EX-99.1 2 a2021q4nlyex991.htm EX-99.1 Document

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ANNALY CAPITAL MANAGEMENT, INC. REPORTS 4th QUARTER 2021 RESULTS
NEW YORK—February 9, 2022—Annaly Capital Management, Inc. (NYSE: NLY) ("Annaly" or the "Company") today announced its financial results for the quarter and year ended December 31, 2021.
Financial Highlights
•GAAP net income of $0.27 per average common share for the quarter; $1.60 per average common share for the full year 2021
•Earnings available for distribution (“EAD”) of $0.28 per average common share for the quarter; $1.16 per average common share for the full year 2021 with dividend coverage of +125%
•Economic return and tangible economic return of (2.4%) for the fourth quarter; economic return of (0.8%) and tangible economic return of 0.0% for the full year 2021
•Annualized GAAP return on average equity of 12.4% and annualized EAD return on average equity of 13.1%
•Book value per common share of $7.97
•GAAP leverage of 4.7x, up from 4.4x in the prior quarter; economic leverage of 5.7x, down from 5.8x in the prior quarter
•Declared quarterly common stock cash dividend of $0.22 per share

Business Highlights
Fourth Quarter 2021 Highlights
•Total assets of $89.2 billion, including $81.5 billion in highly liquid Agency portfolio(1)
•Capital allocation(2) to credit businesses increased by approximately 200 basis points to 32% during the quarter driven by $2.2 billion of credit originations(3)
•Annaly's Mortgage Servicing Rights ("MSR") platform, which represents 5% of capital(2), grew by 12% in the fourth quarter and successfully executed on its strategy to finish the year as the fifth largest buyer of bulk MSR(4)
•Annaly's Residential Credit Group, which represents 24% of capital(2), settled $1.7 billion of whole loans during the quarter
•Annaly's Residential Credit Group priced four whole loan securitizations totaling $1.8 billion during the fourth quarter with an additional three securitizations totaling $1.4 billion priced 2022 year-to-date(5)
•$9.3 billion of unencumbered assets, including cash and unencumbered Agency MBS of $5.2 billion
•Appointed Ilker Ertas as Chief Investment Officer
Full-Year 2021 Highlights
Investment and Strategy
•Capital allocation(2) to credit businesses increased from 22% to 32% throughout the year driven by credit originations of $6.1 billion, more than double the prior year(3)
•Proactively managed Annaly's Agency portfolio with continued utilization of barbell strategy balancing high-quality specified pools and lower coupon TBA securities
•Efficiently built out MSR platform with assets increasing to $645 million, over 4.5x the size of the portfolio at year-end 2020(4)
•Annaly's Residential Credit Group grew assets by nearly 90% throughout 2021, expanding its whole loan sourcing capabilities through the launch of its residential whole loan correspondent channel in April 2021
•Closed inaugural private closed-end Middle Market Lending fund, raising $371 million of third-party capital that has been fully deployed at approximately $450 million in assets
•Completed the $2.33 billion sale of Annaly’s Commercial Real Estate Business(6)
Financing and Capital
•Prudently managed leverage profile throughout the year, decreasing economic leverage to 5.7x from 6.2x at the end of 2020
•Average GAAP cost of interest bearing liabilities of 0.37% and average economic cost of interest bearing liabilities of 0.79% decreased 72 basis points and 55 basis points, respectively, year-over-year
•Annaly's Residential Credit Group was the fourth largest non-bank issuer of Prime Jumbo & Expanded Credit MBS from 2020-2021 and has priced thirteen residential whole loan securitizations totaling $5.3 billion since the beginning of 2021, inclusive of 2022 year-to-date activity(5)
•Raised $552 million of accretive common equity through Annaly’s at-the-market sales program(7)
•Declared $1.4 billion in common and preferred stock dividends in 2021
Corporate Responsibility & Governance     
•Decreased full-year operating expense ratio by 20 basis points to 1.35% driven by savings following the Company's management internalization and disposition of its Commercial Real Estate business(6)(8)
•Published second Corporate Responsibility Report demonstrating Annaly’s continued focus on ESG endeavors and highlighting key accomplishments including additional disclosures under the Sustainability Accounting Standards Board framework
•Elected new Independent Director Eric A. Reeves



“We are proud of our accomplishments throughout 2021 as we strategically enhanced our focus on residential housing finance through the disposition of our Commercial Real Estate business, launch of our Mortgage Servicing Rights platform and expansion of our capabilities within our Residential Credit Group,” remarked David Finkelstein, Annaly’s Chief Executive Officer and President. “In the fourth quarter, we proactively navigated a more challenging marketplace, increasing our capital allocation to our credit businesses with over $2 billion in credit originations.”

“As financial market volatility has increased in anticipation of monetary policy normalization, our portfolio is well prepared for periods of turbulence with historically low leverage, a conservatively hedged portfolio and disciplined asset allocation across the spectrum of housing finance. Despite the volatility, we are encouraged by improving investment returns in Agency MBS and are poised to capitalize on attractive opportunities as they arise.”


(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. Assets include TBA purchase contracts (market value) of $20.3 billion, CMBX derivatives (market value) of $0.4 billion and $0.8 billion of retained securities that are eliminated in consolidation and are shown net of participations issued totaling $1.0 billion.
(2) Dedicated capital allocations as of December 31, 2021 exclude commercial real estate assets.
(3) Credit assets represent whole loan and corporate debt originated or purchased across Annaly's Residential Credit and Middle Market Lending Groups and exclude unfunded commitments.
(4) Q3 2021 MSR assets exclude $86 million of legacy MSR holdings that were held for sale as of September 30, 2021 and sold in Q4 2021. MSR assets include limited partnership interests in two MSR funds, one of which is reported in Other Assets. Purchaser ranking data sourced from eMBS as of December 31, 2021.
(5) Includes 10 whole loan securitizations totaling $3.9 billion in 2021, a $557 million residential whole loan securitization in January 2022, a $377 million residential whole loan securitization in January 2022 and a $467 million residential whole loan securitization in February 2022. Issuer ranking data from Inside Conforming Markets as of January 9, 2022.
(6) The platform and the significant majority of the assets were transferred in 2021, with remaining assets expected to be transferred in the first quarter of 2022, subject to regulatory approvals.    
(7) Represents $552 million raised through the Company’s at-the-market sales program for its common stock net of sales agent commissions and other offering expenses. Does not include 2022 year-to-date activity.
(8) Represents operating expenses as a percentage of average equity and excludes transaction expenses and nonrecurring items for the year ended December 31, 2021.


Financial Performance
The following table summarizes certain key performance indicators as of and for the quarters ended December 31, 2021, September 30, 2021 and December 31, 2020:
December 31, 2021
September 30, 2021
December 31, 2020
Book value per common share$7.97 $8.39 $8.92 
GAAP leverage at period-end (1)
4.7:14.4:15.1:1
GAAP net income (loss) per average common share (2)
$0.27 $0.34 $0.60 
Annualized GAAP return (loss) on average equity12.44 %15.25 %24.91 %
Net interest margin (3)
1.97 %2.01 %2.14 %
Average yield on interest earning assets (4)
2.31 %2.29 %2.61 %
Average GAAP cost of interest bearing liabilities (5)
0.38 %0.32 %0.51 %
Net interest spread1.93 %1.97 %2.10 %
Non-GAAP metrics *
Earnings available for distribution per average common share (2)
$0.28 $0.28 $0.30 
Annualized EAD return on average equity13.10 %12.81 %13.03 %
Economic leverage at period-end (1)
5.7:15.8:16.2:1
Net interest margin (excluding PAA) (3)
2.03 %2.04 %1.98 %
Average yield on interest earning assets (excluding PAA) (4)
2.63 %2.63 %2.80 %
Average economic cost of interest bearing liabilities (5)
0.75 %0.66 %0.87 %
Net interest spread (excluding PAA)1.88 %1.97 %1.93 %
* 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.

2


Updates to Financial Disclosures
Commencing with the Company’s financial results for the quarter ended June 30, 2021 and for subsequent reporting periods, the Company has relabeled “Core Earnings (excluding PAA)” as “Earnings Available for Distribution” (“EAD”). Earnings Available for Distribution, which is a non-GAAP financial measure intended to supplement the Company’s financial results computed in accordance with U.S. generally accepted accounting principles (“GAAP”), has replaced the Company’s prior presentation of Core Earnings (excluding PAA). In addition, Core Earnings (excluding PAA) results from prior reporting periods have been relabeled Earnings Available for Distribution. In line with evolving industry practices, the Company believes the term Earnings Available for Distribution more accurately reflects the principal purpose of the measure than the term Core Earnings (excluding PAA) and serves as a useful indicator for investors in evaluating the Company’s performance and its ability to pay dividends.
The definition of Earnings Available for Distribution is identical to the definition of Core Earning (excluding PAA) from prior reporting periods. As such, 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) 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.
Earnings Available for Distribution should not be considered a substitute for, or superior to, GAAP net income. Please refer to the "Non-GAAP Financial Measures" section for a detailed discussion of Earnings Available for Distribution.
In addition, beginning with the quarter ended June 30, 2021, the Company began classifying certain portfolio activity- or volume-related expenses (including but not limited to brokerage and commission fees, due diligence costs and securitization expenses) as Other income (loss) rather than Other general and administrative expenses in the Consolidated Statements of Comprehensive Income (Loss) to better reflect the nature of the items. As such, prior periods have been conformed to the current presentation.



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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; our ability to grow our middle market lending business; credit risks related to our investments in credit risk transfer securities, residential mortgage-backed securities and related residential mortgage credit assets and corporate debt; 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 and corporate middle market lending. 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 Fourth Quarter 2021 Investor Presentation and the Fourth Quarter 2021 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 fourth quarter 2021 earnings conference call on February 10, 2022 at 10:00 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/10163240/f0e0ffdd78. 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 5498603. 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.



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Financial Statements
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(dollars in thousands, except per share data)
December 31, 2021September 30,
2021		June 30,
2021		March 31,
2021
December 31, 2020 (1)
(unaudited)(unaudited)(unaudited)(unaudited)
Assets
Cash and cash equivalents$1,342,090 $1,046,300 $1,380,456 $1,122,793 $1,243,703 
Securities63,655,674 65,622,352 69,032,335 71,849,437 75,652,396 
Loans, net4,242,043 3,580,521 3,563,008 2,603,343 3,083,821 
Mortgage servicing rights544,562 572,259 202,616 113,080 100,895 
Interests in MSR69,316 57,530 49,035 — — 
Assets transferred or pledged to securitization vehicles6,086,308 4,738,481 4,073,156 3,768,922 6,910,020 
Real estate, net— — — — 656,314 
Assets of disposal group held for sale194,138 238,042 3,302,001 4,400,723 — 
Derivative assets170,370 331,395 181,889 891,474 171,134 
Receivable for unsettled trades2,656 42,482 14,336 144,918 15,912 
Principal and interest receivable234,983 234,810 250,210 259,655 268,073 
Goodwill and intangible assets, net24,241 25,371 26,502 37,337 127,341 
Other assets197,683 172,890 300,761 177,907 225,494 
Total assets$76,764,064 $76,662,433 $82,376,305 $85,369,589 $88,455,103 
Liabilities and stockholders’ equity
Liabilities
Repurchase agreements$54,769,643 $55,475,420 $60,221,067 $61,202,477 $64,825,239 
Other secured financing903,255 729,555 909,655 922,605 917,876 
Debt issued by securitization vehicles5,155,633 3,935,410 3,315,087 3,044,725 5,652,982 
Participations issued1,049,066 641,006 315,810 180,527 39,198 
Mortgages payable— — — — 426,256 
Liabilities of disposal group held for sale154,956 159,508 2,362,690 3,319,414 — 
Derivative liabilities881,537 912,134 900,259 939,622 1,033,345 
Payable for unsettled trades147,908 571,540 154,405 1,070,080 884,069 
Interest payable91,176 109,586 173,721 100,949 191,116 
Dividends payable321,142 318,986 317,714 307,671 307,613 
Other liabilities94,423 91,421 66,721 213,924 155,613 
Total liabilities63,568,739 62,944,566 68,737,129 71,301,994 74,433,307 
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)
14,597 14,499 14,442 13,985 13,982 
Additional paid-in capital20,313,832 20,228,366 20,178,692 19,754,826 19,750,818 
Accumulated other comprehensive income (loss)958,410 1,638,638 1,780,275 2,002,231 3,374,335 
Accumulated deficit (9,653,582)(9,720,270)(9,892,863)(9,251,804)(10,667,388)
Total stockholders’ equity13,169,826 13,697,802 13,617,115 14,055,807 14,008,316 
Noncontrolling interests25,499 20,065 22,061 11,788 13,480 
Total equity13,195,325 13,717,867 13,639,176 14,067,595 14,021,796 
Total liabilities and equity$76,764,064 $76,662,433 $82,376,305 $85,369,589 $88,455,103 
(1) Derived from the audited consolidated financial statements at December 31, 2020.
(2) 7.50% Series D Cumulative Redeemable Preferred Stock - Includes 0 shares authorized, issued and outstanding at December 31, 2021, September 30, 2021, June 30, 2021 and March 31, 2021. Includes 18,400,000 shares authorized and 0 shares issued and outstanding at December 31, 2020. 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 at December 31, 2021, September 30, 2021, June 30, 2021 and March 31, 2021. Includes 19,550,000 shares authorized and 17,000,000 shares issued and outstanding at December 31, 2020. 6.75% Series I Preferred Stock - Includes 17,700,000 shares authorized, issued and outstanding at December 31, 2021, September 30, 2021, June 30, 2021 and March 31, 2021. Includes 18,400,000 shares authorized and 17,700,000 issued and outstanding at December 31, 2020.
(3) Includes 2,936,500,000 shares authorized at December 31, 2021, September 30, 2021, June 30, 2021 and March 31, 2021; 2,914,850,000 shares authorized at December 31, 2020. Includes 1,459,736,258 shares issued and outstanding at December 31, 2021; 1,449,935,017 shares issued and outstanding at September 30, 2021; 1,444,156,029 shares issued and outstanding at June 30, 2021; 1,398,502,906 shares issued and outstanding at March 31, 2021; 1,398,240,618 shares issued and outstanding at December 31, 2020.






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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(dollars in thousands, except per share data)
(Unaudited)
For the quarters ended
December 31, 2021September 30,
2021		June 30,
2021		March 31,
2021		December 31,
2020
Net interest income
Interest income$422,780 $412,972 $383,906 $763,378 $527,344 
Interest expense61,785 50,438 61,047 75,973 94,481 
Net interest income360,995 362,534 322,859 687,405 432,863 
Realized and unrealized gains (losses)
Net interest component of interest rate swaps(58,897)(54,411)(83,087)(79,747)(66,807)
Realized gains (losses) on termination or maturity of interest rate swaps(39,932)(1,196,417)— — 2,092 
Unrealized gains (losses) on interest rate swaps186,345 1,380,946 (141,067)772,262 258,236 
Subtotal87,516 130,118 (224,154)692,515 193,521 
Net gains (losses) on disposal of investments and other(25,144)12,002 16,223 (65,786)9,363 
Net gains (losses) on other derivatives and financial instruments
47,843 (45,168)(357,808)476,868 209,647 
Net unrealized gains (losses) on instruments measured at fair value through earnings(15,329)90,817 3,984 104,191 51,109 
Loan loss (provision) reversal(194)6,134 (494)139,620 (1,497)
Business divestiture-related gains (losses) (16,514)(14,009)1,527 (249,563)— 
Subtotal(9,338)49,776 (336,568)405,330 268,622 
Total realized and unrealized gains (losses)78,178 179,894 (560,722)1,097,845 462,143 
Other income (loss)26,617 16,221 1,675 13,468 13,107 
General and administrative expenses
Compensation and management fee27,061 27,859 32,013 31,518 24,628 
Other general and administrative expenses13,640 16,023 21,513 16,387 18,345 
Total general and administrative expenses40,701 43,882 53,526 47,905 42,973 
Income (loss) before income taxes425,089 514,767 (289,714)1,750,813 865,140 
Income taxes6,629 (6,767)5,134 (321)(13,495)
Net income (loss)418,460 521,534 (294,848)1,751,134 878,635 
Net income (loss) attributable to noncontrolling interests2,979 2,290 794 321 1,419 
Net income (loss) attributable to Annaly415,481 519,244 (295,642)1,750,813 877,216 
Dividends on preferred stock26,883 26,883 26,883 26,883 35,509 
Net income (loss) available (related) to common stockholders$388,598 $492,361 $(322,525)$1,723,930 $841,707 
Net income (loss) per share available (related) to common stockholders
Basic$0.27 $0.34 $(0.23)$1.23 $0.60 
Diluted$0.27 $0.34 $(0.23)$1.23 $0.60 
Weighted average number of common shares outstanding
Basic1,454,138,154 1,445,315,914 1,410,239,138 1,399,210,925 1,399,809,722 
Diluted1,455,411,503 1,446,357,867 1,410,239,138 1,400,000,727 1,400,228,777 
Other comprehensive income (loss)
Net income (loss) $418,460 $521,534 $(294,848)$1,751,134 $878,635 
Unrealized gains (losses) on available-for-sale securities(685,699)(113,451)(191,541)(1,428,927)(207,393)
Reclassification adjustment for net (gains) losses included in net income (loss)5,471 (28,186)(30,415)56,823 (7,328)
Other comprehensive income (loss)(680,228)(141,637)(221,956)(1,372,104)(214,721)
Comprehensive income (loss)(261,768)379,897 (516,804)379,030 663,914 
Comprehensive income (loss) attributable to noncontrolling interests2,979 2,290 794 321 1,419 
Comprehensive income (loss) attributable to Annaly(264,747)377,607 (517,598)378,709 662,495 
Dividends on preferred stock26,883 26,883 26,883 26,883 35,509 
Comprehensive income (loss) attributable to common stockholders$(291,630)$350,724 $(544,481)$351,826 $626,986 


6


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(dollars in thousands, except per share data)
For the years ended
December 31, 2021
December 31, 2020 (1)
unaudited
Net interest income
Interest income$1,983,036 $2,229,625 
Interest expense249,243 899,112 
Net interest income1,733,793 1,330,513 
Realized and unrealized gains (losses)
Net interest component of interest rate swaps(276,142)(207,877)
Realized gains (losses) on termination or maturity of interest rate swaps(1,236,349)(1,917,628)
Unrealized gains (losses) on interest rate swaps2,198,486 (904,532)
Subtotal685,995 (3,030,037)
Net gains (losses) on disposal of investments and other(62,705)661,513 
Net gains (losses) on other derivatives and financial instruments121,735 756,305 
Net unrealized gains (losses) on instruments measured at fair value through earnings183,663 (303,024)
Loan loss (provision) reversal145,066 (147,581)
Business divestiture-related gains (losses) (278,559)— 
Subtotal109,200 967,213 
Total realized and unrealized gains (losses)795,195 (2,062,824)
Other income (loss)57,981 36,311 
General and administrative expenses
Compensation and management fee118,451 131,685 
Other general and administrative expenses67,563 90,510 
Total general and administrative expenses186,014 222,195 
Income (loss) before income taxes2,400,955 (918,195)
Income taxes4,675 (28,423)
Net income (loss)2,396,280 (889,772)
Net income (loss) attributable to noncontrolling interests6,384 1,391 
Net income (loss) attributable to Annaly2,389,896 (891,163)
Dividends on preferred stock107,532 142,036 
Net income (loss) available (related) to common stockholders$2,282,364 $(1,033,199)
Net income (loss) per share available (related) to common stockholders
Basic$1.60 $(0.73)
Diluted$1.60 $(0.73)
Weighted average number of common shares outstanding
Basic1,427,426,079 1,414,659,439 
Diluted1,428,569,003 1,414,659,439 
Other comprehensive income (loss)
Net income (loss) $2,396,280 $(889,772)
Unrealized gains (losses) on available-for-sale securities(2,419,618)2,012,878 
Reclassification adjustment for net (gains) losses included in net income (loss)3,693 (776,734)
Other comprehensive income (loss)(2,415,925)1,236,144 
Comprehensive income (loss)(19,645)346,372 
Comprehensive income (loss) attributable to noncontrolling interests6,384 1,391 
Comprehensive income (loss) attributable to Annaly(26,029)344,981 
Dividends on preferred stock107,532 142,036 
Comprehensive income (loss) attributable to common stockholders$(133,561)$202,945 
(1) Derived from the audited consolidated financial statements at December 31, 2020.



7


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 December 31, 2021, September 30, 2021, and December 31, 2020:
December 31, 2021September 30, 2021December 31, 2020
Portfolio related metrics
Fixed-rate Residential Securities as a percentage of total Residential Securities97 %98 %98 %
Adjustable-rate and floating-rate Residential Securities as a percentage of total Residential Securities3 %2 %2 %
Weighted average experienced CPR for the period21.4 %23.1 %24.7 %
Weighted average projected long-term CPR at period-end12.7 %12.7 %16.4 %
Liabilities and hedging metrics
Weighted average days to maturity on repurchase agreements outstanding at period-end527564
Hedge ratio (1)
95 %80 %61 %
Weighted average pay rate on interest rate swaps at period-end (2)
0.59 %0.60 %0.92 %
Weighted average receive rate on interest rate swaps at period-end (2)
0.08 %0.07 %0.37 %
Weighted average net rate on interest rate swaps at period-end (2)
0.51 %0.53 %0.55 %
GAAP leverage at period-end (3)
4.7:14.4:15.1:1
GAAP capital ratio at period-end (4)
17.2 %17.9 %15.9 %
Performance related metrics
Book value per common share$7.97 $8.39 $8.92 
GAAP net income (loss) per average common share (5)
$0.27 $0.34 $0.60 
Annualized GAAP return (loss) on average equity12.44 %15.25 %24.91 %
Net interest margin (6)
1.97 %2.01 %2.14 %
Average yield on interest earning assets (7)
2.31 %2.29 %2.61 %
Average GAAP cost of interest bearing liabilities (8)
0.38 %0.32 %0.51 %
Net interest spread1.93 %1.97 %2.10 %
Dividend declared per common share$0.22 $0.22 $0.22 
Annualized dividend yield (9)
11.25 %10.45 %10.41 %
Non-GAAP metrics *
Earnings available for distribution per average common share (5)
$0.28 $0.28 $0.30 
Annualized EAD return on average equity (excluding PAA)13.10 %12.81 %13.03 %
Economic leverage at period-end (3)
5.7:15.8:16.2:1
Economic capital ratio at period end (4)
14.4 %14.2 %13.6 %
Net interest margin (excluding PAA) (6)
2.03 %2.04 %1.98 %
Average yield on interest earning assets (excluding PAA) (7)
2.63 %2.63 %2.80 %
Average economic cost of interest bearing liabilities (8)
0.75 %0.66 %0.87 %
Net interest spread (excluding PAA)1.88 %1.97 %1.93 %
* 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; 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.
(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 $7.82, $8.42 and $8.45 at December 31, 2021, September 30, 2021 and December 31, 2020, respectively.

8


The following table contains additional information on our investment portfolio as of the dates presented:
For the quarters ended
 December 31, 2021September 30, 2021December 31, 2020
Agency mortgage-backed securities$60,525,605 $62,818,079 $74,067,059 
Residential credit risk transfer securities936,228 787,235 532,403 
Non-agency mortgage-backed securities1,663,336 1,747,932 972,192 
Commercial mortgage-backed securities530,505 269,106 80,742 
Total securities$63,655,674 $65,622,352 $75,652,396 
Residential mortgage loans$2,272,072 $1,686,268 $345,810 
Residential mortgage loan warehouse facility980 1,431 — 
Commercial real estate debt and preferred equity— — 498,081 
Corporate debt1,968,991 1,890,709 2,239,930 
Corporate debt, held for sale— 2,113 — 
Total loans, net$4,242,043 $3,580,521 $3,083,821 
Mortgage servicing rights$544,562 $572,259 $100,895 
Interests in MSR$69,316 $57,530 $— 
Agency mortgage-backed securities transferred or pledged to securitization vehicles$589,873 $597,923 $620,347 
Residential mortgage loans transferred or pledged to securitization vehicles5,496,435 4,140,558 3,249,251 
Commercial real estate debt investments transferred or pledged to securitization vehicles— — 2,166,073 
Commercial real estate debt and preferred equity transferred or pledged to securitization vehicles— — 874,349 
Assets transferred or pledged to securitization vehicles$6,086,308 $4,738,481 $6,910,020 
Real estate, net$— $— $656,314 
Assets of disposal group held for sale$194,138 $238,042 $— 
Total investment portfolio$74,792,041 $74,809,185 $86,403,446 

9


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) 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.


10


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
December 31, 2021September 30, 2021December 31, 2020
(dollars in thousands, except per share data)
GAAP net income (loss)$418,460 $521,534 $878,635 
Net income (loss) attributable to noncontrolling interests2,979 2,290 1,419 
Net income (loss) attributable to Annaly415,481 519,244 877,216 
Adjustments to exclude reported realized and unrealized (gains) losses
Realized (gains) losses on termination or maturity of interest rate swaps39,932 1,196,417 (2,092)
Unrealized (gains) losses on interest rate swaps(186,345)(1,380,946)(258,236)
Net (gains) losses on disposal of investments and other25,144 (12,002)(9,363)
Net (gains) losses on other derivatives and financial instruments
(47,843)45,168 (209,647)
Net unrealized (gains) losses on instruments measured at fair value through earnings15,329 (90,817)(51,109)
Loan loss provision (reversal) (1)
1,931 (6,771)469 
Business divestiture-related (gains) losses 16,514 14,009 — 
Other adjustments
Depreciation expense related to commercial real estate and amortization of intangibles (2)
1,144 1,122 11,097 
Non-EAD (income) loss allocated to equity method investments (3)
(2,345)(2,046)28 
Transaction expenses and non-recurring items (4)
1,533 2,201 172 
Income tax effect of non-EAD income (loss) items8,380 (6,536)(10,984)
TBA dollar roll income and CMBX coupon income (5)
119,657 115,586 99,027 
MSR amortization (6)
(25,864)(17,884)(26,633)
Plus:
Premium amortization adjustment cost (benefit)57,395 60,726 39,101 
Earnings available for distribution *
440,043 437,471 459,046 
Dividends on preferred stock26,883 26,883 35,509 
Earnings available for distribution attributable to common stockholders *
$413,160 $410,588 $423,537 
GAAP net income (loss) per average common share$0.27 $0.34 $0.60 
Earnings available for distribution per average common share *
$0.28 $0.28 $0.30 
Annualized GAAP return (loss) on average equity12.44 %15.25 %24.91 %
Annualized EAD return on average equity *13.10 %12.81 %13.03 %


11


For the years ended
December 31, 2021December 31, 2020
(dollars in thousands, except per share data)
GAAP net income (loss)$2,396,280 $(889,772)
Net income (loss) attributable to noncontrolling interests6,384 1,391 
Net income (loss) attributable to Annaly2,389,896 (891,163)
Adjustments to exclude reported realized and unrealized (gains) losses
Realized (gains) losses on termination or maturity of interest rate swaps1,236,349 1,917,628 
Unrealized (gains) losses on interest rate swaps(2,198,486)904,532 
Net (gains) losses on disposal of investments and other62,705 (661,513)
Net (gains) losses on other derivatives and financial instruments(121,735)(756,305)
Net unrealized (gains) losses on instruments measured at fair value through earnings(183,663)303,024 
Loan loss provision (reversal) (1)
(148,632)151,188 
Business divestiture-related (gains) losses 278,559 — 
Other adjustments
Depreciation expense related to commercial real estate and amortization of intangibles (2)
15,225 39,108 
Non-EAD (income) loss allocated to equity method investments (3)
(10,930)22,493 
Transaction expenses and non-recurring items (4)
5,579 11,293 
Income tax effect of non-EAD income (loss) items13,325 (17,603)
TBA dollar roll income and CMBX coupon income (5)
445,768 355,547 
MSR amortization (6)
(72,727)(97,506)
Plus:
Premium amortization adjustment cost (benefit)57,158 415,444 
Earnings available for distribution *
1,768,391 1,696,167 
Dividends on preferred stock107,532 142,036 
Earnings available for distribution attributable to common stockholders *
$1,660,859 $1,554,131 
GAAP net income (loss) per average common share$1.60 $(0.73)
Earnings available for distribution per average common share *
$1.16 $1.10 
Annualized GAAP return (loss) on average equity17.45 %(6.31)%
Annualized EAD return on average equity *12.90 %12.03 %
* Represents a non-GAAP financial measure.
(1) Includes $1.7 million, ($0.6) million and ($1.0) million of loss provision (reversal) on the Company’s unfunded loan commitments for the quarters ended December 31, 2021, September 30, 2021 and December 31, 2020, respectively, which is reported in Other income (loss) in the Company’s Consolidated Statements of Comprehensive Income (Loss). Includes ($3.6) million and $3.6 million of loss provision (reversal) on the Company’s unfunded loan commitments for the years ended December 31, 2021 and 2020, respectively.
(2) Includes depreciation and amortization expense related to equity method investments.
(3) 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 income (loss).
(4) Includes costs incurred in connection with securitizations of residential whole loans. The year ended December 31, 2020 also includes costs incurred in connection with the Company’s management internalization, the CEO search process and a securitization of Agency mortgage-backed securities.
(5) TBA dollar roll income and CMBX coupon income each represent a component of Net gains (losses) on other derivatives and financial instruments. CMBX coupon income totaled $1.1 million, $1.2 million and $1.5 million for the quarters ended December 31, 2021, September 30, 2021 and December 31, 2020, respectively. CMBX coupon income totaled $5.2 million and $5.8 million for the years ended December 31, 2021 and 2020, respectively.
(6) MSR amortization represents the portion of changes in fair value that is attributable to the realization of estimated cash flows on the Company’s MSR portfolio and is reported as a component of Net unrealized gains (losses) on instruments measured at fair value.







12


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 other derivatives and financial instruments in the Consolidated Statements of Comprehensive Income (Loss), which includes both unrealized and realized gains and losses on derivatives (excluding interest rate swaps).
TBA dollar roll income is calculated as the difference in price between two TBA contracts with the same terms but different settlement dates multiplied by the notional amount of the TBA contract. Although accounted for as derivatives, TBA dollar rolls capture the economic equivalent of net interest income, or carry, on the underlying Agency mortgage-backed security (interest income less an implied cost of financing). TBA dollar roll income is reported as a component of Net gains (losses) on other derivatives and financial instruments 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 other derivatives and financial instruments 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 December 31, 2021, September 30, 2021, and December 31, 2020:
For the quarters ended
December 31, 2021September 30, 2021December 31, 2020
(dollars in thousands)
Premium amortization expense (accretion)$219,172 $233,429 $239,118 
Less: PAA cost (benefit)57,395 60,726 39,101 
Premium amortization expense (excluding PAA)$161,777 $172,703 $200,017 





13


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
December 31, 2021September 30, 2021December 31, 2020
Economic leverage ratio reconciliation
(dollars in thousands)
Repurchase agreements
$54,769,643 $55,475,420 $64,825,239 
Other secured financing
903,255 729,555 917,876 
Debt issued by securitization vehicles
5,155,633 3,935,410 5,652,982 
Participations issued
1,049,066 641,006 39,198 
Mortgages payable
— — 426,256 
Debt included in liabilities of disposal group held for sale112,144 113,362 — 
Total GAAP debt
$61,989,741 $60,894,753 $71,861,551 
Less Non-Recourse Debt:
Credit facilities (1)
(903,255)(729,555)(887,455)
Debt issued by securitization vehicles
(5,155,633)(3,935,410)(5,652,982)
Participations issued
(1,049,066)(641,006)(39,198)
Mortgages payable
— — (426,256)
Non-recourse debt included in liabilities of disposal group held for sale(112,144)(113,362)— 
Total recourse debt$54,769,643 $55,475,420 $64,855,660 
Plus / (Less):
Cost basis of TBA and CMBX derivatives
20,690,768 24,202,686 20,780,913 
Payable for unsettled trades147,908 571,540 884,069 
Receivable for unsettled trades(2,656)(42,482)(15,912)
Economic debt *
$75,605,663 $80,207,164 $86,504,730 
Total equity
$13,195,325 $13,717,867 $14,021,796 
Economic leverage ratio *
5.7:15.8:16.2:1
* Represents a non-GAAP financial measure.
(1) Included in Other secured financing in the Company’s Consolidated Statements of Financial Condition.
















14


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
December 31, 2021September 30, 2021December 31, 2020
Economic capital ratio reconciliation
(dollars in thousands)
Total GAAP assets
$76,764,064 $76,662,433 $88,455,103 
Less:
Gross unrealized gains on TBA derivatives (1)
(52,693)(1,776)(96,109)
Debt issued by securitization vehicles (2)
(5,155,633)(3,935,410)(5,652,982)
Plus:
Implied market value of TBA derivatives
20,338,633 23,622,635 20,373,197 
Total economic assets *
$91,894,371 $96,347,882 $103,079,209 
Total equity
$13,195,325 $13,717,867 $14,021,796 
Economic capital ratio (3)
14.4%14.2%13.6%
* 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 December 31, 2021.
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
December 31, 2021September 30, 2021December 31, 2020
Interest income (excluding PAA) reconciliation(dollars in thousands)
GAAP interest income$422,780 $412,972 $527,344 
Premium amortization adjustment57,395 60,726 39,101 
Interest income (excluding PAA) *$480,175 $473,698 $566,445 
Economic interest expense reconciliation
GAAP interest expense$61,785 $50,438 $94,481 
Add:
Net interest component of interest rate swaps58,897 54,411 66,807 
Economic interest expense *$120,682 $104,849 $161,288 
Economic net interest income (excluding PAA) reconciliation
Interest income (excluding PAA) *$480,175 $473,698 $566,445 
Less:
Economic interest expense *120,682 104,849 161,288 
Economic net interest income (excluding PAA) *$359,493 $368,849 $405,157 
* Represents a non-GAAP financial measure.

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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
December 31, 2021September 30, 2021December 31, 2020
Economic metrics (excluding PAA)(dollars in thousands)
Average interest earning assets$73,134,966 $72,145,283 $80,973,433 
Interest income (excluding PAA) *$480,175 $473,698 $566,445 
Average yield on interest earning assets (excluding PAA) *2.63 %2.63 %2.80 %
Average interest bearing liabilities$63,342,740 $62,614,042 $72,233,239 
Economic interest expense *$120,682 $104,849 $161,288 
Average economic cost of interest bearing liabilities *0.75 %0.66 %0.87 %
Economic net interest income (excluding PAA) *$359,493 $368,849 $405,157 
Net interest spread (excluding PAA) *1.88 %1.97 %1.93 %
Interest income (excluding PAA) *$480,175 $473,698 $566,445 
TBA dollar roll income and CMBX coupon income119,657 115,586 99,027 
Economic interest expense *(120,682)(104,849)(161,288)
Subtotal$479,150 $484,435 $504,184 
Average interest earnings assets$73,134,966 $72,145,283 $80,973,433 
Average TBA contract and CMBX balances21,159,120 22,739,226 20,744,672 
Subtotal$94,294,086 $94,884,509 $101,718,105 
Net interest margin (excluding PAA) *2.03 %2.04 %1.98 %
* Represents a non-GAAP financial measure.

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