NLY Annaly Capital Management Inc

• GAAP net loss of $335.5 million, $0.37 loss per common share
• Core earnings of $300.4 million, $0.30 earnings per common share
• Strong capital position with capital ratio of 15.4% and leverage of 5.3:1
• Book value of $13.23, up from $12.30 as of prior quarter
• Net interest rate spread of 1.26%, up from 0.90% in prior quarter

Annaly Capital Management, Inc. (NYSE:NLY) today announced its financial results for the quarter ended June 30, 2014.

Financial Performance

GAAP net loss for the quarter ended June 30, 2014 was $335.5 million or $0.37 per average common share as compared to GAAP net loss of $203.4 million or $0.23 per average common share for the quarter ended March 31, 2014, and GAAP net income of $1.6 billion or $1.71 per average common share for the quarter ended June 30, 2013. The decrease from the quarter ended March 31, 2014 to the quarter ended June 30, 2014 was largely due to a decline in other income, partially offset by higher interest income. The decrease in other income is primarily attributable to higher net losses on interest rate swaps, a significant portion of which were realized upon terminations of interest rate swaps with shorter remaining maturities during the current quarter, and lower gains on disposal of investments, partially offset by lower unrealized losses on interest-only Agency mortgage-backed securities and trading assets. The decrease from the quarter ended June 30, 2013 to the quarter ended June 30, 2014 was largely attributable to higher net losses on interest rate swaps, a significant portion of which were realized upon terminations of interest rate swaps with shorter remaining maturities during the current quarter, and higher unrealized losses on interest-only Agency mortgage-backed securities and trading assets. Core earnings for the quarter ended June 30, 2014 was $300.4 million or $0.30 per average common share as compared to $239.7 million or $0.23 per average common share for the quarter ended March 31, 2014, and $294.2 million or $0.29 per average common share for the quarter ended June 30, 2013. "Core earnings" represents a non-GAAP measure and is defined as net income (loss) excluding gains or losses on disposals of investments and termination of interest rate swaps, 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, net gains and losses on trading assets, impairment losses and loss on previously held equity interest in CreXus Investment Corp.

For the quarter ended June 30, 2014, the annualized yield on average interest-earning assets was 3.20% and the annualized cost of funds on average interest-bearing liabilities, including the net interest payments on interest rate swaps, was 1.94%, which resulted in an average interest rate spread of 1.26%. This represented a 36 basis point increase from the 0.90% average interest rate spread for the quarter ended March 31, 2014, and a 25 basis point increase from the 1.01% average interest rate spread for the quarter ended June 30, 2013. Net interest margin for the quarters ended June 30, 2014, March 31, 2014 and June 30, 2013 was 1.57%, 1.32% and 1.20%, respectively. Our annualized yield on average interest-earning assets was relatively unchanged for the quarter ended June 30, 2014 when compared to the quarter ended March 31, 2014. Our annualized cost of funds on average interest-bearing liabilities decreased for the quarter ended June 30, 2014 when compared to the quarter ended March 31, 2014 as a result of the Company unwinding a significant portion of its interest rate swaps with shorter remaining maturities during the period.

Wellington J. Denahan, Chairman and Chief Executive Officer of Annaly, commented on the Company’s results. “We welcome the continued reduction of monetary policy influences on the markets and all the opportunities it brings. We continue to feel comfortable in our ability to sustain attractive risk-adjusted returns in the quarters ahead.”

Asset Portfolio

Investment Securities, which are comprised of Agency mortgage-backed securities and Agency debentures, were $82.4 billion at June 30, 2014, compared to $77.8 billion at March 31, 2014 and $95.8 billion at June 30, 2013. As of June 30, 2014, substantially all of the Company’s Investment Securities were Fannie Mae, Freddie Mac and Ginnie Mae mortgage-backed securities and debentures. Fixed-rate Agency mortgage-backed securities and debentures comprised 95% of the Company’s Investment Securities portfolio at June 30, 2014. Adjustable-rate Agency mortgage-backed securities and debentures comprised 5% of the Company’s Investment Securities portfolio. During the quarter ended June 30, 2014, the Company disposed of $6.1 billion of Investment Securities, resulting in a realized gain of $5.9 million. During the quarter ended March 31, 2014, the Company disposed of $5.0 billion of Investment Securities, resulting in a realized gain of $80.7 million. 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.

The Constant Prepayment Rate for the quarters ended June 30, 2014, March 31, 2014, and June 30, 2013, was 7%, 6% and 17%, respectively. The net amortization of premiums and accretion of discounts on Investment Securities for the quarters ended June 30, 2014, March 31, 2014, and June 30, 2013, was $149.6 million, $119.0 million, and $320.2 million, respectively. The total net premium balance on Investment Securities at June 30, 2014, March 31, 2014, and June 30, 2013, was $5.4 billion, $5.1 billion, and $5.3 billion, respectively. The amortized cost basis of the Company’s non-interest-only Investment Securities at June 30, 2014, March 31, 2014, and June 30, 2013, was 105.5%, 105.2%, and 104.6%, respectively. The amortized cost basis of the Company’s interest-only Investment Securities at June 30, 2014, March 31, 2014, and June 30, 2013, was 15.1%, 14.7%, and 14.2%, respectively.

The Company’s commercial investment portfolio consists of commercial real estate investments and corporate debt. Commercial real estate debt and preferred equity, including securitized loans, totaled $1.6 billion and investments in commercial real estate totaled $74.4 million at June 30, 2014. Commercial real estate debt and preferred equity, including securitized loans, totaled $1.6 billion and investments in commercial real estate totaled $40.3 million at March 31, 2014. The commercial investment portfolio, net of financing, represented 11% of stockholders’ equity at June 30, 2014, compared to 12% at March 31, 2014. The weighted average yield on commercial real estate debt and preferred equity as of June 30, 2014, March 31, 2014, and June 30, 2013, was 8.93%, 9.13% and 9.90%, respectively. The weighted average levered equity yield on investments in commercial real estate, excluding real estate held-for-sale, as of June 30, 2014, March 31, 2014, and June 30, 2013, was 9.23%, 11.69% and 12.71%, respectively. Current quarter acquisitions of commercial real estate have a lower weighted average yield during the first year as a result of transaction costs. The weighted average levered stabilized equity yield related to current quarter acquisitions is estimated to be 13.39%.

Capital and Funding

At June 30, 2014, total stockholders’ equity was $13.4 billion. Leverage at June 30, 2014, March 31, 2014, and June 30, 2013, was 5.3:1, 5.2:1 and 6.2:1, respectively. Leverage includes repurchase agreements, Convertible Senior Notes, securitized debt, loan participation and mortgages payable. Securitized debt, loan participation and mortgages payable are non-recourse to the Company. At June 30, 2014, March 31, 2014, and June 30, 2013, the Company’s capital ratio, which represents the ratio of stockholders’ equity to total assets, was 15.4%, 15.2%, and 12.9%, respectively. At June 30, 2014, March 31, 2014, and June 30, 2013, the Company’s net capital ratio was 15.4%, 15.4%, and 13.3%, respectively. The Company’s net capital ratio takes into account the net balances of its U.S Treasury securities and U.S Treasury securities sold, not yet purchased, reverse repurchase agreements and repurchase agreements, and securities borrowed and securities loaned. On a GAAP basis, the Company produced an annualized return (loss) on average equity for the quarters ended June 30, 2014, March 31, 2014, and June 30, 2013 of (10.32%), (6.52%), and 45.87%, respectively. On a Core earnings basis, the Company provided an annualized return on average equity for the quarters ended June 30, 2014, March 31, 2014, and June 30, 2013, of 9.24%, 7.68%, and 8.24%, respectively.

At June 30, 2014, March 31, 2014, and June 30, 2013 the Company had outstanding $70.4 billion, $64.5 billion, and $81.4 billion of repurchase agreements, respectively, with weighted average borrowing rates of 1.59%, 2.43%, and 1.72%, respectively, after giving effect to the Company’s interest rate swaps, and weighted average remaining maturities of 173 days, 187 days, and 191 days, respectively.

At June 30, 2014, March 31, 2014, and June 30, 2013, the Company had a common stock book value per share of $13.23, $12.30 and $13.03, respectively.

The following table presents the principal balance and weighted average rate of repurchase agreements by maturity at June 30, 2014:

        Maturity     Principal Balance     Weighted Average Rate (dollars in thousands) Within 30 days $ 19,443,213 0.37% 30 to 59 days 21,751,921 0.31% 60 to 89 days 2,931,207 0.39% 90 to 119 days 2,698,579 0.45% Over 120 days(1) 23,547,298     1.07% Total $ 70,372,218     0.59%

(1) Approximately 13% of the total repurchase agreements have a remaining maturity over 1 year.

 

Hedge Portfolio

At June 30, 2014, the Company had entered into interest rate swaps with a net notional amount of $30.8 billion and interest rate swaptions with a net notional amount of $2.6 billion, or 48% of the Company’s repurchase agreements, compared to 94% of the Company’s repurchase agreements at March 31, 2014 and 63% of the Company’s repurchase agreements at June 30, 2013. During the quarter ended June 30, 2014, the Company realized losses of $772.5 million upon terminating a significant portion of its interest rate swaps with shorter remaining maturities. Changes in the unrealized gains or losses on the interest rate swaps are reflected in the Company’s Consolidated Statements of Comprehensive Income (Loss). 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 pays a fixed rate and receives a floating rate on the notional amount of the swaps, the intended effect of the swaps is to lock in a cost of financing. As of June 30, 2014, the swap portfolio, excluding forward starting swaps, had a weighted average pay rate of 2.48%, a weighted average receive rate of 0.21% and weighted average maturity of 8.87 years.

At June 30, 2014, the Company had entered into interest rate swaptions with a net notional amount of $2.6 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 June 30, 2014, the long swaption portfolio had a weighted average pay rate of 3.16% and weighted average maturity of 3.86 months. As of June 30, 2014, there were no short swaption positions.

The following table summarizes certain characteristics of the Company’s interest rate swaps at June 30, 2014:

                Maturity     Current Notional (1)    

WeightedAverage PayRate (2) (3)

   

Weighted Average ReceiveRate (2)

   

WeightedAverage Years to Maturity (2)

(dollars in thousands) 0 - 3 years $ 702,539 2.23 % 0.16 % 2.97 3 - 6 years 6,338,000 1.66 % 0.19 % 4.53 6 - 10 years 18,488,800 2.52 % 0.22 % 8.01 Greater than 10 years   5,301,800     3.58 %     0.19 %     20.03 Total / Weighted Average $ 30,831,139     2.48 %     0.21 %     8.87 (1)   Notional amount includes $1.3 billion in forward starting pay fixed swaps. (2) Excludes forward starting swaps. (3) Weighted average fixed rate on forward starting pay fixed swaps was 3.10%.  

The following table summarizes certain characteristics of the Company’s interest rate swaptions at June 30, 2014:

                   

Current Underlying Notional

   

Weighted AverageUnderlying Pay Rate

   

Weighted Average Underlying Receive Rate

   

Weighted AverageUnderlying Years to Maturity

   

Weighted Average Months to Expiration

(dollars in thousands) Long $ 2,600,000 3.16% 3M LIBOR 9.76 3.86

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 June 30, 2014, March 31, 2014, and June 30, 2013:

             

Key Metrics

      June 30, 2014     March 31, 2014     June 30, 2013

Portfolio Related Metrics:

Fixed-rate Agency mortgage-backed securities and debentures as a percentage of portfolio 95% 93% 92% Adjustable-rate Agency mortgage-backed securities and debentures as a percentage of portfolio 5% 7% 8% Weighted average yield on commercial real estate debt and preferred equity at period-end 8.93% 9.13% 9.90% Weighted average net equity yield on investments in commercial real estate at period-end (1) 9.23%     11.69%     12.71%  

Liabilities and Hedging Metrics:

Weighted average days to maturity on repurchase agreements outstanding at period-end 173 187 191 Notional amount of interest rate swaps and swaptions as a percentage of repurchase agreements 48% 94% 63% Weighted average pay rate on interest rate swaps at period-end (2) 2.48% 2.16% 2.05% Weighted average receive rate on interest rate swaps at period-end (2) 0.21% 0.19% 0.22% Weighted average net rate on interest rate swaps at period-end (2) 2.27% 1.97% 1.83% Leverage at period-end (3) 5.3:1 5.2:1 6.2:1 Capital ratio at period end 15.4% 15.2% 12.9% Net capital ratio at period end 15.4%     15.4%     13.3%  

Performance Related Metrics:

Annualized yield on average interest earning assets during the quarter (4) 3.20% 3.21% 2.54% Annualized cost of funds on average interest bearing liabilities during the quarter (5) 1.94% 2.31% 1.53% Annualized interest rate spread during the quarter 1.26% 0.90% 1.01% Net interest margin 1.57% 1.32% 1.20% Annualized return (loss) on average equity (10.32%) (6.52%) 45.87% Annualized Core return on average equity 9.24% 7.68% 8.24% Common dividend declared during the quarter $0.30 $0.30 $0.40 Book value per common share $13.23     $12.30     $13.03   (1)   Excludes real estate held-for-sale. (2) Excludes forward starting swaps. (3) Includes repurchase agreements, Convertible Senior Notes, securitized debt, loan participation and mortgages payable. Securitized debt, loan participation and mortgages payable are non-recourse to the Company. (4) Average interest earning assets reflects the average amortized cost of our investments during the period. (5) Includes interest expense on interest rate swaps.  

The following table presents a reconciliation between GAAP net income and Core earnings for the quarters ended June 30, 2014, March 31, 2014, and June 30, 2013:

      For the quarters ended June 30, 2014     March 31, 2014     June 30, 2013 (dollars in thousands) GAAP net income $ (335,512 )     $ (203,351 )     $ 1,638,213 Realized (gains) losses on termination of interest rate swaps 772,491 6,842 35,649 Unrealized (gains) losses on interest rate swaps (175,062 ) 348,942 (1,109,022 ) Net (gains) losses on disposal of investments (5,893 ) (79,710 ) (147,998 ) Net (gains) losses on trading assets 46,489 146,228 (54,046 ) Net unrealized (gains) losses on interest-only Agency mortgage-backed securities (2,085 ) 20,793 (111,521 ) Impairment of goodwill - - 23,987 Loss on previously held equity interest in CreXus   -         -         18,896   Core earnings $ 300,428       $ 239,744       $ 294,158     GAAP net income per average common share $ (0.37 )     $ (0.23 )     $ 1.71   Core earnings per average common share $ 0.30       $ 0.23       $ 0.29    

The following table presents the components of the Company’s interest income and interest expense for the quarters ended June 30, 2014, March 31, 2014, and June 30, 2013:

      For the quarters ended June 30,     March 31,     June 30, 2014     2014     2013 Interest income: Investment Securities $ 640,287 $ 614,419 $ 685,148 Commercial investment portfolio(1) 43,325 39,486 15,335 U.S. Treasury securities - 1,329 7,242 Securities loaned - 114 2,302 Reverse repurchase agreements 271 500 2,775 Other   79       53       134 Total interest income   683,962       655,901       712,936 Interest expense: Repurchase agreements 103,773 103,131 141,945 Convertible Senior Notes 20,319 18,897 16,364 U.S. Treasury securities sold, not yet purchased - 1,076 4,075 Securities borrowed - 95 1,737 Securitized debt of consolidated VIE 1,853 1,611 - Participation sold   162       161       134 Total interest expense   126,107       124,971       164,255 Net interest income $ 557,855     $ 530,930     $ 548,681 (1)   Consists of commercial real estate debt and preferred equity and corporate debt.  

Dividend Declarations

Common dividends declared for the quarters ended June 30, 2014, March 31, 2014, and June 30, 2013 were $0.30, $0.30, and $0.40 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, non-deductible general and administrative expenses and other GAAP to tax differences. The annualized dividend yield on the Company’s common stock for the quarter ended June 30, 2014, based on the June 30, 2014 closing price of $11.43, was 10.50%, as compared to 10.94% for the quarter ended March 31, 2014, and 12.73% for the quarter ended June 30, 2013.

Other Information

Annaly’s principal business objective is to generate net income for distribution to its shareholders from its investments. Annaly is a Maryland corporation that has elected to be taxed as a real estate investment trust (“REIT”). Annaly is managed and advised by Annaly Management Company LLC.

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”.

Conference Call

The Company will hold the second quarter 2014 earnings conference call on August 7, 2014 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 0006993. There will also be an audio webcast of the call on www.annaly.com. The replay of the call is available for one week following the conference call. The replay number is 877-344-7529 for domestic calls and 412-317-0088 for international calls and the conference passcode is 10049842. 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 which are based on various assumptions (some of which are beyond our control) and 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 financings; changes in the market value of our assets; changes in business conditions and the general economy; our ability to grow the commercial mortgage business; credit risks related to our investments in commercial real estate assets and corporate debt; our ability to consummate any contemplated investment opportunities; 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; risks associated with the businesses of our subsidiaries, including the investment advisory business of a wholly-owned subsidiary and the broker-dealer business of a wholly-owned subsidiary. 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 per share data)                 June 30, March 31, December 31, September 30, June 30, 2014 2014

2013 (1)

2013 2013 (Unaudited)   (Unaudited)       (Unaudited)   (Unaudited) ASSETS   Cash and cash equivalents $ 1,320,666 $ 924,197 $ 552,436 $ 1,122,722 $ 725,537 Reverse repurchase agreements - 444,375 100,000 31,074 171,234 Securities borrowed - 513,500 2,582,893 3,439,954 2,425,024 Investments, at fair value: U.S. Treasury securities - - 1,117,915 2,459,617 - Agency mortgage-backed securities 81,055,337 75,350,388 70,388,949 79,902,834 92,487,318 Agency debentures 1,348,727 2,408,259 2,969,885 3,128,853 3,306,473 Investment in affiliates 143,495 137,647 139,447 136,748 134,948 Commercial real estate debt and preferred equity (2) 1,586,169 1,640,206 1,583,969 1,227,182 938,357 Investments in commercial real estate 74,355 40,313 60,132 60,424 67,203 Corporate debt, held for investment 151,344 145,394 117,687 75,988 61,682 Receivable for investments sold 856,983 19,116 1,193,730 934,964 1,499,140 Accrued interest and dividends receivable 283,423 276,007 273,079 297,161 340,671 Receivable for investment advisory income 6,380 6,498 6,839 10,055 10,374 Intangible for customer relationships - - - 4,572 6,474 Goodwill 94,781 94,781 94,781 103,245 102,783 Interest rate swaps, at fair value 170,604 340,890 559,044 360,373 38,950 Other derivatives, at fair value 7,938 40,105 146,725 85,180 91,270 Other assets   50,743       33,101       34,949       52,211       61,146     Total assets $ 87,150,945     $ 82,414,777     $ 81,922,460     $ 93,433,157     $ 102,468,584     LIABILITIES AND STOCKHOLDERS’ EQUITY   Liabilities: U.S. Treasury securities sold, not yet purchased, at fair value $ - $ - $ 1,918,394 $ 2,403,524 $ - Repurchase agreements 70,372,218 64,543,949 61,781,001 69,211,309 81,397,335 Securities loaned 7 513,510 2,527,668 3,299,090 2,284,245 Payable for investments purchased 781,227 1,898,507 764,131 2,546,467 2,833,214 Convertible Senior Notes 831,167 827,486 825,262 824,512 824,229 Securitized debt of consolidated VIE 260,700 260,700 - - - Mortgages payable 30,316 19,317 19,332 19,346 19,361 Participation sold 13,866 13,963 14,065 14,164 14,324 Accrued interest payable 157,782 170,644 160,921 162,755 164,190 Dividends payable 284,261 284,247 284,230 331,557 396,888 Interest rate swaps, at fair value 928,789 1,272,616 1,141,828 1,504,258 1,189,178 Other derivatives, at fair value 6,533 6,045 55,518 125,468 - Accounts payable and other liabilities   35,160       39,081       25,055       44,983       82,316     Total liabilities   73,702,026       69,850,065       69,517,405       80,487,433       89,205,280     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 authorized, issued and outstanding

445,457 445,457 445,457 445,457 445,457

Common stock, par value $0.01 per share, 1,956,937,500

authorized, 947,540,823, 947,488,945, 947,432,862, 947,304,761

and 947,483,487 issued and outstanding, respectively

9,475 9,475 9,474 9,473 9,475 Additional paid-in capital 14,776,302 14,770,553 14,765,761 14,759,738 14,754,681 Accumulated other comprehensive income (loss) (572,256 ) (2,088,479 ) (2,748,933 ) (1,454,790 ) (1,289,246 ) Accumulated deficit   (1,677,661 )     (1,039,896 )     (534,306 )     (1,281,756 )     (1,124,665 )   Total stockholders’ equity   13,448,919       12,564,712       12,405,055       12,945,724       13,263,304     Total liabilities and stockholders’ equity $ 87,150,945     $ 82,414,777     $ 81,922,460     $ 93,433,157     $ 102,468,584     (1) Derived from the audited consolidated financial statements at December 31, 2013. (2) Includes senior securitized mortgages of consolidated VIE with a carrying value of $398.3 million at June 30, 2014.   ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) (dollars in thousands, except per share data)             For the quarters ended June 30, March 31, December 31, September 30, June 30, 2014   2014   2013   2013   2013 Net interest income: Interest income $ 683,962 $ 655,901 $ 771,249 $ 697,160 $ 712,936 Interest expense   126,107       124,971       137,393       145,476       164,255   Net interest income   557,855       530,930       633,856       551,684       548,681     Other income (loss): Realized gains (losses) on interest rate swaps(1) (220,934 ) (260,435 ) (242,182 ) (227,909 ) (212,727 ) Realized gains (losses) on termination of interest rate swaps (772,491 ) (6,842 ) (13,177 ) (36,658 ) (35,649 ) Unrealized gains (losses) on interest rate swaps   175,062       (348,942 )     561,101       6,343       1,109,022   Subtotal   (818,363 )     (616,219 )     305,742       (258,224 )     860,646   Investment advisory income 6,109 6,123 8,490 9,558 12,187 Net gains (losses) on disposal of investments 5,893 79,710 28,602 43,602 147,998 Dividend income from affiliates 4,048 13,045 4,048 4,048 4,048 Net gains (losses) on trading assets (46,489 ) (146,228 ) 41,936 (96,022 ) 54,046 Net unrealized gains (losses) on interest-only Agency mortgage-backed securities 2,085 (20,793 ) 60,181 (7,099 ) 111,521 Impairment of goodwill - - - - (23,987 ) Loss on previously held equity interest in CreXus - - - - (18,896 ) Other income (loss)   4,687       1,460       3,945       4,212       7,192   Subtotal   (23,667 )     (66,683 )     147,202       (41,701 )     294,109   Total other income (loss)   (842,030 )     (682,902 )     452,944       (299,925 )     1,154,755     General and administrative expenses: Compensation and management fee 39,277 38,521 43,385 41,774 43,764 Other general and administrative expenses   12,912       8,857       12,909       16,970       21,367   Total general and administrative expenses   52,189       47,378       56,294       58,744       65,131     Income (loss) before income taxes (336,364 ) (199,350 ) 1,030,506 193,015 1,638,305   Income taxes   (852 )     4,001       1,757       557       92     Net income (loss) (335,512 ) (203,351 ) 1,028,749 192,458 1,638,213   Dividends on preferred stock   17,992       17,992       17,992       17,992       17,992     Net income (loss) available (related) to common stockholders $ (353,504 )   $ (221,343 )   $ 1,010,757     $ 174,466     $ 1,620,221     Net income (loss) per share available (related) to common stockholders: Basic $ (0.37 )   $ (0.23 )   $ 1.07     $ 0.18     $ 1.71   Diluted $ (0.37 )   $ (0.23 )   $ 1.03     $ 0.18     $ 1.64     Weighted average number of common shares outstanding: Basic   947,515,127       947,458,813       947,386,060       947,303,205       947,411,380   Diluted   947,515,127       947,458,813       995,625,622       955,690,471       995,229,637     Net income (loss) $ (335,512 )   $ (203,351 )   $ 1,028,749     $ 192,458     $ 1,638,213   Other comprehensive income (loss): Unrealized gains (losses) on available-for-sale securities 1,522,126 741,172 (1,244,500 ) (121,942 ) (3,144,496 ) Reclassification adjustment for net (gains) losses included in net income (loss)   (5,903 )     (80,718 )     (49,643 )     (43,602 )     (147,998 ) Other comprehensive income (loss)   1,516,223       660,454       (1,294,143 )     (165,544 )     (3,292,494 ) Comprehensive income (loss) $ 1,180,711     $ 457,103     $ (265,394 )   $ 26,914     $ (1,654,281 )   (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 (Loss).   ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (dollars in thousands, except per share data) (Unaudited)           For the six months ended June 30, June 30, 2014 2013     Net interest income: Interest income $ 1,339,863 $ 1,450,153 Interest expense   251,078     341,845   Net interest income   1,088,785     1,108,308     Other income (loss): Realized gains (losses) on interest rate swaps(1) (481,369 ) (438,203 ) Realized gains (losses) on termination of interest rate swaps (779,333 ) (52,027 ) Unrealized gains (losses) on interest rate swaps   (173,880 )   1,434,756   Subtotal   (1,434,582 )   944,526   Investment advisory income 12,232 25,595 Net gains (losses) on disposal of investments 85,603 330,841 Dividend income from affiliates 17,093 10,479 Net gains (losses) on trading assets (192,717 ) 55,595 Net unrealized gains (losses) on interest-only Agency mortgage-backed securities (18,708 ) 191,648 Impairment of goodwill - (23,987 ) Loss on previously held equity interest in CreXus - (18,896 ) Other income (loss)   6,147     7,324   Subtotal   (90,350 )   578,599   Total other income (loss)   (1,524,932 )   1,523,125     General and administrative expenses: Compensation and management fee 77,798 82,207 Other general and administrative expenses   21,769     34,836   Total general and administrative expenses   99,567     117,043     Income (loss) before income taxes (535,714 ) 2,514,390   Income taxes   3,149     5,899     Net income (loss) (538,863 ) 2,508,491   Dividends on preferred stock   35,984     35,984     Net income (loss) available (related) to common stockholders $ (574,847 ) $ 2,472,507     Net income (loss) per share available (related) to common stockholders: Basic $ (0.61 ) $ 2.61   Diluted $ (0.61 ) $ 2.51     Weighted average number of common shares outstanding: Basic   947,487,125     947,331,087   Diluted   947,487,125     995,151,942     Dividends Declared Per Share of Common Stock $ 0.60   $ 0.85     Net income (loss) $ (538,863 ) $ 2,508,491   Other comprehensive income (loss): Unrealized gains (losses) on available-for-sale securities 2,263,298 (4,011,647 ) Reclassification adjustment for net (gains) losses included in net income (loss)   (86,621 )   (330,841 ) Other comprehensive income (loss)   2,176,677     (4,342,488 ) Comprehensive income (loss) $ 1,637,814   $ (1,833,997 ) (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 (Loss).  

Annaly Capital Management, Inc.Investor Relations1-888-8Annalywww.annaly.com