Qualitative and Quantitative Information about Level 3 Fair Value Measurements The Company considers unobservable inputs to be those for which market data is not available and that are developed using the best information available to us about the assumptions that market participants would use when pricing the asset. Relevant inputs vary depending on the nature of the instrument being measured at fair value. The sensitivities of significant unobservable inputs along with interrelationships between and among the significant unobservable inputs and their impact on the fair value measurements are described below. The effect of a change in a particular assumption in the sensitivity analysis below is considered independently from changes in any other assumptions. In practice, simultaneous changes in assumptions may not always have a linear effect on the inputs discussed below. Interrelationships may also exist between observable and unobservable inputs. Such relationships have not been included in the discussion below. For each of the individual relationships described below, the inverse relationship would also generally apply. For MSR and Interests in MSR, in general, increases in the discount, prepayment or delinquency rates or in annual servicing costs in isolation would result in a lower fair value measurement. A decline in interest rates could lead to higher-than-expected prepayments of mortgages underlying the Company’s investments in MSR and Interests in MSR, which in turn could result in a decline in the estimated fair value of MSR and Interests in MSR. Refer to the “Mortgage Servicing Rights” Note for additional information, including rollforwards. The following table presents information about the significant unobservable inputs used for recurring fair value measurements for Level 3 MSR and Interests in MSR. The table does not give effect to the Company’s risk management practices that might offset risks inherent in these Level 3 investments. Unobservable Input (1) Range (Weighted Average) (2) December 31, 2023 December 31, 2022 Discount rate 7.0% - 12.0% (8.6%) 8.4% - 10.7% (9.7%) Prepayment rate 4.8% - 11.0% (5.6%) 4.8% - 8.1% (5.4%) Delinquency rate 0.2% - 4.2% (1.3%) 0.2% - 4.5% (1.3%) Cost to service $84 - $111 ($94) $86 - $118 ($95) (1) Represents rates, estimates and assumptions that the Company believes would be used by market participants when valuing these assets. (2) Weighted average discount rate computed based on the fair value of MSR, weighted average prepayment rate, delinquency rate and cost to service based on unpaid principal balances of loans underlying the MSR. The following table summarizes the estimated fair values for financial assets and liabilities that are not carried at fair value at December 31, 2023 and 2022. December 31, 2023 December 31, 2022 Carrying Value Fair Value Carrying Value Fair Value Financial liabilities Repurchase agreements $62,201,543 $62,201,543 $59,512,597 $59,512,597 Other secured financing 500,000 500,000 250,000 250,000 The carrying values of repurchase agreements and short term other secured financing approximate fair value and are considered Level 2 fair value measurements. Long term other secured financing is valued using Level 2 inputs. ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Financial Statements F-27
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