Annaly Capital Management, Inc. Reports 3rd Quarter Core EPS of $0.31; Continued Performance Improvement Through Turbulent Markets

Business Wire, Oct 29, 2007

NEW YORK -- Annaly Capital Management, Inc. (NYSE: NLY) today reported Core Earnings for the quarter ended September 30, 2007 of $102.5 million or $0.31 per average share available to common shareholders as compared to Core Earnings of $34.9 million or $0.16 per average share available to common shareholders for the quarter ended September 30, 2006 and Core Earnings of $79.1 million or $0.28 per average share available to common shareholders for the quarter ended June 30, 2007. "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 and termination of interest rate swaps. On a GAAP basis, the net income for the quarter ended September 30, 2007 was $108.3 million or $0.33 basic net income per average share available to common shareholders, as compared to a 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 and net income of $85.7 million or $0.30 basic net income per average share available to common shareholders for the quarter ended June 30, 2007.

During the quarter ended September 30, 2007, the Company sold $1.8 billion of Mortgage-Backed Securities, resulting in a realized gain of $3.8 million. In addition the Company had a $2.0 million gain on the termination of interest rate swaps with a notional value of $600 million. During the quarter ended September 30, 2006, the Company sold $484 million of Mortgage-Backed Securities, resulting in a realized loss of $446,000. In addition, the Company had an $8.4 million gain on the termination of interest rate swaps with a notional value of $895 million. During the quarter ended June 30, 2007, the Company sold $1.4 billion of Mortgage-Backed Securities, resulting in a realized gain of $7.3 million.

Common dividends declared for the quarter ended September 30, 2007 were $0.26 per share, as compared to $0.14 per share for the quarter ended September 30, 2006 and $0.24 per share for the quarter ended June 30, 2007. The annualized dividend yield on the Company's common stock for the quarter ended September 30, 2007, based on the September 28, 2007 closing price of $15.93, was 6.53%. On a Core Earnings basis, the Company provided an annualized return on average equity of 11.44% for the quarter ended September 30, 2007, as compared to 6.29% for the quarter ended September 30, 2006, and 9.68% for the quarter ended June 30, 2007. On a GAAP basis, the Company provided an annualized return on average equity of 12.09% for the quarter ended September 30, 2007, as compared to 7.72% for the quarter ended September 30, 2006, and 10.49% for the quarter ended June 30, 2007.

As previously announced, subsequent to quarter-end the Company completed a public offering of 71,300,000 shares of common stock. The estimated net proceeds of the offering, including the exercise of the underwriters' over-allotment option, were approximately $1.0 billion, net of offering expenses.

Michael A.J. Farrell, Chairman, Chief Executive Officer and President of Annaly, commented on the quarter's results. "The Annaly team has done a terrific job navigating through a difficult market environment by prudently executing our investment strategy and focusing on only the highest quality assets. Our ability to improve our portfolio through utilizing the proceeds of successful capital raises has been an important element in our performance. Broad market conditions remain uncertain, but we believe that the portfolio steps we have taken have positioned us to perform in a range of possible outcomes and that our investing discipline will continue to reward long-term investors."

For the quarter ended September 30, 2007, the annualized yield on average earning assets was 5.84% and the annualized cost of funds on the average repurchase balance was 5.17%, which equates to an interest rate spread of 0.67%. This is a 35 basis point increase over the 0.32% annualized interest rate spread for the quarter ended September 30, 2006 and a 7 basis point increase over the 0.60% annualized interest rate spread for the quarter ended June 30, 2007. 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%. For the quarter ended June 30, 2007, the annualized yield on average earning assets was 5.73% and the annualized cost of funds on the average repurchase balance was 5.13%. At September 30, 2007, the weighted average yield on assets was 5.74% and the cost of funds was 4.99%, which equates to an interest rate spread of 0.75%. Leverage at September 30, 2007 was 9.9:1, in comparison to 9.6:1 at September 30, 2006 and 11.2:1 at June 30, 2007.

Fixed rate securities comprised 71% of the Company's portfolio at September 30, 2007. The balance of the portfolio was comprised of 22% adjustable rate mortgages and 7% LIBOR floating rate collateralized mortgage obligations. At September 30, 2007, the Company had entered into interest rate swaps with a notional amount of $14.7 billion. The Company's swaps are designated as cash flow hedges against the benchmark interest rate risk associated with the Company's borrowings. 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 will be receiving a floating rate on the notional amount of the swaps, the effect of the swaps will be to enhance the earnings potential of a portion of the fixed rate assets in the portfolio in a rising rate environment. The Company has continued to avoid the introduction of credit risk into its portfolio. As of September 30, 2007, substantially all of the assets in the Company's portfolio were FNMA, GNMA and FHLMC mortgage-backed securities and agency debentures, which carry an actual or implied "AAA" rating.