Hatteras Financial Corp. Announces Fourth Quarter 2012 Financial Results
Hatteras Financial Corp. Announces Fourth Quarter 2012 Financial Results
Business Wire
WINSTON-SALEM, N.C. -- February 12, 2013
Hatteras Financial Corp. (NYSE: HTS) (“Hatteras” or the “Company”) today
announced financial results for the quarter ended December 31, 2012.
Fourth Quarter 2012 Highlights
* Net income of $1.02 per weighted average share
* Declared a $0.70 per share common dividend
* Book value $28.19 per share at year end
* Net return on average common equity of 14.07%
* Average net interest spread of 1.08%
* Annualized total expense ratio of 0.89% of average shareholders’ equity
Full Year 2012 Highlights
* Net income of $3.67 per weighted average share
* Declared $3.30 per share common dividends
* Book value increased $1.11 per share
* Net return on average common equity of 12.96%
* Undistributed taxable income of $0.45 per share at year end
Fourth Quarter 2012 Results
During the quarter ended December 31, 2012, the Company earned net income
available to common shareholders of $101.3 million, or $1.02 per diluted
common share, compared to net income of $82.0 million, or $0.83 per diluted
common share during the quarter ended September 30, 2012. Net interest income
for the quarter ended December 31, 2012 was $74.7 million, compared to $79.6
million for the quarter ended September 30, 2012. The Company’s net interest
margin decreased to 1.08% for the fourth quarter of 2012 from 1.22% in the
third quarter of 2012 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) increased 0.02% to 0.96% for the quarter ended
December 31, 2012. The Company’s average repurchase agreement (repo) rate
increased to 0.44% in the fourth quarter of 2012, from 0.41% in the third
quarter of 2012, on all outstanding short-term repo positions. The Company
realized gain on sale of mortgage-backed securities (MBS) of $39.1 million
during the quarter compared to $10.5 million for the previous quarter. The
annualized expense ratio for the quarter was 0.89% of average shareholders’
equity for the quarter ended December 31, 2012 as compared to 0.84% for the
prior quarter.
“We achieved solid returns for our investors in 2012 despite uncertain 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 our clear long-term strategy enables us to continue to generate solid
risk-adjusted returns while best positioning Hatteras for future volatility.”
Mr. Hough added “We believe the ARM based, short-duration balance sheet we
have carefully built over the past five years properly reflects where we
should be positioned today in light of domestic and global economic
uncertainty. We need to remain diligent in continuing to assess the risks in
our portfolio and maintaining the appropriate balance of assets and
liabilities that is imperative at this point of the economic cycle.”
Dividend
The Company declared a dividend of $0.70 per share of common stock with
respect to the quarter ended December 31, 2012, which was a decrease from the
$0.80 per share dividend for the quarter ended September 30, 2012. Based on
the closing share price of $24.81 on December 31, 2012, the fourth quarter
dividend equates to an annualized yield of 11.3%. The Company also 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 December 31,
2012.
Portfolio
The Company’s weighted average earning assets, consisting of residential
mortgage securities issued by Fannie Mae and Freddie Mac (“agency
securities”), was $25.8 billion for the quarter ended December 31, 2012,
compared to $24.4 billion for the previous quarter. The portfolio’s weighted
average coupon was 2.93% for the fourth quarter of 2012, compared to 2.99% for
the third quarter of 2012, reflecting lower rates on new security purchases.
The annualized yield on average assets was 2.04% for the fourth quarter of
2012, compared to 2.16% for the third quarter of 2012.
At December 31, 2012, the Company’s portfolio of agency securities consisted
of 93.7% of adjustable-rate agency securities and 6.3% of 15-year fixed-rate
agency securities. At December 31, 2012, the Company owned $22.4 billion of
adjustable-rate agency securities with a weighted average coupon of 2.95% and
a weighted average cost basis of $102.79, and $1.5 billion of 15-year
fixed-rate agency securities with a weighted average coupon of 2.62%, and a
weighted average cost basis of $103.64. The Company’s adjustable-rate agency
securities portfolio at December 31, 2012 is summarized below.
Hatteras Financial Corp ARM Portfolio
Weighted
Avg.
(dollars Weighted Weighted
in Current Avg. Amortized Avg.
thousands)
Months to Face value Coupon Purchase Amortized Market Market Value
Reset Price Cost Price
0-12 $ 856,698 4.03 % $ 101.24 $ 867,348 $ 106.79 $ 914,832
13-24 911,412 3.88 % $ 102.28 932,202 $ 106.08 966,854
25-36 2,155,206 3.60 % $ 102.27 2,204,154 $ 105.55 2,274,763
37-48 3,059,130 3.06 % $ 102.38 3,132,043 $ 104.84 3,207,245
49-60 3,450,959 2.76 % $ 102.82 3,548,369 $ 104.81 3,616,891
61-72 2,868,337 3.26 % $ 102.55 2,941,356 $ 105.54 3,027,295
73-84 7,276,854 2.44 % $ 103.37 7,522,264 $ 104.54 7,607,359
85-96 126,924 3.08 % $ 103.47 131,327 $ 105.17 133,487
97-108 - - $ - - $ - -
109-120 610,509 2.81 % $ 103.53 632,087 $ 105.00 641,013
121-140 19,995 2.69 % $ 103.72 20,739 $ 104.65 20,923
Total ARMS $ 21,336,024 2.95 % $ 102.79 $ 21,931,889 $ 105.04 $ 22,410,662
During the fourth quarter of 2012, the expense of amortizing the premium on
the Company’s securities was $50.1 million, compared to $47.3 million during
the third quarter of 2012. 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 2012 was 26.6%, compared to 27.6% during the third quarter of 2012. The
Company’s weighted-average one-month constant prepayment rate (CPR) for the
quarter ended December 31, 2012 was 19.8, as compared to 20.5 for the quarter
ended September 30, 2012. CPR measures unscheduled repayment rate as a
percentage of principal on an annualized basis.
Portfolio Financing and Leverage
At December 31, 2012, the Company financed its portfolio with approximately
$22.9 billion of borrowings under repurchase agreements. The Company’s repo
debt-to-shareholders’ equity ratio at December 31, 2012, was 7.4 to 1. The
Company 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, 2012,
the Company had entered into interest rate swaps with a notional amount of
$10.7 billion. The swap agreements, which are indexed to 30-day LIBOR, have a
weighted average remaining term of 31 months at a weighted average fixed rate
of 1.47%.
Book Value
The Company’s book value (shareholders’ equity) per share on December 31, 2012
was $28.19, down $1.41 or 4.76%, from the per share book value of $29.60 on
September 30, 2012. On a per share basis, the book value at December 31, 2012
consisted of $25.15 of common equity, $0.38 of retained earnings, $5.12 of
unrealized gains on agency securities, and ($2.46) of unrealized losses on
interest rate swaps.
Full Year 2012 Results
Although the Company experienced spread compression over the course of the
year as long-term interest rates declined with little change in short-term
rates, 2012 still offered a favorable earning environment. The Company
generated net income of $341.7 million, for the 12 months ended December 31,
2012, which equaled $3.67 per weighted average share of common stock. Return
on weighted average equity for the year was 12.96%. Book value per share
increased $1.11, or 4.1%, from $27.08 on December 31, 2011 to $28.19 on
December 31, 2012.
For the 12 months ended December 31, 2012, the annualized yield on weighted
average assets during the period was 2.28%, and the annualized cost of funds
on the weighted average repurchase balance was 0.96%. This resulted in a
weighted average interest rate spread of 1.32% for the year.
Conference Call
The Company will host a conference call at 10:00 a.m. ET on Wednesday February
13, 2013, to discuss financial results for the fourth quarter ended December
31, 2012. 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, February 13, 2013
at approximately 12:00 noon ET through Thursday, February 21, 2013 at 9:00
a.m. ET. Dial (877) 344-7529 and enter the conference ID number 10025029.
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 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 MBS portfolio and repurchase
agreements, future volatility in the domestic and global economies, risks in
the portfolio and the Company’s 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
(Dollars in thousands, except
share amounts)
December 31, 2012 December 31, 2011
Assets
Mortgage-backed securities, at
fair value
(including pledged assets of
$22,591,973 and $17,012,472 at $ 23,919,251 $ 17,741,873
December 31, 2012
and December 31, 2011,
respectively)
Cash and cash equivalents 168,424 347,045
Restricted cash 281,021 237,014
Unsettled purchased
mortgage-backed securities, at 138,338 49,630
fair value
Receivable for securities sold 1,587,535 -
Accrued interest receivable 77,113 63,025
Principal payments receivable 190,832 105,333
Debt security, held to maturity, 15,000 15,000
at cost
Other assets 26,604 27,799
Total assets $ 26,404,118 $ 18,586,719
Liabilities and shareholders’
equity
Repurchase agreements $ 22,866,429 $ 16,162,375
Payable for unsettled securities 137,121 48,999
Accrued interest payable 7,592 4,596
Interest rate hedge liability 243,945 219,167
Dividend payable 73,804 69,141
Accounts payable and other 2,363 2,253
liabilities
Total liabilities $ 23,331,254 $ 16,506,531
Shareholders’ equity:
7.625% Series A Cumulative
Redeemable Preferred stock, $.001
par value, 25,000,000
shares authorized, 11,500,000 and
0 shares issued and outstanding at
December 31, 2012
and 2011, respectively ($287,500 278,252 –
aggregate liquidation preference)
Common stock, $.001 par value,
200,000,000 shares authorized,
98,822,654 and 76,823,220 shares
issued and outstanding at December
31, 2012 and
2011, respectively 99 77
Additional paid-in capital 2,494,303 1,904,748
Retained earnings 37,356 2,041
Accumulated other comprehensive 262,854 173,322
income
Total shareholders’ equity 3,072,864 2,080,188
Total liabilities and $ 26,404,118 $ 18,586,719
shareholders’ equity
Hatteras Financial Corp.
Statements of Income
For the years ended December 31, 2012, 2011 and 2010
(Dollars in thousands, except
share amounts)
2012 2011 2010
Interest income:
Interest income on $ 504,800 $ 424,713 $ 263,751
mortgage-backed securities
Interest income on short-term 1,508 1,407 1,265
cash investments
Interest income 506,308 426,120 265,016
Interest expense 197,064 144,662 95,923
Net interest income 309,244 281,458 169,093
Operating expenses:
Management fee 17,420 13,787 9,205
Share based compensation 1,920 1,150 1,432
General and administrative 5,006 2,724 2,507
Total operating expenses 24,346 17,661 13,144
Other income/(expense):
Net gain on sale of 64,347 20,576 13,551
mortgage-backed securities
Net income 349,245 284,373 169,500
Dividends on preferred stock 7,551 0 0
Net income available to $ 341,694 $ 284,373 $ 169,500
common shareholders
Earnings per share - common $ 3.67 $ 3.97 $ 4.30
stock, basic
Earnings per share - common $ 3.67 $ 3.97 $ 4.30
stock, diluted
Weighted average common 93,185,520 71,708,058 39,454,362
shares outstanding, basic
Weighted average common 93,185,520 71,708,058 39,454,362
shares outstanding, diluted
Hatteras Financial Corp.
Statements of Comprehensive Income
For the years ended December 31, 2012, 2011 and 2010
(Dollars in thousands)
2012 2011 2010
Net income $ 349,245 $ 284,373 $ 169,500
Other comprehensive income
(loss):
Net unrealized gains (losses)
on securities available for 115,008 223,333 (34,898 )
sale
Net unrealized (losses) gains (25,476 ) (155,902 ) (11,934 )
on derivative instruments
Other comprehensive income 89,532 67,431 (46,832 )
(loss)
Comprehensive income $ 438,777 $ 351,804 $ 122,668
Key Statistics
(Amounts are unaudited and subject to change)
(in thousands,
except per
share amounts)
Three months ended (unaudited)
December 31, September 30, June 30, 2012 March 31, 2012 December 31,
2012 2012 2011
Statement of
Income Data
Interest income $ 131,728 $ 132,327 $ 129,161 $ 113,092 $ 114,821
Interest (57,019 ) (52,767 ) (46,169 ) (41,109 ) (42,299 )
Expense
Net Interest 74,709 79,560 82,992 71,983 72,522
Income
Gain on sale of
mortgage-backed 39,103 10,534 12,205 2,505 2,841
securities
Operating (7,065 ) (6,044 ) (6,053 ) (5,184 ) (4,738 )
Expenses
Net income 106,747 84,050 89,144 69,304 70,625
Dividends on (5,481 ) (2,070 ) – – –
preferred stock
Net income
available to $ 101,266 $ 81,980 $ 89,144 $ 69,304 $ 70,625
common
shareholders
Earnings per
share - common $ 1.02 $ 0.83 $ 0.91 $ 0.89 $ 0.92
stock, basic
Earnings per
share - common $ 1.02 $ 0.83 $ 0.91 $ 0.89 $ 0.92
stock, diluted
Weighted
average shares 98,812 98,233 97,969 77,610 76,607
outstanding
Distributions
per common $ 0.70 $ 0.80 $ 0.90 $ 0.90 $ 0.90
share
Key Portfolio
Statistics
Average MBS $ 25,783,448 $ 24,414,506 $ 21,149,623 $ 17,259,040 $ 17,608,752
Average
Repurchase $ 23,692,240 $ 22,541,260 $ 19,599,942 $ 15,981,764 $ 16,280,835
Agreements
Average Equity $ 3,158,139 $ 2,889,126 $ 2,762,948 $ 2,113,079 $ 2,040,843
Average 2.04 % 2.16 % 2.43 % 2.61 % 2.60 %
Portfolio Yield
Average Cost of 0.96 % 0.94 % 0.94 % 1.03 % 1.04 %
Funds
Interest Rate 1.08 % 1.22 % 1.49 % 1.58 % 1.56 %
Spread
Return on
Average Common 14.07 % 11.78 % 12.91 % 13.12 % 13.84 %
Equity
Average Annual
Portfolio 26.55 % 27.61 % 25.42 % 25.67 % 27.39 %
Repayment Rate
Debt to Equity 7.4:1 7.3:1 7.5:1 6.2:1 7.8:1
(at period end)
Debt to Capital 8.2:1 8.5:1 8.1:1 6.7:1 8.5:1
(at period end)
Mortgage-backed Securities Portfolio as of December 31, 2012
(Amounts are unaudited and subject to change)
(dollars in Agency
thousands)
Securities Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Loss Gain Fair Value % of
Total
Agency
Securities
Fannie Mae
Certificates
ARMS $ 14,081,259 $ (100 ) $ 329,780 $ 14,410,939 60.3 %
Fixed Rate 743,299 9,296 752,595 3.1 %
Total Fannie 14,824,558 (100 ) 339,076 15,163,534
Mae
Freddie Mac
Certificates
ARMS 7,850,630 (21 ) 149,114 7,999,723 33.4 %
Fixed Rate 744,720 - 11,274 755,994 3.2 %
Total 8,595,350 (21 ) 160,388 $ 8,755,717
Freddie Mac
Total Agency $ 23,419,908 $ (121 ) $ 499,464 $ 23,919,251
Securities
ARM Mortgage-backed Securities Portfolio as of December 31, 2012
(Amounts are unaudited and subject to change)
(dollars Weighted Weighted
in % of ARM Current Avg. Avg.
thousands)
Months to Portfolio Face value Coupon Market Market Value
Reset Price
0-12 4.10 % $ 856,698 4.03 % $ 106.79 $ 914,832
13-24 4.30 % 911,412 3.88 % $ 106.08 966,854
25-36 10.20 % 2,155,206 3.60 % $ 105.55 2,274,763
37-48 14.30 % 3,059,130 3.06 % $ 104.84 3,207,245
49-60 16.10 % 3,450,959 2.76 % $ 104.81 3,616,891
61-72 13.50 % 2,868,337 3.26 % $ 105.54 3,027,295
73-84 33.90 % 7,276,854 2.44 % $ 104.54 7,607,359
85-96 0.60 % 126,924 3.08 % $ 105.17 133,487
97-108 - - - - -
109-120 2.90 % 610,509 2.81 % $ 105.00 641,013
121-140 0.10 % 19,995 2.69 % $ 104.65 20,923
100.00 % $ 21,336,024 2.95 % $ 105.04 $ 22,410,662
Repo Borrowings December 31, 2012
(Amounts are unaudited and subject to change)
(dollars in thousands) December 31, 2012
Weighted Average
Balance Contractual Rate
Within 30 days $ 20,500,568 0.47 %
30 days to 3 months 2,365,861 0.48 %
3 months to 36 months - -
$ 22,866,429 0.47 %
Hatteras Swap Portfolio as of December 31, 2012
(Amounts are unaudited and subject to change)
(dollars in thousands) Remaining Weighted Average
Notional Term Fixed Interest
Maturity Amount in Months Rate in Contract
12 months or less $ 800,000 6 2.05 %
Over 12 months to 24 months 2,400,000 20 1.76 %
Over 24 months to 36 months 3,700,000 30 1.73 %
Over 36 months to 48 months 2,400,000 42 0.92 %
Over 48 months to 60 months 1,400,000 52 0.89 %
Total $ 10,700,000 31 1.47 %
(dollars in thousands)
Forward Starting Swaps
Included above
Average Weighted Average
Notional Term Fixed Interest
Cash flow beginning in Amount in Months Rate in Contract
12 months or less $ 1,600,000 43 0.89 %
Over 12 months to 24 months 400,000 37 0.99 %
Total $ 2,000,000 42 0.91 %
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
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