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Annaly Capital Management, Inc. Reports 3rd Quarter 2013 Results

At September 30, 2013, the Company had entered into interest rate swaptions with a notional amount of $6.8 billion. Changes in the unrealized gains or losses on the interest rate swaptions are reflected in the Company’s consolidated statements of comprehensive income (loss). The interest rate swaptions provide the Company with the option to enter into an interest rate swap agreement for a specified notional amount, duration, and pay and receive rates. As of September 30, 2013, the swaption portfolio had a weighted average pay rate of 3.02% and weighted average maturity of 3.42 months.

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

                                     
Maturity         Current Notional         Weighted Average

Pay Rate

       

Weighted

Average Receive

Rate

       

Weighted Average Years

to Maturity

(dollars in thousands)
0 - 3 years $24,208,000 1.83% 0.20% 2.19
3 - 6 years 11,427,340 1.84% 0.21% 4.30
6 - 10 years 13,327,250 2.31% 0.25% 7.54
Greater than 10 years 3,190,000         3.66%         0.20%         21.03
Total / Weighted Average $52,152,590         2.06%         0.21%         5.17
 

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

                                     
Current Underlying Notional        

Weighted Average

Underlying

Pay Rate

       

Weighted Average

Underlying

Receive Rate

       

Weighted Average

Underlying

Years to Maturity

       

Weighted Average

Months to Expiration

(dollars in thousands)
$6,800,000         3.02%         3M LIBOR         9.02         3.42
 

Key Metrics

The following table presents key metrics of the Company’s portfolio, liabilities and hedging positions, and performance as of and for the quarters ended September 30, 2013, June 30, 2013, and September 30, 2012:

      September 30, 2013       June 30, 2013       September 30, 2012    

Portfolio Related Metrics:

           
Fixed-rate Agency mortgage-backed securities and
debentures as a percentage of portfolio 91% 92% 93%

Adjustable-rate Agency mortgage-backed securities and

debentures as a percentage of portfolio 9% 8% 7%
Weighted average yield on commercial real estate
debt and preferred equity at period-end 9.70% 9.90% N/A
Weighted average net equity yield on investments in

commercial real estate at period-end (1)

14.13%       14.13%       N/A
 

Liabilities and Hedging Metrics:

 

Weighted average days to maturity on debt outstanding at period-end

204 196 220

Notional amount of interest rate swaps and swaptions as a percentage of

 

Investment Securities 74% 56% 38%
Weighted average receive rate on interest rate swaps at period-end 0.21% 0.22% 0.27%
Weighted average pay rate on interest rate swaps at period-end 2.06% 2.05% 2.23%
Weighted average net rate on interest rate swaps at period-end 1.85% 1.83% 1.96%
Leverage at period-end (2) 5.4:1 6.2:1 6.0:1
Capital ratio at period end 13.9% 12.9% 12.1%
Net capital ratio at period end 14.8%       13.3%       12.4%
 

Performance Related Metrics:

                 

Annualized yield on average interest-earning assets during

the quarter 2.82% 2.51% 2.54%

Annualized cost of funds on average interest-bearing

liabilities during the quarter 1.81% 1.53% 1.52%
Annualized interest rate spread during the quarter 1.01% 0.98% 1.02%
Annualized return on average equity 5.87% 45.87% 5.39%
Annualized Core return on average equity 8.62% 8.24% 8.07%
Common dividend declared during the quarter $0.35       $0.40       $0.50
 
(1) Excludes real estate held-for-sale.
(2) Includes non-recourse loan participations and mortgages payable.

The following table presents a reconciliation between GAAP net income and Core earnings for the quarters ended September 30, 2013, June 30, 2013, and September 30, 2012:

        For the quarters ended      
September 30, 2013         June 30, 2013         September 30, 2012
(dollars in thousands)
GAAP net income $192,458         $1,638,213         $224,758
Net (gains) losses on disposal of investments (43,602) (147,998) (142,172)
Net loss on extinguishment of 4% Convertible Senior Notes - - 87,328
Net (gains) losses on trading assets 96,022 (54,046) (1,368)
Net unrealized (gains) losses on interest-only Agency mortgage-backed securities 7,099 (111,521) 33,563
Impairment of goodwill - 23,987 -
Loss on previously held equity interest in CreXus - 18,896 -
Realized (gains) losses on termination of interest rate swaps 36,658 35,649 -
Unrealized (gains) losses on interest rate swaps (6,343)         (1,109,022)         104,197
Core earnings $282,292         $294,158         $306,306
 
GAAP net income per average common share $0.18         $1.71         $0.22
Core earnings per average common share $0.28         $0.29         $0.30
 

Dividend Declarations

Common dividends declared for the quarters ended September 30, 2013, June 30, 2013, and September 30, 2012 were $0.35, $0.40, and $0.50 per common share, respectively. The Company distributes dividends based on its current estimate of taxable earnings per common share, not GAAP net income. Taxable earnings and GAAP net income 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 September 30, 2013, based on the September 30, 2013 closing price of $11.58, was 12.09%, as compared to 12.73% for the quarter ended June 30, 2013, and 11.88% for the quarter ended September 30, 2012.

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