Annaly Mortgage Management, Inc. Announces 2nd Quarter 2003 Earnings

Business Wire, July 28, 2003

Business Editors

NEW YORK--(BUSINESS WIRE)--July 28, 2003

Annaly Mortgage Management, Inc. (NYSE: NLY)(the "Company")today reported earnings for the quarter ended June 30, 2003 of $58,152,000 or $0.62 per average share outstanding, as compared to $59,369,000 or $0.72 per average share outstanding for the quarter ended June 30, 2002.

During the quarter the Company raised approximately $151.3 million in net proceeds through a secondary offering of 9,300,700 shares of common stock.

The Company provided an annualized return on average equity of 20.79% for the quarter ended June 30, 2003, as compared to 18.83% for the quarter ended March 31, 2003 and 23.08% for the quarter ended June 30, 2002. Dividends declared for the quarter ended June 30, 2003 were $0.60 per share, compared to $0.60 for the quarter ended March 31, 2003 and $0.68 per share for the quarter ended June 30, 2002. The annualized dividend yield for the quarter, based on the June 30, 2003 closing price of $19.91, was 12.05%.

"As managers, our job is to create for shareholders a steady stream of income in the form of dividends," said Michael A.J. Farrell, Chairman, Chief Executive Officer and President of Annaly. "That stream of income will fluctuate with the nominal level of rates and as the yields that we earn on our assets change in relation to our cost of funds. Investors in all markets--equities, money markets, credit-sensitive securities--have had to adjust their return expectations in response to the nominally low interest rate environment and the sluggish economy, and we are no different. Our results for the quarter reflect these market conditions, particularly the effect of high mortgage refinancing activity. As we navigate through these markets, we believe that our portfolio of adjustable-rate and fixed-rate mortgage-backed securities will continue to offer competitive returns."

For the quarter ended June 30, 2003, the yield on average earning assets was 2.93% and the cost of funds on the average repurchase balance was 1.68%, which equates to an interest rate spread of 1.25%. This is a 30 basis point decrease over the 1.55% interest rate spread for the quarter ended March 31, 2003, when the yield on average earning assets was 3.23% and the cost of funds on the average repurchase balance was 1.68%, and a 120 basis point decrease over the 2.45% interest rate spread for the quarter ended June 30, 2002, when the yield on average earning assets was 4.55% and the cost of funds on the average repurchase balance was 2.10%.

The Constant Prepayment Rate increased to 44% during the second quarter of 2003, as compared to 41% in the first quarter of 2003 and 25% for the quarter ended June 30, 2002. The homeowners' prepayment option makes the average term, yield and performance of a mortgage-backed security uncertain because of the uncertainty in timing the return of principal. In general, prepayments decrease the yield on a security purchased at a premium. The faster prepayments come in, the faster that premium is amortized. The weighted average purchase price of the portfolio was 102.5 at June 30, 2003, 102.6 at March 31, 2003, and 102.2 at June 30, 2002. "The dominant challenge today for any mortgage-backed securities portfolio manager is maintaining performance through these periods of extremely fast prepayments and historically low yields," said Wellington Denahan, Vice Chairman and Chief Investment Officer. "Prepayments have reduced our spread income through the high levels of premium amortization, and we expect to see these effects continue near term. Nevertheless, the recent backup in 10 year Treasury yields from 3.50% at quarter end to 4.17% on July 24, 2003 should result in slowing refinance activity. This slowing, along with low funding costs, should be advantageous for the Company in the long term."

For the quarter ended June 30, 2003, the Company's gain on sale of assets was $20.2 million as compared to $11.0 million in the quarter ended March 31, 2003 and $1.3 million for the quarter ended June 30, 2002. Leverage at June 30, 2003 was 10.5:1, in comparison to 9.5:1 at March 31, 2003 and 8.8:1 at June 30, 2002.

General and administrative expenses as a percent of average assets was 0.12% for the quarters ended June 30, 2003 and March 31, 2003 and 0.13% for the quarter ended June 30, 2002. In addition, the Company's Dividend Efficiency Ratio, calculated as general and administrative expenses divided by dividends paid, was 7.4%, 7.3%, and 6.3% for the quarters ended June 30, 2003, March 31, 2003, and June 30, 2002, respectively.

At June 30, 2003, March 31, 2003, and June 30, 2002, the Company had a book value of $12.35, $12.72, and $12.65, respectively. The Company classifies all investment securities as "available for sale;" therefore requiring the Company to record the entire portfolio at market value. Fixed rate securities comprised approximately 36% of the Company's portfolio at June 30, 2003. The balance of the portfolio was comprised of 42% adjustable rate securities and 22% LIBOR floating rate securities. The Company has continued to avoid the introduction of credit risk into its portfolio. As of June 30, 2003, all of the assets in the Company's portfolio were FNMA, GNMA, FHLMC mortgage-backed securities, and agency debentures, which carry an actual or implied "AAA" rating.