Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Which REIT is Right?: Hatteras Financial Corp. (HTS) or CYS Investments Inc (CYS)

Page 1 of 2

Hatteras Financial Corp. (NYSE:HTS) started operations in 2007 as a mortgage REIT that seeks to invest in single family mortgage backed securities for which any of the government sponsored Agencies guarantees principal or interest payments. The company invests in both fixed rate and Adjustable rate mortgage backed securities. At the end of the fourth quarter of 2012, the company was managing an investment portfolio of $25.8 billion, compared to $24.4 billion for the linked quarter. Around 94% of the entire portfolio was adjustable rate, while the remaining was 15-year fixed rate agency MBS. The stock is currently offering a 10.31% dividend yield and trading in line with its book value.

Hatteras Financial Corp.

4Q 2012 Performance Review

Hatteras Financials reported its fourth quarter performance on Feb. 12, 2013 on solid growth in gain on sales of MBS. During the fourth quarter, Hatteras Financials generated $131.7 million in interest income, down 45 basis points from the interest income of the linked quarter. The decline in interest income was a result of a decline in average portfolio yields during the fourth quarter. Compared to the linked quarter, Hatteras’ interest yielding assets yielded 2.04%, up 12 basis points. The decline in asset yield can be attributed to the QE3 and the Fed’s commitment to keep the short term rates low.

During the most recent quarter, Hatteras experienced $57.01 million in interest experience. The company reported 0.96% in cost of funds, up 2 basis points from the linked quarter. As a result, the company earned interest income of $74.7 million on interest rate spread of 1.08%, down 14 basis points from the linked quarter. Interest income declined 6.5% quarter over quarter. This is compared to a 2 basis points decline in net interest spread for CYS Investments Inc (NYSE:CYS).

Significant gains on sale of mortgage backed securities were recognized during the most recent quarter. The company recognized $39 million on gain on sale of MBS, compared to $10.5 million at the end of the linked quarter. Operating expenses of $7.1 million edged up 17% from the third quarter. As a result, the company reported net income of $106.7 million against $84 million at the end of the linked quarter.

Leverage & Hedges

The company maintained its leverage ratio of 7.4 times during the fourth quarter, compared to 7.3 times at the end of the third quarter of 2012. As of Dec. 31, 2012, the company had entered into interest rate swaps with a notional amount of $10.7 billion, which is 47% of its repurchase agreements. Compared to this, American Capital Agency Corp. (NASDAQ:AGNC) hedged 63%, which is unchanged from last quarter. CYS decreased its hedges from 54% at the end of the linked quarter to 50% at the end of the fourth quarter.


Hatteras Financials reported $50.1 million of amortization expenses during the fourth quarter, compared to $47.3 million during the third quarter. The weighted average conditional prepayment rate for its investment portfolio was 26.6% compared to 27.6% during the third quarter of 2012.

Page 1 of 2

Biotech Stock Alert - 20% Guaranteed Return in One Year

Hedge Funds and Insiders Are Piling Into

One of 2015's best hedge funds and two insiders snapped up shares of this medical device stock recently. We believe its transformative and disruptive device will storm the $3+ billion market and help it achieve 500%-1000% gains in 3 years.

Get your FREE REPORT and the details of our 20% return guarantee today.

Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.
Loading Comments...

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 102% in 3 years!! Wondering How?

Download a complete edition of our newsletter for free!