The following table presents a reconciliation of GAAP financial results to non-GAAP earnings available for distribution for the periods presented: For the Years Ended December 31, 2023 2022 2021 (dollars in thousands, except per share data) GAAP net income (loss) $ (1,638,457) $ 1,726,420 $ 2,396,280 Adjustments to exclude reported realized and unrealized (gains) losses Net (gains) losses on investments and other (1) 2,137,538 4,602,456 (120,958) Net (gains) losses on derivatives (2) 1,184,961 (4,493,013) (1,083,872) Loan loss provision (reversal) (3) (219) (22,923) (148,632) Business divestiture-related (gains) losses — 40,258 278,559 Other adjustments Amortization of intangibles 4,573 3,948 15,225 Non-EAD (income) loss allocated to equity method investments (4) 354 (15,499) (10,930) Transaction expenses and non-recurring items (5) 8,209 7,620 5,579 Income tax effect of non-EAD income (loss) items 31,570 46,070 13,325 TBA dollar roll income and CMBX coupon income (6) 20,621 431,475 445,768 MSR amortization (7) (182,151) (114,992) (72,727) EAD attributable to noncontrolling interests (14,639) (1,095) (6,384) Premium amortization adjustment cost (benefit) 1,654 (360,587) 57,158 Earnings available for distribution * 1,554,014 1,850,138 1,768,391 Dividends on preferred stock 141,676 110,623 107,532 Earnings available for distribution attributable to common stockholders * $ 1,412,338 $ 1,739,515 $ 1,660,859 GAAP net income (loss) per average common share $ (3.61) $ 3.93 $ 6.40 Earnings available for distribution per average common share * $ 2.86 $ 4.23 $ 4.65 GAAP return (loss) on average equity (14.33)% 14.86 % 17.45 % EAD return on average equity (excluding PAA) * 13.71 % 16.02 % 12.90 % * Represents a non-GAAP financial measure. Refer to the disclosure within this section above for additional information on non-GAAP financial measures. (1) Includes write-downs or recoveries which are reported in Other, net in the Company's Consolidated Statement of Comprehensive Income (Loss). (2) The adjustment to add back Net (gains) losses on derivatives does not include the net interest component of interest rate swaps which is reflected in earnings available for distribution. The net interest component of interest rate swaps totaled $1.6 billion, $366.2 million and ($276.1) million for the years ended December 31, 2023, 2022 and 2021, respectively. (3) Includes $0.0 million, ($2.3) million, and $(3.6) million of loss provision (reversal) on unfunded loan commitments for the years ended December 31, 2023, 2022 and 2021, respectively, which is reported in Other, net in the Consolidated Statements of Comprehensive Income (Loss). (4) Represents unrealized (gains) losses allocated to equity interests in a portfolio of MSR, which is a component of Other, net in the Consolidated Statements of Comprehensive Income (Loss). (5) Represents costs incurred in connection with securitizations of residential whole loans. (6) TBA dollar roll income and CMBX coupon income each represent a component of Net gains (losses) on derivatives in the Consolidated Statements of Comprehensive Income (Loss). CMBX coupon income totaled $1.5 million, $4.4 million and $5.2 million for the years ended December 31, 2023, 2022 and 2021, respectively. (7) MSR amortization utilizes purchase date cash flow assumptions and actual unpaid principal balances and is calculated as the difference between projected MSR yield income and net servicing income for the period. From time to time, we enter into TBA forward contracts as an alternate means of investing in and financing Agency MBS. A TBA contract is an agreement to purchase or sell, for future delivery, an Agency MBS 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 MBS, 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 MBS 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 MBS. We record TBA derivatives at fair value on our Consolidated Statements of Financial Condition and recognize periodic changes in fair value in Net gains (losses) on derivatives in our Consolidated Statements of Comprehensive Income (Loss), which includes both unrealized and realized gains and losses on derivatives. ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Item 7. Management’s Discussion and Analysis 55
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