Organization and Business Description

9 Months Ended

Sep. 30, 2013

Organization and Business Description

1. Organization and Business Description

Hatteras Financial Corp. (the “Company”) is a Maryland corporation focused on investing in, financing and managing residential mortgage-backed securities and other financial assets. Incorporated on September 19, 2007, the Company is externally managed by Atlantic Capital Advisors LLC (“ACA”) and is listed on the New York Stock Exchange (“NYSE”) under the symbol “HTS”.

The Company’s primary investments are residential mortgage-backed securities (“MBS”) issued or guaranteed by the U.S. Government or U.S. Government sponsored agencies such as the Government National Mortgage Association (“Ginnie Mae”), the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) (“agency securities”).

The Company has elected to be taxed as a real estate investment trust (“REIT”) for U.S. federal income tax purposes. As long as the Company continues to comply with a number of requirements under federal tax law and maintains its qualification as a REIT, the Company generally will not be subject to U.S. federal income taxes to the extent that the Company distributes its taxable income to its shareholders on an annual basis and does not engage in prohibited transactions. However, certain activities that the Company may perform may cause it to earn income which will not be qualifying income for REIT purposes. The Company has designated certain of its subsidiaries as taxable REIT subsidiaries (“TRSs”) as defined in the Internal Revenue Code of 1986, as amended (the “Code”), to engage in such activities, and the Company may in the future form additional TRSs.