EX-99.1 2 a5327715ex991.txt ANNALY CAPITAL MANAGEMENT, INC. EXHIBIT 99.1 Exhibit 99.1 Annaly Capital Management, Inc. Reports 4th Quarter Core EPS of $0.23; Continuation of Portfolio Improvements in a Stabilizing Market NEW YORK--(BUSINESS WIRE)--Feb. 6, 2007--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. Fixed rate securities comprised 72% of the Company's portfolio at December 31, 2006. The balance of the portfolio was comprised of 20% adjustable rate mortgages and 8% LIBOR floating rate collateralized mortgage obligations. At December 31, 2006, the Company had entered into interest rate swaps with a notional amount of $9.3 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 December 31, 2006, 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. "Although we continue to operate in range-bound markets, we have taken every opportunity to improve our portfolio," said Wellington Denahan-Norris, Annaly's Vice Chairman, Chief Investment Officer and Chief Operating Officer. "Due to the rebalancing of the portfolio which continued early in the year, the capital raises in April and August and the subsequent deployment of proceeds, our weighted average dollar price is lower, our portfolio yields are higher, our yield exposure to faster prepayment rates is lower and our floating rate exposure is increased. Giving effect to the swaps, at December 31, 2006, our portfolio of short duration assets was effectively comprised of 41% fixed-rate, 20% adjustable-rate and 39% floating-rate exposure, which is consistent with the portfolio composition in our barbell strategy." The following table summarizes portfolio information for the Company: December 31, December 31, September 30, 2006 2005 2006 Leverage at period-end 10.4:1 9.0:1 9.6:1 Fixed-rate investment securities as % of portfolio 72% 39% 71% Adjustable-rate investment securities as % of portfolio 20% 55% 20% Floating-rate investment securities as % of portfolio 8% 6% 9% Notional amount of interest rate swaps as % of investment securities 31% 3% 32% Annualized yield on average earning assets during the quarter 5.64% 4.10% 5.44% Annualized cost of funds on avg. repurchase balance during the quarter 5.15% 4.01% 5.12% Weighted average yield on assets at period-end 5.63% 4.68% 5.58% Weighted average cost of funds at period-end 5.14% 4.16% 5.12% The Constant Prepayment Rate was 15% during the fourth quarter of 2006, as compared to 28% during the fourth quarter of 2005, and 16% during the third quarter of 2006. The weighted average cost basis was 100.5 at December 31, 2006. The net amortization of premiums and accretion of discounts on investment securities for the quarters ended December 31, 2006, December 31, 2005 and September 30, 2006 was $15.0 million, $31.8 million, and $14.9 million, respectively. The total net premium remaining unamortized at December 31, 2006, December 31, 2005 and September 30, 2006 was $140.7 million, $220.6 million, and $139.7 million, respectively. General and administrative expenses as a percentage of average assets were 0.16%, 0.14%, and 0.18% for the quarters ended December 31, 2006, December 31, 2005, and September 30, 2006, respectively. At December 31, 2006, December 31, 2005, and September 30, 2006 the Company had a common stock book value per share of $11.52, $10.73 and $11.26, respectively. At December 31, 2006, FIDAC, Annaly's wholly-owned registered investment advisor, had under management approximately $2.6 billion in net assets and $15.1 billion in gross assets, as compared to $2.3 billion in net assets and $18.7 billion in gross assets at December 31, 2005 and $2.6 billion in net assets and $14.6 billion in gross assets at September 30, 2006. For the quarter ended December 31, 2006, FIDAC earned investment advisory and service fees, net of fees paid to distributors, of $4.4 million, as compared to $6.9 million for the quarter ended December 31, 2005 and $4.3 million for the quarter ended September 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. "Our asset management business has stabilized," said Mr. Farrell. "We continue to focus our energies on opportunities for our asset management subsidiary in order to grow assets under management and fee income." 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 205,345,591 shares of common stock outstanding. The Company will hold the fourth quarter 2006 earnings conference call on February 7, 2007 at 10:00 a.m. EST. The number to call is 1-800-573-4842 for domestic calls and 617-224-4327 for international calls and the pass code is 57827669. The replay number is 1-888-286-8010 for domestic calls and 617-801-6888 for international calls and the pass code is 66924330. 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) December 31, September June 30, 2006 30, 2006 2006 (Unaudited) (Unaudited) (Unaudited) -------------------------------------- ASSETS Cash and cash equivalents $ 91,782 $ 66,844 $ 53,849 Mortgage-Backed Securities, at fair value 30,167,509 28,348,027 23,474,006 Agency debentures, at fair value 49,500 - - Trading securities, at fair value 18,365 23,409 Receivable for Mortgage-Backed Securities sold 200,535 5,325 - Accrued interest receivable 146,089 130,348 110,647 Receivable for advisory and service fees 3,178 3,124 3,114 Intangible for customer relationships 11,184 11,662 12,206 Goodwill 22,966 22,966 22,966 Interest rate swaps, at fair value 2,558 - 105,435 Other assets 2,314 2,679 1,567 -------------------------------------- Total assets $30,715,980 $28,614,384 $23,783,790 ====================================== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Repurchase agreements $27,514,020 $24,901,420 $21,256,703 Payable for Investment Securities purchased 338,172 942,871 607,789 Trading securities sold, not yet purchased, at fair value 41,948 29,740 - Accrued interest payable 83,998 66,547 42,100 Dividends payable 39,016 30,403 21,322 Other liabilities - - - Accounts payable and other liabilities 18,816 13,367 6,979 Interest rate swaps, at fair value 20,179 30,333 - -------------------------------------- Total liabilities 28,056,149 26,014,681 21,934,893 -------------------------------------- Minority interest in equity of consolidated affiliate 5,324 5,028 5,000 -------------------------------------- 6.00% Series B Cumulative Convertible Preferred Stock: 4,600,000 shares authorized, issued and outstanding at December 31, 2006, September 30, 2006 and June 30, 2006 111,466 111,466 111,471 -------------------------------------- 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, 205,345,591, 204,845,591, 164,015,156, 123,701,656 and 123,684,931, outstanding, respectively 2,053 2,048 1,640 Additional paid-in capital 2,615,016 2,607,995 2,131,358 Accumulated other comprehensive loss (76,112) (119,973) (384,912) Accumulated deficit (175,004) (183,949) (192,748) -------------------------------------- Total stockholders' equity 2,543,041 2,483,209 1,732,426 -------------------------------------- Total liabilities, minority interest, Series B Cumulative Convertible Preferred Stock and stockholders' equity $30,715,980 $28,614,384 $23,783,790 ====================================== March 31, December 31, 2006 2005 (1) (Unaudited) ------------------------- ASSETS Cash and cash equivalents $ 2,403 $ 4,808 Mortgage-Backed Securities, at fair value 16,176,348 15,929,864 Agency debentures, at fair value - - Trading securities, at fair value Receivable for Mortgage-Backed Securities sold 139,491 13,449 Accrued interest receivable 75,092 71,340 Receivable for advisory and service fees 3,805 3,497 Intangible for customer relationships 13,851 15,183 Goodwill 22,966 23,122 Interest rate swaps, at fair value 36,470 - Other assets 2,281 2,159 ------------------------- Total assets $16,472,707 $16,063,422 ========================= LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Repurchase agreements $14,629,883 $13,576,301 Payable for Investment Securities purchased 354,312 933,051 Trading securities sold, not yet purchased, at fair value - - Accrued interest payable 37,738 27,994 Dividends payable 13,607 12,368 Other liabilities - 305 Accounts payable and other liabilities 3,238 8,837 Interest rate swaps, at fair value - 543 ------------------------- Total liabilities 15,038,778 14,559,399 ------------------------- Minority interest in equity of consolidated affiliate - - ------------------------- 6.00% Series B Cumulative Convertible Preferred Stock: 4,600,000 shares authorized, issued and outstanding at December 31, 2006, 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, 205,345,591, 204,845,591, 164,015,156, 123,701,656 and 123,684,931, outstanding, respectively 1,237 1,237 Additional paid-in capital 1,679,904 1,679,452 Accumulated other comprehensive loss (249,459) (207,117) Accumulated deficit (174,841) (146,637) ------------------------- Total stockholders' equity 1,433,929 1,504,023 ------------------------- Total liabilities, minority interest, Series B Cumulative Convertible Preferred Stock and stockholders' equity $16,472,707 $16,063,422 ========================= (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 ending December 31, September 30, June 30, 2006 2006 2006 ------------------------------------------ Interest income $ 407,092 $ 339,737 $ 280,171 Interest expense 349,302 295,726 242,473 ------------------------------------------ Net interest income 57,790 44,011 37,698 ------------------------------------------ Other income (loss) Investment advisory and service fees 5,178 4,966 5,210 Gain (loss) on sale of Mortgage-Backed Securities 4,829 (446) (1,239) Gain on termination of interest rate swaps 2,260 8,414 - Income from trading securities 3,382 612 - ------------------------------------------ Total other income (loss) 15,649 13,546 3,971 ------------------------------------------ Expenses Distribution fees 795 724 755 General and administrative expenses 12,219 11,682 8,985 ------------------------------------------ Total expenses 13,014 12,406 9,740 ------------------------------------------ Impairment of intangible for customer relationships - - 1,345 ------------------------------------------ Loss on other-than- temporarily impaired securities 5,504 - 20,114 ------------------------------------------ Income (loss) before income taxes and minority interest 54,921 45,151 10,470 Income taxes 1,288 2,273 1,892 ------------------------------------------ Net income (loss) before minority interest 53,633 42,878 8,578 Minority interest 296 28 - ------------------------------------------ ------------------------------------------ Net income (loss) 53,337 42,850 8,578 ------------------------------------------ ------------------------------------------ Dividend on preferred stock 5,373 5,373 5,163 ------------------------------------------ Net income available (loss related) to common shareholders $ 47,964 $ 37,477 $ 3,415 ========================================== Net income (loss) per share available (related) to common shareholders: Basic $ 0.23 $ 0.21 $ 0.02 ========================================== Diluted $ 0.23 $ 0.20 $ 0.02 ========================================== Weighted average number of shares outstanding: Basic 205,092,330 181,767,106 158,632,865 ========================================== Diluted 213,455,555 189,952,159 158,703,614 ========================================== Net income (loss) $ 53,335 $ 42,850 $ 8,578 ------------------------------------------ Comprehensive income (loss) Unrealized gain (loss) on available-for-sale securities 35,979 400,261 (225,771) Unrealized (loss) gain on interest rate swaps 14,971 (127,354) 68,965 Reclassification adjustment for net (gains) losses included in net income or loss (7,089) (7,968) 21,353 ------------------------------------------ Other comprehensive income (loss) 43,861 264,939 (135,453) ------------------------------------------ Comprehensive income (loss) $ 97,196 $ 307,789 ($126,875) ========================================== For the Quarters ending March 31, December 31, 2006 2005 ---------------------------- Interest income $ 194,882 $ 179,688 Interest expense 167,512 165,766 ---------------------------- Net interest income 27,370 13,922 ---------------------------- Other income (loss) Investment advisory and service fees 6,997 8,702 Gain (loss) on sale of Mortgage-Backed Securities (7,006) (65,285) Gain on termination of interest rate swaps - - Income from trading securities - - ---------------------------- Total other income (loss) (9) (56,583) ---------------------------- Expenses Distribution fees 1,170 1,850 General and administrative expenses 7,177 6,359 ---------------------------- Total expenses 8,347 8,209 ---------------------------- Impairment of intangible for customer relationships 1,148 - ---------------------------- Loss on other-than-temporarily impaired securities 26,730 83,098 ---------------------------- Income (loss) before income taxes and minority interest (8,864) (133,968) Income taxes 2,085 2,791 ---------------------------- Net income (loss) before minority interest (10,949) (136,759) Minority interest - - ---------------------------- ---------------------------- Net income (loss) (10,949) (136,759) ---------------------------- ---------------------------- Dividend on preferred stock 3,648 3,649 ---------------------------- Net income available (loss related) to common shareholders ($14,597) ($140,408) ============================ Net income (loss) per share available (related) to common shareholders: Basic ($0.12) ($1.14) ============================ Diluted ($0.12) ($1.14) ============================ Weighted average number of shares outstanding: Basic 123,693,851 123,684,931 ============================ Diluted 123,693,851 123,684,931 ============================ Net income (loss) ($10,949) ($136,759) ---------------------------- Comprehensive income (loss) Unrealized gain (loss) on available-for- sale securities (113,091) (50,402) Unrealized (loss) gain on interest rate swaps 37,013 (543) Reclassification adjustment for net (gains) losses included in net income or loss 33,736 148,383 ---------------------------- Other comprehensive income (loss) (42,342) 97,438 ---------------------------- Comprehensive income (loss) ($53,291) ($39,321) ============================ ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (dollars in thousands) For the twelve months ended December 31, December 31, 2006 2005 (1) (Unaudited) --------------------------- Interest income $ 1,221,882 $ 705,046 Interest expense 1,055,013 568,560 --------------------------- Net interest income 166,869 136,486 --------------------------- Other income (loss) Investment advisory and service fees 22,351 35,625 (Loss) gain on sale of Mortgage-Backed Securities (3,862) (53,238) Gain on termination of interest rate swaps 10,674 - Income from trading securities 3,994 - --------------------------- Total other income (loss) 33,157 (17,613) --------------------------- Expenses Distribution fees 3,444 8,000 General and administrative expenses 40,063 26,278 --------------------------- Total expenses 43,507 34,278 --------------------------- Impairment of intangible for customer relationships 2,493 - --------------------------- Loss on other-than-temporarily impaired securities 52,348 83,098 --------------------------- Income before income taxes and minority interest 101,678 1,497 Income taxes 7,538 10,744 --------------------------- Net income (loss) before minority interest 94,140 (9,247) Minority interest 324 - Net income (loss) 93,816 (9,247) Dividend on preferred stock 19,557 14,593 --------------------------- Net income available (loss related) to common shareholders 74,259 ($23,840) =========================== Net income per share available (loss related) to common shareholders: Basic $ 0.44 ($0.19) =========================== Diluted $ 0.44 ($0.19) =========================== Weighted average number of shares outstanding: Basic 167,666,631 122,475,032 =========================== Diluted 167,746,387 122,475,032 =========================== Net income (loss) $ 93,816 ($9,247) --------------------------- Comprehensive income (loss): Unrealized gain (loss) on available-for- sale securities 91,873 (222,110) Unrealized loss on interest rate swap (6,404) (543) Reclassification adjustment for net losses included in net income 45,536 136,336 --------------------------- Other comprehensive income (loss) 131,005 (86,317) --------------------------- Comprehensive income (loss) $ 224,821 ($95,564) =========================== (1) Derived from the audited consolidated financial statements at December 31, 2005 CONTACT: Annaly Capital Management, Inc. 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