Market Research, Analysis and Opinion.: Annaly's Q2 earnings

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 Companys 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 Companys 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 Companys Investment Securities portfolio at June 30, 2014. Adjustable-rate Agency mortgage-backed securities and debentures comprised 5% of the Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys net capital ratio was 15.4%, 15.4%, and 13.3%, respectively. The Companys 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 Companys 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 Companys repurchase agreements, compared to 94% of the Companys repurchase agreements at March 31, 2014 and 63% of the Companys 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 Companys 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 Companys 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 Companys 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 Companys interest rate swaps at June 30, 2014:


Maturity	Current Notional ⁽¹⁾		Weighted Average Pay Rate ^{(2) (3)}		Weighted Average Receive Rate ⁽²⁾		Weighted Average 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 Companys interest rate swaptions at June 30, 2014:

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

$ 2,600,000

3.16%

3M LIBOR

9.76

3.86

Key Metrics
The following table presents key metrics of the Companys 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 Companys 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 Companys 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
Annalys 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 Companys 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 Companys 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 Companys interest rate swaps is recorded in Realized gains (losses) on interest rate swaps on the Consolidated Statements of Comprehensive Income (Loss).