Annaly Capital Management, Inc. Reports Core EPS for the 2nd Quarter 2010 of $0.59

NEW YORK--(BUSINESS WIRE)-- Annaly Capital Management, Inc. (NYSE: NLY) today reported Core Earnings for the quarter ended June 30, 2010, of $335.7 million or $0.59 per average share available to common shareholders as compared to Core Earnings of $365.5 million or $0.66 per average share available to common shareholders for the quarter ended June 30, 2009, and Core Earnings of $350.8 million or $0.62 per average share available to common shareholders for the quarter ended March 31, 2010. “Core Earnings” represents a non-GAAP measure and is defined as net income excluding impairment losses, loss on receivable from prime broker, gains or losses on sales of securities and termination of interest rate swaps, unrealized gains or losses on interest rate swaps and unrealized gain or loss on trading securities. On a GAAP basis, net loss for the quarter ended June 30, 2010, was $218.2 million or $0.40 per average share related to common shareholders as compared to net income of $597.1 million or $1.09 per average share related to common shareholders for the quarter ended June 30, 2009, and net income of $281.1 million or $0.50 per average share available to common shareholders for the quarter ended March 31, 2010.

During the quarter ended June 30, 2010, the Company sold $1.9 billion of Investment Securities, resulting in a realized gain of $39.0 million. During the quarter ended June 30, 2009, the Company sold $524.2 million of Investment Securities, resulting in a realized gain of $2.4 million. During the quarter ended March 31, 2010, the Company sold $1.6 billion of Investment Securities, resulting in a realized gain of $47.0 million.

Common dividends declared for the quarter ended June 30, 2010, were $0.68 per share, which include gains on sale of Investment Securities, as compared to $0.60 per share for the quarter ended June 30, 2009, and $0.65 per share for the quarter ended March 31, 2010. The annualized dividend yield on the Company’s common stock for the quarter ended June 30, 2010, based on the June 30, 2010 closing price of $17.15, was 15.86%. On a Core Earnings basis, the Company provided an annualized return on average equity of 13.89% for the quarter ended June 30, 2010, as compared to 17.20% for the quarter ended June 30, 2009, and 14.57% for the quarter ended March 31, 2010. On a GAAP basis, the Company provided an annualized loss on average equity of 9.03% for the quarter ended June 30, 2010, as compared to an annualized return on average equity of 28.17% for the quarter ended June 30, 2009, and an annualized return on average equity of 11.67% for the quarter ended March 31, 2010.

Michael A.J. Farrell, Chairman, Chief Executive Officer and President of Annaly, commented on the Company’s results. “The Agency mortgage-backed securities market has been through a volatile first half of 2010. With the Fannie Mae and Freddie Mac buyout programs essentially completed, as well as the Federal Reserve’s plan to execute a coupon swap to complete its purchase program, the market is in a better position to evaluate the cash flows of mortgage-backed securities. I believe our team has done a terrific job positioning the portfolio through this period of volatility, and the results of that preparation and performance are evident in our financial results for the quarter. Although we expect more uncertainty and market volatility going forward for macroeconomic and legislative reasons, our recent capital raise reflects our confidence in taking advantage of investment opportunities to grow our company.”

For the quarter ended June 30, 2010, the annualized yield on average interest-earning assets was 4.16% and the annualized cost of funds on the average interest-bearing liabilities was 2.00%, which resulted in an average interest rate spread of 2.16%. This is a 31 basis point decrease from the 2.47% annualized interest rate spread for the quarter ended June 30, 2009, and a 6 basis point decrease from the 2.22% average interest rate spread for the quarter ended March 31, 2010.

At June 30, 2010, the weighted average yield on interest-earning assets was 3.65% and the weighted average cost of funds on interest-bearing liabilities, including the effect of interest rate swaps, was 2.09%, which resulted in an interest rate spread of 1.56%. Leverage at June 30, 2010, was 5.9:1 compared to 5.9:1 at June 30, 2009, and 5.6:1 at March 31, 2010.

Fixed-rate securities comprised 82% of the Company’s portfolio at June 30, 2010. The balance of the portfolio was comprised of 16% adjustable-rate mortgages and 2% LIBOR floating-rate collateralized mortgage obligations. At June 30, 2010, the Company had entered into interest rate swaps with a notional amount of $25.5 billion, or 38% of the 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 June 30, 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 dominant events of the quarter were the near completion of the Agency buyout programs and the strong rally in interest rates,” said Wellington Denahan-Norris, Annaly’s Vice Chairman, Chief Investment Officer and Chief Operating Officer. “As a result of the buyouts, amortization expense remained at elevated levels, which had the primary effect of reducing the yield on our assets. The decline in interest rates generally improved the mark on our assets, which flows through our balance sheet, an effect which was largely offset by the mark on our swaps, which flows through our income statement. After taking into account the effect of interest rate swaps, our portfolio of Investment Securities was comprised of 40% floating-rate, 16% adjustable-rate and 44% fixed-rate assets.”

The following table summarizes portfolio information for the Company:

The Constant Prepayment Rate was 32% during the second quarter of 2010, as compared to 19% during the second quarter of 2009, and 34% during the first quarter of 2010. The weighted average purchase price of the Company’s Investment Securities was 102.7% at June 30, 2010. The net amortization of premiums and accretion of discounts on Investment Securities for the quarters ended June 30, 2010, June 30, 2009, and March 31, 2010, was $137.2 million, $58.4 million, and $164.0 million, respectively. The total net premium remaining unamortized at June 30, 2010, June 30, 2009, and March 31, 2010, was $1.8 billion, $924.9 million, and $1.3 billion, respectively.

General and administrative expenses as a percentage of average assets were 0.23%, 0.19% and 0.23% for the quarters ended June 30, 2010, June 30, 2009, and March 31, 2010, respectively. At June 30, 2010, June 30, 2009, and March 31, 2010, the Company had a common stock book value per share of $16.89, $15.60 and $16.80, respectively.

At June 30, 2010, Annaly’s wholly-owned registered investment advisors had under management approximately $12.1 billion in net assets and $18.8 billion in gross assets, as compared to $9.9 billion in net assets and $19.0 billion in gross assets at June 30, 2009 and $11.6 billion in net assets and $20.3 billion in gross assets at March 31, 2010. For the quarter ended June 30, 2010, the investment advisors earned investment advisory and service fees, net of fees paid to distributors, of $13.9 million, as compared to $11.3 million for the quarter ended June 30, 2009 and $12.2 million for the quarter ended March 31, 2010.

Subsequent to the end of the second quarter, the Company issued 60 million shares of its common stock in a public offering at a price of $17.46 per share, resulting in aggregate net proceeds to the Company of approximately $1.05 billion before expenses. The underwriters have an option to purchase a maximum of 9 million additional shares of the Company’s common stock to cover overallotments.

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 619,823,135 shares of common stock outstanding.

The Company will hold the second quarter 2010 earnings conference call on Thursday July 29, 2010 at 10:00 a.m. EST. The number to call is 800-561-2601 for domestic calls and 617-614-3518 for international calls and the pass code is 40535832. The replay number is 888-286-8010 for domestic calls and 617-801-6888 for international calls and the pass code is 29122425. 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.