Annaly Capital Management, Inc. Reports GAAP EPS for the 4th Quarter 2010 of $1.94 and for the Year of $2.12

NEW YORK--(BUSINESS WIRE)--

Annaly Capital Management, Inc. (NYSE: NLY) today reported GAAP net income for the quarter ended December 31, 2010 of $1.2 billion or $1.94 per average share available to common shareholders as compared to GAAP net income of $729.3 million or $1.31 per average share available to common shareholders for the quarter ended December 31, 2009, and GAAP net loss of $14.1 million or $0.03 per average share related to common shareholders for the quarter ended September 30, 2010. GAAP net income for the year ended December 31, 2010 was $1.3 billion or $2.12 per average share available to common shareholders as compared to $2.0 billion or $3.55 per average share available to common shareholders for the year ended December 31, 2009.

Without the effect of the unrealized gains or losses on interest rate swaps, net income for the quarter ended December 31, 2010, would be $379.3 million or $0.60 per average share available to common shareholders as compared to $516.9 million or $0.93 per average share available to common shareholders for the quarter ended December 31, 2009, and $434.2 million or $0.70 per average share available to common shareholders for the quarter ended September 30, 2010. Without the effect of the unrealized gains or losses on interest rate swaps, net income for the year ended December 31, 2010, would be $1.6 billion or $2.67 per average share available to common shareholders as compared to $1.6 billion or $2.91 per average share available to common shareholders for the year ended December 31, 2009.

During the quarter ended December 31, 2010, the Company disposed of $3.1 billion of mortgage-backed securities and agency debentures, resulting in a realized gain of $33.8 million. During the quarter ended December 31, 2009, the Company disposed of $3.0 billion of mortgage-backed securities and agency debentures, resulting in a realized gain of $91.2 million. During the quarter ended September 30, 2010, the Company disposed of $3.1 billion of mortgage-backed securities and agency debentures, resulting in a realized gain of $62.0 million.

During the year ended December 31, 2010, the Company disposed of $10.6 billion of mortgage-backed securities and agency debentures, resulting in a realized gain of $181.8 million. During the year ended December 31, 2009, the Company disposed of $4.6 billion of mortgage-backed securities and agency debentures, resulting in a realized gain of $99.1 million.

Common dividends declared for the quarter ended December 31, 2010, were $0.64 per share as compared to $0.75 per share for the quarter ended December 31, 2009, and $0.68 per share for the quarter ended September 30, 2010. Common dividends declared for the year ended December 31, 2010, were $2.65 per share, as compared to $2.54 per share for the year ended December 31, 2009. The Company distributes dividends based on its current estimate of taxable earnings per common share, not GAAP earnings. Taxable and GAAP earnings will typically differ due to items such as non-taxable unrealized and realized gains and losses, differences in premium amortization and discount accretion, and non-deductible general and administrative expenses.

The annualized dividend yield on the Company’s common stock for the quarter ended December 31, 2010, based on the December 31, 2010 closing price of $17.92, was 14.29%. The dividend yield on the Company’s common stock for the year ended December 31, 2010, based on the December 31, 2010 closing price of $17.92, was 14.79%.

On a GAAP basis, the Company provided an annualized return on average equity of 49.87% for the quarter ended December 31, 2010, as compared to an annualized return on average equity of 30.73% for the quarter ended December 31, 2009, and an annualized loss on average equity of 0.58% for the quarter ended September 30, 2010. Without the effect of the unrealized gains or losses on interest rate swaps, the Company provided an annualized return on average equity of 15.52% for the quarter ended December 31, 2010, as compared to an annualized return on average equity of 21.78% for the quarter ended December 31, 2009, and an annualized return on average equity of 17.96% for the quarter ended September 30, 2010. On a GAAP basis, the Company provided a return on average equity of 13.06% for the year ended December 31, 2010, as compared to a return on average equity of 22.69% for the year ended December 31, 2009. Without the effect of the unrealized gains or losses on interest rate swaps, the Company provided a return on average equity of 16.35% for the year ended December 31, 2010, as compared to a return on average equity of 18.65% for the year ended December 31, 2009.

Subsequent to quarter end, on January 7, 2010, the Company completed a public offering of 86,250,000 shares of common stock. The estimated net proceeds of the offering were approximately $1.5 billion, net of offering expenses.

Michael A.J. Farrell, Chairman, Chief Executive Officer and President of Annaly, commented on the Company’s results. “Regulation, public policy and the state of the economy continue to be a focus of the marketplace, as the evolution of these issues will affect not only return expectations for investors in different asset classes, but also how our country will conduct business in a wide range of industries. As these issues continue to evolve there will be challenges and opportunities for all market participants. Our management team has been busily positioning the Company to perform in this evolving landscape, both in our investment portfolio and in our subsidiaries.”

For the quarter ended December 31, 2010, the annualized yield on average interest-earning assets was 3.65% and the annualized cost of funds on average interest-bearing liabilities was 1.80%, which resulted in an average interest rate spread of 1.85%. This was a 94 basis point decrease from the 2.79% annualized interest rate spread for the quarter ended December 31, 2009, and a 26 basis point decrease from the 2.11% average interest rate spread for the quarter ended September 30, 2010. At December 31, 2010, the weighted average yield on interest-earning assets was 3.80% and the weighted average cost of funds on interest-bearing liabilities, including the effect of interest rate swaps, was 1.84%, which resulted in an interest rate spread of 1.96%. Leverage at December 31, 2010, was 6.7:1 compared to 5.7:1 at December 31, 2009, and 6.4:1 at September 30, 2010.

Fixed-rate mortgage-backed securities and agency debentures comprised 86% of the Company’s portfolio at December 31, 2010. The balance of the mortgage-backed securities and agency debentures was comprised of 13% adjustable-rate mortgage-backed securities and 1% LIBOR floating-rate collateralized mortgage obligations. At December 31, 2010, the Company had entered into interest rate swaps with a notional amount of $27.1 billion, or 36% of the mortgage-backed securities and agency debentures portfolio. Changes in the unrealized gains or losses on the interest rate swaps are reflected in the Company’s consolidated statement of operations. The purpose of the swaps is to mitigate the risk of rising interest rates that affect the Company’s cost of funds. Since the Company receives a floating rate on the notional amount of the swaps, the effect of the swaps is to lock in a spread relative to the cost of financing. As of December 31, 2010, substantially all of the Company’s Investment Securities were Fannie Mae, Freddie Mac and Ginnie Mae mortgage-backed securities and agency debentures, which carry an actual or implied “AAA” rating.

“The fixed income markets had a volatile fourth quarter,” said Wellington Denahan-Norris, Annaly’s Vice Chairman, Chief Investment Officer and Chief Operating Officer, “and our interest rate swap book served to mitigate that volatility. The fundamentals for our investment strategy improved throughout the quarter as prepayment speeds remained relatively muted and spreads to financing widened. Our capital raise subsequent to quarter-end was designed so that our portfolio management team could take advantage of these market conditions. After taking into account the effect of interest rate swaps, our portfolio of mortgage-backed securities and agency debentures was comprised of 37% floating-rate, 13% adjustable-rate and 50% fixed-rate assets.”

The following table summarizes portfolio information for the Company:

The Constant Prepayment Rate was 23% during the fourth quarter of 2010, as compared to 19% during the fourth quarter of 2009, and 20% during the third quarter of 2010. The weighted average purchase price of the Company’s mortgage-backed securities and agency debentures was 102.1% at December 31, 2010. The net amortization of premiums and accretion of discounts on mortgage-backed securities and agency debentures for the quarters ended December 31, 2010, December 31, 2009, and September 30, 2010 was $207.4 million, $79.2 million, and $155.9 million, respectively. The total net premium and discount balance at December 31, 2010, December 31, 2009, and September 30, 2010, was $2.3 billion, $1.2 billion, and $2.3 billion, respectively.

General and administrative expenses as a percentage of average assets were 0.22%, 0.21% and 0.22% for the quarters ended December 31, 2010, December 31, 2009, and September 30, 2010, respectively. At December 31, 2010, December 31, 2009, and September 30, 2010, the Company had a common stock book value per share of $15.34, $16.95 and $15.16, respectively.

At December 31, 2010, Annaly’s wholly-owned registered investment advisors had under management approximately $12.4 billion in net assets and $20.1 billion in gross assets, as compared to $11.5 billion in net assets and $19.1 billion in gross assets at December 31, 2009 and $12.1 billion in net assets and $19.8 billion in gross assets at September 30, 2010. For the quarter ended December 31, 2010, the investment advisors earned investment advisory and service fees, net of fees paid to distributors, of $16.3 million, as compared to $14.4 million for the quarter ended December 31, 2009 and $15.3 million for the quarter ended September 30, 2010.

Annaly manages assets on behalf of institutional and individual investors worldwide. The Company’s principal business objective is to generate net income for distribution to investors from its Investment Securities and from dividends it receives from its subsidiaries.

The Company will hold the 2010 fourth quarter earnings conference call on Friday February 4, 2011 at 10:00 a.m. EST. The number to call is 866-843-0890 for domestic calls and 412-317-9250 for international calls. The conference passcode is 8692738. The replay number is 877-344-7529 for domestic calls and 412-317-0088 for international calls and the conference passcode is 448105. The replay is available for 48 hours after the earnings call. There will be a web cast of the call on www.annaly.com. If you would like to be added to the e-mail distribution list, please visit www.annaly.com, click on Investor Relations, then select Investor Information and complete the E-Mail notification form.

This news release and our public documents to which we refer contain or incorporate by reference certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements which are based on various assumptions (some of which are beyond our control) may be identified by reference to a future period or periods or by the use of forward-looking terminology, such as "may," "will," "believe," "expect," "anticipate," "continue," or similar terms or variations on those terms or the negative of those terms. Actual results could differ materially from those set forth in forward-looking statements due to a variety of factors, including, but not limited to, changes in interest rates, changes in the yield curve, changes in prepayment rates, the availability of mortgage-backed securities for purchase, the availability of financing and, if available, the terms of any financing, changes in the market value of our assets, changes in business conditions and the general economy, changes in government regulations affecting our business, our ability to maintain our qualification as a REIT for federal income tax purposes, risks associated with the broker-dealer business of our subsidiary, and risks associated with the investment advisory business of our subsidiaries, including the removal by clients of assets they manage, their regulatory requirements and competition in the investment advisory business. For a discussion of the risks and uncertainties which could cause actual results to differ from those contained in the forward-looking statements, see "Risk Factors" in our most recent Annual Report on Form 10-K and any subsequent Quarterly Reports on Form 10-Q. We do not undertake, and specifically disclaim any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.

Source: Annaly Capital Management, Inc.