Annaly Capital Management, Inc. Reports GAAP Earnings Per Share for the 2nd Quarter 2011 of $0.14 as Compared to Loss Per Share of $0.40 for the 2nd Quarter 2010

NEW YORK--(BUSINESS WIRE)-- Annaly Capital Management, Inc. (NYSE: NLY) today reported GAAP net income for the quarter ended June 30, 2011, of $120.8 million or $0.14 per average share available to common shareholders as compared to GAAP net loss of $218.2 million or $0.40 per average share available to common shareholders for the quarter ended June 30, 2010, and GAAP net income of $699.9 million or $0.92 per average share available to common shareholders for the quarter ended March 31, 2011.

Without the effect of the unrealized gains or losses on interest rate swaps and interest-only mortgage-backed securities, net income for the quarter ended June 30, 2011, was $587.5 million or $0.71 per average share available to common shareholders as compared to $374.8 million or $0.66 per average share available to common shareholders for the quarter ended June 30, 2010, and $530.6 million or $0.70 per average share available to common shareholders for the quarter ended March 31, 2011.

During the quarter ended June 30, 2011, the Company disposed of $1.7 billion of mortgage-backed securities and agency debentures, resulting in a realized gain of $7.3 million. During the quarter ended June 30, 2010, the Company disposed of $1.9 billion of mortgage-backed securities and agency debentures, resulting in a realized gain of $39.0 million. During the quarter ended March 31, 2011, the Company disposed of $4.2 billion of mortgage-backed securities and agency debentures, resulting in a realized gain of $27.2 million.

Common dividends declared for the quarter ended June 30, 2011, were $0.65 per share as compared to $0.68 per share for the quarter ended June 30, 2010, and $0.62 per share for the quarter ended March 31, 2011. 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 June 30, 2011, based on the June 30, 2011, closing price of $18.04, was 14.41%, as compared to 15.86% for the quarter ended June 30, 2010, and 14.21% for the quarter ended March 31, 2011.

On a GAAP basis, the Company provided an annualized return on average equity of 3.60% for the quarter ended June 30, 2011, as compared to an annualized loss on average equity of 9.03% for the quarter ended June 30, 2010, and an annualized return on average equity of 24.56% for the quarter ended March 31, 2011. Without the effect of the unrealized gains or losses on interest rate swaps and interest-only mortgage-backed securities, the Company provided an annualized return on average equity of 17.50% for the quarter ended June 30, 2011, as compared to an annualized return on average equity of 9.03% for the quarter ended June 30, 2010, and an annualized return on average equity of 18.62% for the quarter ended March 31, 2011.

Subsequent to quarter end, on July 15, 2011, the Company completed a public offering of 138,000,000 shares of common stock. The estimated net proceeds of the offering were approximately $2.4 billion, net of offering expenses.

Michael A.J. Farrell, Chairman, Chief Executive Officer and President of Annaly, commented on the Company’s results. “The uncertainty surrounding sovereign credit risk, regulatory reform and tepid economic performance is causing near-term volatility in asset prices and investor confidence, but the long-term implication of these conditions is that the very favorable operating environment in which we find ourselves is likely to persist for a significant period of time. Our successful capital raise last month will go towards taking advantage of accretive investment opportunities and continued strengthening of our balance sheet. We look forward to continuing to deliver compelling risk-adjusted investment returns to our shareholders and playing our part in the recovery of the American financial markets.”

For the quarter ended June 30, 2011, the annualized yield on average interest-earning assets was 4.04% and the annualized cost of funds on average interest-bearing liabilities, including the net interest payments on interest rate swaps, was 1.59%, which resulted in an average interest rate spread of 2.45%. This was a 29 basis point increase from the 2.16% annualized interest rate spread for the quarter ended June 30, 2010, and a 28 basis point increase from the 2.17% average interest rate spread for the quarter ended March 31, 2011. At June 30, 2011, the weighted average yield on investment securities was 3.76% and the weighted average cost of funds on borrowings, including the net interest payments on interest rate swaps, was 1.69%, which resulted in an interest rate spread of 2.07%. Beginning with the quarter and six-month periods ending June 30, 2011, net interest payments on interest rate swaps, reflected in the consolidated statements of operations and comprehensive income as realized gains (losses) on interest rate swaps, are included in the summary table presentation of cost of funds and interest rate spread. This change will not affect GAAP or taxable net income, shareholders’ equity, cash flows or earnings per share. Leverage at June 30, 2011, was 5.7:1 compared to 5.9:1 at June 30, 2010, and 6.3:1 at March 31, 2011.

Fixed-rate mortgage-backed securities and agency debentures comprised 89% of the Company’s portfolio at June 30, 2011. The balance of the mortgage-backed securities and agency debentures was comprised of 10% adjustable-rate mortgage-backed securities and agency debentures and 1% LIBOR floating-rate collateralized mortgage obligations. At June 30, 2011, the Company had entered into interest rate swaps with a notional amount of $35.5 billion, or 38% 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 intended effect of the swaps is to lock in a spread relative to the cost of financing. As of June 30, 2011, 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 operating dynamics of our portfolio continue to be favorable,” said Wellington Denahan-Norris, Annaly’s Vice Chairman, Chief Investment Officer and Chief Operating Officer. “The technicals in our markets improved with the end of QE2, prepayment speeds continue to decline despite falling mortgage rates, and the alignment of interest rates remains positive, all of which combine to offer attractive opportunities for reinvestment of amortizing principal and the proceeds of our recent capital raise. At the same time we believe the current global market environment makes it imperative for us to run our portfolio in a conservative fashion. After taking into account the effect of interest rate swaps, our portfolio of mortgage-backed securities and agency debentures was comprised of 39% floating-rate, 10% adjustable-rate and 51% fixed-rate assets.”

The following table summarizes portfolio information for the Company:

The Constant Prepayment Rate was 11% during the second quarter of 2011, as compared to 32% during the second quarter of 2010, and 17% during the first quarter of 2011. The weighted average purchase price of the Company’s mortgage-backed securities and agency debentures was 102.6% at June 30, 2011. The net amortization of premiums and accretion of discounts on mortgage-backed securities and agency debentures for the quarters ended June 30, 2011, June 30, 2010, and March 31, 2011 was $126.5 million, $137.2 million, and $174.8 million, respectively. The total net premium and discount balance at June 30, 2011, June 30, 2010, and March 31, 2011, was $3.0 billion, $1.8 billion, and $2.9 billion, respectively.

General and administrative expenses as a percentage of average assets were 0.23%, 0.23% and 0.23% for the quarters ended June 30, 2011, June 30, 2010, and March 31, 2011, respectively. At June 30, 2011, June 30, 2010, and March 31, 2011, the Company had a common stock book value per share of $16.55, $16.89 and $15.76, respectively.

At June 30, 2011, The Company’s wholly-owned registered investment advisors had under management approximately $13.1 billion in net assets and $23.0 billion in gross assets, as compared to $12.1 billion in net assets and $18.8 billion in gross assets at June 30, 2010 and $12.5 billion in net assets and $22.5 billion in gross assets at March 31, 2011. For the quarter ended June 30, 2011, the investment advisors earned investment advisory and service fees of $20.7 million, as compared to $13.9 million for the quarter ended June 30, 2010 and $17.2 million for the quarter ended March 31, 2011.

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 2011 second quarter earnings conference call on Tuesday August 2, 2011 at 9:00 a.m. EDT. The number to call is 866-843-0890 for domestic calls and 412-317-9250 for international calls. The conference passcode is 7352865. The replay number is 877-344-7529 for domestic calls and 412-317-0088 for international calls and the conference passcode is 10002635. 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 and other 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.