Sounds positive
Annaly Mortgage Management, Inc. Announces First Quarter 1998 Results
NEW YORK, May 4 /PRNewswire/ -- Annaly Mortgage Management, Inc. (NYSE: NLY) today reported earnings for the quarter ended March 31, 1998 of $4,708,000, or $0.37 basic per average share outstanding. This is an increase over the quarter ended December 31, 1997 earnings of $2,380,000, or $0.21 basic per average share outstanding. The increase is primarily due to the deployment of capital in the first quarter of 1998. At March 31, 1998, debt to equity was 10:1, whereas at December 31, 1997 debt to equity was 7:1. The average daily leverage ratio for the first quarter's operations was 8.8:1. Also, gains on disposition of assets were $1,427,000 for the quarter ended March 31, 1998 compared to $76,000 for the fourth quarter of 1997.
During the first quarter of 1998, the net interest margin on an annualized basis decreased to 1.14% from 1.22% in the fourth quarter of 1997. The Constant Prepayment Rate, "CPR," for the first quarter was 21%, which is an increase over the previous quarter's rate of 18%. Using techniques to balance the effect of prepayments on net income, the Company realized gains from the disposition of assets totaling 30% of net income for the quarter. Gains may not be recurring in future quarters. General and administrative expenses as a percentage of average assets continued to decrease compared to previous quarters. General and administrative expenses as a percentage of average assets for the quarter ended March 31, 1998 and December 31, 1997 were 0.15% and 0.20%, respectively. The decline in relation to average assets is 30%.
The Company acquired mortgage-backed securities for its portfolio during the quarter, growing its asset size to $1.5 billion at March 31, 1998. All acquisitions are either FNMA, GNMA or FHLMC securities, which have an implied "AAA" rating. The asset composition has shifted to a greater emphasis on fixed rate securities. Fixed rate mortgage-backed securities comprised 20% of the portfolio at March 31, 1998, compared to 13% at December 31, 1997. The Company has continued to avoid the introduction of credit risk in its portfolio. Annaly was able to obtain an annualized dividend yield of 11.5%, based on the March 31, 1998 closing price of $11 3/16 per share, and a return on equity of 14.0%.
Directors and officers of Annaly exercised 43,774 options, increasing the outstanding shares from 12,713,900 at December 31, 1997 to 12,757,674 at March 31, 1998. Management has confidence in the continued earnings potential and long-term opportunities of the Company.
Michael A.J. Farrell, Chairman and Chief Executive Officer, stated, "The Company was not within its optimal leverage range of 10:1 to 12:1 until mid to late March. Without the recognition of gains on sale of assets, net income per average share would be $0.26, which is a 10% return on equity. First quarter's net interest income was achieved without having an optimal asset size during the entire period and while operating in a difficult prepayment environment. We continue to believe that prepayments are the overwhelming risk in the current investment climate and we consistently work to minimize this risk in our portfolio. On our earnings conference call in February, we stated that we felt March's prepayments would be the peak for the quarter and we were going to increase our leverage during March even though we felt that we were opening up our portfolio to some prepayment risk. This proved true as March has gone down in history as the highest rate of refinancings in the ARM market. Some market participants were forced to liquidate ARMs. The firm was well positioned to acquire some of those assets. Annaly's portfolio has a substantial holding of adjustable rate securities, as well as fixed rate, hybrid ARMs and floating rate CMOs. Construction of the asset portfolio is to provide competitive earnings in a wide range of operating environments. Securities are tied to the following indices: LIBOR, 1-year CMT, 3-year CMT and 6-month CD. This mitigates the concentration risk of relying on the rate changes in one particular index. Annaly's portfolio includes assets that will appreciate in value during a higher prepayment environment."
In reviewing the quarter's return, Kathryn Fagan, the firm's Chief Financial Officer, stated, "We are pleased with the firm's performance since inception. The ability to achieve these exceptional results in a difficult mortgage investment climate is a continued validation of our corporate liability and management structure. When coupled with the firm's strategic investment in Annaly International Money Management, we believe that our shareholders are beginning to see the positive story imbedded in Annaly's approach to the capital markets."
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