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HATTERAS FINL CPRP Reports Operating Results (10-Q)

November 03, 2010 | About:
10qk

10qk

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HATTERAS FINL CPRP (HTS) filed Quarterly Report for the period ended 2010-09-30.

Hatteras Finl Cprp has a market cap of $1.34 billion; its shares were traded at around $29.59 with a P/E ratio of 6.3 and P/S ratio of 4.8. The dividend yield of Hatteras Finl Cprp stocks is 15%.HTS is in the portfolios of Steven Cohen of SAC Capital Advisors.

Highlight of Business Operations:

One of the main factors impacting market prices was the U.S. Federal Reserves program to purchase agency securities which had commenced in January 2009 and was terminated on March 31, 2010. In total, $1.25 trillion of agency securities was purchased. While these purchases have ended, the program continues to impact the market supply as the government settles short sales and failed purchases. In addition, through the course of 2009, the U.S. Treasury purchased $250 billion of agency securities. An effect of these purchases has been an increase in the prices of agency securities, which has decreased our net interest margin. When these programs terminated, the market expectation was that it might cause a decrease in demand for these securities which would likely reduce their market price. However, this has not happened and we continue to see strong demand as these securities remain desirable assets in this rather volatile economic environment. It is difficult to quantify the impact, as there are many factors at work at the same time which affects the price of our securities and, therefore, our yield and book value. Due to the unpredictability in the markets for our securities in particular and yield generating assets in general, there is no pattern that can be implied with any certainty. We believe the largest risk is that if the government decides to sell significant portions of its portfolio, then we may see meaningful price declines.

From time to time, we may raise additional capital to take advantage of investing and hedging opportunities, provide permanent funding, provide additional liquidity, or other activities that our board of directors may deem appropriate. On October 9, 2009, we entered into a Sales Agreement (the Sales Agreement) with Cantor Fitzgerald & Co. (Cantor) to create a controlled equity offering program (the CEO Program). Under the terms of the Sales Agreement, we may offer and sell up to 5,000,000 shares of our common stock from time to time through Cantor, acting as agent and/or principal. During the three months ended September 30, 2010, we issued 1,133,100 shares of common stock at an average price of $29.43 per share under our CEO Program, raising net proceeds, after sales commissions and fees, of $32.8 million. We paid $0.6 million in sales commissions to Cantor during the three months ended September 30, 2010.

On September 24, 2010, we completed a secondary common stock offering that resulted in the issuance of 7,475,000 shares of our common stock, including 975,000 shares pursuant to the underwriters overallotment option. The sales price to the public for these shares was $28.75, with net proceeds to us, after underwriters discount and expenses, of approximately $205.6 million. We plan to use the proceeds of this offering to purchase additional agency securities, provide working capital, and liquidity for our hedging strategy.

As of September 30, 2010, our book value per share of common stock (total shareholders equity divided by shares of common stock outstanding) was $25.83, an increase of $0.09 from $25.74 at December 31, 2009. Declining U.S. Treasury securities rates, U.S. Government actions, particularly the large-scale purchasing of agency securities, and stable financial markets have increased values on our securities to historically high levels. Offsetting this increase in MBS values, the value of our interest rate swaps has fallen significantly as we have increased our total position and the long term outlook for interest rates decreased. Our interest rate swaps, which fix the borrowing cost on a portion of our financing, generally help mitigate changes in our book value. Generally, the value of our interest rate swaps moves in the opposite direction of the value of our agency securities, as was the case in the first nine months of 2010. The following table shows the components of our book value at each period end:

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