Annaly Capital Management, Inc. Reports 4th Quarter Core EPS of $0.23; Continuation of Portfolio Improvements in a Stabilizing Market

Business Wire, Feb 6, 2007

NEW YORK -- Annaly Capital Management, Inc. (NYSE: NLY) today reported Core Earnings for the quarter ended December 31, 2006 of $51.7 million or $0.23 per average share available to common shareholders, as compared to Core Earnings of $12.0 million or $0.06 per average share available to common shareholders for the quarter ended December 31, 2005 and Core Earnings of $34.9 million or $0.16 per average share available to common shareholders for the quarter ended September 30, 2006. The Company reported Core Earnings for the year ended December 31, 2006 of $141.8 million or $0.73 per average share available to common shareholders, as compared to Core Earnings of $127.1 million or $0.92 per average share available to common shareholders for the year ended December 31, 2005. "Core Earnings" represents a non-GAAP measure and is defined as net income (loss) excluding impairment losses and gains or losses on sales of securities. On a GAAP basis, the net income for the quarter ended December 31, 2006 was $53.3 million or $0.23 basic net income per average share available to common shareholders, as compared to a net loss of $136.7 million or $1.14 basic net loss per average share available to common shareholders for the quarter ended December 31, 2005 and net income of $42.9 million or $0.21 basic net income per average share available to common shareholders for the quarter ended September 30, 2006. On a GAAP basis, the net income for the year ended December 31, 2006 was $93.8 million or $0.44 basic net income per average share available to common shareholders, as compared to a net loss of $9.2 million or $0.19 basic net loss per average share available to common shareholders for the year ended December 31, 2005.

During the year ended December 31, 2006, the Company sold $3.2 billion of Mortgage-Backed Securities, resulting in a realized loss of $3.9 million. In addition, the Company had a $10.7 million realized gain on the termination of interest rate swaps with a notional value of $1.2 billion. During the year ended December 31, 2005, the Company sold $3.0 billion of Mortgage-Backed Securities, resulting in a realized loss of $53.2 million.

Common dividends declared for the quarter ended December 31, 2006 were $0.19 per share, as compared to $0.10 per share for the quarter ended December 31, 2005 and $0.14 per share for the quarter ended September 30, 2006. The annualized dividend yield on common stock for the quarter ended December 31, 2006, based on the December 31, 2006 closing price of $13.91, was 5.46%. On a Core Earnings basis, the Company provided an annualized return on average equity of 7.89% for the quarter ended December 31, 2006, as compared to 3.04% for the quarter ended December 31, 2005 and 6.29% for the quarter ended September 30, 2006. On a GAAP basis, the Company provided an annualized return on average equity of 8.13% for the quarter ended December 31, 2006, as compared to (35.71%) for the quarter ended December 31, 2005, and 7.72% for the quarter ended September 30, 2006. On a GAAP basis, the Company provided an annualized return on average equity of 4.68% for the year ended December 31, 2006, as compared to (0.57%) for the year ended December 31, 2005.

During the year ended December 31, 2006, the Company completed an offering of cumulative convertible preferred stock totaling approximately $111.5 million in net proceeds, before offering expenses. The Company also completed two secondary offerings of common stock. The net proceeds from these offerings were approximately $914.0 million, before offering expenses.

Michael A.J. Farrell, Chairman, Chief Executive Officer and President of Annaly, commented on the quarter's results. "The transparency of the Annaly business model is such that our fourth quarter results are a fair reflection of the market facts: During the quarter short- and long-term rates were relatively range-bound, thus keeping our cost of funds steady and stabilizing our asset values. We also benefited from the accretion related to capital deployed after our capital-raises. While the Federal Reserve has remained on hold since June 29, 2006, recent economic data have not been sufficient to drive a policy move in one direction or another. However, we believe that signs of continuing weakness in housing and housing-related industries, deterioration in credit performance among mortgage borrowers, and the easing of inflationary pressures will be important signposts for the Fed. That said, we continue to position our portfolio of assets to perform in a range of interest rate outcomes, including a continuation of the current environment."

For the quarter ended December 31, 2006, the annualized yield on average earning assets was 5.64% and the annualized cost of funds on the average repurchase balance was 5.15%, which equates to an interest rate spread of 0.49%. This is a 40 basis point increase over the 0.09% annualized interest rate spread for the quarter ended December 31, 2005 and a 17 basis point increase over the 0.32% annualized interest rate spread for the quarter ended September 30, 2006. For the quarter ended December 31, 2005, the annualized yield on average earning assets was 4.10% and the annualized cost of funds on the average repurchase balance was 4.01%. For the quarter ended September 30, 2006, the annualized yield on average earning assets was 5.44% and the annualized cost of funds on the average repurchase balance was 5.12%. At December 31, 2006, the weighted average yield on assets was 5.63% and the cost of funds was 5.14%, which equates to an interest rate spread of 0.49%. Leverage at December 31, 2006 was 10.4:1, in comparison to 9.0:1 at December 31, 2005 and 9.6:1 at September 30, 2006.