WINSTON-SALEM, N.C.--(BUSINESS WIRE)--Hatteras Financial Corp. (NYSE: HTS) (“Hatteras” or the “Company”) today announced financial results for the quarter ended September 30, 2014.
Third Quarter 2014 Highlights
- Comprehensive income of $0.61 per weighted-average common share
- Core earnings of $0.51 per weighted-average common share
- Dividend of $0.50 per common share
- Quarter end book value of $22.30 per common share
- GAAP leverage of 6.1 to 1 at period end
- Effective leverage of 7.6 to 1 at period end
- Weighted-average effective leverage of 7.4 to 1
- Weighted-average constant prepayment rate (“CPR”) of 19 for the quarter
Third Quarter 2014 Results
For the quarter ended September 30, 2014, the Company had comprehensive income available to common shareholders of $59.0 million, or $0.61 per weighted-average common share, as compared to $87.7 million, or $0.91 per weighted-average common share, for the quarter ended June 30, 2014. The decrease in comprehensive income available to common shareholders was largely due to unrealized losses on the Company’s mortgage-backed securities (“MBS”) as interest rates rose slightly during the quarter. For the quarter ended September 30, 2014, the Company had core earnings of $0.51 per weighted-average common share compared to $0.63 per weighted-average common share during the quarter ended June 30, 2014. The decline was driven primarily by lower average earning assets and a lower yield on our earning assets. The yield on our MBS dropped as a result of increased prepayment rates, along with a small decline in the yield of the Company’s TBA dollar rolls. “Core earnings” represents a non-GAAP measure and is calculated as net interest margin, as adjusted for certain derivative impacts, and after deducting operating expenses and dividends on preferred stock. Management believes core earnings is additional useful information regarding the Company’s performance and an enhancement to our reporting. Management uses core earnings as a measure of the earnings power of the portfolio and uses it as an additional gauge for determining appropriate distributable income, among other things.
“Our third quarter results again illustrate the stable risk positioning and earnings potential of our portfolio,” said Michael Hough, the Company’s Chief Executive Officer. “Our hedges did their job as book value remained in a tight range throughout the quarter allowing us to generate spread income with stable equity. We used slightly lower leverage for most of the quarter but took advantage of better value late in the quarter. We continue to be committed to a tight asset/liability management plan because despite some headwinds, the economy is long into a recovery and higher short term rates are expected at some point. As a result, we think less interest rate risk is more appropriate.”
“Over the past year there has been much speculation on the impact of the Federal Reserve’s withdrawal from the mortgage securities market. The mortgage market is such that we expect very little to change absent a dramatic shift in Fed policy. Recently the financial markets have been volatile with interest rates back to the low levels of last year. While we do expect a marginal uptick in refinancings as long as mortgage rates remain low, we don’t envision a significant change to the earnings profile of our portfolio in the foreseeable future.”
Net interest margin for the quarter ended September 30, 2014 was $49.3 million, compared to $54.7 million for the quarter ended June 30, 2014. The Company’s net interest spread was slightly lower at 1.10% for the third quarter of 2014 compared to 1.18% for the second quarter of 2014. The decrease in net interest spread was a result of the yield on the Company’s MBS declining to 1.96% in the third quarter compared to 2.10% in the second quarter as a rise in prepayments resulted in an increase in amortization expense.
The Company’s cost of funds decreased from 0.92% to 0.86% for the quarter ended September 30, 2014 compared to the previous quarter. The Company’s average short-term financing rate increased to 0.33% in the third quarter of 2014 from 0.32% in the second quarter of 2014. The Company’s effective cost of funds, which includes certain interest rate swap adjustments, was 1.12% for the third quarter as compared to 1.09% for the second quarter. Operating expenses were relatively flat at $7.1 million in the third quarter as compared to $7.3 million in the second quarter. The total annualized expense ratio was 1.16% of average shareholders’ equity for the quarter ended September 30, 2014 as compared to 1.20% for the quarter ended June 30, 2014.
Dividend
The Company declared a dividend of $0.50 per common share with respect to the quarter ended September 30, 2014, consistent with the quarter ended June 30, 2014. Based on the closing share price of $17.96 on September 30, 2014, the third quarter dividend equates to an annualized yield of 11.1%.
Portfolio
The Company’s weighted average earning assets, consisting of residential mortgage assets, primarily MBS issued by Fannie Mae and Freddie Mac, were $19.7 billion for the quarter ended September 30, 2014 compared to $20.4 billion for the quarter ended June 30, 2014. The fair value of the Company’s earning assets as of September 30, 2014 and June 30, 2014 is summarized below.
| (Dollars in thousands) | September 30, 2014 | June 30, 2014 | |||||||||||||||||||||
|
% of |
Market
Value |
Wtd. Avg. |
% of |
Market
Value |
Wtd. Avg. |
||||||||||||||||||
| ARM securities | 78.4 | % | $ | 16,151,701 | 2.77 | % | 82.6 | % | $ | 16,191,002 | 2.79 | % | |||||||||||
| 15-year fixed securities | 3.6 | % | 738,723 | 3.50 | % | 2.3 | % | 460,218 | 3.50 | % | |||||||||||||
| 15-year dollar roll TBA securities | 18.0 | % | 3,703,228 | 3.00 | % | 15.1 | % | 2,962,617 | 3.04 | % | |||||||||||||
| 100.0 | % | $ | 20,593,652 | 2.84 | % | 100.0 | % | $ | 19,613,837 | 2.84 | % | ||||||||||||
The annualized yield on the Company’s average ARMs and 15-year fixed securities was 1.96% for the third quarter of 2014, compared to 2.10% for the second quarter. The decrease in yield was primarily due to the increase in premium amortization as the Company’s principal repayments increased.
During the third quarter of 2014, the expense of amortizing the premium on the Company’s securities was $29.4 million, compared to $24.9 million during the second quarter. 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 third quarter of 2014 was 25.3%, compared to 20.4% during the second quarter, indicating the extent that mortgage refinancing increased. The Company’s weighted-average one-month CPR for the quarter ended September 30, 2014 was 19.0, as compared to 15.4 for the quarter ended June 30, 2014. CPR measures unscheduled repayment rate as a percentage of principal on an annualized basis.
At September 30, 2014, the Company owned 15-year TBA securities financed in the dollar roll market with a fair value of approximately $3.7 billion, as shown in the table above. The Company accounts for TBA securities as derivative instruments and recognizes dollar roll gains and losses in other income (loss) in the Company's financial statements. As of September 30, 2014, the Company's net TBA securities had a cost basis of approximately $3.7 billion and a net carrying value of ($20.0) million reported in derivative liabilities at fair value on the Company's balance sheet. The Company uses dollar rolls as alternative financing for its 15-year fixed-rate positions.
Portfolio Financing and Leverage
At September 30, 2014, the Company financed its portfolio with approximately $14.9 billion of borrowings under repurchase agreements. The Company’s debt-to-shareholders’ equity ratio at September 30, 2014, was 6.1 to 1 compared to 6.2 to 1 at June 30, 2014. The Company’s effective leverage, which includes the effects of TBA dollar roll financing, was 7.6 to 1 at September 30, 2014 compared with 7.4 to 1 at June 30, 2014. Weighted average effective leverage in the third quarter was 7.4 to 1, down from 7.7 to 1 in the second quarter. At September 30, 2014, the Company’s repurchase agreements had a weighted-average remaining term of approximately 33 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 September 30, 2014, the Company had entered into interest rate swaps and Eurodollar futures contracts with effective notional amounts and rates as shown in the following table.
| (Dollars in thousands) |
Wtd -Avg. |
Wtd-Avg |
Wtd.-Avg. |
Wtd-Avg |
Total |
Wtd. Avg. |
||||||||||||||||||
| Effective Remaining 2014 | $ | 1,874,000 | 0.38 | % | $ | 8,900,000 | 1.29 | % | $ | 10,774,000 | 1.13 | % | ||||||||||||
| Effective 2015 | 8,143,000 | 0.95 | % | 6,408,333 | 1.11 | % | 14,551,333 | 1.02 | % | |||||||||||||||
| Effective 2016 | 7,538,500 | 1.97 | % | 3,500,000 | 0.91 | % | 11,038,500 | 1.64 | % | |||||||||||||||
| Effective 2017 | 6,801,750 | 2.94 | % | 1,125,000 | 0.92 | % | 7,926,750 | 2.66 | % | |||||||||||||||
| Effective 2018 | 4,477,500 | 3.62 | % | 50,000 | 0.95 | % | 4,527,500 | 3.59 | % | |||||||||||||||
| Effective 2019 | 1,496,000 | 3.89 | % | - | - | 1,496,000 | 3.89 | % | ||||||||||||||||
| Effective 2020 | 1,483,750 | 4.04 | % | - | - | 1,483,750 | 4.04 | % | ||||||||||||||||
| Effective 2021 | 701,000 | 4.03 | % | - | - | 701,000 | 4.03 | % | ||||||||||||||||
The Company also enters into swaptions (option agreements to enter swaps at future dates) as part of its hedging strategy. At September 30, 2014, the Company had swaptions with the following terms:
| (Dollars in thousands) | Options | Underlying Swaps | |||||||||||||||||||||||
| Swaptions |
Original |
Fair |
Wtd. Avg. |
Notional |
Wtd. Avg. |
Receive Rate |
Wtd. Avg. |
||||||||||||||||||
| Fixed payer | $ | 20,081 | $ | 16,098 | 9 | $ | 992,300 | 2.74% | 3 month LIBOR | 7 | |||||||||||||||
Book Value
The Company’s book value (shareholders’ equity less preferred stock liquidation preference) per share on September 30, 2014 was $22.30, up 0.3% from the per share book value of $22.23 on June 30, 2014. On a per share basis, the book value at September 30, 2014 consisted of $25.27 of common equity, $(4.53) of retained losses, $2.01 of unrealized gains on agency securities, and $(0.45) of unrealized losses on interest rate swaps.
Conference Call
The Company will host a conference call at 10:00 a.m. ET on Wednesday, October 29, 2014, to discuss financial results for the quarter ended September 30, 2014. To participate in the event by telephone, please dial (877) 507-4471 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) 317-6040. Canada callers should dial (855) 669-9657. A digital replay of the call will be available on Wednesday, October 29, 2014 at approximately 12:00 noon ET through Thursday, November 6, 2014 at 9:00 a.m. ET. Dial (877) 344-7529 and enter the conference ID number 10054890. International callers should dial (412) 317-0088 and enter the same conference ID number. Canada callers should dial (855) 669-9658. 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 residential mortgage real estate assets. 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 3000® indexes.
Non-GAAP Measures
In addition to the Company’s results presented in accordance with GAAP, this press release includes certain non-GAAP financial information. Management’s decision to present these supplemental non-GAAP measures arose largely from three developments during 2013: 1) the Company’s cessation of hedge accounting for its interest rates swaps effective September 30, 2013, 2) increased use of Eurodollar futures contracts as interest rate hedges, and 3) the Company’s use of TBA dollar rolls, which generate non-traditional investment income and embody off-balance sheet financing. These changes result in the recognition of material fair value adjustments in net income, as well as line item classifications that make it difficult to clearly explain the economics of the Company’s results and strategies without supplemental disclosures. The non-GAAP measures the Company employs include effective interest expense, effective net interest margin, core earnings, and certain financial metrics derived from non-GAAP information, such as effective cost of funds and effective leverage. The Company uses these measures internally to assess its results and financial condition. Therefore, the Company believes that providing these measures gives users of financial information additional clarity regarding its performance and financial condition, and better enables them to see “through the eyes of management.”
These measures involve differences from results computed in accordance with GAAP, and should be considered supplementary to, and not as a substitute for, the Company’s results computed in accordance with GAAP. Further, the Company’s definition of these non-GAAP measures may not be comparable to other similarly-titled measures of other companies. Reconciliations of each non-GAAP measure to its nearest directly comparable measure calculated in accordance with GAAP are included below.
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 future earnings potential of the Company’s MBS portfolio, the domestic and global economies and financial markets, interest rates, prepayment rates, the mortgage market and actions by the Federal Reserve. 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. Consolidated Balance Sheets |
||||||||
| (Dollars in thousands, except share related amounts) | ||||||||
| (Unaudited) | ||||||||
| September 30, 2014 | December 31, 2013 | |||||||
| Assets | ||||||||
| Mortgage-backed securities, at fair value | ||||||||
| (including pledged assets of $15,660,522 and $17,049,670, respectively) | $ | 16,890,424 | $ | 17,642,532 | ||||
| Cash and cash equivalents | 215,073 | 763,326 | ||||||
| Restricted cash | 226,764 | 225,379 | ||||||
| Unsettled purchased mortgage-backed securities, at fair value | 45,691 | - | ||||||
| Receivable for securities sold | - | 231,214 | ||||||
| Accrued interest receivable | 52,757 | 55,156 | ||||||
| Principal payments receivable | 128,041 | 95,021 | ||||||
| Other investments | 41,163 | 34,910 | ||||||
| Derivative assets, at fair value | 31,002 | 26,989 | ||||||
| Other assets | 16,998 | 2,833 | ||||||
| Total assets | $ | 17,647,913 | $ | 19,077,360 | ||||
| Liabilities and shareholders’ equity | ||||||||
| Repurchase agreements | $ | 14,920,959 | $ | 16,129,683 | ||||
| Dollar roll liability | - | 351,826 | ||||||
| Payable for unsettled securities | 45,571 | - | ||||||
| Accrued interest payable | 2,841 | 8,279 | ||||||
| Derivative liabilities, at fair value | 175,322 | 167,607 | ||||||
| Dividend payable | 52,988 | 52,929 | ||||||
| Accounts payable and other liabilities | 5,740 | 2,935 | ||||||
| Total liabilities | 15,203,421 | 16,713,259 | ||||||
| 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, respectively ($287,500 aggregate liquidation preference) | 278,252 | 278,252 | ||||||
| Common stock, $.001 par value, 200,000,000 shares authorized, 96,719,908 and 96,601,523 shares issued and outstanding, respectively | 97 | 97 | ||||||
| Additional paid-in capital | 2,453,698 | 2,453,018 | ||||||
| Accumulated deficit | (438,319 | ) | (359,214 | ) | ||||
| Accumulated other comprehensive income (loss) | 150,764 | (8,052 | ) | |||||
| Total shareholders’ equity | 2,444,492 | 2,364,101 | ||||||
| Total liabilities and shareholders’ equity | $ | 17,647,913 | $ | 19,077,360 | ||||
|
Hatteras Financial Corp. Consolidated Statements of Income (Unaudited) |
||||||||||||||||
| (Dollars in thousands, except share related amounts) | ||||||||||||||||
|
Three Months Ended |
Nine Months Ended |
|||||||||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||||||
| Interest income: | ||||||||||||||||
| Interest income on mortgage-backed securities | $ | 80,969 | $ | 107,040 | $ | 266,734 | $ | 346,396 | ||||||||
| Interest income on short-term cash investments | 330 | 303 | 959 | 1,104 | ||||||||||||
| Total interest income | 81,299 | 107,343 | 267,693 | 347,500 | ||||||||||||
| Interest expense | 31,950 | 51,599 | 105,529 | 156,955 | ||||||||||||
| Net interest margin | 49,349 | 55,744 | 162,164 | 190,545 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Management fee | 4,122 | 4,522 | 12,420 | 13,956 | ||||||||||||
| Share based compensation | 890 | 637 | 2,592 | 1,893 | ||||||||||||
| General and administrative | 2,113 | 1,538 | 6,584 | 4,509 | ||||||||||||
| Total operating expenses | 7,125 | 6,697 | 21,596 | 20,358 | ||||||||||||
| Other income (loss): | ||||||||||||||||
| Net realized gain (loss) on sale of mortgage-backed securities | 237 | (225,635 | ) | 3,089 | (214,333 | ) | ||||||||||
| Impairment of mortgage-backed securities | - | (8,102 | ) | - | (8,102 | ) | ||||||||||
| Gain (loss) on derivative instruments, net | 35,430 | (77,456 | ) | (61,445 | ) | (71,920 | ) | |||||||||
| Total other income (loss) | 35,667 | (311,193 | ) | (58,356 | ) | (294,355 | ) | |||||||||
| Net income (loss) | 77,891 | (262,146 | ) | 82,212 | (124,168 | ) | ||||||||||
| Dividends on preferred stock | 5,480 | 5,481 | 16,441 | 16,441 | ||||||||||||
| Net income (loss) available to common shareholders | $ | 72,411 | $ | (267,627 | ) | $ | 65,771 | $ | (140,609 | ) | ||||||
| Earnings (loss) per share - common stock, basic | $ | 0.75 | $ | (2.72 | ) | $ | 0.68 | $ | (1.43 | ) | ||||||
| Earnings (loss) per share - common stock, diluted | $ | 0.75 | $ | (2.72 | ) | $ | 0.68 | $ | (1.43 | ) | ||||||
| Dividends per share of common stock | $ | 0.50 | $ | 0.55 | $ | 1.50 | $ | 1.95 | ||||||||
| Weighted average common shares outstanding, basic | 96,563,132 | 98,318,205 | 96,561,446 | 98,656,750 | ||||||||||||
| Weighted average common shares outstanding, diluted | 96,563,132 | 98,318,205 | 96,561,446 | 98,656,750 | ||||||||||||
|
Hatteras Financial Corp. Consolidated Statements of Comprehensive Income (Unaudited) |
||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||
|
Three Months Ended |
Nine Months Ended |
|||||||||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||||||
| Net income (loss) | $ | 77,891 | $ | (262,146 | ) | $ | 82,212 | $ | (124,168 | ) | ||||||
| Other comprehensive income: | ||||||||||||||||
| Net unrealized gains (losses) on securities available for sale | (31,382 | ) | 191,227 | 83,790 | (455,185 | ) | ||||||||||
| Net unrealized gains on derivative instruments | 17,923 | 45,227 | 75,026 | 107,952 | ||||||||||||
| Other comprehensive income (loss) | (13,459 | ) | 236,454 | 158,816 | (347,233 | ) | ||||||||||
| Comprehensive income (loss) | 64,432 | (25,692 | ) | 241,028 | (471,401 | ) | ||||||||||
| Dividends on preferred stock | 5,480 | 5,481 | 16,441 | 16,441 | ||||||||||||
| Comprehensive income (loss) available to common shareholders | $ | 58,952 | $ | (31,173 | ) | $ | 224,587 | $ | (487,842 | ) | ||||||
| Comprehensive income (loss) per share - common stock, basic and diluted | $ | 0.61 | $ | (0.32 | ) | $ | 2.33 | $ | (4.94 | ) | ||||||
|
Key Statistics (1) (Amounts are unaudited and subject to change) |
||||||||||||||||||||
| (in thousands, except per share amounts) | Three Months Ended | |||||||||||||||||||
|
Sept. 30,
2014 |
June 30,
2014 |
March 31,
2014 |
Dec. 31,
2013 |
Sept. 30,
2013 |
||||||||||||||||
| Statement of Income Data | ||||||||||||||||||||
| Interest income | $ | 81,299 | $ | 89,805 | $ | 96,589 | $ | 104,768 | $ | 107,343 | ||||||||||
| Interest expense | (31,950 | ) | (35,128 | ) | (38,451 | ) | (40,754 | ) | (51,599 | ) | ||||||||||
| Net interest margin | 49,349 | 54,677 | 58,138 | 64,014 | 55,744 | |||||||||||||||
| Operating expenses | (7,125 | ) | (7,310 | ) | (7,161 | ) | (7,508 | ) | (6,697 | ) | ||||||||||
| Other income (loss): | ||||||||||||||||||||
| Net realized gain (loss) on sale of MBS | 237 | (4,584 | ) | 7,436 | (68,679 | ) | (225,635 | ) | ||||||||||||
| Impairment of MBS | - | - | - | - | (8,102 | ) | ||||||||||||||
| Gain (loss) on derivative instruments, net | 35,430 | (55,260 | ) | (41,615 | ) | 2,205 | (77,456 | ) | ||||||||||||
| Total other income (loss) | 35,667 | (59,844 | ) | (34,179 | ) | (66,474 | ) | (311,193 | ) | |||||||||||
| Net income (loss) | 77,891 | (12,477 | ) | 16,798 | (9,968 | ) | (262,146 | ) | ||||||||||||
| Dividends on preferred stock | (5,480 | ) | (5,481 | ) | (5,480 | ) | (5,481 | ) | (5,481 | ) | ||||||||||
| Net income (loss) available to common shareholders | $ | 72,411 | $ | (17,958 | ) | $ | 11,318 | $ | (15,449 | ) | $ | (267,627 | ) | |||||||
| Comprehensive income (loss) available to common shareholders | $ | 58,952 | $ | 87,712 | $ | 77,923 | $ | 60,878 | $ | (31,173 | ) | |||||||||
| Earnings (loss) per share, basic and diluted | $ | 0.75 | $ | (0.19 | ) | $ | 0.12 | $ | (0.16 | ) | $ | (2.72 | ) | |||||||
| Comprehensive income (loss) available to common shareholders, basic and diluted | $ | 0.61 | $ | 0.91 | $ | 0.81 | $ | 0.63 | $ | (0.32 | ) | |||||||||
| Weighted average shares outstanding | 96,563 | 96,516 | 96,606 | 97,390 | 98,318 | |||||||||||||||
| Distributions per common share | $ | 0.50 | $ | 0.50 | $ | 0.50 | $ | 0.50 | $ | 0.55 | ||||||||||
| Key Statistics (2) | ||||||||||||||||||||
| Average MBS | $ | 16,484,392 | $ | 17,019,973 | $ | 17,485,685 | $ | 19,309,176 | $ | 23,825,254 | ||||||||||
| Average debt (3) | $ | 14,806,602 | $ | 15,349,322 | $ | 15,787,282 | $ | 18,013,431 | $ | 21,990,508 | ||||||||||
| Average equity | $ | 2,453,988 | $ | 2,429,640 | $ | 2,405,938 | $ | 2,405,778 | $ | 2,429,402 | ||||||||||
| Average portfolio yield | 1.96 | % | 2.10 | % | 2.20 | % | 2.16 | % | 1.80 | % | ||||||||||
| Average cost of funds | 0.86 | % | 0.92 | % | 0.97 | % | 0.90 | % | 0.94 | % | ||||||||||
| Interest rate spread | 1.10 | % | 1.18 | % | 1.23 | % | 1.26 | % | 0.86 | % | ||||||||||
| TBA dollar roll income | $ | 22,370 | $ | 25,622 | $ | 20,821 | $ | 5,605 | $ | - | ||||||||||
| Average TBA dollar roll position | $ | 3,257,935 | $ | 3,393,046 | $ | 2,935,689 | $ | 803,746 | $ | - | ||||||||||
| Average portfolio yield, including TBA dollar roll income | 2.09 | % | 2.26 | % | 2.29 | % | 2.19 | % | 1.80 | % | ||||||||||
| Effective interest expense (4) | $ | 41,630 | $ | 41,959 | $ | 43,179 | $ | 47,411 | $ | 51,599 | ||||||||||
| Effective cost of funds (4) | 1.12 | % | 1.09 | % | 1.09 | % | 1.05 | % | 0.94 | % | ||||||||||
| Effective net interest margin (5) | $ | 62,039 | $ | 73,468 | $ | 74,231 | $ | 62,962 | $ | 55,744 | ||||||||||
| Effective interest rate spread (6) | 0.97 | % | 1.17 | % | 1.20 | % | 1.14 | % | 0.86 | % | ||||||||||
| Core earnings (7) | $ | 49,434 | $ | 60,677 | $ | 61,590 | $ | 49,973 | $ | 43,566 | ||||||||||
| Core earnings per share, basic and diluted | $ | 0.51 | $ | 0.63 | $ | 0.64 | $ | 0.51 | $ | 0.44 | ||||||||||
| Constant prepayment rate (CPR) | 19.0 | 15.4 | 13.0 | 14.2 | 19.7 | |||||||||||||||
| Average annual portfolio repayment rate | 25.31 | % | 20.36 | % | 17.66 | % | 19.55 | % | 27.72 | % | ||||||||||
| Debt to equity (at period end) | 6.1:1 | 6.2:1 | 6.3:1 | 7.0:1 | 7.9:1 | |||||||||||||||
| Debt to paid-in-capital (at period end) (8) | 5.5:1 | 5.5:1 | 5.6:1 | 6.1:1 | 6.8:1 | |||||||||||||||
| Effective debt to equity (at period end) (9) | 7.6:1 | 7.4:1 | 7.7:1 | 7.3:1 | 7.9:1 | |||||||||||||||
(1) This table includes non-GAAP financial measures. See the
earlier section on non-GAAP Measures for important disclosures, as well
as Tables 10 and 11 which contain reconciliations to the most comparable
U.S. GAAP measures.
(2) The averages presented herein
are computed from the Company’s books and records, using daily weighted
values. Percentages are annualized, as appropriate.
(3)
Average debt includes borrowings under repurchase agreements and dollar
roll liability as presented on the balance sheet. It does not include
off-balance sheet financing related to the Company’s TBA dollar roll
position.
(4) Effective interest expense includes
certain interest rate swap adjustments. Effective cost of funds is
effective interest expense for the period on an annualized basis divided
by average repurchase agreements and dollar roll liability for the
period. See Table 10.
(5) Effective net interest margin
includes certain interest rate swap adjustments and TBA dollar roll
income. See Table 11.
(6) Effective interest rate spread
is the difference between average portfolio yield including TBA dollar
roll income and effective cost of funds for the period.
(7)
Core earnings consists of effective interest margin reduced by operating
expenses and dividends on preferred stock for the period. See Table 11.
(8)
Debt to paid-in capital ratio was calculated by dividing the amount
outstanding under repurchase agreements at period end by the sum of the
par value of the Company’s common stock and additional paid-in capital
at period end.
(9) Effective debt to equity ratio was
calculated the same as the debt to equity ratio other than to include
our off-balance sheet TBA dollar roll liability at period end in the
numerator. The Company’s off-balance sheet TBA dollar roll liability was
$3,718,924 as of September 30, 2014.
|
Hatteras Financial Corp (Amounts are unaudited and subject to change) (Dollars in thousands) |
||||||||||||||||||||
|
Mortgage-Backed Securities Portfolio as of September 30, 2014 |
||||||||||||||||||||
|
Amortized |
Gross |
Gross |
Estimated Fair |
% of |
||||||||||||||||
| Agency Securities | ||||||||||||||||||||
| Fannie Mae Certificates | ||||||||||||||||||||
| ARMs | $ | 9,217,059 | $ | (20,004 | ) | $ | 175,699 | $ | 9,372,754 | 55.5 | % | |||||||||
| Fixed-Rate | 569,736 | (615 | ) | 2,380 | 571,501 | 3.4 | % | |||||||||||||
| Total Fannie Mae | 9,786,795 | (20,619 | ) | 178,079 | 9,944,255 | |||||||||||||||
| Freddie Mac Certificates | ||||||||||||||||||||
| ARMs | 6,667,896 | (31,236 | ) | 66,537 | 6,703,197 | 39.7 | % | |||||||||||||
| Fixed-Rate | 166,394 | (30 | ) | 858 | 167,222 | 1.0 | % | |||||||||||||
| Total Freddie Mac | 6,834,290 | (31,266 | ) | 67,395 | 6,870,419 | |||||||||||||||
| Total Agency Securities | 16,621,085 | (51,885 | ) | 245,474 | 16,814,674 | 99.6 | % | |||||||||||||
| Total Non-Agency ARMs | 76,200 | (450 | ) | - | 75,750 | 0.4 | % | |||||||||||||
| Total Mortgage-Backed Securities | $ | 16,697,285 | $ | (52,335 | ) | $ | 245,474 | $ | 16,890,424 | 100.0 | % | |||||||||
|
Mortgage-Backed Securities—Months to Reset as of September 30, 2014 |
||||||||||||||||||||||||||||||||||||
|
ARMs |
|
|||||||||||||||||||||||||||||||||||
| Months to Reset |
% of |
Current |
Weighted |
Wtd. Avg. |
Amortized |
Weighted |
Market |
|||||||||||||||||||||||||||||
| 0-12 | 12.4 | % | $ | 1,872,888 | 3.17 | % | $ | 102.12 | $ | 1,912,604 | $ | 106.73 | $ | 1,998,905 | ||||||||||||||||||||||
| 13-24 | 11.7 | % | 1,779,785 | 3.09 | % | $ | 102.48 | 1,823,848 | $ | 106.03 | 1,887,079 | |||||||||||||||||||||||||
| 25-36 | 12.7 | % | 1,962,633 | 2.61 | % | $ | 102.84 | 2,018,276 | $ | 104.30 | 2,046,969 | |||||||||||||||||||||||||
| 37-48 | 14.3 | % | 2,214,546 | 2.98 | % | $ | 102.64 | 2,272,943 | $ | 104.28 | 2,309,420 | |||||||||||||||||||||||||
| 49-60 | 34.8 | % | 5,473,680 | 2.55 | % | $ | 103.04 | 5,639,822 | $ | 102.77 | 5,625,041 | |||||||||||||||||||||||||
| 61-72 | 7.6 | % | 1,213,353 | 2.35 | % | $ | 103.14 | 1,251,448 | $ | 101.62 | 1,233,013 | |||||||||||||||||||||||||
| 73-84 | 6.4 | % | 1,013,409 | 3.00 | % | $ | 102.29 | 1,036,649 | $ | 103.18 | 1,045,619 | |||||||||||||||||||||||||
| 109-120 | 0.1 | % | 5,451 | 3.34 | % | $ | 102.09 | 5,565 | $ | 103.74 | 5,655 | |||||||||||||||||||||||||
| Total ARMS | 100.0 | % | $ | 15,535,745 | 2.77 | % | $ | 102.74 | $ | 15,961,155 | $ | 103.96 | $ | 16,151,701 | ||||||||||||||||||||||
|
Fixed |
||||||||||||||||||||||||||||||||||||
|
|
Current
Face Value |
Wtd. Avg. Coupon |
Wtd. Avg. |
Amortized
Cost |
Wtd. |
Market
Value |
||||||||||||||||||||||||||||||
| Total Fixed-Rate | $ | 700,397 | 3.50 | % | $ | 105.10 | $ | 736,130 | $ | 105.47 | $ | 738,723 | ||||||||||||||||||||||||
|
Hatteras Financial Corp (Amounts are unaudited and subject to change) (Dollars in thousands) |
||||||||
|
Repo Borrowings as of September 30, 2014 |
||||||||
| Weighted Average | ||||||||
| Balance | Contractual Rate | |||||||
| Within 30 days | $ | 13,355,150 | 0.31 | % | ||||
| 30 days to 3 months | 565,809 | 0.32 | % | |||||
| 3 months to 36 months | 1,000,000 | 0.45 | % | |||||
| $ | 14,920,959 | 0.32 | % | |||||
|
Swap Portfolio as of September 30, 2014 |
|||||||||||
| Wtd. Avg. | |||||||||||
| Remaining | Weighted Average | ||||||||||
| Notional | Term | Fixed Interest | |||||||||
| Maturity | Amount | in Months | Rate in Contract | ||||||||
| 12 months or less | $ | 4,000,000 | 7 | 1.70% | |||||||
| Over 12 months to 24 months | 2,400,000 | 18 | 1.10% | ||||||||
| Over 24 months to 36 months | 2,200,000 | 30 | 0.88% | ||||||||
| Over 36 months to 48 months | 600,000 | 40 | 0.95% | ||||||||
| Total | $ | 9,200,000 | 17 | 1.30% | |||||||
Note: The Company has no forward starting swaps as of September 30, 2014.
|
Components of Gain (Loss) on Derivative Instruments, Net |
||||||||||||||||
| Three Months Ended Sept. 30 | Nine Months Ended Sept. 30 | |||||||||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||||||
| Interest rate swaps – fair value adjustments | $ | 38,136 | $ | - | $ | 62,524 | $ | - | ||||||||
| Interest rate swaptions – fair value adjustments | (1,304 | ) | - | (3,983 | ) | - | ||||||||||
| Interest rate swaps – monthly net settlements | (29,079 | ) | - | (88,245 | ) | - | ||||||||||
| Futures Contracts – fair value adjustments | 37,405 | (50,129 | ) | (69,982 | ) | (44,593 | ) | |||||||||
| Futures Contracts – realized gains (losses) | (1,810 | ) | (27,327 | ) | (24,063 | ) | (27,327 | ) | ||||||||
| TBA dollar roll income | 22,370 | - | 68,813 | - | ||||||||||||
| Realized and unrealized gains on TBA dollar rolls | (30,288 | ) | - | (6,509 | ) | - | ||||||||||
| Gain (loss) on derivative instruments, net | $ | 35,430 | $ | (77,456 | ) | $ | (61,445 | ) | $ | (71,920 | ) | |||||
|
Hatteras Financial Corp (Amounts are unaudited and subject to change) (Dollars in thousands) |
|||||||||||||||||||||||||||||||||||||
|
Reconciliation of GAAP Interest Expense to Effective Interest Expense and Effective Cost of Funds |
|||||||||||||||||||||||||||||||||||||
| Three Months Ended | |||||||||||||||||||||||||||||||||||||
|
Sept. 30,
2014 |
June 30,
2014 |
March 31,
2014 |
Dec. 31,
2013 |
Sept. 30,
2013 |
|||||||||||||||||||||||||||||||||
| Amount | % (1) | Amount | % (1) | Amount | % (1) | Amount | % (1) | Amount | % (1) | ||||||||||||||||||||||||||||
| Interest expense | $ | 31,950 | 0.86 | % | $ | 35,128 | 0.92 | % | $ | 38,451 | 0.97 | % | $ | 40,754 | 0.90 | % | $ | 51,599 | 0.94 | % | |||||||||||||||||
| Less: reclassification of deferred swap losses included in interest expense (after hedge de-designation) | (19,806 | ) |
-0.54 |
% | (22,923 | ) | -0.60 | % | (24,684 | ) | -0.63 | % | (24,328 | ) | -0.54 | % | - | - | |||||||||||||||||||
| Interest rate swaps – monthly net settlements (after hedge de-designation) | 29,079 |
0.79 |
% |
29,754 |
0.77 | % | 29,412 | 0.75 | % | 30,985 | 0.69 | % | - | - | |||||||||||||||||||||||
| Losses on maturing Futures Contracts | 407 | 0.01 | % | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||
| Effective interest expense and cost of funds | $ | 41,630 | 1.12 | % | $ | 41,959 | 1.09 | % | $ | 43,179 | 1.09 | % | $ | 47,411 | 1.05 | % | $ | 51,599 | 0.94 | % | |||||||||||||||||
| Average repo and dollar roll liability | $ | 14,806,602 | $ | 15,349,322 | $ | 15,787,282 | $ | 18,013,431 | $ | 21,990,508 | |||||||||||||||||||||||||||
| (1) Dollar amount on an annualized basis as a percentage of average repurchase agreements and dollar roll liability | |||||||||||||||||||||||||||||||||||||
| Nine Months Ended September 30 | ||||||||||||||
| 2014 | 2013 | |||||||||||||
| Amount | % (1) | Amount | % (1) | |||||||||||
| Interest expense | $ | 105,529 | 0.92 | % | $ | 156,955 | 0.94 | % | ||||||
| Less: reclassification of deferred swap losses included in interest expense (after hedge de-designation) | (67,413 | ) | -0.59 | % | - | - | ||||||||
| Interest rate swaps – monthly net settlements (after hedge de-designation) | 88,245 | 0.77 | % | - | - | |||||||||
| Losses on maturing Futures Contracts | 407 | - | - | - | ||||||||||
| Effective interest expense and cost of funds | $ | 126,768 | 1.10 | % | $ | 156,955 | 0.94 | % | ||||||
| Average repo and dollar roll liability | $ | 15,310,810 | $ | 22,343,437 | ||||||||||
| (1) Dollar amount on an annualized basis as a percentage of average repurchase agreements and dollar roll liability | ||||||||||||||
|
Hatteras Financial Corp (Amounts are unaudited and subject to change) (Dollars in thousands) |
||||||||||||||||||||
|
Reconciliation of GAAP Net Interest Margin to Effective Net Interest Margin and Core Earnings |
||||||||||||||||||||
| Three Months Ended | ||||||||||||||||||||
|
Sept. 30,
2014 |
June 30,
2014 |
March 31,
2014 |
Dec. 31,
2013 |
Sept. 30,
2013 |
||||||||||||||||
| Net interest margin | $ | 49,349 | $ | 54,677 | $ | 58,138 | $ | 64,014 | $ | 55,744 | ||||||||||
| Less: reclassification of deferred swap losses included in interest expense (after hedge de-designation) | 19,806 | 22,923 | 24,684 | 24,328 | - | |||||||||||||||
| Interest rate swaps – monthly net settlements (after hedge de-designation) | (29,079 | ) | (29,754 | ) | (29,412 | ) | (30,985 | ) | - | |||||||||||
| Losses on maturing Futures Contracts | (407 | ) | - | - | - | - | ||||||||||||||
| TBA dollar roll income | 22,370 | 25,622 | 20,821 | 5,605 | - | |||||||||||||||
| Effective net interest margin | 62,039 | 73,468 | 74,231 | 62,962 | 55,744 | |||||||||||||||
| Total operating expenses | (7,125 | ) | (7,310 | ) | (7,161 | ) | (7,508 | ) | (6,697 | ) | ||||||||||
| Dividends on preferred stock | (5,480 | ) | (5,481 | ) | (5,480 | ) | (5,481 | ) | (5,481 | ) | ||||||||||
| Core earnings | $ | 49,434 | $ | 60,677 | $ | 61,590 | $ | 49,973 | $ | 43,566 | ||||||||||
| Core earnings per common share, basic and diluted | $ | 0.51 | $ | 0.63 | $ | 0.64 | $ | 0.51 | $ | 0.44 | ||||||||||
| Nine Months Ended September 30 | ||||||||
| 2014 | 2013 | |||||||
| Net interest margin | $ | 162,164 | $ | 190,545 | ||||
| Less: reclassification of deferred swap losses included in interest expense (after hedge de-designation) | 67,413 | - | ||||||
| Interest rate swaps – monthly net settlements (after hedge de-designation) | (88,245 | ) | - | |||||
| Losses on maturing Futures Contracts | (407 | ) | - | |||||
| TBA dollar roll income | 68,813 | - | ||||||
| Effective net interest margin | 209,738 | 190,545 | ||||||
| Total operating expenses | (21,596 | ) | (20,358 | ) | ||||
| Dividends on preferred stock | (16,441 | ) | (16,441 | ) | ||||
| Core earnings | $ | 171,701 | $ | 153,746 | ||||
| Core earnings per common share, basic and diluted | $ | 1.78 | $ | 1.56 | ||||
