Hatteras Financial Corp. (NYSE: HTS) (“Hatteras” or the
“Company”) today announced financial results for the quarter ended
December 31, 2011.
Fourth Quarter 2011 Highlights
- Net income of $0.92 per weighted
average share
- Declared a $0.90 per share common
dividend
- Book value increased 2.89% to $27.08
per share
- Net return on average equity of
13.8%
- Average net interest spread of
1.56%
- Annualized total expense ratio of 0.93%
of average shareholders’ equity
Full Year 2011 Highlights
- Net income of $3.97 per weighted
average share
- Declared $3.90 per share common
dividends
- Book value increased 9%, or $2.24 per
share
- Net return on average equity of
15.0%
- Average net interest spread of
1.78%
Fourth Quarter 2011 Results
During the quarter ended December 31, 2011, the Company earned
net income of $70.6 million, or $0.92 per diluted common share,
compared to net income of $79.0 million, or $1.04 per diluted
common share during the quarter ended September 30, 2011. Net
interest income for the quarter ended December 31, 2011 was $72.5
million, compared to $70.2 million for the quarter ended September
30, 2011. The Company’s net interest margin decreased to 1.56% for
the fourth quarter of 2011 from 1.64% in the third quarter of 2011
due to a portfolio yield drop that was not offset by a
corresponding decrease in the Company’s cost of funds. The
Company’s cost funds (including hedges) decreased 0.04% to 1.04%
for the quarter ended December 31, 2011. The Company’s average
repurchase agreement (repo) rate increased to 0.37% in the fourth
quarter of 2011, from 0.29% in the third quarter of 2011, on all
outstanding short-term (less than 30 days) repo positions. The
Company realized gain on sale of mortgage-backed securities (MBS)
of $2.8 million during the quarter compared to $13.3 million for
the previous quarter. Operating expenses were $4.7 million for the
fourth quarter of 2011 versus $4.6 million for the third quarter of
2011, and the annualized expense ratio was 0.93% of shareholders’
equity based on average equity for the quarter ended December 31,
2011 as compared to 0.90% for the prior quarter.
“We achieved strong returns for our investors in 2011 despite
volatile market conditions that impacted the interest rate and
mortgage markets,” said Michael R. Hough the Company’s Chief
Executive Officer. “Our take away from last year is that investing
with caution and thoughtfulness does not preclude strong
performance and good returns from our strategy. We stuck to our
focused approach and reduced risk in our portfolio, maintaining the
appropriate balance of assets and liabilities that is imperative at
this point of the economic cycle. We were pleased to have been able
to distribute a risk-adjusted dividend return that belied the
volatility and to have put the company in position to be excited
about the future.”
Mr. Hough added “Interest rates are now at historic lows and we
will need to remain diligent and proactive in the balancing of
interest rate spread and portfolio duration. We believe the
short-duration balance sheet we have built over the past four years
properly reflects where we should be positioned today in light of
domestic and global economic uncertainty.”
Dividend
The Company declared a dividend of $0.90 per share of common
stock with respect to the quarter ended December 31, 2011, which
was a decrease from the $1.00 per share dividend for the quarter
ended September 30, 2011. Based on the closing share price of
$26.37 on December 31, 2011, the fourth quarter dividend equates to
an annualized yield of 13.7%.
Portfolio
The Company’s portfolio, consisting of Fannie Mae and Freddie
Mac guaranteed mortgage securities (agency securities), increased
to $17.7 billion at December 31, 2011, compared to $17.6 billion at
the end of the previous quarter. The portfolio’s weighted average
coupon was 3.46% for the fourth quarter of 2011, compared to 3.54%
for the third quarter of 2011. The annualized yield on average
assets declined to 2.60% for the fourth quarter of 2011, compared
to 2.72% for the third quarter of 2011.
At December 31, 2011, the Company’s portfolio of agency
securities consisted of 94.4% of adjustable-rate MBS and 5.6% of
15-year fixed-rate MBS. At December 31, 2011, the Company owned
$16.8 billion of adjustable-rate MBS with a weighted average coupon
of 3.49% and a weighted average cost basis of $102.42, and $0.9
billion of 15-year fixed-rate securities with a weighted average
coupon of 3.05% and a weighted average cost basis of $103.34. The
Company’s adjustable rate MBS portfolio at December 31, 2011 is
summarized below.
Weighted Avg.
(dollars in thousands) Current Weighted
Avg. Amortized Weighted Avg. Months to Reset Face value Coupon
Purchase Price Amortized Cost Market Price Market Value 0-18 $
1,355,919 4.75 % $ 101.30 $ 1,373,606 $ 106.43 $ 1,443,136 19-36
956,912 3.95 % $ 102.02 976,239 $ 105.57 $ 1,010,209 37-60
7,749,135 3.33 % $ 102.44 7,938,089 $ 104.64 $ 8,108,775 61-84
5,775,967 3.32 % $ 102.69 5,931,052 $ 104.51 $ 6,036,655 85-120
147,644 3.96 % $ 103.53 152,850 $ 105.09 $ 155,160
Total MBS $ 15,985,576 3.49 % $ 102.42 $ 16,371,836 $ 104.81 $
16,753,934
During the fourth quarter of 2011, the expense of amortizing the
premium on the Company’s securities was $32.6 million, compared to
$30.1 million during the third quarter of 2011. The
weighted-average principal repayment rate (scheduled and
unscheduled principal payments as a percentage of the
weighted-average portfolio, on an annualized basis) during the
fourth quarter of 2011 was 27.4%, compared to 28.6% during the
third quarter of 2011. The Company’s weighted-average one-month
constant prepayment rate (CPR) for the quarter ended December 31,
2011 was 20.8, as compared to 21.7 for the quarter ended September
30, 2011. CPR measures unscheduled repayment rate as a percentage
of principle on an annualized basis.
Portfolio Financing and Leverage
At December 31, 2011, the Company financed its portfolio with
approximately $16.2 billion of borrowings under repurchase
agreements bearing fixed interest rates until maturity with 23
different counterparties. The Company’s repo debt-to-shareholders’
equity ratio at December 31, 2011, was 7.8 to 1, slightly
decreasing from 7.9 to 1 from September 30, 2011. The Company’s
repurchase agreements had a weighted-average term of approximately
23 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 December 31, 2011, the Company had
in place, with 13 different counterparties, interest rate swaps
with a notional amount of $7.3 billion. The swap agreements, which
are indexed to 30-day LIBOR, have a weighted average remaining term
of 34 months at a weighted average fixed rate of 1.78%.
Book Value
The Company’s book value (shareholders’ equity) per share on
December 31, 2011 was $27.08, up $0.76 or 2.89%, from the per share
book value of $26.32 on September 30, 2011. On a per share basis,
the book value at December 31, 2011 consisted of $24.79 of common
equity, $0.03 of retained earnings, $5.11 of unrealized gains on
agency securities, and ($2.85) of unrealized losses on interest
rate swaps.
Full Year 2011 Results
Although the Company experienced spread compression over the
course of the year as interest rates declined, 2011 still offered a
favorable earning environment. The Company generated net income of
$284.4 million, for the 12 months ended December 31, 2011, which
equaled $3.97 per weighted average share. Return on weighted
average equity for the year was 14.97%. Book value per share
increased $2.24, or 9.0%, from $24.84 on December 31, 2010 to
$27.08 on December 31, 2011.
For the 12 months ended December 31, 2011, the annualized yield
on weighted average assets during the period was 2.84%, and the
annualized cost of funds on the weighted average repurchase balance
was 1.06%. This resulted in a weighted average interest rate spread
of 1.78% for the year.
Conference Call
The Company will host a conference call at 10:00 a.m. EDT on
Wednesday February 15, 2012, to discuss financial results for the
fourth quarter ended December 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, February 15, 2012 at approximately 12:00 noon ET through
Thursday, February 23, 2012 at 9:00 a.m. ET. Dial (877) 344-7529
and enter the conference ID number 10010089. 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, among others, statements
about the Company’s MBS portfolio and repurchase agreements,
interest rates 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.
Hatteras Financial Corp. Balance Sheets
(In thousands, except per share amounts)
December 31,
2011 December 31, 2010 Assets
Mortgage-backed securities, at fair value (including pledged
assets of $17,012,472 and $9,089,295 at December 31, 2011 $
17,741,873 $ 9,587,216 and 2010, respectively) Cash and cash
equivalents 347,045 112,626 Restricted cash 237,014 75,422
Unsettled purchased mortgage-backed
securities, at fair value
49,630 49,710 Accrued interest receivable 63,025 37,973 Principal
payments receivable 105,333 84,151 Debt security, held to maturity,
at cost 15,000 15,000 Interest rate hedge asset - 23,944 Other
assets 27,799 20,937 Total assets $ 18,586,719
$ 10,006,979
Liabilities and shareholders’
equity Repurchase agreements $ 16,162,375 $ 8,681,060 Payable
for unsettled securities 48,999 49,774 Accrued interest payable
4,596 3,177 Interest rate hedge liability 219,167 71,681 Dividend
payable 69,141 46,116 Accounts payable and other liabilities
2,253 9,687 Total liabilities 16,506,531
8,861,495
Shareholders’ equity:
Preferred stock, $.001 par value, 10,000,000 shares authorized,
none outstanding at December 31, 2011 and 2010 – – Common stock,
$.001 par value, 100,000,000 shares authorized, 76,823,220 and
46,115,990 shares issued and outstanding at December 31,
2011 and 2010, respectively 77 46 Additional paid-in capital
1,904,748 1,043,027 Retained earnings (accumulated deficit) 2,041
(3,480 ) Accumulated other comprehensive income 173,322
105,891 Total shareholders’ equity 2,080,188
1,145,484 Total liabilities and shareholders’ equity
$ 18,586,719 $ 10,006,979 Hatteras Financial Corp.
Statements of Income For the years ended December 31, 2011, 2010
and 2009 (In thousands, except per share
amounts) 2011 2010
2009 Interest income: Interest income on mortgage-backed
securities $ 424,713 $ 263,751 $ 282,344 Interest income on
short-term cash investments 1,407 1,265
771 Interest income 426,120 265,016 283,115 Interest
expense 144,662 95,923 96,267
Net interest income 281,458
169,093 186,848 Operating expenses: Management
fee 13,787 9,205 8,677 Share based compensation 1,150 1,432 1,296
General and administrative 2,724 2,507
2,475 Total operating expenses 17,661
13,144 12,448 Other income/(expense): Net gain
on sale of mortgage-backed securities 20,576
13,551 – Other income/(expense) 20,576
13,551 –
Net income $
284,373 $ 169,500 $ 174,400 Earnings
per share - common stock, basic and diluted $ 3.97 $ 4.30
$ 4.82 Weighted average shares outstanding
71,708,058 39,454,362 36,195,840
Key Statistics
(Amounts are unaudited and subject to
change)
(in thousands, except per share
amounts) Three months ended (unaudited)
December 31,
2011 September 30, 2011 June 30,
2011 March 31, 2011 December 31,
2010 Statement of Income Data Interest income $
114,821 $ 110,505 $ 113,519 $ 87,275 $ 67,952 Interest Expense
(42,299 ) (40,259 ) (35,910 )
(26,194 ) (24,740 )
Net Interest
Income 72,522 70,246 77,609 61,081 43,212 Gain on sale
of mortgage-backed securities 2,841 13,330 4,405 – 5,783
Operating Expenses (4,738 ) (4,594 ) (4,471 ) (3,858 )
(3,356 )
Net Income $ 70,625 $ 78,982
$ 77,543 $ 57,223 $ 45,639
Earnings per share - common stock, basic $ 0.92 $
1.04 $ 1.04 $ 0.96 $ 0.99 Earnings per share - common stock,
diluted $ 0.92 $ 1.04 $ 1.04 $ 0.96 $ 0.99 Weighted average
shares outstanding 76,607 75,743 74,807 59,442 46,100
Distributions per common share $ 0.90 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Key Portfolio Statistics Average MBS $ 17,608,752 $
16,192,903 $ 14,956,852 $ 10,883,248 $ 7,990,536 Average Repurchase
Agreements $ 16,280,835 $ 14,884,196 $ 13,540,291 $ 9,983,197 $
7,326,776 Average Equity $ 2,040,843 $ 2,035,296 $ 2,016,013 $
1,497,223 $ 1,188,389 Average Portfolio Yield 2.60 % 2.72 % 3.03 %
3.20 % 3.39 % Average Cost of Funds 1.04 % 1.08 % 1.06 % 1.05 %
1.35 % Interest Rate Spread 1.56 % 1.64 % 1.97 % 2.15 % 2.04 %
Return on Average Equity 13.84 % 15.52 % 15.39 % 15.29 % 15.39 %
Average Annual Portfolio Repayment Rate 27.39 % 28.55 % 18.54 %
22.44 % 31.26 % Debt to Equity (at period end) 7.8:1 7.9:1 7.4:1
6.1:1 7.6:1 Debt to Additional Paid in Capital at period end) 8.5:1
8.4:1 8.0:1 6.4:1 8.3:1
Note: The average data presented above are computed
from the Company’s books and records, using daily weighted
values. All percentages are annualized.
Mortgage-backed Securities Portfolio as
of December 31, 2011
(Amounts are unaudited and subject to
change)
MBS Gross Gross Amortized
Unrealized Unrealized Estimated Cost Loss Gain Fair Value % of
Total Agency MBS Fannie Mae Certificates ARMS $ 11,446,397 $ - $
278,559 $ 11,724,956 66.1 % Fixed Rate 493,648 (132 )
1,076 494,592 2.8 % Total Fannie Mae
11,940,045 (132 ) 279,635 12,219,548
Freddie Mac Certificates ARMS 4,925,438 $ - 103,540 5,028,978 28.3
% Fixed Rate 491,289 (6 ) 2,064 493,347
2.8 % Total Freddie Mae 5,416,727 (6 ) 105,604
5,522,325 Total Agency MBS $
17,356,772 $ (138 ) $ 385,239 $ 17,741,873
Repo Borrowings December 31,
2011
(Amounts are unaudited and subject to
change)
December 31,
2011
Weighted Average Balance Contractual Rate Within 30 days $
16,162,375 0.37 % 30 days to 3 months - - 3 months to 36 months
- - $ 16,162,375 0.37 %
Hatteras Swap Portfolio as of December
31, 2011
(Amounts are unaudited and subject to
change)
Remaining
Weighted Average Notional Term Fixed
Interest Maturity Amount
in Months Rate in Contract
12 months or less $ 400,000 10 1.75 % Over 12 months to 24
months 800,000 18 2.05 % Over 24 months to 36 months 2,400,000 32
1.76 % Over 36 months to 48 months 3,700,000 42 1.73 %
Total
$ 7,300,000 34
1.78
%
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