EX-99.1 2 a5391316ex99_1.txt EXHIBIT 99.1 Exhibit 99.1 Annaly Capital Management, Inc. Reports 1st Quarter Core EPS of $0.26; End-of-Quarter Capital Raise Biggest in Company History NEW YORK--(BUSINESS WIRE)--May 1, 2007--Annaly Capital Management, Inc. (NYSE: NLY) today reported Core Earnings for the quarter ended March 31, 2007 of $61.7 million or $0.26 per average share available to common shareholders as compared to Core Earnings of $23.9 million or $0.16 per average share available to common shareholders for the quarter ended March 31, 2006 and Core Earnings of $51.7 million or $0.23 per average share available to common shareholders for the quarter ended December 31, 2006. "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 March 31, 2007 was $67.4 million or $0.29 basic net income per average share available to common shareholders, as compared to a net loss of $10.9 million or $0.12 basic net loss per average share available to common shareholders for the quarter ended March 31, 2006 and net income of $53.3 million or $0.23 basic net income per average share available to common shareholders for the quarter ended December 31, 2006. During the quarter ended March 31, 2007, the Company sold $1.2 billion of Mortgage-Backed Securities, resulting in a gain of $6.1 million. In addition, the Company had a $67,000 gain on the termination of interest rate swaps with a notional value of $300 million. During the quarter ended March 31, 2006, the Company sold $1.2 billion of Mortgage-Backed Securities, resulting in a realized loss of $7.0 million. During the quarter ended December 31, 2006, the Company sold $701.3 million of Mortgage-Backed Securities, resulting in a realized gain of $4.8 million and terminated interest rate swaps with a notional value of $350 million, resulting in a gain of $2.3 million. In addition, the Company had a loss on other-than-temporarily impaired securities for the quarters ended March 31, 2007, March 31, 2006, and December 31, 2006 of $491,000, $26.7 million, and $5.5 million, respectively. Common dividends declared for the quarter ended March 31, 2007 were $0.20 per share, as compared to $0.11 per share for the quarter ended March 31, 2006 and $0.19 per share for the quarter ended December 31, 2006. The annualized dividend yield on common stock for the quarter ended March 31, 2007, based on the March 31, 2007 closing price of $15.48, was 5.17%. On a Core Earnings basis, the Company provided an annualized return on average equity of 8.13% for the quarter ended March 31, 2007, as compared to 6.52% for the quarter ended March 31, 2006 and 7.89% for the quarter ended December 31, 2006. On a GAAP basis, the Company provided an annualized return on average equity of 8.88% for the quarter ended March 31, 2007, as compared to (2.98%) for the quarter ended March 31, 2006, and 8.13% for the quarter ended December 31, 2006. On March 13, 2007, the Company issued 57,500,000 shares of common stock in a follow-on offering, raising net proceeds of approximately $737.2 million. Michael A.J. Farrell, Chairman, Chief Executive Officer and President of Annaly, commented on the quarter's results. "Annaly continued the positive momentum that has been building over the past year. Even with the increase in share count of almost 30% at the end of the quarter--a result of the largest capital raise in our company's history--we were able to increase our dividend for the fifth straight quarter. We expect that the run rate in the second quarter will reflect the full investment of the proceeds from our March offering." Mr. Farrell continued: "We often speak about our transparent business model. To us, this means that investors generally know the risks we do and do not take in managing our company. Since inception, our focus on Agency mortgage-backed securities has been a core tenet of this philosophy. Because of the actual and implied triple-A rating of these securities, we take virtually no credit risk. Instead, it allows investors in Annaly to judge our performance and potential performance based on our ability to manage interest rate risk. We believe this choice has served our investors well over time and, given the current state of both the credit cycle and the interest rate cycle, leaves us strategically well-positioned for the current environment." For the quarter ended March 31, 2007, the annualized yield on average earning assets was 5.68% and the annualized cost of funds on the average repurchase balance was 5.10%, which equates to an interest rate spread of 0.58%. This is a 26 basis point increase over the 0.32% annualized interest rate spread for the quarter ended March 31, 2006 and a 9 basis point increase over the 0.49% annualized interest rate spread for the quarter ended December 31, 2006. For the quarter ended March 31, 2006, the annualized yield on average earning assets was 4.70% and the annualized cost of funds on the average repurchase balance was 4.38%. 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%. At March 31, 2007, the weighted average yield on assets was 5.67% and the cost of funds was 5.17%, which equates to an interest rate spread of 0.50%. Leverage at March 31, 2007 was 9.8:1, in comparison to 10.2:1 at March 31, 2006 and 10.4:1 at December 31, 2006. Fixed rate securities comprised 75% of the Company's portfolio at March 31, 2007. The balance of the portfolio was comprised of 19% adjustable rate mortgages and 6% LIBOR floating rate collateralized mortgage obligations. At March 31, 2007, the Company had entered into interest rate swaps with a notional amount of $13.2 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 March 31, 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. "During this period of range bound bond markets, we continue to look for ways to improve portfolio performance on both the asset and liability sides of our balance sheet," said Wellington Denahan-Norris, Annaly's Vice Chairman, Chief Investment Officer and Chief Operating Officer. "Taking into account the effect of interest rate swaps, at March 31, 2007, our portfolio of short duration assets was effectively comprised of 41% fixed-rate, 19% adjustable-rate and 40% floating-rate exposure, which is consistent with the portfolio composition in our barbell strategy. This structure is designed to perform in a wide range of possible interest rate outcomes, including the continuation of the current environment." The following table summarizes portfolio information for the Company: March 31, March 31, December 31, 2007 2006 2006 ---------------------------------- Leverage at period-end 9.8:1 10.2:1 10.4:1 Fixed-rate investment securities as % of portfolio 75% 52% 72% Adjustable-rate investment securities as % of portfolio 19% 42% 20% Floating-rate investment securities as % of portfolio 6% 6% 8% Notional amount of interest rate swaps as % of portfolio 34% 17% 31% Annualized yield on average earning assets during the quarter 5.68% 4.70% 5.64% Annualized cost of funds on average repurchase balance during the quarter 5.10% 4.38% 5.15% Weighted average yield on assets at period-end 5.67% 5.03% 5.63% Weighted average cost of funds at period-end 5.17% 4.51% 5.14% The Constant Prepayment Rate was 17% during the first quarter of 2007, as compared to 18% during the first quarter of 2006, and 15% during the fourth quarter of 2006. The weighted average cost basis was 100.5 at March 31, 2007. The net amortization of premiums and accretion of discounts on investment securities for the quarters ended March 31, 2007, March 31, 2006 and December 31, 2006 was $15.4 million, $15.8 million, and $15.0 million, respectively. The total net premium remaining unamortized at March 31, 2007, March 31, 2006 and December 31, 2006 was $195.6 million, $173.7 million, and $140.7 million, respectively. General and administrative expenses as a percentage of average assets were 0.15%, 0.18%, and 0.16% for the quarters ended March 31, 2007, March 31, 2006, and December 31, 2006, respectively. At March 31, 2007, March 31, 2006, and December 31, 2006 the Company had a common stock book value per share of $11.90, $10.16 and $11.52, respectively. At March 31, 2007, FIDAC, Annaly's wholly-owned registered investment advisor, had under management approximately $2.5 billion in net assets and $16.1 billion in gross assets, as compared to $2.0 billion in net assets and $16.9 billion in gross assets at March 31, 2006 and $2.6 billion in net assets and $15.1 billion in gross assets at December 31, 2006. For the quarter ended March 31, 2007, FIDAC earned investment advisory and service fees, net of fees paid to distributors, of $4.7 million, as compared to $5.8 million for the quarter ended March 31, 2006 and $4.4 million for the quarter ended December 31, 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. 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 262,887,516 shares of common stock outstanding. The Company will hold the first quarter 2007 earnings conference call on May 2, 2007 at 10:00 a.m. EST. The number to call is 1-800-591-6923 for domestic calls and 617-614-4907 for international calls and the pass code is 73970218. The replay number is 1-888-286-8010 for domestic calls and 617-801-6888 for international calls and the pass code is 57646033. 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, 2006 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) March 31, December 31, September 30, 2007 2006(1) 2006 (Unaudited) (Unaudited) --------------------------------------- ASSETS Cash and cash equivalents $ 96,610 $ 91,782 $ 66,844 Mortgage-Backed Securities, at fair value 39,176,227 30,167,509 28,348,027 Agency debentures, at fair value 54,421 49,500 - Trading securities, at fair value 7,872 18,365 23,409 Receivable for Mortgage- Backed Securities sold 28,643 200,535 5,325 Accrued interest receivable 179,816 146,089 130,348 Receivable for advisory and service fees 2,949 3,178 3,124 Intangible for customer relationships 10,849 11,184 11,662 Goodwill 22,966 22,966 22,966 Interest rate swaps, at fair value 1,028 2,558 - Other assets 3,138 2,314 2,679 --------------------------------------- Total assets $39,584,519 $30,715,980 $ 28,614,384 ======================================= LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Repurchase agreements $33,348,011 $27,514,020 $ 24,901,420 Payable for Investment Securities purchased 2,590,429 338,172 942,871 Trading securities sold, not yet purchased, at fair value 39,679 41,948 29,740 Accrued interest payable 79,362 83,998 66,547 Dividends payable 52,577 39,016 30,403 Accounts payable and other liabilities 7,942 18,816 13,367 Interest rate swaps, at fair value 42,871 20,179 30,333 --------------------------------------- Total liabilities 36,160,871 28,056,149 26,014,681 --------------------------------------- Minority interest in equity of consolidated affiliate 5,610 5,324 5,028 --------------------------------------- 6.00% Series B Cumulative Convertible Preferred Stock: 4,600,000 shares authorized, issued and outstanding at March 31, 2007, December 31, 2006, September 30, 2006, and June 30, 2006 111,466 111,466 111,466 --------------------------------------- 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; 487,762,500 authorized, 262,887,391, 205,345,591, 204,845,591, 164,015,156, and 123,701,656 outstanding, respectively 2,629 2,053 2,048 Additional paid-in capital 3,352,417 2,615,016 2,607,995 Accumulated other comprehensive loss (60,040) (76,112) (119,973) Accumulated deficit (165,522) (175,004) (183,949) --------------------------------------- Total stockholders' equity 3,306,572 2,543,041 2,483,209 --------------------------------------- Total liabilities, minority interest, Series B Cumulative Convertible Preferred Stock and stockholders' equity $39,584,519 $30,715,980 $ 28,614,384 ======================================= June 30, March 31, 2006 2006 (Unaudited) (Unaudited) ------------------------- ASSETS Cash and cash equivalents $ 53,849 $ 2,403 Mortgage-Backed Securities, at fair value 23,474,006 16,176,348 Agency debentures, at fair value - - Trading securities, at fair value Receivable for Mortgage-Backed Securities sold - 139,491 Accrued interest receivable 110,647 75,092 Receivable for advisory and service fees 3,114 3,805 Intangible for customer relationships 12,206 13,851 Goodwill 22,966 22,966 Interest rate swaps, at fair value 105,435 36,470 Other assets 1,567 2,281 ------------------------- Total assets $23,783,790 $16,472,707 ========================= LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Repurchase agreements $21,256,703 $14,629,883 Payable for Investment Securities purchased 607,789 354,312 Trading securities sold, not yet purchased, at fair value - - Accrued interest payable 42,100 37,738 Dividends payable 21,322 13,607 Accounts payable and other liabilities 6,979 3,238 Interest rate swaps, at fair value - - ------------------------- Total liabilities 21,934,893 15,038,778 ------------------------- Minority interest in equity of consolidated affiliate 5,000 - ------------------------- 6.00% Series B Cumulative Convertible Preferred Stock: 4,600,000 shares authorized, issued and outstanding at March 31, 2007, December 31, 2006, September 30, 2006, and June 30, 2006 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 Common stock: par value $.01 per share; 487,762,500 authorized, 262,887,391, 205,345,591, 204,845,591, 164,015,156, and 123,701,656 outstanding, respectively 1,640 1,237 Additional paid-in capital 2,131,358 1,679,904 Accumulated other comprehensive loss (384,912) (249,459) Accumulated deficit (192,748) (174,841) ------------------------- Total stockholders' equity 1,732,426 1,433,929 ------------------------- Total liabilities, minority interest, Series B Cumulative Convertible Preferred Stock and stockholders' equity $23,783,790 $16,472,707 ========================= (1) Derived from the audited consolidated financial statements at December 31, 2006. ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED) (dollars in thousands) For the Quarters ending March 31, December 31, September 30, 2007 2006 2006 ------------------------------------------ Interest income $ 449,564 $ 407,092 $ 339,737 Interest expense 380,164 349,302 295,726 ------------------------------------------ Net interest income 69,400 57,790 44,011 ------------------------------------------ Other income (loss) Investment advisory and service fees 5,562 5,178 4,966 Gain (loss) on sale of Mortgage-Backed Securities 6,145 4,829 (446) Gain on termination of interest rate swaps 67 2,260 8,414 Income from trading securities 3,429 3,382 612 Loss on other-than- temporarily impaired securities (491) (5,504) - ------------------------------------------ Total other income (loss) 14,712 10,145 13,546 ------------------------------------------ Expenses Distribution fees 904 795 724 General and administrative expenses 12,886 12,219 11,682 ------------------------------------------ Total expenses 13,790 13,014 12,406 ------------------------------------------ Impairment of intangible for customer relationships - - - ------------------------------------------ Income (loss) before income taxes and minority interest 70,322 54,921 45,151 Income taxes 2,604 1,288 2,273 ------------------------------------------ Income (loss) before minority interest 67,718 53,633 42,878 Minority interest 286 296 28 ------------------------------------------ Net income (loss) 67,432 53,337 42,850 ------------------------------------------ Dividend on preferred stock 5,373 5,373 5,373 ------------------------------------------ Net income available (loss related) to common shareholders $ 62,059 $ 47,964 $ 37,477 ========================================== Net income available (loss related) per share to common shareholders: Basic $ 0.29 $ 0.23 $ 0.21 ========================================== Diluted $ 0.28 $ 0.23 $ 0.20 ========================================== Weighted average number of shares outstanding: Basic 217,490,205 205,092,330 181,767,106 ========================================== Diluted 225,928,127 213,455,555 189,952,159 ========================================== Net income (loss) $ 67,432 $ 53,335 $ 42,850 ------------------------------------------ Comprehensive income (loss) Unrealized gain (loss) on available-for-sale securities 45,948 35,979 400,261 Unrealized (loss) gain on interest rate swaps (24,155) 14,971 (127,354) Reclassification adjustment for net (gains) losses included in net income or loss (5,721) (7,089) (7,968) ------------------------------------------ Other comprehensive income (loss) 16,072 43,861 264,939 ------------------------------------------ Comprehensive income (loss) $ 83,504 $ 97,196 $ 307,789 ========================================== For the Quarters ending June 30, March 31, 2006 2006 ---------------------------- Interest income $ 280,171 $ 194,882 Interest expense 242,473 167,512 ---------------------------- Net interest income 37,698 27,370 ---------------------------- Other income (loss) Investment advisory and service fees 5,210 6,997 Gain (loss) on sale of Mortgage-Backed Securities (1,239) (7,006) Gain on termination of interest rate swaps - - Income from trading securities - - Loss on other-than-temporarily impaired securities (20,114) (26,730) ---------------------------- Total other income (loss) (16,143) (26,739) ---------------------------- Expenses Distribution fees 755 1,170 General and administrative expenses 8,985 7,177 Total expenses 9,740 8,347 ---------------------------- Impairment of intangible for customer relationships 1,345 1,148 ---------------------------- Income (loss) before income taxes and minority interest 10,470 (8,864) Income taxes 1,892 2,085 ---------------------------- Income (loss) before minority interest 8,578 (10,949) Minority interest - - ---------------------------- Net income (loss) 8,578 (10,949) ---------------------------- Dividend on preferred stock 5,163 3,648 ---------------------------- Net income available (loss related) to common shareholders $ 3,415 ($14,597) ============================ Net income available (loss related) per share to common shareholders: Basic $ 0.02 ($0.12) ============================ Diluted $ 0.02 ($0.12) ============================ Weighted average number of shares outstanding: Basic 158,632,865 123,693,851 ============================ Diluted 158,703,614 123,693,851 ============================ Net income (loss) $ 8,578 ($10,949) ---------------------------- Comprehensive income (loss) Unrealized gain (loss) on available-for-sale securities (225,771) (113,091) Unrealized (loss) gain on interest rate swaps 68,965 37,013 Reclassification adjustment for net (gains) losses included in net income or loss 21,353 33,736 ---------------------------- Other comprehensive income (loss) (135,453) (42,342) ---------------------------- Comprehensive income (loss) ($126,875) ($53,291) ============================ CONTACT: Annaly Capital Management, Inc. Investor Relations 1-888-8Annaly www.annaly.com