Capstead Mortgage Corporation (“Capstead” or the “Company”)
(NYSE: CMO) today announced financial results for the quarter ended
December 31, 2020.
Fourth Quarter 2020 Summary
- Recognized GAAP net income of $23.3 million or $0.19 per
diluted common share
- Generated core earnings of $19.7 million or $0.15 per
diluted common share, representing an annualized 8.8% return on
common equity capital
- Paid a $0.15 dividend per common share for the fifth
consecutive quarter
- Book value per common share decreased $0.04 to $6.76 per
common share
- Agency-guaranteed residential adjustable-rate mortgage (ARM)
portfolio ended the quarter at $7.9 billion
- Leverage ended the quarter at 7.26 times long-term
investment capital
Fourth Quarter Earnings and Related
Discussion
Capstead reported GAAP net income of $23.3 million or $0.19 per
diluted common share for the quarter ended December 31, 2020,
compared to $29.1 million or $0.25 per diluted common share for the
quarter ended September 30, 2020. The Company reported core
earnings of $19.7 million or $0.15 per diluted common share for the
quarter ended December 31, 2020. This compares to core earnings of
$19.9 million or $0.16 per diluted common share for the quarter
ended September 30, 2020. See the “Non-GAAP Financial Measures”
section of this release for more information on core earnings.
Yields on the Company’s portfolio of agency-guaranteed
residential ARM securities averaged 1.55% during the fourth quarter
of 2020, a decrease of 30 basis points from 1.85% reported for the
third quarter of 2020. Yields declined due to lower coupon interest
rates on acquisitions and on existing loans that reset lower based
on prevailing interest rates, as well as higher yield adjustments
for investment premium amortization due primarily to sustained high
mortgage prepayment levels. Mortgage prepayments decreased modestly
during the quarter to an average annualized constant prepayment
rate (“CPR”) of 38.67%, compared to 39.97% CPR in the prior
quarter. Portfolio leverage decreased to 7.26 to one at December
31, 2020 compared to 7.55 to one at September 30, 2020.
The following table illustrates the progression of Capstead’s
portfolio of residential mortgage investments for the quarter and
year ended December 31, 2020 (dollars in thousands):
Quarter Ended December 31,
2020
Year Ended December 31,
2020
Residential mortgage investments,
beginning of period
$
8,273,190
$
11,220,630
Portfolio acquisitions (principal
amount)
671,809
3,061,142
Investment premiums on acquisitions
27,298
112,200
Portfolio runoff (principal amount)
(999,413
)
(3,797,847
)
Sales of investments (basis)
–
(2,620,297
)
Investment premium amortization
(21,426
)
(77,560
)
(Decrease) increase in net unrealized
gains on securities
classified as available-for-sale
(13,906
)
39,284
Residential mortgage investments, end of
period
$
7,937,552
$
7,937,552
Decrease in residential mortgage
investments
during the indicated periods
$
(335,638
)
$
(3,283,078
)
Rates on Capstead’s secured borrowings, after adjusting for
hedging activities, averaged 30 basis points lower at 0.37% during
the fourth quarter of 2020, compared to 0.67% for the prior
quarter. Borrowing rates before hedging activities averaged 0.23%
during the fourth quarter, a decline of three basis points over the
prior quarter. Secured borrowings ended the quarter at $7.32
billion.
Notional amounts of secured borrowings-related interest rate
swap agreements averaged $3.51 billion during the fourth quarter of
2020 with fixed swap rates averaging 0.37%. Average fixed swap
rates declined 58 basis points from the prior quarter as new swaps
were added to hedge acquisitions and replace higher rate swaps at
fixed rates of six to 11 basis points for two- to three-year terms
reflecting market expectations for a prolonged period of low
short-term interest rates. At December 31, 2020, the Company held
$2.97 billion notional amount of secured borrowings-related
interest rate swaps with fixed rates averaging 0.04%, a decrease of
$1.03 billion in notional amount and 65 basis points in rate from
swaps held on September 30, 2020. The Company’s duration gap, a
measure of interest rate risk, decreased from approximately four
months at September 30th to three and one-half months at year-end –
see page 10 for further information.
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
1.19% and 1.28% for the quarter and year ended December 31, 2020.
As an annualized percentage of total assets, operating costs
averaged 0.14% during these periods.
Book Value per Common Share
Book value per share as of December 31, 2020 was $6.76, a
decrease of $0.04 for the quarter. 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. Because of these
characteristics, the fair value of the Company’s portfolio is
expected to be less vulnerable to significant pricing declines
caused by credit concerns or rising interest rates compared to
leveraged portfolios containing a significant amount of
non-agency-guaranteed securities or agency-guaranteed securities
backed by longer-duration fixed-rate loans. Fair value is impacted
by market conditions, including changes in interest rates and the
availability of financing at reasonable rates and leverage
levels.
Management Remarks
Commenting on current operating and market conditions, Phillip
A. Reinsch, President and Chief Executive Officer, said, “Our
fourth quarter results reflect the stability inherent in our short
duration strategy. We declared and paid a $0.15 common dividend for
the quarter, which we have now held steady for five quarters. We
are the only publicly-traded mortgage REIT to have maintained its
dividend payouts and generated core earnings in excess of these
dividends over this timeframe.
“Book value was relatively stable for the fourth quarter despite
continued high portfolio runoff and a significant increase in
longer-term interest rates, with the ten-year U.S. Treasury rate
increasing 23 basis points during the quarter to end the year at
0.92%. This was due in large part to strong demand for
agency-guaranteed ARM securities relative to supply, fairly stable
yields on the shorter part of the yield curve and increases in
value of interest rate swaps held for hedging purposes.
“Thus far in 2021, pricing levels for agency-guaranteed ARM
securities have been fairly stable relative to a further rise in
longer-term interest rates. As of January 22nd, our last internal
measurement date, book value per share was lower by approximately
$0.01.
“As the financial markets recalibrate for the potential of
increased fiscal support from Washington and a strong post-pandemic
economy recovery, expectations for further steepening of the yield
curve via higher longer term interest rates are growing. Our short
duration portfolio should continue to perform well in this
environment. Rates on 36% of the mortgages underlying our portfolio
are scheduled to reset to more current rates in approximately six
months on average, while the rest of the portfolio does so in less
than five years on average. This tends to insulate portfolio values
and our book value from interest rate-induced bond pricing
declines. Additionally, as mortgage coupons reset lower and
portfolio runoff is replaced at lower current coupons, incentives
for homeowners to refinance are reduced, moderating mortgage
prepayment levels over time. Finally, should mortgage interest
rates increase as the yield curve steepens, refinancing incentives
will be further reduced.
“With strong demand in the market for agency-guaranteed ARM
securities and the transition from LIBOR to SOFR-based ARMs
limiting production, projected returns on new acquisitions have
declined. As a result, we chose not to replace all of our portfolio
runoff in the fourth quarter and may not do so in the first quarter
of 2021, putting us in position to take advantage of more
compelling opportunities should they arise as the year
unfolds.”
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 this 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 28, 2021 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 10151735.
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, 2020
December 31, 2019
(unaudited)
Assets
Residential mortgage investments ($7.71
and $10.83 billion
pledged at December 31, 2020 and 2019,
respectively)
$
7,937,552
$
11,220,630
Cash collateral receivable from derivative
counterparties
74,411
65,477
Derivatives at fair value
–
1,471
Cash and cash equivalents
257,180
105,397
Receivables and other assets
136,107
127,026
$
8,405,250
$
11,520,001
Liabilities
Secured borrowings
$
7,319,083
$
10,274,498
Derivatives at fair value
41,484
29,156
Unsecured borrowings
98,493
98,392
Common stock dividend payable
15,281
14,605
Accounts payable and accrued expenses
20,746
29,617
7,495,087
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 December 31, 2020 and
2019
250,946
250,946
Common stock - $0.01 par value; 250,000
shares authorized:
96,481 and 94,606 shares issued and
outstanding at
December 31, 2020 and 2019,
respectively
965
946
Paid-in capital
1,268,439
1,252,481
Accumulated deficit
(651,071
)
(444,039
)
Accumulated other comprehensive income
40,884
13,399
910,163
1,073,733
$
8,405,250
$
11,520,001
Long-term investment capital
(consists of stockholders’ equity and unsecured borrowings)
(unaudited)
$
1,008,656
$
1,172,125
Portfolio leverage (secured
borrowings divided by long-term investment capital) (unaudited)
7.26:1
8.77:1
Book value per common share (based
on shares of common stock outstanding and calculated assuming
liquidation preferences for preferred stock) (unaudited)
$
6.76
$
8.62
CAPSTEAD MORTGAGE
CORPORATION
CONSOLIDATED STATEMENTS OF
OPERATIONS
(in thousands, except per
share amounts)
(unaudited)
Quarter Ended
December 31
Year Ended
December 31
2020
2019
2020
2019
Interest income:
Residential mortgage investments
$
31,372
$
73,595
$
186,261
$
320,109
Other
17
671
474
2,789
31,389
74,266
186,735
322,898
Interest expense:
Secured borrowings
(4,787
)
(51,671
)
(67,891
)
(246,140
)
Unsecured borrowings
(1,910
)
(1,910
)
(7,620
)
(7,611
)
(6,697
)
(53,581
)
(75,511
)
(253,751
)
24,692
20,685
111,224
69,147
Other (expense) income:
Gain (loss) on derivative instruments
(net)
1,630
15,142
(159,547
)
(90,578
)
Loss on sale of investments (net)
–
–
(67,820
)
(1,365
)
Compensation-related expense
(1,759
)
(2,050
)
(8,278
)
(8,197
)
Other general and administrative
expense
(1,269
)
(1,105
)
(5,011
)
(4,494
)
Miscellaneous other (expense) revenue
–
–
(141
)
149
(1,398
)
11,987
(240,797
)
(104,485
)
Net income (loss)
23,294
32,672
(129,573
)
(35,338
)
Less preferred stock dividends
(4,842
)
(4,842
)
(19,368
)
(19,368
)
Net income (loss) available to
common
stockholders
$
18,452
$
27,830
$
(148,941
)
$
(54,706
)
Net income (loss) per common
share:
Basic
$
0.19
$
0.30
$
(1.56
)
$
(0.62
)
Diluted
0.19
0.29
(1.56
)
(0.62
)
Weighted average shares of common
stock
outstanding:
Basic
95,713
93,991
95,492
88,722
Diluted
96,088
94,293
95,492
88,722
Cash dividends declared per
share:
Common
$
0.15
$
0.15
$
0.60
$
0.47
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)
2020
2019
Q4
Q3
Q2
Q1
Q4
Quarterly Statements of
Operations:
Interest income:
Residential mortgage investments
$
31,372
$
37,571
$
48,111
$
69,207
$
73,595
Other
17
26
28
403
671
31,389
37,597
48,139
69,610
74,266
Interest expense:
Secured borrowings
(4,787
)
(4,809
)
(13,039
)
(45,256
)
(51,671
)
Unsecured borrowings
(1,910
)
(1,910
)
(1,900
)
(1,900
)
(1,910
)
(6,697
)
(6,719
)
(14,939
)
(47,156
)
(53,581
)
24,692
30,878
33,200
22,454
20,685
Other (expense) income:
Gain (loss) on derivative instruments
(net)
1,630
1,510
(6,948
)
(155,739
)
15,142
Loss on sale of investments (net)
–
–
–
(67,820
)
–
Compensation-related expense
(1,759
)
(1,985
)
(2,330
)
(2,204
)
(2,050
)
Other general and administrative
expense
(1,269
)
(1,321
)
(1,219
)
(1,202
)
(1,105
)
Miscellaneous other revenue (expense)
–
–
1
(142
)
–
(1,398
)
(1,796
)
(10,496
)
(227,107
)
11,987
Net income (loss)
$
23,294
$
29,082
$
22,704
$
(204,653
)
$
32,672
Net income (loss) per diluted common
share
$
0.19
$
0.25
$
0.19
$
(2.21
)
$
0.29
Average diluted shares of common stock
outstanding
96,088
96,024
95,887
94,897
94,293
Core earnings
$
19,667
$
19,868
$
21,917
$
19,811
$
19,109
Core earnings per diluted common share
0.15
0.16
0.18
0.16
0.15
Select Operating and Performance
Statistics:
Common dividends declared per share
0.15
0.15
0.15
0.15
0.15
Book value per common share
6.76
6.80
6.79
6.07
8.62
Average portfolio outstanding (cost
basis)
8,073,304
8,119,230
8,255,393
11,122,713
11,030,623
Average secured borrowings
7,407,784
7,447,333
7,646,755
10,336,879
10,194,263
Average long-term investment capital
(“LTIC”)
1,015,854
1,018,407
987,792
1,124,307
1,172,897
Constant prepayment rate (“CPR”)
38.67
%
39.97
%
32.89
%
26.71
%
29.39
%
Total financing spreads
1.19
1.47
1.52
0.66
0.57
Yields on residential mortgage
investments
1.55
1.85
2.33
2.49
2.67
Secured borrowing rates (a)
0.37
0.67
1.09
1.72
1.97
Financing spreads on residential
mortgage investments
1.19
1.18
1.25
0.77
0.70
Operating costs as a percentage of
LTIC
1.19
1.29
1.45
1.22
1.07
Quarterly economic return (change in
book
value plus dividends)
1.62
2.36
14.33
(27.84
)
1.98
Return on common equity capital (b)
8.85
8.94
10.76
7.77
6.89
(a)
Secured borrowing rates exclude
the effects of amortization of the net unrealized gains (losses)
included in Accumulated other comprehensive income (“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)
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, and (d) realized loss (gain) on
securities. The following reconciles GAAP net income (loss) and net
income (loss) per diluted common share to core earnings and core
earnings per common share:
2020
2019
Q4
Q3
Q2
Q1
Q4
Amount
Per Share
Amount
Per Share
Amount
Per Share
Amount
Per Share
Amount
Per Share
Net income (loss)
$
23,294
$
0.19
$
29,082
$
0.25
$
22,704
$
0.19
$
(204,653
)
$
(2.21
)
$
32,672
$
0.29
Unrealized (gain) loss on
non-designated derivative
instruments
(25,989
)
(0.27
)
(35,419
)
(0.37
)
(2,229
)
(0.02
)
56,182
0.59
(51,017
)
(0.54
)
Realized loss on
termination
of non-designated
derivative instruments
21,870
0.23
26,187
0.28
1,320
0.01
100,565
1.06
39,312
0.42
Amortization of unrealized
gain, net of unrealized
losses on de-designated
derivative instruments
492
0.00
18
0.00
122
0.00
(103
)
(0.00
)
(1,858
)
(0.02
)
Realized loss on sale of
investments
–
–
–
–
–
–
67,820
0.72
–
–
Core earnings
$
19,667
$
0.15
$
19,868
$
0.16
$
21,917
$
0.18
$
19,811
$
0.16
$
19,109
$
0.15
The following reconciles total financing spreads to financing
spreads on residential mortgage investments:
2020
2019
Q4
Q3
Q2
Q1
Q4
Total financing spreads
1.19
%
1.47
%
1.52
%
0.66
%
0.57
%
Impact of yields on other interest-earning
assets*
0.02
0.03
0.04
0.02
0.01
Impact of borrowing rates on other
interest-paying liabilities*
0.10
0.10
0.09
0.05
0.05
Impact of amortization of unrealized gain,
net of
unrealized losses on de-designated
derivative
instruments
0.01
0.00
0.01
-
(0.07
)
Impact of net cash flows received on
non-designated
derivative instruments
(0.13
)
(0.42
)
(0.41
)
0.04
0.14
Financing spreads on residential
mortgage
investments
1.19
1.18
1.25
0.77
0.70
*
Other interest-earning assets
consist primarily of overnight investments and cash collateral
receivable from secured borrowing and derivative counterparties.
Other interest-paying liabilities consist of unsecured borrowings
and, at times, may consist of cash collateral payable to derivative
counterparties.
CAPSTEAD MORTGAGE
CORPORATION
FAIR VALUE AND SWAP MATURITY
DISCLOSURES
(in thousands,
unaudited)
December 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
$
2,590,956
$
97,214
$
2,688,170
$
2,702,720
$
14,550
$
33,573
Longer-to-reset ARMs
4,391,694
155,707
4,547,401
4,607,369
59,968
7,267
Ginnie Mae securities:
Current-reset ARMs
165,022
4,610
169,632
171,173
1,541
2,699
Longer-to-reset ARMs
434,704
13,094
447,798
456,290
8,492
1,728
$
7,582,376
$
270,625
$
7,853,001
$
7,937,552
$
84,551
$
45,267
Derivative instruments: (b)
Interest rate swap agreements:
Secured borrowings-related
$
2,974,500
$
1,813
$
(2,182
)
$
(2,712
)
Unsecured borrowings-related
100,000
(41,484
)
(41,484
)
(29,156
)
(a)
Capstead segregates its
residential ARM securities based on the average length of time
until the loans underlying each security reset to more current
rates (less than 18 months for “current-reset” ARM securities, and
18 months or greater for “longer-to-reset” ARM securities).
(b)
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 2022
400,000
0.02
%
Third quarter 2022
1,200,000
0.01
Fourth quarter 2022
900,000
0.07
Third quarter 2023
100,000
0.03
Fourth quarter 2023
374,500
0.09
$
2,974,500
After consideration of secured borrowings-related derivative
instruments, Capstead’s residential mortgage investments and
secured borrowings had durations as of December 31, 2020 of
approximately 14 months and 10½ months, respectively, for a net
duration gap of approximately 3½ 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,
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
$
2,034,759
2.48
%
1.98
%
1.65
%
2.84
%
6.92
%
5.9
Freddie Mac Agency Securities
653,411
2.72
2.07
1.77
2.22
6.08
7.6
Ginnie Mae Agency Securities
169,632
2.70
1.62
1.51
1.09
5.80
6.3
(36% of total)
2,857,802
2.55
1.98
1.67
2.59
6.66
6.3
Longer-to-reset ARMs:
Fannie Mae Agency Securities
2,462,143
2.86
1.95
1.60
4.24
5.03
54.8
Freddie Mac Agency Securities
2,085,258
2.62
1.99
1.65
4.19
5.03
61.7
Ginnie Mae Agency Securities
447,798
3.65
1.60
1.50
1.00
5.00
38.6
(64% of total)
4,995,199
2.83
1.93
1.61
3.93
5.03
56.2
$
7,853,001
2.73
1.95
1.63
3.44
5.62
38.1
Gross WAC (rate paid by borrowers)(d)
3.36
(a)
Amortized cost basis represents
the Company’s investment (unpaid principal balance plus unamortized
investment premiums) before unrealized gains and losses. At
December 31, 2020, the ratio of amortized cost basis to unpaid
principal balance for the Company’s ARM holdings was 103.57.
(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
indices 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 year-end, 74% of current-reset ARMs were subject to periodic
caps averaging 1.90%; 18% were subject to initial caps averaging
3.04%; and 8% were subject to lifetime caps averaging 7.67%.
(c)
Months-to-roll is a measure of
the average length of time until the loans underlying each security
reset to more current rates. After consideration of any applicable
initial fixed-rate periods, at December 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 82% of
the Company’s current-reset ARM securities have reached an initial
coupon reset date. Approximately 22% of the Company’s current-reset
ARM securities are scheduled to reset in rate within three months,
33% are scheduled to reset in rate between four and six months, and
40% are scheduled to reset in rate between seven and 12 months.
(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/20210127005889/en/
Lindsey Crabbe (214) 874-2339
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