Annaly Capital Management (NLY) 8-K Annaly Capital Management, Inc. Reports Results for the 2nd Quarter 2013

Exhibit 99.1

Annaly Capital Management, Inc. Reports Results for the 2nd Quarter 2013

NEW YORK--(BUSINESS WIRE)--August 7, 2013--Annaly Capital Management, Inc. (NYSE: NLY) today reported GAAP net income for the quarter ended June 30, 2013 of $1.6 billion or $1.71 per average common share as compared to GAAP net income of $870.3 million or $0.90 per average common share for the quarter ended March 31, 2013, and GAAP net loss of $91.2 million or $0.10 per average common share for the quarter ended June 30, 2012.

Without the effect of the unrealized gains or losses on interest rate swaps and Agency interest-only mortgage-backed securities, net loss on extinguishment of the 4% Convertible Senior Notes due 2015 (the “4% Convertible Notes”), impairment of goodwill and loss on previously held equity interest in CreXus Investment Corp. (“CreXus”), net income for the quarter ended June 30, 2013 was $460.6 million or $0.47 per average common share as compared to $464.4 million or $0.47 per average common share for the quarter ended March 31, 2013, and $546.2 million or $0.55 per average common share for the quarter ended June 30, 2012.

Agency mortgage-backed securities, Agency debentures, and corporate debt are considered Investment Securities. During the quarter ended June 30, 2013, the Company disposed of $14.8 billion of Investment Securities, resulting in a realized gain of $148.0 million. During the quarter ended March 31, 2013, the Company disposed of $17.2 billion of Investment Securities, resulting in a realized gain of $182.8 million. During the quarter ended June 30, 2012, the Company disposed of $6.4 billion of Investment Securities, resulting in a realized gain of $94.8 million.

Common dividends declared for the quarters ended June 30, 2013, March 31, 2013, and June 30, 2012 were $0.40, $0.45, and $0.55 per common share, respectively. 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, 2013, based on the June 30, 2013 closing price of $12.57, was 12.73%, as compared to 11.33% for the quarter ended March 31, 2013, and 13.11% for the quarter ended June 30, 2012.

On a GAAP basis, the Company produced an annualized return on average equity for the quarter ended June 30, 2013 of 45.87%, an annualized return on average equity for the quarter ended March 31, 2013 of 22.29%, and an annualized loss on average equity for the quarter ended June 30, 2012 of 2.26%. Without the effect of the unrealized gains or losses on interest rate swaps and Agency interest-only mortgage-backed securities, net loss on extinguishment of the 4% Convertible Notes, impairment of goodwill and loss on previously held equity interest in CreXus, the Company provided an annualized return on average equity for the quarters ended June 30, 2013, March 31, 2013, and June 30, 2012, of 12.90%, 11.90%, and 13.56%, respectively. Leverage at June 30, 2013, March 31, 2013, and June 30, 2012, was 6.2:1, 6.6:1 and 6.0:1, respectively. Leverage includes loan participations and mortgage payable which are non-recourse to the Company.

Wellington J. Denahan, Chairman and Chief Executive Officer of Annaly, commented on the Company’s results. “While the resulting sell-off in the bond market put pressure on asset values during the 2nd quarter, I believe that our focus on prudent risk management and the evolution of our capital allocation strategy has helped protect our portfolio and positions Annaly to take advantage of current market opportunities. We are prepared to be opportunistic given our low leverage, strong liquidity and sizeable capital production.”

For the quarter ended June 30, 2013, the annualized yield on average interest-earning assets was 2.51% and the annualized cost of funds on average interest-bearing liabilities, including the net interest payments on interest rate swaps, was 1.53%, which resulted in an average interest rate spread of 0.98%. This was a 7 basis point increase from the 0.91% average interest rate spread for the quarter ended March 31, 2013, and a 56 basis point decrease from the 1.54% average interest rate spread for the quarter ended June 30, 2012.

Fixed-rate Agency mortgage-backed securities and debentures comprised 92% of the Company’s Investment Securities portfolio at June 30, 2013. Adjustable-rate Agency mortgage-backed securities and debentures comprised 8% of the Company’s Investment Securities portfolio. At June 30, 2013, the Company had entered into interest rate swaps with a notional amount of $48.5 billion, or 53% of the Company’s Agency mortgage-backed securities and debentures. Changes in the unrealized gains or losses on the interest rate swaps are reflected in the Company’s consolidated statements of comprehensive income. The purpose of the interest rate 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 cost of financing. As of June 30, 2013, the swap portfolio had a weighted average pay rate of 2.05%, a weighted average receive rate of 0.22% and weighted average years to maturity of 5.04. As of June 30, 2013, substantially all of the Company’s Investment Securities were Fannie Mae, Freddie Mac and Ginnie Mae mortgage-backed securities and debentures.

The following table summarizes portfolio information for the Company:

	June 30, 2013	March 31, 2013	June 30, 2012
Leverage at period-end *	6.2:1	6.6:1	6.0:1
Fixed-rate Agency mortgage-backed securities and debentures as a percentage of portfolio	92%	92%	92%
Adjustable-rate Agency mortgage-backed securities and debentures as a percentage of portfolio	8%	8%	7%
Floating-rate Agency mortgage-backed securities and debentures as a percentage of portfolio	-	-	1%
Notional amount of interest rate swaps as a percentage of Investment Securities	53%	46%	41%
Annualized yield on average interest-earning assets during the quarter	2.51%	2.37%	3.04%
Annualized cost of funds on average interest-bearing liabilities during the quarter	1.53%	1.46%	1.50%
Annualized interest rate spread during the quarter	0.98%	0.91%	1.54%
Weighted average days to maturity on interest-bearing liabilities at period-end	196	202	216
Weighted average receive rate on interest rate swaps at period-end	0.22%	0.23%	0.30%
Weighted average pay rate on interest rate swaps at period-end	2.05%	2.08%	2.29%
* Includes loan participations and mortgage payable which are non-recourse to the Company.

The following table summarizes certain characteristics of the Company’s interest rate swaps at June 30, 2013:

	Current		Weighted Average		Weighted Average		Weighted Average Years to
Maturity	Notional		Pay Rate		Receive Rate		Maturity
			(dollars in thousands)
0 - 3 years	$	21,567,050	1.94	%	0.21	%	2.18
3 - 6 years		14,738,490	1.69	%	0.23	%	3.99
6 - 10 years		7,700,000	2.31	%	0.25	%	7.53
Greater than 10 years		4,466,750	3.32	%	0.22	%	18.08
Total / Weighted Average	$	48,472,290	2.05	%	0.22	%	5.04

The following table presents the maturities of repurchase agreements at June 30, 2013:

Maturity	Principal Balance		Weighted Average Rate
	(dollars in thousands)
Within 30 days	$	32,749,247	0.42	%
30 to 59 days		18,675,058	0.41	%
60 to 89 days		2,827,502	0.58	%
90 to 119 days		6,522,227	0.37	%
Over 120 days(1)		20,623,301	1.27	%
Total	$	81,397,335	0.64	%

(1) Of the total repurchase agreements, approximately 13% have a remaining maturity over 1 year.

The Constant Prepayment Rate for the quarters ended June 30, 2013, March 31, 2013, and June 30, 2012, was 16%, 18% and 19%, respectively. The weighted average purchase price of the Company’s Agency mortgage-backed securities and debentures at June 30, 2013, March 31, 2013, and June 30, 2012, was 103.7%, 103.9% and 103.2%, respectively. The net amortization of premiums and accretion of discounts on Agency mortgage-backed securities and debentures for the quarters ended June 30, 2013, March 31, 2013, and June 30, 2012, was $320.2 million, $421.1 million, and $302.8 million, respectively. The total net premium and discount balance on Agency mortgage-backed securities and debentures at June 30, 2013, March 31, 2013, and June 30, 2012, was $5.3 billion, $5.4 billion, and $4.5 billion, respectively. At June 30, 2013, March 31, 2013, and June 30, 2012, the Company had a common stock book value per share of $13.03, $15.19 and $16.23, respectively.

Annaly’s principal business objective is to generate net income for distribution to its shareholders from its Investment Securities and from dividends it receives from its subsidiaries.

The Company prepares a supplement to provide additional quarterly information for the benefit of its shareholders. The supplement can be found at the Company’s website in the Investor Relations section under “Quarterly Supplemental Information”.

The Company will hold the 2013 second quarter earnings conference call on August 8, 2013 at 10:00 a.m. EDT. The number to call is 888-317-6003 for domestic calls and 412-317-6061 for international calls. The conference passcode is 4925037. The replay number is 877-344-7529 for domestic calls and 412-317-0088 for international calls and the conference passcode is 10031615. 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 Email Alerts and complete the email 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, our ability to consummate any contemplated investment opportunities, our ability to integrate the commercial mortgage business, changes in government regulations affecting our business, our ability to maintain our qualification as a REIT for federal income tax purposes, our ability to maintain our exemption from registration under the Investment Company Act of 1940, as amended, and 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, 2013 (Unaudited)			March 31, 2013 (Unaudited)			December 31, 2012(1)			September 30, 2012 (Unaudited)			June 30, 2012 (Unaudited)
ASSETS
Cash and cash equivalents	$	725,537		$	1,862,550		$	615,789		$	2,264,854		$	924,374
Reverse repurchase agreements		171,234			4,933,465			1,811,095			1,612,384			2,025,471
Investments, at fair value:
U.S. Treasury securities		-			1,645,930			752,076			2,242,039			1,998,363
Securities borrowed		2,425,024			2,688,485			2,160,942			1,602,692			1,465,327
Agency mortgage-backed securities		92,487,318			108,256,671			123,963,207			129,597,714			118,500,649
Agency debentures		3,306,473			3,970,279			3,009,568			2,935,538			1,250,506
Investments in affiliates		134,948			267,547			234,120			224,899			203,057
Commercial real estate investments		1,005,560			-			-			-			-
Corporate debt, held for investment		61,682			66,539			63,944			64,928			60,638
Receivable for investments sold		1,499,140			1,292,478			290,722			470,266			1,320,996
Accrued interest and dividends receivable		340,671			388,665			419,259			434,026			420,390
Receivable from Prime Broker		-			-			-			3,272			3,272
Receivable for investment advisory income		10,374			12,817			17,730			20,271			20,743
Intangible for customer relationships		6,474			6,731			6,989			9,146			9,714
Goodwill		102,783			55,417			55,417			55,417			55,417
Interest rate swaps, at fair value		38,950			-			-			-			-
Other derivatives		91,270			-			9,830			559			3,717
Other assets		61,146			54,282			41,607			38,595			41,937
Total assets	$	102,468,584		$	125,501,856		$	133,452,295		$	141,576,600		$	128,304,571
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
U.S. Treasury securities sold, not yet purchased, at fair value	$	-		$	611,167		$	495,437		$	1,418,750		$	1,884,922
Repurchase agreements		81,397,335			100,322,942			102,785,697			101,033,146			96,760,797
Securities loaned, at fair value		2,284,245			2,330,060			1,808,315			1,248,968			1,113,107
Payable for investments purchased		2,833,214			3,203,461			8,256,957			16,107,038			7,387,410
Payable for share buyback program		-			-			141,149			-			-
Convertible Senior Notes		824,229			824,902			825,541			999,749			1,245,915
Mortgage payable		19,361			-			-			-			-
Participation sold		14,324			-			-			-			-
Accrued interest payable		164,190			175,749			186,896			181,502			174,819
Dividends payable		396,888			426,173			432,154			487,237			535,898
Interest rate swaps, at fair value		1,189,178			2,259,173			2,584,907			2,926,461			2,822,264
Accounts payable and other liabilities		82,316			37,048			10,798			83,086			94,853
Other derivatives		-			4,812			-			-			-
Total liabilities		89,205,280			110,195,487			117,527,851			124,485,937			112,019,985
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
7.625% Series C Cumulative Redeemable Preferred Stock: 12,650,000 authorized, 12,000,000 issued and outstanding		290,514			290,514			290,514			290,514			290,514
7.50% Series D Cumulative Redeemable Preferred Stock: 18,400,000, 18,400,000, 18,400,000, 18,400,000 and 0 authorized, issued and outstanding, respectively		445,457			445,457			445,457			445,457			-
Common stock, par value $0.01 per share, 1,956,937,500, 1,956,937,500, 1,956,937,500, 1,956,937,500, and 1,975,337,500, authorized, 947,483,487, 947,293,099, 947,213,204, 974,799,779,and 974,684,401, issued and outstanding, respectively		9,475			9,473			9,472			9,748			9,747
Additional paid-in capital		14,754,681			14,746,579			14,740,774			15,144,200			15,168,020
Accumulated other comprehensive income (loss)		(1,289,246	)		2,003,248			3,053,242			4,069,607			3,413,320
Accumulated deficit		(1,124,665	)		(2,365,990	)		(2,792,103	)		(3,045,951	)		(2,774,103	)
Total stockholders’ equity		13,263,304			15,306,369			15,924,444			17,090,663			16,284,586
Total liabilities and stockholders’ equity	$	102,468,584		$	125,501,856		$	133,452,295		$	141,576,600		$	128,304,571
(1) Derived from the audited consolidated financial statements at December 31, 2012.

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (dollars in thousands, except share and per share data)
	For the quarters ended
	June 30,			March 31,			December 31,			September 30,			June 30,
		2013			2013			2012			2012			2012
Interest income:
Investment Securities	$	686,577		$	724,820		$	748,122		$	751,739		$	874,984
U.S. Treasury securities		7,242			5,996			3,819			4,588			7,397
Securities loaned		2,302			2,612			2,106			2,581			2,698
Commercial real estate investments		13,906			-			-			-			-
Reverse repurchase agreements		2,775			3,636			2,449			2,225			1,122
Other		134			153			165			132			123
Total interest income		712,936			737,217			756,661			761,265			886,324
Interest expense:
Repurchase agreements		141,945			157,064			165,600			158,150			139,579
Convertible Senior Notes		16,364			15,813			15,503			18,026			18,965
U.S. Treasury securities sold, not yet purchased		4,075			2,788			2,930			3,739			5,801
Securities borrowed		1,737			1,925			1,458			1,978			2,098
Participation sold		134			-			-			-			-
Total interest expense		164,255			177,590			185,491			181,893			166,443
Net interest income		548,681			559,627			571,170			579,372			719,881
Other income (loss):
Investment advisory income		12,187			13,408			18,773			20,915			21,810
Net gains (losses) on disposal of investments		147,998			182,843			114,831			142,172			94,837
Net loss on extinguishment of 4% Convertible Senior Notes		-			-			(75,012	)		(87,328	)		-
Dividend income from affiliates		4,048			6,431			7,097			7,097			6,621
Net gains (losses) on trading assets		54,046			1,549			15,181			1,368			1,105
Net unrealized gains (losses) on interest-only Agency mortgage-backed securities		111,521			80,127			(31,148	)		(33,563	)		(26,103	)
Impairment of goodwill		(23,987	)		-			-			-			-
Loss on previously held equity interest in CreXus		(18,896	)		-			-			-			-
Other income (loss)		7,192			132			161			119			119
Subtotal		294,109			284,490			49,883			50,780			98,389
Realized gains (losses) on interest rate swaps(1)		(212,727	)		(225,476	)		(228,155	)		(224,272	)		(222,002	)
Realized gains (losses) on termination of interest rate swaps		(35,649	)		(16,378	)		-			-			-
Unrealized gains (losses) on interest rate swaps		1,109,022			325,734			341,554			(104,197	)		(611,215	)
Subtotal		860,646			83,880			113,399			(328,469	)		(833,217	)
Total other income (loss)		1,154,755			368,370			163,282			(277,689	)		(734,828	)
General and administrative expenses:
Compensation and management fee		43,764			38,443			25,842			52,310			53,536
Other general and administrative expenses		21,367			13,469			14,242			10,694			11,020
Total general and administrative expenses		65,131			51,912			40,084			63,004			64,556
Income (loss) before income taxes		1,638,305			876,085			694,368			238,679			(79,503	)
Income taxes		92			5,807			(6,127	)		13,921			11,656
Net income (loss)		1,638,213			870,278			700,495			224,758			(91,159	)
Dividends on preferred stock		17,992			17,992			19,717			9,367			6,508
Net income (loss) available (related) to common shareholders	$	1,620,221		$	852,286		$	680,778		$	215,391			($97,667	)
Net income (loss) per share available (related) to common shareholders:
Basic	$	1.71		$	0.90		$	0.70		$	0.22			($0.10	)
Diluted	$	1.64		$	0.87		$	0.68		$	0.22			($0.10	)
Weighted average number of common shares outstanding:
Basic		947,411,380			947,249,901			970,602,863			974,729,078			974,555,392
Diluted		995,229,637			994,815,169			1,017,925,849			997,007,829			974,555,392
Net income (loss)	$	1,638,213		$	870,278		$	700,495		$	224,758			($91,159	)
Other comprehensive income (loss):
Unrealized gains (losses) on available-for-sale securities		(3,144,496	)		(867,151	)		(894,972	)		798,269			741,727
Reclassification adjustment for net (gains) losses included in net income (loss)		(147,998	)		(182,843	)		(121,393	)		(141,982	)		(94,837	)
Other comprehensive income (loss)		(3,292,494	)		(1,049,994	)		(1,016,365	)		656,287			646,890
Comprehensive income (loss)		($1,654,281	)		($179,716	)		($315,870	)	$	881,045		$	555,731

(1) Interest expense related to the Company’s interest rate swaps is recorded in Realized gains (losses) on interest rate swaps on the Consolidated Statements of Comprehensive Income.

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (dollars in thousands, except share and per share data)
	For the six months ended
	June 30, 2013			June 30, 2012
Interest income:
Investment Securities	$	1,411,397		$	1,725,408
U.S. Treasury securities		13,238			8,815
Securities loaned		4,914			5,216
Commercial real estate investments		13,906			-
Reverse repurchase agreements		6,411			1,544
Other		287			236
Total interest income		1,450,153			1,741,219
Interest expense:
Repurchase agreements		299,009			253,493
Convertible Senior Notes		32,177			33,692
U.S. Treasury securities sold, not yet purchased		6,863			8,445
Securities borrowed		3,662			4,158
Participation sold		134			-
Total interest expense		341,845			299,788
Net interest income		1,108,308			1,441,431
Other income (loss):
Investment advisory income		25,595			42,450
Net gains (losses) on disposal of investments		330,841			175,136
Dividend income from affiliates		10,479			14,142
Net gains (losses) on trading assets		55,595			6,361
Net unrealized gains (losses) on interest-only Agency mortgage-backed securities		191,648			4,774
Impairment of goodwill		(23,987	)		-
Loss on previously held equity interest in CreXus		(18,896	)		-
Other income (loss)		7,324			245
Subtotal		578,599			243,108
Realized gains (losses) on interest rate swaps(1)		(438,203	)		(441,342	)
Realized gains (losses) on termination of interest rate swaps		(52,027	)		(2,385	)
Unrealized gains (losses) on interest rate swaps		1,434,756			(269,576	)
Subtotal		944,526			(713,303	)
Total other income (loss)		1,523,125			(470,195	)
General and administrative expenses:
Compensation and management fee		82,207			112,550
Other general and administrative expenses		34,836			19,921
Total general and administrative expenses		117,043			132,471
Income (loss) before income taxes		2,514,390			838,765
Income taxes		5,899			28,118
Net income (loss)		2,508,491			810,647
Dividends on preferred stock		35,984			10,446
Net income (loss) available (related) to common shareholders	$	2,472,507		$	800,201
Net income (loss) per share available (related) to common shareholders:
Basic	$	2.61		$	0.82
Diluted	$	2.51		$	0.78
Weighted average number of common shares outstanding:
Basic		947,331,087			973,141,546
Diluted		995,151,942			1,052,888,301
Net income (loss)	$	2,508,491		$	810,647
Other comprehensive income (loss):
Unrealized gains (losses) on available-for-sale securities		(4,011,647	)		579,468
Reclassification adjustment for net (gains) losses included in net income (loss)		(330,841	)		(175,136	)
Other comprehensive income (loss)		(4,342,488	)		404,332
Comprehensive income (loss)		($1,833,997	)	$	1,214,979

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