Company: NLY-PF
Filing Date: 2025-05-08
Form Type: 10-Q
Source: 0001628280-25-023811
Chunk: 181

Company: ANNALY CAPITAL MANAGEMENT INC
Filing Date: 2025-05-08
Form: 10-Q
Item: Part I, Item 1
Chunk 181
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62

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIESItem 2. Management’s Discussion and Analysis 

Credit Risk Management

Key risk parameters have been established to specify our credit risk appetite. We seek to manage credit risk by making investments which conform to the firm’s specific investment policy parameters and optimize risk-return attributes.

While we do not expect to encounter credit risk in our Agency mortgage-backed securities, we face credit risk on the non-Agency mortgage-backed securities and CRT securities in our portfolio. In addition, we are also exposed to credit risk on residential mortgage loans and commercial real estate investments. MSR values may also be impacted through reduced servicing fees and higher costs to service the underlying mortgage loans due to borrower performance. Generally, we are subject to risk of loss if an issuer or borrower fails to perform its contractual obligations. We have established policies and procedures for mitigating credit risk, including establishing and reviewing limits for credit exposure. In the case of residential mortgage loans and MSR, we may engage a third party to perform due diligence on a sample of loans that we believe sufficiently represents the entire pool. Once an investment is made, our ongoing surveillance process includes regular reviews, analysis and oversight of investments by our investment personnel and appropriate committee. We review credit and other risks of loss associated with each investment. Our management monitors the overall portfolio risk and determines estimates of provision for loss. Additionally, ALCO has oversight of our credit risk exposure. 

Our portfolio composition, based on balance sheet values, at March 31, 2025 and December 31, 2024 was as follows:

March 31, 2025December 31, 2024CategoryAgency mortgage-backed securities67.0 %68.6 %Credit risk transfer securities0.5 %0.8 %Non-agency mortgage-backed securities1.4 %1.5 %Residential mortgage loans (1)27.8 %26.0 %Commercial mortgage-backed securities0.1 %0.1 %Mortgage servicing rights3.2 %3.0 %(1) Includes assets transferred or pledged to securitization vehicles.

Counterparty Risk Management

Our use of repurchase and derivative agreements and trading activities create exposure to counterparty risk relating to potential losses that could be recognized if the counterparties to these agreements fail to perform their obligations under the contracts. In the event of default by a counterparty, we could have difficulty obtaining our assets pledged as collateral. A significant portion of our investments