EX-99.1 2 a5264042ex99_1.txt EXHIBIT 99.1 Exhibit 99.1 Annaly Capital Management, Inc. Reports 3rd Quarter 2006 Core EPS of $0.16; Mid-Quarter Capital Raise Fully Invested by Quarter-End NEW YORK--(BUSINESS WIRE)--Nov. 1, 2006--Annaly Capital Management, Inc. (NYSE: NLY) today reported Core Earnings for the quarter ended September 30, 2006 of $34.9 million or $0.16 per average share available to common shareholders, as compared to Core Earnings of $21.2 million or $0.14 per average share available to common shareholders for the quarter ended September 30, 2005 and Core Earnings of $31.3 million or $0.16 per average share available to common shareholders for the quarter ended June 30, 2006. "Core Earnings" is defined as net (loss) income excluding impairment losses and gains or losses on sales of securities. On a GAAP basis, the net income for the quarter ended September 30, 2006 was $42.9 million or $0.21 basic net income per average share available to common shareholders, as compared to net income of $21.2 million or $0.14 basic net income per average share available to common shareholders for the quarter ended September 30, 2005 and net income of $8.6 million or $0.02 basic net income per average share available to common shareholders for the quarter ended June 30, 2006. During the third quarter $484 million of Mortgage-Backed Securities were sold, 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. Common dividends declared for the quarter ended September 30, 2006 were $0.14 per share, as compared to $0.13 per share for the quarter ended September 30, 2005 and $0.13 per share for the quarter ended June 30, 2006. The annualized dividend yield on common stock for the quarter ended September 30, 2006, based on the September 30, 2006 closing price of $13.14, was 4.26%. On a Core Earnings basis, the Company provided an annualized return on average equity of 6.29% for the quarter ended September 30, 2006, as compared to 5.20% for the quarter ended September 30, 2005 and 7.63% for the quarter ended June 30, 2006. On a GAAP basis, the Company provided an annualized return on average equity of 7.72% for the quarter ended September 30, 2006, as compared to 5.20% for the quarter ended September 30, 2005, and 2.09% for the quarter ended June 30, 2006. During the third quarter, the Company completed a secondary offering of common stock. The net proceeds from the offering, including the exercise of the underwriters' over-allotment option, were approximately $476.7 million, before offering expenses. Michael A.J. Farrell, Chairman, Chief Executive Officer and President of Annaly, commented on the quarter's results. "The Federal Reserve has been on hold since the June 28/29 FOMC meeting. As a result, the front of the yield curve has been relatively range-bound. For our portfolio, this has meant that our cost of funds has leveled out, and pressure on book value has eased. We expect that the market will remain in a relatively tight trading range until incoming economic data offer clear direction as to the Federal Reserve's next policy bias." 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%, which equates to an interest rate spread of 0.32%. This is an 8 basis point increase over the 0.24% annualized interest rate spread for the quarter ended September 30, 2005 and a 2 basis point decrease over the 0.34% annualized interest rate spread for the quarter ended June 30, 2006. For the quarter ended September 30, 2005, the annualized yield on average earning assets was 3.75% and the annualized cost of funds on the average repurchase balance was 3.51%. For the quarter ended June 30, 2006, the annualized yield on average earning assets was 5.17% and the annualized cost of funds on the average repurchase balance was 4.83%. At September 30, 2006, the weighted average yield on assets was 5.58% and the cost of funds was 5.12%, which equates to an interest rate spread of 46 basis points. Leverage at September 30, 2006 was 9.6:1, in comparison to 10.9:1 at September 30, 2005 and 11.5:1 at June 30, 2006. Fixed rate securities comprised 71% of the Company's portfolio at September 30, 2006. The balance of the portfolio was comprised of 20% adjustable rate mortgages and 9% LIBOR floating rate collateralized mortgage obligations. The Company has continued to avoid the introduction of credit risk into its portfolio. As of September 30, 2006, substantially all of the assets in the Company's portfolio were FNMA, GNMA and FHLMC mortgage-backed securities, which carry an actual or implied "AAA" rating. During the third quarter of 2006, the Company entered into additional interest rate swap transactions, pursuant to which the Company agrees to pay a fixed interest rate and to receive a variable interest rate. 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. "We were able to fully leverage and invest the proceeds of our capital raise by the end of the quarter," said Wellington Denahan-Norris, Annaly's Vice Chairman, Chief Investment Officer and Chief Operating Officer. "Giving effect to the swaps, at September 30, 2006 our portfolio of short duration assets was effectively comprised of 39% fixed-rate, 20% adjustable-rate and 41% floating-rate exposure, which is consistent with the portfolio composition in our barbell strategy." The following table summarizes portfolio information for the Company: September 30, September 30, June 30, 2006 2005 2006 Leverage at period-end 9.6:1 10.9:1 11.5:1 Fixed-rate mortgage-backed securities as % of portfolio 71% 34% 67% Adjustable-rate mortgage-backed securities as % of portfolio 20% 61% 24% Floating-rate mortgage-backed securities as % of portfolio 9% 5% 9% Notional amount of interest rate swaps as % of portfolio 32% 0% 34% Annualized yield on average earning assets during the quarter 5.44% 3.75% 5.17% Annualized cost of funds on avg. repurchase balance during the quarter 5.12% 3.51% 4.83% Weighted average yield on assets at period-end 5.58% 3.96% 5.42% Weighted average cost of funds at period-end 5.12% 3.69% 5.01% The Constant Prepayment Rate was 16% during the third quarter of 2006, as compared to 28% during the third quarter of 2005, and 19% during the second quarter of 2006. The weighted average cost basis was 100.5 at September 30, 2006. The net amortization of premiums and accretion of discounts on investment securities for the quarters ended September 30, 2006, September 30, 2005 and June 30, 2006 was $14.9 million, $43.7 million, and $17.9 million, respectively. The total net premium remaining unamortized at September 30, 2006, September 30, 2005 and June 30, 2006 was $139.7 million, $376.0 million, and $161.7 million, respectively. General and administrative expenses as a percentage of average assets were 0.18%, 0.13%, and 0.18% for the quarters ended September 30, 2006, September 30, 2005, and June 30, 2006, respectively. At September 30, 2006, September 30, 2005, and June 30, 2006 the Company had a common stock book value per share of $11.26, $11.18 and $9.48, respectively. At September 30, 2006, FIDAC, Annaly's wholly-owned registered investment advisor, had under management approximately $2.6 billion in net assets and $14.6 billion in gross assets, as compared to $2.9 billion in net assets and $26.8 billion in gross assets at September 30, 2005 and $2.6 billion in net assets and $14.1 billion in gross assets at June 30, 2006. For the quarter ended September 30, 2006, FIDAC earned investment advisory and service fees, net of fees paid to distributors, of $4.3 million, as compared to $8.5 million for the quarter ended September 30, 2005 and $4.5 million for the quarter ended June 30, 2006. FIDAC, organized as a taxable REIT subsidiary of Annaly, generally receives net investment advisory fees of approximately 10 to 20 basis points of the gross assets it manages, assists in managing or supervises. "The change in bond market sentiment has been positive for FIDAC," said Mr. Farrell. "Our team is committed to growing our asset management business from here, as we endeavor to grow our fee income stream to complement the spread income earned at the Annaly level." Annaly manages assets on behalf of institutional and individual investors worldwide through Annaly and through the funds managed by its wholly-owned registered investment advisor, FIDAC. The Company's principal business objective is to generate net income for distribution to investors from the spread between the interest income on its mortgage-backed securities and the cost of borrowing to finance their acquisition and from dividends Annaly receives from FIDAC, which earns investment advisory fee income. The Company, a Maryland corporation that has elected to be taxed as a real estate investment trust ("REIT"), currently has 204,845,591 shares of common stock outstanding. The Company will hold the third quarter 2006 earnings conference call on November 2, 2006 at 10:00 a.m. EST. The number to call is 1-866-770-7129 for domestic calls and 617-213-8067 for international calls and the pass code is 32765281. The re-play number is 1-888-286-8010 for domestic calls and 617-801-6888 for international calls and the pass code is 31915202. 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 E-Mail alerts, enter your e-mail address where indicated and click the Subscribe 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 and Section 21E of the Securities Exchange Act of 1934. 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 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, and risks associated with the investment advisory business of FIDAC, including the removal by FIDAC's clients of assets FIDAC manages, FIDAC's regulatory requirements, and competition in the investment advisory business, changes in government regulations affecting our business, and our ability to maintain our qualification as a REIT for federal income tax purposes. 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 Annual Report on Form 10-K for the fiscal year ended December 31, 2005 and all 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) September 30, June 30, March 31, 2006 2006 2006 (Unaudited) (Unaudited) (Unaudited) ---------------------------------------- ASSETS Cash and cash equivalents $ 66,844 $ 53,849 $ 2,403 Mortgage-Backed Securities, at fair value 28,348,027 23,474,006 16,176,348 Agency Debentures, at fair value - - - Trading securities, at fair value 197,679 Receivable for Mortgage-Backed Securities sold 5,325 - 139,491 Accrued interest receivable 130,348 110,647 75,092 Receivable for advisory and service fees 3,124 3,114 3,805 Intangible for customer relationships 11,662 12,206 13,851 Goodwill 22,966 22,966 22,966 Interest rate swaps, at fair value - 105,435 36,470 Other assets 2,679 1,567 2,281 ---------------------------------------- Total assets $28,788,654 $23,783,790 $16,472,707 ======================================== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Repurchase agreements $24,901,420 $21,256,703 $14,629,883 Payable for Mortgage-Backed Securities purchased 942,871 607,789 354,312 Trading securities sold, not yet purchased, at fair value 204,010 - - Accrued interest payable 66,547 42,100 37,738 Dividends payable 30,403 21,322 13,607 Other liabilities - - - Accounts payable and other liabilities 13,367 6,979 3,238 Interest rate swaps, at fair value 30,333 - - ---------------------------------------- Total liabilities 26,188,951 21,934,893 15,038,778 ---------------------------------------- Minority interest in equity of consolidated affiliate 5,028 5,000 - ---------------------------------------- 6.00% Series B Cumulative Convertible Preferred Stock: 4,600,000 shares authorized, issued and outstanding at September 30, 2006 and June 30, 2006 111,466 111,471 - ---------------------------------------- Stockholders' Equity: 7.875% Series A Cumulative Redeemable Preferred Stock: 7,637,500 authorized, 7,412,500 shares issued and outstanding 177,088 177,088 177,088 Common stock: par value $.01 per share; 500,000,000 authorized, 204,845,591, 164,015,156, 123,701,656, 123,684,931, and 123,648,931 outstanding, respectively 2,048 1,640 1,237 Additional paid-in capital 2,607,995 2,131,358 1,679,904 Accumulated other comprehensive loss (119,973) (384,912) (249,459) (Accumulated deficit) retained earnings (183,949) (192,748) (174,841) ---------------------------------------- Total stockholders' equity 2,483,209 1,732,426 1,433,929 ---------------------------------------- Total liabilities, minority interest, Series B Cumulative Redeemable Preferred Stock and stockholders' equity $28,788,654 $23,783,790 $16,472,707 ======================================== December 31, September 30, 2005 (1) 2005 (Unaudited) --------------------------- ASSETS Cash and cash equivalents $ 4,808 $ 1,684 Mortgage-Backed Securities, at fair value 15,929,864 18,697,385 Agency Debentures, at fair value - 258,616 Trading securities, at fair value Receivable for Mortgage-Backed Securities sold 13,449 788 Accrued interest receivable 71,340 83,806 Receivable for advisory and service fees 3,497 4,579 Intangible for customer relationships 15,183 15,367 Goodwill 23,122 23,122 Interest rate swaps, at fair value - - Other assets 2,159 1,218 --------------------------- Total assets $16,063,422 $19,086,565 =========================== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Repurchase agreements $13,576,301 $17,038,226 Payable for Mortgage-Backed Securities purchased 933,051 429,502 Trading securities sold, not yet purchased, at fair value - - Accrued interest payable 27,994 34,171 Dividends payable 12,368 16,079 Other liabilities 305 625 Accounts payable and other liabilities 8,837 8,602 Interest rate swaps, at fair value 543 - --------------------------- Total liabilities 14,559,399 17,527,205 --------------------------- Minority interest in equity of consolidated affiliate - - --------------------------- 6.00% Series B Cumulative Convertible Preferred Stock: 4,600,000 shares authorized, issued and outstanding at September 30, 2006 and June 30, 2006 - - --------------------------- Stockholders' Equity: 7.875% Series A Cumulative Redeemable Preferred Stock: 7,637,500 authorized, 7,412,500 shares issued and outstanding 177,088 177,088 Common stock: par value $.01 per share; 500,000,000 authorized, 204,845,591, 164,015,156, 123,701,656, 123,684,931, and 123,648,931 outstanding, respectively 1,237 1,237 Additional paid-in capital 1,679,452 1,679,452 Accumulated other comprehensive loss (207,117) (304,555) (Accumulated deficit) retained earnings (146,637) 6,138 --------------------------- Total stockholders' equity 1,504,023 1,559,360 --------------------------- Total liabilities, minority interest, Series B Cumulative Redeemable Preferred Stock and stockholders' equity $16,063,422 $19,086,565 =========================== (1) Derived from the audited consolidated financial statements at December 31, 2005. ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED) (dollars in thousands) For the quarters ended September 30, June 30, March 31, 2006 2006 2006 -------------------------------------- Interest income $339,737 $280,171 $194,882 Interest expense 295,726 242,473 167,512 -------------------------------------- Net interest income 44,011 37,698 27,370 -------------------------------------- Other income Investment advisory and service fees 4,978 5,210 6,997 (Loss) gain on sale of Mortgage-Backed Securities (446) (1,239) (7,006) Gain on termination of interest rate swaps 8,414 - - Income from trading securities 432 - - -------------------------------------- Total other income (loss) 13,378 3,971 (9) -------------------------------------- Expenses Distribution fees 724 755 1,170 General and administrative expenses 11,542 8,985 7,177 -------------------------------------- Total expenses 12,266 9,740 8,347 -------------------------------------- Impairment of intangible for customer relationships - 1,345 1,148 -------------------------------------- Loss on other-than-temporarily impaired securities - 20,114 26,730 -------------------------------------- Income (loss) before income taxes 45,123 10,470 (8,864) Income taxes 2,273 1,892 2,085 -------------------------------------- Net income (loss) 42,850 8,578 (10,949) Dividend on preferred stock 5,373 5,163 3,648 -------------------------------------- Net income available (loss related) to common shareholders $37,477 $3,415 ($14,597) ====================================== Net income (loss) per share available (related) to common shareholders: Basic $0.21 $0.02 ($0.12) ====================================== Diluted $0.20 $0.02 ($0.12) ====================================== Weighted average number of shares outstanding: Basic 181,767,106 158,632,865 123,693,851 ====================================== Diluted 189,952,159 158,703,614 123,693,851 ====================================== Net income (loss) $42,850 $8,578 ($10,949) -------------------------------------- Comprehensive income (loss) Unrealized gain (loss) on available-for-sale securities 400,261 (225,771) (113,091) Unrealized (loss) gain on interest rate swaps (127,354) 68,965 37,013 Reclassification adjustment for net (gains) losses included in net income or loss (7,968) 21,353 33,736 -------------------------------------- Other comprehensive income (loss) 264,939 (135,453) (42,342) -------------------------------------- Comprehensive income (loss) $307,789 ($126,875) ($53,291) ====================================== For the quarters ended December 31, September 30, 2005 2005 ---------------------------- Interest income $179,688 $177,474 Interest expense 165,766 155,043 ---------------------------- Net interest income 13,922 22,431 ---------------------------- Other income Investment advisory and service fees 8,702 10,945 (Loss) gain on sale of Mortgage-Backed Securities (65,285) 32 Gain on termination of interest rate swaps - - Income from trading securities - - ---------------------------- Total other income (loss) (56,583) 10,977 ---------------------------- Expenses Distribution fees 1,850 2,414 General and administrative expenses 6,359 6,455 ---------------------------- Total expenses 8,209 8,869 ---------------------------- Impairment of intangible for customer relationships - - ---------------------------- Loss on other-than-temporarily impaired securities 83,098 - ---------------------------- Income (loss) before income taxes (133,968) 24,539 Income taxes 2,791 3,353 ---------------------------- Net income (loss) (136,759) 21,186 Dividend on preferred stock 3,649 3,648 ---------------------------- Net income available (loss related) to common shareholders ($140,408) $17,538 ============================ Net income (loss) per share available (related) to common shareholders: Basic ($1.14) $0.14 ============================ Diluted ($1.14) $0.14 ============================ Weighted average number of shares outstanding: Basic 123,684,931 123,169,910 ============================ Diluted 123,684,931 123,330,645 ============================ Net income (loss) ($136,759) $21,186 ---------------------------- Comprehensive income (loss) Unrealized gain (loss) on available-for- sale securities (50,402) (159,670) Unrealized (loss) gain on interest rate swaps (543) - Reclassification adjustment for net (gains) losses included in net income or loss 148,383 (32) ---------------------------- Other comprehensive income (loss) 97,438 (159,702) ---------------------------- Comprehensive income (loss) ($39,321) ($138,516) ============================ ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED) (dollars in thousands) For the nine months ended September 30, September 30, 2006 2005 --------------------------- Interest income $814,790 $525,358 Interest expense 705,711 402,794 --------------------------- Net interest income 109,079 122,564 --------------------------- Other income Investment advisory and service fees 17,185 26,923 (Loss) gain on sale of Mortgage-Backed Securities (8,691) 12,047 Gain on termination of interest rate swaps 8,414 - Income from trading securities 432 - --------------------------- Total other income 17,340 38,970 --------------------------- Expenses Distribution fees 2,649 6,151 General and administrative expenses 27,704 19,919 --------------------------- Total expenses 30,353 26,070 --------------------------- Impairment of intangible for customer relationships 2,493 - --------------------------- Loss on other-than-temporarily impaired securities 46,844 - --------------------------- Income before income taxes 46,729 135,464 Income taxes 6,250 7,952 --------------------------- Net income 40,479 127,512 Dividend on preferred stock 14,184 10,945 --------------------------- Net income available to common shareholders $26,295 $116,567 =========================== Net income per share available to common shareholders: Basic $0.17 $0.95 =========================== Diluted $0.16 $0.95 =========================== Weighted average number of shares outstanding: Basic 155,054,308 122,067,300 =========================== Diluted 160,211,191 122,265,351 =========================== Net income $40,479 $127,512 --------------------------- Comprehensive income (loss): Unrealized gain (loss) on available-for- sale securities 61,399 (171,709) Unrealized loss on interest rate swap (21,376) - Reclassification adjustment for net (losses) included in net income 47,121 (12,047) --------------------------- Other comprehensive income (loss) 87,144 (183,756) --------------------------- Comprehensive income (loss) $127,623 ($56,244) =========================== CONTACT: Annaly Capital Management, Inc. Investor Relations, 1-888-8Annaly www.annaly.com