Hatteras Financial Corp. Announces Second Quarter 2013 Financial Results

Before you go, we thought you'd like these...
Before you go close icon

Hatteras Financial Corp. Announces Second Quarter 2013 Financial Results

WINSTON-SALEM, N.C.--(BUSINESS WIRE)-- Hatteras Financial Corp. (NYSE: HTS) ("Hatteras" or the "Company") today announced financial results for the quarter ended June 30, 2013.

Second Quarter 2013 Highlights

  • GAAP net income of $0.66 per weighted average share
  • Net income of $0.60 per weighted average share excluding Eurodollar gains
  • Declared a $0.70 per share dividend
  • Quarter end book value of $22.18 per share
  • Equity decline of 19.3 % for quarter and year-to-date
  • Maintained earning assets
  • Realized average net interest spread of 0.93%
  • Weighted average constant prepayment rate ("CPR") of 20.8
  • Annualized total expense ratio of 0.92% of average shareholders' equity
  • Return on average common equity of 9.47%
  • Weighted average repurchase agreement rate of 0.38%

Second Quarter 2013 Results

During the quarter ended June 30, 2013, the Company earned net income available to common shareholders of $65.3 million, or $0.66 per diluted common share, compared to net income of $61.8 million, or $0.62 per diluted common share, during the quarter ended March 31, 2013. The Company realized gains of $8.8 million on sales of its agency securities during the quarter. In addition, $5.5 million of net income was attributable to the mark-to-market of the positive move in the hedge related Eurodollar futures contracts during the quarter. Net interest income for the quarter ended June 30, 2013 was $63.4 million, compared to $71.4 million for the quarter ended March 31, 2013 reflecting the decreasing yield on the portfolio. The Company's average earning assets increased to $24.8 billion for the second quarter of 2013 from $24.1 billion in the first quarter of 2013. The Company's net interest margin decreased to 0.93% for the second quarter of 2013 from 1.11% in the first quarter of 2013. The Company's cost of funds (including hedges) was 0.92% compared to 0.95% in the first quarter of 2013. The Company's average repurchase agreement (repo) rate for the second quarter of 2013 was 0.38% compared to 0.41% in the first quarter of 2013. The weighted average interest rate on the Company's interest rate swaps declined from 1.43% in the first quarter of 2013 to 1.41% in the second quarter of 2013. Operating expenses increased slightly to $6.9 million from the prior quarter amount of $6.7 million. Total annualized expenses were 0.92% of average shareholders' equity for the quarter ended June 30, 2013, slightly above the previous quarter at 0.88%, mostly a reflection of the decrease in average equity.

"A market sell-off resulted in U.S. Treasury and agency security interest rates increasing steadily throughout May and June with spreads over the Treasury curve widening to levels higher than we've seen since the Federal Reserve's first quantitative easing program," said Michael R. Hough, the Company's Chief Executive Officer. "Prices on hybrid adjustable-rate mortgage securities (ARMs) moved dramatically during the last two weeks of June and underperformed relative to fixed-rate mortgage securities. This was compounded by the less orderly markets over quarter end."

"While we have always managed to a longer term horizon, periods of short term volatility must be managed independently. Our business model has proven resilient in the past and is designed to provide flexibility to better manage through periods of volatility. The liquidity position we had heading into the sell-off enabled us to be in control and protect the portfolio we have built. While we like how Hatteras is positioned for the now improved investing and prepayment environment, we will closely monitor the markets and adjust our portfolio accordingly."

Dividend

The Company declared a dividend of $0.70 per share of common stock with respect to the quarter ended June 30, 2013 unchanged from the dividend declared for the quarter ended March 31, 2013. Using the closing share price of $24.64 on June 30, 2013, the second quarter dividend equates to an annualized dividend yield of 11.4%.

The Company declared a dividend of $0.4765625 per share of the Company's 7.625% Series A Cumulative Redeemable Preferred Stock with respect to the quarter ended June 30, 2013.

Portfolio

The Company's weighted average earning assets, consisting of residential mortgage securities issued by Fannie Mae and Freddie Mac ("agency securities"), was $24.8 billion for the quarter ended June 30, 2013, compared to $24.1 billion for the previous quarter. The portfolio's weighted average coupon was 2.72% during the second quarter of 2013, compared to 2.86% during the first quarter of 2013, reflecting lower rates on new security purchases and coupon resets. The annualized yield on average assets was 1.85% for the second quarter of 2013, compared to 2.06% for the first quarter of 2013, reflecting a higher premium amortization expense and the lower coupon rate.

At June 30, 2013, the Company's portfolio of agency securities consisted of 89.1% of adjustable-rate agency securities and 10.9% of 15-year fixed-rate agency securities. The Company's adjustable-rate agency securities portfolio at June 30, 2013 is summarized below.

(Dollars in     Weighted Avg.   
thousands)% of ARMCurrentWeighted Avg.AmortizedWeighted Avg.
Months to ResetPortfolioFace valueCouponPurchase PriceAmortized CostMarket PriceMarket Value
0-123.9%$833,4342.93%$101.29$844,196$106.40$886,755
13-246.0%1,276,8233.95%$102.321,306,484$105.891,351,981
25-3612.8%2,751,9903.17%$102.402,817,912$104.392,872,775
37-4810.8%2,359,6052.63%$102.692,423,176$102.992,430,083
49-6013.2%2,880,3063.07%$102.612,955,497$103.522,981,697
61-7221.2%4,651,0722.67%$103.154,797,678$102.344,759,817
73-8428.0%6,251,2512.21%$103.386,462,677$100.616,289,383
85-960.1%13,0753.64%$103.4613,527$103.8213,575
97-1081.7%387,1012.86%$103.44400,408$101.46392,769
109-1202.3% 517,5952.45%$103.45 535,450$99.64 515,741
Total ARMS100.0%$21,922,2522.73%$102.90$22,557,005$102.61$22,494,576
 

The Company's fixed-rate agency securities portfolio at June 30, 2013 is summarized below.

        
Weighted Avg.
(Dollars inCurrentWeighted Avg.AmortizedWeighted Avg.
thousands)Face valueCouponPurchase PriceAmortized CostMarket PriceMarket Value
Total Fixed Rate$2,740,2332.51%$103.70$2,841,716$100.77$2,761,467

Portfolio repayments remained elevated during the second quarter of 2013, and the expense of amortizing the premium on the Company's securities was $48.8 million, compared to $43.2 million during the first quarter of 2013. The weighted average principal repayment rate (scheduled and unscheduled principal payments as a percentage of the weighted-average portfolio, on an annual basis) during the second quarter of 2013 was 28.1%, compared to 26.0% during the first quarter of 2013. The Company's weighted average one-month CPR for the quarter ended June 30, 2013 was 20.8, as compared to 19.0 for the quarter ended March 31, 2013. CPR measures the unscheduled repayment rate as a percentage of principal on an annualized basis.

Portfolio Financing and Leverage

At June 30, 2013, the Company financed its portfolio with approximately $23.1 billion of borrowings under repurchase agreements bearing fixed interest rates until maturity. The Company's repurchase debt-to-shareholders' equity ratio at June 30, 2013 was 9.3 to 1 compared to 7.4 to 1 for the prior quarter. The increase was primarily due to the decrease in average equity. At June 30, 2013, the Company's repurchase agreements had a weighted average remaining term of approximately 24 days.

The Company uses interest rate swap agreements and Eurodollar futures contracts to synthetically extend the fixed interest period of these liabilities and hedge against the interest rate risk associated with financing the Company's portfolio. As of June 30, 2013, the Company had entered into interest rate swaps with a notional amount of $11.1 billion. The swap agreements, which are indexed to 30-day LIBOR, have an average remaining term of 28 months at an average fixed rate of 1.41%. Of this total, $9.3 billion were in effect as of June 30, 2013 with the remaining $1.8 billion becoming effective over the next 13 months. The Company's Eurodollar futures contracts, which it does not designate as hedges, represent interest rate swaps in the notional equivalent amount of $800 million with a weighted average interest rate of 1.35% and a term of 56 months.

Book Value

The Company's book value (shareholders' equity less preferred stock liquidation preference) per common share on June 30, 2013 was $22.18 compared to $28.18 on March 31, 2013, a decrease of $6.00. The Company's agency securities declined in price without a similar rate of increase in the value of its interest rate hedges. On a per share basis, book value at June 30, 2013 consisted of $25.16 of common equity, $0.26 of retained earnings, ($1.47) of unrealized loss on agency securities, ($0.44) unrealized loss on forward purchases, and ($1.33) of unrealized losses on interest rate swaps.

Conference Call

The Company will host a conference call at 10:00 a.m. EDT on Wednesday July 24, 2013, to discuss financial results for the second quarter ended June 30, 2013. To participate in the event by telephone, please dial (888) 317-6016 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) 317-6016. Canada callers should dial (855) 669-9657. A digital replay of the call will be available on Wednesday, July 24, 2013 at approximately 12:00 noon ET through Thursday, August 1, 2013 at 9:00 a.m. ET. Dial (877) 344-7529 and enter the conference ID number 10031969. 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.

Supplemental Information

The Company has provided a supplemental unaudited information package to provide additional disclosure and financial information for the benefit of the Company's shareholders. This can be found under "Presentations" in the Investor Relations section of the Company's website at www.hatfin.com.

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 1000® index.

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 portfolio of agency securities and 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 Annual Report on Form 10-K for the year ended December 31, 2012, as updated by the Company's 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.

Table 1

Hatteras Financial Corp.
Consolidated Balance Sheets
 
(Dollars in thousands, except share amounts)   (Unaudited)  
June 30,2013December 31, 2012
Assets
 
Mortgage-backed securities, at fair value
(including pledged assets of $24,163,526 and $22,591,973 at June 30, 2013$25,256,043$23,919,251
and December 31, 2012, respectively)
Cash and cash equivalents88,987168,424
Restricted cash149,210281,021
Unsettled purchased mortgage-backed securities, at fair value133,597138,338
Receivable for securities sold7,2511,587,535
Accrued interest receivable73,95777,113
Principal payments receivable199,553190,832
Debt security, held to maturity, at cost15,00015,000
Interest rate hedge asset25,921-
Other assets26,856  26,604
Total assets$25,976,375  $26,404,118
 
Liabilities and shareholders' equity
Repurchase agreements$23,077,252$22,866,429
Payable for unsettled securities136,373137,121
Accrued interest payable4,7737,592
Interest rate hedge liability157,869243,945
Dividend payable73,80973,804
Accounts payable and other liabilities47,210  2,363
Total liabilities$23,497,286  $23,331,254
 
Shareholders' equity:
7.625% Series A Cumulative Redeemable Preferred stock, $.001 par value, 25,000,000
shares authorized, 11,500,000 shares issued and outstanding at June 30, 2013
and December 31, 2012, respectively ($287,500 aggregate liquidation preference)278,252278,252
Common stock, $.001 par value, 200,000,000 shares authorized,
98,830,054 and 98,822,654 shares issued and outstanding at
June 30, 2013 and December 31, 2012, respectively9999
Additional paid-in capital2,495,5592,494,303
Retained earnings (accumulated deficit)26,01237,356
Accumulated other comprehensive income(320,833)  262,854
Total shareholders' equity2,479,089  3,072,864
Total liabilities and shareholders' equity$25,976,375  $26,404,118

Table 2

Hatteras Financial Corp.
Consolidated Statements of Income
(Unaudited)
        
 
(Dollars in thousands, except per share amounts)Three monthsThree monthsSix monthsSix months
EndedEndedEndedEnded
June 30, 2013  June 30, 2012  June 30, 2013  June 30, 2012
 
Interest income:
Interest income on mortgage-backed securities$115,115$128,720$239,356$241,480
Interest income on short-term cash investments 359   441   801   773
Total interest income115,474129,161240,157242,253
 
Interest expense 52,079   46,169   105,356   87,278
 
Net interest income 63,395   82,992   134,801   154,975
 
Operating expenses:
Management fee4,7144,3129,4348,154
Share based compensation6274251,256854
General and administrative 1,602   1,316   2,971   2,229
Total operating expenses 6,943   6,053   13,661   11,237
 
Other income:
Net gain on sale of mortgage-backed securities8,80212,20511,30214,710
Net gain on futures contracts 5,485    Read Full Story

Want more news like this?

Sign up for Finance Report by AOL and get everything from business news to personal finance tips delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.

From Our Partners

Man Suspects His Wife Is Cheating On Him - Then His Daughter Reveals What's Really Going Man Suspects His Wife Is Cheating On Him - Then His Daughter Reveals What's Really Going
Don't Get Too Close To a Newborn Giraffe Unless You Want to Get Kicked in the Nuts Don't Get Too Close To a Newborn Giraffe Unless You Want to Get Kicked in the Nuts
Rescuer Sees Bumps All Over This Dog's Skin - Then X-Rays Reveal The Tragic Story Rescuer Sees Bumps All Over This Dog's Skin - Then X-Rays Reveal The Tragic Story
More to Explore
Sat, Apr 29
Set Your Location
City, State, or Zip