Capstead Mortgage Corporation (“Capstead” or the “Company”)
(NYSE: CMO) today announced financial results for the quarter ended
December 31, 2019.
Fourth Quarter 2019 Summary
- Recognized GAAP net income of $32.7 million or $0.29 per
diluted common share
- Generated core earnings of $19.1 million or $0.15 per
diluted common share
- Increased fourth quarter dividend by 25% to $0.15 per common
share
- Book value per common share increased $0.02 to $8.62 per
common share
- Agency-guaranteed residential adjustable-rate mortgage (ARM)
portfolio and leverage ended the quarter relatively unchanged at
$11.22 billion and 8.77 times long-term investment capital,
respectively
Fourth Quarter Earnings and Related
Discussion
Capstead reported GAAP net income of $32.7 million or $0.29 per
diluted common share for the quarter ended December 31, 2019,
compared to net income of $3.2 million for a loss of $(0.02) per
diluted common share for the quarter ended September 30, 2019. The
Company reported core earnings of $19.1 million or $0.15 per
diluted common share for the quarter ended December 31, 2019. This
compares to core earnings of $14.8 million or $0.11 per diluted
common share for the quarter ended September 30, 2019. See the
“Non-GAAP Financial Measures” section of this release for more
information.
Portfolio yields averaged 2.67% during the fourth quarter of
2019, a decrease of nine basis points from 2.76% reported for the
third quarter. Yields declined primarily due to declining coupon
interest rates on loans underlying the Company’s portfolio of
agency-guaranteed residential ARM securities. Mortgage prepayments
decreased modestly during the quarter to an average annualized
constant prepayment rate, or CPR, of 29.39%, compared to 30.18% CPR
in the prior quarter. Outstanding portfolio balances of $11.22
billion at year-end were little changed from September 30, 2019
balances. Average portfolio balances were $235 million lower
quarter over quarter due to the timing of acquisitions relative to
portfolio run off. Portfolio leverage was relatively unchanged at
8.77 to one at December 31, 2019 from 8.80 to one at September 30,
2019.
Rates on Capstead’s $10.28 billion in secured borrowings, after
adjusting for hedging activities, averaged 34 basis points lower at
1.97% during the fourth quarter of 2019, compared to 2.31% for the
prior quarter. Borrowing rates before hedging activities averaged
2.10% during the fourth quarter, a decline of 42 basis points over
the prior quarter in large part due to the Federal Reserve’s
actions at its July, September and October meetings to reduce the
Fed Funds rate by a total of 75 basis points.
Fixed rates on the Company’s $7.40 billion notional amount of
secured borrowings-related interest rate swaps averaged 23 basis
points lower at 1.91% during the fourth quarter of 2019, primarily
as a result of efforts to reduce hedging costs by replacing higher
rate swaps with new swaps at lower prevailing rates. At December
31, 2019, fixed rates on these swaps averaged 1.77%, a 27 basis
point decline from rates in effect on September 30, 2019.
The following table illustrates the progression of Capstead’s
portfolio of residential mortgage investments for the quarter and
year ended December 31, 2019 (dollars in thousands):
Quarter Ended
December 31, 2019
Year Ended
December 31, 2019
Residential mortgage investments,
beginning of period
$
11,235,803
$
11,965,381
Portfolio acquisitions (principal
amount)
989,691
3,239,372
Investment premiums on acquisitions
20,336
76,788
Portfolio runoff (principal amount)
(988,295
)
(3,752,774
)
Sales of investments (basis)
–
(305,356
)
Investment premium amortization
(18,532
)
(73,742
)
(Decrease) increase in net unrealized
gains on securities
classified as available-for-sale
(16,821
)
72,513
Residential mortgage investments, end of
period
$
11,222,182
$
11,222,182
Decrease in residential mortgage
investments
during the indicated periods
$
(13,621
)
$
(743,199
)
Capstead operates a highly efficient, internally-managed
investment platform, particularly compared to other mortgage REITs
and has a competitive cost structure relative to a wide variety of
high yielding investment vehicles. Operating costs expressed as an
annualized percentage of long-term investment capital averaged
1.07% for the fourth quarter of 2019 and 1.10% for the year ended
December 31, 2019. As an annualized percentage of total assets,
operating costs averaged 0.11% during these periods.
Book Value per Common Share
Book value per share as of December 31, 2019 was $8.62, an
increase of $0.02 or 0.2% from the September 30, 2019 book value of
$8.60, primarily reflecting $0.19 in derivative-related increases
in value, partially offset by $0.18 in portfolio-related declines
in unrealized gains. Capstead’s investment strategy attempts to
mitigate risks to book value by focusing on investments in
agency-guaranteed residential mortgage pass-through securities,
which are considered to have little, if any, credit risk and are
collateralized by ARM loans with interest rates that reset
periodically to more current levels.
Management Remarks
Commenting on current operating and market conditions, Phillip
A. Reinsch, President and Chief Executive Officer, said, “In
December we announced a 25% dividend increase to $0.15 per common
share, equal to our core earnings for the fourth quarter. This
follows a 50% dividend increase announced in June. For the year we
paid dividends of $0.47 per common share on core earnings of $0.50
per share.
“Much of the improvement in our core earnings in the fourth
quarter and for all of 2019 is attributable to lower funding costs
as a result of the Federal Reserve’s actions to reduce the Fed
Funds rate and actions we took to lower fixed pay rates on swaps
held for hedging purposes in response to significantly lower market
interest rates. Core earnings also benefited from acquisitions of
agency-guaranteed ARM securities at attractive levels. Hampering
earnings throughout much of the year was an increase in market
volatility that contributed to sharply lower longer-term rates,
putting upward pressure on mortgage prepayment rates and negatively
affecting mortgage security pricing relative to swap valuations.
Additionally, rate pressures in short-term funding markets resulted
in elevated borrowing rates relative to declines in the Fed Funds
rate and other short-term rates. In response, we took a measured
approach to deploying capital during the latter half of the year,
with leverage declining in the third quarter and into the fourth
quarter before ending the year relatively unchanged from September
30 levels. Future changes in leverage will depend on market
conditions.
“Looking forward, we are encouraged by cycle-low unhedged
borrowing rates presently available in the funding markets and the
continued attractiveness of investment returns. Together with
average fixed pay rates on our secured borrowings-related swaps now
at or near 30-day borrowing rates, we anticipate showing further
improvement in our financing spreads and net interest margins
leading to higher earnings in the coming quarters.
“For the last 20 years, Capstead has operated as a
cost-effective, internally managed REIT that invests in a leveraged
portfolio of relatively short duration agency-guaranteed
residential ARM securities with the goal of generating attractive
risk-adjusted returns over the long-term. For investors seeking
risk-adjusted levered returns with a comparably higher degree of
safety from interest rate and credit risk, we believe Capstead
represents a reasonably compelling opportunity that is difficult to
find elsewhere in the markets.”
Non-GAAP Financial Measures
Management believes the presentation of core earnings and core
earnings per common share, both non-GAAP financial measures, when
analyzed in conjunction with the Company’s GAAP operating results,
allows investors to more effectively evaluate the Company’s
performance and compare its performance to that of its peers. Prior
to March 2019, the Company designated its secured
borrowings-related swaps as hedges for GAAP accounting purposes,
whereby changes in the swaps’ fair values were recorded in
Accumulated other comprehensive income (loss) (“AOCI”). Beginning
in March 2019, for GAAP accounting purposes, related changes in the
fair value of these derivatives are recorded in the Company’s
consolidated statements of operations. Also, for GAAP accounting
purposes, related net unrealized gains recorded in AOCI through
February 28, 2019 are being recognized as a component of interest
expense in the Company’s consolidated statements of operations over
the remaining life of these swaps.
Management also believes that presenting financing spreads on
residential mortgage investments, a non-GAAP financial measure,
provides important information for evaluating the performance of
the Company’s portfolio as opposed to total financing spreads
because the non-GAAP measure speaks specifically to the performance
of the Company’s investment portfolio. See the “Reconciliation of
GAAP Measures to Non-GAAP Measures” section of this release.
Earnings Conference Call Details
An earnings conference call and live audio webcast will be
hosted Thursday, January 30, 2020 at 9:00 a.m. ET. The conference
call may be accessed by dialing toll free (877) 505-6547 in the
U.S., (855) 669-9657 for Canada, or (412) 902-6660 for
international callers. A live webcast of the conference call can be
accessed via the investor relations section of the Company’s
website at www.capstead.com and an archive of the webcast will be
available up to the date of our next earnings press release. An
audio replay can be accessed one hour after the end of the
conference call, also up to the date of our next earnings press
release, by dialing toll free (877) 344-7529 in the U.S., (855)
669-9658 for Canada, or (412) 317-0088 for international callers
and entering conference number 10138407.
About Capstead
Capstead is a self-managed real estate investment trust, or
REIT, for federal income tax purposes. The Company earns income
from investing in a leveraged portfolio of residential
adjustable-rate mortgage pass-through securities, referred to as
ARM securities, issued and guaranteed by government-sponsored
enterprises, either Fannie Mae or Freddie Mac, or by an agency of
the federal government, Ginnie Mae.
Statement Concerning Forward-looking
Statements
This document contains “forward-looking statements” within the
meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements include, without limitation, any
statement that may predict, forecast, indicate or imply future
results, performance or achievements, and may contain the words
“believe,” “anticipate,” “expect,” “estimate,” “intend,” “will be,”
“will likely continue,” “will likely result,” or words or phrases
of similar meaning. Actual results could differ materially from
those projected in these forward-looking statements due to a
variety of factors, including without limitation, fluctuations in
interest rates, the availability of suitable qualifying
investments, changes in mortgage prepayments, the availability and
terms of financing, changes in market conditions as a result of
federal corporate and individual tax law changes, changes in
legislation or regulation affecting the mortgage and banking
industries or Fannie Mae, Freddie Mac or Ginnie Mae securities, the
availability of new investment capital, the liquidity of secondary
markets and funding markets, our ability to maintain our
qualification as a REIT for U.S. federal tax purposes, our ability
to maintain our exemption from registration under the Investment
Company Act of 1940, as amended, and other changes in general
economic conditions. These and other applicable uncertainties,
factors and risks are described more fully in the Company’s filings
with the U.S. Securities and Exchange Commission.
Forward-looking statements speak only as of the date the
statement is made and the Company undertakes no obligation to
update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise. Accordingly,
readers of this document are cautioned not to place undue reliance
on any forward-looking statements included herein.
CAPSTEAD MORTGAGE
CORPORATION
CONSOLIDATED BALANCE
SHEETS
(in thousands, except ratios,
pledged and per share amounts)
December 31, 2019
December 31, 2018
(unaudited)
Assets
Residential mortgage investments ($10.83
and $11.57 billion pledged at December 31, 2019 and 2018,
respectively)
$
11,222,182
$
11,965,381
Cash collateral receivable from derivative
counterparties
65,477
31,797
Derivatives at fair value
1,471
–
Cash and cash equivalents
105,397
60,289
Receivables and other assets
125,474
129,058
$
11,520,001
$
12,186,525
Liabilities
Secured borrowings
$
10,275,413
$
10,979,362
Derivatives at fair value
29,156
17,834
Unsecured borrowings
98,392
98,292
Common stock dividend payable
14,605
7,132
Accounts payable and accrued expenses
28,702
24,842
10,446,268
11,127,462
Stockholders’ equity
Preferred stock - $0.10 par value; 100,000
shares authorized:
7.50% Cumulative Redeemable Preferred
Stock, Series E, 10,329 shares issued and outstanding ($258,226
aggregate liquidation preference) at December 31, 2019 and 2018
250,946
250,946
Common stock - $0.01 par value; 250,000
shares authorized:
94,606 and 85,277 shares issued and
outstanding at December 31, 2019 and 2018, respectively
946
853
Paid-in capital
1,252,481
1,174,880
Accumulated deficit
(444,039
)
(346,570
)
Accumulated other comprehensive income
(loss)
13,399
(21,046
)
1,073,733
1,059,063
$
11,520,001
$
12,186,525
Long-term investment capital
(consists of stockholders’ equity and unsecured borrowings)
(unaudited)
$
1,172,125
$
1,157,355
Portfolio leverage (secured
borrowings divided by long-term investment capital) (unaudited)
8.77:1
9.49:1
Book value per common share (based
on shares of common stock outstanding and calculated assuming
liquidation preferences for preferred stock) (unaudited)
$
8.62
$
9.39
CAPSTEAD MORTGAGE
CORPORATION
CONSOLIDATED STATEMENTS OF
OPERATIONS
(in thousands, except per
share amounts)
(unaudited)
Quarter Ended
December 31
Year Ended
December 31
2019
2018
2019
2018
Interest income:
Residential mortgage investments
$
73,617
$
72,902
$
320,217
$
274,891
Other
666
626
2,753
1,689
74,283
73,528
322,970
276,580
Interest expense:
Secured borrowings
(51,688
)
(59,321
)
(246,212
)
(206,976
)
Unsecured borrowings
(1,910
)
(1,910
)
(7,611
)
(7,611
)
(53,598
)
(61,231
)
(253,823
)
(214,587
)
20,685
12,297
69,147
61,993
Other income (expense):
Gain (loss) on derivative instruments
(net)
15,142
–
(90,578
)
–
Loss on sale of investments (net)
–
–
(1,365
)
–
Compensation-related expense
(2,050
)
(2,238
)
(8,197
)
(7,759
)
Other general and administrative
expense
(1,105
)
(1,207
)
(4,494
)
(4,527
)
Miscellaneous other revenue
–
132
149
365
11,987
(3,313
)
(104,485
)
(11,921
)
Net income (loss)
32,672
8,984
(35,338
)
50,072
Less preferred stock dividends
(4,842
)
(4,842
)
(19,368
)
(19,368
)
Net income (loss) to common
stockholders:
$
27,830
$
4,142
$
(54,706
)
$
30,704
Net income (loss) per common
share:
Basic
$
0.30
$
0.05
$
(0.62
)
$
0.34
Diluted
0.29
0.05
(0.62
)
0.34
Weighted average common shares
outstanding:
Basic
93,991
87,884
88,722
91,114
Diluted
94,293
88,006
88,722
91,230
Cash dividends declared per
share:
Common
$
0.15
$
0.08
$
0.47
$
0.49
Series E preferred
0.47
0.47
1.88
1.88
CAPSTEAD MORTGAGE
CORPORATION
QUARTERLY STATEMENTS OF
OPERATIONS AND SELECT OPERATING STATISTICS
(in thousands, except per
share amounts, percentages annualized, unaudited)
2019
2018
Q4
Q3
Q2
Q1
Q4
Quarterly Statements of
Operations:
Interest income:
Residential mortgage investments
$
73,617
$
77,693
$
85,100
$
83,807
$
72,902
Other
666
1,065
600
422
626
74,283
78,758
85,700
84,229
73,528
Interest expense:
Secured borrowings
(51,688
)
(62,800
)
(67,945
)
(63,779
)
(59,321
)
Unsecured borrowings
(1,910
)
(1,910
)
(1,900
)
(1,891
)
(1,910
)
(53,598
)
(64,710
)
(69,845
)
(65,670
)
(61,231
)
20,685
14,048
15,855
18,559
12,297
Other income (expense):
Gain (loss) on derivative instruments
(net)
15,142
(9,221
)
(74,842
)
(21,657
)
–
Loss on sale of investments (net)
–
–
(1,365
)
–
–
Compensation-related expense
(2,050
)
(566
)
(1,972
)
(3,609
)
(2,238
)
Other general and administrative
expense
(1,105
)
(1,123
)
(1,138
)
(1,128
)
(1,207
)
Miscellaneous other revenue
–
58
2
89
132
11,987
(10,852
)
(79,315
)
(26,305
)
(3,313
)
Net income (loss)
$
32,672
$
3,196
$
(63,460
)
$
(7,746
)
$
8,984
Net income (loss) per diluted common
share
$
0.29
$
(0.02
)
$
(0.80
)
$
(0.15
)
$
0.05
Average diluted common shares
outstanding
94,293
90,945
84,934
84,894
88,006
Core earnings
$
19,109
$
14,798
$
14,780
$
15,471
$
8,984
Core earnings per diluted common share
0.15
0.11
0.12
0.12
0.05
Select Operating and Performance
Statistics:
Common dividends declared per share
0.15
0.12
0.12
0.08
0.08
Book value per common share
8.62
8.60
8.93
9.43
9.39
Average portfolio outstanding (cost
basis)
11,032,252
11,266,776
12,065,084
12,169,106
12,442,410
Average secured borrowings
10,195,180
10,481,080
11,193,335
11,156,608
11,439,646
Average long-term investment capital
(“LTIC”)
1,172,897
1,146,916
1,149,388
1,161,815
1,188,553
Constant prepayment rate (“CPR”)
29.39
%
30.18
%
26.29
%
20.62
%
22.37
%
Total financing spreads
0.57
0.31
0.34
0.42
0.22
Yields on residential mortgage
investments
2.67
2.76
2.82
2.75
2.34
Secured borrowing rates (a)
1.97
2.31
2.35
2.23
2.07
Financing spreads on residential mortgage
investments
0.70
0.45
0.47
0.52
0.27
Operating costs as a percentage of LTIC
(b)
1.07
0.58
1.09
1.32
1.15
Quarterly economic return (change in book
value plus dividends)
1.98
(2.35
)
(4.03
)
1.28
(0.11
)
Return on common equity capital (c)
6.89
4.95
4.98
5.33
1.96
(a)
Secured borrowing rates exclude the
effects of amortization of the net unrealized gains (losses)
included in AOCI on de-designated derivative instruments and
include net interest cash flows on non-designated derivative
instruments to better compare the components of financing spreads
on residential mortgage investments. See “Reconciliation of GAAP
Measures to Non-GAAP Measures” for details on the impact of
non-designated derivative instruments.
(b)
First quarter 2019 excludes the effects of
adjustments to 2018 incentive compensation accruals totaling
$(949,000) due to the Company’s 2018 outperformance relative to its
peers.
(c)
Calculated using core earnings less
preferred dividends on an annualized basis over average common
equity for the period.
CAPSTEAD MORTGAGE CORPORATION RECONCILIATION
OF GAAP MEASURES TO NON-GAAP MEASURES (in thousands, percentages
annualized, unaudited)
The Company defines core earnings as GAAP net income (loss)
excluding (a) unrealized (gain) loss on derivative instruments, (b)
realized loss (gain) on termination of derivative instruments, (c)
amortization of unrealized (gain) loss of derivative instruments
held at the time of de-designation (March 1, 2019) and (d) realized
loss (gain) on securities. The following reconciles GAAP net (loss)
income and net (loss) income per diluted common share to core
earnings and core earnings per common share:
2019
2018
Q4
Q3
Q2
Q1
Q4
Amount
Per Share
Amount
Per Share
Amount
Per Share
Amount
Per Share
Amount
Per Share
Net income (loss)
$
32,672
$
0.29
$
3,196
$
(0.02
)
$
(63,460
)
$
(0.80
)
$
(7,746
)
$
(0.15
)
$
8,984
$
0.05
Unrealized (gain) loss on non-designated
derivative instruments
(51,017
)
(0.54
)
(16,952
)
(0.19
)
59,388
0.70
26,237
0.31
–
–
Realized loss on termination of
non-designated derivative instruments
39,312
0.42
31,673
0.35
24,202
0.28
–
–
–
–
Amortization of unrealized gain, net of
unrealized losses on de-designated derivative instruments
(1,858
)
(0.02
)
(3,119
)
(0.03
)
(6,715
)
(0.08
)
(3,020
)
(0.04
)
–
–
Realized loss on sale of investments
–
–
–
–
1,365
0.02
–
–
–
–
Core earnings
$
19,109
$
0.15
$
14,798
$
0.11
$
14,780
$
0.12
$
15,471
$
0.12
$
8,984
$
0.05
The following reconciles total financing spreads to financing
spreads on residential mortgage investments:
2019
2018
Q4
Q3
Q2
Q1
Q4
Total financing spreads
0.57
%
0.31
%
0.34
%
0.42
%
0.22
%
Impact of yields on other interest-earning
assets*
0.01
–
0.01
–
–
Impact of borrowing rates on other
interest-paying liabilities*
0.05
0.05
0.05
0.05
0.05
Impact of amortization of unrealized gain,
net of unrealized losses on de-designated derivative
instruments
(0.07
)
(0.12
)
(0.24
)
(0.11
)
–
Impact of net cash flows received on
non-designated derivative instruments
0.14
0.21
0.31
0.16
–
Financing spreads on residential mortgage
investments
0.70
0.45
0.47
0.52
0.27
* Other interest-earning assets consist of overnight investments
and cash collateral receivable from interest rate swap
counterparties. Other interest-paying liabilities consist of
unsecured borrowings and, at times, may consist of cash collateral
payable to interest rate swap counterparties.
CAPSTEAD MORTGAGE
CORPORATION
FAIR VALUE AND SWAP MATURITY
DISCLOSURES
(in thousands,
unaudited)
December 31, 2019
December 31, 2018
Unpaid
Principal
Balance
Investment Premiums
Basis or
Notional
Amount
Fair
Value
Unrealized Gains
(Losses)
Unrealized Gains
(Losses)
Residential mortgage
investments
classified as available-for-sale:
(a)
Fannie Mae/Freddie Mac securities:
Current-reset ARMs
$
4,036,944
$
142,939
$
4,179,883
$
4,213,456
$
33,573
$
48,091
Longer-to-reset ARMs
4,591,712
119,354
4,711,066
4,718,333
7,267
(66,326
)
Ginnie Mae securities:
Current-reset ARMs
1,020,803
36,758
1,057,561
1,060,260
2,699
4,433
Longer-to-reset ARMs
1,193,644
33,126
1,226,770
1,228,498
1,728
(13,444
)
$
10,843,103
$
332,177
$
11,175,280
$
11,220,547
$
45,267
$
(27,246
)
Derivative instruments: (b)
Interest rate swap agreements:
Secured borrowings-related
$
7,400,000
$
(6,383
)
$
(2,712
)
$
24,033
Unsecured borrowings-related
100,000
(29,156
)
(29,156
)
(17,834
)
Eurodollar futures contracts
500,000
738
–
–
(a)
Unrealized gains and losses on residential
mortgage securities classified as available-for-sale are recorded
as a component of AOCI. Residential mortgage securities classified
as held-to-maturity with a cost basis of $998,000 and unsecuritized
investments in residential mortgage loans with a cost basis of
$637,000 are not subject to fair value accounting and therefore
have been excluded from this analysis. Capstead segregates its
residential ARM securities based on the average length of time
until the loans underlying each security reset to more current
rates.
(b)
Unrealized Gains (Losses) are amounts
included in AOCI related to these positions as of the indicated
dates. The following reflects Capstead’s secured borrowings-related
swap positions, sorted by quarter of swap contract expiration.
Average fixed rates reflect related fixed-rate payment
requirements.
Period of Contract
Expiration
Swap Notional
Amounts
Average
Fixed Rates
First quarter 2020
$
600,000
2.07%
Second quarter 2020
200,000
2.56
Third quarter 2020
200,000
1.64
Fourth quarter 2020
200,000
2.04
Second quarter 2021
800,000
1.95
Third quarter 2021
1,700,000
1.60
Fourth quarter 2021
2,400,000
1.60
Second quarter 2022
800,000
2.25
Fourth quarter 2022
500,000
1.39
$
7,400,000
Eurodollar futures contracts currently represent a series of
quarterly $500 million notional amount contracts extending to June
2020.
After consideration of secured borrowings-related derivative
instruments, Capstead’s residential mortgage investments and
related secured borrowings had durations as of December 31, 2019 of
approximately 15 months and 14¼ months, respectively, for a net
duration gap of approximately ¾ months. Duration is a measure of
market price sensitivity to changes in interest rates. A shorter
duration generally indicates less interest rate risk.
CAPSTEAD MORTGAGE
CORPORATION
RESIDENTIAL ARM SECURITIES
PORTFOLIO STATISTICS
(as of December 31,
2019)
(in thousands,
unaudited)
ARM Type
Amortized
Cost Basis (a)
Net
WAC (b)
Fully
Indexed
WAC (b)
Average
Net
Margins (b)
Average
Periodic
Caps (b)
Average
Lifetime
Caps (b)
Months
To
Roll (c)
Current-reset ARMs:
Fannie Mae Agency Securities
$
2,834,919
3.85
%
3.61
%
1.67
%
2.70
%
5.35
%
6.3
Freddie Mac Agency Securities
1,344,964
3.89
3.70
1.75
2.08
5.04
7.4
Ginnie Mae Agency Securities
1,057,561
3.59
3.10
1.51
1.04
4.69
7.0
Residential mortgage loans
530
4.15
4.69
2.09
1.72
11.24
6.3
(47% of total)
5,237,974
3.81
3.53
1.66
2.21
5.14
6.7
Longer-to-reset ARMs:
Fannie Mae Agency Securities
3,045,809
3.08
3.56
1.60
3.72
5.00
46.3
Freddie Mac Agency Securities
1,665,257
3.09
3.64
1.67
3.99
5.04
52.4
Ginnie Mae Agency Securities
1,226,770
3.49
3.09
1.50
1.01
5.01
43.6
(53% of total)
5,937,836
3.16
3.48
1.60
3.24
5.01
47.5
$
11,175,810
3.46
3.51
1.63
2.76
5.07
28.5
Gross WAC (rate paid by borrowers)(d)
4.06
(a)
Amortized cost basis represents the
Company’s investment (unpaid principal balance plus unamortized
investment premiums) before unrealized gains and losses. At
December 31, 2019, the ratio of amortized cost basis to unpaid
principal balance for the Company’s ARM holdings was 103.06. This
table excludes $1.1 million in fixed-rate agency-guaranteed
mortgage pass-through securities, residential mortgage loans and
private residential mortgage pass-through securities held as
collateral for structured financings.
(b)
Net WAC, or weighted average coupon, is
the weighted average interest rate of the mortgage loans underlying
the indicated investments, net of servicing and other fees as of
the indicated date. Net WAC is expressed as a percentage calculated
on an annualized basis on the unpaid principal balances of the
mortgage loans underlying these investments. As such, it is similar
to the cash yield on the portfolio which is calculated using
amortized cost basis. Fully indexed WAC represents the weighted
average coupon upon one or more resets using interest rate indexes
and net margins as of the indicated date. Average net margins
represent the weighted average levels over the underlying indices
that the portfolio can adjust to upon reset, usually subject to
initial, periodic and/or lifetime caps on the amount of such
adjustments during any single interest rate adjustment period and
over the contractual term of the underlying loans. ARM securities
with initial fixed-rate periods of five years or longer typically
have either 200 or 500 basis point initial caps with 200 basis
point periodic caps. Additionally, certain ARM securities held by
the Company are subject only to lifetime caps or are not subject to
a cap. For presentation purposes, average periodic caps in the
table above reflect initial caps until after an ARM security has
reached its initial reset date and lifetime caps, less the current
net WAC, for ARM securities subject only to lifetime caps. At
quarter-end, 74% of current-reset ARMs were subject to periodic
caps averaging 1.77%; 19% were subject to initial caps averaging
2.60%; 6% were subject to lifetime caps averaging 6.40%; and less
than 1% were uncapped.
(c)
Capstead classifies its ARM securities
based on the average length of time until the loans underlying each
security reset to more current rates (“months-to-roll”) (less than
18 months for “current-reset” ARM securities, and 18 months or
greater for “longer-to-reset” ARM securities). After consideration
of any applicable initial fixed-rate periods, at December 31, 2019
approximately 92%, 4% and 3% of the Company’s ARM securities were
backed by mortgage loans that reset annually, semi-annually and
monthly, respectively, while approximately 1% reset every five
years. Approximately 81% of the Company’s current-reset ARM
securities have reached an initial coupon reset date.
(d)
Gross WAC is the weighted average interest
rate of the mortgage loans underlying the indicated investments,
including servicing and other fees paid by borrowers, as of the
indicated balance sheet date.
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version on businesswire.com: https://www.businesswire.com/news/home/20200129005700/en/
Lindsey Crabbe (214) 874-2339
Capstead Mortgage (NYSE:CMO)
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