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| 8-K - HATTERAS FINANCIAL CORP. 8-K - Hatteras Financial Corp | a6698110.htm |
Exhibit 99.1
Hatteras Financial Corp. Announces First Quarter 2011 Financial Results
WINSTON-SALEM, N.C.--(BUSINESS WIRE)--April 26, 2011--Hatteras Financial Corp. (NYSE: HTS) (“Hatteras” or the “Company”) today announced financial results for the quarter ended March 31, 2011.
First Quarter 2011 Highlights
- Net income of $0.96 per weighted average share
- Net income of $1.00 per weighted average share excluding the impact of the March 18 stock offering, which increased the weighted average shares outstanding
- Declared a $1.00 per share dividend
- Quarter end book value increased 5.1% to $26.11 per share
- Net return on average equity of 15.29%
- Average net interest spread of 2.15%
- Completed two accretive equity offerings raising approximately $794 million
- Annualized rate of scheduled and unscheduled principal repayments of 22.44%
- Annualized total expense ratio of 1.03% of average shareholders’ equity
First Quarter 2011 Results
During the quarter ended March 31, 2011, the Company earned net income of $57.2 million or $0.96 per diluted common share, compared to net income of $45.6 million or $0.99 per diluted common share during the quarter ended December 31, 2010. During the quarter, the Company significantly increased earning assets and book value while investing the proceeds of two equity offerings. These two offerings increased the Company’s equity capital to $1.9 billion at March 31, 2011.
“The first quarter was eventful for Hatteras as the Company significantly grew its equity base,” said Michael R. Hough, the Company’s Chief Executive Officer. “We are pleased to have grown the Company at a time when we can invest capital at favorable margins and improve the long-term return profile of the Company. The benefits from the equity raises include accretion of book value, a stronger liability portfolio, and the addition of attractive and relatively more predictable assets. We have invested the capital as anticipated in short duration mortgage-backed securities, and hedged them defensively, and look forward to enjoying the benefits going forward.”
Net interest income for the quarter ended March 31, 2011 was $61.1 million, compared to $43.2 million for the quarter ended December 31, 2010. The Company’s average earning assets increased to $10.9 billion for the first quarter of 2011 from $8.0 billion in the fourth quarter of 2010, and the net interest margin increased to 2.15% for the first quarter of 2011 from 2.04% in the fourth quarter of 2010. The increase in the net interest margin was driven in large part by the decrease in the Company’s cost of funds. The Company’s average repurchase agreement (repo) rate dropped to 0.30% in the first quarter of 2011, from 0.44% in the fourth quarter of 2010, on all outstanding short-term (less than 30 days) repo positions. Operating expenses were $3.9 million for the first quarter of 2011 versus $3.4 million for the fourth quarter of 2010, but the annualized expense ratio dropped to 1.03% of shareholders’ equity based on average equity for the quarter ended March 31, 2011 versus 1.13% for the prior quarter due to the increase in shareholder’s equity.
The Company’s portfolio, consisting of Fannie Mae and Freddie Mac guaranteed mortgage securities (agency securities), increased to $13.0 billion at March 31, 2011, compared to $9.6 billion at the end of the previous quarter. The portfolio’s weighted average coupon was 3.69% for the first quarter of 2011, compared to 3.94% for the fourth quarter of 2010, primarily reflecting lower reinvestment rates on new security purchases. The annualized yield on average assets declined to 3.20% for the first quarter of 2011, compared to 3.39% for the fourth quarter of 2010, primarily as a result of recent bond purchases. The annualized cost of funds on average liabilities (including hedges) was 1.05% in the first quarter of 2011, compared to 1.35% in the fourth quarter of 2010. This decrease was partly due to lower repurchase agreement rates, but also due to the addition of new swaps at lower rates and the expiration of higher swaps and other fixed rate borrowings that were replaced at lower cost.
Dividend
The Company declared dividends of $1.00 per share of common stock with respect to the quarter ended March 31, 2011, which equaled the $1.00 per share dividend for the quarter ended December 31, 2010. Using the closing share price of $28.12 on March 31, 2011, the first quarter dividend equates to an annualized dividend yield of 14.2%.
Common Stock Offerings
On January 10, 2011, the Company completed a secondary public offering of 11,500,000 shares of common stock, including 1,500,000 shares pursuant to the underwriters’ overallotment option, at a price to the public of $28.75 per share, for net proceeds of $325.7 million after the payments of underwriting discounts and expenses,. On March 23, 2011, the Company completed a secondary public offering of 16,675,000 shares of its common stock, including 2,175,000 shares pursuant to the underwriters’ overallotment option, at a price to the public of $28.50 per share, for net proceeds of approximately $468.8 million after the payment of underwriting discounts and expenses. Both of these offerings were completed at a premium to both book value and paid-in-capital per share. The Company estimates that paid-in-capital per share increased $2.05, or 9.1%, as a result of these offerings.
Portfolio
The Company’s portfolio of agency securities totaled $13.0 billion at March 31, 2011 and consisted of 5.6% adjustable-rate mortgages (“ARMs”) with 18 or fewer months to reset, 10.7% ARMs with 19 to 36 months to reset, 56.5% ARMs with 37 to 60 months to reset, 25.8% ARMs with 61 to 84 months to reset, and 1.4% ARMs with 85 to 120 months to reset. Of the Company’s total portfolio, 71.6% are supported by Fannie Mae and 28.4% are supported by Freddie Mac. At March 31, 2011, the weighted-average term to the next interest rate reset date was approximately 55 months, not adjusting for repayments.
During the first quarter of 2011, the expense of amortizing the premium on the Company’s securities was $12.9 million, compared to $11.6 million during the fourth quarter of 2010. Despite the significantly larger portfolio, the increase in amortization expense was muted, as prepayment rates fell meaningfully due to slower refinancing activity. 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 first quarter of 2011 was 22.4%, compared to 31.3% during the fourth quarter of 2010.
Portfolio Financing and Leverage
At March 31, 2011, the Company financed its portfolio with approximately $11.5 billion of borrowings under repurchase agreements bearing fixed interest rates until maturity. The Company’s repo debt-to-shareholders’ equity ratio at March 31, 2011, was 6.1 to 1. 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 March 31, 2011, the Company had entered into interest rate swaps with a notional amount of $6.5 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 1.94%.
Book Value
The Company’s book value (shareholders’ equity) per share on March 31, 2011 was $26.11, up $1.27, or 5.11%, from the per share book value of $24.84 on December 31, 2010. The increase in book value during the quarter represents changes in mortgage-backed securities (“MBS”) and swap values, and accretion from the Company’s capital raises. On a per share basis, the book value at March 31, 2011 consisted of $24.67 of common equity, ($0.06) of retained earnings, $1.67 of unrealized gains on agency securities, and ($.17) of unrealized losses on interest rate swaps.
Conference Call
The Company will host a conference call at 10:00 a.m. EDT on Wednesday April 27, 2011, to discuss financial results for the first quarter ended March 31, 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, April 27, 2011 at approximately 12:00 noon ET through Thursday, May 5, 2011 at 9:00 a.m. ET. Dial (877) 344-7529 and enter the conference ID number 450451. 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 book value, 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 –
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Table 1 |
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| Hatteras Financial Corp. | ||||||||
| Balance Sheets | ||||||||
| (In thousands, except per share amounts) | (Unaudited) | (Audited) | ||||||
| March 31, 2011 | December 31, 2010 | |||||||
| Assets | ||||||||
| Mortgage-backed securities, at fair value | ||||||||
| (including pledged assets of $12,026,328 and $9,089,295 at March 31, 2011 | $ | 12,970,214 | $ | 9,587,216 | ||||
|
and December 31, 2010, respectively) |
||||||||
| Cash and cash equivalents | 268,881 | 112,626 | ||||||
| Restricted cash | 91,902 | 75,422 | ||||||
| Unsettled purchased mortgage-backed securities, at fair value | 279,416 | 49,710 | ||||||
| Accrued interest receivable | 49,095 | 37,973 | ||||||
| Principal payments receivable | 51,872 | 84,151 | ||||||
| Debt security, held to maturity, at cost | 15,000 | 15,000 | ||||||
| Interest rate hedge asset | 42,569 | 23,944 | ||||||
| Other assets | 21,197 | 20,937 | ||||||
| Total assets | $ | 13,790,146 |
$ |
10,006,979 |
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| Liabilities and shareholders’ equity | ||||||||
| Repurchase agreements | $ | 11,495,749 | $ | 8,681,060 | ||||
| Payable for unsettled securities | 280,733 | 49,774 | ||||||
| Accrued interest payable | 2,256 | 3,177 | ||||||
| Interest rate hedge liability | 54,753 | 71,681 | ||||||
| Dividend payable | 58,072 | 46,116 | ||||||
| Accounts payable and other liabilities | 4,043 | 9,687 | ||||||
| Total liabilities | 11,895,606 | 8,861,495 | ||||||
| Shareholders’ equity: | ||||||||
| Preferred stock, $.001 par value, 10,000 shares authorized, none | ||||||||
| outstanding at March 31, 2011 and December 31, 2010 | – | – | ||||||
|
Common stock, $.001 par value, 100,000 shares authorized, |
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| 72,571,570 and 46,115,990 shares issued and outstanding at | ||||||||
| March 31, 2011 and December 31, 2010, respectively | 72 | 46 | ||||||
| Additional paid-in capital | 1,789,924 | 1,043,027 | ||||||
| Retained earnings (accumulated deficit) | (4,329 | ) | (3,480 | ) | ||||
| Accumulated other comprehensive income | 108,873 | 105,891 | ||||||
| Total shareholders’ equity | 1,894,540 | 1,145,484 | ||||||
| Total liabilities and shareholders’ equity | $ | 13,790,146 | $ | 10,006,979 | ||||
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Table 2 |
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| Hatteras Financial Corp. | ||||
| Statements of Income | ||||
| (Unaudited) | (Unaudited) | |||
| (In thousands, except per share amounts) | Three months | Three months | ||
| Ended | Ended | |||
| March 31, 2011 | March 31, 2010 | |||
| Interest income: | ||||
| Interest income on mortgage-backed securities | $ | 86,935 | $ | 68,941 |
| Interest income on short-term cash investments | 340 | 277 | ||
| Interest income | 87,275 | 69,218 | ||
| Interest expense | 26,194 | 23,440 | ||
| Net interest income | 61,081 | 45,778 | ||
| Other income: | ||||
| Gain on sale of mortgage-backed securities | – | 1,044 | ||
| Operating expenses: | ||||
| Management fee | 3,092 | 2,183 | ||
| Share based compensation | 207 | 342 | ||
| General and administrative | 559 | 563 | ||
| Total operating expenses | 3,858 | 3,088 | ||
| Net income | $ | 57,223 | $ | 43,734 |
| Earnings per share - common stock, basic | $ | 0.96 | $ | 1.21 |
| Earnings per share - common stock, diluted | $ | 0.96 | $ | 1.21 |
| Dividends declared per share | $ | 1.00 | $ | 1.20 |
| Weighted average shares outstanding | 59,442,488 | 36,241,823 | ||
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Table 3 |
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Key Statistics (Amounts are unaudited and subject to change) |
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| (in thousands, except per share amounts) | |||||||||||||||||||
| Three months ended (unaudited) | |||||||||||||||||||
| March 31, 2011 | December 31, 2010 | September 30, 2010 | June 30, 2010 | March 31, 2010 | |||||||||||||||
| Statement of Income Data | |||||||||||||||||||
| Interest income | $ | 87,275 | $ | 67,952 | $ | 64,024 | $ | 63,739 | $ | 69,218 | |||||||||
| Interest Expense | (26,194 | ) | (24,740 | ) | (24,066 | ) | (23,677 | ) | (23,440 | ) | |||||||||
|
Net Interest Income |
61,081 | 43,212 | 39,958 | 40,062 | 45,778 | ||||||||||||||
| Gain on sale of mortgage-backed securities | – | 5,783 | 6,723 | – | 1,044 | ||||||||||||||
| Operating Expenses | (3,858 | ) | (3,356 | ) | (3,449 | ) | (3,250 | ) | (3,088 | ) | |||||||||
| Net Income | $ | 57,223 | $ | 45,639 | $ | 43,232 | $ | 36,812 | $ | 43,734 | |||||||||
| Earnings per share - common stock, basic | $ | 0.96 | $ | 0.99 | $ | 1.12 | $ | 1.01 | $ | 1.21 | |||||||||
| Earnings per share - common stock, diluted | $ | 0.96 | $ | 0.99 | $ | 1.11 | $ | 1.01 | $ | 1.21 | |||||||||
| Weighted average shares outstanding | 59,442 | 46,100 | 38,765 | 36,609 | 36,242 | ||||||||||||||
| Distributions per common share | $ | 1.00 | $ | 1.00 | $ | 1.10 | $ | 1.10 | $ | 1.20 | |||||||||
| Key Portfolio Statistics | |||||||||||||||||||
| Average MBS | $ | 10,883,248 | $ | 7,990,536 | $ | 6,881,681 | $ | 6,591,086 | $ | 6,733,004 | |||||||||
| Average Repurchase Agreements | $ | 9,983,197 | $ | 7,326,776 | $ | 6,302,601 | $ | 6,092,328 | $ | 6,222,923 | |||||||||
| Average Equity | $ | 1,497,223 | $ | 1,188,389 | $ | 1,001,956 | $ | 942,018 | $ | 941,919 | |||||||||
| Average Portfolio Yield | 3.20 | % | 3.39 | % | 3.70 | % | 3.85 | % | 4.10 | % | |||||||||
| Average Cost of Funds | 1.05 | % | 1.35 | % | 1.53 | % | 1.55 | % | 1.51 | % | |||||||||
| Interest Rate Spread | 2.15 | % | 2.04 | % | 2.17 | % | 2.30 | % | 2.59 | % | |||||||||
| Return on Average Equity | 15.29 | % | 15.39 | % | 17.26 | % | 15.63 | % | 18.57 | % | |||||||||
| Average Annual Portfolio Repayment Rate | 22.44 | % | 31.26 | % | 33.91 | % | 45.08 | % | 36.04 | % | |||||||||
| Debt to Equity (at period end) | 6.1:1 | 7.6:1 | 5.6:1 | 6.2:1 | 6.6:1 | ||||||||||||||
| Debt to Additional Paid in Capital (at period end) | 6.4:1 | 8.3:1 | 6.4:1 | 7.4:1 | 7.9:1 | ||||||||||||||
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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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Table 4 |
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Mortgage-backed Securities Portfolio as of March 31, 2011 (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 | $ | 9,196,388 | $ | (35,248 | ) | $ | 129,444 | $ | 9,290,584 | 71.6 | % | |||||
| Freddie Mac Certificates | 3,648,928 | (21,847 | ) | 52,549 | 3,679,630 | 28.4 | % | |||||||||
| Total MBS | $ | 12,845,316 | $ | (57,095 | ) | $ | 181,993 | $ | 12,970,214 | |||||||
| (dollars in thousands) | % of | Current | Weighted Avg. | Weighted Avg. | ||||||||||
| Months to Reset | Portfolio | Face value | Coupon | Market Price | Market Value | |||||||||
| 0-18 | 5.6 | % | $ | 699,988 | 3.98 | % | $ | 105.22 | $ | 736,522 | ||||
| 19-36 | 10.7 | % | 1,302,340 | 5.05 | % | $ | 106.09 | 1,381,680 | ||||||
| 37-60 | 56.5 | % | 7,095,476 | 3.53 | % | $ | 103.23 | 7,325,011 | ||||||
| 61-84 | 25.8 | % | 3,292,465 | 3.41 | % | $ | 101.79 | 3,351,355 | ||||||
| 85-120 | 1.4 | % | 171,780 | 3.92 | % | $ | 102.25 | 175,646 | ||||||
| Total MBS | 100.0 | % | $ | 12,562,049 | 3.69 | % | $ | 103.25 | $ | 12,970,214 | ||||
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Table 5 |
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Repo Borrowings March 31, 2011 (Amounts are unaudited and subject to change) |
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| Weighted Average | ||||||
| Balance | Contractual Rate | |||||
| Within 30 days | $ | 11,395,749 | 0.28 | % | ||
| 30 days to 3 months | - | - | ||||
| 3 months to 36 months | 100,000 | 2.96 | % | |||
| $ | 11,495,749 | 0.30 | % | |||
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Table 6 |
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Hatteras Swap Portfolio as of March 31, 2011 (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 | $ | 600,000 | 4 | 3.39 | % | |||
| Over 12 months to 24 months | 600,000 | 20 | 1.86 | % | ||||
| Over 24 months to 36 months | 1,000,000 | 31 | 1.80 | % | ||||
| Over 36 months to 48 months | 2,700,000 | 43 | 1.85 | % | ||||
| Over 48 months to 60 months | 1,600,000 | 51 | 1.66 | % | ||||
| Total | $ | 6,500,000 | 38 | 1.94 | % | |||
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