Liquidity and Funding Risk Management Our liquidity and funding risk management strategy is designed to ensure the availability of sufficient resources to support our business and meet our financial obligations under both normal and adverse market and business environments. Our liquidity and funding risk management practices consist of the following primary elements: Element Description Funding Availability of diverse and stable sources of funds. Excess Liquidity Excess liquidity primarily in the form of unencumbered assets and cash. Maturity Profile Diversity and tenor of liabilities and modest use of leverage. Stress Testing Scenario modeling to measure the resiliency of our liquidity position. Liquidity Management Policies Comprehensive policies including monitoring, risk limits and an escalation protocol. Funding Our primary financing sources are repurchase agreements provided through counterparty arrangements and through Arcola, other secured financing, debt issued by securitization vehicles, mortgages, credit facilities, note sales and various forms of equity. We maintain excess liquidity by holding unencumbered liquid assets that could be either used to collateralize additional borrowings or sold. We seek to conservatively manage our repurchase agreement funding position through a variety of methods including diversity, breadth and depth of counterparties and maintaining a staggered maturity profile. Arcola, provides direct access to third party funding as a FINRA member broker-dealer. Arcola borrows funds through the General Collateral Finance Repo service offered by the FICC, with FICC acting as the central counterparty. In addition, Arcola may borrow funds through direct repurchase agreements. To reduce our liquidity risk we maintain a laddered approach to our repurchase agreements. At December 31, 2023 and December 31, 2022, the weighted average days to maturity was 44 days and 27 days, respectively. Our repurchase agreements generally provide that in the event of a margin call we must provide additional securities or cash on the same business day that a margin call is made. Should prepayment speeds on the mortgages underlying our Agency and Residential mortgage-backed securities and/or market interest rates or other factors move suddenly and cause declines in the market value of assets posted as collateral, resulting margin calls may cause an adverse change in our liquidity position. At December 31, 2023, we had total financial assets and cash pledged against existing liabilities of $67.5 billion. The weighted average haircut was approximately 3% on repurchase agreements. The quality and character of the Residential Securities that we pledge as collateral under the repurchase agreements and interest rate swaps did not materially change at December 31, 2023 compared to the same period in 2022, and our counterparties did not materially alter any requirements, including required haircuts, related to the collateral we pledge under repurchase agreements and interest rate swaps during the year ended December 31, 2023. The following table presents our quarterly average and quarter-end repurchase agreement and reverse repurchase agreement balances outstanding for the periods presented: Repurchase Agreements Reverse Repurchase Agreements Average Daily Amount Outstanding Ending Amount Outstanding Average Daily Amount Outstanding Ending Amount Outstanding For the three months ended (dollars in thousands) December 31, 2023 $ 61,924,576 $ 62,201,543 $ 1,340,204 $ — September 30, 2023 66,020,036 64,693,821 257,097 — June 30, 2023 64,591,463 61,637,600 600,968 — March 31, 2023 60,477,833 60,993,018 371,429 — December 31, 2022 59,946,810 59,512,597 102,025 — September 30, 2022 56,354,310 54,160,731 139,991 — June 30, 2022 51,606,720 51,364,097 117,903 — March 31, 2022 53,961,689 52,626,503 39,535 — December 31, 2021 56,977,019 54,769,643 39,247 — ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Item 7. Management’s Discussion and Analysis 70
RkJQdWJsaXNoZXIy NDQ4NTc1