Business Wire | Jul 29, 2020 04:16PM EDT

Annaly Capital Management, Inc. Reports 2nd Quarter 2020 Results

Jul. 29, 2020

NEW YORK--(BUSINESS WIRE)--Jul. 29, 2020--Annaly Capital Management, Inc. (NYSE: NLY) ("Annaly" or the "Company") today announced its financial results for the quarter ended June 30, 2020.

Financial Highlights

* GAAP net income of $0.58 per average common share for the quarter, up from ($2.57) in the prior quarter * Core earnings (excluding PAA) of $0.27 per average common share for the quarter, up 28.6% from the prior quarter * GAAP return on average equity of 25.8% and core return on average equity (excluding PAA) of 12.8% for the quarter * Book value per common share of $8.39, up 11.9% from the prior quarter * Economic leverage of 6.4x, down from 6.8x in the prior quarter * Declared quarterly common stock cash dividend of $0.22 per share * Economic return of 14.8% for the second quarter

Business Highlights

Well-Positioned Investment Portfolio

* Capital allocation remains predominantly to Agency, with $96.3 billion Agency portfolio representing 93% of total assets and 75% of dedicated equity capital given favorable outlook for the sector(1) * Credit businesses are well-positioned with relatively low leverage and high-quality portfolios Annaly Residential Credit Group continues to add and expand residential whole loan partnerships, which support the growth of its conservatively positioned whole loan portfolio comprised of borrowers with comparatively high FICOs and strong LTVs Annaly Commercial Real Estate Group navigated the market environment through continued focus on asset management, prudent new investment screening and capital preservation Annaly Middle Market Lending Group's growth within the current portfolio and long-standing private equity relationships have enabled continued highly selective deal execution amidst the pandemic

Focus on Shareholder Value

* Completed management internalization enhancing corporate governance and more strongly aligning management with shareholders * Repurchased approximately $175 million in common stock since the beginning of the second quarter(2)

Driving Funding Efficiency and Diversity

* $7.9 billion of unencumbered assets, including cash and unencumbered Agency MBS of $5.3 billion * Average GAAP cost of interest bearing liabilities declined 90 basis points to 0.96% and average economic cost of interest bearing liabilities declined 62 basis points to 1.29% * Annaly Residential Credit Group priced a $489.4 million residential whole loan securitization in July 2020, bringing aggregate issuance to approximately $4.5 billion since the beginning of 2018(3) * Annaly Residential Credit Group added $1.125 billion of capacity across two new credit facilities since the beginning of the quarter(4)

Maintaining Organizational Resilience and Continuity

* Continued to utilize extensive business continuity planning in response to COVID-19, including ongoing successful remote-working capabilities as well as modifications to headquarters for eventual return to office * Appointed Steve Campbell as Chief Operating Officer; Glenn Votek to retire as Senior Advisor and remain a Director

"We are pleased with the rebound in our results this quarter as we posted our strongest quarterly book value growth since the start of the Great Recession and our core earnings per share outperformed our recently declared dividend," remarked David Finkelstein, Annaly's Chief Executive Officer and Chief Investment Officer. "Our portfolio performed well due to the relative attractiveness of the MBS sector as well as accommodative monetary policy and fiscal support for the economy. While we are optimistic about our outlook and ability to generate attractive returns, Annaly will remain nimble and conservatively positioned as we prepare for a variety of potential economic scenarios.

"In line with our capital allocation philosophy, we've repurchased $175 million in common stock since the beginning of the second quarter given our discount to book value and strong performance fundamentals. Additionally, we closed our management internalization as planned, which will better align us with our shareholders, drive long-term cost savings and provide greater strategic flexibility. This is the latest in a series of corporate responsibility and governance enhancements, which continues to be an area of significant focus for the Company."

Assets represent Annaly's investments that are on balance sheet, net of securitized debt of consolidated VIEs, as well as investments that are^ off-balance sheet in which the Company has economic exposure. Assets(1) include TBA purchase contracts (market value) of $19.1 billion and CMBX derivatives (market value) of $460.3 million and are shown net of securitized debt of consolidated VIEs of $6.5 billion.

Share repurchases are under Annaly's current authorized share repurchase^ program that expires in December 2020. Amount excludes fees and(2) commissions and includes $31.3 million of repurchases that settled subsequent to quarter end.

Includes three residential whole loan securitizations totaling $1.1^ billion in 2018, five residential whole loan securitizations totaling $2.1(3) billion in 2019 and three residential whole loan securitizations totaling approximately $1.3 billion in 2020 (with the July 2020 securitization expected to close on July 30, 2020).

^ Represents an $875 million credit facility closed during the second(4) quarter and a $250 million credit facility closed subsequent to quarter end.

Financial Performance

The following table summarizes certain key performance indicators as of and for the quarters ended June 30, 2020, March 31, 2020 and June 30, 2019:

June 30, March 31, June 30, 2020 2020 2019

Book value per common share $ 8.39 $ 7.50 $ 9.33

Economic leverage at period-end ^(1) 6.4:1 6.8:1 7.6:1

GAAP net income (loss) per average common $ 0.58 $ (2.57 ) $ (1.24 )share ^(2)

Annualized GAAP return (loss) on average 25.84 % (102.17 %) (45.13 %)equity

Net interest margin ^(3) 1.89 % 0.18 % 0.58 %

Average yield on interest earning assets ^ 2.77 % 1.91 % 3.03 %(4)

Average GAAP cost of interest bearing 0.96 % 1.86 % 2.71 %liabilities ^(5)

Net interest spread 1.81 % 0.05 % 0.32 %

Non-GAAP metrics *

Core earnings (excluding PAA) per average $ 0.27 $ 0.21 $ 0.25 common share ^(2)

Annualized core return on average equity 12.82 % 9.27 % 9.94 %(excluding PAA)

Net interest margin (excluding PAA) ^(3) 1.88 % 1.18 % 1.28 %

Average yield on interest earning assets 3.01 % 2.91 % 3.48 %(excluding PAA) ^(4)

Average economic cost of interest bearing 1.29 % 1.91 % 2.41 %liabilities ^(5)

Net interest spread (excluding PAA) 1.72 % 1.00 % 1.07 %

* Represents a non-GAAP financial measure. Please refer to the "Non-GAAP Financial Measures" section for additional information.

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(1) non-recourse credit facilities). Securitized debt, certain credit facilities (included within other secured financing) and mortgages payable are non-recourse to the Company and are excluded from this measure.

^ Net of dividends on preferred stock. The quarter ended June 30, 2019(2) includes cumulative and undeclared dividends of $0.3 million on the Company's Series I Preferred Stock as of June 30, 2019.

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(3) 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.

Average yield on interest earning assets represents annualized interest^ income divided by average interest earning assets. Average interest(4) 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).

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(5) 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.

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; our ability to grow our commercial real estate business; 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, commercial real estate 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; our ability to maintain our exemption from registration under the Investment Company Act of 1940 and the risk that the expected benefits, including long-term cost savings, of the internalization are not achieved. 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. We do not undertake, and specifically disclaim any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements, except as required by law.

Annaly is a leading diversified capital manager that invests in and finances residential and commercial assets. 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 "Email Alerts" section of our website, www.annaly.com, under the "Investors" section and enter the required information to enable notifications. The information contained on, or that may be accessed through, 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 Second Quarter 2020 Investor Presentation and the Second Quarter 2020 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 second quarter 2020 earnings conference call on July 30, 2020 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: http://dpregister.com/10146025.

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 10146025. 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)

June 30, March 31, December 31, September 30, June 30, 2020 2020 2019 ^(1) 2019 2019

(unaudited) (unaudited) (unaudited) (unaudited)

Assets

Cash and cash $ 1,393,910 $ 2,823,521 $ 1,850,729 $ 1,793,921 $ 1,982,311 equivalents

Securities 77,805,743 79,357,596 114,833,580 116,094,061 119,926,869

Loans, net 3,972,671 4,068,189 4,462,350 3,946,614 3,546,468

Mortgageservicing 227,400 280,558 378,078 386,051 425,328 rights

Assetstransferred orpledged to 7,690,451 7,671,662 7,002,460 4,688,144 4,211,582 securitizationvehicles

Real estate, 746,067 751,738 725,638 725,508 733,196 net

Derivative 165,642 238,776 113,556 168,755 75,142 assets

Receivable forunsettled 747,082 1,006,853 4,792 193,229 5,322 trades

Principal andinterest 300,089 335,170 449,906 483,744 440,940 receivable

Goodwill andintangible 137,680 98,293 92,772 94,904 96,591 assets, net

Other assets 271,918 284,918 381,220 381,189 357,027

Total assets $ 93,458,653 $ 96,917,274 $ 130,295,081 $ 128,956,120 $ 131,800,776

Liabilitiesand stockholders'equity

Liabilities

Repurchase $ 67,163,598 $ 72,580,183 $ 101,740,728 $ 102,682,104 $ 105,181,241 agreements

Other secured 1,538,996 1,805,428 4,455,700 4,466,030 4,127,989 financing

Debt issued bysecuritization 6,458,130 6,364,949 5,622,801 3,856,082 3,470,168 vehicles

Mortgages 508,565 484,762 485,005 485,657 498,772 payable

Derivative 1,257,038 1,331,188 803,866 972,415 1,043,197 liabilities

Payable forunsettled 2,122,735 923,552 463,387 245,626 620,784 trades

Interest 180,943 261,304 476,335 565,797 691,327 payable

Dividends 309,686 357,606 357,527 359,491 364,066 payable

Other 121,359 100,772 93,388 99,214 95,825 liabilities

Total 79,661,050 84,209,744 114,498,737 113,732,416 116,093,369 liabilities

Stockholders' equity

Preferredstock, par 1,982,026 1,982,026 1,982,026 1,982,026 2,110,346 value $0.01per share ^(2)

Common stock,par value 14,077 14,304 14,301 14,380 14,562 $0.01 pershare ^(3)

Additionalpaid-in 19,827,216 19,968,372 19,966,923 20,034,970 20,195,419 capital

Accumulatedother 3,842,074 3,121,371 2,138,191 2,313,815 1,365,003 comprehensiveincome (loss)

Accumulated (11,871,927 ) (12,382,648 ) (8,309,424 ) (9,125,895 ) (7,982,649 )deficit

Totalstockholders' 13,793,466 12,703,425 15,792,017 15,219,296 15,702,681 equity

Noncontrolling 4,137 4,105 4,327 4,408 4,726 interests

Total equity 13,797,603 12,707,530 15,796,344 15,223,704 15,707,407

Totalliabilities $ 93,458,653 $ 96,917,274 $ 130,295,081 $ 128,956,120 $ 131,800,776 and equity



^ Derived from the audited consolidated financial statements at December 31,(1) 2019.

7.625% Series C Cumulative Redeemable Preferred Stock - Includes 0 shares^ authorized, issued and outstanding at June 30, 2020, March 31, 2020,(2) December 31, 2019 and September 30, 2019. Includes 7,000,000 shares authorized, issued and outstanding at June 30, 2019.

7.50% Series D Cumulative Redeemable Preferred Stock - Includes 18,400,000 shares authorized, issued and outstanding.

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 19,550,000 shares authorized and 17,000,000 shares issued and outstanding.

6.75% Series I Preferred Stock - Includes 18,400,000 shares authorized and 17,700,000 issued and outstanding at June 30, 2020, March 31, 2020, December 31, 2019 and September 30, 2019. Includes 18,400,000 shares authorized and 16,000,000 issued and outstanding at June 30, 2019.

Includes 2,914,850,000 shares authorized at June 30, 2020, March 31, 2020, December 31, 2019 and September 30, 2019, and 2,907,850,000 shares^ authorized at June 30, 2019. Includes 1,407,662,483 shares issued and(3) outstanding at June 30, 2020; 1,430,424,398 shares issued and outstanding at March 31, 2020; 1,430,106,199 shares issued and outstanding at December 31, 2019; 1,437,964,466 shares issued and outstanding at September 30, 2019; and 1,456,263,410 shares issued and outstanding at June 30, 2019.

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(dollars in thousands, except per share data)

(Unaudited)

For the quarters ended

June 30, March 31, December 31, September 30, June 30, 2020 2020 2019 2019 2019

Net interest income

Interest income $ 584,812 $ 555,026 $ 1,074,214 $ 919,299 $ 927,598

Interest expense 186,032 503,473 620,058 766,905 750,217

Net interest 398,780 51,553 454,156 152,394 177,381 income

Realized andunrealized gains (losses)

Net interestcomponent of (64,561 ) (13,980 ) 45,221 88,466 83,653 interest rateswaps

Realized gains(losses) ontermination or (1,521,732 ) (397,561 ) (4,615 ) (682,602 ) (167,491 )maturity ofinterest rateswaps

Unrealized gains(losses) on 1,494,628 (2,827,723 ) 782,608 (326,309 ) (1,276,019 )interest rateswaps

Subtotal (91,665 ) (3,239,264 ) 823,214 (920,445 ) (1,359,857 )

Net gains (losses)on disposal of 246,679 206,583 17,783 66,522 (38,333 )investments andother

Net gains (losses)on other 170,916 206,426 (42,312 ) (16,888 ) (506,411 )derivatives

Net unrealizedgains (losses) oninstruments 254,772 (730,160 ) (5,636 ) (1,091 ) (4,881 )measured at fairvalue throughearnings

Loan loss (68,751 ) (99,326 ) (7,362 ) (3,504 ) - provision

Subtotal 603,616 (416,477 ) (37,527 ) 45,039 (549,625 )

Total realized andunrealized gains 511,951 (3,655,741 ) 785,687 (875,406 ) (1,909,482 )(losses)

Other income 15,224 14,926 42,656 35,074 28,181 (loss)

General andadministrative expenses

Compensation and 37,036 40,825 40,403 41,161 44,231 management fee

Other general andadministrative 30,630 36,804 32,948 24,977 34,177 expenses

Total general andadministrative 67,666 77,629 73,351 66,138 78,408 expenses

Income (loss)before income 858,289 (3,666,891 ) 1,209,148 (754,076 ) (1,782,328 )taxes

Income taxes 2,055 (26,702 ) (594 ) (6,907 ) (5,915 )

Net income (loss) 856,234 (3,640,189 ) 1,209,742 (747,169 ) (1,776,413 )

Net income (loss)attributable to 32 66 68 (110 ) (83 )noncontrollinginterests

Net income (loss)attributable to 856,202 (3,640,255 ) 1,209,674 (747,059 ) (1,776,330 )Annaly

Dividends onpreferred stock ^ 35,509 35,509 35,509 36,151 32,422 (1)

Net income (loss)available(related) to $ 820,693 $ (3,675,764 ) $ 1,174,165 $ (783,210 ) $ (1,808,752 )commonstockholders

Net income (loss)per shareavailable (related) tocommonstockholders

Basic $ 0.58 $ (2.57 ) $ 0.82 $ (0.54 ) $ (1.24 )

Diluted $ 0.58 $ (2.57 ) $ 0.82 $ (0.54 ) $ (1.24 )

Weighted averagenumber of common shares outstanding

Basic 1,423,909,112 1,430,994,319 1,431,079,108 1,453,359,211 1,456,038,736

Diluted 1,423,909,112 1,430,994,319 1,431,079,108 1,453,359,211 1,456,038,736

Othercomprehensive income (loss)

Net income (loss) $ 856,234 $ (3,640,189 ) $ 1,209,742 $ (747,169 ) $ (1,776,413 )

Unrealized gains(losses) on 986,146 1,374,796 (153,192 ) 1,034,873 1,654,783 available-for-salesecurities

Reclassificationadjustment for net(gains) losses (265,443 ) (391,616 ) (22,432 ) (86,061 ) 29,596 included in netincome (loss)

Othercomprehensive 720,703 983,180 (175,624 ) 948,812 1,684,379 income (loss)

Comprehensive 1,576,937 (2,657,009 ) 1,034,118 201,643 (92,034 )income (loss)

Comprehensiveincome (loss)attributable to 32 66 68 (110 ) (83 )noncontrollinginterests

Comprehensiveincome (loss) 1,576,905 (2,657,075 ) 1,034,050 201,753 (91,951 )attributable toAnnaly

Dividends onpreferred stock ^ 35,509 35,509 35,509 36,151 32,422 (1)

Comprehensiveincome (loss)attributable to $ 1,541,396 $ (2,692,584 ) $ 998,541 $ 165,602 $ (124,373 )commonstockholders



The quarter ended September 30, 2019 excludes, and the quarter ended June^ 30, 2019 includes, cumulative and undeclared dividends of $0.3 million on(1) the Company's Series I Preferred Stock as of June 30, 2019.

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(dollars in thousands, except per share data)

For the six months ended

June 30, 2020 June 30, 2019

Net interest income

Interest income $ 1,139,838 $ 1,793,784

Interest expense 689,505 1,397,912

Net interest income 450,333 395,872



Realized and unrealized gains (losses)

Net interest component of interest rate swaps (78,541 ) 217,688

Realized gains (losses) on termination or (1,919,293 ) (755,747 )maturity of interest rate swaps

Unrealized gains (losses) on interest rate (1,333,095 ) (1,666,575 )swaps

Subtotal (3,330,929 ) (2,204,634 )

Net gains (losses) on disposal of investments 453,262 (132,249 )

Net gains (losses) on other derivatives 377,342 (621,570 )

Net unrealized gains (losses) on instruments (475,388 ) 42,748 measured at fair value through earnings

Loan loss provision (168,077 ) (5,703 )

Subtotal 187,139 (716,774 )

Total realized and unrealized gains (losses) (3,143,790 ) (2,921,408 )

Other income (loss) 30,150 58,683

General and administrative expenses

Compensation and management fee 77,861 89,064

Other general and administrative expenses 67,434 73,081

Total general and administrative expenses 145,295 162,145

Income (loss) before income taxes (2,808,602 ) (2,628,998 )

Income taxes (24,647 ) (3,334 )

Net income (loss) (2,783,955 ) (2,625,664 )

Net income (loss) attributable to 98 (184 )noncontrolling interests

Net income (loss) attributable to Annaly (2,784,053 ) (2,625,480 )

Dividends on preferred stock ^(1) 71,018 64,916

Net income (loss) available (related) to $ (2,855,071 ) $ (2,690,396 )common stockholders

Net income (loss) per share available (related) to common stockholders

Basic $ (2.00 ) $ (1.88 )

Diluted $ (2.00 ) $ (1.88 )

Weighted average number of common shares outstanding

Basic 1,427,451,716 1,427,485,102

Diluted 1,427,451,716 1,427,485,102

Other comprehensive income (loss)

Net income (loss) $ (2,783,955 ) $ (2,625,664 )

Unrealized gains (losses) on 2,360,942 3,254,181 available-for-sale securities

Reclassification adjustment for net (gains) (657,059 ) 90,687 losses included in net income (loss)

Other comprehensive income (loss) 1,703,883 3,344,868

Comprehensive income (loss) (1,080,072 ) 719,204

Comprehensive income (loss) attributable to 98 (184 )noncontrolling interests

Comprehensive income (loss) attributable to (1,080,170 ) 719,388 Annaly

Dividends on preferred stock ^(1) 71,018 64,916

Comprehensive income (loss) attributable to $ (1,151,188 ) $ 654,472 common stockholders



The six months ended June 30, 2019 includes cumulative and undeclared^ dividends of $0.3 million on the Company's Series I Preferred Stock as of(1) June 30, 2019.

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 June 30, 2020, March 31, 2020, and June 30, 2019:

June 30, March 31, June 30, 2020 2020 2019

Portfolio related metrics

Fixed-rate Residential Securities as a 98 % 99 % 96 %percentage of total Residential Securities

Adjustable-rate and floating-rateResidential Securities as a percentage of 2 % 1 % 4 %total Residential Securities

Weighted average experienced CPR for the 19.5 % 13.6 % 11.2 %period

Weighted average projected long-term CPR at 18.0 % 17.7 % 14.5 %period-end

Liabilities and hedging metrics

Weighted average days to maturity onrepurchase agreements outstanding at 74 48 70period-end

Hedge ratio ^(1) 40 % 19 % 74 %

Weighted average pay rate on interest rate 1.01 % 1.63 % 2.12 %swaps at period-end ^(2)

Weighted average receive rate on interest 0.75 % 1.16 % 2.46 %rate swaps at period-end ^(2)

Weighted average net rate on interest rate 0.26 % 0.47 % (0.34 %)swaps at period-end ^(2)

Leverage at period-end ^(3) 5.5:1 6.4:1 7.2:1

Economic leverage at period-end ^(4) 6.4:1 6.8:1 7.6:1

Capital ratio at period-end 13.0 % 12.3 % 11.4 %

Performance related metrics

Book value per common share $ 8.39 $ 7.50 $ 9.33

GAAP net income (loss) per average common $ 0.58 $ (2.57 ) $ (1.24 )share ^(5)

Annualized GAAP return (loss) on average 25.84 % (102.17 %) (45.13 %)equity

Net interest margin^ (6) 1.89 % 0.18 % 0.58 %

Average yield on interest earning assets ^ 2.77 % 1.91 % 3.03 %(7)

Average GAAP cost of interest bearing 0.96 % 1.86 % 2.71 %liabilities^ (8)

Net interest spread 1.81 % 0.05 % 0.32 %

Dividend declared per common share $ 0.22 $ 0.25 $ 0.25

Annualized dividend yield ^(9) 13.41 % 19.72 % 10.95 %

Non-GAAP metrics *

Core earnings (excluding PAA) per average $ 0.27 $ 0.21 $ 0.25 common share ^(5)

Annualized core return on average equity 12.82 % 9.27 % 9.94 %(excluding PAA)

Net interest margin (excluding PAA) ^(6) 1.88 % 1.18 % 1.28 %

Average yield on interest earning assets 3.01 % 2.91 % 3.48 %(excluding PAA) ^(7)

Average economic cost of interest bearing 1.29 % 1.91 % 2.41 %liabilities ^(8)

Net interest spread (excluding PAA) 1.72 % 1.00 % 1.07 %

* Represents a non-GAAP financial measure. Please refer to the "Non-GAAP Financial Measures" section for additional information.

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(1) derivatives outstanding; excludes MSRs 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.

^ Excludes forward starting swaps.(2)

Debt consists of repurchase agreements, other secured financing,^ securitized debt and mortgages payable. Certain credit facilities(3) (included within other secured financing), securitized debt and mortgages payable are non-recourse to the Company.

^ Computed as the sum of recourse debt, cost basis of TBA and CMBX(4) derivatives outstanding, and net forward purchases (sales) of investments divided by total equity.

^ Net of dividends on preferred stock. The quarter ended June 30, 2019(5) includes cumulative and undeclared dividends of $0.3 million on the Company's Series I Preferred Stock as of June 30, 2019.

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(6) 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.

Average yield on interest earning assets represents annualized interest^ income divided by average interest earning assets. Average interest(7) 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).

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(8) 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.

^ Based on the closing price of the Company's common stock of $6.56, $5.07(9) and $9.13 at June 30, 2020, March 31, 2020 and June 30, 2019, respectively.

The following table contains additional information on our residential and commercial investments as of the dates presented:

For the quarters ended

June 30, March 31, June 30, 2020 2020 2019

Agency mortgage-backed $ 76,761,800 $ 78,456,846 $ 118,202,040 securities

Credit risk transfer 362,901 222,871 491,969 securities

Non-agency mortgage-backed 619,840 585,954 1,097,752 securities

Commercial mortgage-backed 61,202 91,925 135,108 securities

Total securities $ 77,805,743 $ 79,357,596 $ 119,926,869

Residential mortgage loans $ 1,168,521 $ 1,268,083 $ 1,061,124

Commercial real estate debt 618,886 649,843 623,705 and preferred equity

Corporate debt 2,185,264 2,150,263 1,792,837

Loans held for sale - - 68,802

Total loans, net $ 3,972,671 $ 4,068,189 $ 3,546,468

Mortgage servicing rights $ 227,400 $ 280,558 $ 425,328

Agency mortgage-backedsecurities transferred or $ 1,832,708 $ 1,803,608 $ - pledged to securitizationvehicles

Residential mortgage loanstransferred or pledged to 2,832,502 3,027,188 2,106,981 securitization vehicles

Commercial real estate debtinvestments transferred or 2,150,623 1,927,575 2,104,601 pledged to securitizationvehicles

Commercial real estate debtand preferred equity 874,618 913,291 - transferred or pledged tosecuritization vehicles

Assets transferred orpledged to securitization $ 7,690,451 $ 7,671,662 $ 4,211,582 vehicles

Real estate, net $ 746,067 $ 751,738 $ 733,196

Total residential and $ 90,442,332 $ 92,129,743 $ 128,843,443 commercial investments



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:

? core earnings (excluding PAA); ? economic net interest income (excluding PAA);

? core earnings (excluding PAA) ? average yield on interest earningattributable to common stockholders; assets (excluding PAA);

? core earnings (excluding PAA) per ? average economic cost of interestaverage common share; bearing liabilities;

? annualized core return on average ? net interest margin (excludingequity (excluding PAA); PAA); and

? interest income (excluding PAA); ? net interest spread (excluding PAA).

? economic interest expense;

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 core earnings (excluding PAA), 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.

Core earnings (excluding PAA), core earnings (excluding PAA) attributable to common stockholders, core earnings (excluding PAA) per average common share and annualized core return on average equity (excluding PAA)

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. Core earnings (excluding PAA), 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 MSRs, (d) other income (loss) (excluding depreciation expense related to commercial real estate and amortization of intangibles, non-core income allocated to equity method investments and other non-core 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-core 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. Annualized core return on average equity (excluding PAA), which is calculated by dividing core earnings (excluding PAA) over average stockholders' equity, provides investors with additional detail on the core earnings (excluding PAA) generated by the Company's invested equity capital.

The following table presents a reconciliation of GAAP financial results to non-GAAP core earnings (excluding PAA) for the periods presented:

For the quarters ended

June 30, March 31, June 30, 2020 2020 2019

(dollars in thousands, except per share data)

GAAP net income (loss) $ 856,234 $ (3,640,189 ) $ (1,776,413 )

Net income (loss)attributable to 32 66 (83 )noncontrolling interests

Net income (loss) 856,202 (3,640,255 ) (1,776,330 )attributable to Annaly

Adjustments to excludereported realized and unrealized (gains) losses

Realized (gains) losses ontermination or maturity of 1,521,732 397,561 167,491 interest rate swaps

Unrealized (gains) losses on (1,494,628 ) 2,827,723 1,276,019 interest rate swaps

Net (gains) losses ondisposal of investments and (246,679 ) (206,583 ) 38,333 other

Net (gains) losses on other (170,916 ) (206,426 ) 506,411 derivatives

Net unrealized (gains) losseson instruments measured at (254,772 ) 730,160 4,881 fair value through earnings

Loan loss provision^ (1) 72,544 99,993 -

Other adjustments

Depreciation expense relatedto commercial real estate and 8,714 7,934 10,147 amortization of intangibles

Non-core (income) lossallocated to equity method 4,218 19,398 11,327 investments ^(2)

Transaction expenses and 1,075 7,245 3,046 non-recurring items^ (3)

Income tax effect of non-core 3,353 (23,862 ) (3,507 )income (loss) items

TBA dollar roll income and 97,524 44,904 33,229 CMBX coupon income ^(4)

MSR amortization ^(5) (25,529 ) (18,296 ) (19,657 )

Plus:

Premium amortization 51,742 290,722 139,763 adjustment cost (benefit)

Core earnings (excluding PAA) 424,580 330,218 391,153 *

Dividends on preferred stock 35,509 35,509 32,422

Core earnings (excluding PAA)attributable to common $ 389,071 $ 294,709 $ 358,731 stockholders *

GAAP net income (loss) per $ 0.58 $ (2.57 ) $ (1.24 )average common share

Core earnings (excluding PAA) $ 0.27 $ 0.21 $ 0.25 per average common share *

Annualized GAAP return (loss) 25.84 % (102.17 %) (45.13 %)on average equity

Annualized core return onaverage equity (excluding 12.82 % 9.27 % 9.94 %PAA) *

* Represents a non-GAAP financial measure.

Includes $3.8 million and $0.7 million of loss provision on the Company's^ unfunded loan commitments for the quarters ended June 30, 2020 and March(1) 31, 2020, respectively, which is reported in Other income (loss) in the Company's Consolidated Statements of Comprehensive Income (Loss).

The Company excludes non-core (income) loss allocated to equity method^ investments, which represents the unrealized (gains) losses allocated to(2) equity interests in a portfolio of MSR, which is a component of Other income (loss).

The quarters ended June 30, 2020 and March 31, 2020 include costs incurred in connection with the Internalization and costs incurred in^ connection with the CEO transition. The quarter ended March 31, 2020 also(3) includes costs incurred in connection with securitizations of Agency mortgage-backed securities and residential whole loans. The quarter ended June 30, 2019 includes costs incurred in connection with securitizations of residential whole loans.

TBA dollar roll income and CMBX coupon income each represent a component^ of Net gains (losses) on other derivatives. CMBX coupon income totaled(4) $1.6 million, $1.2 million and $0.8 million for the quarters ended June 30, 2020, March 31, 2020 and June 30, 2019, respectively.

MSR amortization represents the portion of changes in fair value that is^ attributable to the realization of estimated cash flows on the Company's(5) MSR portfolio and is reported as a component of Net unrealized gains (losses) on instruments measured at fair value.

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 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 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 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 core earnings (excluding PAA).

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 June 30, 2020, March 31, 2020, and June 30, 2019:

For the quarters ended

June 30, March 31, June 30, 2020 2020 2019

(dollars in thousands)

Premium amortization expense $ 270,688 $ 616,937 $ 318,587 (accretion)

Less: PAA cost (benefit) 51,742 290,722 139,763

Premium amortization expense $ 218,946 $ 326,215 $ 178,824 (excluding PAA)



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 June 30, 2020.

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

June 30, March 31, June 30, 2020 2020 2019

Interest income (excluding PAA) (dollars in thousands)reconciliation

GAAP interest income $ 584,812 $ 555,026 $ 927,598

Premium amortization adjustment 51,742 290,722 139,763

Interest income (excluding PAA) * $ 636,554 $ 845,748 $ 1,067,361

Economic interest expense reconciliation

GAAP interest expense $ 186,032 $ 503,473 $ 750,217

Add:

Net interest component of interest 64,561 13,980 (83,653 )rate swaps

Economic interest expense * $ 250,593 $ 517,453 $ 666,564

Economic net interest income (excluding PAA) reconciliation

Interest income (excluding PAA) * $ 636,554 $ 845,748 $ 1,067,361

Less:

Economic interest expense * 250,593 517,453 666,564

Economic net interest income $ 385,961 $ 328,295 $ 400,797 (excluding PAA) *



* 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

June 30, March 31, June 30, 2020 2020 2019

Economic metrics (dollars in thousands)(excluding PAA)

Average interest earning $ 84,471,839 $ 116,063,895 $ 122,601,881 assets

Interest income $ 636,554 $ 845,748 $ 1,067,361 (excluding PAA) *

Average yield on interestearning assets (excluding 3.01 % 2.91 % 3.48 %PAA) *

Average interest bearing $ 76,712,894 $ 107,029,466 $ 109,628,007 liabilities

Economic interest expense $ 250,593 $ 517,453 $ 666,564 *

Average economic cost ofinterest bearing 1.29 % 1.91 % 2.41 %liabilities *

Economic net interest $ 385,961 $ 328,295 $ 400,797 income (excluding PAA) *

Net interest spread 1.72 % 1.00 % 1.07 %(excluding PAA) *

Interest income $ 636,554 $ 845,748 $ 1,067,361 (excluding PAA) *

TBA dollar roll income 97,524 44,904 33,229 and CMBX coupon income

Interest expense (186,032 ) (503,473 ) (750,217 )

Net interest component of (64,561 ) (13,980 ) 83,653 interest rate swaps

Subtotal $ 483,485 $ 373,199 $ 434,026

Average interest earnings $ 84,471,839 $ 116,063,895 $ 122,601,881 assets

Average TBA contract and 18,628,343 9,965,142 12,757,975 CMBX balances

Subtotal $ 103,100,182 $ 126,029,037 $ 135,359,856

Net interest margin 1.88 % 1.18 % 1.28 %(excluding PAA) *

* Represents a non-GAAP financial measure.

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