Annaly Capital Management, Inc. Reports GAAP Earnings Per Share for the 2nd Quarter 2011 of $0.14 as Compared to Loss Per Share of $0.40 for the 2nd Quarter 2010

NEW YORK--(BUSINESS WIRE)--August 1, 2011--Annaly Capital Management, Inc. (NYSE: NLY) today reported GAAP net income for the quarter ended June 30, 2011, of $120.8 million or $0.14 per average share available to common shareholders as compared to GAAP net loss of $218.2 million or $0.40 per average share available to common shareholders for the quarter ended June 30, 2010, and GAAP net income of $699.9 million or $0.92 per average share available to common shareholders for the quarter ended March 31, 2011.

Without the effect of the unrealized gains or losses on interest rate swaps and interest-only mortgage-backed securities, net income for the quarter ended June 30, 2011, was $587.5 million or $0.71 per average share available to common shareholders as compared to $374.8 million or $0.66 per average share available to common shareholders for the quarter ended June 30, 2010, and $530.6 million or $0.70 per average share available to common shareholders for the quarter ended March 31, 2011.

During the quarter ended June 30, 2011, the Company disposed of $1.7 billion of mortgage-backed securities and agency debentures, resulting in a realized gain of $7.3 million. During the quarter ended June 30, 2010, the Company disposed of $1.9 billion of mortgage-backed securities and agency debentures, resulting in a realized gain of $39.0 million. During the quarter ended March 31, 2011, the Company disposed of $4.2 billion of mortgage-backed securities and agency debentures, resulting in a realized gain of $27.2 million.

Common dividends declared for the quarter ended June 30, 2011, were $0.65 per share as compared to $0.68 per share for the quarter ended June 30, 2010, and $0.62 per share for the quarter ended March 31, 2011. The Company distributes dividends based on its current estimate of taxable earnings per common share, not GAAP earnings. Taxable and GAAP earnings will typically differ due to items such as non-taxable unrealized and realized gains and losses, differences in premium amortization and discount accretion, and non-deductible general and administrative expenses.

The annualized dividend yield on the Company’s common stock for the quarter ended June 30, 2011, based on the June 30, 2011, closing price of $18.04, was 14.41%, as compared to 15.86% for the quarter ended June 30, 2010, and 14.21% for the quarter ended March 31, 2011.

On a GAAP basis, the Company provided an annualized return on average equity of 3.60% for the quarter ended June 30, 2011, as compared to an annualized loss on average equity of 9.03% for the quarter ended June 30, 2010, and an annualized return on average equity of 24.56% for the quarter ended March 31, 2011. Without the effect of the unrealized gains or losses on interest rate swaps and interest-only mortgage-backed securities, the Company provided an annualized return on average equity of 17.50% for the quarter ended June 30, 2011, as compared to an annualized return on average equity of 9.03% for the quarter ended June 30, 2010, and an annualized return on average equity of 18.62% for the quarter ended March 31, 2011.

Subsequent to quarter end, on July 15, 2011, the Company completed a public offering of 138,000,000 shares of common stock. The estimated net proceeds of the offering were approximately $2.4 billion, net of offering expenses.

Michael A.J. Farrell, Chairman, Chief Executive Officer and President of Annaly, commented on the Company’s results. “The uncertainty surrounding sovereign credit risk, regulatory reform and tepid economic performance is causing near-term volatility in asset prices and investor confidence, but the long-term implication of these conditions is that the very favorable operating environment in which we find ourselves is likely to persist for a significant period of time. Our successful capital raise last month will go towards taking advantage of accretive investment opportunities and continued strengthening of our balance sheet. We look forward to continuing to deliver compelling risk-adjusted investment returns to our shareholders and playing our part in the recovery of the American financial markets.”

For the quarter ended June 30, 2011, the annualized yield on average interest-earning assets was 4.04% and the annualized cost of funds on average interest-bearing liabilities, including the net interest payments on interest rate swaps, was 1.59%, which resulted in an average interest rate spread of 2.45%. This was a 29 basis point increase from the 2.16% annualized interest rate spread for the quarter ended June 30, 2010, and a 28 basis point increase from the 2.17% average interest rate spread for the quarter ended March 31, 2011. At June 30, 2011, the weighted average yield on investment securities was 3.76% and the weighted average cost of funds on borrowings, including the net interest payments on interest rate swaps, was 1.69%, which resulted in an interest rate spread of 2.07%. Beginning with the quarter and six-month periods ending June 30, 2011, net interest payments on interest rate swaps, reflected in the consolidated statements of operations and comprehensive income as realized gains (losses) on interest rate swaps, are included in the summary table presentation of cost of funds and interest rate spread. This change will not affect GAAP or taxable net income, shareholders’ equity, cash flows or earnings per share. Leverage at June 30, 2011, was 5.7:1 compared to 5.9:1 at June 30, 2010, and 6.3:1 at March 31, 2011.

Fixed-rate mortgage-backed securities and agency debentures comprised 89% of the Company’s portfolio at June 30, 2011. The balance of the mortgage-backed securities and agency debentures was comprised of 10% adjustable-rate mortgage-backed securities and agency debentures and 1% LIBOR floating-rate collateralized mortgage obligations. At June 30, 2011, the Company had entered into interest rate swaps with a notional amount of $35.5 billion, or 38% of the mortgage-backed securities and agency debentures portfolio. Changes in the unrealized gains or losses on the interest rate swaps are reflected in the Company’s consolidated statement of operations. 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 receives a floating rate on the notional amount of the swaps, the intended effect of the swaps is to lock in a spread relative to the cost of financing. As of June 30, 2011, substantially all of the Company’s Investment Securities were Fannie Mae, Freddie Mac and Ginnie Mae mortgage-backed securities and agency debentures, which carry an actual or implied “AAA” rating.

“The operating dynamics of our portfolio continue to be favorable,” said Wellington Denahan-Norris, Annaly’s Vice Chairman, Chief Investment Officer and Chief Operating Officer. “The technicals in our markets improved with the end of QE2, prepayment speeds continue to decline despite falling mortgage rates, and the alignment of interest rates remains positive, all of which combine to offer attractive opportunities for reinvestment of amortizing principal and the proceeds of our recent capital raise. At the same time we believe the current global market environment makes it imperative for us to run our portfolio in a conservative fashion. After taking into account the effect of interest rate swaps, our portfolio of mortgage-backed securities and agency debentures was comprised of 39% floating-rate, 10% adjustable-rate and 51% fixed-rate assets.”

	June 30, 2011	June 30, 2010	March 31, 2011
Leverage at period-end	5.7:1	5.9:1	6.3:1
Fixed-rate mortgage-backed securities and agency debentures as a percentage of portfolio	89%	82%	88%
Adjustable-rate mortgage-backed securities and agency debentures as a percentage of portfolio	10%	16%	11%
Floating-rate mortgage-backed securities and agency debentures as a percentage of portfolio	1%	2%	1%
Notional amount of interest rate swaps as a percentage of mortgage-backed securities and agency debentures	38%	38%	37%
Annualized yield on average interest-earning assets during the quarter	4.04%	4.16%	3.79%
Annualized cost of funds on average interest-bearing liabilities during the quarter	1.59%	2.00%	1.62%
Annualized interest rate spread during the quarter	2.45%	2.16%	2.17%
Weighted average yield on investment securities at period-end	3.76%	3.65%	3.89%
Weighted average cost of funds on borrowings at period-end	1.69%	2.09%	1.65%
Interest rate spread at period-end	2.07%	1.56%	2.24%
Weighted average receive rate on interest rate swaps at period-end	0.21%	0.38%	0.28%
Weighted average pay rate on interest rate swaps at period-end	2.79%	3.48%	2.92%

The Constant Prepayment Rate was 11% during the second quarter of 2011, as compared to 32% during the second quarter of 2010, and 17% during the first quarter of 2011. The weighted average purchase price of the Company’s mortgage-backed securities and agency debentures was 102.6% at June 30, 2011. The net amortization of premiums and accretion of discounts on mortgage-backed securities and agency debentures for the quarters ended June 30, 2011, June 30, 2010, and March 31, 2011 was $126.5 million, $137.2 million, and $174.8 million, respectively. The total net premium and discount balance at June 30, 2011, June 30, 2010, and March 31, 2011, was $3.0 billion, $1.8 billion, and $2.9 billion, respectively.

General and administrative expenses as a percentage of average assets were 0.23%, 0.23% and 0.23% for the quarters ended June 30, 2011, June 30, 2010, and March 31, 2011, respectively. At June 30, 2011, June 30, 2010, and March 31, 2011, the Company had a common stock book value per share of $16.55, $16.89 and $15.76, respectively.

At June 30, 2011, The Company’s wholly-owned registered investment advisors had under management approximately $13.1 billion in net assets and $23.0 billion in gross assets, as compared to $12.1 billion in net assets and $18.8 billion in gross assets at June 30, 2010 and $12.5 billion in net assets and $22.5 billion in gross assets at March 31, 2011. For the quarter ended June 30, 2011, the investment advisors earned investment advisory and service fees of $20.7 million, as compared to $13.9 million for the quarter ended June 30, 2010 and $17.2 million for the quarter ended March 31, 2011.

Annaly manages assets on behalf of institutional and individual investors worldwide. The Company’s principal business objective is to generate net income for distribution to investors from its Investment Securities and from dividends it receives from its subsidiaries.

The Company will hold the 2011 second quarter earnings conference call on Tuesday August 2, 2011 at 9:00 a.m. EDT. The number to call is 866-843-0890 for domestic calls and 412-317-9250 for international calls. The conference passcode is 7352865. The replay number is 877-344-7529 for domestic calls and 412-317-0088 for international calls and the conference passcode is 10002635. 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 Investor Relations, then select Investor Information and complete the E-Mail notification form.

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, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. 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 the yield curve, changes in prepayment rates, the availability of mortgage-backed securities and other 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, changes in government regulations affecting our business, our ability to maintain our qualification as a REIT for federal income tax purposes, risks associated with the broker-dealer business of our subsidiary, and risks associated with the investment advisory business of our subsidiaries, including the removal by clients of assets they manage, their regulatory requirements and competition in the investment advisory business. 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 most recent Annual Report on Form 10-K and any 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, except share and per share data)

	June 30, 2011 (Unaudited)		March 31, 2011 (Unaudited)		December 31, 2010 (1)		September 30, 2010 (Unaudited)		June 30, 2010 (Unaudited)
ASSETS

Cash and cash equivalents	$	401,844	$	357,012	$	282,626	$	289,486	$	327,979
Reverse repurchase agreements with affiliate		-		-		-		-		82,678
Reverse repurchase agreements		593,865		1,348,069		1,006,163		757,722		226,098
Investments, at fair value:
U.S. Treasury Securities		748,118		1,088,657		1,100,447		754,993		87,352
Securities borrowed		519,929		368,714		216,676		251,242		242,242
Mortgage-Backed Securities		96,773,448		93,644,409		78,440,330		76,174,141		69,422,400
Agency debentures		703,093		414,660		1,108,261		2,046,371		2,390,429
Investments with affiliates		261,659		303,713		252,863		245,659		230,268
Corporate debt, held for investment		27,982		21,224		21,683		-		-
Receivable for Investment sold		40,751		320,465		151,460		1,637,542		78,581
Accrued interest and dividends receivable		386,160		391,356		345,250		345,153		322,853
Receivable from Prime Broker		3,272		3,272		3,272		3,272		3,272
Receivable for advisory and service fees		19,666		16,631		16,172		15,138		13,359
Intangible for customer relationships, net		12,141		8,990		9,290		9,590		9,891
Goodwill		42,030		42,030		42,030		27,917		27,917
Interest rate swaps, at fair value		-		8,879		2,561		-		-
Other derivative contracts, at fair value		767		1,539		2,607		186		-
Other assets		22,282		87,988		24,899		26,351		42,665

Total assets	$	100,557,007	$	98,427,608	$	83,026,590	$	82,584,763	$	73,507,984

LIABILITIES AND STOCKHOLDERS’ EQUITY

Liabilities:
U.S. Treasury Securities sold, not yet purchased, at fair value	$	491,740	$	788,898	$	909,462	$	691,593	$	26,207
Repurchase agreements		78,447,165		79,983,914		65,533,537		61,040,668		56,386,835
Securities loaned, at fair value		447,330		359,852		217,841		251,332		242,242
Payable for Investments purchased		4,824,618		2,476,409		4,575,026		8,165,941		4,867,945
Payable for investments purchased with affiliate		-		57,500		-		-		-
Convertible Senior Notes		600,000		600,000		600,000		600,000		600,000
Accrued interest payable		122,753		113,101		115,766		113,837		99,366
Dividends payable		539,970		498,697		404,220		422,036		380,636
Interest rate swaps, at fair value		1,035,215		577,150		754,439		1,604,639		1,174,788
Other derivative contracts, at fair value		-		-		2,446		-		216
Accounts payable and other liabilities		78,895		79,087		8,921		51,440		33,815

Total liabilities		86,587,686		85,534,608		73,121,658		72,941,486		63,812,050

6.00% Series B Cumulative Convertible Preferred Stock: 4,600,000 shares authorized, 1,649,047, 1,650,047, 1,652,047, 2,306,537 and 2,603,969 shares issued and outstanding, respectively		39,959		39,983		40,032		55,891		63,098

Stockholders’ Equity:
7.875% Series A Cumulative Redeemable Preferred Stock: 7,412,500 authorized, issued and outstanding		177,088		177,088		177,088		177,088		177,088
Common stock, par value $.01 per share, 1,987,987,500 authorized, 831,047,443, 804,350,532, 631,594,205, 620,640,708 and 559,763,825 issued and outstanding, respectively		8,310		8,044		6,316		6,206		5,598
Additional paid-in capital		12,579,012		12,119,817		9,175,245		8,994,954		7,937,738
Accumulated other comprehensive income		2,049,831		1,009,528		1,164,642		1,877,537		2,540,201
Accumulated deficit		(884,879)		(461,460)		(658,391)		(1,468,399)		(1,027,789)

Total stockholders’ equity		13,929,362		12,853,017		9,864,900		9,587,386		9,632,836
Total liabilities, Series B Cumulative Convertible Preferred Stock and stockholders’ equity	$	100,557,007	$	98,427,608	$	83,026,590	$	82,584,763	$	73,507,984

(1) Derived from the audited consolidated financial statements at December 31, 2010.

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED) (dollars in thousands, except share and per share data)

	For the quarters ended
	June 30,		March 31,		December 31,		September 30,		June 30,
	2011		2011		2010		2010		2010
Interest income:
Investments	$	948,703	$	837,880	$	678,626	$	700,964	$	642,782
U.S. Treasury Securities		6,497		4,825		2,039		751		40
Securities loaned		1,868		1,343		1,422		1,261		860
Total interest income		957,068		844,048		682,087		702,976		643,682

Interest expense:
Repurchase agreements		100,164		102,602		103,514		105,393		96,975
Convertible Senior Notes		6,900		6,767		7,034		7,033		6,966
U.S. Treasury Securities sold, not yet purchased		4,772		4,986		2,166		459		24
Securities borrowed		1,484		1,101		1,201		1,047		742
Total interest expense		113,320		115,456		113,915		113,932		104,707

Net interest income		843,748		728,592		568,172		589,044		538,975

Other income (loss):
Investment advisory and other fee income		20,710		17,207		16,321		15,343		13,863
Net gains (losses) on sales of Mortgage-Backed Securities and agency debentures		7,336		27,185		33,802		61,986		39,041
Dividend income		8,230		6,297		7,647		8,097		7,330
Net gains (losses) on trading		(5,712)		18,812		(3,510)		1,082		77
Net gains (losses) on interest-only Mortgage-Backed Securities		276		-		-		-		-
Income (expense) from underwriting		(77)		2,904		680		915		500
Subtotal		30,763		72,405		54,940		87,423		60,811
Realized gains (losses) on interest rate swaps⁽¹⁾		(216,760)		(206,148)		(190,098)		(188,636)		(175,535)
Unrealized gains (losses) on interest rate swaps		(466,943)		169,308		839,191		(448,253)		(593,038)
Subtotal		(683,703)		(36,840)		649,093		(636,889)		(768,573)
Total other income (loss)		(652,940)		35,565		704,033		(549,466)		(707,762)

General and administrative expenses		57,229		51,827		46,496		43,430		41,540

Income (loss) before income taxes and income from equity method investment in affiliate		133,579		712,330		1,225,709		(3,852)		(210,327)

Income taxes		(12,762)		(13,575)		(8,207)		(11,076)		(8,837)

Income (loss) from equity method investment in affiliate		-		1,140		1,002		868		935

Net income (loss)		120,817		699,895		1,218,504		(14,060)		(218,229)

Dividends on preferred stock		4,267		4,267		4,268		4,515		4,625

Net income (loss) available (related) to common shareholders	$	116,550	$	695,628	$	1,214,236		($18,575)		($222,854)

Net income (loss) available (related) per share to common shareholders:
Basic	$	0.14	$	0.92	$	1.94		($0.03)		($0.40)
Diluted	$	0.14	$	0.89	$	1.84		($0.03)		($0.40)

Weighted average number of common shares outstanding:
Basic		822,623,370		752,413,605		625,138,510		611,904,518		559,700,836
Diluted		827,754,731		790,993,841		662,476,638		611,904,518		559,700,836

Net income (loss)	$	120,817	$	699,895	$	1,218,504		($14,060)		($218,229)
Other comprehensive income (loss):
Unrealized gains (losses) on available-for-sale securities		1,047,639		(142,227)		(692,663)		(619,080)		664,544
Unrealized loss on interest rate swaps		-		14,298		13,570		18,402		26,846
Reclassification adjustment for net (gains) losses included in net income (loss)		(7,336)		(27,185)		(33,802)		(61,986)		(39,041)
Other comprehensive income (loss)		1,040,303		(155,114)		(712,895)		(662,664)		652,349
Comprehensive income (loss)	$	1,161,120	$	544,781	$	505,609		($676,724)	$	434,120

(1) Realized loss on interest rate swaps equals net interest payments on interest rate swaps.

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED) (dollars in thousands, except share and per share data)

	For the six months ended
	June 30, 2011	June 30, 2010
Interest income:
Investments	$1,786,583	$1,296,717
U.S. Treasury Securities	11,322	40
Securities loaned	3,211	1,314
Total interest income	1,801,116	1,298,071

Interest expense:
Repurchase agreements	202,766	189,064
Convertible Senior Notes	13,667	10,161
U.S. Treasury Securities sold, not yet purchased	9,758	24
Securities borrowed	2,585	1,129
Total interest expense	228,776	200,378

Net interest income	1,572,340	1,097,693

Other income (loss):
Investment advisory and other fee income	37,917	26,409
Gains (losses) on sales of Mortgage-Backed Securities and agency debentures	34,521	86,003
Dividend income	14,527	15,294
Net gains (losses) on trading	13,100	77
Net gains (losses) on interest-only Mortgage-Backed Securities	276	-
Income from underwriting	2,827	500
Subtotal	103,168	128,283
Realized gains (losses) on interest rate swaps⁽¹⁾	(422,908)	(356,373)
Unrealized gains (losses) on interest rate swaps	(297,635)	(709,770)
Subtotal	(720,543)	(1,066,143)
Total other income (loss)	(617,375)	(937,860)

Expenses:
Distribution fees	-	360
General and administrative expenses	109,056	81,561
Total expenses	109,056	81,921

Income (loss) before income from equity method investment and income taxes	845,909	77,912
Income taxes	(26,337)	(16,151)

Income (loss) from equity method investment	1,140	1,075

Net income (loss)	820,712	62,836

Dividend on preferred stock	8,534	9,250

Net income (loss) available (related) to common shareholders	$812,178	$53,586

Net income (loss) available (related) per share to common shareholders:
Basic	$1.03	$0.10
Diluted	$1.00	$0.10

Weighted average number of common shares outstanding:
Basic	787,712,527	557,360,358
Diluted	827,622,301	557,418,175

Net income (loss)	$820,712	$62,836
Other comprehensive income (loss):
Unrealized gains (losses) on available-for-sale securities	905,412	671,960
Unrealized losses on interest rate swaps	14,298	62,927
Reclassification adjustment for net (gains) losses included in net income (loss)	(34,521)	(86,003)
Other comprehensive income (loss)	885,189	648,884
Comprehensive income (loss)	$1,705,901	$711,720

(1) Realized losses on interest rate swaps equals net interest payments on interest rate swaps.

CONTACT:
Annaly Capital Management, Inc.
Investor Relations
1-888-8Annaly
www.annaly.com

		ANNALY CAPITAL MANAGEMENT, INC.


		By:	/s/ Kathryn Fagan
			Name:	Kathryn Fagan
			Title:	Chief Financial Officer


Date:	August 1, 2011

	Annaly Capital Management, Inc.
(Exact Name of Registrant as Specified in its Charter)