EX-99.1 2 a5530461ex99_1.txt EXHIBIT 99.1 Exhibit 99.1 Annaly Capital Management, Inc. Reports 3rd Quarter Core EPS of $0.31; Continued Performance Improvement Through Turbulent Markets NEW YORK--(BUSINESS WIRE)--Oct. 29, 2007--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. "The investing environment is attractive for our strategy," said Wellington Denahan-Norris, Annaly's Vice Chairman, Chief Investment Officer and Chief Operating Officer. "The combination of wider spreads on Agency mortgage-backed securities and somewhat lower cost of funds following the Fed ease on September 18, 2007 enables us to deploy the proceeds of our recent stock offerings at accretive levels. After taking into account the effect of interest rate swaps, at September 30, 2007, our portfolio of short duration assets was effectively comprised of 38% fixed-rate, 22% adjustable-rate and 40% floating-rate exposure, which is consistent with the historical composition of our portfolio in our barbell strategy." The following table summarizes portfolio information for the Company: September 30, September 30, June 30, 2007 2006 2007 ------------- ------------- -------- Leverage at period-end 9.9:1 9.6:1 11.2:1 Fixed-rate investment securities as % of portfolio 71% 71% 76% Adjustable-rate investment securities as % of portfolio 22% 20% 19% Floating-rate investment securities as % of portfolio 7% 9% 5% Notional amount of interest rate swaps as % of portfolio 33% 32% 33% Annualized yield on average earning assets during the quarter 5.84% 5.44% 5.73% Annualized cost of funds on average repurchase balance during the quarter 5.17% 5.12% 5.13% Annualized interest rate spread during the quarter 0.67% 0.32% 0.60% Weighted average yield on assets at period-end 5.74% 5.58% 5.71% Weighted average cost of funds at period-end 4.99% 5.12% 5.10% Interest rate spread at period-end 0.75% 0.46% 0.61% The Constant Prepayment Rate was 14% during the third quarter of 2007, as compared to 16% during the third quarter of 2006, and 15% during the second quarter of 2007. The weighted average cost basis was 100.5 at September 30, 2007. The net amortization of premiums and accretion of discounts on investment securities for the quarters ended September 30, 2007, September 30, 2006 and June 30, 2007 was $16.9 million, $14.9 million, and $16.7 million, respectively. The total net premium remaining unamortized at September 30, 2007, September 30, 2006 and June 30, 2007 was $229.7 million, $139.7 million, and $211.4 million, respectively. General and administrative expenses as a percentage of average assets were 0.16%, 0.18%, and 0.12% for the quarters ended September 30, 2007, September 30, 2006, and June 30, 2007, respectively. At September 30, 2007, September 30, 2006, and June 30, 2007 the Company had a common stock book value per share of $11.36, $11.26 and $10.52, respectively. At September 30, 2007, FIDAC, Annaly's wholly-owned registered investment advisor, had under management approximately $2.5 billion in net assets and $13.9 billion in gross assets, as compared to $2.6 billion in net assets and $14.6 billion in gross assets at September 30, 2006 and $2.6 billion in net assets and $15.7 billion in gross assets at June 30, 2007. For the quarter ended September 30, 2007, FIDAC earned investment advisory and service fees, net of fees paid to distributors, of $4.4 million, as compared to $4.3 million for the quarter ended September 30, 2006 and $4.5 million for the quarter ended June 30, 2007. 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 401,809,203 shares of common stock outstanding. The Company will hold the third quarter 2007 earnings conference call on Tuesday, October 30, 2007 at 10:00 a.m. EST. The number to call is 866-825-3209 for domestic calls and 617-213-8061 for international calls and the pass code is 76424167. The replay number is 888-286-8010 for domestic calls and 617-801-6888 for international calls and the pass code is 72272256. 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) September 30, June 30, March 31, 2007 2007 2007 (Unaudited) (Unaudited) (Unaudited) ------------- ----------- ------------ ASSETS Cash and cash equivalents $ 90,028 $ 91,781 $ 96,610 Mortgage-Backed Securities, at fair value 44,641,352 38,603,002 39,176,227 Agency debentures, at fair value 249,281 150,507 54,421 Trading securities, at fair value 10,987 12,131 7,872 Receivable for Mortgage-Backed Securities sold 516,140 - 28,643 Accrued interest receivable 235,787 197,060 179,816 Receivable for advisory and service fees 2,933 2,954 2,949 Intangible for customer relationships 10,178 10,513 10,849 Goodwill 22,966 22,966 22,966 Interest rate swaps, at fair value - 93,404 1,028 Other assets 3,026 3,146 3,138 ------------- ----------- ------------ Total assets $45,782,678 $39,187,464 $39,584,519 ============= =========== ============ LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Repurchase agreements $40,140,113 $35,093,856 $33,348,011 Payable for Investment Securities purchased 1,169,324 744,027 2,590,429 Trading securities sold, not yet purchased, at fair value 26,823 37,734 39,679 Accrued interest payable 148,462 104,456 79,362 Dividends payable 85,932 64,652 52,577 Accounts payable and other liabilities 25,237 14,520 7,942 Interest rate swaps, at fair value 142,061 838 42,871 ------------- ----------- ------------ Total liabilities 41,737,952 36,060,083 36,160,871 ------------- ----------- ------------ Minority interest in equity of consolidated affiliate 1,329 5,623 5,610 ------------- ----------- ------------ 6.00% Series B Cumulative Convertible Preferred Stock: 4,600,000 shares authorized, issued and outstanding 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, 330,509,203, 269,385,348, 262,887,391, 205,345,591 and 204,845,591 outstanding, respectively 3,305 2,694 2,629 Additional paid-in capital 4,270,330 3,447,964 3,352,417 Accumulated other comprehensive loss (385,960) (467,640) (60,040) Accumulated deficit (132,832) (149,814) (165,522) ------------- ----------- ------------ Total stockholders' equity 3,931,931 3,010,292 3,306,572 ------------- ----------- ------------ Total liabilities, minority interest, Series B Cumulative Convertible Preferred Stock and stockholders' equity $45,782,678 $39,187,464 $39,584,519 ============= =========== ============ (1) Derived from the audited consolidated financial statements at December 31, 2006. ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (dollars in thousands) December September 31, 30, 2006 2006(1) (Unaudited) ------------ ------------ ASSETS Cash and cash equivalents $ 91,782 $ 66,844 Mortgage-Backed Securities, at fair value 30,167,509 28,348,027 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 Receivable for advisory and service fees 3,178 3,124 Intangible for customer relationships 11,184 11,662 Goodwill 22,966 22,966 Interest rate swaps, at fair value 2,558 - Other assets 2,314 2,679 ------------ ------------ Total assets $30,715,980 $28,614,384 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Repurchase agreements $27,514,020 $24,901,420 Payable for Investment Securities purchased 338,172 942,871 Trading securities sold, not yet purchased, at fair value 41,948 29,740 Accrued interest payable 83,998 66,547 Dividends payable 39,016 30,403 Accounts payable and other liabilities 18,816 13,367 Interest rate swaps, at fair value 20,179 30,333 ------------ ------------ Total liabilities 28,056,149 26,014,681 ------------ ------------ Minority interest in equity of consolidated affiliate 5,324 5,028 ------------ ------------ 6.00% Series B Cumulative Convertible Preferred Stock: 4,600,000 shares authorized, issued and outstanding 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 Common stock: par value $.01 per share; 487,762,500 authorized, 330,509,203, 269,385,348, 262,887,391, 205,345,591 and 204,845,591 outstanding, respectively 2,053 2,048 Additional paid-in capital 2,615,016 2,607,995 Accumulated other comprehensive loss (76,112) (119,973) Accumulated deficit (175,004) (183,949) ------------ ------------ Total stockholders' equity 2,543,041 2,483,209 ------------ ------------ Total liabilities, minority interest, Series B Cumulative Convertible Preferred Stock and stockholders' equity $30,715,980 $28,614,384 ============ ============ (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 ended September June 30, March 31, 30, 2007 2007 2007 ------------ ------------ ------------- Interest income $ 628,696 $ 556,262 $ 449,564 Interest expense 519,118 468,748 380,164 ------------ ------------ ------------- Net interest income 109,578 87,514 69,400 ------------ ------------ ------------- Other income Investment advisory and service fees 5,464 5,366 5,562 Gain (loss) on sale of Mortgage-Backed Securities 3,795 7,293 6,145 Gain on termination of interest rate swaps 2,029 - 67 Income from trading securities 8,288 243 3,429 Loss on other-than- temporarily impaired securities - (698) (491) ------------ ------------ ------------- Total other income 19,576 12,204 14,712 ------------ ------------ ------------- Expenses Distribution fees 1,100 861 904 General and administrative expenses 17,334 12,272 12,886 ------------ ------------ ------------- Total expenses 18,434 13,133 13,790 ------------ ------------ ------------- Income before income taxes and minority interest 110,720 86,585 70,322 Income taxes 2,327 839 2,604 ------------ ------------ ------------- Income before minority interest 108,393 85,746 67,718 Minority interest 106 13 286 ------------ ------------ ------------- Net income 108,287 85,733 67,432 ------------ ------------ ------------- Dividend on preferred stock 5,373 5,373 5,373 ------------ ------------ ------------- Net income available to common shareholders $ 102,914 $ 80,360 $ 62,059 ============ ============ ============= Net income available per share to common shareholders: Basic $ 0.33 $ 0.30 $ 0.29 ============ ============ ============= Diluted $ 0.32 $ 0.30 $ 0.28 ============ ============ ============= Weighted average number of shares outstanding: Basic 315,969,814 264,990,422 217,490,205 ============ ============ ============= Diluted 324,614,534 273,578,836 225,928,127 ============ ============ ============= Net income $ 108,287 $ 85,733 $ 67,432 ------------ ------------ ------------- Comprehensive income (loss) Unrealized gain (loss) on available-for-sale securities 320,102 (535,413) 45,948 Unrealized (loss) gain on interest rate swaps (232,598) 134,408 (24,155) Reclassification adjustment for gains included in net income (5,824) (6,595) (5,721) ------------ ------------ ------------- Other comprehensive income (loss) 81,680 (407,600) 16,072 ------------ ------------ ------------- Comprehensive income (loss) $ 189,967 ($321,867) $ 83,504 ============ ============ ============= ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED) (dollars in thousands) For the quarters ended December 31, September 30, 2006 2006 ------------- ------------ Interest income $ 407,092 $ 339,737 Interest expense 349,302 295,726 ------------- ------------ Net interest income 57,790 44,011 ------------- ------------ Other income Investment advisory and service fees 5,178 4,966 Gain (loss) on sale of Mortgage-Backed Securities 4,829 (446) Gain on termination of interest rate swaps 2,260 8,414 Income from trading securities 3,382 612 Loss on other-than-temporarily impaired securities (5,504) - ------------- ------------ Total other income 10,145 13,546 ------------- ------------ Expenses Distribution fees 795 724 General and administrative expenses 12,219 11,682 ------------- ------------ Total expenses 13,014 12,406 ------------- ------------ Income before income taxes and minority interest 54,921 45,151 Income taxes 1,288 2,273 ------------- ------------ Income before minority interest 53,633 42,878 Minority interest 296 28 ------------- ------------ Net income 53,337 42,850 ------------- ------------ Dividend on preferred stock 5,373 5,373 ------------- ------------ Net income available to common shareholders $ 47,964 $ 37,477 ============= ============ Net income available per share to common shareholders: Basic $ 0.23 $ 0.21 ============= ============ Diluted $ 0.23 $ 0.20 ============= ============ Weighted average number of shares outstanding: Basic 205,092,330 181,767,106 ============= ============ Diluted 213,455,555 189,952,159 ============= ============ Net income $ 53,337 $ 42,850 ------------- ------------ Comprehensive income (loss) Unrealized gain (loss) on available-for- sale securities 35,979 400,261 Unrealized (loss) gain on interest rate swaps 14,971 (127,354) Reclassification adjustment for gains included in net income (7,089) (7,968) ------------- ------------ Other comprehensive income (loss) 43,861 264,939 ------------- ------------ Comprehensive income (loss) $ 97,198 $ 307,789 ============= ============ ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED) (dollars in thousands) For the nine months ended September September 30, 30, 2007 2006 ------------ ------------ Interest income $ 1,634,522 $ 814,790 Interest expense 1,368,030 705,711 ------------ ------------ Net interest income 266,492 109,079 ------------ ------------ Other income (loss) Investment advisory and service fees 16,392 17,173 Gain (loss) on sale of Mortgage-Backed Securities 17,233 (8,691) Gain on termination of interest rate swaps 2,096 8,414 Income from trading securities 11,960 612 Loss on other-than-temporarily impaired securities (1,189) (46,844) ------------ ------------ Total other income (loss) 46,492 (29,336) ------------ ------------ Expenses Distribution fees 2,865 2,649 General and administrative expenses 42,492 27,844 ------------ ------------ Total expenses 45,357 30,493 ------------ ------------ Impairment of intangible for customer relationships - 2,493 ------------ ------------ Income before income taxes and minority interest 267,627 46,757 ------------ ------------ Income taxes 5,770 6,250 ------------ ------------ Income before minority interest 261,857 40,507 Minority interest 405 28 ------------ ------------ Net income 261,452 40,479 ------------ ------------ Dividend on preferred stock 16,119 14,184 ------------ ------------ Net income available to common shareholders $ 245,333 $ 26,295 ============ ============ Net income per share available to common shareholders: Basic $ 0.92 $ 0.17 ============ ============ Diluted $ 0.91 $ 0.16 ============ ============ Weighted average number of shares outstanding: Basic 266,510,879 155,054,308 ============ ============ Diluted 275,146,595 160,211,191 ============ ============ Net income $ 261,452 $ 40,479 ------------ ------------ Comprehensive (loss) income Unrealized (loss) gain on available-for- sale securities (169,363) 61,399 Unrealized loss on interest rate swaps (122,345) (21,376) Reclassification adjustment for net gains (losses) included in net income (18,140) 47,121 ------------ ------------ Other comprehensive (loss) gain (309,848) 87,144 ------------ ------------ Comprehensive (loss) income ($48,396) $ 127,623 ============ ============ CONTACT: Annaly Capital Management, Inc. Investor Relations 1- (888) 8Annaly www.annaly.com