Annaly Capital Management, Inc. Reports Core EPS for the 3rd Quarter 2010 of $0.60

Annaly Capital Management, Inc. (NYSE: NLY) today reported Core Earnings for the quarter ended September 30, 2010, of $371.1 million or $0.60 per average share available to common shareholders as compared to Core Earnings of $413.3 million or $0.75 per average share available to common shareholders for the quarter ended September 30, 2009, and Core Earnings of $335.7 million or $0.59 per average share available to common shareholders for the quarter ended June 30, 2010. "Core Earnings” represents a non-GAAP measure and is defined as net income excluding impairment losses, loss on receivable from prime broker, gains or losses on sales of securities and termination of interest rate swaps, unrealized gains or losses on interest rate swaps, and unrealized gains or losses on trading securities. On a GAAP basis, net loss for the quarter ended September 30, 2010, was $14.1 million or $0.03 per average share related to common shareholders as compared to net income of $285.2 million or $0.51 per average share related to common shareholders for the quarter ended September 30, 2009, and net loss of $218.2 million or $0.40 per average share available to common shareholders for the quarter ended June 30, 2010.

During the quarter ended September 30, 2010, the Company sold or had called $3.1 billion of mortgage-backed securities and agency debentures, resulting in a realized gain of $62.0 million. During the quarter ended September 30, 2009, the Company sold $194.3 million of mortgage-backed securities and agency debentures, resulting in a realized gain of $591,000. During the quarter ended June 30, 2010, the Company sold $2.7 billion of mortgage-backed securities and agency debentures, resulting in a realized gain of $39.0 million.

Common dividends declared for the quarter ended September 30, 2010, were $0.68 per share, which include gains on sale of mortgage-backed securities and agency debentures, as compared to $0.69 per share for the quarter ended September 30, 2009, and $0.68 per share for the quarter ended June 30, 2010. The annualized dividend yield on the Company’s common stock for the quarter ended September 30, 2010, based on the September 30, 2010 closing price of $17.60, was 15.45%. On a Core Earnings basis, the Company provided an annualized return on average equity of 15.35% for the quarter ended September 30, 2010, as compared to 18.27% for the quarter ended September 30, 2009, and 13.89% for the quarter ended June 30, 2010. On a GAAP basis, the Company provided an annualized loss on average equity of 0.58% for the quarter ended September 30, 2010, as compared to an annualized return on average equity of 12.60% for the quarter ended September 30, 2009, and an annualized loss on average equity of 9.03% for the quarter ended June 30, 2010.

During the quarter ended September 30, 2010, the Company completed a public offering of 60,000,000 shares of common stock. The estimated net proceeds of the offering were approximately $1.0 billion, net of offering expenses.

Michael A.J. Farrell, Chairman, Chief Executive Officer and President of Annaly, commented on the Company’s results. "Macroeconomic, regulatory and legislative uncertainties continue to cast a shadow over the market and the results of market participants. Of these, the Federal Reserve’s use of unconventional tools in order to stoke a recovery is having the most tangible effect, in particular its commitment to keep the Fed Funds rate at or near zero and its apparent intent to make additional large scale asset purchases: The yield curve is flattening in the shorter maturities, rising inflation expectations are keeping the long end steep, and in mortgages there is heightened uncertainty over cash flows. A consequence of this combination is a historically lucrative and persistent net interest spread. We continue to prudently execute the asset selection and hedging components of managing this key aspect of our portfolio management efforts. In addition, the sustained support of asset prices by the central bank will likely continue to ripple through all capital markets activity and impact return expectations across the spectrum of financial, commodity and hard assets. With this backdrop, I am confident about our company’s ability to continue to offer a relatively attractive return profile and build a portfolio for long-term performance.”

For the quarter ended September 30, 2010, the annualized yield on average interest-earning assets was 4.06% and the annualized cost of funds on the average interest-bearing liabilities was 1.95%, which resulted in an average interest rate spread of 2.11%. This is a 54 basis point decrease from the 2.65% annualized interest rate spread for the quarter ended September 30, 2009, and a 5 basis point decrease from the 2.16% average interest rate spread for the quarter ended June 30, 2010. At September 30, 2010, the weighted average yield on interest-earning assets was 3.86% and the weighted average cost of funds on interest-bearing liabilities, including the effect of interest rate swaps, was 1.94%, which resulted in an interest rate spread of 1.92%. Leverage at September 30, 2010, was 6.4:1 compared to 6.0:1 at September 30, 2009, and 5.9:1 at June 30, 2010.

Fixed-rate mortgage-backed securities and agency debentures comprised 84% of the Company’s portfolio at September 30, 2010. The balance of the mortgage-backed securities and agency debentures was comprised of 14% adjustable-rate mortgages and 2% LIBOR floating-rate collateralized mortgage obligations. At September 30, 2010, the Company had entered into interest rate swaps with a notional amount of $25.9 billion, or 35% 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 effect of the swaps is to lock in a spread relative to the cost of financing. As of September 30, 2010, 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.

"We witnessed the effects of market conditions on the mark-to-market values of our investment securities and our interest rate swap book,” said Wellington Denahan-Norris, Annaly’s Vice Chairman, Chief Investment Officer and Chief Operating Officer. "Prepayment speeds declined as the Agencies completed their buyouts of delinquent mortgages in the prior quarter, but portfolio asset yields declined as overall market rates edged lower. Interest rate spreads remain wide as the cost of funds fell as well. As we prudently evaluate investment opportunities, we will continue our vigilant efforts to protect our portfolio from the market consequences—intended or otherwise—of regulatory and policy decisions through our hedging and portfolio strategy. After taking into account the effect of interest rate swaps, our portfolio of mortgage-backed securities and agency debentures was comprised of 37% floating-rate, 14% adjustable-rate and 49% fixed-rate assets.”

The following table summarizes portfolio information for the Company:

The Constant Prepayment Rate was 20% during the third quarter of 2010, as compared to 21% during the third quarter of 2009, and 32% during the second quarter of 2010. The weighted average purchase price of the Company’s mortgage-backed securities and agency debentures was 102.6% at September 30, 2010. The net amortization of premiums and accretion of discounts on mortgage-backed securities and agency debentures for the quarters ended September 30, 2010, June 30, 2010 and September 30, 2009, was $155.9 million, $75.1 million, and $137.2 million, respectively. The total net premium remaining unamortized at September 30, 2010, September 30, 2009, and June 30, 2010, was $2.3 billion, $1.1 billion, and $1.8 billion, respectively.

General and administrative expenses as a percentage of average assets were 0.22%, 0.19% and 0.23% for the quarters ended September 30, 2010, September 30, 2009, and June 30, 2010, respectively. At September 30, 2010, September 30, 2009, and June 30, 2010, the Company had a common stock book value per share of $15.16, $16.52 and $16.89, respectively.

At September 30, 2010, Annaly’s wholly-owned registered investment advisors had under management approximately $12.1 billion in net assets and $19.8 billion in gross assets, as compared to $11.3 billion in net assets and $22.6 billion in gross assets at September 30, 2009 and $12.1 billion in net assets and $18.8 billion in gross assets at June 30, 2010. For the quarter ended September 30, 2010, the investment advisors earned investment advisory and service fees, net of fees paid to distributors, of $15.3 million, as compared to $14.1 million for the quarter ended September 30, 2009 and $13.9 million for the quarter ended June 30, 2010.

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. Annaly is a Maryland corporation that has elected to be taxed as a real estate investment trust ("REIT”), and currently has 621,859,075 shares of common stock outstanding.

The Company will hold the third quarter 2010 earnings conference call on Thursday October 28, 2010 at 10:00 a.m. EST. The number to call is 800-561-2693 for domestic calls and 617-614-3523 for international calls and the pass code is 46941497. The replay number is 888-286-8010 for domestic calls and 617-801-6888 for international calls and the pass code is 53379330. 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 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.