Annaly Capital Management, Inc. (NLY)

Annaly Capital Management, Inc. Reports 1st Quarter 2008 Core EPS of $0.51, an Increase of 96% from Prior Year and 38% from Prior Quarter
Annaly Capital Management, Inc. (NYSE: NLY) today reported Core Earnings for the quarter ended March 31, 2008 of $233.6 million or $0.51 per average share available to common shareholders as compared to Core Earnings of $61.7 million or $0.26 per average share available to common shareholders for the quarter ended March 31, 2007, and Core Earnings of $151.1 million or $0.37 per average share available to common shareholders for the quarter ended December 31, 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, net income for the quarter ended March 31, 2008 was $243.0 million or $0.54 basic net income per average share available to common shareholders, as compared to net income of $67.4 million or $0.29 basic net income per average share available to common shareholders for the quarter ended March 31, 2007, and net income of $152.9 million or $0.38 basic net income per average share available to common shareholders for the quarter ended December 31, 2007.

During the quarter ended March 31, 2008, the Company sold $4.1 billion of Mortgage-Backed Securities, resulting in a realized gain of $9.4 million. During the quarter ended March 31, 2007, the Company sold $1.2 billion of Mortgage-Backed Securities, resulting in a realized 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 December 31, 2007, the Company sold $549.4 million of Mortgage-Backed Securities, resulting in a realized gain of $1.8 million.

Common dividends declared for the quarter ended March 31, 2008 were $0.48 per share, as compared to $0.20 per share for the quarter ended March 31, 2007 and $0.34 per share for the quarter ended December 31, 2007. The annualized dividend yield on the Company’s common stock for the quarter ended March 31, 2008, based on the March 31, 2008 closing price of $15.32, was 12.53%. On a Core Earnings basis, the Company provided an annualized return on average equity of 16.01% for the quarter ended March 31, 2008, as compared to 8.13% for the quarter ended March 31, 2007 and 12.92% for the quarter ended December 31, 2007. On a GAAP basis, the Company provided an annualized return on average equity of 16.66% for the quarter ended March 31, 2008, as compared to 8.88% for the quarter ended March 31, 2007, and 13.07% for the quarter ended December 31, 2007.

During the quarter ended March 31, 2008, the Company completed a public offering of 58,650,000 shares of common stock. The estimated net proceeds of the offering, including the exercise of the underwriters’ over-allotment option, were approximately $1.1 billion, net of offering expenses.

Michael A.J. Farrell, Chairman, Chief Executive Officer and President of Annaly, commented on the quarter’s results. “In the first quarter of 2008, the deflating global credit bubble threatened system-wide financial stability, raised anxiety levels in the financing markets and reduced liquidity for many asset classes. To put it simply, much of the credit markets were essentially frozen during the second and third weeks of March, and the crisis prompted unconventional and unprecedented actions by policymakers. We are pleased that the combination of these policy initiatives, along with the ongoing efforts to recapitalize financial institutions, has had a calming effect, but we believe markets will continue to experience periods of volatility for some time. In this environment, we expect operating fundamentals to remain favorable for us, and will continue to manage Annaly’s portfolio conservatively and for the long-term benefit of our shareholders.”

For the quarter ended March 31, 2008, the annualized yield on average earning assets was 5.64% and the annualized cost of funds on the average repurchase balance was 4.18%, which results in an interest rate spread of 1.46%. This is an 88 basis point increase over the 0.58% annualized interest rate spread for the quarter ended March 31, 2007 and a 58 basis point increase over the 0.88% annualized interest rate spread for the quarter ended December 31, 2007. 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%. For the quarter ended December 31, 2007, the annualized yield on average earning assets was 5.81% and the annualized cost of funds on the average repurchase balance was 4.93%. At March 31, 2008, the weighted average yield on assets was 5.36% and the cost of funds, including the effect of interest rate swaps, was 3.85%, which results in an interest rate spread of 1.51%. Leverage at March 31, 2008 was 8.1:1, in comparison to 9.8:1 at March 31, 2007 and 8.7:1 at December 31, 2007.

Fixed rate securities comprised 69% of the Company’s portfolio at March 31, 2008. The balance of the portfolio was comprised of 21% adjustable rate mortgages and 10% LIBOR floating rate collateralized mortgage obligations. At March 31, 2008, the Company had entered into interest rate swaps with a notional amount of $17.0 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 is to lock in a spread relative to the cost of financing. The Company has continued to avoid the introduction of credit risk into its portfolio. As of March 31, 2008, 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.

“In spite of the volatility during the quarter, Agency mortgage-backed securities performed relatively well,” said Wellington Denahan-Norris, Annaly’s Vice Chairman, Chief Investment Officer and Chief Operating Officer. “In our portfolio, after taking into account the effect of interest rate swaps, at March 31, 2008 our portfolio of short duration assets was comprised of 39% fixed-rate, 21% adjustable-rate and 40% floating-rate assets. The spread widened between the yield on our portfolio assets and the cost to finance them as the Federal Reserve reduced short-term rates, and we managed our financing operations at the low end of our leverage range. We will likely remain at this leverage level for as long as the current environment remains uncertain, as well as continue to prudently take advantage of the attractive spreads available for new investments.”

The following table summarizes portfolio information for the Company:

March 31,
2008
March 31,
2007
December 31,
2007

Leverage at period-end 8.1:1 9.8:1 8.7:1
Fixed-rate investment securities as % of portfolio 69% 75% 71%
Adjustable-rate investment securities as % of portfolio 21% 19% 21%
Floating-rate investment securities as % of portfolio 10% 6% 8%
Notional amount of interest rate swaps as % of portfolio 30% 34% 31%
Annualized yield on average earning assets during the quarter 5.64% 5.68% 5.81%
Annualized cost of funds on average repurchase balance during the quarter 4.18%
5.10%
4.93%

Annualized interest rate spread during the quarter 1.46% 0.58% 0.88%
Weighted average yield on assets at period-end 5.36% 5.67% 5.75%
Weighted average cost of funds at period-end 3.85% 5.17% 4.76%
Interest rate spread at period-end 1.51% 0.50% 0.99%

The Constant Prepayment Rate was 15% during the first quarter of 2008, as compared to 17% during the first quarter of 2007, and 12% during the fourth quarter of 2007. The weighted average cost basis of the investment securities was 100.7 at March 31, 2008. The net amortization of premiums and accretion of discounts on investment securities for the quarters ended March 31, 2008, March 31, 2007 and December 31, 2007 was $27.5 million, $15.4 million, and $16.2 million, respectively. The total net premium remaining unamortized at March 31, 2008, March 31, 2007 and December 31, 2007 was $383.3 million, $195.6 million, and $328.4 million, respectively.

General and administrative expenses as a percentage of average assets were 0.17%, 0.15% and 0.16% for the quarters ended March 31, 2008, March 31, 2007, and December 31, 2007, respectively. At March 31, 2008, March 31, 2007, and December 31, 2007, the Company had a common stock book value per share of $12.95, $11.90 and $12.51, respectively.

At March 31, 2008, FIDAC, Annaly’s wholly-owned registered investment advisor, had under management approximately $3.2 billion in net assets and $12.7 billion in gross assets, as compared to $2.5 billion in net assets and $16.1 billion in gross assets at March 31, 2007 and $3.1 billion in net assets and $15.4 billion in gross assets at December 31, 2007. For the quarter ended March 31, 2008, FIDAC earned investment advisory and service fees, net of fees paid to distributors, of $6.0 million, as compared to $4.7 million for the quarter ended March 31, 2007 and $4.9 million for the quarter ended December 31, 2007.

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 468,380,797 shares of common stock outstanding.

The Company will hold the first quarter 2008 earnings conference call on Thursday May 1, 2008 at 10:00 a.m. EST. The number to call is 866-761-0748 for domestic calls and 617-614-2706 for international calls and the pass code is 91995292. The replay number is 888-286-8010 for domestic calls and 617-801-6888 for international calls and the pass code is 62070173. 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 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,

2008

(Unaudited)
December 31, 2007 (1)
September 30,

2007

(Unaudited)
June 30,

2007

(Unaudited)
March 31, 2007

(Unaudited)


ASSETS

Cash and cash equivalents $ 1,549,041 $ 103,960 $ 90,028 $ 91,781 $ 96,610
Reverse repurchase agreements 800,000 - - - -
Mortgage-Backed Securities, at fair value 56,115,025 52,879,528 44,641,352 38,603,002 39,176,227
Agency debentures, at fair value 738,837 253,915 249,281 150,507 54,421
Available for sale equity securities, at fair value 44,546 64,754 - - -
Trading securities, at fair value 1,836 11,675 10,987 12,131 7,872
Receivable for Mortgage-Backed Securities sold 174,413 276,737 516,140 - 28,643
Accrued interest and dividends receivable 287,261 271,996 235,787 197,060 179,816
Receivable for advisory and service fees 4,581 3,598 2,933 2,954 2,949
Intangible for customer relationships 8,840 9,842 10,178 10,513 10,849
Goodwill 22,966 22,966 22,966 22,966 22,966
Interest rate swaps, at fair value - - - 93,404 1,028
Other assets 4,347 4,543 3,026 3,146 3,138

Total assets $ 59,751,693 $ 53,903,514 $ 45,782,678 $ 39,187,464 $ 39,584,519

LIABILITIES AND STOCKHOLDERS’ EQUITY

Liabilities:
Repurchase agreements $ 51,324,007 $ 46,046,560 $ 40,140,113 $ 35,093,856 $ 33,348,011
Payable for Investment Securities purchased 828,235 1,677,131 1,169,324 744,027 2,590,429
Trading securities sold, not yet purchased, at fair value 37,268 32,835 26,823 37,734 39,679
Accrued interest payable 172,575 257,608 148,462 104,456 79,362
Dividends payable 224,823 136,618 85,932 64,652 52,577
Accounts payable and other liabilities 20,123 36,688 25,237 14,520 7,942
Interest rate swaps, at fair value 789,859 398,096 142,061 838 42,871
Total liabilities 53,396,890 48,585,536 41,737,952 36,060,083 36,160,871

Minority interest in equity of consolidated affiliate - 1,574 1,329 5,623 5,610

6.00% Series B Cumulative Convertible Preferred Stock:
4,600,000 shares authorized, 4,597,550 and 4,600,000

shares issued and outstanding, respectively


111,405


111,466


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


177,088


177,088

Common stock: par value $.01 per share; 487,762,500
authorized, 468,380,797, 401,822,703, 330,509,203,

269,385,348, and 262,887,391 issued and outstanding,

respectively




4,684




4,018




3,305




2,694




2,629

Additional paid-in capital 6,506,494 5,297,922 4,270,330 3,447,964 3,352,417
Accumulated other comprehensive loss (335,814 ) (152,197 ) (385,960 ) (467,640 ) (60,040 )
Accumulated deficit (109,054 ) (121,893 ) (132,832 ) (149,814 ) (165,522 )

Total stockholders’ equity 6,243,398 5,204,938 3,931,931 3,010,292 3,306,572

Total liabilities, minority interest, Series B Cumulative
Convertible Preferred Stock and stockholders’ equity
$
59,751,693
$
53,903,514
$
45,782,678
$
39,187,464
$
39,584,519


(1) Derived from the audited consolidated financial statements at December 31, 2007.


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(UNAUDITED)

(dollars in thousands, except per share data)


For the quarters ended
March 31, December 31,
September 30, June 30,
March 31,

2008 2007 2007 2007 2007
Interest income $ 791,128 $ 720,925 $ 628,696 $ 556,262 $ 449,564

Interest expense 537,606 558,435 519,118 468,748 380,164

Net interest income 253,522 162,490 109,578 87,514 69,400

Other income
Investment advisory and service fees 6,598 5,636 5,464 5,366 5,562
Gain on sale of Mortgage-Backed Securities 9,417 1,829 3,795 7,293 6,145
Gain on termination of interest rate swaps - - 2,029 - 67
Income from trading securities 1,854 7,187 8,288 243 3,429
Dividend income from available-for-sale equity securities 941 91 - - -
Loss on other-than-temporarily impaired securities - - - (698 ) (491 )
Total other income 18,810 14,743 19,576 12,204 14,712

Expenses
Distribution fees 633 782 1,100 861 904
General and administrative expenses 23,995 20,174 17,334 12,272 12,886
Total expenses 24,628 20,956 18,434 13,133 13,790

Income before income taxes and minority interest 247,704 156,277 110,720 86,585 70,322

Income taxes 4,610 3,100 2,327 839 2,604

Income before minority interest 243,094 153,177 108,393 85,746 67,718

Minority interest 58 245 106 13 286

Net income 243,036 152,932 108,287 85,733 67,432

Dividend on preferred stock 5,373 5,374 5,373 5,373 5,373

Net income available to common shareholders $ 237,663 $ 147,558 $ 102,914 $ 80,360 $ 62,059

Net income available per share to
common shareholders:

Basic $ 0.54 $ 0.38 $ 0.33 $ 0.30 $ 0.29
Diluted $ 0.53 $ 0.37 $ 0.32 $ 0.30 $ 0.28

Weighted average number of common shares outstanding:
Basic 443,812,432 389,410,812 315,969,814 264,990,422 217,490,205
Diluted 452,967,457 398,247,632 324,614,534 273,578,836 225,928,127

Net income $ 243,036 $ 152,932 $ 108,287 $ 85,733 $ 67,432
Comprehensive income (loss)
Unrealized gain (loss) on available-for-sale securities 217,563 491,626 320,102 (535,413 ) 45,948
Unrealized (loss) gain on interest rate swaps (391,763 ) (256,034 ) (232,598 ) 134,408 (24,155 )
Reclassification adjustment for gains included in net income (9,417 ) (1,829 ) (5,824 ) (6,595 ) (5,721 )
Other comprehensive (loss) income (183,617 ) 233,763 81,680 (407,600 ) 16,072
Comprehensive income (loss) $ 59,419 $ 386,695 $ 189,967 ($321,867 ) $ 83,504


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


Annaly Capital Management, Inc. Announces Promotions
Annaly Capital Management, Inc. (NYSE: NLY) today announced the following promotions: James Fortescue, Kristopher Konrad and Rose-Marie Lyght have each been named Managing Director. Mr. Fortescue, who joined the company in 1995, is responsible for all financing operations at Annaly and FIDAC and will continue to hold the title of Head of Liabilities. Mrs. Lyght and Mr. Konrad, who joined Annaly in 1999 and 1997, respectively, oversee the company’s portfolio and asset selection activities and will continue to be Co-Heads of Portfolio Management.

Several other individuals were also recently promoted: Mohit Marria, Nancy Murtha and Konstantin Pavlov were each named Senior Vice President; Peter Koukouras, Michael Mulroe, Ryan O’Hagan, Meredith Pettegrow, Michelle Trilli and Daniel Wickey were each named Vice President.

Michael A.J. Farrell, Chairman, CEO and President of Annaly, commented on the title changes. “With these promotions, we wish to recognize the important part each person plays in the development and growth of our company, and we look forward to their continuing contributions to the success of Annaly. The people who work here are indeed our company’s most valuable assets.”

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
Annaly Capital Management, Inc. Announces 1st Quarter Dividend of $0.48 per Share; 9th Straight Increase in Quarterly Dividend
The Board of Directors of Annaly Capital Management, Inc. (NYSE: NLY) declared the first quarter 2008 common stock cash dividend of $0.48 per common share. This dividend is payable April 29, 2008 to common shareholders of record on March 28, 2008. The ex-dividend date is March 26, 2008.

Michael A.J. Farrell, Chairman, CEO and President of Annaly, commented on the dividend: "For many quarters we have been discussing—in quarterly conference calls, earnings releases, roadshow presentations and commentaries on our website—the risks posed by the mortgage debt bubble and its eventual crash. We’ve seen these risks play out in real time since last August. But not only have we been discussing it, we have been preparing for it by conservatively executing our strategy throughout this turbulent market. Our leverage has been running at the lower end of our range, which enables us to manage portfolio financing operations with our diverse and strong roster of counterparties, including handling the haircut adjustments that are typical for volatile periods like this. Moreover, the vast majority of our assets are Agency pass-through MBS, the most liquid and financeable securities in the Agency space.

“Despite the market turbulence, I am pleased that we continue to demonstrate the improving fundamentals for the company. Thanks to a series of accretive capital raises and widening interest rate spreads, we have been able to increase our dividend over 40% from the prior quarter and 140% from the first quarter of 2007. We believe that these fundamentals will continue to improve in the foreseeable future, and aim to continue to prudently manage our portfolio for long-term performance."

During the quarter, the Company completed a public offering of 58,650,000 shares of common stock. The estimated net proceeds of the offering, including the exercise of the underwriters' over-allotment option were approximately $1.1 billion, net of offering expenses.

The Company distributes dividends based on its current estimate of taxable earnings per common share, not GAAP earnings. Taxable and GAAP earnings will differ because of non-taxable unrealized and realized losses, differences in premium amortization, and non-deductible general and administrative expenses.

Dividends may be reinvested through Annaly's Dividend Reinvestment Plan. Plan information may be obtained from the Plan Administrator, Mellon Investor Services at 1-800-301-5234, at www.annaly.com, or by contacting the Company.

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 461,759,984 shares of common stock outstanding.

This news release and our public documents to which we refer contain or incorporate by reference
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 330,509,195 shares of common stock outstanding.