Attached files
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| 8-K - HATTERAS FINANCIAL CORP. 8-K - Hatteras Financial Corp | a6807159.htm |
Exhibit 99.1
Hatteras Financial Corp. Announces Second Quarter 2011 Financial Results
WINSTON-SALEM, N.C.--(BUSINESS WIRE)--July 26, 2011--Hatteras Financial Corp. (NYSE: HTS) (“Hatteras” or the “Company”) today announced financial results for the quarter ended June 30, 2011.
Second Quarter 2011 Highlights
- Net income of $1.04 per weighted average share
- Declared a $1.00 per share dividend
- Quarter end book value increased 2.3% to $26.72 per share
- Net return on average equity of 15.39%
- Average net interest spread of 1.97%
- Average debt-to-equity ratio of 6.7:1, ending the quarter at 7.4:1
- Annualized rate of scheduled and unscheduled principal repayments of 18.5%
- Annualized total expense ratio of 0.88% of average shareholders’ equity
Second Quarter 2011 Results
During the quarter ended June 30, 2011, the Company earned net income of $77.5 million, or $1.04 per diluted common share, compared to net income of $57.2 million, or $0.96 per diluted common share during the quarter ended March 31, 2011. Net interest income for the quarter ended June 30, 2011 was $77.6 million, compared to $61.1 million for the quarter ended March 31, 2011. The Company’s average earning assets increased to $15.0 billion for the second quarter of 2011 from $10.9 billion in the first quarter of 2011 as the Company deployed the proceeds from its common stock offerings completed in the first quarter of 2011. The Company’s net interest margin decreased to 1.97% for the second quarter of 2011 from 2.15% in the first quarter of 2011 as portfolio yield dropped and the Company’s cost of funds (including hedges) increased .01% to 1.06%. The Company’s average repurchase agreement (repo) rate decreased to 0.24% in the second quarter of 2011, from 0.30% in the first quarter of 2011, on all outstanding short-term (less than 30 days) repo positions. Operating expenses were $4.5 million for the second quarter of 2011 versus $3.9 million for the first quarter of 2011, but the annualized expense ratio dropped to 0.88% of shareholders’ equity based on average equity for the quarter ended June 30, 2011 from 1.03% for the prior quarter due to the increase in shareholder’s equity.
“We are very pleased with another strong quarter for Hatteras, ” said Michael R. Hough, the Company’s Chief Executive Officer, “especially in conjunction with the bond market rally in the second quarter that highlights the good timing of our first quarter capital raises. As a result of lower yields and higher premiums in mortgage-backed securities (“MBS”) available in the current market, investment opportunities today are not as attractive as they were earlier in the year, even as net interest margin opportunities remain wide. We continue to look for those opportunities that would prudently improve the Company on a long-term basis. While earnings remain attractive, we expect somewhat higher prepayments on some of our assets in the third quarter as a result of the decline in mortgage rates that occurred this spring.”
Dividend
The Company declared dividends of $1.00 per share of common stock with respect to the quarter ended June 30, 2011, which equaled the $1.00 per share dividend for the quarter ended March 31, 2011. Using the closing share price of $28.23 on June 30, 2011, the second quarter dividend equates to an annualized dividend yield of 14.2%.
Portfolio
The Company’s portfolio, consisting of Fannie Mae and Freddie Mac guaranteed mortgage securities (agency securities), increased to $16.4 billion at June 30, 2011, compared to $13.0 billion at the end of the previous quarter. The portfolio’s weighted average coupon was 3.61% for the second quarter of 2011, compared to 3.69% for the first quarter of 2011, primarily reflecting lower reinvestment rates on new security purchases. The annualized yield on average assets declined to 3.03% for the second quarter of 2011, compared to 3.20% for the first quarter of 2011 as a result of recent bond purchases and prepayments. The annualized cost of funds on average liabilities (including hedges) was essentially unchanged from the prior quarter at 1.06% in the second quarter of 2011, compared to 1.05% in the first quarter of 2011. Although the Company benefitted from lower repo rates, this was offset by the addition of new interest rate hedges as the Company increased its notional amount outstanding during the quarter ended June 30, 2011.
At June 30, 2011 the Company’s portfolio of agency securities consisted of 6.0% adjustable-rate mortgages (“ARMs”) with 18 or fewer months to reset, 7.1% ARMs with 19 to 36 months to reset, 55.7% ARMs with 37 to 60 months to reset, 30.1% ARMs with 61 to 84 months to reset, and 1.1% ARMs with 85 to 120 months to reset. Of the Company’s total portfolio, 71.0% is supported by Fannie Mae and 29.0% is supported by Freddie Mac. At June 30, 2011, the weighted-average term to the next interest rate reset date was approximately 56 months, not adjusting for repayments.
During the second quarter of 2011, the expense of amortizing the premium on the Company’s securities was $17.8 million, compared to $12.9 million during the first quarter of 2011. The increase was primarily the result of a larger portfolio of agency securities. The weighted-average principal repayment rate (scheduled and unscheduled principal payments as a percentage of the weighted-average portfolio, on an annual basis) during the second quarter of 2011 was 18.5%, compared to 22.4% during the first quarter of 2011.
Portfolio Financing and Leverage
At June 30, 2011, the Company financed its portfolio with approximately $14.8 billion of borrowings under repurchase agreements bearing fixed interest rates until maturity. The Company’s repo debt-to-shareholders’ equity ratio at June 30, 2011, was 7.4 to 1. During the quarter, the Company had an average debt-to-equity of 6.7 to 1 as proceeds from the March 18 common stock offering were invested. The Company’s repurchase agreements had a weighted-average term of approximately 24 days. The Company also uses interest rate swap agreements to synthetically extend the fixed interest period of these liabilities and hedge against the interest rate risk associated with financing the Company’s portfolio. As of June 30, 2011, the Company had in place interest rate swaps with a notional amount of $7.4 billion. The swap agreements, which are indexed to 30-day LIBOR, have an average remaining term of 38 months at an average fixed rate of 1.86%.
Book Value
The Company’s book value (shareholders’ equity) per share on June 30, 2011 was $26.72, up $0.61, or 2.3%, from the per share book value of $26.11 on March 31, 2011. The increase in book value during the quarter represents changes in MBS and swap values, and accretion from the sale of the Company’s common stock. On a per share basis, the book value at June 30, 2011 consisted of $24.79 of common equity, ($0.03) of retained earnings, $3.47 of unrealized gains on agency securities, and ($1.51) of unrealized losses on interest rate swaps.
Conference Call
The Company will host a conference call at 10:00 a.m. EDT on Wednesday July 27, 2011, to discuss financial results for the second quarter ended June 30, 2011. To participate in the event by telephone, please dial (877) 317-6789 five to 10 minutes prior to the start time (to allow time for registration) and ask to join the “Hatteras Financial” conference call. International callers should dial (412) 317-6789. Canada callers should dial (866) 605-3852. A digital replay of the call will be available on Wednesday, July 27, 2011 at approximately 12:00 noon ET through Thursday, August 4, 2011 at 9:00 a.m. ET. Dial (877) 344-7529 and enter the conference ID number 10002413. International callers should dial (412) 317-0088 and enter the same conference ID number. The conference call will also be webcast live over the Internet and can be accessed at Hatteras' web site at www.hatfin.com. To monitor the live webcast, please visit the web site at least 15 minutes prior to the start of the call to register, download, and install any necessary audio software. An audio replay of the event will be archived on Hatteras' web site.
About Hatteras Financial Corp.
Hatteras Financial is a real estate investment trust formed in 2007 to invest in single-family residential mortgage pass-through securities guaranteed or issued by U.S. Government agencies or U.S. Government-sponsored entities, such as Fannie Mae, Freddie Mac or Ginnie Mae. Based in Winston-Salem, N.C., Hatteras is managed and advised by Atlantic Capital Advisors LLC. Hatteras is a component of the Russell 2000® and the Russell 3000® indices.
Forward-Looking Statements
This press release, together with other statements and information publicly disseminated by the Company, contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and includes this statement for purposes of complying with these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe the Company's future plans, strategies and expectations, are generally identifiable by use of the words "believe,"”will,” "expect," "intend," "anticipate," "estimate,"”should,” "project" or similar expressions. You should not rely on forward-looking statements since they involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond the Company's control and which could materially affect actual results, performances or achievements. Forward-looking statements in this press release include statements about mortgage rates, prepayment rates, investment opportunities, net interest margins and the Company’s long-term return profile. Factors that may cause actual results to differ materially from current expectations include the risk factors discussed in the Company’s most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. Accordingly, there is no assurance that the Company's expectations will be realized. Except as otherwise required by the federal securities laws, the Company disclaims any obligation or undertaking to publicly release any updates or revisions to any forward-looking statement contained herein (or elsewhere) to reflect any change in the Company’s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.
- Financial Tables Follow -
| Hatteras Financial Corp. | ||||||||
| Balance Sheets | ||||||||
| (In thousands, except per share amounts) | (Unaudited) | |||||||
|
June 30, 2011 |
December 31, 2010 |
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| Assets | ||||||||
| Mortgage-backed securities, at fair value | ||||||||
| (including pledged assets of $15,444,263 and $9,089,095 at June 30, 2011 | $ | 16,416,897 | $ | 9,587,216 | ||||
| and December 31, 2010, respectively) | ||||||||
| Cash and cash equivalents | 233,213 | 112,626 | ||||||
| Restricted cash | 159,469 | 75,422 | ||||||
| Unsettled purchased mortgage-backed securities, at fair value | 23,995 | 49,710 | ||||||
| Accrued interest receivable | 60,502 | 37,973 | ||||||
| Principal payments receivable | 91,268 | 84,151 | ||||||
| Debt security, held to maturity, at cost | 15,000 | 15,000 | ||||||
| Interest rate hedge asset | 4,137 | 23,944 | ||||||
| Other assets | 23,208 | 20,937 | ||||||
| Total assets | $ | 17,027,689 | $ | 10,006,979 | ||||
| Liabilities and shareholders’ equity | ||||||||
| Repurchase agreements | $ | 14,800,594 | $ | 8,681,060 | ||||
| Payable for unsettled securities | 23,958 | 49,774 | ||||||
| Accrued interest payable | 2,571 | 3,177 | ||||||
| Interest rate hedge liability | 117,536 | 71,681 | ||||||
| Dividend payable | 75,092 | 46,116 | ||||||
| Accounts payable and other liabilities | 1,332 | 9,687 | ||||||
| Total liabilities | 15,021,083 | 8,861,495 | ||||||
| Shareholders’ equity: | ||||||||
|
Preferred stock, $.001 par value, 10,000,000 shares authorized, none outstanding at June 30, 2011 and December 31, 2010 |
– | – | ||||||
|
Common stock, $.001 par value, 100,000,000 shares authorized, 75,091,570 and 46,115,990 shares issued and outstanding at June 30, 2011 and December 31, 2010, respectively |
75 | 46 | ||||||
| Additional paid-in capital | 1,861,135 | 1,043,027 | ||||||
| Retained earnings | (1,877 | ) | (3,480 | ) | ||||
| Accumulated other comprehensive income | 147,273 | 105,891 | ||||||
| Total shareholders’ equity | 2,006,606 | 1,145,484 | ||||||
| Total liabilities and shareholders’ equity | $ | 17,027,689 | $ | 10,006,979 | ||||
| Hatteras Financial Corp. | ||||||||||||
| Statements of Income | ||||||||||||
| (Unaudited) | ||||||||||||
| (In thousands, except per share amounts) | Three months | Three months | Six months | Six months | ||||||||
| Ended | Ended | Ended | Ended | |||||||||
| June 30, 2011 | June 30, 2010 | June 30, 2011 | June 30, 2010 | |||||||||
| Interest income: | ||||||||||||
| Interest income on mortgage-backed securities | $ | 113,188 | $ | 63,441 | $ | 200,123 | $ | 132,382 | ||||
| Interest income on short-term cash investments | 331 | 298 | 671 | 575 | ||||||||
| Interest income | 113,519 | 63,739 | 200,794 | 132,957 | ||||||||
| Interest expense | 35,910 | 23,677 | 62,104 | 47,117 | ||||||||
| Net interest income | 77,609 | 40,062 | 138,690 | 85,840 | ||||||||
| Other income: | ||||||||||||
| Gain on sale of mortgage-backed securities | 4,405 | – | 4,405 | 1,044 | ||||||||
| Operating expenses: | ||||||||||||
| Management fee | 3,531 | 2,196 | 6,623 | 4,379 | ||||||||
| Share based compensation | 194 | 347 | 401 | 690 | ||||||||
| General and administrative | 746 | 707 | 1,305 | 1,269 | ||||||||
| Total operating expenses | 4,471 | 3,250 | 8,329 | 6,338 | ||||||||
| Net income | $ | 77,543 | $ | 36,812 | $ | 134,766 | $ | 80,546 | ||||
| Earnings per share - common stock, basic | $ | 1.04 | $ | 1.01 | $ | 2.01 | $ | 2.21 | ||||
| Earnings per share - common stock, diluted | $ | 1.04 | $ | 1.01 | $ | 2.01 | $ | 2.21 | ||||
| Dividends per share | $ | 1.00 | $ | 1.10 | $ | 2.00 | $ | 2.30 | ||||
| Weighted average shares outstanding | 74,807,174 | 36,609,290 | 67,167,275 | 36,426,572 | ||||||||
|
Key Statistics |
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|
(Amounts are unaudited and subject to change) |
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| (in thousands, except per share amounts) | ||||||||||||||||||||
| Three months ended (unaudited) | ||||||||||||||||||||
|
June 30, 2011 |
March 31, 2011 |
December 31, 2010 |
September 30, 2010 |
June 30, 2010 |
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| Statement of Income Data | ||||||||||||||||||||
| Interest income | $ | 113,519 | $ | 87,275 | $ | 67,952 | $ | 64,024 | $ | 63,739 | ||||||||||
| Interest Expense | (35,910 | ) | (26,194 | ) | (24,740 | ) | (24,066 | ) | (23,677 | ) | ||||||||||
| Net Interest Income | 77,609 | 61,081 | 43,212 | 39,958 | 40,062 | |||||||||||||||
| Gain on sale of mortgage-backed securities | 4,405 | – | 5,783 | 6,723 | – | |||||||||||||||
| Operating Expenses | (4,471 | ) | (3,858 | ) | (3,356 | ) | (3,449 | ) | (3,250 | ) | ||||||||||
| Net Income | $ | 77,543 | $ | 57,223 | $ | 45,639 | $ | 43,232 | $ | 36,812 | ||||||||||
| Earnings per share - common stock, basic | $ | 1.04 | $ | 0.96 | $ | 0.99 | $ | 1.12 | $ | 1.01 | ||||||||||
| Earnings per share - common stock, diluted | $ | 1.04 | $ | 0.96 | $ | 0.99 | $ | 1.11 | $ | 1.01 | ||||||||||
| Weighted average shares outstanding | 74,807 | 59,442 | 46,100 | 38,765 | 36,609 | |||||||||||||||
| Distributions per common share | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.10 | $ | 1.10 | ||||||||||
| Key Portfolio Statistics | ||||||||||||||||||||
| Average MBS | $ | 14,956,852 | $ | 10,883,248 | $ | 7,990,536 | $ | 6,881,681 | $ | 6,591,086 | ||||||||||
| Average Repurchase Agreements | $ | 13,540,291 | $ | 9,983,197 | $ | 7.326.776 | $ | 6,302,601 | $ | 6,092,328 | ||||||||||
| Average Equity | $ | 2,016,013 | $ | 1,497,223 | $ | 1,188,389 | $ | 1,001,956 | $ | 942,018 | ||||||||||
| Average Portfolio Yield | 3.03 | % | 3.20 | % | 3.39 | % | 3.70 | % | 3.85 | % | ||||||||||
| Average Cost of Funds | 1.06 | % | 1.05 | % | 1.35 | % | 1.53 | % | 1.55 | % | ||||||||||
| Interest Rate Spread | 1.97 | % | 2.15 | % | 2.04 | % | 2.17 | % | 2.30 | % | ||||||||||
| Return on Average Equity | 15.39 | % | 15.29 | % | 15.39 | % | 17.26 | % | 15.63 | % | ||||||||||
| Average Annual Portfolio Repayment Rate | 18.54 | % | 22.44 | % | 31.26 | % | 33.91 | % | 45.08 | % | ||||||||||
| Debt to Equity (at period end) | 7.4:1 | 6.1:1 | 7.6:1 | 5.6:1 | 6.2:1 | |||||||||||||||
| Debt to Additional Paid in Capital at period end) | 8.0:1 | 6.4:1 | 8.3:1 | 6.4:1 | 7.4:1 | |||||||||||||||
|
Note: The average data presented above are computed from the Company’s books and records, using daily weighted values. All percentages are annualized. |
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Mortgage-backed Securities Portfolio as of June 30, 2011 |
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(Amounts are unaudited and subject to change) |
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| MBS | Gross | Gross | |||||||||||||||
| Amortized | Unrealized | Unrealized | Estimated | ||||||||||||||
| Cost | Loss | Gain | Fair Value | % of Total | |||||||||||||
| Agency MBS | |||||||||||||||||
| Fannie Mae Certificates | $ | 11,466,783 | $ | (5,526 | ) | $ | 200,270 | $ | 11,661,527 | 71.0 | % | ||||||
| Freddie Mac Certificates | 4,690,946 | (4,771 | ) | 69,195 | 4,755,370 | 29.0 | % | ||||||||||
| Total MBS | $ | 16,157,729 | $ | (10,297 | ) | $ | 269,465 | $ | 16,416,897 | ||||||||
| (dollars in thousands) | % of | Current | Weighted Avg. | Weighted Avg. | |||||||||||
| Months to Reset | Portfolio | Face value | Coupon | Market Price | Market Value | ||||||||||
| 0-18 | 6.0 | % | $ | 948,735 | 4.31 | % | $ | 105.74 | $ | 1,003,150 | |||||
| 19-36 | 7.1 | % | 1,088,054 | 4.75 | % | $ | 106.38 | 1,157,423 | |||||||
| 37-60 | 55.7 | % | 8,781,342 | 3.47 | % | $ | 104.04 | 9,136,269 | |||||||
| 61-84 | 30.1 | % | 4,793,781 | 3.45 | % | $ | 103.15 | 4,944,690 | |||||||
| 85-120 | 1.1 | % | 169,072 | 3.98 | % | $ | 103.72 | 175,366 | |||||||
| Total MBS | 100.0 | % | $ | 15,780,984 | 3.61 | % | $ | 104.03 | $ | 16,416,898 | |||||
|
Repo Borrowings June 30, 2011 |
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|
(Amounts are unaudited and subject to change) |
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|
June 30,2011 |
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| Weighted Average | ||||||
| Balance | Contractual Rate | |||||
| Within 30 days | $ | 14,800,594 | 0.24 | % | ||
| 30 days to 3 months | - | - | ||||
| 3 months to 36 months | - | - | ||||
| $ | 14,800,594 | 0.24 | % | |||
|
Hatteras Swap Portfolio as of June 30, 2011 |
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|
(Amounts are unaudited and subject to change) |
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| Remaining | |||||||||
| Notional | Term | Fixed Interest | |||||||
| Maturity | Amount | in Months | Rate in Contract | ||||||
| 12 months or less | $ | 300,000 | 4 | 3.45 | % | ||||
| Over 12 months to 24 months | 800,000 | 18 | 1.90 | % | |||||
| Over 24 months to 36 months | 1,200,000 | 31 | 1.90 | % | |||||
| Over 36 months to 48 months | 3,800,000 | 43 | 1.78 | % | |||||
| Over 48 months to 60 months | 1,300,000 | 51 | 1.65 | % | |||||
| Total | $ | 7,400,000 | 38 | 1.86 | % | ||||
CONTACT:
Hatteras Financial Corp.
Kenneth A. Steele, Chief
Financial Officer, 336-760-9331
or
CCG Investor Relations
Mark
Collinson, Partner, 310-954-1343
www.ccgir.com