Capstead Mortgage Corporation (“Capstead” or the “Company”)
(NYSE: CMO) today announced financial results for the quarter ended
March 31, 2020.
First Quarter 2020 Summary
- Recognized a GAAP net loss of $204.7 million or $(2.21) per
diluted common share
- Generated core earnings of $19.8 million or $0.16 per
diluted common share
- Paid common dividend of $0.15 per common share
- Reported book value of $6.07 per common share
- Reported agency-guaranteed residential adjustable-rate
mortgage (ARM) portfolio ended the quarter at $8.50
billion
- Reported leverage ended the quarter at 8.51 times long-term
investment capital
First Quarter Earnings and Related
Discussion
Capstead reported a GAAP net loss of $204.7 million or $(2.21)
per diluted common share for the quarter ended March 31, 2020,
compared to net income of $32.7 million or $0.29 per diluted common
share for the quarter ended December 31, 2019. The Company reported
core earnings of $19.8 million or $0.16 per diluted common share
for the quarter ended March 31, 2020. This compares to core
earnings of $19.1 million or $0.15 per diluted common share for the
quarter ended December 31, 2019. See the “Non-GAAP Financial
Measures” section of this release for more information on core
earnings.
Portfolio yields averaged 2.49% during the first quarter of
2020, a decrease of 18 basis points from 2.67% reported for the
fourth quarter of 2019. Yields declined primarily due to lower
coupon interest rates on loans underlying the Company’s portfolio
of agency-guaranteed residential ARM securities as well as changes
in lifetime prepayment estimates. Mortgage prepayments decreased
during the quarter to an average annualized constant prepayment
rate, or CPR, of 26.71%, compared to 29.39% CPR in the prior
quarter. Portfolio balances averaged $11.12 billion during the
first quarter before ending the quarter at $8.50 billion. The
Company sold securities with a basis of $2.60 billion late in the
quarter to maintain portfolio leverage at comfortable levels given
disruptions experienced in the financial markets brought on by the
COVID-19 pandemic. Portfolio leverage excluding $359 million in
cash collateral for secured borrowings stood at 8.51 to one at
March 31, 2020 compared to 8.77 to one at December 31, 2019.
The following table illustrates the progression of Capstead’s
portfolio of residential mortgage investments for the quarter ended
March 31, 2020 (dollars in thousands):
Residential mortgage investments, December
31, 2019
$
11,222,182
Portfolio acquisitions (principal
amount)
794,227
Investment premiums on acquisitions
20,320
Portfolio runoff (principal amount)
(912,099
)
Sales of investments (basis)
(2,600,857
)
Investment premium amortization
(20,691
)
Increase in net unrealized gains on
securities classified as available-for-sale
89
Residential mortgage investments, March
31, 2020
$
8,503,171
Decrease in residential mortgage
investments during the period
$
(2,719,011
)
Rates on Capstead’s $8.38 billion in secured borrowings, after
adjusting for hedging activities, averaged 25 basis points lower at
1.72% during the first quarter of 2020, compared to 1.97% for the
prior quarter. Borrowing rates before hedging activities averaged
1.76% during the first quarter, a decline of 34 basis points over
the prior quarter benefiting from the Federal Reserve’s actions on
March 3rd and again on March 15th to reduce the Fed Funds rate by a
total of 150 basis points. Unhedged borrowing rates on new
borrowings under repurchase arrangements are now typically ranging
from 20 to 35 basis points.
The Company’s portfolio of secured borrowings-related interest
rate swaps averaged a notional amount of $7.10 billion during the
first quarter of 2020. Fixed swap rates averaged 1.62% during the
first quarter of 2020, 29 basis points lower than the prior
quarter. At March 31, 2020, the Company held $4.40 billion notional
amount of secured borrowings-related interest rate swaps with fixed
rates averaging 1.44%, a decline of $3.00 billion in notional
amount and 33 basis points in rate from swaps held on December 31,
2019.
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
1.22% for the first quarter of 2020. As an annualized percentage of
total assets, operating costs averaged 0.12% during this
period.
Recent Common Equity Issuances
During February, Capstead issued 1.6 million shares of common
stock through an at-the-market continuous offering program at an
average issue price of $8.21, net of fees and other costs, for net
proceeds of $12.9 million. Additional amounts of equity capital may
be raised in the future under continuous offering programs or by
other means, subject to market conditions, compliance with federal
securities laws and blackout periods.
Book Value per Common Share
Book value per share as of March 31, 2020 was $6.07, a decrease
of $2.55 or 29.6% from the December 31, 2019 book value of $8.62,
primarily reflecting $1.84 in derivative-related decreases in value
and $0.69 in portfolio-related declines. Capstead’s investment
strategy focuses 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, “The
impact of the pandemic on the fixed income and equity markets in
general and the mortgage markets in particular in March has been
severe. Mortgage asset pricing deteriorated rapidly, even as
derivatives held for hedging purposes declined in value with
falling interest rates. Pricing for agency guaranteed residential
mortgage pass-through securities was not immune as market
participants sold their most liquid assets in attempts to restore
liquidity and satisfy lending and derivative margin requirements.
As a consequence, we experienced valuation declines in both our
portfolio and swap positions.
“Throughout this volatile period, we were pleased with the
continued availability of financing through our existing lending
counterparties and our ability to seamlessly meet all of our
funding requirements. We sold a portion of our portfolio late in
March and reduced our swap positions in order to ensure we had
sufficient flexibility to meet future projected liquidity
requirements while maintaining portfolio leverage at comfortable
levels. Even with these actions, we reported core earnings of $0.16
per common share, our second straight quarter of earnings at or
above our recently increased quarterly dividend rate of $0.15 per
common share.
“The Federal Reserve has taken a number of actions to support
the financial system, including buying agency guaranteed mortgage
securities and reducing the Fed Funds rate by a total of 150 basis
points to a current range of 0% to 0.25%. These actions are broadly
supportive to the mortgage markets, providing stability and
lowering funding costs.
“ARM security pricing has improved since quarter end,
contributing to an estimated 4% to 5% improvement in book value and
our leverage now stands at approximately 7.8 times our long-term
investment capital. Looking forward, we feel strongly that our
portfolio is well positioned to generate attractive returns, even
at lower leverage levels. Low funding costs together with
attractive reinvestment opportunities should lead to improved
financing spreads and returns on invested capital over the
remainder of 2020.
“To support the health and well-being of our employees and
community and address the risks associated with the global COVID-19
pandemic, we have implemented our business continuity plan that
enables our employees to work remotely. During this trying time,
our team has been able to fully operate our business and perform at
high levels of execution.
“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.”
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 provides investors management’s view of the
Company’s economic performance. 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, April 30, 2020 at 9:30 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 10142563.
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)
March 31, 2020
December 31, 2019
(unaudited)
Assets
Residential mortgage investments ($8.50
and $10.83 billion pledged at March 31, 2020 and December 31, 2019,
respectively)
$
8,503,171
$
11,222,182
Cash collateral receivable from secured
borrowing counterparties
359,168
–
Cash collateral receivable from derivative
counterparties
95,929
65,477
Derivatives at fair value
–
1,471
Cash and cash equivalents
329,448
105,397
Receivables and other assets
125,127
125,474
$
9,412,843
$
11,520,001
Liabilities
Secured borrowings
$
8,379,422
$
10,275,413
Derivatives at fair value
50,862
29,156
Unsecured borrowings
98,418
98,392
Common stock dividend payable
14,862
14,605
Accounts payable and accrued expenses
25,655
28,702
8,569,219
10,446,268
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 March 31, 2020 and December 31, 2019
250,946
250,946
Common stock - $0.01 par value; 250,000
shares authorized: 96,395 and 94,606 shares issued and outstanding
at March 31, 2020 and December 31, 2019, respectively
964
946
Paid-in capital
1,266,045
1,252,481
Accumulated deficit
(668,053
)
(444,039
)
Accumulated other comprehensive (loss)
income
(6,278
)
13,399
843,624
1,073,733
$
9,412,843
$
11,520,001
Long-term investment capital
(consists of stockholders’ equity and unsecured borrowings)
(unaudited)
$
942,042
$
1,172,125
Portfolio leverage (secured
borrowings less cash collateral for secured borrowings divided by
long-term investment capital) (unaudited)
8.51:1
8.77:1
Book value per common share (based
on share of common stock outstanding and calculated assuming
liquidation preferences for preferred stock) (unaudited)
$
6.07
$
8.62
CAPSTEAD MORTGAGE
CORPORATION
CONSOLIDATED STATEMENTS OF
OPERATIONS
(in thousands, except per
share amounts)
(unaudited)
Quarter Ended
March 31
2020
2019
Interest income:
Residential mortgage investments
$
69,228
$
83,807
Other
399
422
69,627
84,229
Interest expense:
Secured borrowings
(45,273
)
(63,779
)
Unsecured borrowings
(1,900
)
(1,891
)
(47,173
)
(65,670
)
22,454
18,559
Other expense:
Loss on derivative instruments (net)
(155,739
)
(21,657
)
Loss on sale of investments
(67,820
)
–
Compensation-related expense
(2,204
)
(3,609
)
Other general and administrative
expense
(1,202
)
(1,128
)
Miscellaneous other (expense) revenue
(142
)
89
(227,107
)
(26,305
)
Net loss
(204,653
)
(7,746
)
Less preferred stock dividends
(4,842
)
(4,842
)
Net loss to common stockholders
$
(209,495
)
$
(12,588
)
Basic and diluted net loss per common
share
$
(2.21
)
$
(0.15
)
Basic and diluted weighted average
common shares outstanding
94,897
84,894
Cash dividends declared per
share:
Common
$
0.15
$
0.08
Series E preferred
0.47
0.47
CAPSTEAD MORTGAGE
CORPORATION
QUARTERLY STATEMENTS OF
OPERATIONS AND SELECT OPERATING STATISTICS
(in thousands, except per
share amounts, percentages annualized, unaudited)
2020
2019
Q1
Q4
Q3
Q2
Q1
Quarterly Statements of
Operations:
Interest income:
Residential mortgage investments
$
69,228
$
73,617
$
77,693
$
85,100
$
83,807
Other
399
666
1,065
600
422
69,627
74,283
78,758
85,700
84,229
Interest expense:
Secured borrowings
(45,273
)
(51,688
)
(62,800
)
(67,945
)
(63,779
)
Unsecured borrowings
(1,900
)
(1,910
)
(1,910
)
(1,900
)
(1,891
)
(47,173
)
(53,598
)
(64,710
)
(69,845
)
(65,670
)
22,454
20,685
14,048
15,855
18,559
Other (expense) income:
Loss (gain) on derivative instruments
(net)
(155,739
)
15,142
(9,221
)
(74,842
)
(21,657
)
Loss on sale of investments (net)
(67,820
)
–
–
(1,365
)
–
Compensation-related expense
(2,204
)
(2,050
)
(566
)
(1,972
)
(3,609
)
Other general and administrative
expense
(1,202
)
(1,105
)
(1,123
)
(1,138
)
(1,128
)
Miscellaneous other (expense) revenue
(142
)
–
58
2
89
(227,107
)
11,987
(10,852
)
(79,315
)
(26,305
)
Net (loss) income
$
(204,653
)
$
32,672
$
3,196
$
(63,460
)
$
(7,746
)
Net (loss) income per diluted common
share
$
(2.21
)
$
0.29
$
(0.02
)
$
(0.80
)
$
(0.15
)
Average diluted common shares
outstanding
94,897
94,293
90,945
84,934
84,894
Core earnings
$
19,811
$
19,109
$
14,798
$
14,780
$
15,471
Core earnings per diluted common share
0.16
0.15
0.11
0.12
0.12
Select Operating and Performance
Statistics:
Common dividends declared per share
0.15
0.15
0.12
0.12
0.08
Book value per common share
6.07
8.62
8.60
8.93
9.43
Average portfolio outstanding (cost
basis)
11,124,246
11,032,252
11,266,776
12,065,084
12,169,106
Average secured borrowings
10,337,773
10,195,180
10,481,080
11,193,335
11,156,608
Average long-term investment capital
(“LTIC”)
1,124,307
1,172,897
1,146,916
1,149,388
1,161,815
Constant prepayment rate (“CPR”)
26.71
%
29.39
%
30.18
%
26.29
%
20.62
%
Total financing spreads
0.66
0.57
0.31
0.34
0.42
Yields on residential mortgage
investments
2.49
2.67
2.76
2.82
2.75
Secured borrowing rates (a)
1.72
1.97
2.31
2.35
2.23
Financing spreads on residential mortgage
investments
0.77
0.70
0.45
0.47
0.52
Operating costs as a percentage of LTIC
(b)
1.22
1.07
0.58
1.09
1.32
Quarterly economic return (change in book
value plus dividends)
(27.84
)
1.98
(2.35
)
(4.03
)
1.28
Return on common equity capital (c)
7.77
6.89
4.95
4.98
5.33
(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, (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:
2020
2019
Q1
Q4
Q3
Q2
Q1
Amount
Per Share
Amount
Per Share
Amount
Per Share
Amount
Per Share
Amount
Per Share
Net (loss) income
$
(204,653
)
$
(2.21
)
$
32,672
$
0.29
$
3,196
$
(0.02
)
$
(63,460
)
$
(0.80
)
$
(7,746
)
$
(0.15
)
Unrealized (gain) loss on non-designated
derivative instruments
56,182
0.59
(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
100,565
1.06
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
(103
)
(0.00
)
(1,858
)
(0.02
)
(3,119
)
(0.03
)
(6,715
)
(0.08
)
(3,020
)
(0.04
)
Realized loss on sale of investments
67,820
0.72
–
–
–
–
1,365
0.02
–
–
Core earnings
$
19,811
$
0.16
$
19,109
$
0.15
$
14,798
$
0.11
$
14,780
$
0.12
$
15,471
$
0.12
The following reconciles total financing spreads to financing
spreads on residential mortgage investments:
2020
2019
Q1
Q4
Q3
Q2
Q1
Total financing spreads
0.66
%
0.57
%
0.31
%
0.34
%
0.42
%
Impact of yields on other interest-earning
assets*
0.02
0.01
0.00
0.01
0.00
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
(0.00
)
(0.07
)
(0.12
)
(0.24
)
(0.11
)
Impact of net cash flows received on
non-designated derivative instruments
0.04
0.14
0.21
0.31
0.16
Financing spreads on residential mortgage
investments
0.77
0.70
0.45
0.47
0.52
* Other interest-earning assets consist of
overnight investments and cash collateral receivable from repo and
derivative counterparties. Other interest-paying liabilities
consist of unsecured borrowings and, at times, may consist of cash
collateral payable to repo and derivative counterparties.
CAPSTEAD MORTGAGE
CORPORATION
FAIR VALUE AND SWAP MATURITY
DISCLOSURES
(in thousands,
unaudited)
March 31, 2020
December 31, 2019
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
$
3,180,655
$
114,455
$
3,295,110
$
3,271,141
$
(23,969
)
$
33,573
Longer-to-reset ARMs
4,164,705
100,537
4,265,242
4,317,126
51,884
7,267
Ginnie Mae securities:
Current-reset ARMs
176,456
4,378
180,834
181,283
449
2,699
Longer-to-reset ARMs
698,715
16,357
715,072
732,064
16,992
1,728
$
8,220,531
$
235,727
$
8,456,258
$
8,501,614
$
45,356
$
45,267
Derivative instruments: (b)
Interest rate swap agreements:
Secured borrowings-related
$
4,400,000
$
(60,788
)
$
(2,814
)
$
(2,712
)
Unsecured borrowings-related
100,000
(49,824
)
(49,824
)
(29,156
)
Eurodollar futures contracts
500,000
(1,038
)
–
–
(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 $966,000 and unsecuritized
investments in residential mortgage loans with a cost basis of
$591,000 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
Second quarter 2020
$
200,000
2.56%
Third quarter 2020
200,000
1.64
Fourth quarter 2020
200,000
2.04
Third quarter 2021
2,500,000
1.25
Fourth quarter 2021
900,000
1.61
First quarter 2022
400,000
1.37
$
4,400,000
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 March 31, 2020 of
approximately 15 months and nine months, respectively, for a net
duration gap of approximately six 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 March 31, 2020)
(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
$
2,480,626
3.53
%
2.68
%
1.65
%
2.74
%
5.86
%
6.4
Freddie Mac Agency Securities
814,484
3.46
2.64
1.74
2.21
5.30
7.6
Ginnie Mae Agency Securities
180,834
3.44
1.72
1.52
1.12
5.38
6.5
Residential mortgage loans
490
4.15
4.69
2.09
1.73
11.24
6.0
(41% of total)
3,476,434
3.50
2.62
1.66
2.53
5.71
6.7
Longer-to-reset ARMs:
Fannie Mae Agency Securities
2,799,738
3.13
2.57
1.60
4.03
5.01
52.6
Freddie Mac Agency Securities
1,465,504
3.14
2.66
1.67
4.20
5.04
58.4
Ginnie Mae Agency Securities
715,072
3.69
1.67
1.50
1.00
5.00
46.4
(59% of total)
4,980,314
3.21
2.47
1.61
3.65
5.02
53.4
$
8,456,748
3.33
2.53
1.63
3.19
5.30
34.3
Gross WAC (rate paid by borrowers)(d)
3.96
(a)
Amortized cost basis represents the
Company’s investment (unpaid principal balance plus unamortized
investment premiums) before unrealized gains and losses. At March
31, 2020, the ratio of amortized cost basis to unpaid principal
balance for the Company’s ARM holdings was 102.87. 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, 66% of current-reset ARMs were subject to periodic
caps averaging 1.90%; 25% were subject to initial caps averaging
2.84%; and 8% were subject to lifetime caps averaging 6.63%..
(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 March 31, 2020
approximately 90%, 5% and 3% of the Company’s ARM securities were
backed by mortgage loans that reset annually, semi-annually and
monthly, respectively, while approximately 2% reset every five
years. Approximately 75% 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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200429005868/en/
Lindsey Crabbe (214) 874-2339
Capstead Mortgage (NYSE:CMO)
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