Exhibit 99.1

Hatteras Financial Corp. Announces Third Quarter 2015 Financial Results

WINSTON-SALEM, N.C.--(BUSINESS WIRE)—October 27, 2015--Hatteras Financial Corp. (NYSE: HTS) (“Hatteras” or the “Company”) today announced financial results for the quarter ended September 30, 2015.

Third Quarter 2015 Highlights

Third Quarter 2015 Results

For the quarter ended September 30, 2015, the Company had comprehensive income (loss) available to common shareholders of $(84.9) million, or $(0.88) per weighted-average common share, as compared to $(48.6) million, or $(0.50) per weighted-average common share, for the quarter ended June 30, 2015.  The increase in comprehensive loss available to common shareholders was largely due to the volatility in the interest rate markets, as the value of the Company’s hedges declined $145 million while the Company’s investments increased in value by $18 million.  For the quarter ended September 30, 2015, the Company had core earnings of $0.45 per weighted-average common share compared to $0.50 per weighted-average common share during the quarter ended June 30, 2015.  The decrease was driven primarily by a decrease in interest income along with higher borrowing costs.  During the quarter, the Company completed its acquisition of 100% of the voting interests of Pingora Loan Servicing LLC and Pingora Asset Management LLC (together “Pingora”).  The Company purchased $171 million of MSR on conforming loans during the quarter from Pingora’s flow purchase partners.

“In the third quarter, the market was surprised by expectations for an increase in short term rates that failed to materialize”, said Michael R. Hough, the Company’s Chairman and Chief Executive Officer.  “Even though we have been positioned for higher short-term rates for some time now, performance in the quarter may have been negatively impacted by the market’s reaction to the Fed’s decision and concerns around slowing global economic growth.  The resulting market volatility contributed to an unusual dislocation of the normally inverse relationship between our assets and our hedges which meaningfully impacted book value.  Our expectation is that these conditions could persist for the near term but could begin to normalize as clarity on both domestic and global economies improve. 

“We are pleased with the progress made in all of our flow driven businesses and the benefits of acquiring assets in the primary market are apparent from our improved pricing and control over the formation of our assets. Our direct relationships with originators for agency ARM mortgage-backed securities (“MBS”), jumbo ARMs, and MSR are a strategic advantage for Hatteras’ long-term strategy. By the end of the third quarter, we had acquired a significant amount of MSR and of prime jumbo ARMs.  We expect these investments to generate enhanced risk-adjusted returns to our portfolio with a diversification of our funding and directional risks.  Assuming market conditions remain attractive, we will continue to allocate additional capital to MSR and prime jumbo ARM investments in the coming quarters.”

Net interest margin for the quarter ended September 30, 2015 was $51.7 million, compared to $53.9 million for the quarter ended June 30, 2015.  The Company’s net interest spread decreased to 1.19% for the third quarter of 2015 compared to 1.21% for the second quarter, driven by lower portfolio yield.  The yield on the Company’s MBS decreased to 1.77% in the third quarter compared to 1.84% in the second quarter due to a decrease in average gross coupon and an increase in MBS prepayments resulting in higher premium amortization expense.  Average portfolio yield including TBA dollar roll income was 1.86% in the current quarter, down from 1.94% in the second quarter.  Effective net interest margin, which includes certain adjustments related to derivatives as well as TBA dollar roll income as detailed later in this release, was $54.2 million for the third quarter of 2015 as compared to $61.8 million for the second

---

quarter as the cost of the Company’s hedges increased.  Effective interest rate spread was 0.80% for the quarter ended September 30, 2015, falling from 0.86% the previous quarter.

The Company’s average portfolio financing rate was 0.43% in the third quarter of 2015, compared to 0.38% in the second quarter.  The Company’s effective cost of funds, which includes certain adjustments related to derivatives, was 1.06% for the third quarter as compared to 1.08% for the second quarter.  Operating expenses, including those of the Company’s subsidiaries, were $10.8 million for the third quarter as compared to $9.0 million in the second quarter.  This increase was largely due to the Company’s acquisition of Pingora.  Excluding $0.81 million and $0.92 million of Pingora transaction expenses in the third and second quarters, respectively, as well as $0.2 million of business combination intangibles in the third quarter, the total annualized expense ratio was 1.70% of average shareholders’ equity for the quarter ended September 30, 2015 as compared to 1.32% for the quarter ended June 30, 2015.  

Dividend

The Company declared a dividend of $0.45 per common share with respect to the quarter ended September 30, 2015, compared to a dividend of $0.50 for the quarter ended June 30, 2015.  Based on the closing share price of $15.15 on September 30, 2015, the third quarter dividend equates to an annualized yield of 11.9%.

Portfolio

The Company’s weighted-average earning assets, consisting of residential mortgage assets, primarily MBS issued by Fannie Mae and Freddie Mac, were $19.9 billion for the quarter ended September 30, 2015 compared to $21.0 billion for the quarter ended June 30, 2015.  The fair values of the Company’s earning assets as of September 30, 2015 and June 30, 2015 are summarized below.

The annualized yield on the Company’s average ARMs and 15-year fixed securities was 1.77% for the third quarter of 2015, compared to 1.84% for the second quarter.  The decrease in yield was due to a lower average gross coupon and higher prepayments.

During the third quarter of 2015, the expense of amortizing the premium on the Company’s securities was $33.5 million, compared to $32.2 million during the second quarter.  The weighted-average principal repayment rate (scheduled and unscheduled principal payments as a percentage of the weighted-average portfolio, on an annualized basis) during the third quarter of 2015 was 29.0%, compared to 26.6% during the second quarter.  The Company’s weighted-average one-month CPR for the quarter ended September 30, 2015 was 21.1, up from 19.5 for the quarter ended June 30, 2015.  CPR measures the unscheduled repayment rate as a percentage of principal on an annualized basis.

At September 30, 2015, the Company owned 15-year TBA securities financed in the dollar roll market with a fair value of approximately $2.7 billion, as shown in the table above.  The Company accounts for TBA securities as derivative instruments and recognizes dollar roll gains and losses in other income (loss) in the Company's financial statements. As of September 30, 2015, the Company's net TBA securities had a cost basis of approximately $2.7 billion and a net carrying value of $(1.7) million reported in derivative liabilities at fair value on the Company's balance sheet.  The Company uses dollar rolls as alternative financing for its 15-year fixed-rate positions.

The Company earned interest of $1.8 million for the quarter ended September 30, 2015 from prime jumbo ARM loans held for investment, on an average unpaid principal balance of $212.8 million.  For the second quarter of 2015, the Company earned $1.1 million of interest from prime jumbo ARM loans, on an average unpaid principal balance of $129.4 million.  The Company owned $265.3 million of these loans at September 30, 2015, up from $183.3 million owned as of June 30, 2015.  The loans had an average size of $764,000, a weighted-average interest rate of 3.41% and a weighted-average loan-to-value of 69% at September 30, 2015.

The Company began investing in MSR through Pingora in July 2015.  For the three months ended September 30, 2015, the Company earned gross servicing fee income of $4.6 million on an average MSR balance of $62.5 million.  All of the Company’s MSR investments pertain to agency MBS, spanning all three GSEs.

---

Portfolio Financing and Leverage

At September 30, 2015, the Company financed its portfolio with approximately $14.3 billion of borrowings, primarily under repurchase agreements.  During the third quarter, the Company diversified its portfolio of lending relationships.  The Company’s captive insurance subsidiary became a member of the Federal Home Loan Bank of Atlanta (FHLB) and drew its initial advance of from the FHLB.  The Company also entered into a $100 million line of credit for the warehousing of purchased mortgage loans.  The Company’s debt-to-shareholders’ equity ratio at September 30, 2015, was 6.5 to 1 compared to 6.4 to 1 at June 30, 2015.  The Company’s effective leverage, which includes the effects of TBA dollar roll financing, was 7.8 to 1 at September 30, 2015, down from 8.1 to 1 as of June 30, 2015.  Weighted-average effective leverage in the third quarter of 2015 was 8.0 to 1, consistent with the second quarter of 2015.  At September 30, 2015, the Company’s repurchase agreements had a weighted-average remaining term of approximately 37 days.

The Company uses interest rate swap agreements and Eurodollar futures contracts to synthetically extend the fixed interest period of these liabilities and hedge against the interest rate risk associated with financing the Company’s portfolio.  From time to time, the Company also enters into swaptions (option agreements to enter swaps at future dates) as part of its hedging strategy.  See Tables 8 through 10 for detailed information regarding these positions as of September 30, 2015.

Book Value

The Company’s book value (shareholders’ equity less preferred stock liquidation preference) per share on September 30, 2015 was $19.69, decreasing from $21.06 on June 30, 2015 primarily due to falling asset prices.  On a per share basis, book value at September 30, 2015 consisted of $25.24 of common equity, $(7.94) of retained losses, $2.41 of unrealized gains on agency securities including TBA securities, and $(0.02) of unrealized losses on interest rate swaps.  This last item relates to the unamortized balance of the Company’s interest rate swaps remaining from when the Company accounted for these derivatives as cash flow hedges and does not include changes related to other derivatives, which flow through earnings.

Servicer Acquisition

During the quarter, the Company acquired Pingora for approximately $23.5 million in cash. In conjunction with the transaction, the Company also issued to management approximately $4.4 million in equity interests, a significant portion of which is subject to future vesting.  Pingora Loan Servicing LLS is an approved master servicer and Pingora Asset Management LLC is a registered investment advisor specializing in MSR management. Pingora currently manages an MSR portfolio with over $65 billion of unpaid principal balance, including over $50 billion for unrelated third party investors.  

Conference Call

The Company will host a conference call at 10:00 a.m. ET on Wednesday, October 28, 2015, to discuss financial results for the quarter ended September 30, 2015.  A slide presentation will accompany the call and will be available prior to the call here or by going to the Company’s website at www.hatfin.com and selecting “presentations” from the “news and presentations” tab.  Select the Q3 2015 Earnings Presentation link to download and/or print the presentation in advance of the call.  To participate in the event by telephone, please dial (877) 507-4471 five to 10 minutes prior to the start time (to allow time for registration) and ask to join the “Hatteras Financial” conference call.  International callers should dial (412) 317-6040. Canada callers should dial (855) 669-9657.  A digital replay of the call will be available on Wednesday, October 28, 2015 at approximately 12:00 noon ET through Wednesday, November 4, 2015 at 9:00 a.m. ET. Dial (877) 344-7529 and enter the conference ID number 10074565.  International callers should dial (412) 317-0088 and enter the same conference ID number.  Canada callers should dial (855) 669-9658. The conference call will also be webcast live over the Internet and can be accessed at Hatteras' web site at www.hatfin.com.  To monitor the live webcast, please visit the web site at least 15 minutes prior to the start of the call to register, download, and install any necessary audio software.  An audio replay of the event will be archived on Hatteras' web site.

About Hatteras Financial Corp.

Hatteras Financial is a real estate investment trust formed in 2007 to invest in residential mortgage real estate assets. Based in Winston-Salem, N.C., Hatteras is managed and advised by Atlantic Capital Advisors LLC.  Hatteras is a component of the Russell 2000® and 3000® indexes.

Non-GAAP Measures

In addition to the Company’s results presented in accordance with GAAP, this press release includes certain non-GAAP financial information.  Management’s decision to present these supplemental non-GAAP measures arose largely from three developments during 2013: 1) the Company’s cessation of hedge accounting for its interest rates swaps effective September 30, 2013, 2) increased use of Eurodollar futures contracts as interest rate hedges, and 3) the Company’s use of TBA dollar rolls, which generate non-traditional investment income and embody off-balance sheet financing.  These changes, along with the Company’s election of the fair value option with respect to accounting for mortgage loans and MSR, result in the recognition of material fair value adjustments in net income, as well as line item classifications that make it difficult to clearly explain the economics of the Company’s results and strategies without

---

supplemental disclosures.  The non-GAAP measures the Company employs include effective interest expense, effective net interest margin, amortization on MSR, core earnings, and certain financial metrics derived from non-GAAP information, such as effective cost of funds and effective leverage.  Effective interest expense and effective net interest margin each represent their respective GAAP measure adjusted for certain derivatives impacts as well as TBA dollar roll income.  Amortization on MSR represents the portion of the change in MSR fair value that is attributable to the realization of cash flows, and is a non-GAAP measure because the Company accounts for MSR under the fair value option.  Core earnings is effective net interest margin plus MSR income net of amortization, management fee income and gain from mortgage loans held for sale, less adjusted operating expenses and dividends on preferred stock.  For purposes of core earnings, operating expenses are adjusted to exclude transaction expenses and amortization of intangibles stemming from business combinations.  Reconciliations of these non-GAAP measures to their nearest directly comparable measure calculated in accordance with GAAP are included below.

The Company uses these measures internally to assess its results and financial condition.  Therefore, the Company believes that providing these measures gives users of financial information additional clarity regarding its performance and financial condition, and better enables them to see “through the eyes of management.”

These measures involve differences from results computed in accordance with GAAP, and should be considered supplementary to, and not as a substitute for, the Company’s results computed in accordance with GAAP.  Further, the Company’s definition of these non-GAAP measures may not be comparable to other similarly-titled measures of other companies.  

Forward-Looking Statements

This press release, together with other statements and information publicly disseminated by the Company, contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and includes this statement for purposes of complying with these safe harbor provisions.  Forward-looking statements, which are based on certain assumptions and describe the Company's future plans, strategies and expectations, are generally identifiable by use of the words "believe," ”will,” "expect," "intend," "anticipate," "estimate," ”should,” "project" or similar expressions.  You should not rely on forward-looking statements since they involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond the Company's control and which could materially affect actual results, performances or achievements.  Forward-looking statements in this press release include, among others, statements about economic conditions, interest rates, risk-adjusted returns, the Company’s investments in MSR and prime jumbo ARMs, the growth and future earnings potential of the Company’s portfolio, and the Company’s flow business. Factors that may cause actual results to differ materially from current expectations include the risk factors discussed in the Company’s most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q.  Accordingly, there is no assurance that the Company's expectations will be realized.  Except as otherwise required by the federal securities laws, the Company disclaims any obligation or undertaking to publicly release any updates or revisions to any forward-looking statement contained herein (or elsewhere) to reflect any change in the Company’s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

 

---

 

Table 1

Hatteras Financial Corp.

Consolidated Balance Sheets

 

 

---

Table 2

 

Hatteras Financial Corp.

Consolidated Statements of Income

(Unaudited)

 

 

 

 

---

Table 3

 

Hatteras Financial Corp.

Consolidated Statements of Comprehensive Income

(Unaudited)

 

 

 

---

Table 4

 

Key Statistics ⁽¹⁾

(Amounts are unaudited and subject to change)

 

 

 

---

---

Hatteras Financial Corp

(Amounts are unaudited and subject to change)

(Dollars in thousands)

 

Table 5

 

 

Mortgage-Backed Securities Portfolio as of September 30, 2015

 

 

 

 

Table 6

 

Mortgage-Backed Securities—Months to Reset as of September 30, 2015

 

ARMs

Fixed

---

Hatteras Financial Corp

(Amounts are unaudited and subject to change)

(Dollars in thousands)

 

Table 7

Repo Borrowings as of September 30, 2015

 

 

Table 8

Effective Dates of Eurodollar Futures Contracts and Swaps as of September 30, 2015

 

 

 

Table 9

Swap Portfolio as of September 30, 2015

 

Note: The Company has no forward starting swaps as of September 30, 2015.

---

Hatteras Financial Corp

(Amounts are unaudited and subject to change)

(Dollars in thousands)

 

Table 10

 

Swaption Position as of September 30, 2015

 

 

 

 

Table 11

 

Components of Net Gain (Loss) on Derivative Instruments

 

 

---

Hatteras Financial Corp

(Amounts are unaudited and subject to change)

(Dollars in thousands)

 

 

Table 12

 

Reconciliation of GAAP Interest Expense to

Effective Interest Expense and Effective Cost of Funds

 

 

 

 

 

 

---

Hatteras Financial Corp

(Amounts are unaudited and subject to change)

(Dollars in thousands)

 

Table 13

 

Reconciliation of GAAP Net Interest Margin to

Effective Net Interest Margin and Core Earnings

 

 

 

 

 

 

 

 

---

Hatteras Financial Corp

(Amounts are unaudited and subject to change)

(Dollars in thousands)

 

Table 13

(continued)

 

Reconciliation of GAAP Net Interest Margin to

Effective Net Interest Margin and Core Earnings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CONTACT:
Hatteras Financial Corp.
Kenneth A. Steele, 336-760-9331
Chief Financial Officer
or
Compass Investor Relations
Mark Collinson, Partner, 714-222-5161
www.compass-ir.com