expense, as computed in accordance with GAAP, reflects the total contractual interest expense and thus, provides investors with additional information about the cost of our financing strategy. We may use market agreed coupon (“MAC”) interest rate swaps in which we may receive or make a payment at the time of entering into such interest rate swap to compensate for the offmarket 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, which is presented in Net gains (losses) on derivatives in the Consolidated Statements of Comprehensive Income (Loss). 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. The following tables present a reconciliation of GAAP interest income and GAAP interest expense to non-GAAP interest income (excluding PAA), economic interest expense and economic net interest income (excluding PAA), respectively, for the periods presented: Interest Income (excluding PAA) GAAP Interest Income PAA Cost (Benefit) Interest Income (excluding PAA) * For the years ended (dollars in thousands) December 31, 2023 $ 3,731,581 $ 1,654 $ 3,733,235 December 31, 2022 $ 2,778,887 $ (360,587) $ 2,418,300 December 31, 2021 $ 1,983,036 $ 57,158 $ 2,040,194 * Represents a non-GAAP financial measure. Refer to disclosures within this section above for additional information on non-GAAP financial measures. Economic Interest Expense and Economic Net Interest Income (excluding PAA) GAAP Interest Expense Add: Net Interest Component of Interest Rate Swaps Economic Interest Expense * GAAP Net Interest Income Less: Net Interest Component of Interest Rate Swaps Economic Net Interest Income * Add: PAA Cost (Benefit) Economic Net Interest Income (excluding PAA) * For the years ended (dollars in thousands) December 31, 2023 $ 3,842,965 $ (1,585,053) $ 2,257,912 $ (111,384) $ (1,585,053) $ 1,473,669 $ 1,654 $ 1,475,323 December 31, 2022 $ 1,309,735 $ (366,161) $ 943,574 $ 1,469,152 $ (366,161) $ 1,835,313 $ (360,587) $ 1,474,726 December 31, 2021 $ 249,243 $ 276,142 $ 525,385 $ 1,733,793 $ 276,142 $ 1,457,651 $ 57,158 $ 1,514,809 * Represents a non-GAAP financial measure. Refer to disclosures within this section above for additional information on non-GAAP financial measures. Experienced and Projected Long-Term CPR Prepayment speeds, as reflected by the CPR and interest rates vary according to the type of investment, conditions in financial markets, competition and other factors, none of which can be predicted with any certainty. In general, as prepayment speeds and expectations of prepayment speeds on our Agency MBS portfolio increase, related purchase premium amortization increases, thereby reducing the yield on such assets. The following table presents the weighted average experienced CPR and weighted average projected long-term CPR on our Agency MBS portfolio as of and for the periods presented. Experienced CPR (1) Long-term CPR (2) For the years ended December 31, 2023 6.5% 9.4% December 31, 2022 12.2% 7.8% December 31, 2021 23.7% 12.7% (1) For the years ended December 31, 2023, 2022 and 2021, respectively. (2) At December 31, 2023, 2022 and 2021, respectively. 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 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Item 7. Management’s Discussion and Analysis 58
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