Hatteras Financial Issues 3Q Financial Results

Fri. October 30, 2009; Posted: 01:08 AM

In a release dated October 27, the company stated:

Third Quarter 2009 Results

- During the quarter ended September 30, Hatteras earned $1.26 per diluted share on net income of $45.8 million, compared to $1.20 per diluted share on net income of $43.5 million during the quarter ended June 30. The quarter-over-quarter increase in net income was generally the result of having more earning assets for the third quarter of 2009 as compared to the second quarter of 2009.

- Net interest income for the quarter ended September 30, was $49.0 million, compared to $46.5 million for the quarter ended June 30. The company's average earning assets increased to $6.3 billion from $5.9 billion in the previous quarter, and the net interest margin decreased slightly to 2.93 percent for the third quarter of 2009 from 2.97 percent in the second quarter of 2009. Although the portfolio yield on the company's adjustable rate mortgages (ARMs) for the quarter ended September 30, declined, short-term funding costs also declined in similar amount. The company's average repurchase agreement (repo) rate was lower throughout the quarter than the previous quarter and at September 30, was 0.33 percent on all outstanding short-term (less than 30 days) repo positions. Repo rates have generally declined since the beginning of 2009 as stress in the global credit market has eased, causing LIBOR and other lending rates to decrease. This trend continued throughout the third quarter. Operating expenses were $3.2 million for the third quarter versus $3.0 for the second quarter of this year. This equates to an annualized expense ratio of 1.43 percent of shareholders' equity, based on average equity for the quarter ended September 30.

- The company's portfolio, consisting of Fannie Mae and Freddie Mac guaranteed mortgage securities (agency securities), increased to $6.7 billion at September 30, compared to $6.2 billion at the end of the previous quarter. The portfolio's weighted average coupon was 4.98 percent for the third quarter of 2009, compared to 5.11 percent for the second quarter. The annualized yield on average assets was 4.57 percent for the third quarter, compared to 4.71 percent for the second quarter, and the annualized cost of funds on average liabilities (including hedges) was 1.64 percent, compared to 1.74 percent in the second quarter.

"We are pleased to again show improved results for our shareholders in the third quarter. While our dividend and book value both increased over previous periods, it is important to note that this was accomplished without lessening our defensive posture," said Michael Hough, the company's Chief Executive Officer. "In our view, hybrid ARMs have been richly priced so our plan has been to pre-invest monthly cash flows efficiently and not to materially increase leverage until we see better value. As we see more clearly how the government intends to participate in our markets, we will evaluate the risks accordingly. In the meantime, the fundamentals remain strong for our strategy and we are comfortable with our focused risk management approach."

- The $6.7 billion portfolio of agency securities at September 30, consisted of 21.2 percent hybrid adjustable-rate mortgages (ARMs) with 36 or fewer months to reset, 55.2 percent hybrid ARMs with 37 to 60 months to reset, 23.4 percent hybrid ARMs with 61 to 84 months to reset, and 0.2 percent hybrid ARMs with 85 to 120 months to reset. Of the company's total portfolio, 69.3 percent are supported by Fannie Mae, and 30.7 percent are supported by Freddie Mac. At September 30, the weighted-average term to the next interest rate reset date was approximately 47 months, not adjusting for repayments.

- During the third quarter of 2009, the expense of amortizing the premium on the company's securities was $5.4 million, compared to $4.8 million during the second quarter of 2009, reflecting both the larger portfolio size and faster principal prepayments. The weighted-average principal repayment rate (scheduled and unscheduled principal payments as a percentage of the weighted-average portfolio, on an annual basis) during the third quarter of 2009 was 22.3 percent, compared to 20.9 percent during the second quarter, reflecting some seasoning of the company's portfolio and mortgage refinancing becoming available at lower rates.

Hatteras Financial is a real estate investment trust formed in 2007 to invest in adjustable-rate and hybrid adjustable-rate single-family residential mortgage pass-through securities guaranteed or issued by U.S. Government agencies or U.S. Government-sponsored entities, such as Fannie Mae, Freddie Mac or Ginnie Mae.

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