60,446,528		$	62,614,042
Economic interest expense *	$	259,381		$	169,483		$	104,849
Average economic cost of interest bearing liabilities *		1.54	%		1.11	%		0.66	%
Economic net interest income (excluding PAA) *	$	373,693		$	348,611		$	368,849
Net interest spread (excluding PAA) *		1.70	%		1.76	%		1.97	%
Interest income (excluding PAA) *	$	633,074		$	518,094		$	473,698
TBA dollar roll income and CMBX coupon income		105,543			161,673			115,586
Economic interest expense *		(259,381	)		(169,483	)		(104,849	)
Subtotal	$	479,236		$	510,284		$	484,435
Average interest earnings assets	$	78,143,337		$	72,123,055		$	72,145,283
Average TBA contract and CMBX balances		18,837,475			20,566,553			22,739,226
Subtotal	$	96,980,812		$	92,689,608		$	94,884,509
Net interest margin (excluding PAA) *		1.98	%		2.20	%		2.04	%
* Represents a non-GAAP financial measure.

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Annaly Capital Management, Inc.
Investor Relations
1-888-8Annaly
www.annaly.com

Annaly Capital Management, Inc. Reports 3rd Quarter 2022 Results

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