Anthracite Capital, Inc. Reports Third Quarter Operating Earnings Up 27% Over the Prior Year and 11% Over the Second Quarter of 2001.Business Editors NEW YORK--(BUSINESS WIRE)--Oct. 29, 2001 Operating earnings Operating Earnings Profits after subtracting expenses such as marketing, cost of goods sold, administration and general operating costs from revenue. Notes: Tax and interest expenses are not subtracted - operating earnings are synonymous with EBIT (earnings before increase to $0.38 for the Third Quarter up from $0.30 for the prior year period and $0.34 for the second quarter of 2001 Total earnings per share including trading activity and SFAS SFAS Statement of Financial Accounting Standards SFAS Special Forces Assessment and Selection SFAS Student Financial Aid Services SFAS Sport Fishing Association of Singapore SFAS Safety Features Actuation System SFAS Statewide Fixed Assets System 133 adjustments increase to $0.38 in the Third Quarter from $0.32 in the prior year period Dividend Yield of 12.9% based on current stock price Anthracite anthracite (ăn`thrəsīt'): see coal. anthracite or hard coal Coal containing more fixed carbon than any other form of coal and the lowest amount of volatile (quickly evaporating) material, giving it the Capital, Inc. ("the Company") (NYSE NYSE See: New York Stock Exchange : AHR AHR Aryl Hydrocarbon Receptor AHR American Historical Review (Journal of the American History Association) AHR Anchor AHR airway hyper-responsiveness AHR Assisted Human Reproduction AHR Air-Conditioning Heating Refrigeration ) today reported record third quarter earnings per share from the operating portfolio of $0.38 per share (diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. ) versus $0.30 (diluted) for the year earlier quarter. Total earnings including realized gains Realized Gain A gain resulting from selling an asset at a price higher than the original purchase price. Notes: There may be tax consequences for a realized profit. and losses for the third quarter were $0.40 per share (basic) and $0.38 (diluted) after a SFAS 133 adjustment. Based on the $0.32 per share dividend declared on September 30, 2001, and the October 26, 2001 closing price of $9.89, Anthracite's annualized annualized Of or relating to a variable that has been mathematically converted to a yearly rate. Inflation and interest rates are generally annualized since it is on this basis that these two variables are ordinarily stated and compared. dividend yield is 12.9%. The Company's third quarter operating results represent an annualized return on quarter end common stock equity (Annualized ROE) of 21.0% and a net interest margin of 3.64%. Annualized ROE for the year earlier period was 15.7% and the net interest margin was 4.11%. The significant year over year increase in ROE was due to the accretive reinvestment Reinvestment Using dividends, interest and capital gains earned in an investment or mutual fund to purchase additional shares or units, rather than receiving the distributions in cash. 1. In terms of stocks, it is the reinvestment of dividends to purchase additional shares. of proceeds from equity raises earlier in 2001, declining borrowing costs and declining expense ratios. The decrease in net interest margin is attributable to the increased allocation of equity to higher credit quality assets. During the third quarter, investment grade securities increased by $62 million as proceeds were deployed into Residential Mortgage Backed Securities (RMBS RMBS Residential Mortgage-Backed Securities RMBS Rambus, Inc. (NASDAQ stock symbol) RMBS Russian Mortgage-Backed Securities ). Based on the higher advance rates applicable to RMBS the Company's debt to equity capital ratio increased from 4.3 to 1 at June 30, 2001 to 4.6 to 1 at September 30, 2001. Leverage on commercial credit sensitive holdings was unchanged during the period at approximately 1.03 to 1 debt to equity capital. The Company's cost of borrowing declined steadily throughout the quarter as the Company funded RMBS assets with lower spread liabilities and as LIBOR LIBOR See: London Interbank Offered Rate LIBOR See London interbank offered rate (LIBOR). declined. The average cost of borrowing during the quarter was 4.22% compared to 4.96% for the second quarter. Pursuant to SFAS 133, the Company is required to report hedge ineffectiveness in the Company's earnings. The components of third quarter operating earnings include a reclassification Reclassification The process of changing the class of mutual funds once certain requirements have been met. These requirements are generally placed on load mutual funds. Reclassification is not considered to be a taxable event. of $1,574,000 of hedge ineffectiveness from interest expense to other gain (losses); the hedge ineffectiveness resulted in a decrease in third quarter earnings per share of $0.03. The cumulative SFAS 133 hedge ineffectiveness for the nine months ended September 30, 2001 including this adjustment is $41,000. To capitalize on Cap´i`tal`ize on` v. t. 1. To turn (an opportunity) to one's advantage; to take advantage of (a situation); to profit from; as, to capitalize on an opponent's mistakes s>. current economic conditions the Company has actively increased its exposure to short-term interest rates Short-term interest rates Interest rates on loan contracts-or debt instruments such as Treasury bills, bank certificates of deposit or commerical paper-having maturities of less than one year. Often called money market rates. over the past year. As anticipated, the Federal Reserve has responded to slowing economic activity by easing short-term rates, which has benefited the Company's borrowing costs. At the same time, the Company has increased the average credit rating of its invested equity to BB+ at September 30, 2001 from BB- at December, 31, 2000 by investing in high quality residential mortgage backed securities. The strong performance of this part of the portfolio due to a very steep Treasury yield curve has effectively balanced the spread widening of the commercial mortgage backed securities (CMBS CMBS See: Commercial Mortgage Backed Securities ) portfolio in the wake of the September 11th events. As a result, GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). book value has increased over the quarter. GAAP book value at quarter end was $329,276,000 based upon market prices provided by dealers for securities available for sale and held for trading. As the available for sale portfolio matures, the GAAP book value of credit sensitive CMBS securities held by the Company will increase towards its original purchase cost provided that the Company's estimates of expected credit losses are reasonably accurate. The unrealized loss Unrealized Loss A loss that results from holding onto an asset rather than cashing it in and officially taking the loss. Notes: Let's say you own a stock that is down 50%, but you haven't sold it to realize the loss yet. This is said to be an unrealized loss. on these securities at September 30, 2001 was $91,333,000. This amount reflects the amount of recovery net of expected losses if the portfolio is held to maturity. GAAP book value per common share Book Value Per Common Share A measure used by owners of common shares in a firm to determine the level of safety associated with each individual share after all debts are paid accordingly. Formula: increased approximately 1.5% from $7.92 at June 30, 2001 to $8.03 at September 30, 2001 due to earnings in excess of dividends and gains on the portfolio from decreases in market interest rates. Book value does not include the anticipated $91,333,000 accretion The act of adding portions of soil to the soil already in possession of the owner by gradual deposition through the operation of natural causes. The growth of the value of a particular item given to a person as a specific bequest under the provisions of a will between the of unrealized loss on CMBS securities. Hugh Frater Fra´ter n. 1. (Eccl.) A monk; also, a frater house. Frater house an apartament in a convent used as an eating room; a refectory; - called also a fratery ltname>. , President and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. of the Company stated, "For the past several quarters we have taken a cautious approach to the commercial real estate markets. Since the beginning of 2001 the Company has increased its liquidity position to over 45% of equity capital and is in a strong position to take advantage of compelling values in the commercial lending and mortgage backed securities markets as they arise. Our recently filed five million share equity offering is intended to further increase our ability to capitalize on these opportunities and will be accretive to both earnings and book value. We expect, based on the current investment pipeline, that most if not all of the proceeds of this raise will be deployed by the end of the year." Commenting further on the potential equity raise, Mr. Frater stated, "In addition to providing new capital at an opportunistic opportunistic /op·por·tu·nis·tic/ (op?er-tldbomacn-is´tik) 1. denoting a microorganism which does not ordinarily cause disease but becomes pathogenic under certain circumstances. 2. time for investments, this equity raise is an important part of our consistent and long stated goal of increasing the scale of the Company. We believe the benefits of scale include higher earnings and dividends, enhanced financing flexibility, greater liquidity for investors and lower expense ratios. We have reduced the ratio of expenses to net interest income as the Company has grown and expect to continue to do so over time. Reductions in fees under the Company management contract with BlackRock, Inc. retroactive Having reference to things that happened in the past, prior to the occurrence of the act in question. A retroactive or retrospective law is one that takes away or impairs vested rights acquired under existing laws, creates new obligations, imposes new duties, or attaches a to July 1st will serve to reduce these expense ratios further going forward. The greater scale of the Company will also enable us to more efficiently pursue our long standing objective of match funding commercial assets via a collateralized debt obligation Collateralized Debt Obligation (CDO) A general inclusive term which covers Collateralized Bond Obligations, Collateralized Loan Obligations, and Collateralized Mortgage Obligations, (CDO (Collaborative Data Objects) A programming interface from Microsoft for accessing MAPI-based e-mail, calendaring and scheduling servers. Originally called "OLE Messaging" and "Active Messaging," CDO wraps the Enhanced MAPI library into a COM object that provides the ). We may be in a position to execute such a transaction the first half of 2002". BlackRock, Inc. reduced its base management fee from 0.35% to 0.20% of average invested assets rated above BB+, and revised the hurdle rate Hurdle Rate The minimum amount of return that a person requires before they will make an investment in something. Notes: This is the rate of return that will get someone "over the hurdle" and invest their money. applicable to the incentive fee from 350 BP over Ten year Treasuries to the greater of 9.5% or 350 BP over Ten year Treasuries. These reductions resulted in savings to the Company of approximately $670,000 in the third quarter. Review of Existing Credit Exposures The Company reports GAAP earnings on its commercial mortgage backed securities portfolio net of expected losses over the life of the portfolio. The Company owns $600 million face amount of high yield CMBS, which represents a subordinate interest in $9 billion of first mortgages that have been underwritten by the Company. The Company's expected default ratio of the underlying first mortgage loans is approximately 4.3%. The average severity of losses on expected defaults is projected to be 40%, resulting in a 1.7% expected loss of principal over the remaining eight year weighted average life of the collateral pool. To date, actual losses of .04% over the three-year life of the portfolio have been consistent with these expectations. The Company's earnings would be affected to the extent actual losses on CMBS collateral were to differ from expected losses. As of September 30, 2001 the reduction in operating earnings for every 50% increase in actual losses over expected losses would be approximately $0.08 per share per year. The Company reviews its loss estimates on a quarterly basis and to date has concluded based on actual portfolio performance that these estimates are reasonable. Commenting on the credit environment, Mr. Frater stated, "We expect vacancy rates for all property types to increase through the remainder of 2001 and into 2002 as economic activity continues to slow. This will clearly cause real estate values to decline but at the national level we do not expect a repeat of the dramatic devaluations of the early 1990s based on significant differences in today's lending markets and the lower level of speculative development as the cycle has matured. Our analysis suggests that the Company's position as a well-secured lender with substantial equity value beneath it should allow the Company to maintain stable earnings and dividend performance over a range of credit environments." The total commercial loan portfolio includes over $9 billion of first mortgage loans underlying the CMBS portfolio and $108 million in the mezzanine loan A mezzanine loan is a relatively large loan, typically unsecured (ie., not backed by a pledging of assets) or with a deeply subordinated security structure (e.g., third lien on the property but non-recourse vis-a-vis the borrower). portfolio. To manage this credit risk the Company maintains significant diversification across sectors of the commercial real estate market. Exposure to each sector for the aggregate portfolio is shown on the following table: Multifamily 32.2% ----------------------------- --------------------------- Retail 29.9 ----------------------------- --------------------------- Office 17.1 ----------------------------- --------------------------- Lodging 9.9 ----------------------------- --------------------------- Industrial 5.6 ----------------------------- --------------------------- Healthcare 3.9 ----------------------------- --------------------------- Other 1.4 ----------------------------- --------------------------- Total 100.0% ----------------------------- --------------------------- The Company conducts an extensive review of its commercial assets on a quarterly basis. In the aftermath of the September 11th tragedy, particular focus of the Company has been on the lodging sector. The Company has two mezzanine loans on hotel properties, one on a property in San Francisco San Francisco (săn frănsĭs`kō), city (1990 pop. 723,959), coextensive with San Francisco co., W Calif., on the tip of a peninsula between the Pacific Ocean and San Francisco Bay, which are connected by the strait known as the Golden and one on a group of hotels in and around London. These two loans have an aggregate balance of $53 million and an original weighted average loan to value (LTV LTV See: Loan-to-value ratio ) ratio of 66%. Both properties suffered significant drops in occupancy in the second half of September, 2001 but, consistent with industry trends have since stabilized sta·bi·lize v. sta·bi·lized, sta·bi·liz·ing, sta·bi·liz·es v.tr. 1. To make stable or steadfast. 2. at acceptable, albeit lower levels of occupancy and revenue per available room (REVPAR). Both loans are current and the Company is comfortable that they will perform as scheduled given both the current operating performance of the assets and the $375 million of invested equity at risk beneath the Company's positions. First mortgages on lodging assets represent 9.5% of the collateral underlying the Company's CMBS portfolio. The average LTV of these properties at underwriting Underwriting 1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 2. The process of issuing insurance policies. in 1998 was 66%. The latest reported average debt service coverage ratio The debt service coverage ratio (DSCR), or debt service ratio, is the ratio of net operating income to debt payments on a piece of investment real estate. It is a popular benchmark used in the measurement of an income-producing property’s ability to produce (DSCR DSCR See: Debt-service coverage ratio ) for these properties was 1.99 times, up from 1.67 times at original underwriting. Based on general weakness in lodging, we expect current coverage ratios to decline. However, if expected losses were to increase 600% on these lodging assets, implying an over 20% default rate, the Company's annual operating earnings would decrease by approximately $0.09. Given such analysis, the Company is comfortable at the present time that lodging exposure is not likely to significantly impact operating results or dividends. The credit performance of the Company's commercial mortgage backed securities remains consistent with expectations. There are no delinquencies on the Company's direct holdings of commercial mezzanine loans. Delinquencies on first mortgage collateral underlying the Company's subordinate commercial mortgage backed securities (CMBS) positions increased from 0.84% of underlying remaining principal balance Remaining principal balance The amount of principal dollars remaining to be paid under a mortgage as of a given time. at June 30, 2001 to 1.40% at September 30, 2001 as compared to 1.05% at September 30, 2001 for the Lehman Brothers Lehman Brothers Holdings Inc. (NYSE: LEH), founded in 1850, is a diversified, global financial services firm. It is a participant in investment banking, equity and fixed income sales, research and trading, investment management, private equity, and private banking. data for the comparable origination Origination The process through which a mortgage lender creates a mortgage secured by some amount of the mortgagor's real property. Notes: Also known as loan origination, everyone must go through the origination process when securing a mortgage for a piece of real vintage. The Company fully expects, and reflects in its existing GAAP earnings, that CMBS collateral delinquencies will increase and losses will occur over time on underlying collateral. Liquidity Portfolio The Company has maintained a significant amount of liquidity as economic conditions slowed throughout 2001. At September 30, 2001 the Company held 47% of its equity in cash and highly liquid high credit quality securities. These assets are actively managed and actively hedged until they are redeployed into high yielding commercial real estate assets. The Company views this operation as a way to enhance the yield of its excess liquidity and so manages this operation on a very conservative basis. Maximum aggregate leverage used by the Company is 5:1 and the maximum aggregate long-term interest rate sensitivity is 7.5% of net equity for each 100 basis point move in rates. The alternatives for this portfolio would have been to pay down debt that cost 4.16% during the third quarter, or to invest in overnight cash markets at an average rate of 3.67% for the third quarter. Average leverage on the liquidity portfolio was 8.1:1 during the third quarter. Long-term interest rate sensitivity for this portfolio was approximately 5.0% of net equity for each 100 basis point move in rates. The composition of the liquid portfolio is 4.9% cash, 14.9% adjustable rate mortgages This article is about the US mortgage type. For an international perspective, see Variable rate mortgage. An adjustable rate mortgage (ARM) is a mortgage loan where the interest rate on the note is periodically adjusted based on an index. and 80.2% fixed rate residential mortgages. The fixed rate assets carry coupons of 6.0% or 5.5% and were all purchased at a discount to par. The discounted purchase price provides protection where rates continue to rally and mortgage prepayments Prepayments Payments made in excess of scheduled mortgage principal repayments. rise. This portfolio is actively hedged with a combination of Treasury futures and interest rate swaps Interest Rate Swap A deal between banks or companies where borrowers switch floating-rate loans for fixed rate loans in another country. These can be either the same or different currencies. . Improved Dividend Reinvestment Executions Now Available Anthracite has a dividend reinvestment plan Dividend Reinvestment Plan (DRP) Plan which provides for automatic reinvestment of shareholder dividends in more shares of a company's stock, often without commissions. Some plans provide for the purchase of additional shares at a discount to market price. that provides current owners of its common stock with a simple, economical and convenient method of increasing their investment. Even if you are not a current owner of Anthracite Stock, the Company's transfer agent can issue registered stock directly to you without commission or markup (text) markup - In computerised document preparation, a method of adding information to the text indicating the logical components of a document, or instructions for layout of the text on the page or other information which can be interpreted by some automatic system. . This transaction can be done regardless of whether or not shares are held in street name. To take advantage of this program, shareholders must submit a signed Request for Waiver The voluntary surrender of a known right; conduct supporting an inference that a particular right has been relinquished. The term waiver is used in many legal contexts. to the Company. A printable version A printable version of an Internet HTML page is a simplified version of the webpage, rendered without navigation tools such as on-screen menus. In a printable version pages generally consist of plain text and pertinent images. of the form is available on the Company's website or investors can call or email the Company to obtain the Waiver and instructions via fax. To request a prospectus and receive enrollment materials or to ask questions about the plan, interested investors and shareholders may contact the Company's transfer agent, The Bank of New York The Bank of New York, abbrieviated to BNY, was a global financial services company that existed until its merger with the Mellon Financial Corporation on July 2, 2007.[1] The bank now continues under the new name of The Bank of New York Mellon Corporation. , at 1-800-524-4458 or Investor Relations Investor relations The process by which the corporation communicates with its investors. , Anthracite Capital, Inc. at 212-409-3333. The Company's web site address is www.anthracitecapital.com. The Company used this program to issue over 650,000 shares in the third quarter. The Company is currently offering a 2% discount to the trailing 12 business day average provided the stock price remains above threshold levels Noun 1. threshold level - the intensity level that is just barely perceptible intensity, intensity level, strength - the amount of energy transmitted (as by acoustic or electromagnetic radiation); "he adjusted the intensity of the sound"; "they measured the established by the Company at the time. Anthracite is a specialty finance company that is externally managed by BlackRock, Inc., a New York City New York City: see New York, city. New York City City (pop., 2000: 8,008,278), southeastern New York, at the mouth of the Hudson River. The largest city in the U.S. based investment manager with over $220 billion in global assets under management Assets Under Management (AUM) is a term used by financial services companies in the mutual fund and money management or investment management business to gauge how much money they are managing. . 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 Mortgage-backed securities (MSBs) Securities backed by a pool of mortgage loans. and commercial loan investments and the costs of financing these investments. Certain matters discussed in this press release may constitute forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. within the meaning of the federal securities laws. Anthracite's actual results could differ materially from those anticipated in such forward-looking statements as a result of certain factors, including those detailed from time to time in Anthracite's reports and filings with the Securities and Exchange Commission. For further information, please contact Hugh Frater, President and Chief Executive Officer at 212-754-5535 or Richard Shea, Chief Operating Officer Chief Operating Officer (COO) The officer of a firm responsible for day-to-day management, usually the president or an executive vice-president. and Chief Financial Officer at 212-754-5579, or visit Anthracite's website at www.anthracitecapital.com.
Anthracite Capital, Inc. and Subsidiaries
Consolidated Statements of Financial Condition
(in thousands, except per share data)
Sept. 30, 2001 Dec. 31, 2000
-------------- -------------
(Unaudited)
ASSETS
Cash and cash equivalents $ 70,667 $ 37,829
Restricted cash equivalents 29,627 9,484
Securities available for sale, at fair
value Subordinated commercial
mortgage-backed securities (CMBS) $ 303,737 $ 288,686
Investment grade securities 738,223 389,436
--------- ---------
Total securities available for sale 1,041,960 678,122
Securities held for
trading, at fair value 612,260 54,043
Mortgage loan pools
available for sale, at fair value - 71,535
Commercial mortgage loans, net 100,158 153,187
Investments in real
estate joint ventures 8,464 10,354
Receivable for investments sold 407,890 -
Other assets 18,108 19,097
----------- ----------
Total Assets $ 2,289,134 $ 1,033,651
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Borrowings:
Secured by pledge of subordinated CMBS $162,554 $161,608
Secured by pledge of other securities
available for sale and cash equivalents 673,784 356,491
Secured by mortgage loan pools - 67,367
Secured by pledge of
securities held for trading 591,506 55,212
Secured by pledge of investments
in real estate joint ventures 1,337 3,385
Secured by pledge of
commercial mortgage loans 43,006 75,279
---------- ----------
Total borrowings $1,472,187 $719,342
Payable for investments purchased 405,633 -
Distributions payable 13,622 9,741
Other liabilities 37,664 31,910
---------- ----------
Total Liabilities 1,929,106 760,993
---------- ----------
10.5% Series A preferred stock,
redeemable convertible,
liquidation preference $34,200 30,752 30,404
---------- ----------
Stockholders' Equity:
Common stock,
par value $0.001 per share;
400,000 shares authorized; 35,786
shares issued and outstanding in
2001; and 25,136 shares issued
and outstanding in 2000 36 25
10% Series B Preferred stock,
liquidation preference
$55,317 in 2001, $56,525 in 2000 42,086 43,004
Additional paid - in capital 412,316 315,533
Distributions in excess of earnings (10,551) (13,437)
Accumulated other comprehensive loss (114,611) (102,871)
---------- ----------
Total Stockholders' Equity 329,276 242,254
---------- ----------
Total Liabilities
and Stockholders' Equity $2,289,134 $1,033,651
========== ==========
Anthracite Capital, Inc.
Consolidated Statements of Operations (Unaudited)
(in thousands, except per share data)
For the Three For the Nine
Months Ended Months Ended
Sept. 30, 2001 Sept. 30, 2001
-------------- -------------
Operating Portfolio
Income:
Securities available for sale $ 20,546 $ 56,997
Commercial mortgage loans 2,941 13,137
Mortgage loan pools - 1,575
Trading securities 11,054 15,821
Earnings from real estate joint ventures 634 1,318
Cash and cash equivalents 1,071 2,143
-------- --------
Total income 36,246 90,991
-------- --------
Expenses:
Interest 9,178 31,452
Interest - trading securities 7,589 10,867
Management and incentive fee 3,154 8,060
Other expenses - net 78 1,047
-------- --------
Total expenses 19,999 51,426
-------- --------
Income from operating portfolio 16,247 39,565
Other gain (losses):
Gain on sale of
securities available for sale 175 7,256
Gain on securities held for trading 1,875 2,443
Foreign currency (loss) gain (91) 18
Loss on impairment of asset - (5,702)
Hedge ineffectiveness (1,574) 41
Incentive fee attributable to other gains (149) (359)
-------- --------
Total other gain 236 3,697
-------- --------
Income before
cumulative transition adjustment 16,483 43,262
Cumulative transition
adjustment - SFAS 133 - (1,903)
Net Income 16,483 41,359
Dividends and
accretion on preferred stock 2,290 6,866
Net Income
available to Common Shareholders 14,193 34,493
======== =======
Income from
operating portfolio per share:
Basic $0.39 $1.03
Diluted $0.38 $0.99
Net income per share, basic:
Income before
cumulative transition adjustment $0.40 $1.15
Cumulative
transition adjustment - SFAS 133 - (0.06)
Net income $0.40 $1.09
===== =====
Net income per share, diluted:
Income before
cumulative transition adjustment $0.38 $1.09
Cumulative
transition adjustment - SFAS 133 - (0.05)
----- -----
Net income $0.38 $1.04
===== =====
Weighted average
number of shares outstanding:
Basic 35,397 31,637
Diluted 39,595 35,799
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