The following table presents a reconciliation of GAAP debt to economic debt for purposes of calculating our economic leverage ratio for the periods presented: As of December 31, 2023 December 31, 2022 Economic leverage ratio reconciliation (dollars in thousands) Repurchase agreements $ 62,201,543 $ 59,512,597 Other secured financing 500,000 250,000 Debt issued by securitization vehicles 11,600,338 7,744,160 Participations issued 1,103,835 800,849 U.S. Treasury securities sold, not yet purchased 2,132,751 — Total GAAP debt $ 77,538,467 $ 68,307,606 Less Non-Recourse Debt: Debt issued by securitization vehicles (11,600,338) (7,744,160) Participations issued (1,103,835) (800,849) Total recourse debt $ 64,834,294 $ 59,762,597 Plus / (Less): Cost basis of TBA and CMBX derivatives (555,221) 11,050,351 Payable for unsettled trades 3,249,389 1,157,846 Receivable for unsettled trades (2,710,224) (575,091) Economic debt * $ 64,818,238 $ 71,395,703 Total equity $ 11,345,091 $ 11,369,426 Economic leverage ratio * 5.7:1 6.3:1 * Represents a non-GAAP financial measure. Refer to the disclosure within this section above for additional information on non-GAAP financial measures. The following table presents a reconciliation of GAAP total assets to economic total assets for purposes of calculating our economic capital ratio for the periods presented: As of December 31, 2023 December 31, 2022 Economic capital ratio reconciliation (dollars in thousands) Total GAAP assets $ 93,227,236 $ 81,850,712 Less: Gross unrealized gains on TBA derivatives (1) (20,689) (17,056) Debt issued by securitization vehicles (11,600,338) (7,744,160) Plus: Implied market value of TBA derivatives (573,602) 10,578,676 Total economic assets * $ 81,032,607 $ 84,668,172 Total equity $ 11,345,091 $ 11,369,426 Economic capital ratio (2)* 14.0 % 13.4 % * Represents a non-GAAP financial measure. Refer to the disclosure within this section above for additional information on non-GAAP financial measures. (1) Included in Derivative assets in the Consolidated Statements of Financial Condition. (2) 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 premium amortization adjustment, 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. We believe this measure provides management and investors with additional detail to enhance their understanding of our operating results and trends by excluding the component of premium amortization expense representing the cumulative effect of quarter-over-quarter changes in estimated long-term prepayment speeds related to our Agency MBS (other than interest-only securities, multifamily and reverse mortgages), which can obscure underlying trends in the performance of the portfolio. Economic interest expense is comprised of GAAP interest expense and the net interest component of interest rate swaps. We use interest rate swaps to manage our exposure to changing interest rates on repurchase agreements by economically hedging cash flows associated with these borrowings. Accordingly, adding the net interest component of interest rate swaps to interest ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Item 7. Management’s Discussion and Analysis 57
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