Annaly Capital Management, Inc. Reports 4th Quarter Core EPS of $0.23; Continuation of Portfolio Improvements in a Stabilizing Market.

NEW YORK -- Annaly Capital Management, Inc. (NYSE: NLY) today reported Core Earnings for the quarter ended December 31, 2006 of $51.7 million or $0.23 per average share available to common shareholders, as compared to Core Earnings of $12.0 million or $0.06 per average share available to common shareholders for the quarter ended December 31, 2005 and Core Earnings of $34.9 million or $0.16 per average share available to common shareholders for the quarter ended September 30, 2006. The Company reported Core Earnings for the year ended December 31, 2006 of $141.8 million or $0.73 per average share available to common shareholders, as compared to Core Earnings of $127.1 million or $0.92 per average share available to common shareholders for the year ended December 31, 2005. "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. On a GAAP basis, the net income for the quarter ended December 31, 2006 was $53.3 million or $0.23 basic net income per average share available to common shareholders, as compared to a net loss of $136.7 million or $1.14 basic net loss per average share available to common shareholders for the quarter ended December 31, 2005 and net income of $42.9 million or $0.21 basic net income per average share available to common shareholders for the quarter ended September 30, 2006. On a GAAP basis, the net income for the year ended December 31, 2006 was $93.8 million or $0.44 basic net income per average share available to common shareholders, as compared to a net loss of $9.2 million or $0.19 basic net loss per average share available to common shareholders for the year ended December 31, 2005.

During the year ended December 31, 2006, the Company sold $3.2 billion of Mortgage-Backed Securities, resulting in a realized loss of $3.9 million. In addition, the Company had a $10.7 million realized gain on the termination of interest rate swaps with a notional value of $1.2 billion. During the year ended December 31, 2005, the Company sold $3.0 billion of Mortgage-Backed Securities, resulting in a realized loss of $53.2 million.

Common dividends declared for the quarter ended December 31, 2006 were $0.19 per share, as compared to $0.10 per share for the quarter ended December 31, 2005 and $0.14 per share for the quarter ended September 30, 2006. The annualized dividend yield on common stock for the quarter ended December 31, 2006, based on the December 31, 2006 closing price of $13.91, was 5.46%. On a Core Earnings basis, the Company provided an annualized return on average equity of 7.89% for the quarter ended December 31, 2006, as compared to 3.04% for the quarter ended December 31, 2005 and 6.29% for the quarter ended September 30, 2006. On a GAAP basis, the Company provided an annualized return on average equity of 8.13% for the quarter ended December 31, 2006, as compared to (35.71%) for the quarter ended December 31, 2005, and 7.72% for the quarter ended September 30, 2006. On a GAAP basis, the Company provided an annualized return on average equity of 4.68% for the year ended December 31, 2006, as compared to (0.57%) for the year ended December 31, 2005.

During the year ended December 31, 2006, the Company completed an offering of cumulative convertible preferred stock totaling approximately $111.5 million in net proceeds, before offering expenses. The Company also completed two secondary offerings of common stock. The net proceeds from these offerings were approximately $914.0 million, before offering expenses.

Michael A.J. Farrell, Chairman, Chief Executive Officer and President of Annaly, commented on the quarter's results. "The transparency of the Annaly business model is such that our fourth quarter results are a fair reflection of the market facts: During the quarter short- and long-term rates were relatively range-bound, thus keeping our cost of funds steady and stabilizing our asset values. We also benefited from the accretion related to capital deployed after our capital-raises. While the Federal Reserve has remained on hold since June 29, 2006, recent economic data have not been sufficient to drive a policy move in one direction or another. However, we believe that signs of continuing weakness in housing and housing-related industries, deterioration in credit performance among mortgage borrowers, and the easing of inflationary pressures will be important signposts for the Fed. That said, we continue to position our portfolio of assets to perform in a range of interest rate outcomes, including a continuation of the current environment."

For the quarter ended December 31, 2006, the annualized yield on average earning assets was 5.64% and the annualized cost of funds on the average repurchase balance was 5.15%, which equates to an interest rate spread of 0.49%. This is a 40 basis point increase over the 0.09% annualized interest rate spread for the quarter ended December 31, 2005 and a 17 basis point increase over the 0.32% annualized interest rate spread for the quarter ended September 30, 2006. For the quarter ended December 31, 2005, the annualized yield on average earning assets was 4.10% and the annualized cost of funds on the average repurchase balance was 4.01%. For the quarter ended September 30, 2006, the annualized yield on average earning assets was 5.44% and the annualized cost of funds on the average repurchase balance was 5.12%. At December 31, 2006, the weighted average yield on assets was 5.63% and the cost of funds was 5.14%, which equates to an interest rate spread of 0.49%. Leverage at December 31, 2006 was 10.4:1, in comparison to 9.0:1 at December 31, 2005 and 9.6:1 at September 30, 2006.

Fixed rate securities comprised 72% of the Company's portfolio at December 31, 2006. The balance of the portfolio was comprised of 20% adjustable rate mortgages and 8% LIBOR floating rate collateralized mortgage obligations. At December 31, 2006, the Company had entered into interest rate swaps with a notional amount of $9.3 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 December 31, 2006, 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.

"Although we continue to operate in range-bound markets, we have taken every opportunity to improve our portfolio," said Wellington Denahan-Norris, Annaly's Vice Chairman, Chief Investment Officer and Chief Operating Officer. "Due to the rebalancing of the portfolio which continued early in the year, the capital raises in April and August and the subsequent deployment of proceeds, our weighted average dollar price is lower, our portfolio yields are higher, our yield exposure to faster prepayment rates is lower and our floating rate exposure is increased. Giving effect to the swaps, at December 31, 2006, our portfolio of short duration assets was effectively comprised of 41% fixed-rate, 20% adjustable-rate and 39% floating-rate exposure, which is consistent with the portfolio composition 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 fourth quarter of 2006, as compared to 28% during the fourth quarter of 2005, and 16% during the third quarter of 2006. The weighted average cost basis was 100.5 at December 31, 2006. The net amortization of premiums and accretion of discounts on investment securities for the quarters ended December 31, 2006, December 31, 2005 and September 30, 2006 was $15.0 million, $31.8 million, and $14.9 million, respectively. The total net premium remaining unamortized at December 31, 2006, December 31, 2005 and September 30, 2006 was $140.7 million, $220.6 million, and $139.7 million, respectively.

General and administrative expenses as a percentage of average assets were 0.16%, 0.14%, and 0.18% for the quarters ended December 31, 2006, December 31, 2005, and September 30, 2006, respectively. At December 31, 2006, December 31, 2005, and September 30, 2006 the Company had a common stock book value per share of $11.52, $10.73 and $11.26, respectively.

At December 31, 2006, FIDAC, Annaly's wholly-owned registered investment advisor, had under management approximately $2.6 billion in net assets and $15.1 billion in gross assets, as compared to $2.3 billion in net assets and $18.7 billion in gross assets at December 31, 2005 and $2.6 billion in net assets and $14.6 billion in gross assets at September 30, 2006. For the quarter ended December 31, 2006, FIDAC earned investment advisory and service fees, net of fees paid to distributors, of $4.4 million, as compared to $6.9 million for the quarter ended December 31, 2005 and $4.3 million for the quarter ended September 30, 2006. 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.

"Our asset management business has stabilized," said Mr. Farrell. "We continue to focus our energies on opportunities for our asset management subsidiary in order to grow assets under management and fee income."

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 205,345,591 shares of common stock outstanding.

The Company will hold the fourth quarter 2006 earnings conference call on February 7, 2007 at 10:00 a.m. EST. The number to call is 1-800-573-4842 for domestic calls and 617-224-4327 for international calls and the pass code is 57827669. The replay number is 1-888-286-8010 for domestic calls and 617-801-6888 for international calls and the pass code is 66924330. 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, 2005 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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