-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CXQgzLc3iK0goGkxu6dPKgWOgps6R3iFMiLPZHMXmZP69QOqrWF0bZBzqlv1lyk5 /DQ2R6FA7rdMvJBKysDpyA== 0000940180-99-000934.txt : 19990812 0000940180-99-000934.hdr.sgml : 19990812 ACCESSION NUMBER: 0000940180-99-000934 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990811 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ANNALY MORTGAGE MANAGEMENT INC CENTRAL INDEX KEY: 0001043219 STANDARD INDUSTRIAL CLASSIFICATION: ASSET-BACKED SECURITIES [6189] IRS NUMBER: 223479661 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13447 FILM NUMBER: 99684124 BUSINESS ADDRESS: STREET 1: 1500 HARBOR ST CITY: WEEHAWKEN STATE: NJ ZIP: 07087 BUSINESS PHONE: 2012231900 MAIL ADDRESS: STREET 1: 1500 HARBOR BLVD CITY: WEEHAWKEN STATE: NJ ZIP: 07087 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED: JUNE 30, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______________ TO _________________ COMMISSION FILE NUMBER: 1-13447 ANNALY MORTGAGE MANAGEMENT, INC. (Exact name of Registrant as specified in its Charter) MARYLAND 22-3479661 (State or other (IRS Employer jurisdiction of Identification No.) incorporation or organization) 12 EAST 41ST STREET, SUITE 700 NEW YORK, NEW YORK (Address of principal executive offices) 10017 (Zip Code) (212) 696-0100 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all documents and reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes X No____ ------ APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of stock, as of the last practicable date: Class Outstanding Common Stock, $.01 par value 12,697,548 ANNALY MORTGAGE MANAGEMENT, INC. FORM 10-Q INDEX Part I. FINANCIAL INFORMATION Item 1. Financial Statements: Balance Sheets - June 30, 1999 (Unaudited) and December 31, 1998 1 Statements of Operations (Unaudited) for the quarters ended June 30, 1999 and 1998 2 Statements of Operations (Unaudited) for the six months ended June 30, 1999 and 1998 3 Statements of Stockholders' Equity (Unaudited) for the six months ended June 30, 1999 4 Statements of Cash Flows (Unaudited) for the quarters ended June 30, 1999 and 1998 5 Statements of Cash Flows (Unaudited) for the six months ended June 30, 1999 and 1998 6 Notes to Financial Statements (Unaudited) 7-14 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 15-26 Item 3. Quantitative and Qualitative Disclosure About Market Risk 27-28 PART II. OTHER INFORMATION Item 1. Legal Proceedings 29 Item 2. Changes in Securities and Use of Proceeds 29 Item 3. Defaults Upon Senior Securities 29 Item 4. Submission of Matters to a Vote of Security Holders 29 Item 5. Other Information 29 Item 6. Exhibits and Reports on Form 8-K 29 SIGNATURES 30
ANNALY MORTGAGE MANAGEMENT, INC
BALANCE SHEETS - ------------------------------------------------------------------------------------------------------ June 30, 1999 December 31, (Unaudited) 1998 ------------- ------------ ASSETS CASH AND CASH EQUIVALENTS $ 52,402 $ 69,020 MORTGAGE-BACKED SECURITIES, At fair value 1,474,103,767 1,520,288,762 ACCRUED INTEREST RECEIVABLE 7,402,365 6,782,043 OTHER ASSETS 403,165 212,214 -------------------------------- TOTAL ASSETS $1,481,961,699 $1,527,352,039 ================================ LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES: Repurchase agreements $1,344,740,000 $1,280,510,000 Payable for Mortgage-Backed Securities purchased 9,987,500 111,921,205 Accrued interest payable 8,767,821 5,052,626 Dividends payable 4,444,142 3,857,663 Accounts payable 430,329 139,236 -------------------------------- Total liabilities 1,368,369,792 1,401,480,730 -------------------------------- STOCKHOLDERS' EQUITY: Common stock: par value $.01 per share; 100,000,000 authorized; 12,807,148 and 12,758,024 shares issued and outstanding, respectively 128,071 127,580 Additional paid-in capital 132,966,180 132,770,175 Accumulated other comprehensive income (19,428,328) (6,404,275) Treasury Stock at cost (109,600 shares) (903,163) (903,163) Retained earnings 829,147 280,992 -------------------------------- Total stockholders' equity 113,591,907 125,871,309 -------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,481,961,699 $1,527,352,039 ================================
See notes to financial statements. 3 ANNALY MORTGAGE MANAGEMENT, INC.
STATEMENTS OF OPERATIONS (Unaudited) - --------------------------------------------------------------------------------------------------------------------- FOR THE FOR THE QUARTER ENDED QUARTER ENDED JUNE 30, 1999 JUNE 30, 1999 --------------------------------------------- INTEREST INCOME Mortgage-Backed Securities $ 22,264,812 $ 23,761,946 Money market account 118 7 --------------------------------------------- Total interest income 22,264,930 23,761,953 INTEREST EXPENSE: Repurchase agreements 16,865,824 20,177,580 --------------------------------------------- NET INTEREST INCOME 5,399,106 3,584,373 GAIN ON SALE OF MORTGAGE-BACKED SECURITIES 25,853 295,875 GENERAL AND ADMINISTRATIVE EXPENSES 561,010 493,718 --------------------------------------------- NET INCOME 4,863,949 3,386,530 --------------------------------------------- OTHER COMPREHENSIVE INCOME Unrealized (loss) gain on available-for-sale securities (13,419,555) 474,026 Less: reclassification adjustment for gains included in net income (25,853) (295,875) --------------------------------------------- Other comprehensive (loss) gain (13,445,408) 178,151 --------------------------------------------- COMPREHENSIVE INCOME $ (8,581,459) $ 3,564,681 ============================================= NET INCOME PER SHARE: Basic $0.38 $0.27 ============================================= Dilutive $0.37 $0.26 ============================================= AVERAGE NUMBER OF SHARES OUTSTANDING Basic 12,697,338 12,757,674 ============================================= Diluted 13,110,275 12.959,771 =============================================
See notes to financial statements. 4 ANNALY MORTGAGE MANAGEMENT, INC. STATEMENTS OF OPERATIONS (Unaudited) - ------------------------------------------------------------------------------- FOR THE SIX FOR THE SIX MONTHS ENDED MONTHS ENDED JUNE 30, 1999 JUNE 30, 1998 -------------------------------- INTEREST INCOME: Mortgage-Backed Securities $ 44,279,733 $ 43,840,637 Money market account 138 37 ---------------------------------- Total interest income 44,279,871 43,840,674 INTEREST EXPENSE: Repurchase agreements 34,016,865 36,491,054 ---------------------------------- NET INTEREST INCOME 10,263,006 7,349,620 GAIN ON SALE OF MORTGAGE-BACKED SECURITIES 90,413 1,722,959 GENERAL AND ADMINISTRATIVE EXPENSES 1,171,014 977,899 ---------------------------------- NET INCOME 9,182,405 8,094,680 ---------------------------------- OTHER COMPREHENSIVE INCOME Unrealized loss on available-for-sale securities (12,933,640) (2,211,198) Less: reclassification adjustment for gains included in net income (90,413) (1,722,959) ----------------------------------- Other comprehensive loss (13,024,053) (3,934,157) ----------------------------------- COMPREHENSIVE INCOME $ (3,841,648) $ 4,160,523 =================================== NET INCOME PER SHARE: Basic $0.72 $0.64 =================================== Dilutive $0.71 $0.63 =================================== AVERAGE NUMBER OF SHARES OUTSTANDING Basic 12,677,718 12,742,623 =================================== Dilutive 12,957,718 12,941,535 =================================== See notes to financial statements. 5
STATEMENT OF STOCKHOLDERS' EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED) - ----------------------------------------------------------------------------------------------------------------------------------- Common Additional Other Stock Paid-in Treasury Comprehensive Retained Comprehensive Par Value Capital Stock Income Earnings Income Total --------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1998 $127,580 $ 132,770,175 $ (903,163) $ 280,992 $ (6,404,275) $ 125,871,309 Net income $ 4,318,456 4,318,456 Other comprehensive income: Unrealized net gains on securities, net of re- classification adjust- ment 421,355 421,355 ------------- Comprehensive income $ 4,739,811 4,739,811 ============= Exercise of stock options 489 195,007 195,496 Dividends declared for the quarter ended March 31, 1999, $0.33 per average share (4,190,108) (4,190,108) ------------------------------------------- ------------------------------------------------ BALANCE, MARCH 31, 1999 $128,069 $ 132,965,182 $ (903,163) $ 409,340 $ (5,982,920) $ 126,616,508 Net income $ 4,863,949 4,863,949 Other comprehensive income: Unrealized net losses on securities, net of reclassification adjust- ment (13,445,408) (13,445,408) ------------- Comprehensive income $ (8,581,459) ============= (8,581,459) Exercise of stock options 2 998 1,000 Dividends declared for the quarter ended June 30, 1999, $0.35 per average share (4,444,142) (4,444,142) ------------------------------------------- ------------------------------------------------ BALANCE, JUNE 30, 1999 $128,071 $ 132,966,180 $ (903,163) $ 829,147 $(19,428,328) $ 113,591,907 =========================================== ================================================ Disclosure of reclassification amount: Unrealized holding losses arising during period $ (12,933,640) Less: reclassification adjustment for gains included in net income (90,413) ------------- Net unrealized losses on securities $ (13,024,053) =============
See notes to financial statements. 6 ANNALY MORTGAGE MANAGEMENT, INC. STATEMENT OF CASH FLOWS (Unaudited) - -------------------------------------------------------------------------------- FOR THE QUARTER FOR THE QUARTER ENDED JUNE 30, ENDED JUNE 30, 1999 1998 --------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 4,863,949 $ 3,386,530 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of mortgage premiums and discounts, net 1,886,272 2,231,093 Gain on sale of Mortgage-Backed Securities (25,853) (295,875) Decrease (Increase) in accrued interest receivable 16,798 (61,897) Increase in other assets (171,534) (71,197) (Decrease) increase in accrued interest payable (814,852) 842,703 Increase (Decrease) in accounts payable 100,425 (18,979) --------------------------------- Net cash provided by operating activities 5,855,205 6,012,378 --------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of Mortgage-Backed Securities (101,582,524) (276,140,645) Proceeds from sale of Mortgage-Backed Securities 16,443,000 81,156,935 Principal payments on Mortgage-Backed Securities 110,312,494 137,913,458 --------------------------------- Net cash used in investing activities 25,172,970 (57,070,252) --------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from repurchase agreements 2,619,594,000 2,609,413,000 Principal payments on repurchase agreements (2,646,710,000) (22,554,215,000) Proceeds from exercise of stock options 1,000 Dividends paid (4,190,108) (4,082,456) --------------------------------- Net cash provided by financing activities (31,305,108) 51,115,544 --------------------------------- NET INCREASE IN CASH AND CASH EQUIVALENTS (276,932) 57,670 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 329,334 10,325 --------------------------------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 52,402 $ 67,995 ================================= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid $ 17,680,676 $ 19,244,877 ================================= NONCASH FINANCING ACTIVITIES: Net unrealized losses on available-for-sale securities $ (13,445,408) $ (1,910,407) ================================= Dividends declared, not yet paid $ 4,444,142 $ 4,082,456 ================================= See notes to financial statements. 7 ANNALY MORTGAGE MANAGEMENT, INC. STATEMENTS OF CASH FLOWS (Unaudited) - --------------------------------------------------------------------------------
FOR THE SIX FOR THE SIX MONTHS ENDED MONTHS ENDED JUNE 30, 1999 JUNE 30, 1998 ------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 9,182,405 $ 8,094,680 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of mortgage premiums and discounts, net 4,050,915 3,853,436 Gain on sale of Mortgage-Backed Securities (90,413) (1,722,959) Increase in accrued interest receivable (620,322) (2,240,482) Increase in other assets (190,951) (133,344) Increase in accrued interest payable 3,715,195 5,907,928 Increase (Decrease) in accounts payable 291,092 (75,544) -------------------------------- Net cash provided by operating activities 16,337,921 13,683,715 -------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of Mortgage-Backed Securities (356,751,056) (961,783,914) Proceeds from sale of Mortgage-Backed Securities 48,212,366 224,939,508 Principal payments on Mortgage-Backed Securities 235,805,425 232,134,576 -------------------------------- Net cash used in investing activities (72,733,265) (504,709,830) -------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from repurchase agreements 5,272,183,000 5,241,533,000 Principal payments on repurchase agreements (5,207,953,000) (4,744,134,000) Proceeds from exercise of stock options 196,496 193,700 Additional cost of initial public offering (130,248) Dividends paid (8,047,771) (6,879,514) --------------------------------- Net cash provided by financing activities 56,378,725 490,582,938 --------------------------------- NET INCREASE IN CASH AND CASH EQUIVALENTS (16,618) (443,177) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 69,020 511,172 ---------------------------------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 52,402 $ 67,995 ================================== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid $ 30,241,491 $ 30,493,126 ================================== NONCASH FINANCING ACTIVITIES: Net unrealized losses on available-for-sale securities $ (13,024,053) $ (1,910,407) ================================= Dividends declared, not yet paid $ 4,444,142 $ 4,082,456 =================================
See notes to financial statements. 8 Annaly Mortgage Management, Inc. NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Annaly Mortgage Management, Inc. (the "Company") was incorporated in Maryland on November 25, 1996. The Company commenced its operations of purchasing and managing Mortgage-Backed Securities on February 18, 1997, upon receipt of the net proceeds from the private placement of equity capital. An initial public offering was completed on October 14, 1997. A summary of the Company's significant accounting policies follows: Basis of Presentation - The accompanying unaudited financial statements have been prepared in conformity with the instructions to Form 10-Q and Article 10, Rule 10-01 of Regulation S-X for interim financial statements. The interim financial statements for the six month period are unaudited; however, in the opinion of the Company's management, all adjustments, consisting only of normal recurring accruals, necessary for a fair statement of the results of operations have been included. These unaudited financials statements should be read in conjunction with the audited financial statements included in the Company's Annual Report on form 10-K for the year ended December 31, 1998. The nature of the Company's business is such that the results of any interim period are not necessarily indicative of results for a full year. Cash and Cash Equivalents - Cash and cash equivalents includes cash on hand and money market funds. The carrying amounts of cash equivalents approximates their value. Mortgage-Backed Securities - The Company invests primarily in mortgage pass- through certificates, collateralized mortgage obligations and other mortgage- backed securities representing interests in or obligations backed by pools of mortgage loans (collectively, "Mortgage-Backed Securities"). Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities ("SFAS 115"), requires the Company to classify its investments as either trading investments, available-for-sale investments or held-to-maturity investments. Although the Company generally intends to hold most of its Mortgage-Backed Securities until maturity, it may, from time to time, sell any of its Mortgage-Backed Securities as part of its overall management of its balance sheet. Accordingly, this flexibility requires the Company to classify all of its Mortgage-Backed Securities as available-for-sale. All assets classified as available-for-sale are reported at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of stockholders' equity. Unrealized losses on Mortgage-Backed Securities that are considered other than temporary, as measured by the amount of decline in fair value attributable to factors other than temporary, are recognized in income and the cost basis of the Mortgage-Backed Securities is adjusted. There were no such adjustments for the quarter ended June 30, 1999 and the year ended December 31, 1998. Interest income is accrued based on the outstanding principal amount of the Mortgage-Backed Securities and their contractual terms. Premiums and discounts associated with the purchase of the Mortgage-Backed Securities are amortized into interest income over the lives of the securities using the effective yield method. Mortgage-Backed Securities transactions are recorded on the date the securities are purchased or sold. Purchases of newly issued securities are recorded when all significant uncertainties regarding the characteristics of the securities are removed, generally shortly before settlement date. Realized gains and losses on Mortgage-Backed Securities transactions are determined on the specific identification basis. 9 Credit Risk - At June 30, 1999 and December 31, 1998, the Company has limited exposure to credit losses on its portfolio of Mortgage-Backed Securities by only purchasing securities from Federal Home Loan Mortgage Corporation ("FHLMC"), Federal National Mortgage Association ("FNMA"), or Government National Mortgage Association ("GNMA"). The payment of principal and interest on the FHLMC and FNMA Mortgage-Backed Securities are guaranteed by those respective agencies and the payment of principal and interest on the GNMA Mortgage-Backed Securities are backed by the full-faith-and-credit of the U.S. government. At June 30, 1999 and December 31, 1998, all of the Company's Mortgage-Backed Securities have a "AAA" rating or an implied a "AAA" rating. Income Taxes - The Company has elected to be taxed as a Real Estate Investment Trust ("REIT") and intends to comply with the provisions of the Internal Revenue Code of 1986, as amended (the "Code") with respect thereto. Accordingly, the Company will not be subjected to Federal income tax to the extent of its distributions to shareholders and as long as certain asset, income and stock ownership tests are met. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 10 MORTGAGE-BACKED SECURITIES The following table pertains to the Company's Mortgage-Backed Securities classified as available-for-sale as of June 30, 1999, which are carried at their fair value:
Federal Home Federal Government Loan National National Total Mortgage Mortgage Mortgage Mortgage Corporation Association Association Assets Mortgage-Backed Securities, gross $424,033,991 $938,104,181 $106,408,686 $1,468,546,858 Unamoritized discount (167,685) (867,438) (1,035,123) Unamortized premium 8,489,757 15,666,584 1,864,019 26,020,360 -------------------------------------------------------------- Amortized cost 432,356,063 952,903,327 108,272,705 1,493,532,095 Gross unrealized gains 58,216 1,685,599 1,743,815 Gross unrealized losses (6,681,797) (12,136,017) (2,354,329) (21,172,143) -------------------------------------------------------------- Estimated fair value $425,732,482 $942,452,909 $105,918,376 $1,474,103,767 ==============================================================
The following table pertains to the Company's Mortgage-Backed Securities classified as available-for-sale as of December 31, 1998, which are carried at their fair value:
Federal Home Federal Government Loan National National Total Mortgage Mortgage Mortgage Mortgage Corporation Association Association Assets Mortgage-Backed Securities, gross $449,443,408 $955,650,670 $ 97,330,495 $1,502,414,573 Unamoritized discount (184,996) (423,583) -- (608,579) Unamortized premium 8,852,370 14,264,277 1,770,397 24,887,044 -------------------------------------------------------------- Amortized cost 458,100,782 969,491,364 99,100,892 1,526,693,038 Gross unrealized gains 659,557 2,092,119 549,900 3,301,576 Gross unrealized losses (3,487,784) ( 5,692,759) ( 525,309) ( 9,705,852) -------------------------------------------------------------- Estimated fair value $455,272,555 $965,890,724 $ 99,125,483 $1,520,288,762 ==============================================================
The adjustable rate Mortgage-Backed Securities are limited by periodic caps (generally interest rate adjustments are limited to no more than 1% every six months) and lifetime caps. At June 30, 1999, the weighted average lifetime cap was 9.55%. At December 31, 1998, the weighted average lifetime cap was 10.6%. 11 During the six months ended June 30, 1999 and 1998 , the Company realized $90,413 and $1,722,959 in gains from sales of Mortgage-Backed Securities, respectively. During the year ended December 31, 1998, the Company realized $3,344,070 in gains for sales of Mortgage-Backed Securities. There were no losses on sales of Mortgage-Backed Securities for the six months ended June 30, 1999 and 1998. Losses totaled $9,964 for the year ended December 31, 1998. 3. REPURCHASE AGREEMENTS As of June 30, 1999, the Company had outstanding $1,344,740,000 of repurchase agreements with a weighted average borrowing rate of 4.87% and a weighted average remaining maturity of 24 days. At June 30, 1999, Mortgage-Backed Securities actually pledged had an estimated fair value of $1,419,675,628. As of December 31, 1998, the Company had outstanding $1,280,510,000 of repurchase agreements with a weighted average borrowing rate of 5.21% and a weighted average remaining maturity of 29 days. At December 31, 1998, Mortgage-Backed Securities actually pledged had an estimated fair value of $1,458,669,078. At June 30, 1999 and December 31, 1998, the repurchase agreements had the following remaining maturities:
June 30, 1999 December 31, 1998 ------------------------------------ Within 30 days $ 57,545,000 $ 1,222,542,000 30 to 59 days 38,525,000 31,346,000 60 to 89 days 1,007,754,000 26,622,000 90 to 119 days 160,634,000 120 days and over 80,282,000 ------------------------------------ $1,344,740,000 $ 1,280,510,000 ------------------------------------
4. COMMON STOCK Options were exercised during the six month period ending June 30, 1999 increasing the total number of shares outstanding to 12,697,548. The number of stock options exercised was 49,124, with an aggregate purchase price of $196,496. During the year ended December 31, 1998, 44,124 options were exercised at an aggregate price of $195,100. Stock buybacks during the year ended December 31, 1999 totaled 109,600 shares at a cost of $903,163. During the Company's six months ending June 30, 1999, the Company declared dividends to shareholders totaling $8,634,250, or $0.68 per weighted average share, of which $4,444,142 was paid on July 28, 1999. During the Company's year ending December 31, 1998, the Company declared dividends to shareholders totaling $15,437,554, or $1.22 per weighted average share, of which $11,579,891 was paid during the period and $3,857,663 was paid on January 25, 1999. For Federal income tax purposes dividends paid for the year ended December 31, 1998 are ordinary income to the Company stockholders. 5. EARNINGS PER SHARE (EPS) In February 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting No. 128, Earnings Per Share (SFAS No. 128), which requires dual presentation of Basic EPS and Diluted EPS on the face of the income statement for all entities with complex capital structures. SFAS No. 128 also requires a reconciliation of the numerator and denominator of Basic EPS and Diluted EPS computation. For the six months ended June 30, 1999 the reconciliation is as follows: 12
For the Six Months Ended June 30, 1999 ------------------------------------------- Income Shares Per-Share (Numerator) (Denominator) Amount ------------------------------------------- Net income $ 9,182,405 ----------- Basic EPS 9,182,405 12,677,718 $ 0.72 Effect of dilutive securities: Dilutive stock options _ 280,000 ------------------------------------------- Diluted EPS $ 9,182,405 12,957,718 $ 0.71 ===========================================
Options to purchase 408,152 shares were outstanding during the quarter were dilutive, as the exercise price (between $4.00 and $8.94) was less than the average stock price for the six month period for the Company of $9.80. Options to purchase 147,676 shares of stock were outstanding during the period and are not considered dilutive. The exercise price (between $10.00 and $11.25) was greater than the average stock price for the six month period of $9.80. For the six months ended June 30, 1998, the reconciliation is as follows:
For the Six Months Ended June 30, 1998 ------------------------------------------- Income Shares Per-Share (Numerator) (Denominator) Amount ------------------------------------------- Net income $ 8,094,680 ----------- Basic EPS 8,094,680 12,742,623 $ 0.64 Effect of dilutive securities: Dilutive stock options _ 198,912 ------------------------------------------- Diluted EPS $ 8,094,680 12,941,535 $ 0.63 ===========================================
Options to purchase 312,226 shares were outstanding during the quarter and were dilutive as the exercise price (between $4.00 and $10.00) was less than the average stock price for the six month period for the Company of $10.66. Options to purchase 2,426 shares of stock were outstanding and not considered dilutive. The exercise price of $11.25 were greater than the average stock price of for the quarter of $10.66. 6. COMPREHENSIVE INCOME The Company adopted FASB Statement no. 130, Reporting Comprehensive Income, Statement no. 130 requires the reporting of comprehensive income in addition to net income from operations. Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of certain financial information that historically has not been recognized in the calculation of net income. The Company at June 30, 1999 and December 31, 1998 held securities classified as available-for-sale. At June 30, 1999 and December 31, 1998, the net unrealized losses totaled $19,428,328 and $6,404,275, respectively. 13 7. LEASE COMMITMENTS The Corporation has non-cancelable lease for office space, which commenced in April 1998 and expires in December 2007. The Corporation's aggregate future minimum lease payments are as follows: 1999 92,804 2000 95,299 2001 97,868 2002 100,515 2003 through 2007 582,406 --------- Total lease obligation $ 968,982 =========
8. RELATED PARTY TRANSACTION Included in "Other Assets" on the Balance sheet is an investment in Annaly International Money Management, Inc. On June 24, 1998, the Company acquired 99,960 nonvoting shares, at a cost of $49,980. The officers and directors of Annaly International Money Management Inc. are also officers and directors of the Company. 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Safe Harbor Statement "Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Statements in this discussion regarding the Company and its business which are not historical facts are "forward-looking statements" that involve risks and uncertainties. For a discussion of such risks and uncertainties, which could cause actual results to differ from those contained in the forward- looking statements, see "Risk Factors" in the Company's Form 10-K for the year ended December 31, 1998. Overview The Company is a real estate investment trust ("REIT") which acquires and manages Mortgage-Backed Securities which can be readily financed. The Company commenced operations on February 18, 1997 upon the closing of the Private Placement. The Company's initial public offering was completed on October 14, 1997. The Company's principal business objective is to generate net income for distribution to stockholders from the spread between the interest income on its Mortgage-Backed Securities and the costs of borrowing to finance its acquisition of Mortgage-Backed Securities. The Company will seek to generate growth in earnings and dividends per share in a variety of ways, including through (i) issuing new Common Stock and increasing the size of the balance sheet when opportunities in the market for Mortgage-Backed Securities are likely to allow growth in earnings per share, (ii) continually reviewing the mix of Mortgage- Backed Security types on the balance sheet in an effort to improve risk-adjusted returns, and (iii) attempting to improve the efficiency of the Company's balance sheet structure through the issuance of uncollateralized subordinated debt, preferred stock and other forms of capital, to the extent management deems such issuances appropriate. Results of Operations: For the Quarter Ended June 30, 1999 and 1998 Net Income Summary For the quarter ended June 30, 1999, net income, as calculated according to Generally Accepted Accounting Principles ("GAAP"), was $4,863,949, or $.38 basic earnings per share, as compared to the quarter ended June 30, 1998 of was $3,386,530, or $0.27 basic earnings per share. Taxable earnings per share for the quarter ended June 30, 1999 was approximately $5,095,224 or $0.40 per average share. For the six months ended June 30, 1999, GAAP net income was $9,182,405 or $0.72 basic per average share, as compared to the six months ended June 30, 1998 of $8,094,680 or $0.64 basic per average share. Taxable income for the six months ended June 30, 1999 was approximately $9,511,171, or $0.75 per share. Net income per share is computed by dividing net income by the weighted average number of shares of outstanding Common Stock during the six month period, which was 12,677,718, and 12,697,338 for the quarter. Dividends per weighted average number of shares outstanding for the quarter ended June 30, 1999 was $0.35 per share, $4,444,142 in total. Dividends per weighted average number of shares outstanding for the quarter ended June 30, 1998 was $0.32 per share, $4,082,456 in total. Return on average equity was 16.20% and 10.31% on an annualized basis for the quarter ended June 30, 1999 and 1998, respectively. 15 Net Income Summary ------------------
Quarter Ended Six months Ended June 30, 1999 June 30, 1999 (dollars in thousands, except (dollars in thousands, except per share amounts) per share amounts) -------------------------------- ----------------------------- Interest Income $ 22,264 $ 44,280 Interest Expense 16,865 34,017 -------------------------------- ----------------------------- Net Interest Income 5,399 10,263 Gain on Sale of Mortgage-Backed Securities 26 90 General and Administrative Expenses 561 1,171 -------------------------------- ----------------------------- Net Income $ 4,864 $ 9,182 ================================ ============================= Average Number of Outstanding Shares 12,697,338 12,677,718 Basic Net Income Per Share $ 0.38 $ 0.72 Diluted Net Income Per Share $ 0.37 $ 0.71 Average Total Assets $ 1,496,793 $ 1,508,687 Average Equity $ 120,104 $ 123,112 Annualized Return on Average Assets 1.30% 1.22% Annualized Return on Average Equity 16.20% 14.92%
Taxable Income and GAAP Income For the quarter ended June 30, 1999 and 1998, income as calculated for tax purposes (taxable income) differed from income as calculated according to generally accepted accounting principles (GAAP income). The differences were in the calculations of premium and discount amortization, gains on sale of Mortgage-Backed Securities, and general and administrative expenses. The distinction between taxable income and GAAP income is important to the Company's stockholders because dividends are declared on the basis of taxable income. While the Company does not pay taxes so long as it satisfies the requirements for exemption from taxation pursuant to the REIT Provisions of the Code, each year the Company completes a corporate tax form wherein taxable income is calculated as if the Company were to be taxed. This taxable income level determines the amount of dividends the Company can pay out over time. The table below presents the major differences between GAAP and taxable income for the Company for the quarter ended June 30, 1999, March 31, 1999, the year ended December 31, 1998, and the four quarters in 1998. Taxable Income --------------
GAAP Net Income Taxable General & Taxable Taxable Gain on Taxable Net Income Administrative Mortgage Sale of Securities Differences Amortization Differences Differences (dollars in thousands) For the Quarter Ended June 30, 1999 $ 4,864 $2 $ 230 ($1) $ 5,095 For the Quarter Ended March 31, 1999 $ 4,318 - $ 98 - $ 4,416 For the Year Ended December 31, 1998 $15,489 $6 $ 969 ($331) $16,133 For the Quarter Ended December 31, 1998 $ 3,685 $3 $ 439 ($20) $ 4,107 For the Quarter Ended September 30, 19 $ 3,709 - $ 228 $ 83 $ 4,020 For the Quarter Ended June 30, 1998 $ 3,387 $2 $ 376 ($19) $ 3,746 For the Quarter Ended March 31, 1998 $ 4,708 $1 ($74) ($375) $ 4,260
16 Interest Income and Average Earning Asset Yield The Company had average earning assets of $1.5 billion for the quarter ended June 30, 1999 and $1.6 billion for the quarter ended June 30, 1998. The Company's primary source of income for the quarter ended June 30, 1999 and 1998 was interest income. A portion of income was generated by gains on sales of Mortgage-Backed Securities. Interest income was $22.3 and $23.8 million for the quarters ended June 30, 1999 and 1998, respectively. The yield on average earning assets was 5.95% and 6.13% for the same respective periods. The average asset balance decreased by $54.2 million for the quarter ended June 30, 1999 as compared to the quarter ended June 30, 1998 and the yield decreased by 0.18%, which resulted in a decrease in interest income. The table below shows the Company's average balance of cash equivalents and Mortgage-Backed Securities, the yields earned on each type of earning assets, the yield on average earning assets and interest income for the quarter ended June 30, 1999, March 31, 1999, the year ended December 31, 1998, and the four quarters in 1998. Average Earning Asset Yield ---------------------------
Average Amortized Cost of Yield on Average Mortgage- Yield on Average Amortized Cash Backed Average Earning Average Cash Cost of Mortgage- Equivalents Securities Assets Equivalents Backed Securities ----------- ---------- ---------------- ------------ ----------------- (dollars in thousands) For the Quarter Ended June 30, 1999 $2 $1,496,793 $1,496,795 4.30% 5.95% For the Quarter Ended March 31, 1999 $2 $1,502,627 $1,502,629 4.01% 5.87% - ------------------------------------------------------------------------------------------------------------------------------ For the Year Ended December 31, 1998 $2 $1,461,789 $1,461,791 4.32% 6.16% For the Quarter Ended December 31, 1998 $2 $1,446,094 $1,446,096 4.28% 6.12% For the Quarter Ended September 30, 1998 $2 $1,543,010 $1,543,012 4.20% 6.22% For the Quarter Ended June 30, 1998 $2 $1,550,968 $1,568,024 4.35% 6.13% For the Quarter Ended March 31, 1998 $2 $1,307,088 $1,307,090 4.45% 6.15% Yield on Average Earning Interest Assets Income ---------------- -------- For the Quarter Ended June 30, 1999 5.95% $22,265 For the Quarter Ended March 31, 1999 5.87% $22,015 For the Year Ended December 31, 1998 6.16% $89,985 For the Quarter Ended December 31, 1998 6.12% $22,136 For the Quarter Ended September 30, 1998 6.22% $24,009 For the Quarter Ended June 30, 1998 6.13% $23,762 For the Quarter Ended March 31, 1998 6.15% $20,079
The Constant Prepayment Rate (or "CPR") on the Company's portfolio of Mortgage-Backed Securities for the quarters ended June 30, 1999 and June 30, 1998 was 21%. "CPR" means an assumed rate of prepayment for the Company's Mortgage-Backed Securities, expressed as an annual rate of prepayment relative to the outstanding principal balance of the Company's Mortgage-Backed Securities. This CPR does not purport to be either a historical description of the prepayment experience of the Company's Mortgage-Backed Securities or a prediction of the anticipated rate of prepayment of the Company's Mortgage- Backed Securities. Since a large portion of the Company's assets was purchased at a premium to par value and only a small portion of the Company's assets was purchased at a discount to par value, the premium balance in the Company's portfolio is substantially higher than the discount balance. Principal prepayments had a negative effect on the Company's earning asset yield for the quarters ended June 30, 1999 and 1998 because the Company adjusts its rates of premium amortization and discount accretion monthly based upon the effective yield method, which takes into consideration changes in prepayment speeds. Interest Expense and the Cost of Funds The Company anticipates that its largest expense will usually be the cost of borrowed funds. The Company had average borrowed funds of $1.4 billion and total interest expense of $16.9 million for the quarter ended June 30, 1999. The Company had average borrowed funds of $1.4 billion and total interest expense of $20.2 million for the quarter ended June 30, 1998. The average cost of funds was 4.91% and 5.60% for the quarter ended June 30, 1999 and 1998, respectively. The cost of funds rate declined 0.69% for the quarter ended June 30, 1999 when compared to the quarter ended June 30, 1998; consequently, interest expense decreased by 16% for the same time period. With the Company's current asset/liability management strategy, changes in the Company's cost of funds are expected to be closely correlated with changes in short-term LIBOR, although the Company may choose to extend the maturity of its liabilities at any time. The Company's average cost of funds was 0.05% below one-month LIBOR for the quarter ended June 30, 1998 and 0.06% for the quarter ended June 30, 1998. The Company generally has structured its borrowings to adjust with one-month LIBOR because the Company believes that one-month LIBOR may continue to be lower than six-month LIBOR in the present interest rate environment. During the quarter ended June 30, 1999, average one-month LIBOR, which was 4.96%, was 0.23% lower than average six-month LIBOR, which was 5.19%. During the quarter ended June 30, 1998, average one-month LIBOR, which was 5.66%, was 0.09% lower than average six-month LIBOR, which was 5.75%. 17 The table below shows the Company's average borrowed funds and average cost of funds as compared to average one- and average six-month LIBOR for the quarter ended June 30, 1999, March 31, 1999, the year ended December 31, 1998, and the four quarters in 1998.
Average Cost of Funds --------------------- Average One- Average Cost Average Month LIBOR of Funds Average Cost of Average Average One- Average Relative to Relative to Funds Relative Borrowed Interest Cost of Month Six- Average Six- Average One- to Average Six- Funds Expense Funds LIBOR Month LIBOR Month LIBOR Month LIBOR Month LIBOR ---------------------------------------------------------------------------------------------------------- (dollars in thousands) For the Quarter Ended June 30, 1999 $1,374,154 $16,865 4.91% 4.96% 5.19% (0.23%) (0.05%) (0.28%) For the Quarter Ended March 31, 1999 $1,381,663 $17,151 4.97% 4.96% 5.05% (0.09%) 0.01% (0.08%) - ----------------------------------------------------------------------------------------------------------------------------- For the Year Ended December 31, 1998 $1,360,040 $75,735 5.57% 5.57% 5.54% 0.03% - 0.03% For the Quarter Ended December 31, 1998 $1,371,240 $18,479 5.39% 5.36% 5.10% 0.26% 0.03% 0.29% For the Quarter Ended September 30, 1998 $1,460,612 $20,765 5.68% 5.62% 5.63% (0.01%) 0.06% 0.05% For the Quarter Ended June 30, 1998 $1,440,822 $20,178 5.60% 5.66% 5.75% (0.09%) (0.06%) (0.15%) For the Quarter Ended March 31, 1998 $1,167,483 $16,313 5.59% 5.64% 5.68% (0.04%) (0.05%) (0.09%)
Net Interest Rate Agreement Expense The Company has not entered into any interest rate agreements to date. As part of its asset/liability management process, the Company may enter into interest rate agreements such as interest rate caps, floors and swaps. These agreements would be entered into to reduce interest rate or prepayment risk and would be designed to provide income and capital appreciation to the Company in the event of certain changes in interest rates. However, even after entering into such agreements, the Company would still be exposed to interest rate and prepayment risks. The Company reviews the need for interest rate agreements on a regular basis consistent with its Capital Investment Policy. Net Interest Income Net interest income, which equals interest income less interest expense, totaled $5.4 million for the quarter ended June 30, 1999 and $3.6 million for the quarter ended June 30, 1998. Net interest spread, which equals the yield on the Company's average assets for the period less the average cost of funds for the period, was 1.04% for the quarter ended June 30, 1999 compared to 0.53% for the quarter ended June 30, 1998. This 0.56% increase in spread income is reflected in the $1.8 million increase in net interest income. Net interest margin, which equals net interest income divided by average total assets, was 1.44% and 0.99% on an annualized basis for the quarter ended June 30, 1999 and 1998, respectively. Income for the first six months of 1999 reflects a greater emphasis on net interest income and less dependence on gains on disposition of assets, when compared to the first six months of 1998. Net interest income increased because of lower funding cost for the period. This increase was partially offset by lower yields on assets. Taxable net interest income was approximately $230,405 more than GAAP net interest income because of differing premium amortization, for the quarter ended June 30, 1999. Taxable net interest income was $376,436 greater than GAAP net interest income because of differing premium and discount amortization, for the quarter ended June 30, 1998. The principal reason that annualized net interest margin exceeded net interest spread is that average assets exceeded average liabilities. A portion of the Company's assets are funded with equity rather than borrowings. The Company did not have any interest rate agreement expenses for the quarter ended June 30, 1999 and 1998. The table below shows interest income by earning asset type, average earning assets by type, total interest income, interest expense, average repurchase agreements, average cost of funds, and net interest income for the quarter ended June 30, 1999, March 31, 1999 , the year ended December 31, 1998, and the four quarter in 1998. 18 GAAP Net Interest Income ------------------------ (dollars in thousands)
Average Yield on Amortized Cost Interest Interest Average Average of Income on Average Income on Total Interest Balance of Mortgage-Backed Mortgage-Backed Cash Cash Interest Earning Repurchase Securities Held Securities Equivalents Equivalents Income Assets Agreements -------------------------------------------------------------------------------------------------------- For the Quarter Ended June 30, 1999 $1,493,532 $22,265 $2 - $22,265 5.95% $1,374,154 For the Quarter Ended March 31, 1999 $1,502,629 $22,015 $2 - $22,015 5.87% $1,381,663 - ----------------------------------------------------------------------------------------------------------------------------------- For the Year Ended December 31, 1998 $1,461,790 $89,986 $2 - $89,986 6.16% $1,360,040 For the Quarter Ended December 31, 1998 $1,446,094 $22,136 $2 - $22,136 6.12% $1,371,240 For the Quarter Ended September 30, 1998 $1,543,010 $24,009 $2 - $24,009 6.22% $1,460,612 For the Quarter Ended June 30, 1998 $1,550,968 $23,762 $2 - $23,762 6.13% $1,440,822 For the Quarter Ended March 31, 1998 $1,307,088 $20,079 $2 - $20,079 6.15% $1,167,483 Average Net Interest Cost of Interest Expense Funds Income ------------------------------------- For the Quarter Ended June 30, 1999 $16,865 4.91% $ 5,399 For the Quarter Ended March 31, 1999 $17,151 4.97% $ 4,864 - --------------------------------------------------------------- For the Year Ended December 31, 1998 $75,735 5.57% $14,250 For the Quarter Ended December 31, 1998 $18,479 5.39% $ 3,657 For the Quarter Ended September 30, 1998 $20,765 5.68% $ 3,244 For the Quarter Ended June 30, 1998 $20,178 5.60% $ 3,584 For the Quarter Ended March 31, 1998 $16,313 5.59% $ 3,765
Gains and Losses on Sales of Mortgage-Backed Securities For the quarter ended June 30, 1999, the Company sold Mortgage-Backed Securities with an aggregate historical amortized cost of $16.4 million for an aggregate gain of $25,853. During the quarter ended June 30, 1998, the Company sold Mortgage-Backed Securities with an aggregate historical amortized cost of $80.9 million for an aggregate gain of $295,875 million. As stated above, the gain on the sale of assets declined substantially. For the quarter ended June 30, 1999, there was a greater emphasis on spread income and not gains. Taxable gains were approximately $1,330 less than GAAP gains on sale of securities for the quarter ended June 30, 1999. Taxable gains were approximately $18,948 less than GAAP gains on sale of securities for the quarter ended June 30, 1999. The difference between the sale price and the historical amortized cost of the Mortgage-Backed Securities is a realized gain and increased income accordingly. The Company does not expect to sell assets on a frequent basis, but may from time to time sell existing assets to move into new assets which management believes might have higher risk-adjusted returns or to manage its balance sheet as part of management's asset/liability management strategy. Credit Expenses The Company has not experienced credit losses on its portfolio of Mortgage- Backed Securities to date, but losses may be experienced in the future. To date, the Company had limited its exposure to credit losses on its portfolio of Mortgage-Backed Securities by purchasing only securities, issued or guaranteed by FNMA, FHLMC or GNMA ("Agency certificates"), which, although not rated, carry an implied "AAA" rating. General and Administrative Expenses General and administrative expenses ("operating expense" or "G&A expense") were $561,010 for the quarter ended June 30, 1999 and $493,718 for the quarter ended June 30, 1998. Taxable G&A expenses were approximately $2,100 and $2,200 less than for GAAP purposes for the quarters ended June 30, 1999 and 1998, respectively. G&A expense increased as a percentage of assets to 0.15% for the quarter ended June 30, 1999 compared to 0.13% for the same quarter in the previous year. The Company experienced economies of scale with the increasing asset base and because it is internally managed. Also, it intends to continue to be a low cost provider. 19 GAAP G&A Expense and Operating Expense Ratios ---------------------------------------------
Total G&A Total G&A Cash Comp and Expense/Average Expense/Average Benefits Other G&A Total G&A Assets Equity Expense Expense Expense (annualized) (annualized) --------------------------------------------------------------------------------------- (dollars in thousands) For the Quarter Ended $ 338 $223 $ 561 0.15% 1.44% June 30, 1999 For the Quarter Ended $ 333 $277 $ 610 0.16% 1.93% March 31, 1999 - -------------------------------------------------------------------------------------------------------------------------- For the Year Ended December 31, 1998 $1,210 $896 $2,106 0.14% 1.60% For the Quarter Ended December 31, 1998 $ 380 $219 $ 599 0.15% 1.90% For the Quarter Ended September 30, 1998 $ 318 $210 $ 528 0.13% 1.61% For the Quarter Ended June 30, 1998 $ 252 $242 $ 494 0.13% 1.50% For the Quarter Ended March 31, 1998 $ 259 $225 $ 484 0.15% 1.44%
Net Income and Return on Average Equity Net income was $4.9 million in the quarter ended June 30, 1999 and $3.4 million for the quarter ended June 30, 1998. Return on average equity was 16.20% on an annualized basis for the quarter ended June 30, 1999 and 10.31% on an annualized basis for the quarter ended June 30, 1998. The increase in net income is a direct result of an increase in spread income. As previously mentioned, the substantial decline in interest expense was the primary factor of increased earnings. The table below shows the Company's net interest income, gain on sale of Mortgage-Backed Securities and G&A expense each as a percentage of average equity, and the return on average equity for the quarter ended June 30, 1999, March 31, 1999, the year ended December 31, 1998 and the four quarters in 1998. Components of Return on Average Equity --------------------------------------
Gain on Sale of Mortgage-Backed Net Interest Securities/ Income/Average Average G&A Expense/Average Return on Average Equity Equity Equity Equity ----------------------------------------------------------------------------------- For the Quarter Ended June 30, 1999 (on an annualized basis) 17.99% 0.08% 1.87% 16.20% For the Quarter Ended March 31, 1999 (on an annualized basis) 15.43% 0.20% 1.93% 13.70% - ---------------------------------------------------------------------------------------------------------------------------------- For the Year ended December 31, 1998 10.85% 2.55% 1.60% 11.80% For the Quarter Ended December 31, 1998 (on an annualized basis) 11.45% 1.97% 1.90% 11.71% For the Quarter Ended September 30, 1998 (on an annualized basis) 9.89% 3.03% 1.61% 11.31% For the Quarter Ended June 30, 1998 (on an annualized basis) 10.92% 1.90% 1.50% 10.31% For the Quarter March 31, 1998 (on an annualized basis) 11.18% 4.23% 1.44% 13.97%
20 Dividends and Taxable Income The Company has elected to be taxed as a REIT under the Code. Accordingly, the Company intends to distribute substantially all of its taxable income for each year to stockholders, including income resulting from gains on sales of Mortgage-Backed Securities. Through June 30, 1999, earned taxable income exceeded dividend declarations by $1.2 million, or $0.10 per share, based on the number of shares of Common Stock outstanding at period end. Dividend Summary ----------------
Weighted Cumulative Taxable Average Common Taxable Net Dividends Dividend Undistributed Net Shares Income Declared Total Pay-out Taxable Income Outstanding Per Share Per Share Dividends Ratio Income --------------------------------------------------------------------------------------------------- (dollars in thousands, except per share data) For the Quarter Ended June 30, 1999 $ 5,095 12,697,338 $0.40 $ 0.35 $ 4,444 87.1% $1,219 For the Quarter Ended March 31, 1999 $ 4,416 12,657,884 $0.35 $ 0.33 $ 4,190 94.9% $1,115 - ----------------------------------------------------------------------------------------------------------------------------------- For the Year Ended December 31, 1998 $16,133 12,709,116 $1.27 $1.215 $15,437 95.7% $ 889 For the Quarter Ended December 31, 1998 $ 4,107 12,648,116 $0.32 $0.315 $ 3,859 93.96% $ 889 For the Quarter Ended September 30, 1998 $ 4,020 12,704,194 $0.32 $ 0.27 $ 3,415 83.74% $ 641 For the Quarter Ended June 30, 1998 $ 3,746 12,757,674 $0.29 $ 0.32 $ 4,082 108.39% $ 36 For the Quarter Ended March 31, 1998 $ 4,260 12,727,405 $0.33 $ 0.32 $ 4,082 88.07% $ 372
Financial Condition Mortgage-Backed Securities All of the Company's Mortgage-Backed Securities at June 30, 1999 were adjustable-rate or fixed-rate Mortgage-Backed Securities backed by Single-Family Mortgage Loans. All of the mortgage assets underlying such Mortgage-Backed Securities were secured with a first lien position with respect to the underlying single-family properties. All the Company's Mortgage-Backed Securities were Agency Certificates, which carry a S&P "AAA" rating or an implied "AAA" rating. All of the Company's earning assets are marked-to-market at liquidation value. Discount balances are accreted as an increase in interest income over the life of discount Mortgage-Backed Securities and premium balances are amortized as a decrease in interest income over the life of premium Mortgage-Backed Securities. At June 30, 1999 and 1998, the Company had on its balance sheet a total of $1.0 million and $648,066, respectively, of unamortized discount (which is the difference between the remaining principal value and current historical amortized cost of Mortgage-Backed Securities acquired at a price below principal value) and a total of $26.0 million and $27.2 million, respectively, of unamortized premium (which is the difference between the remaining principal value and the current historical amortized cost of Mortgage-Backed Securities acquired at a price above principal value). Mortgage principal repayments received were $110.3 million and $137.9 million for the quarter ended June 30, 1999 and 1998, respectively. Given the Company's current portfolio composition, if mortgage principal prepayment rates increase over the life of the Mortgage-Backed Securities comprising the current portfolio, all other factors being equal, the Company's net interest income should decrease during the life of such Mortgage-Backed Securities as the Company will be required to amortize its net premium balance into income over a shorter time period. Similarly, if mortgage principal prepayment rates decrease over the life of such Mortgage-Backed Securities, all other factors being equal, the Company's net interest income should increase during the life of such Mortgage-Backed Securities as the Company will amortize its net premium balance over a longer time period. 21 The table below summarizes the Company's Mortgage-Backed Securities at June 30, 1999, March 31, 1999 and the four quarters in the year ended December 31, 1998. Mortgage-Backed Securities ---------------------------
Estimated Fair Amortized Estimated Value/ Weighted Net Amortized Cost/Principal Fair Principal Average Principal Value Premium Cost Value Value Value Yield ----------------------------------------------------------------------------------------------- (dollars in thousands) At June 30, 1999 $1,468,547 $24,985 $1,493,532 101.70% $1,474,104 100.38% 6.21% At March 31, 1999 $1,527,530 $26,071 $1,553,601 101.71% $1,547,618 101.32% 5.94% - --------------------------------------------------------------------------------------------------------------------------------- At December 31, 1998 $1,502,414 $24,278 $1,526,692 101.62% $1,520,289 101.19% 6.43% At September 30, 1998 $1,461,056 $24,244 $1,485,300 101.66% $1,483,195 101.52% 6.49% At June 30, 1998 $1,541,520 $26,532 $1,568,052 101.72% $1,566,188 101.60% 6.50% At March 31, 1998 $1,495,670 $25,265 $1,520,935 101.70% $1,518,847 101.55% 6.51%
The tables below set forth certain characteristics of the Company's Mortgage-Backed Securities. The index level for adjustable-rate Mortgage-Backed Securities is the weighted average rate of the various short-term interest rate indices which determine the coupon rate. Adjustable-Rate Mortgage-Backed Security Characteristics --------------------------------------------------------
Weighted Weighted Weighted Weighted Principal Value at Average Average Average Average Term Weighted Weighted Period End as % of Principal Coupon Index Net to Next Average Average Asset Mortgage- Value Rate Level Margin Adjustment Lifetime Cap Yield Backed Securities ------------------------------------------------------------------------------------------------------------- (dollars in thousands) At June 30, 1999 $ 941,559 6.67% 4.96% 1.71% 11 months 11.00% 5.84% 64.12% At March 31, 1999 $1,036,947 6.63% 4.97% 1.66% 11 months 11.01% 5.64% 67.88% - ------------------------------------------------------------------------------------------------------------------------------------ At December 31, 1998 $1,030,654 6.84% 5.18% 1.66% 12 months 10.63% 6.42% 68.60% At September 30, 1998 $1,050,177 6.78% 5.20% 1.68% 13 months 10.42% 6.51% 71.88% At June 30, 1998 $1,140,518 6.86% 5.20% 1.66% 15 months 10.42% 6.46% 73.98% At March 31, 1998 $1,176,716 6.89% 5.45% 1.61% 12 months 10.00% 6.46% 78.68%
Fixed-Rate Mortgage-Backed Security Characteristics ---------------------------------------------------
Principal Value as % Weighted Average Weighted Average of Mortgage-Backed Principal Value Coupon Rate Asset Yield Securities ----------------------------------------------------------------------------------- (dollars in thousands) At June 30, 1999 $526,988 6.58% 6.88% 35.88% At March 31, 1999 $490,583 6.54% 6.37% 32.12% - ---------------------------------------------------------------------------------------------------------------- At December 31, 1998 $471,760 6.55% 6.47% 31.40% At September 30, 1998 $410,879 6.69% 6.47% 28.12% At June 30, 1998 $401,002 6.82% 6.65% 26.02% At March 31, 1998 $318,954 6.85% 6.70% 21.32%
At June 30, 1999, the Company held Mortgage-Backed Securities with coupons linked to the one-year and three-year and five-year Treasury Indices, one-month LIBOR and the six-month CD rate. The table below segments the Company's 22 adjustable-rate Mortgage-Backed Securities by type of adjustment index, coupon adjustment frequency and annual and lifetime cap adjustment. Adjustable-Rate Mortgage-Backed Securities by Index --------------------------------------------------- June 30, 1999 -------------
1-Year 3-Year 5-Year One-Month Six-Month Treasury Treasury Treasury LIBOR CD Rate Index Index Index -------------------------------------------------------- Weighted Average Adjustment Frequency 1 mo. 6 mo. 43 mo. 36 mo. 60 mo. Weighted Average Term to Next Adjustment 1 mo. 3 mo. 19 mo. 16 mo. 14 mo. Weighted Average Annual Period Cap None 1.00% 1.75% 1.79% 1.33% Weighted Average Lifetime Cap at June 30, 1999 9.13% 10.68% 12.02% 13.17% 11.62% Mortgage Principal Value as Percentage of Mortgage-Backed Securities at June 30, 1999 23.85% 2.66% 28.39% 0.08% 0.01%
At December 31, 1998, the Company held Mortgage-Backed Securities with coupons linked to the one-year and three-year Treasury indices, one-month LIBOR, and the six-month CD rate. The table below segments the Company's adjustable- rate Mortgage Backed Securities by type of adjustment index, coupon adjustment frequency, and annual and lifetime cap adjustment. Adjustable-Rate Mortgage-Backed Securities by Index --------------------------------------------------- December 31, 1998 -----------------
1-Year 3-Year 5-Year One-Month Six-Month Treasury Treasury Treasury LIBOR CD Rate Index Index Index ---------------------------------------------------------------- Weighted Average Adjustment Frequency 1 mo. 6 mo. 32 mo. 36 mo. 60 mo. Weighted Average Term to Next Adjustment 1 mo. 3 mo. 23 mo. 9 mo. 2 mo. Weighted Average Annual Period Cap None 1.00% 1.83% 2.00% 2.00% Weighted Average Lifetime Cap at December 31, 1998 9.16% 11.04% 11.76% 13.07% 11.57% Mortgage Principal Value as Percentage of Mortgage-Backed Securities at December 31, 1998 29.60% 3.73% 33.33% 1.62% 0.32%
The table below shows unrealized gains and losses on the Mortgage-Backed Securities in the Company's portfolio. Unrealized Gains and Losses --------------------------- (dollars in the thousands)
At June 30, At March 31, At December 31, At September 30, At June 30, 1999 1999 1999 1998 1998 ------------------------------------------------------------------------- Unrealized Gain $ 1,744 $ 2,801 $ 3,302 $ 7,060 $ 2,826 Unrealized Loss (21,172) (8,784) (9,706) (9,164) (4,736) ------------------------------------------------------------------------- Net Unrealized Loss (19,428) (5,983) (6,404) (2,104) (1,910) ========================================================================= Net Unrealized Loss as % of Mortgage-Backed Securities Principal Value (1.32%) (0.39%) (0.43%) (0.18%) (0.12%) Net Unrealized Loss as % of Mortgage-Backed Securities Amortized Cost (1.30%) (0.39%) (0.42%) (0.17%) (0.12%)
23 Interest Rate Agreements Interest rate agreements are assets that are carried on a balance sheet at estimated liquidation value. At June 30, 1999 and December 31, 1998, there were no interest rate agreements on the Company's balance sheet. No interest rate agreements have been entered into since inception of the Company. Borrowings To date, the Company's debt has consisted entirely of borrowings collateralized by a pledge of the Company's Mortgage-Backed Securities. These borrowings appear on the balance sheet as repurchase agreements. At June 30, 1999, the Company had established uncommitted borrowing facilities in this market with twenty-four lenders in amounts which the Company believes are in excess of its needs. All of the Company's Mortgage-Backed Securities are currently accepted as collateral for such borrowings. The Company, however, limits its borrowings, and thus its potential asset growth, in order to maintain unused borrowing capacity and thus increase the liquidity and strength of its balance sheet. For the quarter ended June 30, 1999 and 1998, the term to maturity of the Company's borrowings has ranged from one day to one year, with a weighted average original term to maturity of 72 days and 90 days, respectively. The weighted average remaining maturity was 24 days and 42 days at June 30, 1999 and 1998, respectively. At June 30, 1999, the weighted average cost of funds for all of the Company's borrowings was 4.87% and the weighted average term to next rate adjustment was 24 days. At June 30, 1998, the weighted average cost of funds for all of the Company's borrowings was 5.58% and the weighted average term to next rate adjustment was 42 days. Liquidity Liquidity, which is the Company's ability to turn non-cash assets into cash, allows the Company to purchase additional Mortgage-Backed Securities and to pledge additional assets to secure existing borrowings should the value of pledged assets decline. Potential immediate sources of liquidity for the Company include cash balances and unused borrowing capacity. Unused borrowing capacity will vary over time as the market value of the Company's Mortgage- Backed Securities varies. The Company's balance sheet also generates liquidity on an on-going basis through mortgage principal repayments and net earnings held prior to payment as dividends. Should the Company's needs ever exceed these on- going sources of liquidity plus the immediate sources of liquidity discussed above, management believes that the Company's Mortgage-Backed Securities could in most circumstances be sold to raise cash. The maintenance of liquidity is one of the goals of the Company's Capital Investment Policy. Under this policy, asset growth is limited in order to preserve unused borrowing capacity for liquidity management purposes. Stockholders' Equity The Company uses "available-for-sale" treatment for its Mortgage-Backed Securities; these assets are carried on the balance sheet at estimated market value rather than historical amortized cost. Based upon such "available-for- sale" treatment, the Company's equity base at June 30, 1999 was $113.6 million, or $8.95 per share. If the Company had used historical amortized cost accounting, the Company's equity base at June 30, 1999 would have been $133.0 million, or $10.48 per share. The Company's equity base at June 30, 1998 was $131.1 million, or $10.28 per share. If the Company had used historical amortized cost accounting, the Company's equity base at June 30, 1998 would have been $133.0 million, or $10.43 per share. With the Company's "available-for-sale" accounting treatment, unrealized fluctuations in market values of assets do not impact GAAP or taxable income but rather are reflected on the balance sheet by changing the carrying value of the asset and reflecting the change in stockholders' equity under "Accumulated Other Comprehensive Income." By accounting for its assets in this manner, the Company hopes to provide useful information to stockholders and creditors and to preserve flexibility to sell assets in the future without having to change accounting methods. As a result of this mark-to-market accounting treatment, the book value and book value per share of the Company are likely to fluctuate far more than if the Company used historical amortized cost accounting. As a result, comparisons with companies that use historical cost accounting for some or all of their balance sheet may be misleading. Unrealized changes in the estimated net market value of Mortgage-Backed Securities have one direct effect on the Company's potential earnings and dividends: positive market-to-market changes will increase the Company's equity base and allow the Company to increase its borrowing capacity while negative changes will tend to limit borrowing capacity under the Company's Capital Investment Policy. A very large negative change in the net market value of the Company's Mortgage-Backed Securities might impair the Company's liquidity position, requiring the Company to sell assets with the likely result of realized losses upon sale. "Net Unrealized Losses on Assets Available for Sale" was $19.4 million, or 1.30% of the amortized cost of 24 Mortgage-Backed Securities at June 30, 1999. "Net Unrealized Losses on Assets Available for Sale" was $1.9 million, or 0.12% of the amortized cost of Mortgage-Backed Securities at June 30, 1998. The table below shows the Company's equity capital base as reported and on a historical amortized cost basis at June 30, 1999, March 31, 1998, December 31, 1998, September 30, 1998, June 30, 1998, and March 31, 1998. Issuances of Common Stock, the level of GAAP earnings as compared to dividends declared, and other factors influence the historical cost equity capital base. The GAAP reported equity capital base is influenced by these factors plus changes in the "Net Unrealized Losses on Assets Available for Sale" account. Stockholders' Equity --------------------
GAAP Historical Net Unrealized Gains Reported Historical GAAP Reported Amortized Cost on Assets Available Equity Base Amortized Cost Equity (Book Value) Equity Base for Sale (Book Value) Equity Per Share Per Share ------------------------------------------------------------------------------------------------------- (dollars in thousands, except per share data) At June 30, 1999 $133,020 ($19,428) $113,592 $10.48 $ 8.95 At March 31, 1999 $132,599 ($5,983) $126,617 $10.44 $ 9.97 - -------------------------------------------------------------------------------------------------------------------------------- At December 31, 1998 $132,275 ($6,404) $125,871 $10.46 $ 9.95 At September 30, 1998 $132,446 ($2,105) $130,342 $10.47 $10.30 At June 30, 1998 $133,055 ($1,910) $131,145 $10.43 $10.28 At March 31, 1998 $133,751 ($2,088) $131,663 $10.48 $10.32
Leverage The Company's debt-to-GAAP reported equity ratio at June 30, 1999 and June 30, 1998 was 11.8:1 and 10.8:1, respectively. The Company generally expects to maintain a ratio of debt-to-equity of between 8:1 and 12:1, although the ratio may vary from time to time based upon various factors, including management's opinion of the level of risk of its assets and liabilities, the Company's liquidity position, the level of unused borrowing capacity and over- collateralization levels required by lenders when the Company pledges assets to secure borrowings. The target debt-to-GAAP reported equity ratio is determined under the Company's Capital Investment Policy. Should the actual debt-to-equity ratio of the Company increase above the target level due to asset acquisition and/or market value fluctuations in assets, management will cease to acquire new assets. Management will, at such time, present a plan to its Board of Directors to bring the Company back to its target debt-to-equity ratio; in many circumstances, this would be accomplished in time by the monthly reduction of the balance of Mortgage-Backed Securities through principal repayments. Asset/Liability Management and Effect of Changes in Interest Rates Management continually reviews the Company's asset/liability management strategy with respect to interest rate risk, mortgage prepayment risk, credit risk and the related issues of capital adequacy and liquidity. The Company seeks attractive risk-adjusted stockholder returns while maintaining a strong balance sheet. The Company seeks to manage the extent to which net income changes as a function of changes in interest rates by matching adjustable-rate assets with variable-rate borrowings. In addition, although it has not done so to date, the Company may seek to mitigate the potential impact on net income of periodic and lifetime coupon adjustment restrictions in its portfolio of Mortgage-Backed Securities by entering into interest rate agreements such as interest rate caps and interest rate swaps. Changes in interest rates may also have an effect on the rate of mortgage principal prepayments and, as a result, prepayments on Mortgage-Backed Securities. The Company will seek to mitigate the effect of changes in the mortgage principal repayment rate from an economic point of view by balancing assets purchased at a premium with assets purchased at a discount. To date, the aggregate premium exceeds the aggregate discount on Mortgage-Backed Securities in the Company's portfolio. As a result, prepayments, which result in the expensing of unamortized premium, will reduce the Company's net income compared to what net income would be absent such prepayments. 25 Status of Year 2000 Compliance The company has made an ongoing effort to stay abreast of the year 2000 compliance issue. Hardware and software was checked for compliance and necessary upgrades were completed. In consideration of the Year 2000 issues, the Company has reviewed the ability of its own computers and computer programs to properly recognize and handle dates in the Year 2000. Through the normal upgrading of computer equipment, the Company has already replaced all computers that were not Year 2000 compliant. The Company has also reviewed all the date fields embedded in its internally developed spreadsheets, databases and other programs and has determined that all such programs are using four-digit years in references to dates. Therefore, the Company believes that all of its equipment and internal systems are ready for the Year 2000. To date, the Company has incurred minimal costs in order to be Year 2000 compliant. The Company believes that most of its exposure to Year 2000 issues involves the readiness of third parties. Each third party is subject to the Year 2000 issue. The Company is in the process of surveying pertinent third parties for their compliance. As a result of communications with such third parties, the Company believes that they are spending the appropriate and necessary resources to try to identify Year 2000 issues and to resolve them or to mitigate the impact of them to the best of their ability as they are identified. Inflation Virtually all of the Company's assets and liabilities are financial in nature. As a result, interest rates and other factors drive the Company's performance far more than does inflation. Changes in interest rates do not necessarily correlate with inflation rates or changes in inflation rates. The Company's financial statements are prepared in accordance with GAAP and the Company's dividends are determined by the Company's net income as calculated for tax purposes; in each case, the Company's activities and balance sheet are measured with reference to historical cost or fair market value without considering inflation. Other Matters The Company calculated its qualified REIT Assets, as defined in the Internal Revenue Code of 1986, as amended (the "Code"), to be 99.5% of its total assets at June 30, 1999 and 1998, as compared to the Code requirement that at least 75% of its total assets must be qualified REIT Assets. The Company also calculates that 100% and 98.8% of its revenue qualifies for the 75% source of income test and 100% of its revenue qualifies for the 95% source of income test under the REIT rules for the quarter ended June 30, 1999 and 1998, respectively. The Company also met all REIT requirements regarding the ownership of its Common Stock and the distributions of its net income. Therefore, as of June 30, 1999 and 1998, the Company believes that it qualified as a REIT under the provisions of the Code. The Company at all times intends to conduct its business so as not to become regulated as an investment company under the Investment Company Act of 1940. If the Company were to become regulated as an investment company, then the Company's use of leverage would be substantially reduced. The Investment Company Act exempts entities that are "primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate" ("Qualifying Interests"). Under current interpretation of the staff of the Commission, in order to qualify for this exemption, the Company must maintain at least 55% of its assets directly in Qualifying Interests. In addition, unless certain mortgage securitites represent all the certificates issued with respect to an underlying pool of mortgages, such mortgage securities may be treated as securities separate from the underlying mortgage loans and, thus, may not be considered Qualifying Interests for purposes of the 55% requirement. As of June 30, 1999 and 1998, the Company calculates that it is in compliance with this requirement. 26 ITEM. 3 QUANTITATIVE AND QUALITIATIVE DISCLOSURES ABOUT MARKET RISK MARKET RISK Market risk is the exposure to loss resulting from changes in interest rates, foreign currency exchange rates, commodity prices and equity prices. The primary market risk to which the Company is exposed is interest rate risk, which is highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond the control of the Company. Changes in the general level of interest rates can affect the Company's net interest income, which is the difference between the interest income earned on interest-earning assets and the interest expense incurred in connection with its interest-bearing liabilities, by affecting the spread between the Company's interest-earning assets and interest-bearing liabilities. Changes in the level of interest rates also can affect the value of the Company's Mortgage-Backed Securities and its ability to realize gains from the sale of such assets. The Company may utilize a variety of financial instruments, including interest rate swaps, caps, floors and other interest rate exchange contracts, in order to limit the effects of interest rates on its operations. The use of these types of derivatives to hedge interest-earning assets and/or interest-bearing liabilities carries certain risks, including the risk that losses on a hedge position will reduce the funds available for payments to holders of securities and, indeed, that such losses may exceed the amount invested in such instruments. Currently, the Company has not purchased hedging instruments. The profitability of the Company may be adversely affected during any period as a result of changing interest rates. The following table quantifies the potential changes in net interest income and portfolio value should interest rates go up or down 300 basis points, assuming the yield curves of the rate shocks will be parallel to each other and the current yield curve. All changes in income and value are measured as percentage changes from the projected net interest income and portfolio value at the base interest rate scenario. The base interest rate scenario assumes interest rates at June 30, 1999 and various estimates regarding prepayment and all activities are made at each level of rate shock. Actual results could differ significantly from these estimates.
Projected Percentage Change in Projected Percentage Change in Change in Interest Rate Net Interest Income Portfolio Value - ---------------------------------------------------------------------------------------------------------------------- - -300 Basis Points 166% 2% - -200 Basis Points 35% 2% - -100 Basis Points 13% 1% Base Interest Rate +100 Basis Points (50%) (2%) +200 Basis Points (80%) (5%) +300 Basis Points (130%) (7%)
ASSET AND LIABILITY MANAGEMENT Asset and liability management is concerned with the timing and magnitude of the repricing of assets and liabilities. It is the objective of the Company to attempt to control risks associated with interest rate movements. Methods for evaluating interest rate risk include an analysis of the Company's interest rate sensitivity "gap", which is defined as the difference between interest- earning assets and interest-bearing liabilities maturing or repricing within a given time period. A gap is considered positive when the amount of interest- rate sensitive assets exceeds the amount of interest-rate sensitive liabilities. A gap is considered negative when the amount of interest-rate sensitive liabilities exceeds interest-rate sensitive assets. During a period of rising interest rates, a negative gap would tend to adversely affect net interest income, while a positive gap would tend to result in an increase in net interest income. During a period of falling interest rates, a negative gap would tend to result in an increase in net interest income, while a positive gap would tend to affect net interest income adversely. Because different types of assets and liabilities with the same or similar maturities may react differently to changes in overall market rates or conditions, changes in interest rates may affect net interest income positively or negatively even if an institution were perfectly matched in each maturity category. The following table sets forth the estimated maturity or repricing of the Company's interest-earning assets and interest-bearing liabilities at June 30, 1999. The amounts of assets and liabilities shown within a particular period were determined in accordance with the contractual terms of the assets and liabilities, except adjustable-rate loans, and securities are included in the period in which their interest rates are first scheduled to adjust and not in the period in which they mature. Mortgage-Backed Securities reflect estimated prepayments, which were estimated based on analyses of broker estimates, the results of a prepayment model utilized by the Company and empirical data. Management believes that these assumptions approximate actual experience and 27 considers them reasonable; however, the interest rate sensitivity of the Company's assets and liabilities in the table could vary substantially if different assumptions were used or actual experience differs from the historical experience on which the assumptions are based.
More than 1 Year Within 3 Months 4-12 Months to 3 Years 3 Years and Over Total ------------------------------------------------------------------------------------- Rate Sensitive Assets: Mortgage-Backed Securities 393,617 314,098 153,022 607,808 1,468,545 Rate Sensitive Liabilities: Repurchase Agreements 1,3744,740 1,344,740 ------------------------------------------------------------------------------------- Interest rate sensitivity gap (951,123) 314,098 153,022 607,808 Cumulative rate sensitivity gap (951,123) (637,025) (484,003) 123,805 Cumulative interest rate sensitivity gap as a percentage of total (65%) (43%) (33%) 8% rate-sensitive assets
28 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 1 - Financial Data Schedule (b) Reports None 29 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ANNALY MORTGAGE MANAGEMENT, INC. Dated: August 11, 1999 By: /s/ Michael A.J. Farrell ------------------------- Michael A.J. Farrell Chairman of the Board and Chief Executive Officer (authorized officer of registrant) Dated: August 11, 1999 By: /s/ Kathryn F. Fagan --------------------- Kathryn F. Fagan Chief Financial Officer and Treasurer (principal accounting officer) 30 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JUNE 30, 1999 QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIERETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1999 APR-01-1999 JUN-30-1999 52 1,474,104 0 0 0 1,481,863 78 0 1,481,962 1,368,370 0 0 0 133,094 (19,502) 113,591 0 22,291 0 0 561 0 16,865 4,864 0 4,864 0 0 0 4,864 0.38 0.37
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