_________________________________________________

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549
 
FORM 8-K

CURRENT REPORT
 
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
Date of Report (Date of earliest event reported)
February 25, 2014


          Annaly Capital Management, Inc.          
(Exact Name of Registrant as Specified in its Charter)


    Maryland    
    1-13447    
22-3479661
State or Other                                Jurisdiction
Of Incorporation)
(Commission
File Number)
(I.R.S. Employer
Identification No.)

 
1211 Avenue of the Americas
Suite 2902
     New York, New York     
  
 
 
    10036    
(Address of Principal Executive Offices)
  
(Zip Code)

 
Registrant’s telephone number, including area code:  (212) 696-0100
 
 
(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
[   ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[   ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[   ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[   ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 
 
 

Item 2.02.  Results of Operations and Financial Condition

On February 25, 2014, the registrant issued a press release announcing its financial results for the quarter and year ended December 31, 2013.  A copy of the press release is furnished as Exhibit 99.1 to this report.

On February 25, 2014, the registrant posted supplemental financial information on the Investor Relations section of its website (www.annaly.com).  A copy of the supplemental financial information is furnished as Exhibit 99.2 to this report and incorporated herein by reference.


Item 9.01  Financial Statements and Exhibits

(c)     Exhibits

99.1              Press Release, dated February 25, 2014, issued by Annaly Capital Management, Inc.
 
99.2              Supplemental Financial Information for the quarter ended December 31, 2013
 
 
 
 
 
SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
  ANNALY CAPITAL MANAGEMENT, INC.
   
   
  By:
/s/   Glenn A. Votek_____________________
   
Name:  Glenn A. Votek
Title:    Chief Financial Officer
 
 
Dated: February 25, 2014
 
a50811704ex99_1.htm
Exhibit 99.1
 
 
 

 
FOR IMMEDIATE RELEASE
 

ANNALY CAPITAL MANAGEMENT, INC. REPORTS 4th QUARTER 2013 RESULTS
·  
GAAP net income of $1.0 billion, $1.07 earnings per common share
·  
Core earnings of $350.1 million, $0.35 earnings per common share
·  
Strong capital position with capital ratio of 15.1%, net capital ratio of 15.9%, and leverage of 5.0:1
·  
Commercial investment portfolio doubled since CXS acquisition, now representing 14% of stockholders’ equity
·  
Book value of $12.13
 
New York, New York–February 25, 2014– Annaly Capital Management, Inc. (NYSE: NLY) today announced financial results for the quarter ended December 31, 2013.


Financial Performance

GAAP net income for the quarter ended December 31, 2013 was $1.0 billion or $1.07 per average common share as compared to GAAP net income of $192.5 million or $0.18 per average common share for the quarter ended September 30, 2013, and GAAP net income of $700.5 million or $0.70 per average common share for the quarter ended December 31, 2012. The increase from both prior periods was largely attributable to higher unrealized gains on interest rate swaps, trading assets and interest-only Agency mortgage-backed securities. Core earnings for the quarter ended December 31, 2013 was $350.1 million or $0.35 per average common share as compared to $282.3 million or $0.28 per average common share for the quarter ended September 30, 2013, and $335.1 million or $0.32 per average common share for the quarter ended December 31, 2012. "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.

GAAP net income for the years ended December 31, 2013 and 2012, respectively was $3.7 billion or $3.86 per average common share and $1.7 billion or $1.74 per average common share. Core earnings for the years ended December 31, 2013 and 2012, was $1.2 billion or $1.21 per average common share and $1.5 billion or $1.54 per average common share, respectively.


For the quarter ended December 31, 2013, the annualized yield on average interest-earning assets was 3.50% and the annualized cost of funds on average interest-bearing liabilities, including the net interest payments on interest rate swaps, was 2.07%, which resulted in an average interest rate spread of 1.43%.  This was a 36 basis point increase from the 1.07% average interest rate spread for the quarter ended September 30, 2013, and a 49 basis point increase from the 0.94% average interest rate spread for the quarter ended December 31, 2012. Our annualized yield on average interest-earning assets increased for the quarter ended December 31, 2013 when compared to the quarter ended September 30, 2013 due to lower amortization expense on our Investment Securities, primarily driven by lower prepayment speeds experienced during the current quarter. Our annualized cost of funds on average interest-bearing liabilities increased for the quarter ended December 31, 2013 when compared to the quarter ended September 30, 2013 due to higher interest rate swap notional amounts and higher cost of interest rate swaps coupled with lower repurchase agreements balances during the current quarter.

Wellington J. Denahan, Chairman and Chief Executive Officer of Annaly, commented on the Company’s results. “We are encouraged by the reduced uncertainty in the fixed income markets with the introduction of monetary policy tapering.  Our commercial assets continue to build momentum, with commercial investments now representing 14% of our stockholders’ equity.  The lower leverage stance permits us to be opportunistic with capital deployment allowing us to strengthen earnings in future periods.”



Asset Portfolio

Investment Securities, which is comprised of Agency mortgage-backed securities and Agency debentures, were $73.4 billion at December 31, 2013, compared to $83.0 billion at September 30, 2013 and $127.0 billion at December 31, 2012.  As of December 31, 2013, 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 91% of the Company’s Investment Securities portfolio at December 31, 2013.  Adjustable-rate Agency mortgage-backed securities and debentures comprised 9% of the Company’s Investment Securities portfolio.  During the quarter ended December 31, 2013, the Company disposed of $11.9 billion of Investment Securities, resulting in a realized gain of $49.6 million.  During the quarter ended September 30, 2013, the Company disposed of $13.0 billion of Investment Securities, resulting in a realized gain of $43.6 million.  During the quarter ended December 31, 2012, the Company disposed of $13.2 billion of Investment Securities, resulting in a realized gain of $121.4 million.

During the year ended December 31, 2013, the Company disposed of $56.8 billion of Investment Securities, resulting in a realized gain of $424.1 million.  During the year ended December 31, 2012, the Company disposed of $32.2 billion of Investment Securities, resulting in a realized gain of $438.5 million.
 
 
 
 
 
The Constant Prepayment Rate for the quarters ended December 31, 2013, September 30, 2013, and December 31, 2012, was 7%, 13% and 20%, respectively.  The net amortization of premiums and accretion of discounts on Investment Securities for the quarters ended December 31, 2013, September 30, 2013, and December 31, 2012, was $30.7 million, $201.9 million, and $433.3 million, respectively.  The total net premium balance on Investment Securities at December 31, 2013, September 30, 2013, and December 31, 2012, was $4.6 billion, $4.7 billion, and $5.8 billion, respectively. The amortized cost basis of the Company’s non-interest-only Investment Securities at December 31, 2013, September 30, 2013, and December 31, 2012, was 105.0%, 104.7%, and 104.3%, respectively. The amortized cost basis of the Company’s interest-only Investment Securities at December 31, 2013, September 30, 2013, and December 31, 2012, was 14.1%, 13.8%, and 13.6%, respectively.

The Company’s commercial investment portfolio consists of commercial real estate investments and corporate debt. At December 31, 2013, the Company’s commercial investment portfolio represented 14% of stockholders’ equity compared to 11% at September 30, 2013. Commercial real estate debt and preferred equity totaled $1.6 billion and investments in commercial real estate totaled $60.1 million at December 31, 2013.  Total commercial real estate investments increased from $1.3 billion at September 30, 2013 to $1.6 billion at December 31, 2013.


Capital and Funding

At December 31, 2013 total stockholders’ equity was $12.4 billion. Leverage at December 31, 2013, September 30, 2013, and December 31, 2012, was 5.0:1, 5.4:1 and 6.5:1, respectively.  Leverage includes repurchase agreements, Convertible Senior Notes and non-recourse loan participation and mortgages payable. At December 31, 2013, September 30, 2013, and December 31, 2012, the Company’s capital ratio, which represents the ratio of stockholders’ equity to total assets, was 15.1%, 13.9%, and 11.9%, respectively.  At December 31, 2013, September 30, 2013, and December 31, 2012, the Company’s net capital ratio was 15.9%, 14.8%, and 12.3%, 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 on average equity for the quarters ended December 31, 2013, September 30, 2013, and December 31, 2012 of 32.46%, 5.87%, and 16.97%, respectively. On a Core earnings basis, the Company provided an annualized return on average equity for the quarters ended December 31, 2013, September 30, 2013, and December 31, 2012, of 11.05%, 8.62%, and 8.12%, respectively.

At December 31, 2013, September 30, 2013, and December 31, 2012 the Company had outstanding $61.8 billion, $69.2 billion, and $102.8 billion of repurchase agreements, respectively, with weighted average borrowing rates of 2.33%, 2.02%, and 1.53%, respectively, after giving effect to the Company’s interest rate swaps, and weighted average remaining maturities of 204 days, 200 days, and 191 days, respectively.

At December 31, 2013, September 30, 2013, and December 31, 2012, the Company had a common stock book value per share of $12.13, $12.70 and $15.85, respectively. 

The following table presents the maturities of repurchase agreements at December 31, 2013:
 
Maturity
  
Principal Balance
    
Weighted Average Rate
  
(dollars in thousands)
  
Within 30 days
   $ 21,171,574       0.36 %
30 to 59 days
     13,373,921       0.43 %
60 to 89 days
     3,592,266       0.44 %
90 to 119 days
     4,010,334       0.52 %
Over 120 days(1)
     19,632,906       1.29 %
Total
   $ 61,781,001       0.68 %
 
(1) Approximately 16% of the total repurchase agreements have a remaining maturity over 1 year.
 
Hedge Portfolio

At December 31, 2013, the Company had entered into interest rate swaps with a notional amount of $52.4 billion and interest rate swaptions with a net notional amount of $4.2 billion, or 92% of the Company’s repurchase agreements, compared to 85% of the Company’s repurchase agreements at September 30, 2013 and 46% of the Company’s repurchase agreements at December 31, 2012.  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 December 31, 2013, the swap portfolio had a weighted average pay rate of 2.14%, a weighted average receive rate of 0.20% and weighted average maturity of 5.26 years.

At December 31, 2013, the Company had entered into interest rate swaptions with a net notional amount of $4.2 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 December 31, 2013, the long swaption portfolio had a weighted average pay rate of 3.07% and weighted average maturity of 4.26 months. As of December 31, 2013, the short swaption portfolio had a weighted average receive rate of 2.83% and weighted average maturity of 23.71 months.
 
 
 
 
 
The following table summarizes certain characteristics of the Company’s interest rate swaps at December 31, 2013:
 
Maturity
  
Current Notional
    
Weighted
Average Pay
Rate
    
Weighted
Average Receive
Rate
    
Weighted
Average Years
to Maturity
  
(dollars in thousands)
  
0 - 3 years
   $ 24,286,000       1.83 %     0.18 %     1.98  
3 - 6 years
     8,865,410       2.02 %     0.19 %     4.19  
6 - 10 years
     15,785,500       2.37 %     0.23 %     7.66  
Greater than 10 years
     3,490,000       3.62 %     0.20 %     19.93  
Total / Weighted Average
   $ 52,426,910       2.14 %     0.20 %     5.26  
 
The following table summarizes certain characteristics of the Company’s interest rate swaptions at December 31, 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)
  
Long
   $ 5,150,000       3.07 %     3M LIBOR       10.10       4.26  
Short
   $ 1,000,000       3M LIBOR       2.83 %     5.96       23.71  
 
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 December 31, 2013, September 30, 2013, and December 31, 2012:
 
   
December 31, 2013
    
September 30, 2013
    
December 31, 2012
  
Portfolio Related Metrics:
                  
Fixed-rate Agency mortgage-backed securities and debentures as a percentage of portfolio
     91 %     91 %     93 %
Adjustable-rate Agency mortgage-backed securities and debentures as a percentage of portfolio
     9 %     9 %     7 %
Weighted average yield on commercial real estate debt and preferred equity at period-end
     9.17 %     9.71 %     N/A  
Weighted average net equity yield on investments in commercial real estate at period-end (1)
     12.69 %     14.13 %     N/A  
                         
Liabilities and Hedging Metrics:
                        
Weighted average days to maturity on repurchase agreements outstanding at period-end
     204       200       191  
Notional amount of interest rate swaps and swaptions as a percentage of repurchase agreements
     92 %     85 %     46 %
Weighted average pay rate on interest rate swaps at period-end
     2.14 %     2.06 %     2.21 %
Weighted average receive rate on interest rate swaps at period-end
     0.20 %     0.21 %     0.24 %
Weighted average net rate on interest rate swaps at period-end
     1.94 %     1.85 %     1.97 %
Leverage at period-end (2)
  
5.0:1
    
5.4:1
    
6.5:1
  
Capital ratio at period end
     15.1 %     13.9 %     11.9 %
Net capital ratio at period end
     15.9 %     14.8 %     12.3 %
                         
Performance Related Metrics:
                        
Annualized yield on average interest earning assets during the quarter (3)
     3.50 %     2.88 %     2.44 %
Annualized cost of funds on average interest bearing liabilities during the quarter
     2.07 %     1.81 %     1.50 %
Annualized interest rate spread during the quarter
     1.43 %     1.07 %     0.94 %
Annualized return on average equity
     32.46 %     5.87 %     16.97 %
Annualized Core return on average equity
     11.05 %     8.62 %     8.12 %
Common dividend declared during the quarter
   $ 0.30     $ 0.35     $ 0.45  
Book value per common share
   $ 12.13     $ 12.70     $ 15.85  
 
(1) Excludes real estate held-for-sale.
(2) Includes non-recourse loan participations and mortgages payable.
(3) Average interest earning assets reflects the average amortized cost of our investments during the period.
 
 
 
 
 
The following table presents a reconciliation between GAAP net income and Core earnings for the quarters ended December 31, 2013, September 30, 2013, and December 31, 2012:
 
   
For the quarters ended
  
   
December 31, 2013
    
September 30, 2013
    
December 31, 2012
  
   
(dollars in thousands)
  
GAAP net income
   $ 1,028,749     $ 192,458     $ 700,495  
Realized (gains) losses on termination of interest rate swaps
     13,177       36,658       -  
Unrealized (gains) losses on interest rate swaps
     (561,101 )     (6,343 )     (341,554 )
Net (gains) losses on disposal of investments
     (28,602 )     (43,602 )     (114,831 )
Net loss on extinguishment of 4% Convertible Senior Notes
     -       -       75,012  
Net (gains) losses on trading assets
     (41,936 )     96,022       (15,181 )
Net unrealized (gains) losses on interest-only Agency mortgage-backed securities
     (60,181 )     7,099       31,148  
Core earnings
   $ 350,106     $ 282,292     $ 335,089  
                         
GAAP net income  per average common share
   $ 1.07     $ 0.18     $ 0.70  
Core earnings  per average common share
   $ 0.35     $ 0.28     $ 0.32  
 
The following table presents a reconciliation between GAAP net income and Core earnings for the years ended December 31, 2013 and 2012:
 
   
For the years ended
  
   
December 31, 2013
    
December 31, 2012
  
   
(dollars in thousands)
  
GAAP net income
   $ 3,729,698     $ 1,735,900  
Realized (gains) losses on termination of interest rate swaps
     101,862       2,385  
Unrealized (gains) losses on interest rate swaps
     (2,002,200 )     32,219  
Net (gains) losses on disposal of investments
     (403,045 )     (432,139 )
Net loss on extinguishment of 4% Convertible Senior Notes
     -       162,340  
Net (gains) losses on trading assets
     (1,509 )     (22,910 )
Net unrealized (gains) losses on interest-only Agency mortgage-backed securities
     (244,730 )     59,937  
Impairment of goodwill
     23,987       -  
Loss on previously held equity interest in CreXus
     18,896       -  
Core earnings
   $ 1,222,959     $ 1,537,732  
                 
GAAP net income  per average common share
   $ 3.86     $ 1.74  
Core earnings  per average common share
   $ 1.21     $ 1.54  
 
Dividend Declarations

Common dividends declared for the quarters ended December 31, 2013, September 30, 2013, and December 31, 2012 were $0.30, $0.35, and $0.45 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 December 31, 2013, based on the December 31, 2013 closing price of $9.97, was 12.04%, as compared to 12.09% for the quarter ended September 30, 2013, and 12.82% for the quarter ended December 31, 2012.

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 2013 fourth quarter earnings conference call on February 26, 2014 at 10:00 a.m. EST.  The number to call is 888-317-6003 for domestic calls and 412-317-6061 for international calls.  The conference passcode is 1477019.  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 10040001. 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 our wholly-owned subsidiary; and risks associated with the broker-dealer business of our 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)
  
                               
   
December 31,
    
September 30,
    
June 30,
    
March 31,
    
December 31,
  
   
2013
    
2013
    
2013
    
2013
    
2012(1)
  
   
(Unaudited)
    
(Unaudited)
    
(Unaudited)
    
(Unaudited)
        
ASSETS
                              
                               
Cash and cash equivalents
   $ 552,436     $ 1,122,722     $ 725,537     $ 1,862,550     $ 615,789  
Reverse repurchase agreements
     100,000       31,074       171,234       4,933,465       1,811,095  
Securities borrowed
     2,582,893       3,439,954       2,425,024       2,688,485       2,160,942  
Investments, at fair value:
                                        
U.S. Treasury securities
     1,117,915       2,459,617       -       1,645,930       752,076  
Agency mortgage-backed securities
     70,388,949       79,902,834       92,487,318       108,256,671       123,963,207  
Agency debentures
     2,969,885       3,128,853       3,306,473       3,970,279       3,009,568  
Investment in affiliates
     139,447       136,748       134,948       267,547       234,120  
Commercial real estate debt and preferred equity
     1,583,969       1,227,182       938,357       -       -  
Investments in commercial real estate
     60,132       60,424       67,203       -       -  
Corporate debt, held for investment
     117,687       75,988       61,682       66,539       63,944  
Receivable for investments sold
     1,193,730       934,964       1,499,140       1,292,478       290,722  
Accrued interest and dividends receivable
     273,079       297,161       340,671       388,665       419,259  
Receivable for investment advisory income
     6,839       10,055       10,374       12,817       17,730  
Intangible for customer relationships
     -       4,572       6,474       6,731       6,989  
Goodwill
     94,781       103,245       102,783       55,417       55,417  
Interest rate swaps, at fair value
     559,044       360,373       38,950       -       -  
Other derivatives, at fair value
     146,725       85,180       91,270       -       9,830  
Other assets
     34,949       52,211       61,146       54,282       41,607  
                                         
Total assets
   $ 81,922,460     $ 93,433,157     $ 102,468,584     $ 125,501,856     $ 133,452,295  
                                         
LIABILITIES AND STOCKHOLDERS’ EQUITY
                                        
                                         
Liabilities:
                                        
U.S. Treasury securities sold, not yet purchased, at fair value
   $ 1,918,394     $ 2,403,524     $ -     $ 611,167     $ 495,437  
Repurchase agreements
     61,781,001       69,211,309       81,397,335       100,322,942       102,785,697  
Securities loaned
     2,527,668       3,299,090       2,284,245       2,330,060       1,808,315  
Payable for investments purchased
     764,131       2,546,467       2,833,214       3,203,461       8,256,957  
Payable for share buyback program
     -       -       -       -       141,149  
Convertible Senior Notes
     825,262       824,512       824,229       824,902       825,541  
Mortgages payable
     19,332       19,346       19,361       -       -  
Participation sold
     14,065       14,164       14,324       -       -  
Accrued interest payable
     160,921       162,755       164,190       175,749       186,896  
Dividends payable
     284,230       331,557       396,888       426,173       432,154  
Interest rate swaps, at fair value
     1,141,828       1,504,258       1,189,178       2,259,173       2,584,907  
Other derivatives, at fair value
     55,518       125,468       -       4,812       -  
Accounts payable and other liabilities
     25,055       44,983       82,316       37,048       10,798  
                                         
Total liabilities
     69,517,405       80,487,433       89,205,280       110,195,487       117,527,851  
                                         
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, 947,432,862, 947,304,761, 947,483,487, 947,293,099
and 947,213,204 issued and outstanding, respectively
     9,474       9,473       9,475       9,473       9,472  
Additional paid-in capital
     14,765,761       14,759,738       14,754,681       14,746,579       14,740,774  
Accumulated other comprehensive income (loss)
     (2,748,933 )     (1,454,790 )     (1,289,246 )     2,003,248       3,053,242  
Accumulated deficit
     (534,306 )     (1,281,756 )     (1,124,665 )     (2,365,990 )     (2,792,103 )
                                         
Total stockholders’ equity
     12,405,055       12,945,724       13,263,304       15,306,369       15,924,444  
                                         
Total liabilities and stockholders’ equity
   $ 81,922,460     $ 93,433,157     $ 102,468,584     $ 125,501,856     $ 133,452,295  
 
(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 per share data)
  
                               
   
For the quarters ended
  
   
December 31,
    
September 30,
    
June 30,
    
March 31,
    
December 31,
  
   
2013
    
2013
    
2013
    
2013
    
2012
  
                               
Interest income:
                              
Investment Securities and corporate debt
   $ 723,248     $ 659,058     $ 686,577     $ 724,820     $ 748,122  
Commercial real estate debt and preferred equity
     36,124       26,066       13,906       -       -  
U.S. Treasury securities
     8,125       7,718       7,242       5,996       3,819  
Securities loaned
     2,087       1,787       2,302       2,612       2,106  
Reverse repurchase agreements
     1,587       2,461       2,775       3,636       2,449  
Other
     78       70       134       153       165  
Total interest income
     771,249       697,160       712,936       737,217       756,661  
Interest expense:
                                        
Repurchase agreements
     111,038       120,123       141,945       157,064       165,600  
Convertible Senior Notes
     17,788       17,092       16,364       15,813       15,503  
U.S. Treasury securities sold, not yet purchased
     6,684       6,688       4,075       2,788       2,930  
Securities borrowed
     1,718       1,405       1,737       1,925       1,458  
Participation sold
     165       168       134       -       -  
Total interest expense
     137,393       145,476       164,255       177,590       185,491  
Net interest income
     633,856       551,684       548,681       559,627       571,170  
                                         
Other income (loss):
                                        
Realized gains (losses) on interest rate swaps(1)
     (242,182 )     (227,909 )     (212,727 )     (225,476 )     (228,155 )
Realized gains (losses) on termination of interest rate swaps
     (13,177 )     (36,658 )     (35,649 )     (16,378 )     -  
Unrealized gains (losses) on interest rate swaps
     561,101       6,343       1,109,022       325,734       341,554  
Subtotal
     305,742       (258,224 )     860,646       83,880       113,399  
Investment advisory income
     8,490       9,558       12,187       13,408       18,773  
Net gains (losses) on disposal of investments
     28,602       43,602       147,998       182,843       114,831  
Net loss on extinguishment of 4% Convertible Senior Notes
     -       -       -       -       (75,012 )
Dividend income from affiliates
     4,048       4,048       4,048       6,431       7,097  
Net gains (losses) on trading assets
     41,936       (96,022 )     54,046       1,549       15,181  
Net unrealized gains (losses) on interest-only Agency mortgage-backed securities
     60,181       (7,099 )     111,521       80,127       (31,148 )
Impairment of goodwill
     -       -       (23,987 )     -       -  
Loss on previously held equity interest in CreXus
     -       -       (18,896 )     -       -  
Other income (loss)
     3,945       4,212       7,192       132       161  
Subtotal
     147,202       (41,701 )     294,109       284,490       49,883  
Total other income (loss)
     452,944       (299,925 )     1,154,755       368,370       163,282  
                                         
General and administrative expenses:
                                        
Compensation and management fee
     43,385       41,774       43,764       38,443       25,842  
Other general and administrative expenses
     12,909       16,970       21,367       13,469       14,242  
Total general and administrative expenses
     56,294       58,744       65,131       51,912       40,084  
                                         
Income (loss) before income taxes
     1,030,506       193,015       1,638,305       876,085       694,368  
                                         
Income taxes
     1,757       557       92       5,807       (6,127 )
                                         
Net income (loss)
     1,028,749       192,458       1,638,213       870,278       700,495  
                                         
Dividends on preferred stock
     17,992       17,992       17,992       17,992       19,717  
                                         
Net income (loss) available (related) to common shareholders
   $ 1,010,757     $ 174,466     $ 1,620,221     $ 852,286     $ 680,778  
                                         
Net income (loss) per share available (related) to common shareholders:
                                        
Basic
   $ 1.07     $ 0.18     $ 1.71     $ 0.90     $ 0.70  
Diluted
   $ 1.03     $ 0.18     $ 1.64     $ 0.87     $ 0.68  
                                         
Weighted average number of common shares outstanding:
                                        
Basic
     947,386,060       947,303,205       947,411,380       947,249,901       970,602,863  
Diluted
     995,625,622       955,690,471       995,229,637       994,815,169       1,017,925,849  
                                         
Net income (loss)
   $ 1,028,749     $ 192,458     $ 1,638,213     $ 870,278     $ 700,495  
Other comprehensive income (loss):
                                        
Unrealized gains (losses) on available-for-sale securities
     (1,244,500 )     (121,942 )     (3,144,496 )     (867,151 )     (894,972 )
Reclassification adjustment for net (gains) losses included in net income (loss)
     (49,643 )     (43,602 )     (147,998 )     (182,843 )     (121,393 )
Other comprehensive income (loss)
     (1,294,143 )     (165,544 )     (3,292,494 )     (1,049,994 )     (1,016,365 )
Comprehensive income (loss)
   $ (265,394 )   $ 26,914     $ (1,654,281 )   $ (179,716 )   $ (315,870 )
 
(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
  
(dollars in thousands, except per share data)
  
             
   
For the years ended
  
   
December 31,
    
December 31,
  
   
2013
    
2012 (2)
  
   
(Unaudited)
        
Interest income:
            
Investment Securities and corporate debt
   $ 2,793,703     $ 3,225,269  
Commercial real estate debt and preferred equity
     76,096       -  
U.S. Treasury securities
     29,081       17,222  
Securities loaned
     8,788       9,903  
Reverse repurchase agreements
     10,459       6,218  
Other
     435       533  
Total interest income
     2,918,562       3,259,145  
Interest expense:
                
Repurchase agreements
     530,170       577,243  
Convertible Senior Notes
     67,057       67,221  
U.S. Treasury securities sold, not yet purchased
     20,235       15,114  
Securities borrowed
     6,785       7,594  
Participation sold
     467       -  
Total interest expense
     624,714       667,172  
Net interest income
     2,293,848       2,591,973  
                 
Other income (loss):
                
Realized gains (losses) on interest rate swaps(1)
     (908,294 )     (893,769 )
Realized gains (losses) on termination of interest rate swaps
     (101,862 )     (2,385 )
Unrealized gains (losses) on interest rate swaps
     2,002,200       (32,219 )
Subtotal
     992,044       (928,373 )
Investment advisory income
     43,643       82,138  
Net gains (losses) on disposal of investments
     403,045       432,139  
Net loss on extinguishment of 4% Convertible Senior Notes
     -       (162,340 )
Dividend income from affiliates
     18,575       28,336  
Net gains (losses) on trading assets
     1,509       22,910  
Net unrealized gains (losses) on interest-only Agency mortgage-backed securities
     244,730       (59,937 )
Impairment of goodwill
     (23,987 )     -  
Loss on previously held equity interest in CreXus
     (18,896 )     -  
Other income (loss)
     15,481       525  
Subtotal
     684,100       343,771  
Total other income (loss)
     1,676,144       (584,602 )
                 
General and administrative expenses:
                
Compensation and management fee
     167,366       190,702  
Other general and administrative expenses
     64,715       44,857  
Total general and administrative expenses
     232,081       235,559  
                 
Income (loss) before income taxes
     3,737,911       1,771,812  
                 
Income taxes
     8,213       35,912  
                 
Net income (loss)
     3,729,698       1,735,900  
                 
Dividends on preferred stock
     71,968       39,530  
                 
Net income (loss) available (related) to common shareholders
   $ 3,657,730     $ 1,696,370  
                 
Net income (loss) per share available (related) to common shareholders:
                
Basic
   $ 3.86     $ 1.74  
Diluted
   $ 3.74     $ 1.71  
                 
Weighted average number of common shares outstanding:
                
Basic
     947,337,915       972,902,459  
Diluted
     995,557,026       1,005,755,057  
                 
Net income (loss)
   $ 3,729,698     $ 1,735,900  
Other comprehensive income (loss):
                
Unrealized gains (losses) on available-for-sale securities
     (5,378,089 )     482,765  
Reclassification adjustment for net (gains) losses included in net income (loss)
     (424,086 )     (438,511 )
Other comprehensive income (loss)
     (5,802,175 )     44,254  
Comprehensive income (loss)
   $ (2,072,477 )   $ 1,780,154  
 
(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.
(2) Derived from the audited consolidated financial statements at December 31, 2012.
    
 
a50811704ex99_2.htm
Exhibit 99.2