Financial Condition Total assets were $93.2 billion and $81.9 billion at December 31, 2023 and 2022, respectively. The change was primarily due to increases in Agency MBS of $4.0 billion, residential mortgage loans, including assets transferred or pledged to securitization vehicles, of $4.7 billion, MSR of $0.4 billion, receivable for unsettled trades of $2.1 billion, and principal and interest receivable of $0.6 billion, partially offset by decreases in CMBS of $0.3 billion and derivative assets of $0.2 billion. Our portfolio composition, net equity allocation and debt-to-net equity ratio by asset class were as follows at December 31, 2023: Agency MBS MSR Residential Credit (1) Commercial Total Assets (dollars in thousands) Fair value $ 66,308,788 $ 2,122,196 $ 18,743,039 $ 222,444 $ 87,396,467 Implied market value of derivatives (2) (573,602) — — — (573,602) Debt Repurchase agreements 58,305,133 — 3,705,134 191,276 62,201,543 Implied cost basis of derivatives (2) (555,221) — — — (555,221) Other secured financing — 500,000 — — 500,000 Debt issued by securitization vehicles — — 11,600,338 — 11,600,338 Participations issued — — 1,103,835 — 1,103,835 U.S. Treasury securities sold, not yet purchased 1,973,568 (5,683) 163,855 1,011 2,132,751 Net forward purchases 523,543 15,612 10 — 539,165 Other Net other assets / liabilities 1,475,735 327,958 184,300 56,644 2,044,637 Net equity allocated $ 6,963,898 $ 1,940,225 $ 2,354,167 $ 86,801 $ 11,345,091 Net equity allocated (%) 61 % 18 % 20 % 1 % 100 % Debt/net equity ratio (3) 8.4:1 0.3:1 7.0:1 2.2:1 6.8:1 (1) Fair value includes residential loans held for sale, and assets and liabilities associated with non-controlling interests. (2) Derivatives include TBA contracts under Agency MBS. (3) Represents the debt/net equity ratio as determined using amounts on the Consolidated Statements of Financial Condition. Residential Securities Substantially all of our Agency MBS at December 31, 2023 and December 31, 2022 were backed by single-family residential mortgage loans and were secured with a first lien position on the underlying single-family properties. Our mortgage-backed securities were largely Fannie Mae, Freddie Mac or Ginnie Mae pass through certificates or CMOs, which have an actual or implied credit rating that is the same as that of the U.S. government. We carry all of our Agency MBS at fair value on the Consolidated Statements of Financial Condition. We accrete discount balances as an increase to interest income over the expected life of the related interest earning assets and we amortize premium balances as a decrease to interest income over the expected life of the related interest earning assets. At December 31, 2023 and December 31, 2022 we had on our Consolidated Statements of Financial Condition a total of $1.4 billion and $1.1 billion, respectively, of unamortized discount (which is the difference between the remaining principal value and current amortized cost of our Residential Securities acquired at a price below principal value) and a total of $2.4 billion and $2.9 billion, respectively, of unamortized premium (which is the difference between the remaining principal value and the current amortized cost of our Residential Securities acquired at a price above principal value). The weighted average experienced prepayment speed on our Agency MBS portfolio for the years ended December 31, 2023 and 2022 was 6.5% and 12.2%, respectively. The weighted average projected long-term prepayment speed on our Agency MBS portfolio as of December 31, 2023 and 2022 was 9.4% and 7.8%, respectively. Given our current portfolio composition, if mortgage principal prepayment rates were to increase over the life of our mortgagebacked securities, all other factors being equal, our net interest income would decrease during the life of these mortgage-backed securities as we would be required to amortize our net premium balance into income over a shorter time period. Similarly, if mortgage principal prepayment rates were to decrease over the life of our mortgage-backed securities, all other factors being equal, our net interest income would increase during the life of these mortgage-backed securities as we would amortize our net premium balance over a longer time period. ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Item 7. Management’s Discussion and Analysis 63
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