Summary of Risk Factors Risks Related to Our Liquidity and Funding • Our strategy involves the use of leverage, which increases the risk that we may incur substantial losses. • Our use of leverage may result in margin calls and defaults and force us to sell assets under adverse market conditions. • We may exceed our target leverage ratios. • We may not be able to achieve our optimal leverage. • Failure to procure or renew funding on favorable terms, or at all, would adversely affect our results and financial condition. • Failure to effectively manage our liquidity would adversely affect our results and financial condition. • Volatile market conditions for our assets can result in contraction in liquidity for those assets and the related financing. • An increase in the interest payments on our borrowings relative to the interest we earn on our interest earning assets may adversely affect our profitability. • Differences in timing of interest rate adjustments on our interest earning assets and our borrowings may adversely affect our profitability. • It may be uneconomical to “roll” our TBA dollar roll transactions or we may be unable to meet margin calls on our TBA contracts. • Our use of derivatives may expose us to counterparty and liquidity risks. • Securitizations expose us to additional risks. • Our use of non-recourse securitizations may expose us to risks which could result in losses to us. • Counterparties may require us to enter into covenants that restrict our investment strategy. • We may be unable to profitably execute or participate in future securitization transactions. Risks of Ownership of Our Common Stock • Our charter does not permit ownership of over 9.8% in number of shares or value of our common stock or any class of our preferred stock. • Provisions contained in Maryland law may have anti-takeover effects, potentially preventing investors from receiving a “control premium” for their shares. • We have not established a minimum dividend payment level and cannot assure stockholders of our ability to pay dividends in the future. • Our reported GAAP financial results may not be an accurate indicator of future taxable income and dividend distributions. Compliance, Regulatory & Legal Risks • Accounting rules related to certain of our transactions are highly complex and involve significant judgment and assumptions. Our application of GAAP may produce financial results that fluctuate from one period to another. • New laws may be passed affecting the relationship between Fannie Mae, Freddie Mac and the federal government. • We may be subject to liability for potential violations of truth-in-lending or other similar consumer protection laws and regulations. • We may not be able to maintain compliance with laws and regulations applicable to our Residential Credit and MSR businesses, including through the manner in which we oversee the compliance obligations of our third party service providers. • Changes in laws or regulations governing our operations or our failure to comply with those laws or regulations may adversely affect our business. • The increased focus on ESG and climate change issues by investors, governmental bodies and other stakeholders, as well as existing and proposed laws and regulations related to these topics, may adversely affect our business and financial results and damage our reputation. • We are subject to complex and evolving laws, regulations, rules, standards and contractual obligations regarding data privacy and security, which could increase the cost of doing business, compliance risks and potential liability. • We are subject to risks and liabilities in connection with sponsoring, investing in and managing new funds and other investment accounts, including potential regulatory risks. • Loss of our Investment Company Act exemption from registration would adversely affect us. Risks Related to Our Taxation as a REIT • Our failure to maintain our qualification as a REIT would have adverse tax consequences. • Our distribution requirements could adversely affect our ability to execute our business plan. • Distributions to tax-exempt investors may be classified as unrelated business taxable income. • We may choose to pay dividends in our own stock. • Our TRSs cannot constitute more than 20% of our total assets. • TRSs are subject to tax at the regular corporate rates, are not required to distribute dividends, and the amount of dividends a TRS can pay to its parent REIT may be limited by REIT gross income tests. • If transactions between a REIT and a TRS are entered into on other than arm’s-length terms, the REIT may be subject to a penalty tax. • Even if we remain qualified as a REIT, we may face other tax liabilities that reduce our cash flow. • Complying with REIT requirements may cause us to forgo otherwise attractive opportunities and may force us to liquidate otherwise attractive investments. • Liquidation of assets may jeopardize our REIT qualification or create additional tax liability for us. ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Item 1A. Risk Factors 13
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