SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: JUNE 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______________ TO _________________
COMMISSION FILE NUMBER: 1-13447
ANNALY MORTGAGE MANAGEMENT, INC.
(Exact name of Registrant as specified in its Charter)
MARYLAND 22-3479661
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1211 AVENUE OF THE AMERICAS, SUITE 2902
NEW YORK, NEW YORK
(Address of principal executive offices)
10036
(Zip Code)
(212) 696-0100
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all documents and
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of stock, as of the last practicable date:
Class Outstanding at August 12, 2002
Common Stock, $.01 par value 83,592,470
Annaly Mortgage Management, Inc.
FORM 10-Q
INDEX
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Statements of Financial Condition- June 30, 2002 (Unaudited) and December 31, 2001 1
Statements of Operations (Unaudited) for the quarters and six months ended June 30, 2002
and 2001 2
Statements of Stockholders' Equity (Unaudited) for the six months ended June 30, 2002 3
Statements of Cash Flows (Unaudited) for the quarters and six months ended June 30, 2002
and 2001 4
Notes to Financial Statements (Unaudited) 5-11
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12-22
Item 3. Quantitative and Qualitative Disclosures about Market Risk 23-24
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 25
Item 6. Exhibits and Reports on Form 8-K 25
SIGNATURES 26
PART 1. FINANCIAL STATEMENTS
ANNALY MORTGAGE MANAGEMENT, INC.
STATEMENTS OF FINANCIAL CONDITION
JUNE 30, 2002 DECEMBER 31,
(UNAUDITED) 2001
----------------------- ------------------------
ASSETS
Cash and cash equivalents $ 645,688 $ 429,247
Mortgage-Backed Securities, at fair value 11,124,770,611 7,575,379,313
Receivable for Mortgage-Backed Securities sold - 94,502,807
Accrued interest receivable 50,852,975 46,803,644
Other assets 1,244,630 198,888
----------------------- ------------------------
Total assets $11,177,513,904 $7,717,313,899
======================= ========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Repurchase agreements $ 9,184,883,445 $6,367,710,186
Payable for Mortgage-Backed Securities purchased 862,360,032 627,063,523
Accrued interest payable 20,709,661 16,043,004
Dividends payable 56,403,502 35,896,185
Other liabilities 1,441,260 2,009,533
Accounts payable 2,085,460 1,234,463
----------------------- ------------------------
Total liabilities 10,127,883,360 7,049,956,894
----------------------- ------------------------
Stockholders' Equity:
Common stock: par value $.01 per share; 500,000,000
Authorized, 82,962,504 and 59,826,975 shares issued
and outstanding, respectively 829,625 598,270
Additional paid-in capital 973,128,659 623,985,662
Accumulated other comprehensive gain 67,282,541 38,169,285
Retained earnings 8,389,719 4,603,788
----------------------- ------------------------
Total stockholders' equity 1,049,630,544 667,357,005
----------------------- ------------------------
Total liabilities and stockholders' equity $11,177,513,904 $7,717,313,899
======================= ========================
See notes to financial statements.
1
PART 1. FINANCIAL STATEMENTS
ANNALY MORTGAGE MANAGEMENT, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
For the For the Quarter For the Six For the Six
Quarter Ended Ended June 30, Months Ended Months Ended
June 30, 2001 June 30, June 30,
2002 2002 2001
---------------- ----------------- ----------------- ------------------
INTEREST INCOME:
Mortgage-Backed Securities
and cash equivalents $109,423,009 $64,789,651 $202,322,528 $107,224,072
INTEREST EXPENSE:
Repurchase agreements 47,860,099 45,283,966 87,871,979 78,737,043
---------------- ----------------- ----------------- ------------------
NET INTEREST INCOME 61,562,910 19,505,685 114,450,549 28,487,029
GAIN ON SALE OF MORTGAGE-BACKED
SECURITIES
1,342,638 481,936 4,752,883 751,414
GENERAL AND ADMINISTRATIVE
EXPENSES
3,536,217 1,392,778 6,791,124 2,313,327
---------------- ----------------- ----------------- ------------------
NET INCOME 59,369,331 18,594,843 112,412,308 26,925,116
---------------- ----------------- ----------------- ------------------
OTHER COMPREHENSIVE INCOME:
Unrealized gain on available-
for-sale securities 38,123,194 2,191,109 33,866,139 18,655,728
Less: reclassification adjustment
for net gains included in net income (1,342,638) (481,936) (4,752,883) (751,414)
----------------- ------------------
---------------- -----------------
Other comprehensive income 36,780,556 1,709,173 29,113,256 17,904,314
---------------- ----------------- ----------------- ------------------
COMPREHENSIVE INCOME $96,149,887 $20,304,016 $141,525,564 $44,829,430
================ ================= ================= ==================
NET INCOME PER SHARE:
Basic $0.72 $0.48 $1.41 $0.89
================ ================= ================= ==================
Diluted $0.71 $0.48 $1.40 $0.88
================ ================= ================= ==================
AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic 82,910,206 38,473,928 79,954,529 30,138,057
================ ================= ================= ==================
Diluted 83,186,865 39,054,488 80,245,372 30,758,235
================ ================= ================= ==================
See notes to financial statements.
2
PART I
ITEM 1. FINANCIAL STATEMENTS
ANNALY MORTGAGE MANAGEMENT, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2002
(UNAUDITED)
Common Additional Other
Stock Paid-In Comprehensive Retained Comprehensive
Par Value Capital Income Earnings Income Total
------------- --------------- -------------- ------------- ---------------- ---------------
BALANCE, DECEMBER 31, 2001 $598,270 $623,985,662 $4,603,788 $38,169,285 $667,357,005
Net Income $53,042,977 53,042,977
Other comprehensive income:
Unrealized net gain on securities,
net of reclassification adjustment (7,667,300) (7,667,300)
--------------
Comprehensive income $45,375,677 45,375,677
==============
Exercise of stock options 220 281,830 282,050
Proceeds from direct purchase 337 558,822 559,159
Proceeds from secondary offering 230,000 347,106,663 347,336,663
Dividends declared for the quarter
ended March 31, 2002,
$0.63 per average share (52,222,875) (52,222,875)
------------- --------------- ------------- ---------------- ---------------
BALANCE, MARCH 31, 2002 $828,827 $971,932,977 $5,423,890 $30,501,985 $1,008,687,679
Net Income $59,369,331 59,369,331
Other comprehensive income:
Unrealized net gain on securities,
net of reclassification adjustment 36,780,556 36,780,556
--------------
Comprehensive income $96,149,887 96,149,887
==============
Exercise of stock options 399 440,650 441,049
Shares exchanged upon excise of stock
Options (44) (75,504) (75,548)
Proceeds from direct purchase 443 830,536 830,979
Proceeds from secondary offering
Dividends declared for the quarter
ended June 30, 2002,
$0.68 per average share (56,403,502) (56,403,502)
------------- --------------- ------------- ---------------- ---------------
BALANCE, JUNE 30, 2002 $829,625 $973,128,659 $8,389,719 $67,282,541 $1,049,630,544
============= =============== ============= ================ ===============
See notes to financial statements.
3
PART I
ITEM 1. FINANCIAL STATEMENTS
ANNALY MORTGAGE MANAGEMENT, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Quarter For the Quarter
Ended Ended For the Six For the Six
June 30, June 30, Months Ended Months Ended
2002 2001 June 30, 2002 June 30, 2001
------------------ ------------------- ------------------- -------------------
Cash flows from operating activities:
Net income $59,369,331 $18,594,843 $112,412,308 $26,925,116
Adjustments to reconcile net income to net cash
Provided by operating activities:
Amortization of mortgage premiums and
discounts, net 19,796,976 6,724,306 37,688,397 8,937,789
Gain on sale of Mortgage-Backed Securities (1,342,638) (481,936) (4,752,883) (751,414)
Stock option expense 100,785 162,836
Market value adjustment on long-term
repurchase agreement (405,645) (369,015)
(Increase) decrease in accrued interest
receivable 448,872 (10,084,919) (4,049,331) (20,687,428)
(Increase) decrease in other assets (850,314) 105,788 (1,045,742) 42,847
Increase (decrease) in accrued interest payable (746,440) 3,531,348 4,666,657 9,911,618
Increase in accounts payable 763,452 226,559 850,997 522,219
----------------- ------------------- ------------------- -------------------
Net cash provided by operating activities 77,134,379 18,615,989 145,564,224 24,900,747
----------------- ------------------- ------------------- -------------------
Cash flows from investing activities:
Purchase of Mortgage-Backed Securities (2,151,126,972) (2,148,120,233) (5,989,742,639) (3,986,508,656)
Proceeds from sale of Mortgage-Backed Securities 414,973,566 196,795,004 808,435,841 348,683,093
Principal payments of Mortgage-Backed
Securities 864,901,809 381,341,586 1,957,892,559 475,751,309
----------------- ------------------- ------------------- -------------------
Net cash used in investing activities (871,251,597) (1,569,983,643) (3,223,414,239) (3,162,074,254)
----------------- ------------------- ------------------- -------------------
Cash flows from financing activities:
Proceeds from repurchase agreements 22,122,302,000 11,649,453,000 41,949,911,000 18,675,926,527
Principal payments on repurchase agreements (21,276,899,000) (10,285,937,000) (39,132,937,000) (15,822,469,527)
Proceeds from exercise of stock options 264,715 307,081 484,715 421,313
Proceeds from direct purchase 830,979 24,303 1,390,138 51,930
Net proceeds from offerings - 195,302,775 347,336,663 294,586,636
Dividends paid (52,222,875) (7,710,437) (88,119,060) (11,341,182)
----------------- ------------------- ------------------- -------------------
Net cash provided by financing activities 794,275,819 1,551,439,722 3,078,066,456 3,137,175,697
----------------- ------------------- ------------------- -------------------
Net increase in cash and cash equivalents 158,601 72,068 216,441 2,190
Cash and cash equivalents, beginning of period 487,087 43,183 429,247 113,061
----------------- ------------------- ------------------- -------------------
Cash and cash equivalents, end of period $ 645,688 $ 115,251 $ 645,688 $ 115,251
================= =================== =================== ===================
Supplemental disclosure of cash flow information:
Interest paid $48,606,539 $41,752,619 $83,205,322 $68,825,425
================= =================== =================== ===================
Noncash financing activities:
Net change in unrealized gain on available-
for-sale securities ($36,708,556) $1,709,173 $29,113,256 $17,904,314
================= =================== =================== ===================
Dividends declared, not yet paid $ 56,403,502 $17,870,698 $56,403,502 $17,870,698
================= =================== =================== ===================
See notes to financial statements.
4
ANNALY MORTGAGE MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE QUARTERS ENDED JUNE 30, 2002 AND 2001
(UNAUDITED)
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Annaly Mortgage Management, Inc. (the "Company") was incorporated in
Maryland on November 25, 1996. The Company commenced its operations of
purchasing and managing an investment portfolio of Mortgage-Backed Securities on
February 18, 1997, upon receipt of the net proceeds from the private placement
of equity capital. An initial public offering was completed on October 14, 1997.
A summary of the Company's significant accounting policies follows:
Basis of Presentation - The accompanying unaudited financial statements
have been prepared in conformity with the instructions to Form 10-Q and Article
10, Rule 10-01 of Regulation S-X for interim financial statements. Accordingly,
they do not include all of the information and footnotes required by accounting
principles generally accepted in the United States of America ("GAAP"). The
interim financial statements for the three month period are unaudited; however,
in the opinion of the Company's management, all adjustments, consisting only of
normal recurring accruals, necessary for a fair statement of the results of
operations have been included. These unaudited financials statements should be
read in conjunction with the audited financial statements included in the
Company's Annual Report on form 10-K for the year ended December 31, 2001. The
nature of the Company's business is such that the results of any interim period
are not necessarily indicative of results for a full year.
Cash and Cash Equivalents - Cash and cash equivalents includes cash on hand
and money market funds. The carrying amounts of cash equivalents approximates
their value.
Mortgage-Backed Securities - The Company invests primarily in mortgage
pass-through certificates, collateralized mortgage obligations and other
mortgage-backed securities representing interests in or obligations backed by
pools of mortgage loans (collectively, "Mortgage-Backed Securities").
Statement of Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities, requires the Company to classify its
investments as either trading investments, available-for-sale investments or
held-to-maturity investments. Although the Company generally intends to hold
most of its Mortgage-Backed Securities until maturity, it may, from time to
time, sell any of its Mortgage-Backed Securities as part of its overall
management of its statement of financial condition. Accordingly, this
flexibility requires the Company to classify all of its Mortgage-Backed
Securities as available-for-sale. All assets classified as available-for-sale
are reported at fair value, based on market prices provided by certain dealers
who make markets in these financial instruments, with unrealized gains and
losses excluded from earnings and reported as a separate component of
stockholders' equity.
Unrealized losses on Mortgage-Backed Securities that are considered other
than temporary, as measured by the amount of decline in fair value attributable
to factors other than temporary, are recognized in income and the cost basis of
the Mortgage-Backed Securities is adjusted. There were no such adjustments for
the quarters ended June 30, 2002 and 2001.
Interest income is accrued based on the outstanding principal amount of the
Mortgage-Backed Securities and their contractual terms. Premiums and discounts
associated with the purchase of the Mortgage-Backed Securities are amortized
into interest income over the lives of the securities using the interest method.
Mortgage-Backed Securities transactions are recorded on the trade date.
Purchases of newly issued securities are recorded when all significant
uncertainties regarding the characteristics of the securities are removed,
generally shortly before settlement date. Realized gains and losses on
Mortgage-Backed Securities transactions are determined on the specific
identification basis.
5
Credit Risk - At June 30, 2002 and December 31, 2001, the Company has
limited its exposure to credit losses on its portfolio of Mortgage-Backed
Securities by only purchasing securities issued by Federal Home Loan Mortgage
Corporation ("FHLMC"), Federal National Mortgage Association ("FNMA"), or
Government National Mortgage Association ("GNMA"). The payment of principal and
interest on the FHLMC and FNMA Mortgage-Backed Securities are guaranteed by
those respective agencies and the payment of principal and interest on the GNMA
Mortgage-Backed Securities are backed by the full-faith-and-credit of the U.S.
government. At June 30, 2002 and December 31, 2001 all of the Company's
Mortgage-Backed Securities have an actual or implied "AAA" rating.
Income Taxes - The Company has elected to be taxed as a Real Estate
Investment Trust ("REIT") and intends to comply with the provisions of the
Internal Revenue Code of 1986, as amended (the "Code") with respect thereto.
Accordingly, the Company will not be subjected to Federal income tax to the
extent of its distributions to shareholders and as long as certain asset, income
and stock ownership tests are met.
Use of Estimates - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
2. MORTGAGE-BACKED SECURITIES
The following table pertains to the Company's Mortgage-Backed Securities
classified as available-for-sale as of June 30, 2002, which are carried at their
fair value:
Federal Home Loan Federal National Government
Mortgage Mortgage National Mortgage Total Mortgage-Backed
Corporation Association Association Securities
---------------------- --------------------- --------------------- ---------------------
Mortgage-Backed Securities, gross $ 5,406,051,578 $5,281,783,156 $ 145,539,333 $10,833,374,067
Unamortized discount (1,086,499) - (1,555,752)
(469,253)
Unamortized premium 103,597,751 119,881,371 2,190,633 225,669,755
---------------------- --------------------- --------------------- ---------------------
Amortized cost 5,508,562,830 5,401,195,274 147,729,966 11,057,488,070
Gross unrealized gains 35,589,671 39,999,016 242,867 75,831,554
Gross unrealized losses (4,949,401) (3,379,027) (220,585) (8,549,013)
---------------------- --------------------- --------------------- ---------------------
Estimated fair value $ 5,539,203,100 $5, 437,815,263 $ 147,752,248 $11,124,770,611
====================== ===================== ===================== =====================
Gross Unrealized Gain Gross Unrealized Loss Estimated Fair Value
Amortized Cost
---------------------- --------------------- --------------------- ---------------------
Adjustable rate $ 8,088,024,476 $ 44,699,262 $ (8,156,490) $8,124,567,248
Fixed rate 2,969,463,594 31,132,292 (392,523) 3,000,203,363
---------------------- --------------------- --------------------- ---------------------
Total $ 11,057,488,070 $ 75,831,554 $ (8,549,013) $11,124,770,611
====================== ===================== ===================== =====================
6
The following table pertains to the Company's Mortgage-Backed Securities
classified as available-for-sale as of December 31, 2001, which are carried at
their fair value:
Federal Home Loan Federal National Government
Mortgage Mortgage National Mortgage Total Mortgage-Backed
Corporation Association Association Securities
---------------------- --------------------- --------------------- ---------------------
Mortgage-Backed
Securities, gross $ 4,426,194,568 $ 2,894,026,227 $ 79,719,749 $7,399,940,544
Unamortized discount (1,345,955) (755,106) - (2,101,061)
Unamortized premium 83,775,464 54,118,304 1,476,777 139,370,545
---------------------- --------------------- --------------------- ---------------------
Amortized cost 4,508,624,077 2,947,389,425 81,196,526 7,537,210,028
Gross unrealized gains 32,636,111 21,223,896 75,100 53,935,107
Gross unrealized losses (7,985,994) (7,313,534) (466,294) (15,765,822)
---------------------- --------------------- --------------------- ---------------------
Estimated fair value $ 4,533,274,194 $ 2,961,299,787 $ 80,805,332 $7,575,379,313
====================== ===================== ===================== =====================
Gross Unrealized Gain Gross Unrealized Loss Estimated Fair Value
Amortized Cost
---------------------- --------------------- --------------------- ---------------------
Adjustable rate $ 5,908,236,449 $ 44,469,272 $ (10,049,070) $5,942,656,651
Fixed rate 1,628,973,579 9,465,834 (5,716,751) 1,632,722,662
---------------------- --------------------- --------------------- ---------------------
Total $ 7,537,210,028 $ 53,935,106 $ (15,765,821) $7,575,379,313
====================== ===================== ===================== =====================
The adjustable rate Mortgage-Backed Securities are limited by periodic caps
(generally interest rate adjustments are limited to no more than 1% every six
months) and lifetime caps. The weighted average lifetime cap was 10.5% at June
30, 2002 and 11.5% at December 31, 2001.
During the six months ended June 30, 2002, the Company realized $4,752,883
in gains from sales of Mortgage-Backed Securities. During the six months ended
June 30, 2001, the Company realized $751,414 in gains from sales of
Mortgage-Backed Securities.
3. REPURCHASE AGREEMENTS
The Company had outstanding $9,184,883,445 and $6,367,710,186 of repurchase
agreements with a weighted average borrowing rate of 2.10% and 2.18% and a
weighted average remaining maturity of 139 days and 85 days as of June 30, 2002
and December 31, 2001, respectively.
At June 30, 2002 and December 31, 2001, the repurchase agreements had the
following remaining maturities:
June 30, 2002 December 31, 2001
--------------------------- ---------------------------
Within 30 days $5,957,510,000 $5,380,006,000
30 to 59 days 1,989,901,000 206,947,000
60 to 89 days - 66,202,000
90 to 119 days - 65,037,000
Over 120 days 1,237,472,445 649,518,186
--------------------------- ---------------------------
Total $9,184,883,445 $6,367,710,186
=========================== ===========================
7
4. OTHER LIABILITIES
In July 2001, the Company entered into a repurchase agreement maturing in
July 2004 which grants the buyer the right to extend the agreement, in whole or
in part, in three-month increments up to July 2006. The repurchase agreement has
a principal value of $100,000,000. The Company accounts for the extension option
as a separate interest rate floor liability carried at fair value. The initial
fair value of $1,205,458 allocated to the interest rate floor resulted in a
similar discount on the repurchase agreement borrowings that is being amortized
over the initial term of 3 years using the effective yield method. At June 30,
2002, the fair value of this interest rate floor was a $1,441,260 and was
classified as other liabilities. The aggregate charge of $235,802 is included in
interest expense as of June 30, 2002.
5. COMMON STOCK
During the six months ended June 30, 2002, 61,938 options were exercised
under the long-term compensation plan at $723,099. Total shares exchanged upon
exercise of the stock options were 4,444 shares at a value of $75,548. Also,
78,035 shares were purchased in the dividend reinvestment and direct purchase
program at $1,390,138. An offering for 23,000,000 shares was completed during
the first quarter of 2002 for approximate net proceeds of $347.3 million. During
the six months ending June 30, 2002, the Company declared dividends to
shareholders totaling $108,626,377 or $1.31 per share, which $56,403,502 was
paid on July 31, 2002.
During the year ended December 31, 2001, 274,231 options were exercised at
$2,974,666. Total shares exchanged upon exercise of the stock options were
41,620 at a value of $588,068. Also, 10,856 shares were purchased in the
dividend reinvestment and share purchase plan, totaling $142,456. The Company
completed an offering of common stock in the third quarter issuing 14,991,600
shares, with aggregate net proceeds of $179.6 million. An offering of common
stock during the second quarter of 2001 was completed issuing 18,918,500 shares,
with aggregate net proceeds of $195.3 million. Additional offerings for
11,150,000 shares were completed during the first quarter of 2001 for aggregate
net proceeds of $99.3 million. During the year ended December 31, 2001, the
Company declared dividends to shareholders totaling $88,370,451, or $1.75 per
share, of which $52,474,266 was paid during the year and $35,896,185 was paid on
January 30, 2002.
6. EARNINGS PER SHARE (EPS)
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting No. 128, Earnings Per Share (SFAS No. 128),
which requires dual presentation of basic EPS and diluted EPS on the face of the
income statement for all entities with complex capital structures. SFAS No. 128
also requires a reconciliation of the numerator and denominator of basic EPS and
diluted EPS computation.
For the quarter ended June 30, 2002, the reconciliation is as follows:
For the Quarter Ended June 30, 2002
----------------------- ----------------------- ------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------------------- ----------------------- ------------------------
Net income $59,369,331
-----------------------
Basic earnings per share $59,369,331 82,910,206 $0.72
========================
Effect of dilutive securities:
Dilutive stock options 276,659
----------------------- -----------------------
Diluted earnings per share $59,369,331 83,186,865 $0.71
======================= ======================= ========================
8
For the six months ended June 30, 2002, the reconciliation is as follows:
For the Six Months Ended June 30, 2002
------------------------------------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------------------- ----------------------- ------------------------
Net income $112,412,308
-----------------------
Basic earnings per share 112,412,308 79,954,529 $1.41
========================
Effect of dilutive securities:
Dilutive stock options 290,843
----------------------- -----------------------
Diluted earnings per share $112,412,308 80,245,372 $1.40
======================= ======================= ========================
Options to purchase 600,352 shares were outstanding during the quarter
ended June 30, 2002 and were dilutive as the exercise price of between $7.94 and
$13.69 was less than the average stock price for the quarter of $18.43. Options
to purchase 6,250 shares of stock were outstanding and not considered dilutive.
The exercise price of $20.35 was greater than the average stock price for the
quarter of $18.43. Options to purchase 600,352 shares were outstanding during
the six months ended June 30, 2002 and were dilutive as the exercise price of
between $7.94 and $13.69 was less than the average stock price for the six
months of $17.54. Options to purchase 6,250 shares of stock were outstanding and
not considered dilutive. The exercise price of $20.35 was greater than the
average stock price for the six months of $17.54.
For the quarter ended June 30, 2001, the reconciliation is as follows:
For the Quarter Ended June 30, 2001
----------------------- ----------------------- ------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------------------- ----------------------- ------------------------
Net income $18,594,843
-----------------------
Basic earnings per share 18,594,843 38,473,928 $0.48
========================
Effect of dilutive securities: 580,560
Dilutive stock options
----------------------- -----------------------
Diluted earnings per share $18,594,843 39,054,488 $0.48
======================= ======================= ========================
For the six months ended June 30, 2001, the reconciliation is as follows:
For the Six Months Ended June 30, 2001
----------------------- ----------------------- ------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------------------- ----------------------- ------------------------
Net income $26,925,116
-----------------------
Basic earnings per share 26,925,116 30,138,057 $0.89
========================
Effect of dilutive securities:
Dilutive stock options 620,178
----------------------- -----------------------
Diluted earnings per share $26,925,116 30,758,235 $0.88
======================= ======================= ========================
9
Options to purchase 822,394 shares were outstanding during the quarter
ended June 30, 2001 and were dilutive as the exercise price of between $4.00 and
$11.25 was less than the average stock price for the quarter of $12.21. Options
to purchase 6,250 shares of stock were outstanding and not considered dilutive.
The exercise price of $13.69 was greater than the average stock price for the
quarter of $12.21. Options to purchase 822,394 shares were outstanding during
the six months ended June 30, 2001 and were dilutive as the exercise price of
between $4.00 and $11.25 was less than the average stock price for the six
months of $11.43. Options to purchase 6,250 shares of stock were outstanding and
not considered dilutive. The exercise price of $13.69 was greater than the
average stock price for the six months of $12.21.
7. COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income. Statement No. 130 requires the reporting of
comprehensive income in addition to net income from operations. Comprehensive
income is a more inclusive financial reporting methodology that includes
disclosure of certain financial information that historically has not been
recognized in the calculation of net income. The Company at June 30, 2002 and
December 31, 2001 held securities classified as available-for-sale. At June 30,
2002, the net unrealized gain totaled $67,282,541 and at December 31, 2001, the
net unrealized gains totaled $38,169,285.
8. LEASE COMMITMENTS
The Corporation has a noncancelable lease for office space, which commenced
in May 2002 and expires in December 2009.
The Corporation's aggregate future minimum lease payments are as follows:
2002 $249,918
2003 499,836
2004 499,836
2005 499,836
2006 529,877
2007 532,608
2008 532,608
2009 532,608
-----------------
Total remaining lease payments $3,877,127
=================
9. RELATED PARTY TRANSACTION
Included in "Other Assets" on the Balance sheet is an investment in Annaly
International Money Management, Inc. On June 24, 1998, the Company acquired
99,960 nonvoting shares, at a cost of $49,980. The Company continues to report
the investment at cost. The officers and directors of Annaly International Money
Management Inc. are also officers and directors of the Company. Officers and
employees of the Company are actively involved in managing Mortgage-Backed
Securities and other fixed income assets for institutional clients through Fixed
Income Discount Advisory Company ("FIDAC"). FIDAC is a registered investment
adviser, which is owned 100% by the Chief Executive Officer of Annaly Mortgage
Management, Inc. Our management currently allocates rent and other general and
administrative expenses 90% to Annaly and 10% to FIDAC.
10. INTEREST RATE RISK
The primary market risk to the Company is interest rate risk. Interest
rates are highly sensitive to many factors, including governmental monetary and
tax policies, domestic and international economic and political considerations
and other factors beyond the Company's control. Changes in the general level of
interest rates can affect net interest income, which is the difference between
the interest income earned on interest-earning assets and
10
the interest expense incurred in connection with the interest-bearing
liabilities, by affecting the spread between the interest-earning assets and
interest-bearing liabilities. Changes in the level of interest rates also can
affect the value of the Mortgage-Backed Securities and the Company's ability to
realize gains from the sale of these assets.
The Company seeks to manage the extent to which net income changes as a
function of changes in interest rates by matching adjustable-rate assets with
variable-rate borrowings. In addition, although the Company has not done so to
date, the Company may seek to mitigate the potential impact on net income of
periodic and lifetime coupon adjustment restrictions in the portfolio of
Mortgage-Backed Securities by entering into interest rate agreements such as
interest rate caps and interest rate swaps.
Changes in interest rates may also have an effect on the rate of mortgage
principal prepayments and, as a result, prepayments on Mortgage-Backed
Securities. The Company will seek to mitigate the effect of changes in the
mortgage principal repayment rate by balancing assets purchased at a premium
with assets purchased at a discount. To date, the aggregate premium exceeds the
aggregate discount on the Mortgage-Backed Securities. As a result, prepayments,
which result in the expensing of unamortized premium, will reduce net income
compared to what net income would be absent such prepayments.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
Annaly Mortgage Management, Inc. ("we" or "us") are a real estate
investment trust that owns and manages a portfolio of Mortgage-Backed
Securities. Our principal business objective is to generate net income for
distribution to our stockholders from the spread between the interest income on
our Mortgage-Backed Securities and the costs of borrowing to finance our
acquisition of Mortgage-Backed Securities.
Special Note Regarding Forward-Looking Statements
Certain statements contained in this quarterly report, and certain
statements contained in our future filings with the Securities and Exchange
Commission (the "SEC" or the "Commission"), in our press releases or in our
other public or shareholder communications may not be, based on historical facts
and are "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. 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. For
a discussion of the risks and uncertainties which could cause actual results to
differ from those contained in the forward-looking statements, see our 2001 Form
10-K. 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.
Results of Operations: For the Quarters and Six Months Ended June 30, 2002 and
2001
Net Income Summary
For the quarter ended June 30, 2002, our GAAP net income was $59.4 million,
or $0.72 basic earnings per average share, as compared to $18.6 million, or
$0.48 basic earnings per average share, for the quarter ended June 30, 2001. We
compute our GAAP net income per share by dividing net income by the weighted
average number of shares of outstanding common stock during the period, which
was 82,910,206 for the quarter ended June 30, 2002 and 38,473,928 for the
quarter ended June 30, 2001. Dividends per actual shares outstanding for the
quarter ended June 30, 2002 was $0.68 per share, or $56.4 million in total.
Dividends per actual shares outstanding for the quarter ended June 30, 2001 was
$0.40 per share, or $17.9 million in total. Our return on average equity was
23.08% for the quarter ended June 30, 2002 and 19.42% for the quarter ended June
30, 2001.
For the six months ended June 30, 2002, our GAAP net income was $112.4
million, or $1.41 basic earnings per average share, as compared to $26.9
million, or $0.89 basic earnings per average share, for the six months ended
June 30, 2001. We compute our GAAP net income per share by dividing net income
by the weighted average number of shares of outstanding common stock during the
period, which was 79,954,529 for the six months ended June 30, 2002 and
30,138,057 for the six months ended June 30, 2001. Dividends per actual shares
outstanding for the six months ended June 30, 2002 was $1.31 per share, or
$108.6 million in total. Dividends per actual shares outstanding for the six
months ended June 30, 2001 was $0.70 per share, or $25.6 million in total. Our
annualized return on average equity was 24.75% for the six months ended June 30,
2002 and 16.77% for the six months ended June 30, 2001.
12
Net Income Summary
------------------
(dollars in the thousands, except for per-share data)
-----------------------------------------------------
Quarter Ended Quarter Ended Six Months Six Months
June 30, 2002 June 30, 2001 Ended Ended
June 30, 2002 June 30, 2001
-------------- ---------------- -------------- ---------------
Interest Income $109,423 $64,790 $202,323 $107,224
Interest Expense 47,860 45,284 87,872 78,737
-------------- ---------------- -------------- ---------------
Net Interest Income 61,563 19,506 114,451 28,487
Gain on Sale of Mortgage-Backed Securities 1,342 482 4,752 751
General and Administrative Expenses 3,536 1,393 6,791 2,313
-------------- ---------------- -------------- ---------------
Net Income $59,369 $18,595 $112,412 $26,925
============== ================ ============== ===============
Average Number of Basic Shares Outstanding 82,910,206 38,473,928 79,954,529 30,138,057
Average Number of Diluted Shares Outstanding 83,186,865 39,054,488 80,245,372 30,758,235
Basic Net Income Per Share $0.72 $0.48 $1.41 $0.89
Diluted Net Income Per Share $0.71 $0.48 $1.40 $0.88
Average Total Assets $10,717,867 $4,566,700 $9,717,683 $3,722,809
Average Equity $1,029,064 $449,951 $908,495 $321,196
Annualized Return on Average Assets 2.22% 1.63% 2.31% 1.45%
Annualized Return on Average Equity 23.08% 19.42% 24.75% 16.77%
Interest Income and Average Earning Asset Yield
We had average earning assets of $9.6 billion and $4.3 billion for the
quarters ended June 30, 2002 and 2001, respectively. Our primary source of
income for the quarters ended June 30, 2002 and 2001 was interest income. A
portion of our income was generated by gains on the sales of our Mortgage-Backed
Securities. Our interest income was $109.4 million for the quarter ended June
30, 2002 and $64.8 million for the quarter ended June 30, 2001. Our yield on
average earning assets was 4.55 % and 6.09% for the same respective periods. Our
average earning asset balance increased by $5.3 billion and interest income
increased by $44.6 million for the quarter ended June 30, 2002 as compared to
the quarter ended June 30, 2001, due to the substantial increase in the asset
base resulting from the inflow of capital in the third quarter 2001 and the
first quarter 2002 offerings.
We had average earning assets of $8.6 billion and $3.4 billion for the six
months ended June 30, 2002 and 2001, respectively. Our interest income was
$202.3 million for the six months ended June 30, 2002 and $107.2 million for the
six months ended June 30, 2001. Our yield on average earning assets was 4.69 %
and 6.35% for the same respective periods. Our average earning asset balance
increased by $5.2 billion and interest income increased by $95.1 million for the
six months ended June 30, 2002 as compared to the six months ended June 30,
2001, due to equity offerings in the third quarter of 2001 and the first quarter
of 2002. The table below shows our average balance of cash equivalents and
Mortgage-Backed Securities, the yields we earned on each type of earning asset,
our yield on average earning assets and our interest income for the quarter
ended June 30, 2002, March 31, 2002, the year ended December 31, 2001 and the
four quarters in 2001.
13
Average Earning Asset Yield
Yield on Yield on
Average Yield on Average Average
Average Mortgage- Average Average Mortgage- Interest
Cash Backed Earning Cash Backed Earning Interest
Equivalents Securities Assets Equivalents Securities Assets Income
---------- ---------- ------- ----------- ---------- -------- --------
(dollars in thousands)
For the Quarter Ended June 30, 2002 $2 $9,629,332 $9,629,334 1.23% 4.55% 4.55% $109,423
For the Quarter Ended March 31, 2002 $2 $7,610,006 $7,610,008 1.29% 4.88% 4.88% $92,900
- --------------------------------------------------------------------------------------------------------------------------
For the Year Ended December 31, 2001 $2 $4,682,778 $4,682,780 3.25% 5.62% 5.62% $263,058
For the Quarter Ended December 31, 2001 $2 $6,708,928 $6,708,930 1.56% 4.77% 4.77% $80,060
For the Quarter Ended September 30, 2001 $2 $5,263,231 $5,263,233 2.77% 5.76% 5.76% $75,774
For the Quarter Ended June 30, 2001 $2 $4,256,864 $4,256,866 3.72% 6.09% 6.09% $64,790
For the Quarter Ended March 31, 2001 $2 $2,502,088 $2,502,090 4.93% 6.78% 6.78% $42,434
The constant prepayment rate ("CPR") on our Mortgage-Backed Securities for
the quarters ended June 30, 2002 and 2001 was 25%. CPR is an assumed rate of
prepayment for our Mortgage-Backed Securities, expressed as an annual rate of
prepayment relative to the outstanding principal balance of our Mortgage-Backed
Securities. CPR does not purport to be either a historical description of the
prepayment experience of our Mortgage-Backed Securities or a prediction of the
anticipated rate of prepayment of our Mortgage-Backed Securities.
Principal prepayments had a negative effect on our earning asset yield for
the quarters ended June 30, 2002 and 2001 because we adjust our rates of premium
amortization and discount accretion monthly based upon the effective yield
method, which takes into consideration changes in prepayment speeds.
Interest Expense and the Cost of Funds
We anticipate that our largest expense will be the cost of borrowed funds.
We had average borrowed funds of $9.1 billion and total interest expense of
$47.9 million for the quarter ended June 30, 2002. We had average borrowed funds
of $4.0 billion and total interest expense of $45.3 million for the quarter
ended June 30, 2001. Our average cost of funds was 2.10% for the quarter ended
June 30, 2002 and 4.49% for the quarter ended June 30, 2001. The cost of funds
rate decreased 2.39% and the average borrowed funds increased by $5.1 billion
for the quarter ended June 30, 2002 when compared to the quarter ended June 30,
2001. Interest expense for the quarter increased 6% due to the large increase in
the average repurchase balance, resulting from deployment of the Company's
strategy after the capital raises in September 2001 and January 2002.
We had average borrowed funds of $8.1 billion and total interest expense of
$87.9 million for the six months ended June 30, 2002. We had average borrowed
funds of $3.2 billion and total interest expense of $78.7 million for the six
months ended June 30, 2001. Our average cost of funds was 2.16% for the six
months ended June 30, 2002 and 4.93% for the six months ended June 30, 2001. The
cost of funds rate decreased 2.77% and the average borrowed funds increased by
$4.9 billion for the six months ended June 30, 2002 when compared to the six
months ended June 30, 2001.
With our current asset/liability management strategy, changes in our cost
of funds are expected to be closely correlated with changes in short-term LIBOR,
although we have choosen to extend the maturity of our liabilities. Our average
cost of funds was 0.25% above average one-month LIBOR and 0.01% below average
six-month LIBOR for the quarter ended June 30, 2002. Our average cost of funds
was 0.22% above average one-month LIBOR and 0.16% above average six-month LIBOR
for the quarter ended June 30, 2001.
The table below shows our average borrowed funds and average cost of funds
as compared to average one-month and average six-month LIBOR for the quarters
ended June 30, 2002, March 31, 2002, the year ended December 31, 2001 and the
four quarters in 2001.
14
Average Cost of Funds
Average
One-Month Average Cost Average Cost
LIBOR of Funds of Funds
Relative to Relative to Relative to
Average Average Average Average Average Average Average
Borrowed Interest Cost of One-Month Six-Month Six-Month One-Month Six-Month
Funds Expense Funds LIBOR LIBOR LIBOR LIBOR LIBOR
--------- -------- ------- --------- --------- --------- --------- ---------
(dollars in thousands)
For the Quarter Ended
June 30, 2002 $9,102,992 $47,860 2.10% 1.85% 2.11% (0.26%) 0.25% (0.01%)
For the Quarter Ended
March 31, 2002 $7,192,222 $40,012 2.23% 1.85% 2.06% (0.21%) 0.38% 0.17%
- ----------------------------------------------------------------------------------------------------------------------
For the Year Ended
December 31, 2001 $4,388,900 $168,055 3.83% 3.88% 3.73% 0.15% (0.05%) 0.10%
For the Quarter Ended
December 31, 2001 $6,166,998 $40,698 2.64% 2.20% 2.16% 0.04% 0.44% 0.48%
For the Quarter Ended
September 30, 2001 $4,997,922 $48,620 3.89% 3.55% 3.47% 0.08% 0.34% 0.42%
For the Quarter Ended
June 30, 2001 $4,035,022 $45,254 4.49% 4.27% 4.12% 0.15% 0.22% 0.37%
For the Quarter Ended
March 31, 2001 $2,355,658 $33,453 5.68% 5.51% 5.18% 0.33% 0.17% 0.50%
Net Interest Rate Agreement Expense
We have not entered into any interest rate agreements to date. As part of
our asset/liability management process, we may enter into interest rate
agreements such as interest rate caps, floors or swaps. These agreements would
be entered into with the intent to reduce interest rate or prepayment risk and
would be designed to provide us income and capital appreciation in the event of
certain changes in interest rates. However, even after entering into these
agreements, we would still be exposed to interest rate and prepayment risks. We
review the need for interest rate agreements on a regular basis consistent with
our capital investment policy.
Net Interest Income
Our net interest income, which equals interest income less interest
expense, totaled $61.6 million for the quarter ended June 30, 2002 and $19.5
million for the quarter ended June 30, 2001. Our net interest income increased
because of the increased asset size of the company and the increase in the
interest rate spread. Our net interest spread, which equals the yield on our
average assets for the period less the average cost of funds for the period, was
2.45% for the quarter ended June 30, 2002 as compared to 1.60% for the quarter
ended June 30, 2001. This 85 basis point increase in spread income is reflected
in the increase in net interest income.
Our net interest income, which equals interest income less interest
expense, totaled $114.5 million for the six months ended June 30, 2002 and $28.5
million for the six months ended June 30, 2001. Our net interest income
increased as a direct result of the equity offerings during the third quarter of
2001 and the first quarter of 2002. Our net interest spread, which equals the
yield on our average assets for the period less the average cost of funds for
the period, was 2.54% for the six months ended June 30, 2002 as compared to
1.42% for the six months ended June 30, 2001. This 112 basis point increase in
spread income is reflected in the increase in net interest income.
The table below shows our interest income by earning asset type, average
earning assets by type, total interest income, interest expense, average
repurchase agreements, average cost of funds, and net interest income for the
quarters ended June 30, 2002, March 31, 2002, the year ended December 31, 2001,
and the four quarters in 2001.
15
GAAP Net Interest Income
Average Interest Yield on
Mortgage- Income Average Average
Backed Mortgage Average Total Interest Balance of Average Net
Securities -Backed Cash Interest Earning Repurchase Interest Cost of Interest
Held Securities Equivalents Income Assets Agreements Expense Funds Income
----------- ---------- ----------- -------- ------- ---------- -------- ------- --------
(dollars in thousands)
For the Quarter
Ended
June 30, 2002 $9,629,332 $109,423 $2 $109,423 4.55% $9,102,992 $47,860 2.10% $61,563
For the Quarter
Ended
March 31, 2002 $7,610,006 $92,900 $2 $92,900 4.88% $7,192,222 $40,012 2.23% $52,888
------------------------------------------------------------------------------------------------------------------
For the Year Ended
December 31, 2001 $4,682,778 $263,058 $2 $263,058 5.62% $4,388,900 $168,055 3.83% $95,003
For the Quarter
Ended
December 31, 2001 $6,708,928 $80,060 $2 $80,060 4.77% $6,166,998 $40,698 2.64% $39,361
For the Quarter
Ended
September 30, 2001 $5,263,231 $75,774 $2 $75,774 5.76% $4,997,922 $48,620 3.89% $27,154
For the Quarter
Ended June 30,
2001 $4,256,864 $64,790 $2 $64,790 6.09% $4,035,022 $45,284 4.49% $19,506
For the Quarter
Ended March 31,
2001 $2,502,088 $42,434 $2 $42,434 6.78% $2,355,658 $33,453 5.68% $8,981
Gains and Losses on Sales of Mortgage-Backed Securities
For the quarter ended June 30, 2002, we sold Mortgage-Backed Securities
with an aggregate historical amortized cost of $413.6 million for an aggregate
gain of $1.3 million. For the quarter ended June 30, 2001, we sold
Mortgage-Backed Securities with an aggregate historical amortized cost of $196.3
million for an aggregate gain of $481,936. The difference between the sale price
and the historical amortized cost of our Mortgage-Backed Securities is a
realized gain and increases income accordingly. We do not expect to sell assets
on a frequent basis, but may from time to time sell existing assets to move into
new assets, which our management believes might have higher risk-adjusted
returns, or to manage our balance sheet as part of our asset/liability
management strategy.
For the six months ended June 30, 2002, we sold Mortgage-Backed Securities
with an aggregate historical amortized cost of $803.7 million for an aggregate
gain of $4.8 million. For the six months ended June 30, 2001, we sold
Mortgage-Backed Securities with an aggregate historical amortized cost of $347.9
million for an aggregate gain of $751,414. The difference between the sale price
and the historical amortized cost of our Mortgage-Backed Securities is a
realized gain and increases income accordingly.
Credit Losses
We have not experienced credit losses on our Mortgage-Backed Securities to
date. We have limited our exposure to credit losses on our Mortgage-Backed
Securities by purchasing only securities issued or guaranteed by FNMA, FHLMC or
GNMA which, although not rated, carry an implied "AAA" rating.
General and Administrative Expense
General and administrative ("G&A") expenses were $3.5 million for the
quarter ended June 30, 2002 and $1.4 million for the quarter ended June 30,
2001. G&A expenses as a percentage of average assets was 0.13% and 0.12% on an
annualized basis for the quarters ended June 30, 2002 and 2001, respectively.
G&A expenses as a percentage of average equity was 1.37% and 1.44% on an
annualized basis for the quarters ended June 30, 2002 and 2001, respectively.
The Company is internally managed and continues to be a low-cost provider. Even
though G&A expenses increased by $2.1 million for the quarter ended June 30,
2002, when compared to the quarter ended June 30, 2001, G&A as a percentage of
average assets increased by only one basis point.
16
GAAP G&A Expenses and Operating Expense Ratios
Total G&A Total G&A
Expenses/Average Expenses/Average
Total G&A Assets Equity
Expenses (annualized) (annualized)
-------- ---------------- ----------------
(dollars in thousands)
For the Quarter Ended June 30, 2002 $3,536 0.13% 1.37%
For the Quarter Ended March 31, 2002 $3,255 0.14% 1.55%
-----------------------------------------------------------------------------------------------
For the Year Ended December 31, 2001 $7,311 0.14% 1.67%
For the Quarter Ended December 31, 2001 $3,004 0.17% 1.78%
For the Quarter Ended September 30, 2001 $1,993 0.13% 1.76%
For the Quarter Ended June 30, 2001 $1,393 0.12% 1.45%
For the Quarter Ended March 31, 2001 $921 0.13% 1.90%
Net Income and Return on Average Equity
Our net income was $59.4 million for the quarter ended June 30, 2002 and
$18.6 million for the quarter ended June 30, 2001. Our return on average equity
was 23.08% for the quarter ended June 30, 2002 and 19.42% for the quarter ended
June 30, 2001. The increase in net income is a direct result of the increase in
capital from the two offerings completed in the time period of September 2001 to
January 2002. As previously mentioned, the new capital allowed us to grow the
balance sheet and ultimately grow earnings. The table below shows our net
interest income, gain on sale of Mortgage-Backed Securities and G&A expenses
each as a percentage of average equity, and the return on average equity for the
quarters ended June 30, 2002, March 31, 2002, the year ended December 31, 2001,
and for the four quarters in 2001.
Components of Return on Average Equity
(Ratios for all Quarters are annualized)
Gain on Sale of
Net Interest Mortgage-Backed G&A Return on
Income/Average Securities/AveragExpenses/Average Average
Equity Equity e Equity Equity
For the Quarter Ended June 30, 2002 23.93% 0.52% 1.37% 23.08%
For the Quarter Ended March 31, 2002 25.24% 1.63% 1.55% 25.32%
- ------------------------------------------------------------------------------------------------------------
For the Year Ended December 31, 2001 21.72% 1.05% 1.67% 21.10%
For the Quarter Ended December 31, 2001 23.34% 1.57% 1.78% 23.13%
For the Quarter Ended September 30, 2001 23.97% 1.05% 1.76% 23.26%
For the Quarter Ended June 30, 2001 20.37% 0.50% 1.44% 19.42%
For the Quarter Ended March 31, 2001 18.54% 0.56% 1.90% 17.20%
Financial Condition
Mortgage-Backed Securities
All of our Mortgage-Backed Securities at June 30, 2002 were adjustable-rate
or fixed-rate Mortgage-Backed Securities backed by single-family mortgage loans.
All of the mortgage assets underlying these Mortgage-Backed Securities were
secured with a first lien position on the underlying single-family properties.
All our Mortgage-Backed Securities were FHLMC, FNMA or GNMA mortgage
pass-through certificates or collateralized mortgage obligations ("CMOs"), which
carry an actual or implied "AAA" rating. We mark-to-market all of our earning
assets at liquidation value.
We accrete discount balances as an increase in interest income over the
life of discount Mortgage-Backed Securities and we amortize premium balances as
a decrease in interest income over the life of premium Mortgage-Backed
Securities. At June 30, 2002 and December 31, 2001, we had on our balance sheet
a total of $1.6 million and $2.1 million respectively, of unamortized discount
(which is the difference between the remaining principal value and current
historical amortized cost of our Mortgage-Backed Securities acquired at a price
below principal value) and a total of $225.7 million and $139.4 million,
respectively, of unamortized premium (which is the difference between the
remaining principal value and the current historical amortized cost of our
Mortgage-Backed Securities acquired at a price above principal value).
17
We received mortgage principal repayments of $864.9 million for the quarter
ended June 30, 2002 and $381.3 million for the quarter ended June 30, 2001.
Given our current portfolio composition, if mortgage principal prepayment rates
were to increase over the life of our Mortgage-Backed Securities, all other
factors being equal, our net interest income would decrease during the life of
these Mortgage-Backed Securities as we would be required to amortize our net
premium balance into income over a shorter time period. Similarly, if mortgage
principal prepayment rates were to decrease over the life of our Mortgage-Backed
Securities, all other factors being equal, our net interest income would
increase during the life of these Mortgage-Backed Securities, as we would
amortize our net premium balance over a longer time period.
The table below summarizes our Mortgage-Backed Securities at June 30, 2002,
March 31, 2002, December 31, 2001, September 30, 2001, June 30, 2001, and March
31, 2001.
Mortgage-Backed Securities
Amortized Estimated Fair Weighted
Net Amortized Cost/Principal Estimated Value/Principal Average
Principal Value Premium Cost Value Fair Value Value Yield
(dollars in thousands)
At June 30, 2002 $10,833,374 $224,114 $11,057,488 102.07% $11,124,771 102.69% 3.90%
At March 31, 2002 $9,982,678 $193,048 $10,175,726 101.93% $10,206,228 102.24% 4.31%
- ----------------------------------------------------------------------------------------------------------------------
At December 31, 2001 $7,399,941 $137,269 $7,537,210 101.86% $7,575,379 102.37% 4.41%
At September 30, 2001 $6,275,501 $96,674 $6,372,175 101.54% $6,428,853 102.44% 5.17%
At June 30, 2001 $5,498,235 $69,193 $5,567,428 101.26% $5,572,288 101.34% 5.75%
At March 31, 2001 $3,455,436 $42,023 $3,497,459 101.22% $3,500,610 101.31% 6.43%
The tables below set forth certain characteristics of our Mortgage-Backed
Securities. The index level for adjustable-rate Mortgage-Backed Securities is
the weighted average rate of the various short-term interest rate indices, which
determine the coupon rate.
Adjustable-Rate Mortgage-Backed Security Characteristics
Weighted Principal Value
Weighted Weighted Weighted Average Weighted at Period End as
Average Average Average Term to Weighted Average % of Total
Principal Coupon Index Net Next Average Asset Mortgage-Backed
Value Rate Level Margin Adjustment Lifetime Cap Yield Securities
(dollars in thousands)
At June 30, 2002 $7,939,126 4.57% 2.96% 1.61% 12 months 10.46% 3.17% 73.28%
At March 31, 2002 $7,248,832 4.94% 3.25% 1.69% 16 months 10.73% 3.52% 72.61%
- -------------------------------------------------------------------------------------------------------------------------
At December 31, 2001 $5,793,250 5.90% 3.95% 1.95% 24 months 11.49% 3.87% 78.29%
At September 30, 2001 $4,789,570 6.24% 4.31% 1.93% 27 months 11.46% 4.76% 76.32%
At June 30, 2001 $3,997,580 6.47% 4.60% 1.87% 26 months 11.37% 5.38% 72.71%
At March 31, 2001 $2,495,296 7.01% 5.14% 1.87% 26 months 11.57% 6.35% 72.21%
Fixed-Rate Mortgage-Backed Security Characteristics
Principal Value at
Period End as %
Weighted Weighted of Total
Average Average Mortgage-Backed
Principal Value Coupon Rate Asset Yield Securities
(dollars in thousands)
At June 30, 2002 $2,894,248 7.09% 5.91% 26.72%
At March 31, 2002 $2,733,846 7.01% 6.40% 27.39%
- ---------------------------------------------------------------------------------------------
At December 31, 2001 $1,606,691 6.92% 6.33% 21.71%
At September 30, 2001 $1,485,931 6.88% 6.48% 23.68%
At June 30, 2001 $1,500,655 6.83% 6.71% 27.29%
At March 31, 2001 $960,140 6.79% 6.69% 27.79%
18
At June 30, 2002 and December 31, 2001 we held Mortgage-Backed Securities
with coupons linked to the one-month and six month LIBOR, six month average
auction, 12-month cumulative average, six-month CD rate, one-year, two-year,
three-year, and five-year Treasury indices.
Adjustable-Rate Mortgage-Backed Securities by Index
June 30, 2002
Six-Month 12-Month 1-Year 2-Year 3-Year 5-Year
One-Month Six-Month Auction Moving Six-Month Treasury Treasury Treasury Treasury
LIBOR LIBOR Average Average CD Rate Index Index Index Index
--------- --------- --------- -------- --------- -------- -------- -------- --------
Weighted Average
Adjustment Frequency 1mo. 6 mo. 6 mo. 1 mo. 6 mo. 12 mo. 24 mo. 36 mo. 60 mo.
Weighted Average Term to
Next Adjustment 1mo. 49 mo. 2 mo. 1 mo. 2 mo. 26 mo. 13 mo. 20 mo. 34 mo.
Weighted Average Annual
Period Cap None 2.00% 1.00% None 1.00% 1.95% 2.00% 2.00% 2.00%
Weighted Average Lifetime
Cap at June 30, 2002 9.02% 11.49% 12.99% 10.37% 11.59% 12.05% 11.88% 12.82% 12.65%
Mortgage Principal Value as
Percentage of Mortgage-
Backed Securities at
June 30, 2002 38.57% 0.07% 0.03% 0.69% 0.17% 31.96% 0.03% 1.12% 0.64%
Adjustable-Rate Mortgage-Backed Securities by Index
December 31, 2001
Six-Month 12-Month 1-Year 3-Year 5-Year
One-Month Six-Month Auction Moving Six-Month Treasury Treasury Treasury
LIBOR LIBOR Average Average CD Rate Index Index Index
--------- --------- --------- -------- --------- ------- ------- --------
Weighted Average Adjustment
Frequency 1mo. 6 mo. 6 mo. 12 mo. 6 mo. 12 mo. 36 mo. 60 mo.
Weighted Average Term to
Next Adjustment 1mo. 55 mo. 2 mo. 11 mo. 2 mo. 33 mo. 16 mo. 33 mo.
Weighted Average Annual
Period Cap None 2.00% 0.50% None 1.00% 1.98% 2.00% 1.96%
Weighted Average Lifetime
Cap at December 31, 2001 9.09% 11.50% 12.53% 10.63% 11.40% 12.22% 13.08% 12.92%
Mortgage Principal Value as
Percentage of Mortgage-
Backed Securities at
December 31, 2001 18.32% 0.13% 0.12% 1.06% 0.22% 56.20% 1.35% 0.89%
Interest Rate Agreements
Interest rate agreements are assets that are carried on a balance sheet at
estimated liquidation value. We have not entered into any interest rate
agreements since our inception.
Borrowings
To date, our debt has consisted entirely of borrowings collateralized by a
pledge of our Mortgage-Backed Securities. These borrowings appear on our balance
sheet as repurchase agreements. At June 30, 2002, we had established uncommitted
borrowing facilities in this market with twenty-four lenders in amounts, which
we believe, are in excess of our needs. All of our Mortgage-Backed Securities
are currently accepted as collateral for these borrowings. However, we limit our
borrowings, and thus our potential asset growth, in order to maintain unused
borrowing capacity and thus increase the liquidity and strength of our balance
sheet.
19
For the quarter ended June 30, 2002 the term to maturity of our borrowings
ranged from one day to three years, with a weighted average original term to
maturity of 181 days. For the quarter ended June 30, 2001, the term to maturity
of our borrowings ranged from one day to three years, with a weighted average
original term to maturity of 121 days. At June 30, 2002, the weighted average
cost of funds for all of our borrowings was 2.10% and the weighted average term
to next rate adjustment was 139 days. At June 30, 2001, the weighted average
cost of funds for all of our borrowings was 4.06% and the weighted average term
to next rate adjustment was 87 days.
Liquidity
Liquidity, which is our ability to turn non-cash assets into cash, allows
us to purchase additional Mortgage-Backed Securities and to pledge additional
assets to secure existing borrowings should the value of our pledged assets
decline. Potential immediate sources of liquidity for us include cash balances
and unused borrowing capacity. Unused borrowing capacity will vary over time as
the market value of our Mortgage-Backed Securities varies. Our balance sheet
also generates liquidity on an on-going basis through mortgage principal
repayments and net earnings held prior to payment as dividends. Should our needs
ever exceed these on-going sources of liquidity plus the immediate sources of
liquidity discussed above, we believe that our Mortgage-Backed Securities could
in most circumstances be sold to raise cash. The maintenance of liquidity is one
of the goals of our capital investment policy. Under this policy, we limit asset
growth in order to preserve unused borrowing capacity for liquidity management
purposes.
Stockholders' Equity
We use "available-for-sale" treatment for our Mortgage-Backed Securities;
we carry these assets on our balance sheet at estimated market value rather than
historical amortized cost. Based upon this "available-for-sale" treatment, our
equity base at June 30, 2002 was $1.0 billion, or $12.65 per share. If we had
used historical amortized cost accounting, our equity base at June 30, 2002
would have been $982.3 million, or $11.84 per share. Our equity base at June 30,
2001 was $450.0 million, or $10.07 per share. If we had used historical
amortized cost accounting, our equity base at June 30, 2001 would have been
$445.1 million, or $9.96 per share. During the quarter ended June 30, 2001, the
Company raised additional capital in the amount of $195.3 million in a secondary
offering.
With our "available-for-sale" accounting treatment, unrealized fluctuations
in market values of assets do not impact our GAAP or taxable income but rather
are reflected on our balance sheet by changing the carrying value of the asset
and stockholders' equity under "Accumulated Other Comprehensive Income (Loss)."
By accounting for our assets in this manner, we hope to provide useful
information to stockholders and creditors and to preserve flexibility to sell
assets in the future without having to change accounting methods.
As a result of this mark-to-market accounting treatment, our book value and
book value per share are likely to fluctuate far more than if we used historical
amortized cost accounting. As a result, comparisons with companies that use
historical cost accounting for some or all of their balance sheet may not be
meaningful. The table below shows unrealized gains and losses on the
Mortgage-Backed Securities in our portfolio.
Unrealized Gains and Losses
(dollars in thousands)
At At At At At At
June 30, March 31, December 31, September 30, June 30, March 31,
2002 2002 2001 2001 2001 2001
-----------------------------------------------------------------------------
Unrealized Gain $75,832 $46,894 $53,935 $67,459 $19,322 $12,606
Unrealized Loss (8,549) (16,392) (15,766) (10,782) (14,462) (9,455)
-----------------------------------------------------------------------------
Net Unrealized Gain $67,283 $30,502 $38,169 $56,677 $4,860 $3,151
=============================================================================
Net Unrealized Gain as % of Mortgage-
Backed Securities Principal Value 0.62% 0.31% 0.52% 0.90% 0.08% 0.09%
Net Unrealized Gain as % of Mortgage-
Backed Securities Amortized Cost 0.61% 0.30% 0.51% 0.90% 0.08% 0.09%
20
Unrealized changes in the estimated net market value of Mortgage-Backed
Securities have one direct effect on our potential earnings and dividends:
positive mark-to-market changes increase our equity base and allow us to
increase our borrowing capacity while negative changes decrease our equity base
and tend to limit borrowing capacity under our capital investment policy. A very
large negative change in the net market value of our Mortgage-Backed Securities
might impair our liquidity position, requiring us to sell assets with the likely
result of realized losses upon sale. "Unrealized Net Gains on Available for Sale
Securities" was $67.3 million, or 0.61% of the amortized cost of our
Mortgage-Backed Securities at June 30, 2002. "Unrealized Net Gains on Available
for Sale Securities" was $38.2 million or 0.51% of the amortized cost of our
Mortgage-Backed Securities at December 31, 2001.
The table below shows our equity capital base as reported and on a
historical amortized cost basis at June 30, 2002, March 31, 2002, December 31,
2001, September 30, 2001, June 30, 2001 and March 31, 2001. Issuances of common
stock, the level of GAAP earnings as compared to dividends declared, and other
factors influence our historical cost equity capital base. The GAAP reported
equity capital base is influenced by these factors plus changes in the
"Unrealized Net Losses on Assets Available for Sale" account.
Stockholders' Equity
Net Unrealized GAAP Historical GAAP
Historical Gains (Losses)on Reported Amortized Cost Reported
Amortized Cost Assets Available Equity Base Equity Per Equity (Book
Equity Base for Sale (Book Value Share Value) Per Share
-----------------------------------------------------------------------------------
(dollars in thousands, except per-share data)
At June 30, 2002 $982,348 $67,283 $1,049,631 $11.84 $12.65
At March 31, 2002 $978,186 $30,502 $1,008,688 $11.80 $12.17
- -------------------------------------------------------------------------------------------------------------
At December 31, 2001 $629,188 $38,169 $667,357 $10.52 $11.15
At September 30, 2001 $625,368 $56,677 $682,045 $10.47 $11.41
At June 30, 2001 $445,091 $4,860 $449,951 $9.96 $10.07
At March 31, 2001 $248,732 $3,151 $251,883 $9.67 $9.80
Leverage
Our debt-to-GAAP reported equity ratio at June 30, 2002 and June 30, 2001
was 8.8:1 and 10:1, respectively. We generally expect to maintain a ratio of
debt-to-equity of between 8:1 and 12:1, although the ratio may vary from this
range from time to time based upon various factors, including our management's
opinion of the level of risk of our assets and liabilities, our liquidity
position, our level of unused borrowing capacity and over-collateralization
levels required by lenders when we pledge assets to secure borrowings.
Our target debt-to-GAAP reported equity ratio is determined under our
capital investment policy. Should our actual debt-to-equity ratio increase above
the target level due to asset acquisition or market value fluctuations in
assets, we will cease to acquire new assets. Our management will, at that time,
present a plan to our Board of Directors to bring us back to our target
debt-to-equity ratio; in many circumstances, this would be accomplished in time
by the monthly reduction of the balance of our Mortgage-Backed Securities
through principal repayments.
Asset/Liability Management and Effect of Changes in Interest Rates
We continually review our asset/liability management strategy with respect
to interest rate risk, mortgage prepayment risk, credit risk and the related
issues of capital adequacy and liquidity. We seek attractive risk-adjusted
stockholder returns while maintaining a strong balance sheet.
21
We seek to manage the extent to which our net income changes as a function
of changes in interest rates by matching adjustable-rate assets with
variable-rate borrowings. In addition, although we have not done so to date, we
may seek to mitigate the potential impact on net income of periodic and lifetime
coupon adjustment restrictions in our portfolio of Mortgage-Backed Securities by
entering into interest rate agreements such as interest rate caps and interest
rate swaps.
Changes in interest rates may also have an effect on the rate of mortgage
principal prepayments and, as a result, prepayments on Mortgage-Backed
Securities. We will seek to mitigate the effect of changes in the mortgage
principal repayment rate by balancing assets we purchase at a premium with
assets we purchase at a discount. To date, the aggregate premium exceeds the
aggregate discount on our Mortgage-Backed Securities. As a result, prepayments,
which result in the expensing of unamortized premium, will reduce our net income
compared to what net income would be absent such prepayments.
Inflation
Virtually all of our assets and liabilities are financial in nature. As a
result, interest rates and other factors drive our performance far more than
does inflation. Changes in interest rates do not necessarily correlate with
inflation rates or changes in inflation rates. Our financial statements are
prepared in accordance with GAAP and our dividends based upon our net income as
calculated for tax purposes; in each case, our activities and balance sheet are
measured with reference to historical cost or fair market value without
considering inflation.
Other Matters
We calculate that our qualified REIT assets, as defined in the Internal
Revenue Code, are 100% and 99.4% of our total assets at June 30, 2002 and 2001,
as compared to the Internal Revenue Code requirement that at least 75% of our
total assets be qualified REIT assets. We also calculate that 100% of our
revenue qualifies for the 75% source of income test, and 100% of our revenue
qualifies for the 95% source of income test, under the REIT rules for the
quarters ended June 30, 2002 and 2001. We also met all REIT requirements
regarding the ownership of our common stock and the distribution of our net
income. Therefore, as of June 30, 2002 and 2001, we believe that we qualified as
a REIT under the Internal Revenue Code.
We at all times intend to conduct our business so as not to become
regulated as an investment company under the Investment Company Act. If we were
to become regulated as an investment company, then our use of leverage would be
substantially reduced. The Investment Company Act exempts entities that are
"primarily engaged in the business of purchasing or otherwise acquiring
mortgages and other liens on and interests in real estate" (qualifying
interests). Under current interpretation of the staff of the SEC, in order to
qualify for this exemption, we must maintain at least 55% of our assets directly
in qualifying interests. In addition, unless certain mortgage securitites
represent all the certificates issued with respect to an underlying pool of
mortgages, the Mortgage-Backed Securities may be treated as securities separate
from the underlying mortgage loans and, thus, may not be considered qualifying
interests for purposes of the 55% requirement. We calculate that as of June 30,
2002 and 2001 we were in compliance with this requirement.
ITEM. 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK
Market risk is the exposure to loss resulting from changes in interest
rates, foreign currency exchange rates, commodity prices and equity prices. The
primary market risk to which we are exposed is interest rate risk, which is
highly sensitive to many factors, including governmental monetary and tax
policies, domestic and international economic and political considerations and
other factors beyond our control. Changes in the general level of interest rates
can affect our net interest income, which is the difference between the interest
income earned on interest-earning assets and the interest expense incurred in
connection with our interest-bearing liabilities, by affecting the spread
between our interest-earning assets and interest-bearing liabilities. Changes in
the level of interest rates also can affect the value of our Mortgage-Backed
Securities and our ability to realize gains from the sale of these assets. We
may utilize a variety of financial instruments, including interest rate swaps,
caps, floors and other interest rate exchange contracts, in order to limit the
effects of interest rates on our operations. If we use these types of
derivatives to hedge the risk of interest-earning assets or interest-bearing
liabilities, we may be subject to certain risks, including the risk that losses
on a hedge position will reduce the funds available for payments to holders of
securities and that the losses may exceed the amount we invested in the
instruments. To date, we have not purchased any hedging instruments.
Our profitability and the value of our portfolio may be adversely affected
during any period as a result of changing interest rates. The following table
quantifies the potential changes in net interest income and portfolio value
should interest rates go up or down 50, 100, and 200 basis points, assuming the
yield curves of the rate shocks will be parallel to each other and the current
yield curve. All changes in income and value are measured as percentage changes
from the projected net interest income and portfolio value at the base interest
rate scenario. The base interest rate scenario assumes interest rates at June
30, 2002 and various estimates regarding prepayment and all activities are made
at each level of rate shock. Actual results could differ significantly from
these estimates.
Projected Percentage Change in Projected Percentage Change in
Change in Interest Rate Net Interest Income Portfolio Value
- ----------------------------------------------------------------------------------------------------------------------
- -200 Basis Points 11% 2%
- -100 Basis Points 3% 1%
- -50 Basis Points 1% 1%
Base Interest Rate
+50 Basis Points (3%) (1%)
+100 Basis Points (8%) (2%)
+200 Basis Points (17%) (6%)
ASSET AND LIABILITY MANAGEMENT
Asset and liability management is concerned with the timing and magnitude
of the repricing of assets and liabilities. We attempt to control risks
associated with interest rate movements. Methods for evaluating interest rate
risk include an analysis of our interest rate sensitivity "gap", which is the
difference between interest-earning assets and interest-bearing liabilities
maturing or repricing within a given time period. A gap is considered positive
when the amount of interest-rate sensitive assets exceeds the amount of
interest-rate sensitive liabilities. A gap is considered negative when the
amount of interest-rate sensitive liabilities exceeds the amount of
interest-rate sensitive assets. During a period of rising interest rates, a
negative gap would tend to adversely affect net interest income, while a
positive gap would tend to result in an increase in net interest income. During
a period of falling interest rates, a negative gap would tend to result in an
increase in net interest income, while a positive gap would tend to affect net
interest income adversely. Because different types of assets and liabilities
with the same or similar maturities may react differently to changes in overall
market rates or conditions, changes in interest rates may affect net interest
income positively or negatively even if an institution were perfectly matched in
each maturity category.
23
The following table sets forth the estimated maturity or repricing of our
interest-earning assets and interest-bearing liabilities at June 30, 2002. The
amounts of assets and liabilities shown within a particular period were
determined in accordance with the contractual terms of the assets and
liabilities, except adjustable-rate loans, and securities are included in the
period in which their interest rates are first scheduled to adjust and not in
the period in which they mature. Mortgage-Backed Securities reflect estimated
prepayments that were estimated based on analyses of broker estimates, the
results of a prepayment model that we utilized and empirical data. Our
management believes that these assumptions approximate actual experience and
considers them reasonable; however, the interest rate sensitivity of our assets
and liabilities in the table could vary substantially if different assumptions
were used or actual experience differs from the historical experience on which
the assumptions are based.
More than 1
Within 3 Year to 3 3 Years and
Months 4-12 Months Years Over Total
---------------- ----------------- ---------------- ---------------- --------------
(dollars in thousands)
Rate Sensitive Assets:
Mortgage-Backed Securities $4,311,010 $868,331 $1,975,776 $3,678,257 $10,833,374
Rate Sensitive Liabilities:
Repurchase Agreements 7,947,411 1,237,473 9,184,883
---------------- ----------------- ---------------- ---------------- --------------
Interest rate sensitivity gap ($3,636,401) $868,331 $738,303 $3,678,257 $1,648,491
================ ================= ================ ================ ==============
Cumulative rate sensitivity gap ($3,636,401) ($2,768,069) ($2,029,766) $1,648,491
================ ================= ================ ================ ==============
Cumulative interest rate
sensitivity gap as a percentage of
total rate-sensitive assets (34%) (26%) (19%) 15%
Our analysis of risks is based on management's experience, estimates, models and
assumptions. These analyses rely on models which utilize estimates of fair value
and interest rate sensitivity. Actual economic conditions or implementation of
investment decisions by our management may produce results that differ
significantly from the estimates and assumptions used in our models and the
projected results shown in the above tables and in this report. These analyses
contain certain forward-looking statements and are subject to the safe harbor
statement set forth under the heading, "Special Note Regarding Forward-Looking
Statements."
24
PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting of stockholders of Annaly Mortgage Management, Inc. was
held on May 17, 2002.
(b) All Class III director nominees were elected.
(c) Certain matters voted upon at the meeting and the votes cast with the
respect to such matters are as follows:
Proposals and Vote Tabulations
Broker Non-
Director Votes Received Votes Withheld Votes
--------------------------------------------------------------------------------------------------------
Michael A.J. Farrell 76,641,386 607,657 0
Jonathan D. Green 76,706,790 542,253 0
John A. Lambiase 76,639,411 609,632 0
The continuing directors of the Company are Kevin P. Brady, Spencer I. Browne,
Wellington J. Denahan, and Donnell A. Segalas.
Management Proposals
Votes Cast
-----------------------------------
Broker
For Against Abstain Non-votes
Approval of the appointment of independent
auditors for 2002 76,775,429 361,922 111,692 0
Approval of charter amendment increasing the
number of authorized shares of
capital stock. 55,946,348 1,017,564 285,131 0
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit Index
Exhibit Number Exhibit Description
3.1 Articles of Amendment of the registrant
(incorporated by reference to Exhibit 3.1 of
the registrant's Registration Statement on
Form S-3 (Registration Statement 333-74618)
filed with the Securities and Exchange
Commission on June 12, 2002).
99.1 Certification of Chief Executive Officer
regarding Periodic
Report containing Financial Statements.
99.2 Certification of Chief Financial Officer
regarding Periodic Report containing
Financial Statements.
(b) Reports
The following current report on Form 8-K was filed by the company
subsequent to the second quarter of 2002:
The Company filed a Form 8-K on August 8, 2002, with respect to the
Company's entering into a sales agency agreement with UBS Warburg LLC.
25
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 thereunto duly authorized.
ANNALY MORTGAGE MANAGEMENT, INC.
Dated: August 13, 2002 By:/s/ Michael A.J. Farrell
-------------------------
Michael A.J. Farrell
Chairman of the Board and Chief Executive Officer
(authorized officer of registrant)
Dated: August 13, 2002 By:/s/ Kathryn F. Fagan
---------------------
Kathryn F. Fagan
Chief Financial Officer and Treasurer
(principal financial and accounting officer)
26
EXHIBIT 99.1
ANNALY MORTGAGE MANAGEMENT, INC.
1211 AVENUE OF THE AMERICAS
SUITE 2902
NEW YORK, NEW YORK 10036
CERTIFICATION OF CHIEF EXECUTIVE
OFFICER REGARDING PERIODIC REPORT CONTAINING
FINANCIAL STATEMENTS
I, Michael A.J. Farrell, the Chairman of the Board of Directors, Chief
Executive Officer, and President of Annaly Mortgage Management, Inc. (the
"Company") in compliance with 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, hereby certify that, the
Company's Quarterly Report on Form 10-Q for the period ended June 30, 2002 (the
"Report") filed with the Securities and Exchange Commission:
o fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
o the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/ Michael A.J. Farrell
Michael A.J. Farrell
Chairman of the Board of Directors, Chief Executive
Officer, and President
August 13, 2002
27
EXHIBIT 99.2
ANNALY MORTGAGE MANAGEMENT, INC.
1211 AVENUE OF THE AMERICAS
SUITE 2902
NEW YORK, NEW YORK 10036
CERTIFICATION OF CHIEF FINANCIAL
OFFICER REGARDING PERIODIC REPORT CONTAINING
FINANCIAL STATEMENTS
I, Kathryn F. Fagan, the Chief Financial Officer and Treasurer of Annaly
Mortgage Management, Inc. (the "Company") in compliance with 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
hereby certify that, the Company's Quarterly Report on Form 10-Q for the period
ended June 30, 2002 (the "Report") filed with the Securities and Exchange
Commission:
o fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
o the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/ Kathryn F. Fagan
Kathryn F. Fagan
Chief Financial Officer and Treasurer
August 13, 2002