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Executives

Mark Collinson - Partner, Compass Investor Relations

Michael R. Hough - Chief Executive Officer

Kenneth A. Steele - Chief Financial Officer, Treasurer and Secretary

Benjamin M. Hough - President and Chief Operating Officer

Frederick J. Boos II - Executive Vice President and Chief Investment Officer

Analysts

Steven C. Delaney - JMP Securities

Michael R. Widner - Keefe, Bruyette, & Woods, Inc.

Arren Cyganovich - Evercore Partners

Joel Jerome Houck - Wells Fargo Securities, LLC.

Richard A. Eckert - MLV & Co.

Jason Stewart - Compass Point

Hatteras Financial Corp. (HTS) Q4 2013 Results Earnings Call February 12, 2014 10:00 AM ET

Operator

Good morning, and welcome to the Hatteras Financial Q4 Earnings Conference Call. (Operator Instructions). Please note this event is being recorded. I would now like to turn the conference over to Mark Collinson. Please go ahead, sir.

Mark Collinson

Thanks, Chad. Good morning, everyone, and welcome to the Hatteras Fourth Quarter 2013 Earnings Conference Call.

With me today, as usual, are the company's Chairman and Chief Executive Officer, Michael Hough; the company's President and Chief Operating Officer, Ben Hough; and the company's Chief Financial Officer, Ken Steele. Also available to answer your questions is the company's Chief Investment Officer, Fred Boos.

Just briefly, before I hand over to them, I need to remind you all that any forward-looking statements made during today's call are subject to risks and uncertainties, which are discussed at length in our annual and quarterly SEC filings. Actual events and results can differ materially from these forward-looking statements. The content of this conference call also contains time-sensitive information that is accurate only as of today, February 12, 2014, and the company undertakes no obligations to make any revisions to these statements or to update these statements to reflect events or circumstances occurring after this conference call.

That's all from me. It's Michael Hough.

Michael R. Hough

Okay. Good morning welcome to our call. As always the team is here to answer all of your questions following some brief prepared remarks. First I would just like to spend a minute with a little more depth on the Hatteras strategy.

After the events of last year I think it's important to again look at how we see the long-term benefits of a short duration ARMs based strategy. Knowing the volatility our portfolio experienced last June and the resulting impact we are pleased with how we've adjusted and positioned things for the current environment and what we expect the environment could be over the next few years.

We stuck by our strategy we've already enjoyed some of the seasoning that the ARMs book gives us. As you know we are committed to ARMs because of the asset liability management benefits we get. For example the durations in our portfolio today are inside the belly of the yield curve and away from where we expect the most rate volatility.

The ARMs are shortening along with our hedges we expect our prices to continue to appreciate as they season and the coupons will adjust higher when rate rise. And one key question today is around ARMs supply in the future. What are the best ways to ensure we get the portfolio we want as we go through the cycle?

Supply in ARMs has been more than sufficient to-date but we think it's important to be creative in ways to expand the market and make certain we can get to product to our specs, especially as mortgage industry evolves in ways that aren't yet clear.

We spent some time on our last earnings call highlighting some of the relationships we have where we directly sourced agency hybrid ARM securities. We bought on a floor basis 5/1s and 7/1s from a variety of quality originators that enable us to purchase assets directly in the primary market and combines nicely with that we purchased in the secondary market.

So far we're fortunate and worked with great partners who originate great collateral and our desire is to continue to expand this line of business. From the originator perspective they get an outlet they may not had. For us we get securities that we may otherwise not have been issued and that are priced attractively.

We sourced enough of our assets, committed significant amount of the portfolio's cash flow needs. We have been successful at hedging and effectively hedging the forward commitments and retained the flexibility we need to manage leverage and concentration.

Going forward we expect these and new partnerships to be valuable as we work to provide them better disposition alternatives for their own programs, where banks for the most part have dominated the ARMs market since the crisis. We are evaluating how to participate in a larger way and source even more to build out. From the industry's perspective Hatteras is an important factor in the ARMs market which we believe is beneficial to not only us but to originators and dealers who look to us for pricing and demand.

We have a long track record of managing interest rate risk and see a lot of opportunities to create new ARM assets that will fit the risk parameters we operate within. One thing that's happening is we're getting inquiries from many of our partners regarding mortgages outside of our traditional agency spectrum. This could meet anything from loans to MSRs. But we have not invested outside of agency to date this is something we have to seriously evaluate.

If we determine that we can create assets that give us the same or better rate risk management benefits then we may ultimately go in this direction. I am not saying we will or won't right now but I just wanted to make you aware that we are looking closely at it. We will continue to listen to our current and potential partners to help find alternatives for them to improve their businesses which in turn should only help ours.

The reality is that the ultimate value of the Hatteras franchise lies in its unique portfolio. It's all but impossible to recreate at the time you need it. Whatever it takes for us to preserve and improve on this is what we are going to do. That's all I have and I'll hand it to Ken.

Kenneth A. Steele

Thanks, Michael. Today I'll touch on three things that are new to our reporting versus previous period. First of these is the introduction of non-GAAP financial measures. We now report core income, effective interest margin and effective interest expense. As mentioned last time our use of Eurodollar futures along with the overall difficulty and cost of obtaining hedge accounting prompted us to discontinue hedge accounting starting with the beginning of the fourth quarter of 2013.

As a result we make certain adjustments in our attempt to replicate what our net interest margin would be if our hedges amortized consistently with our debt. As part of our termination of hedge accounting the amount of mark-to-market and other comprehensive income at the time of termination it's frozen. And then amortized over the remaining life of the related hedges. Because of the geography of where this and our swap payments fall on the income statement we now adjust for these items.

Second as it relates to the swaps on the Eurodollar futures we've provided a new table in our release which shows you the future notional amounts we've hedged and at what rate. Figures shown are the amounts effective for each of the corresponding years in the table. Hopefully this will be helpful in understanding what our cost of funds might be and some insight into the liability side of our balance sheet.

Lastly we began using dollar roll financing for some of our 15 year positions starting in the fourth quarter. Accounting rules around the treatment of these transactions require different reporting depending on whether the securities financed are currently own bonds or TBAs. The former goes on balance sheet as an asset at full notional with the corresponding liability. The interest income and interest expense related to this transaction is shown similar to the rest of our MDS holdings.

The latter is reported as a derivative and shown as a net amount with earnings reported in the other incomes section on our income statement. We will also report separately our leverage taking into account the financing implicit in these transactions.

With that I'll turn the call over to Ben for details on our portfolio and investments.

Benjamin M. Hough

Okay, thanks. As Michael said the portfolio is performing as designed and as we would expect in this environment. The benefits of the steeper curve are taking effect in the form of slower prepayment speeds, improved yield, increased percentage of ARM production and overall more liquidity in the short end of the curve.

Particularly in the ARMs market additions improved through the end of the year and further into this year as demand for shorter duration increased from existing and from new investors. This allowed us to continue to manage our asset position to better reflect the current market and fine tune our leverage lower and duration gap a little tighter. Recall that we've repositioned much of the portfolio in the third quarter and that carried over a little into Q4 as we sold an additional 2.1 billion of our lowest coupon 7/1.

Most of the sales proceeds were reinvested about one-third in the correct coupon hybrid ARMs and about two-thirds in the 15 years seasoned and TBA bonds all of which should perform better from both the carry and duration perspective. We like our current mix as it stands out. By selling much of our longer 7/1s we have moved our overall average ARM reset day end about six months to 48 months. If you look at the months-to-reset buckets in the press release we have a nice seasoning ladder which should help provide some defense against the possibility for rising rates in coming quarters.

Just to give you an illustration of the seasoning factor we talked about at ARMs. If you take the new 5/1 with a 3% coupon purchased at a price of around 103.75, the market value of that security should appreciate around the 0.5 point per year over the next four years as it approaches the reset date to a price of around 106.25 assuming the yield curve stays constant. While there are obviously many other factors that will affect the price over that time that 2.5 points is cushion to help offset volatility and represents real value. The steeper the curve, the faster it can appreciate.

Now for fixed-rate securities, we ended the quarter with about 10% invested in 15 year 3.5 coupon and we will likely to continue to use an allocation there to complement the ARMs portfolio. Their duration is well inside five years and given the size of the 15 year market it gives us additional flexibility to manage our overall leverage and duration and also gives us a cheaper financing alternative to traditional repo with the dollar roll market. We’ll continue to use whatever financing option makes the most sense for those securities.

Securities we’re purchasing today are yielding around 230 to 240 and depending on hedging should offer net interest margins in the neighborhood of 130 to 140 basis points. Now the hedging, we have found the euro dollar market to be more efficient for us than plain de novo interest rate swaps. Euro-dollar give us more flexibility and the ability to more accurately target hedges to specific spot on the yield curve while allowing us to adjust and fine-tune our hedge position as the yield curve moves.

This is a very liquid market that's hedging inside of five years and that matches up well with our shorter duration assets. Also margin and liquidity requirements are much lower than with swaps. All euro dollar hedges we executed in Q4 were forward starting with durations around 4 to 4.5 year part of the curve. Today all-in our duration gap is half to three quarters and reflects what we see as the all-in risk of the market today and the overall level of rates.

Now on the prepayments speeds slowed quite a bit and were very consistent month-to-month and averaged 14.2 CPR. And looking into this quarter of this year the January-February average was right on top of that as well. For now we expect that CPRs will stay in the low to mid-teens on average for the next quarter or so. Even with this latest rally only about 5% to 10% of our portfolio is in the money from a gross coupon perspective, down from over 50% this time last year, although we may see some seasonal uptick in prepayments later in Q2 and Q3.

Leverage started the quarter in the high sevens range and we gradually took that down to 7.3 by the end of the year. Our target at this point is still in the 7 to 8 range and may fall above or below that depending on market conditions and opportunities.

And last, a little color on book value, while overall rates were higher and asset prices lower the ARMs portfolio moved down the curve and spreads on ARMs gradually tightened a little. That along with the gains in our hedges led to about 1% higher book value and so far into the first quarter of this year we have seen gains for both our ARMs and our 15 year position that would estimate the book value is about 1% to 2% higher again.

With that I will turn it right back over to Michael.

Michael R. Hough

Okay that’s all for the prepared remarks. Operator we are ready for any questions.

Question-and-Answer Session

Operator

Certainly we will begin the question and answer session. (Operator Instructions) Our first question comes from Steven Delaney with JMP Securities.

Steven C. Delaney - JMP Securities

Thank you. Good morning everyone. Michael I would like to start, if I could, with the dividend policy. On the surface $0.51 is a nice pickup over $0.44 in the 3Q and it looks like it would certainly support your continuation of your $0.50 dividend. I am curious have you specifically, the Board specifically discussed how they view drop income. We calculated that drop was $0.06 of the $0.51 and I was just thinking now that you are using the TBA market should we assume going forward that the Board’s dividend calls will include both core spread income and the drop component? Thanks.

Michael R. Hough

Yeah, I guess that is accurate. That’s how we presented it. We look at the dollar roll market as really an alternate financing vehicle to repo. So yes we will use that as within the net income calculation and our dividend calculation. So the answer would be yes and we obviously did it this quarter. You know if you look at that and compare as Ben said, compare to repo it was the pickup was definitely only $0.02 or $0.03 higher than what it would have been if we had financed with repo.

Steven C. Delaney - JMP Securities

Right. I appreciate it. I certainly concur with that. It is the treatment that we currently use for both COS and AGMC so I am glad, I just appreciate to confirming that.

Michael R. Hough

It’s not really drop income.

Benjamin M. Hough

Right, right. Steve this is Ben. You know it’s not really the same thing. This is not income related to the forward purchase market that we're taking on the income statement. This is --

Michael R. Hough

This is dollar roll.

Benjamin M. Hough

Dollar roll which should be viewed as financing and that's a different animal.

Steven C. Delaney - JMP Securities

Then just a forward, I understand because your drop income would actually -- why you call it drop income it would be running through the income statement not through the mark-to-market in any way.

Benjamin M. Hough

Correct.

Steven C. Delaney - JMP Securities

Okay, thank you. I guess this is for Ken. Ken you gave us a lot more detail in the euro-dollars which is very helpful because in our book value model we can actually now price out those specific contracts. But it was helpful in the past you actually gave us a swap equivalency for the strip of futures, do you have an estimate of what the $22 billion out over the next five years or so do you have internally sort of an equivalency if we were to look at that as a swap rather than a strip for futures?

Kenneth A. Steele

Well it's getting a little tougher as we've changed some of the targeting where we originally built a lot of these swaps we could kind of back into that. I still think you can kind of -- I think you can get to that number but it may not be as meaningful. The way that the euro dollars are going to amortize is going to be more like an option where your costs are lower upfront.

So the problem is we move some of these things around it really the whole swap notion really does not become quite as meaningful. And this may be more -- it may be more meaningful just off the table right now just because that's going to show you when we're going to recognize the cost the way it stands right now.

Steven C. Delaney - JMP Securities

Got it, okay that's helpful. We used to have it spread out over the years and just re-bouncing just to be clear the effective data for yield and spread is helpful and to just to confirm the yield is adjusted for the dollar rolls the cost, the effective cost is not adjusted for any -- you haven't attempted I don't think to make any type of cost adjustment for your futures, is that correct?

Kenneth A. Steele

Yes I think that’s correct, I am getting your question what I am thinking about.

Michael R. Hough

But recognize in there we have realized amounts, all the things we have right now is pretty forward-looking, so stated not going here but yet as we head in the futures, as I think as we have expiries during the period we will bring that into our cost of funds.

Steven C. Delaney - JMP Securities

You will, okay. And would those future explorations would they -- have you decided whether they will affect your core EPS figure as well or not?

Michael R. Hough

I think they will because the actual tax -- I mean we're trying to have core pretty well movement in tax I think so as you mentioned kind of if we get the distribution so that would be in there.

Steven C. Delaney - JMP Securities

That clarification is very helpful for us. So thank you very much and nice improvement sequentially guys.

Michael R. Hough

Thanks Steve.

Operator

Our next question comes from Mike Widner of KBW.

Michael R. Widner - Keefe, Bruyette, & Woods, Inc.

Hey thanks and good morning guys. Let me start by just following up on the euro dollars question. So I want make sure I understand if I look at the table that you presented on page three of the press release the first table on the euro dollar futures. Just to make sure I understand -- if I look at that first line effective 2014 combined the euro dollar futures and the swaps and basically what you are saying is you have $14 billion at an active pay rate of 102 and then so on and so forth for each successive year but it's not necessarily -- I can't add up the different rows and say this is your total, is that fair?

Michael R. Hough

That's correct Mike I mean the way the things because the contracts in particular quarter-by-quarter, so we try to show what's effective both from a risk price movement standpoint and from an income statement standpoint for each of those years.

Michael R. Widner - Keefe, Bruyette, & Woods, Inc.

Okay. And so you've got -- you showed -- maybe just a basic questing you showed the weighted average rate 102, I assume that's the pay rate and if so how should we think about the received rate, I don't know if it's different on the swaps versus the futures?

Michael R. Hough

No, it's no different it's a LIBOR-based instruments. So it will be a LIBOR.

Michael R. Widner - Keefe, Bruyette, & Woods, Inc.

Okay. So I mean this table is helpful for I think trying to build earnings projections. The other we do is trying to understand the book value sensitivity and marking everything to market. I guess I am wondering if -- so the swap table that you have got in, actual table 7 at the back of the press release where you actually list out all the contracts is very helpful for that reason.

I mean is there a reason that we shouldn’t look at -- I am trying to think about how to look at the euro dollar futures in the same way so we can actually go out and look at them and mark them to market and that sort of thing. I think I am just having a tough time figuring out how to do that with disclosure on that first euro dollar table?

Michael R. Hough

I think you can get the same thing with that because remember that I know it cannot be, they are hard to compare because of the way the contracts fall in the quarters and they are only quarterly instruments. So we have built this notional equivalent but I still think it works the same way for you in that you can see what the rate is compared to the curve at the time and then move according to the curve in that period.

Michael R. Widner - Keefe, Bruyette, & Woods, Inc.

Okay and this is what you are saying with the contracts is you might have a specific euro dollar futures contract that starts four quarters from now and runs for six quarters and then terminates, is that sort of adjacent -- unlike swaps where it might be -- I guess it’s not terribly unlike swap but I mean it just sounds like you are saying that they are structured differently in a way I am entirely surely I follow but it doesn't lend itself to the other presentation.

Benjamin M. Hough

Hey, Mike, it's Ben. Yeah that’s correct. I think that basically remember that the swaps are basically a function of a strip of euro dollar future contracts we’re just recreating the same vehicles just how the -- where the amortization falls is a little different than with the plain swap. I think we can outline maybe later can walk through it on -- I will give a little more of the stuff and kind of get you up the speed on that, so that you can make an apples to apples comparison.

Michael R. Widner - Keefe, Bruyette, & Woods, Inc.

Yeah, I appreciate that. So then quickly I guess just on the dollar roll, so the average balance during 4Q was higher than the balance right now and but at the same time the dollar roll market is still pretty good for all the reasons I think you outlined. I guess my question is how should we think about that balance there's two points in some way makes a trend but I don't want to extrapolate from that 4Q average to spot at the end of the quarter. How should we think about that balance going forward?

Benjamin M. Hough

Well I think that we used the 15 year position for a number of quarters now and we always said that 5% to 15% and in last quarter we said we might take that up a little bit even higher. I think it’s market dependent and we ended the quarter around 10% including the dollar rolls and we brought that up a little bit this quarter but don't want to give you a target because there isn’t one. It’s just a market we are going to have to see how where the value lies on any given day.

Michael R. Widner - Keefe, Bruyette, & Woods, Inc.

Sounds good. Then I guess my final question would be, like you said you have been in the 15 year market to varying degrees if not necessarily the center of what you do but useful on the periphery. Using the dollar roll market is sort of one alternative way of doing that different than how you have sort of traditionally done it. One other way that one might access the market their not in would be and you guys might access the 15-year market is buying equities in the stocks of peers.

So there is several peers out there that are focused on the 15 year market and trading at deep discount to books. So I guess I am just wondering if you guys have thought about that approach to accessing the 15 year market?

Benjamin M. Hough

Yeah I mean I guess that as you said periphery of the 15 year market that’s really not part of our strategy here. We really don't have control over what other management teams do in their portfolio. We wouldn’t know what that exposure is. We’re much happier controlling the exposures ourselves so the chance of us investing in other company stocks is remote to none.

Michael R. Widner - Keefe, Bruyette, & Woods, Inc.

Thanks guys. I appreciate all the comments and nice quarter.

Michael R. Hough

Thanks, Mike.

Operator

The next question is from Arren Cyganovich with Evercore.

Arren Cyganovich - Evercore Partners

Thanks. Maybe you could talk about the flow agreements and help me understand how much of a percentage of your new purchases is actually going to flow versus just traditional market purchases?

Michael R. Hough

Well I mean we just like I said earlier it is a portion of our -- it’s all for a portion of our cash flow needs but it’s not the majority of our needs by any means. But you know it’s a very efficient way for us to participate in the ARMs market and something that we will look to grow over time but right now from a number standpoint it is obviously dependent on how the overall origination market does and that's about it.

Arren Cyganovich - Evercore Partners

Okay. And then I am sorry I missed Michael, in your comment in your prepared remarks you are talking about a new opportunity to work with your lending partners. Are you talking originating new products or getting home loans and securitizing I missed what you were saying there?

Michael R. Hough

So I guess what I am saying is that we're always looking for ways to access assets that we think are both from a rate risk management standpoint. We are evaluating the market a little bit differently than we have. We are getting inquiries from the market and some of our partners on other avenues that are different from agency, farm security.

So but really right now we are just evaluating what those opportunities could be it's really across the spectrum. We're looking for always something that would be a long-term business opportunity for us and not a trade and how it fits in with what we see both value proposition we gave to investor in long-term.

Arren Cyganovich - Evercore Partners

Okay. And then lastly may be you could help me understand why the effective cost of funds went up relative to last quarter. It seemed to me that the swaps are all roughly the same value and the repo actually improved a little bit in cost. What was -- was there something to do with the one-time marketing and amortizing those or retirement, what was the impact there?

Michael R. Hough

Right that's basically because those payments that you have once we discontinued hedge accounting the actual payments go in under our derivative income, the FASB want those the geography to basically be the same in all of them. But the amortization of the orders yeah it's still going through that expense.

So basically hold one out and add the other one back in. So here is little bit of a more true cost of what are our expenses.

Arren Cyganovich - Evercore Partners

Okay. Very helpful, thank you.

Operator

Our next question is from Joel Houck of Wells Fargo.

Joel Jerome Houck - Wells Fargo Securities, LLC.

Good morning guys. Obviously your book value performed better in the quarter than your peers that have already reported I am wondering was the -- from point to point there wasn't much volatility what kind of happened during the quarter with the pricing more on the asset side I guess particularly around the announced paper.

Michael R. Hough

Joel I think the prices of the general new issue hybrid ARMs market where with lower quarter-over-quarter but a seasoned portfolio performs lot differently and it performed well. So we had a lot of price gains on the shorter end and some of the stuff we bought was down a little. So it's really bucket-by-bucket and that goes back to the whole seasoning later that we have and the way it moves and some of the defense we got in a rising rate environment. So you really have to look at it bucket-by-bucket and that's a whole different exercise but the ARMs in general overall were slightly lower but not significant and that has just performance well too.

Joel Jerome Houck - Wells Fargo Securities, LLC.

Okay. And then switching gears do you guys have an estimate or range of what you think total hybrid production is going to be in 2014 for the entire market and not just what you guys think you are going to get?

Frederick J. Boos II

This is Fred. We've been running about 2 billion to 3 billion per month say for last six months. So you expand that and we're looking at potentially $30 billion to $40 billion. In ARMs which is probably anywhere from 3% to 5% of the production, gross production for origination in all GSE product it's been declining rather appreciably and we were last summer in the $150 billion per month and now we're down to about $70 billion or $80 billion per month and that's growth origination.

So ARMs should, it's our view that ARMs production should pick up with a steeper yield curve, the mortgage curve right now at a 135 basis points between 30 year and 5/1, they are still attractive to borrowers from affordability standpoint. And so as rates rise or rates tend to rise ahead we feel ARM production will pick up, it already has a little bit, so that the volume should be sufficient at least for our needs.

Joel Jerome Houck - Wells Fargo Securities, LLC.

Okay. Great. And then lastly I will take a shot on I don't know if you want to answer that, but I am sure you are aware on of our peers bought a meaningful portion of your stock I guess is this kind of the way to play the ARMs market. Did they contact you or any due diligence done from your perspective in terms of them taking that position?

Michael R. Hough

No, we never heard from them and it was a surprise to us. But we are always pleased to have new investors who understand and appreciate our strategy. So we look forward to hearing from them anytime.

Joel Jerome Houck - Wells Fargo Securities, LLC.

Well perhaps they are on this call. Okay. Thank you very much.

Operator

(Operator Instructions). Our next question is from Richard Eckert with MLV & Company.

Richard A. Eckert - MLV & Co.

Okay. Thank you very much. I have a couple of questions here. You ended the quarter at the debt-to-equity ratio of 7.3 with dollar roll effectively in there. If things calm down long-term bond prices trade within a narrow range and there is some stability or visibility to the bond market would you consider ratcheting up that leverage any over the course of 2014?

Michael R. Hough

Well as Ben mentioned earlier we took leverage down a little bit lower at the end of the year just as we usually do just in case there was additional volatility at the period ends. And since the end of the quarter we have taken leverage up a little bit from there. But as we said it's so much driven by liquidity and the overall balance sheet relative to what we see and the risk in the market we've been very comfortable for a pretty long time and seven day time range we may approach either end of that during the course of the year depending on what we see the risks are.

Richard A. Eckert - MLV & Co.

Okay. Fair enough. One more question following-up on the effective interest expense cost. If I look at that table the reconciliation, it seems like the net periodic swaps cost 69 basis points that seemed a little high to me. Was this something related to the fee designation of the swaps and hedges that boosted that number any?

Michael R. Hough

Come out for the effective interest is what you are saying?

Richard A. Eckert - MLV & Co.

It just looks like the net periodic swap cost, the second number in there the $31 million that just seemed a 69 basis points just seems a little high?

Michael R. Hough

I think that's just based on, you think that seemed a little high?

Richard A. Eckert - MLV & Co.

Yeah. That 69 basis points?

Michael R. Hough

Yeah. Well that is our payments on the swaps. Now that is going up because we have less obviously we have de-levered the as a percentage our swaps are going to be a larger percentage now of our floating rate cost. Well that was probably the extent of it.

Richard A. Eckert - MLV & Co.

All right. That's it, thank you very much.

Operator

Our next question is from Jason Stewart of Compass Point.

Jason Stewart - Compass Point

Hi, thank you. Could you just comment on the relative performance of seasoned hybrids versus new production hybrids year-to-date in 2014?

Michael R. Hough

Yes. And this year so far it's been the trend that we saw pretty much in the fourth quarter as well. And so I think the more seasoned paper has moved in just like last quarter and we've had little additional tightening and a little improvement in prices on hybrid ARMs on the longer end of the spectrum. So I think on a general nature it's been real similar. I think the seasoned paper has done well but some of the longer paper may have done a little bit better this quarter as rate came down.

Jason Stewart - Compass Point

Okay, thank you.

Operator

There appears to be no further questions at this time. I'd like to turn the conference back over to Michael Hough for any closing remarks.

Michael R. Hough

Okay, thank you all for being on the call and for interest in Hatteras and feel free to call us later if you have any additional questions. With that have a nice day and look forward to the next call.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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