Annaly Capital Management, Inc. Reports 2nd Quarter Core EPS of $0.28; Earnings Continue to Improve Through Volatile Environment.

NEW YORK -- Annaly Capital Management, Inc. (NYSE: NLY) today reported Core Earnings for the quarter ended June 30, 2007 of $79.1 million or $0.28 per average share available to common shareholders as compared to Core Earnings of $31.3 million or $0.16 per average share available to common shareholders for the quarter ended June 30, 2006 and Core Earnings of $61.7 million or $0.26 per average share available to common shareholders for the quarter ended March 31, 2007. "Core Earnings" represents a non-GAAP measure and is defined as net income (loss) excluding impairment losses and gains or losses on sales of securities and termination of interest rate swaps. On a GAAP basis, the net income for the quarter ended June 30, 2007 was $85.7 million or $0.30 basic net income per average share available to common shareholders, as compared to a net income of $8.6 million or $0.02 basic net income per average share available to common shareholders for the quarter ended June 30, 2006 and net income of $67.4 million or $0.29 basic net income per average share available to common shareholders for the quarter ended March 31, 2007.

During the quarter ended June 30, 2007, the Company sold $1.4 billion of Mortgage-Backed Securities, resulting in a realized gain of $7.3 million. During the quarter ended June 30, 2006, the Company sold $852 million of Mortgage-Backed Securities, resulting in a realized loss of $1.2 million. During the quarter ended March 31, 2007, the Company sold $1.2 billion of Mortgage-Backed Securities, resulting in a realized gain of $6.1 million and terminated interest rate swaps with a notional value of $300 million, resulting in a realized gain of $67,000. In addition, during the quarter, the Company had a loss on other-than-temporarily impaired securities of $698,000 as compared to other-than-temporary impairments of $20.1 million and $491,000 for the quarters ended June 30, 2006 and March 31, 2007 respectively.

Common dividends declared for the quarter ended June 30, 2007 were $0.24 per share, as compared to $0.13 per share for the quarter ended June 30, 2006 and $0.20 per share for the quarter ended March 31, 2007. The annualized dividend yield on the Company's common stock for the quarter ended June 30, 2007, based on the June 29, 2007 closing price of $14.42, was 6.66%. On a Core Earnings basis, the Company provided an annualized return on average equity of 9.68% for the quarter ended June 30, 2007, as compared to 7.63% for the quarter ended June 30, 2006 and 8.13% for the quarter ended March 31, 2007. On a GAAP basis, the Company provided an annualized return on average equity of 10.49% for the quarter ended June 30, 2007, as compared to 2.09% for the quarter ended June 30, 2006, and 8.88% for the quarter ended March 31, 2007.

As previously announced, subsequent to quarter-end the Company completed a public offering of 54,050,000 shares of common stock. The estimated net proceeds of the offering, including the exercise of the underwriters' over-allotment option, were approximately $720.7 million, following offering expenses.

Michael A.J. Farrell, Chairman, Chief Executive Officer and President of Annaly, commented on the quarter's results. "The financial markets remain volatile, with the steadfastness of the Federal Reserve affecting expectations for future monetary policy and the level and shape of the yield curve. The bond market sell-off in the second quarter has begun to reverse itself. The economic backdrop is equally volatile, with the continued weakness in housing and the related deterioration in mortgage credit beginning to ripple through to broader economic performance. In this environment, Annaly is poised to benefit from our focus on high credit quality Agency mortgage-backed securities and our ability to access the capital markets. Our second quarter results--including the sixth consecutive increase in our quarterly dividend--demonstrate the continued improvement in portfolio performance through this challenging part of the business cycle, and we believe our recent capital raise will continue this trend."

For the quarter ended June 30, 2007, the annualized yield on average earning assets was 5.73% and the annualized cost of funds on the average repurchase balance was 5.13%, which equates to an interest rate spread of 0.60%. This is a 26 basis point increase over the 0.34% annualized interest rate spread for the quarter ended June 30, 2006 and a 2 basis point increase over the 0.58% annualized interest rate spread for the quarter ended March 31, 2007. For the quarter ended June 30, 2006, the annualized yield on average earning assets was 5.17% and the annualized cost of funds on the average repurchase balance was 4.83%. For the quarter ended March 31, 2007, the annualized yield on average earning assets was 5.68% and the annualized cost of funds on the average repurchase balance was 5.10%. At June 30, 2007, the weighted average yield on assets was 5.71% and the cost of funds was 5.10%, which equates to an interest rate spread of 0.61%. Leverage at June 30, 2007 was 11.2:1, in comparison to 11.5:1 at June 30, 2006 and 9.8:1 at March 31, 2007.

Fixed rate securities comprised 76% of the Company's portfolio at June 30, 2007. The balance of the portfolio was comprised of 19% adjustable rate mortgages and 5% LIBOR floating rate collateralized mortgage obligations. At June 30, 2007, the Company had entered into interest rate swaps with a notional amount of $12.8 billion. The Company's swaps are designated as cash flow hedges against the benchmark interest rate risk associated with the Company's borrowings. 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 will be receiving a floating rate on the notional amount of the swaps, the effect of the swaps will be to enhance the earnings potential of a portion of the fixed rate assets in the portfolio in a rising rate environment. The Company has continued to avoid the introduction of credit risk into its portfolio. As of June 30, 2007, substantially all of the assets in the Company's portfolio were FNMA, GNMA and FHLMC mortgage-backed securities and agency debentures, which carry an actual or implied "AAA" rating.

"As a result of the recent back-up in interest rates, returns on newly-invested capital have become more attractive," said Wellington Denahan-Norris, Annaly's Vice Chairman, Chief Investment Officer and Chief Operating Officer. "The proceeds of our recent stock offering will be promptly deployed at accretive levels, which should enable the portfolio to perform in a range of possible interest rate outcomes, including the continuation of the current environment. After taking into account the effect of interest rate swaps, at June 30, 2007, our portfolio of short duration assets was effectively comprised of 43% fixed-rate, 19% adjustable-rate and 38% floating-rate exposure, which is consistent with the historical portfolio composition of our portfolio in our barbell strategy."

The following table summarizes portfolio information for the Company:

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The Constant Prepayment Rate was 15% during the second quarter of 2007, as compared to 19% during the second quarter of 2006, and 17% during the first quarter of 2007. The weighted average cost basis was 100.6 at June 30, 2007. The net amortization of premiums and accretion of discounts on investment securities for the quarters ended June 30, 2007, June 30, 2006 and March 31, 2007 was $16.7 million, $17.9 million, and $15.4 million, respectively. The total net premium remaining unamortized at June 30, 2007, June 30, 2006 and March 31, 2007 was $211.4 million, $161.7 million, and $195.6 million, respectively.

General and administrative expenses as a percentage of average assets were 0.12%, 0.18%, and 0.15% for the quarters ended June 30, 2007, June 30, 2006, and March 31, 2007, respectively. At June 30, 2007, June 30, 2006, and March 31, 2007 the Company had a common stock book value per share of $10.52, $9.48 and $11.90, respectively.

At June 30, 2007, FIDAC, Annaly's wholly-owned registered investment advisor, had under management approximately $2.6 billion in net assets and $15.7 billion in gross assets, as compared to $2.6 billion in net assets and $14.1 billion in gross assets at June 30, 2006 and $2.5 billion in net assets and $16.1 billion in gross assets at March 31, 2007. For the quarter ended June 30, 2007, FIDAC earned investment advisory and service fees, net of fees paid to distributors, of $4.5 million, as compared to $4.5 million for the quarter ended June 30, 2006 and $4.7 million for the quarter ended March 31, 2007. FIDAC, organized as a taxable REIT subsidiary of Annaly, generally receives net investment advisory fees of approximately 10 to 20 basis points of the gross assets it manages, assists in managing or supervises.

Annaly manages assets on behalf of institutional and individual investors worldwide through Annaly and through the funds managed by its wholly-owned registered investment advisor, FIDAC. The Company's principal business objective is to generate net income for distribution to investors from the spread between the interest income on its mortgage-backed securities and the cost of borrowing to finance their acquisition and from dividends Annaly receives from FIDAC, which earns investment advisory fee income. The Company, a Maryland corporation that has elected to be taxed as a real estate investment trust ("REIT"), currently has 323,435,348 shares of common stock outstanding.

The Company will hold the second quarter 2007 earnings conference call on July 31, 2007 at 10:00 a.m. EST. The number to call is 1-866-770-7051 for domestic calls and 617-213-8064 for international calls and the pass code is 85595027. The replay number is 1-888-286-8010 for domestic calls and 617-801-6888 for international calls and the pass code is 69019468. 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 E-Mail alerts, enter your e-mail address where indicated and click the Subscribe button.

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 and Section 21E of the Securities Exchange Act of 1934. 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 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, and risks associated with the investment advisory business of FIDAC, including the removal by FIDAC's clients of assets FIDAC manages, FIDAC's regulatory requirements, and competition in the investment advisory business, changes in government regulations affecting our business, and our ability to maintain our qualification as a REIT for federal income tax purposes. 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 Annual Report on Form 10-K for the fiscal year ended December 31, 2006 and all 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.

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