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Annaly Capital Management, Inc. Reports 2nd Quarter 2009 Core EPS of $0.66; Increase of 10% from Prior Year and 18% from Prior Quarter

an-er 29 Jul 2009
Annaly Capital Management, Inc. Reports 2nd Quarter 2009 Core EPS of $0.66; Increase of 10% from Prior Year and 18% from Prior Quarter
Company Release - 07/29/2009 16:05

NEW YORK--(BUSINESS WIRE)-- Annaly Capital Management, Inc. (NYSE: NLY) today reported Core Earnings for the quarter ended June 30, 2009, of $364.5 million or $0.66 per average share available to common shareholders as compared to Core Earnings of $305.2 million or $0.60 per average share available to common shareholders for the quarter ended June 30, 2008, and Core Earnings of $309.3 million or $0.56 per average share available to common shareholders for the quarter ended March 31, 2009. "Core Earnings" represents a non-GAAP measure and is defined as net income (loss) excluding impairment losses, gains or losses on sales of securities and termination of interest rate swaps and unrealized gains or losses on interest rate swaps. On a GAAP basis, net income for the quarter ended June 30, 2009, was $597.1 million or $1.09 per average share available to common shareholders, as compared to net income of $308.0 million or $0.60 per average share available to common shareholders for the quarter ended June 30, 2008, and net income of $349.9 million or $0.64 per average share related to common shareholders for the quarter ended March 31, 2009.

During the quarter ended June 30, 2009, the Company sold $524.2 million of Mortgage-Backed Securities, resulting in a realized gain of $2.4 million. During the quarter ended June 30, 2008, the Company sold $2.1 billion of Mortgage-Backed Securities, resulting in a realized gain of $2.8 million. During the quarter ended March 31, 2009, the Company sold $835.7 million of Mortgage-Backed Securities, resulting in a realized gain of $5.0 million.

Common dividends declared for the quarter ended June 30, 2009, were $0.60 per share, as compared to $0.55 per share for the quarter ended June 30, 2008, and $0.50 per share for the quarter ended March 31, 2009. The annualized dividend yield on the Company's common stock for the quarter ended June 30, 2009, based on the June 30, 2009 closing price of $15.14, was 15.85%. On a Core Earnings basis, the Company provided an annualized return on average equity of 17.20% for the quarter ended June 30, 2009, as compared to 17.88% for the quarter ended June 30, 2008 and 15.96% for the quarter ended March 31, 2009. On a GAAP basis, the Company provided an annualized return on average equity of 28.17% for the quarter ended June 30, 2009, as compared to an annualized return on average equity of 18.04% for the quarter ended June 30, 2008, and an annualized return on average equity of 18.06% for the quarter ended March 31, 2009.

Michael A.J. Farrell, Chairman, Chief Executive Officer and President of Annaly, commented on the Company's results. "I'm pleased that we continue to deliver strong risk-adjusted returns for our shareholders while maintaining a prudent approach to portfolio management. Even though we expect the currently favorable operating conditions to persist for some time, we will continue to vigilantly monitor the many policy and economic cross-currents that can affect our returns."

For the quarter ended June 30, 2009, the annualized yield on average earning assets was 5.04% and the annualized cost of funds on the average repurchase balance was 2.57%, which resulted in an average interest rate spread of 2.47%. This is a 48 basis point increase over the 1.99% annualized interest rate spread for the quarter ended June 30, 2008, and a 36 basis point increase over the 2.11% annualized interest rate spread for the quarter ended March 31, 2009. At June 30, 2009, the weighted average yield on assets was 4.67% and the weighted average cost of funds, including the effect of interest rate swaps, was 2.54%, which resulted in an interest rate spread of 2.13%. Leverage at June 30, 2009, was 5.9:1 compared to 7.1:1 at June 30, 2008, and 6.0:1 at March 31, 2009.

Fixed-rate securities comprised 69% of the Company's portfolio at June 30, 2009. The balance of the portfolio was comprised of 25% adjustable-rate mortgages and 6% LIBOR floating-rate collateralized mortgage obligations. At June 30, 2009, the Company had entered into interest rate swaps with a notional amount of $19.8 billion, or 31% of the portfolio. 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 June 30, 2009, all of the Company's Investment Securities were Fannie Mae, Freddie Mac and Ginnie Mae mortgage-backed securities, which carry an actual or implied "AAA" rating.

"Investment opportunities for new capital remain attractive in the current environment," said Wellington Denahan-Norris, Annaly's Vice Chairman, Chief Investment Officer and Chief Operating Officer. "The yield curve steepened during the quarter, and prepayment speeds continue to come in slower than market expectations. Mortgage rates trended up during the quarter, which should serve to further dampen refinancing activity going forward. Our swap book, which provides the bulk of the floating rate exposure in our portfolio, continues to roll into lower rates and thereby lower our cost of funds. After taking into account the effect of interest rate swaps, at June 30, 2009, our portfolio of Investment Securities was comprised of 37% floating-rate, 25% adjustable-rate and 38% fixed-rate assets."

The following table summarizes portfolio information for the Company:


                                                   June 30,  June 30,  March 31,

                                                   2009      2008      2009

Leverage at period-end                             5.9:1     7.1:1     6.0:1

Fixed-rate investment securities as a percentage   69%       69%       66%
of portfolio

Adjustable-rate investment securities as a         25%       23%       27%
percentage of portfolio

Floating-rate investment securities as a           6%        8%        7%
percentage of portfolio

Notional amount of interest rate swaps as a        31%       30%       31%
percentage of portfolio

Annualized yield on average earning assets during  5.04%     5.50%     5.23%
the quarter

Annualized cost of funds on average repurchase     2.57%     3.51%     3.12%
balance during the quarter

Annualized interest rate spread during the         2.47%     1.99%     2.11%
quarter

Weighted average yield on assets at period-end     4.67%     5.27%     4.86%

Weighted average cost of funds at period-end       2.54%     3.40%     2.78%

Interest rate spread at period-end                 2.13%     1.87%     2.08%

Weighted average receive rate on interest rate     0.38%     2.47%     0.55%
swaps at period-end

Weighted average pay rate on interest rate swaps   4.20%     4.78%     4.55%
at period-end



The Constant Prepayment Rate was 19% during the second quarter of 2009, as compared to 16% during the second quarter of 2008, and 16% during the first quarter of 2009. The weighted average cost basis of the Company's Investment Securities was 101.6 at June 30, 2009. The net amortization of premiums and accretion of discounts on Investment Securities for the quarters ended June 30, 2009, June 30, 2008, and March 31, 2009, was $58.4 million, $26.6 million, and $41.0 million, respectively. The total net premium remaining unamortized at June 30, 2009, June 30, 2008, and March 31, 2009, was $924.9 million, $500.7 million, and $668.3 million, respectively.

General and administrative expenses as a percentage of average assets were 0.19%, 0.18% and 0.20% for the quarters ended June 30, 2009, June 30, 2008, and March 31, 2009, respectively. At June 30, 2009, June 30, 2008, and March 31, 2009, the Company had a common stock book value per share of $15.60, $13.03 and $14.67, respectively.

At June 30, 2009, Annaly's wholly-owned registered investment advisors had under management approximately $9.9 billion in net assets and $19.0 billion in gross assets, as compared to $2.7 billion in net assets and $11.8 billion in gross assets at June 30, 2008 and $8.5 billion in net assets and $16.3 billion in gross assets at March 31, 2009. For the quarter ended June 30, 2009, the investment advisors earned investment advisory and service fees, net of fees paid to distributors, of $11.3 million, as compared to $6.0 million for the quarter ended June 30, 2008 and $7.3 million for the quarter ended March 31, 2009.

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. Annaly is a Maryland corporation that has elected to be taxed as a real estate investment trust ("REIT"), and currently has 544,357,410 shares of common stock outstanding.

The Company will hold the second quarter 2009 earnings conference call on July 30, 2009 at 10:00 a.m. EST. The number to call is 800-322-2803 for domestic calls and 617-614-4925 for international calls and the pass code is 30518899. The replay number is 888-286-8010 for domestic calls and 617-801-6888 for international calls and the pass code is 67731924. 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 E-Mail alerts, enter your e-mail address where indicated and click the Submit button.

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.


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(dollars in thousands)

                    June 30,       March 31,                     September 30,  June 30,
                                                  December 31,
                    2009           2009                          2008           2008
                                                  2008(1)
                    (Unaudited)    (Unaudited)                   (Unaudited)    (Unaudited)

ASSETS

Cash and cash       $ 1,352,798    $ 1,035,118    $ 909,353      $ 1,083,814    $ 1,462,737
equivalents

Reverse repurchase
agreements with     170,916        452,480        562,119        619,657        49,964
affiliate

Mortgage-Backed
Securities, at      65,165,126     58,785,456     55,046,995     54,840,928     58,017,305
fair value

Agency debentures,  616,893        -              598,945        618,352        731,995
at fair value

Available-for-sale
equity securities,  156,990        51,418         52,795         22,490         32,631
at fair value

Trading
securities, at      -              -              -              2,199          23,478
fair value

Receivable for
Investment          412,214        33,009         75,546         2,446,342      824,308
Securities sold

Accrued interest
and dividends       313,772        291,347        282,532        295,925        303,228
receivable

Receivable from     16,886         16,886         16,886         -              -
Prime Broker(2)

Receivable for
advisory and        10,039         6,507          6,103          3,581          4,703
service fees

Intangible for
customer            11,091         11,399         12,380         6,726          7,604
relationships

Goodwill            27,917         27,917         27,917         22,966         22,966

Interest rate
swaps, at fair      7,267          -              -              -              -
value

Other assets        5,346          5,717          6,044          2,602          3,216

Total assets        $68,267,255    $60,717,254    $57,597,615    $59,965,582    $61,484,135

LIABILITIES AND
STOCKHOLDERS'
EQUITY

Liabilities:

Repurchase          $51,326,930    $48,951,178    $46,674,885    $51,075,758    $51,839,663
agreements

Payable for
Investment          7,017,444      2,121,670      2,062,030      839,235        1,405,109
Securities
purchased

Trading securities
sold, not yet       -              -              -              30,903         48,718
purchased, at fair
value

Accrued interest    102,662        112,457        199,985        168,361        154,615
payable

Dividends payable   326,612        272,170        270,736        296,254        296,201

Accounts payable
and other           40,115         23,970         8,380          26,385         36,625
liabilities

Interest rate
swaps, at fair      722,700        1,012,574      1,102,285      384,258        400,998
value

Total liabilities   59,536,463     52,494,019     50,318,301     52,821,154     54,181,929

6.00% Series B
Cumulative
Convertible
Preferred Stock:
4,600,000 shares
authorized,
2,604,814,          63,118         63,185         96,042         108,957        108,957
2,607,564,
3,963,525,
4,496,525, and
4,496,525 shares
issued and
outstanding,
respectively

Stockholders'
Equity:

7.875% Series A
Cumulative
Redeemable
Preferred Stock:
7,412,500           177,088        177,088        177,088        177,088        177,088
authorized,
7,412,500 shares
issued and
outstanding

Common stock, par
value $.01 per
share, 987,987,500
authorized,
544,353,997,
544,339,785,        5,444          5,443          5,415          5,402          5,385
541,475,366,
540,189,101, and
538,546,666,
issued and
outstanding,
respectively

Additional paid-in  7,668,988      7,667,769      7,633,438      7,616,528      7,592,161
capital

Accumulated other
comprehensive       1,362,134      1,121,551      252,230        (661,498    )  (478,791    )
income (loss)

Accumulated         (545,980    )  (811,801    )  (884,899    )  (102,049    )  (102,594    )
deficit

Total
stockholders'       8,667,674      8,160,050      7,183,272      7,035,471      7,193,249
equity

Total liabilities,
Series B
cumulative
                    $68,267,255    $60,717,254    $57,597,615    $59,965,582    $61,484,135
convertible
preferred stock
and stockholders'
equity




(1) Derived from the audited consolidated financial statements at December 31,
    2008.

    The Company invested $45,000,000 in an equity fund and has redeemed
    $56,000,000. Net unrealized gains in the fund valued at September 15, 2008
(2) still remain at the prime broker, Lehman Brothers International (Europe),
    which is in bankruptcy and the ultimate recovery of such amount remains
    uncertain.




ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

(dollars in thousands, except per share data)

                        For the quarters ended

                        June 30,       March 31,      December 31,   September 30,  June 30,

                        2009           2009           2008           2008           2008

Interest income         $710,401       $716,015       $740,282       $810,659       $773,359

Interest expense        322,596        378,625        450,805        458,250        442,251

Net interest income     387,805        337,390        289,477        352,409        331,108

Other income (loss)

Investment advisory     11,736         7,761          7,224          7,663          6,406
and service fees

Gain (loss)on sale of
Mortgage-Backed         2,364          5,023          (468        )  (1,066      )  2,830
Securities

(Loss)income from       -              -              (2,010      )  7,671          2,180
trading securities

Dividend income from
available-for-sale      3,221          918            612            580            580
equity securities

Loss on
other-than-temporarily  -              -              -              (31,834     )  -
impaired securities(1)

Unrealized gain (loss)
on interest rate swaps  230,207        35,545         (768,268    )  -              -
(2)

Total other income      247,528        49,247         (762,910    )  (16,986     )  11,996
(loss)

Expenses

Distribution fees       432            428            287            299            370

General and
administrative          30,046         29,882         26,957         25,455         27,215
expenses

Total expenses          30,478         30,310         27,244         25,754         27,585

Income (loss) before    604,855        356,327        (500,677    )  309,669        315,519
income taxes

Income taxes            7,801          6,434          6,302          7,538          7,527

Net income              597,054        349,893        (506,979    )  302,131        307,992

Dividends on preferred  4,625          4,626          5,135          5,335          5,334
stock

Net income (loss)
available (related) to  $592,429       $345,267       ($512,114   )  $296,796       $302,658
common shareholders

Net income (loss)
available (related)
per share to common
shareholders:

Basic                   $1.09          $0.64          ($0.95      )  $0.55          $0.60

Diluted                 $1.08          $0.63          ($0.95      )  $0.54          $0.59

Weighted average
number of common
shares outstanding:

Basic                   544,344,844    542,903,110    541,099,147    538,706,131    503,758,079

Diluted                 550,099,709    548,551,328    541,099,147    547,882,488    512,678,975

Net income (loss)       $597,054       $349,893       ($506,979   )  $302,131       $307,992

Other comprehensive
income (loss):

Unrealized gain (loss)
on available-for-sale   176,013        820,178        863,018        (232,347    )  (529,008    )
securities

Unrealized gain on      66,934         54,166         50,242         16,740         388,861
interest rate swaps

Reclassification
adjustment for (gains)  (2,364      )  (5,023      )  468            32,900         (2,830      )
losses included in net
income

Other comprehensive     240,583        869,321        913,728        (182,707    )  (142,977    )
income (loss)

Comprehensive income    $837,637       $1,219,214     $406,749       $119,424       $165,015




     Although the Company has the intent and ability to retain its investment in
     Chimera Investment Corporation, the Company determined that it is
(1)  appropriate to recognize an other-than-temporary impairment charge of $31.8
     million. Recognition of such impairment charges does not reduce the taxable
     income of the Company. The non-cash charge is the difference between the
     purchase price for the shares and their fair value at September 30, 2008.

     Beginning in the fourth quarter of 2008, the Company no longer applies
(2)  hedge accounting to its interest rate swaps under SFAS 133. As a result,
     changes in unrealized gains and losses in interest rate swaps are reported
     in the income statement for GAAP purposes.




ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(UNAUDITED)

(dollars in thousands, except per share data)

                                                   For the six months ended

                                                   June 30, 2009  June 30, 2008

Interest income                                    $1,426,416     $1,564,487

Interest expense                                   701,221        979,857

Net interest income                                725,195        584,630

Other income

Investment advisory and service fees               19,497         13,004

Gain on sale of Mortgage-Backed Securities         7,387          12,247

Income from trading securities                     -              4,034

Dividend income from available-for-sale equity     4,139          1,521
securities

Unrealized gain (loss) on interest rate swaps      265,752        -

Total other income                                 296,775        30,806

Expenses

Distribution fees                                  860            1,003

General and administrative expenses                59,928         51,210

Total expenses                                     60,788         52,213

Income before income taxes and noncontrolling      961,182        563,223
interest

Income taxes                                       14,235         12,137

Net income                                         946,947        551,086

Noncontrolling interest                            -              58

Net income attributable to controlling interest    946,947        551,028

Dividend on preferred stock                        9,251          10,707

Net income available to common shareholders        $937,696       $540,321

Net income available per share to

common shareholders:

Basic                                              $1.72          $1.14

Diluted                                            $1.71          $1.13

Weighted average number of common shares
outstanding:

Basic                                              543,627,960    473,785,256

Diluted                                            549,394,817    482,813,463

Net income                                         $946,947       $551,028

Other comprehensive income (loss):

Unrealized gain (loss) on available-for-sale       996,191        (311,445    )
securities

Unrealized gain (loss) on interest rate swaps      121,100        (2,902      )

Reclassification adjustment for gains included in  (7,387      )  (12,247     )
net income

Other comprehensive income (loss)                  1,109,904      (326,594    )

Comprehensive income (loss)                        $2,056,851     $224,434




    Source: Annaly Capital Management, Inc.
Contact: Annaly Capital Management, Inc. Investor Relations 1- (888) 8Annaly www.annaly.com

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