[April 25, 2018] |
|
Capstead Mortgage Corporation Announces First Quarter 2018 Results
Capstead Mortgage Corporation ("Capstead" or the "Company") (NYSE: CMO)
today announced financial results for the quarter ended March 31, 2018.
First Quarter 2018 Highlights
-
Generated earnings of $19.4 million or $0.16 per diluted common
share
-
Paid common dividend of $0.16 per common share
-
Repurchased 3.4 million shares of common stock for $29.1 million,
generating book value accretion of $0.06 per share
-
Book value per common share declined 1.5% or $0.15, ending the
quarter at $10.10 per common share, which together with the first
quarter dividend, generated a positive economic return
-
Generated a total stockholder return of 1.85% (7.71% annualized)
-
Net interest margins were largely unchanged at $22.6 million as
benefits of higher cash yields and lower mortgage prepayment rates
largely offset higher borrowing rates and lower portfolio balances
compared to the fourth quarter of 2017
-
Agency-guaranteed residential adjustable-rate mortgage (ARM)
portfolio and leverage ended the quarter at $13.05 billion and 9.26
times long-term investment capital, respectively
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.
First Quarter Earnings and Related Discussion
Capstead reported net income of $19.4 million or $0.16 per diluted
common share for the quarter ended March 31, 2018. This compares to net
income of $22.6 million or $0.19 per diluted common share for the
quarter ended December 31, 2017, which included a $1.9 million benefit
from the enactment of tax reform legislation. The Company paid a first
quarter 2018 dividend of $0.16 per common share on April 20, 2018.
Portfolio yields averaged 2.08% during the first quarter of 2018, an
increase of 17 basis points over the 1.91% reported for the fourth
quarter. Cash yields (yields on the portfolio before investment premium
amortization) increased six basis points to average 2.85% during the
first quarter, benefiting from mortgage loans underlying the portfolio
resetting to higher rates based on higher prevailing six- and 12-month
interest rate indices and higher coupon interest rates on recent
acquisitions. As of March 31, 2018, 52% of the Company's ARM securities
portfolio will reset in rate in approximately 6.3 months on average,
allowing the Company's cash yields to continue benefiting from higher
prevailing interest rates in future quarters. Yield adjustments for
investment premium amortization decreased 11 basis points to average a
negative 0.77% for the first quarter as mortgage prepayment activity
declined. Mortgage prepayment rates averaged an annualized constant
prepayment rate, or CPR, of 19.64%, a decrease of 2.86% CPR from an
average of 22.50% CPR the previous quarter.
The following table illustrates the progression of Capstead's portfolio
of residential mortgage investments for the quarter ended March 31, 2018
(dollars in thousands):
Residential mortgage investments, beginning of quarter
|
|
|
|
$
|
13,454,098
|
|
Portfolio acquisitions (principal amount)
|
|
|
|
|
449,476
|
|
Investment premiums on acquisitions*
|
|
|
|
|
11,905
|
|
Portfolio runoff (principal amount)
|
|
|
|
|
(793,735
|
)
|
Investment premium amortization
|
|
|
|
|
(25,620
|
)
|
Decrease in net unrealized gains on securities classified as
available-for-sale
|
|
|
|
|
(44,053
|
)
|
Residential mortgage investments, end of period
|
|
|
|
$
|
13,052,071
|
|
Decrease in residential mortgage investments
during the quarter
|
|
|
|
$
|
(402,027
|
)
|
* Residential mortgage investments typically are acquired at a
premium to the securities' unpaid principal balances. Investment
premiums are recognized in earnings as portfolio yield adjustments using
the interest method over the estimated lives of the related investments.
As such, the level of mortgage prepayments impacts how quickly
investment premiums are amortized.
Rates on Capstead's $11.94 billion in secured borrowings, after
adjusting for hedging activities, averaged 18 basis points higher at
1.47% during the first quarter of 2018, compared to 1.29% for the prior
quarter. Average unhedged secured borrowing rates increased 25 basis
points during the first quarter to 1.64%. This increase is largely
attributable to the funding market's response to 25 basis point
increases in the Federal Funds Rate in December 2017 and, to a lesser
extent, March 2018. Related hedged borrowing rates increased 12 basis
points to 1.35% as $1.70 billion of lower fixed-rate swaps matured while
$500 million in new swaps were added at higher prevailing rates. The
Company typically uses two- and three-year term interest rate swap
agreements with variable rate receipts based primarily on three-month
LIBOR to help mitigate exposure to rising short-term interest rates. At
quarter-end the Company held $6.85 billion notional amount of portfolio
financing-related swap agreements with contract expirations occurring at
various dates through the first quarter of 2021, and a weighted average
expiration of 14 months.
Operating costs expressed as an annualized percentage of long-term
investment capital averaged 1.01% for the first quarter of 2018. As an
annualized percentage of total assets, operating costs averaged 0.10%
during this period. Capstead operates a highly efficient investment
platform, particularly compared to other mortgage REITs, and has a
competitive cost structure relative to a wide variety of high yielding
investment vehicles.
Common Stock Repurchases
Pursuant to its $100 million stock repurchase program reactivated last
November, the Company repurchased 3.4 million shares of its common stock
in the open market for $29.1 million during the first quarter of 2018.
At an average repurchase price, including underwriting fees, of $8.60,
these repurchases resulted in book value accretion of $0.06 per share.
An additional 48,000 share repurchases settled subsequent to
quarter-end, leaving a remaining repurchase program authorization of
approximately $67 million. Future levels of stock repurchases will
largely be dependent upon market conditions, including alternative
capital investment opportunities.
Long-Term Investment Capital, Portfolio Leverage and Book Value per
Common Share
Capstead's long-term investment capital, which consists of common and
perpetual preferred stockholders' equity and long-term unsecured
borrowings, decreased by $46.6 million during the first quarter of 2018
to $1.29 billion primarily as a result of common stock repurchases and
declines in portfolio valuations that outstripped increases in swap
gains. Portfolio leverage (secured borrowings divided by long-term
investment capital) increased to 9.26 to one at March 31, 2018 from 9.22
to one at December 31, 2017.
The following table illustrates the progression of the Company's book
value per common share (total stockholders' equity, less preferred share
liquidation preferences, divided by shares of common stock outstanding)
as well as changes in book value expressed as percentages of beginning
book value for the quarter ended March 31, 2018:
Book value per common share, beginning of quarter
|
|
|
|
$
|
10.25
|
|
|
|
|
Change in net unrealized gains (losses) on mortgage securities
classified as available-for-sale
|
|
|
|
|
(0.48
|
)
|
|
|
|
Change in net unrealized gains and losses on interest rate swap
agreements designated as cash flow hedges of:
|
|
|
|
|
|
|
|
Secured borrowings
|
|
|
|
|
0.23
|
|
|
|
|
Unsecured borrowings
|
|
|
|
|
0.06
|
|
|
|
|
|
|
|
|
|
(0.19
|
)
|
|
|
(1.9
|
)%
|
Capital transactions:
|
|
|
|
|
|
|
|
Accretion from common stock repurchases
|
|
|
|
|
0.06
|
|
|
|
|
Other, principally stock compensation-related activity
|
|
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
0.04
|
|
|
|
0.4
|
%
|
Book value per common share, end of period
|
|
|
|
$
|
10.10
|
|
|
|
|
Decrease in book value per common share during the quarter
|
|
|
|
$
|
(0.15
|
)
|
|
|
(1.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
Nearly all of Capstead 's residential mortgage investments and all
interest rate swap agreements are reflected at fair value on the
Company's balance sheet and related unrealized gains and losses are
included in the calculation of book value per common share. The
Company's borrowings, however, are not reflected at fair value on the
balance sheet. Fair value is impacted by market conditions, including
changes in interest rates, and the availability of financing at
reasonable rates and leverage levels, among other factors. The Company's
investment strategy attempts to mitigate these risks 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, generally within five years.
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 ARM or fixed-rate loans. Duration is a common measure
of market price sensitivity to interest rate movements. A shorter
duration generally indicates less interest rate risk.
Management Remarks
Commenting on current operating and market conditions, Phillip A.
Reinsch, President and Chief Executive Officer, said, "During what has
proved to be a challenging quarter for the residential mortgage sector,
Capstead has posted a positive economic return of 0.10% and a total
stockholder return ("TSR") of 1.85% (7.71% annualized). We anticipate
that these results will compare favorably to other residential mortgage
REIT industry participants, many of which are expected to report
significant book value declines due largely to higher prevailing
interest rates and pressure on pricing for fixed-rate agency-guaranteed
mortgage securities as the Federal Reserve continues to reduce its
participation in the marketplace.
"Our first quarter 2018 earnings benefited from higher cash yields and
lower mortgage prepayment rates, which offset most of the effects of
higher borrowing rates and lower portfolio balances. We increased
leverage slightly to 9.26 to one as a portion of our capital made
available from portfolio runoff was used to buy back approximately 3.5%
of our outstanding common stock at a meaningful discount to our book
value. These buybacks contributed $0.06 in book value accretion for the
quarter. Future buyback activity will depend on market conditions.
"Cash yields are expected to continue improving in 2018 with roughly
half of our portfolio of agency-guaranteed ARM securities scheduled to
reset in rate within 18 months primarily based on six- and 12-month
indices that have increased considerably during the first quarter. For
instance, the coupon interest rates on many of the mortgages underlying
our portfolio reset based on a margin over one-year LIBOR and this index
increased 55 basis points during the first quarter and is higher still
today. This key feature of our short duration ARM strategy affords us
the opportunity over time to recover financing spreads diminished by
rising borrowing rates. For more information regarding coupon resets see
the last page of this release.
"Continued declines in mortgage prepayment activity this quarter were
largely a function of seasonality and higher prevailing mortgage
interest rates. Second and third quarter 2018 prepayment activity will
likely be driven higher by seasonal considerations such as the summer
home buying season and available processing days, with refinancing
activity primarily centered on homeowners whose mortgages are resetting
higher that may have opportunities to refinance.
"First quarter borrowing rates absorbed the brunt of the December
Federal Funds Rate increase while much of the March increase is being
absorbed in the second quarter. Hedging costs have increased as we
entered into new swap agreements at higher prevailing rates and as
older, lower-rate swaps matured.
"Our investment strategy of cost-effectively managing a leveraged
portfolio of short duration agency-guaranteed residential ARM securities
seeks to generate attractive risk-adjusted returns over the long term.
Our near-term results will continue to be driven by mortgage prepayment
levels, and the pace of future increases in short-term interest rates."
Earnings Conference Call Details
An earnings conference call and live audio webcast will be hosted
Thursday, April 26, 2018 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 through July 26, 2018.
An audio replay can be accessed one hour after the end of the conference
call, also through July 26, 2018, 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 10119268.
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, 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
reform, 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 credit markets, 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, 2018
|
|
|
December 31, 2017
|
|
|
|
(unaudited)
|
|
|
|
Assets
|
|
|
|
|
|
|
Residential mortgage investments ($12.59 and $12.98 billion
pledged at March 31, 2018 and December 31, 2017, respectively)
|
|
|
$
|
13,052,071
|
|
|
|
$
|
13,454,098
|
|
Cash collateral receivable from interest rate swap counterparties
|
|
|
|
36,586
|
|
|
|
|
42,506
|
|
Interest rate swap agreements at fair value
|
|
|
|
387
|
|
|
|
|
-
|
|
Cash and cash equivalents
|
|
|
|
89,915
|
|
|
|
|
103,907
|
|
Receivables and other assets
|
|
|
|
113,565
|
|
|
|
|
132,938
|
|
|
|
|
$
|
13,292,524
|
|
|
|
$
|
13,733,449
|
|
Liabilities
|
|
|
|
|
|
|
Secured borrowings
|
|
|
$
|
11,944,841
|
|
|
|
$
|
12,331,060
|
|
Interest rate swap agreements at fair value
|
|
|
|
18,265
|
|
|
|
|
23,772
|
|
Unsecured borrowings
|
|
|
|
98,216
|
|
|
|
|
98,191
|
|
Common stock dividend payable
|
|
|
|
15,069
|
|
|
|
|
18,487
|
|
Accounts payable and accrued expenses
|
|
|
|
23,905
|
|
|
|
|
23,063
|
|
|
|
|
|
12,100,296
|
|
|
|
|
12,494,573
|
|
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, 2018 and December 31, 2017
|
|
|
|
250,946
|
|
|
|
|
250,946
|
|
Common stock - $0.01 par value; 250,000 shares authorized: 92,494
and 95,698 shares issued and outstanding at March 31, 2018 and
December 31, 2017, respectively
|
|
|
|
925
|
|
|
|
|
957
|
|
Paid-in capital
|
|
|
|
1,242,573
|
|
|
|
|
1,271,425
|
|
Accumulated deficit
|
|
|
|
(346,570
|
)
|
|
|
|
(346,570
|
)
|
Accumulated other comprehensive income
|
|
|
|
44,354
|
|
|
|
|
62,118
|
|
|
|
|
|
1,192,228
|
|
|
|
|
1,238,876
|
|
|
|
|
$
|
13,292,524
|
|
|
|
$
|
13,733,449
|
|
|
|
|
|
|
|
|
Long-term investment capital (consists of stockholders'
equity and unsecured borrowings) (unaudited)
|
|
|
$
|
1,290,444
|
|
|
|
$
|
1,337,067
|
|
Portfolio leverage (secured borrowings divided by
long-term investment capital) (unaudited)
|
|
|
|
9.26:1
|
|
|
|
|
9.22:1
|
|
Book value per common share (based on common shares
outstanding and calculated assuming liquidation preferences for
preferred stock) (unaudited)
|
|
|
$
|
10.10
|
|
|
|
$
|
10.25
|
|
|
|
CAPSTEAD MORTGAGE CORPORATION
|
CONSOLIDATED STATEMENTS OF INCOME
|
(in thousands, except per share amounts)
|
(unaudited)
|
|
|
|
|
Quarter Ended
|
|
|
|
March 31
|
|
|
|
|
2018
|
|
|
|
|
2017
|
|
Interest income:
|
|
|
|
|
|
|
Residential mortgage investments
|
|
|
$
|
69,138
|
|
|
|
$
|
54,841
|
|
Other
|
|
|
|
408
|
|
|
|
|
153
|
|
|
|
|
|
69,546
|
|
|
|
|
54,994
|
|
Interest expense:
|
|
|
|
|
|
|
Secured borrowings
|
|
|
|
(45,021
|
)
|
|
|
|
(28,240
|
)
|
Unsecured borrowings
|
|
|
|
(1,891
|
)
|
|
|
|
(1,891
|
)
|
|
|
|
|
(46,912
|
)
|
|
|
|
(30,131
|
)
|
|
|
|
|
22,634
|
|
|
|
|
24,863
|
|
Other revenue (expense):
|
|
|
|
|
|
|
Compensation-related expense
|
|
|
|
(2,048
|
)
|
|
|
|
(1,115
|
)
|
Other general and administrative expense
|
|
|
|
(1,237
|
)
|
|
|
|
(1,062
|
)
|
Miscellaneous other revenue
|
|
|
|
71
|
|
|
|
|
15
|
|
|
|
|
|
(3,214
|
)
|
|
|
|
(2,162
|
)
|
Net income
|
|
|
$
|
19,420
|
|
|
|
$
|
22,701
|
|
Net income available to common stockholders:
|
|
|
|
|
|
|
Net income
|
|
|
$
|
19,420
|
|
|
|
$
|
22,701
|
|
Less preferred stock dividends
|
|
|
|
(4,842
|
)
|
|
|
|
(3,864
|
)
|
|
|
|
$
|
14,578
|
|
|
|
$
|
18,837
|
|
|
|
|
|
|
|
|
Net income per common share:
|
|
|
|
|
|
|
Basic and diluted
|
|
|
$
|
0.16
|
|
|
|
$
|
0.20
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
Basic
|
|
|
|
93,425
|
|
|
|
|
95,755
|
|
Diluted
|
|
|
|
93,506
|
|
|
|
|
95,875
|
|
|
|
|
|
|
|
|
Cash dividends declared per share:
|
|
|
|
|
|
|
Common
|
|
|
$
|
0.16
|
|
|
|
$
|
0.21
|
|
Series E preferred
|
|
|
|
0.47
|
|
|
|
|
0.47
|
|
|
|
CAPSTEAD MORTGAGE CORPORATION
|
QUARTERLY STATEMENTS OF INCOME AND SELECT OPERATING STATISTICS
|
(unaudited, in thousands, except per share amounts,
percentages annualized)
|
|
|
|
|
|
2018
|
|
|
|
2017
|
|
|
|
2016
|
|
|
|
|
Q1
|
|
|
Q4
|
|
|
Q3
|
|
|
Q2
|
|
|
Q1
|
|
|
Q4
|
Quarterly Statements of Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage investments
|
|
|
$
|
69,138
|
|
|
|
$
|
64,418
|
|
|
|
$
|
57,073
|
|
|
|
$
|
56,103
|
|
|
|
$
|
54,841
|
|
|
|
$
|
50,040
|
|
Other
|
|
|
|
408
|
|
|
|
|
207
|
|
|
|
|
366
|
|
|
|
|
238
|
|
|
|
|
153
|
|
|
|
|
143
|
|
|
|
|
|
69,546
|
|
|
|
|
64,625
|
|
|
|
|
57,439
|
|
|
|
|
56,341
|
|
|
|
|
54,994
|
|
|
|
|
50,183
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured borrowings
|
|
|
|
(45,021
|
)
|
|
|
|
(40,012
|
)
|
|
|
|
(36,655
|
)
|
|
|
|
(33,850
|
)
|
|
|
|
(28,240
|
)
|
|
|
|
(27,421
|
)
|
Unsecured borrowings
|
|
|
|
(1,891
|
)
|
|
|
|
(1,909
|
)
|
|
|
|
(1,910
|
)
|
|
|
|
(1,900
|
)
|
|
|
|
(1,891
|
)
|
|
|
|
(1,910
|
)
|
|
|
|
|
(46,912
|
)
|
|
|
|
(41,921
|
)
|
|
|
|
(38,565
|
)
|
|
|
|
(35,750
|
)
|
|
|
|
(30,131
|
)
|
|
|
|
(29,331
|
)
|
|
|
|
|
22,634
|
|
|
|
|
22,704
|
|
|
|
|
18,874
|
|
|
|
|
20,591
|
|
|
|
|
24,863
|
|
|
|
|
20,852
|
|
Other revenue (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation-related expense
|
|
|
|
(2,048
|
)
|
|
|
|
(894
|
)
|
|
|
|
(1,073
|
)
|
|
|
|
(1,833
|
)
|
|
|
|
(1,115
|
)
|
|
|
|
(2,444
|
)
|
Other general and administrative expense
|
|
|
|
(1,237
|
)
|
|
|
|
(1,254
|
)
|
|
|
|
(1,097
|
)
|
|
|
|
(1,276
|
)
|
|
|
|
(1,062
|
)
|
|
|
|
(1,117
|
)
|
Miscellaneous other revenue
|
|
|
|
71
|
|
|
|
|
2,031
|
|
|
|
|
48
|
|
|
|
|
67
|
|
|
|
|
15
|
|
|
|
|
159
|
|
|
|
|
|
(3,214
|
)
|
|
|
|
(117
|
)
|
|
|
|
(2,122
|
)
|
|
|
|
(3,042
|
)
|
|
|
|
(2,162
|
)
|
|
|
|
(3,402
|
)
|
Net income
|
|
|
$
|
19,420
|
|
|
|
$
|
22,587
|
|
|
|
$
|
16,752
|
|
|
|
$
|
17,549
|
|
|
|
$
|
22,701
|
|
|
|
$
|
17,450
|
|
Net income per diluted common share
|
|
|
$
|
0.16
|
|
|
|
$
|
0.19
|
|
|
|
$
|
0.13
|
|
|
|
$
|
0.14
|
|
|
|
$
|
0.20
|
|
|
|
$
|
0.14
|
|
Average diluted common shares outstanding
|
|
|
|
93,506
|
|
|
|
|
95,658
|
|
|
|
|
95,923
|
|
|
|
|
95,916
|
|
|
|
|
95,875
|
|
|
|
|
95,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Select Operating Statistics:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average portfolio outstanding (cost basis)
|
|
|
$
|
13,303,044
|
|
|
|
$
|
13,502,798
|
|
|
|
$
|
13,513,833
|
|
|
|
$
|
13,501,791
|
|
|
|
$
|
13,102,455
|
|
|
|
$
|
13,320,407
|
|
Average long-term investment capital ("LTIC")
|
|
|
|
1,314,537
|
|
|
|
|
1,362,700
|
|
|
|
|
1,353,859
|
|
|
|
|
1,358,646
|
|
|
|
|
1,361,102
|
|
|
|
|
1,369,928
|
|
Investment premium amortization
|
|
|
|
25,620
|
|
|
|
|
29,773
|
|
|
|
|
34,950
|
|
|
|
|
33,661
|
|
|
|
|
30,385
|
|
|
|
|
34,945
|
|
Constant prepayment rate ("CPR")
|
|
|
|
19.64
|
%
|
|
|
|
22.50
|
%
|
|
|
|
25.77
|
%
|
|
|
|
24.69
|
%
|
|
|
|
22.93
|
%
|
|
|
|
25.59
|
%
|
Total financing spreads
|
|
|
|
0.55
|
|
|
|
|
0.56
|
|
|
|
|
0.46
|
|
|
|
|
0.52
|
|
|
|
|
0.68
|
|
|
|
|
0.55
|
|
Financing spreads on residential mortgage investments, a non-GAAP
financial measure
|
|
|
|
0.61
|
|
|
|
|
0.62
|
|
|
|
|
0.52
|
|
|
|
|
0.58
|
|
|
|
|
0.74
|
|
|
|
|
0.61
|
|
Operating costs as a percentage of LTIC*
|
|
|
|
1.01
|
|
|
|
|
0.62
|
|
|
|
|
0.64
|
|
|
|
|
0.92
|
|
|
|
|
0.93
|
|
|
|
|
0.97
|
|
Return on common equity capital
|
|
|
|
6.12
|
|
|
|
|
6.95
|
|
|
|
|
4.61
|
|
|
|
|
5.13
|
|
|
|
|
7.18
|
|
|
|
|
5.04
|
|
* Excludes the effects of a first quarter 2017 adjustment to
reduce 2016 annual incentive compensation by $938,000.
|
|
CAPSTEAD MORTGAGE CORPORATION
|
QUARTERLY FINANCING SPREADS AND CPR
|
(annualized, unaudited)
|
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
Q1
|
|
|
Q4
|
|
|
Q3
|
|
|
Q2
|
|
|
Q1
|
|
|
Q4
|
|
|
Q3
|
|
|
Q2
|
Total financing spreads: (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yields on all interest-earning assets
|
|
|
2.07
|
%
|
|
|
1.90
|
%
|
|
|
1.68
|
%
|
|
|
1.65
|
%
|
|
|
1.67
|
%
|
|
|
1.49
|
%
|
|
|
1.45
|
%
|
|
|
1.53
|
%
|
Borrowing rates on all interest-paying liabilities
|
|
|
1.52
|
|
|
|
1.34
|
|
|
|
1.22
|
|
|
|
1.13
|
|
|
|
0.99
|
|
|
|
0.94
|
|
|
|
0.89
|
|
|
|
0.89
|
|
Total financing spreads
|
|
|
0.55
|
|
|
|
0.56
|
|
|
|
0.46
|
|
|
|
0.52
|
|
|
|
0.68
|
|
|
|
0.55
|
|
|
|
0.56
|
|
|
|
0.64
|
|
Financing spreads on residential mortgage investments, a non-GAAP
financial measure:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash yields on residential mortgage investments (b)
|
|
|
2.85
|
|
|
|
2.79
|
|
|
|
2.72
|
|
|
|
2.66
|
|
|
|
2.60
|
|
|
|
2.55
|
|
|
|
2.52
|
|
|
|
2.50
|
|
Investment premium amortization (b)
|
|
|
(0.77
|
)
|
|
|
(0.88
|
)
|
|
|
(1.03
|
)
|
|
|
(1.00
|
)
|
|
|
(0.93
|
)
|
|
|
(1.05
|
)
|
|
|
(1.06
|
)
|
|
|
(0.96
|
)
|
Yields on residential mortgage investments
|
|
|
2.08
|
|
|
|
1.91
|
|
|
|
1.69
|
|
|
|
1.66
|
|
|
|
1.67
|
|
|
|
1.50
|
|
|
|
1.46
|
|
|
|
1.54
|
|
Unhedged secured borrowing rates (c)
|
|
|
1.64
|
|
|
|
1.39
|
|
|
|
1.33
|
|
|
|
1.09
|
|
|
|
0.89
|
|
|
|
0.79
|
|
|
|
0.69
|
|
|
|
0.67
|
|
Hedged secured borrowing rates (c)
|
|
|
1.35
|
|
|
|
1.23
|
|
|
|
1.10
|
|
|
|
1.08
|
|
|
|
0.96
|
|
|
|
0.95
|
|
|
|
0.93
|
|
|
|
0.96
|
|
Secured borrowing rates
|
|
|
1.47
|
|
|
|
1.29
|
|
|
|
1.17
|
|
|
|
1.08
|
|
|
|
0.93
|
|
|
|
0.89
|
|
|
|
0.84
|
|
|
|
0.84
|
|
Financing spreads on residential mortgage investments
|
|
|
0.61
|
|
|
|
0.62
|
|
|
|
0.52
|
|
|
|
0.58
|
|
|
|
0.74
|
|
|
|
0.61
|
|
|
|
0.62
|
|
|
|
0.70
|
|
CPR
|
|
|
19.64
|
|
|
|
22.50
|
|
|
|
25.77
|
|
|
|
24.69
|
|
|
|
22.93
|
|
|
|
25.59
|
|
|
|
25.80
|
|
|
|
23.19
|
|
(a)
|
|
All interest-earning assets include residential mortgage
investments, overnight investments and cash collateral receivable
from interest rate swap counterparties. All interest-paying
liabilities include unsecured borrowings and cash collateral
payable to interest rate swap counterparties.
|
|
|
|
(b)
|
|
Cash yields are based on the cash component of interest income.
Investment premium amortization is determined using the interest
method which incorporates actual and anticipated future mortgage
prepayments. Both are expressed as a percentage calculated on
average amortized cost basis for the indicated periods.
|
|
|
|
(c)
|
|
Unhedged borrowing rates represent average rates on secured
borrowings, before consideration of related interest rate swap
agreements. Hedged borrowing rates represent average fixed-rate
payments made on interest rate swap agreements held for portfolio
hedging purposes adjusted for differences between LIBOR-based
variable-rate receipts on these swaps and unhedged borrowing
rates, as well as the effects of any hedge ineffectiveness.
Average fixed-rate swap payments were 1.34% for the first quarter
of 2018, while variable-rate receipt adjustments and clearing fees
averaged 0.01% for the same period. During 2017, fixed-rate swap
payments averaged 1.04% while variable-rate receipt adjustments
averaged 0.05%.
|
|
|
|
Financing spreads on residential mortgage investments, a non-GAAP
financial measure, differ from total financing spreads, an all-inclusive
GAAP measure, that is based on all interest-earning assets and all
interest-paying liabilities. Management believes that presenting
financing spreads on residential mortgage investments provides useful
information for evaluating the performance of the Company's portfolio.
The following reconciles these two measures:
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
Q1
|
|
|
Q4
|
|
|
Q3
|
|
|
Q2
|
|
|
Q1
|
|
|
Q4
|
|
|
Q3
|
|
|
Q2
|
Total financing spreads
|
|
|
0.55
|
%
|
|
|
0.56
|
%
|
|
|
0.46
|
%
|
|
|
0.52
|
%
|
|
|
0.68
|
%
|
|
|
0.55
|
%
|
|
|
0.56
|
%
|
|
|
0.64
|
%
|
Impact of yields on other interest-earning assets*
|
|
|
0.01
|
|
|
|
0.01
|
|
|
|
0.01
|
|
|
|
0.01
|
|
|
|
-
|
|
|
|
0.01
|
|
|
|
0.01
|
|
|
|
0.01
|
|
Impact of borrowing rates on other interest-paying liabilities*
|
|
|
0.05
|
|
|
|
0.05
|
|
|
|
0.05
|
|
|
|
0.05
|
|
|
|
0.06
|
|
|
|
0.05
|
|
|
|
0.05
|
|
|
|
0.05
|
|
Financing spreads on residential mortgage investments, a non-GAAP
financial measure
|
|
|
0.61
|
|
|
|
0.62
|
|
|
|
0.52
|
|
|
|
0.58
|
|
|
|
0.74
|
|
|
|
0.61
|
|
|
|
0.62
|
|
|
|
0.70
|
|
*
|
|
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, cash collateral payable to
interest rate swap counterparties.
|
|
|
CAPSTEAD MORTGAGE CORPORATION
|
FAIR VALUE AND SWAP MATURITY DISCLOSURES
|
(dollars in thousands, unaudited)
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
March 31, 2018
|
|
|
2017
|
|
|
|
Unpaid
|
|
|
|
|
|
Basis or
|
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
Principal
|
|
|
Investment
|
|
|
Notional
|
|
|
Fair
|
|
|
Gains
|
|
|
Gains
|
|
|
|
Balance
|
|
|
Premiums
|
|
|
Amount
|
|
|
Value
|
|
|
(Losses)
|
|
|
(Losses)
|
Residential mortgage investments classified as
available-for-sale: (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae/Freddie Mac securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current-reset ARMs
|
|
|
$
|
5,228,741
|
|
|
$
|
174,270
|
|
|
$
|
5,403,011
|
|
|
$
|
5,480,692
|
|
|
|
$
|
77,681
|
|
|
|
$
|
83,877
|
|
Longer-to-reset ARMs
|
|
|
|
4,675,502
|
|
|
|
129,123
|
|
|
|
4,804,625
|
|
|
|
4,737,908
|
|
|
|
|
(66,717
|
)
|
|
|
|
(35,159
|
)
|
Ginnie Mae securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current-reset ARMs
|
|
|
|
1,394,813
|
|
|
|
45,577
|
|
|
|
1,440,390
|
|
|
|
1,446,649
|
|
|
|
|
6,259
|
|
|
|
|
3,202
|
|
Longer-to-reset ARMs
|
|
|
|
1,364,515
|
|
|
|
35,161
|
|
|
|
1,399,676
|
|
|
|
1,383,644
|
|
|
|
|
(16,032
|
)
|
|
|
|
(6,676
|
)
|
|
|
|
$
|
12,663,571
|
|
|
$
|
384,131
|
|
|
$
|
13,047,702
|
|
|
$
|
13,048,893
|
|
|
|
$
|
1,191
|
|
|
|
$
|
45,244
|
|
Interest rate swap agreements: (b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured borrowings-related
|
|
|
|
|
|
|
|
|
$
|
6,850,000
|
|
|
$
|
61,428
|
|
|
|
$
|
61,428
|
|
|
|
$
|
40,646
|
|
Unsecured borrowings-related
|
|
|
|
|
|
|
|
|
|
100,000
|
|
|
|
(18,265
|
)
|
|
|
|
(18,265
|
)
|
|
|
|
(23,772
|
)
|
(a)
|
|
Unrealized gains and losses on residential mortgage securities
classified as available-for-sale are recorded as a component of
Accumulated other comprehensive income in Stockholders' equity.
Gains or losses are generally recognized in earnings only if sold.
Residential mortgage securities classified as held-to-maturity
with a cost basis of $1.4 million and unsecuritized investments in
residential mortgage loans with a cost basis of $1.8 million 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)
|
|
To help mitigate exposure to higher interest rates, Capstead
uses one- and three-month LIBOR-indexed, pay-fixed,
receive-variable interest rate swap agreements supplemented with
longer-maturity secured borrowings when available at attractive
rates and terms. The Company has also entered into $100 million
notional amount of swap agreements with terms coinciding with the
20-year variable-rate terms of the Company's unsecured borrowings.
Swap positions are designated as cash flow hedges for accounting
purposes and carried on the balance sheet at fair value with
related unrealized gains or losses reflected as a component of
Accumulated other comprehensive income in Stockholders' equity.
Above amounts exclude variation margin and accrued interest.
|
|
|
|
|
|
The following reflects Capstead's portfolio financing-related
swap positions, sorted by quarter of swap contract expiration.
Average fixed rates reflect related swap fixed-rate payment
requirements.
|
|
|
|
Swap Notional
|
|
|
Average
|
Period of Contract Expiration
|
|
|
Amounts
|
|
|
Fixed Rates
|
Second quarter 2018
|
|
|
$
|
600,000
|
|
|
0.79
|
%
|
Third quarter 2018
|
|
|
|
400,000
|
|
|
0.88
|
|
Fourth quarter 2018
|
|
|
|
800,000
|
|
|
1.15
|
|
First quarter 2019
|
|
|
|
950,000
|
|
|
1.58
|
|
Second quarter 2019
|
|
|
|
1,650,000
|
|
|
1.33
|
|
Third quarter 2019
|
|
|
|
550,000
|
|
|
1.40
|
|
Fourth quarter 2019
|
|
|
|
700,000
|
|
|
1.72
|
|
First quarter 2020
|
|
|
|
600,000
|
|
|
2.07
|
|
Second quarter 2020
|
|
|
|
100,000
|
|
|
2.56
|
|
Third quarter 2020
|
|
|
|
200,000
|
|
|
1.64
|
|
Fourth quarter 2020
|
|
|
|
200,000
|
|
|
2.04
|
|
First quarter 2021
|
|
|
|
100,000
|
|
|
2.67
|
|
|
|
|
$
|
6,850,000
|
|
|
|
After consideration of portfolio financing-related swap positions,
Capstead's residential mortgage investments and related secured
borrowings had durations as of March 31, 2018 of approximately 12 and 8
months, respectively, for a net duration gap of approximately 4 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, 2018)
|
(dollars in thousands, unaudited)
|
|
|
|
|
|
|
|
|
|
|
Fully
|
|
|
Average
|
|
|
Average
|
|
|
Average
|
|
|
Months
|
|
|
|
Amortized
|
|
|
Net
|
|
|
Indexed
|
|
|
Net
|
|
|
Periodic
|
|
|
Lifetime
|
|
|
To
|
ARM Type
|
|
|
Cost Basis (a)
|
|
|
WAC (b)
|
|
|
WAC (b)
|
|
|
Margins (b)
|
|
|
Caps (b)
|
|
|
Caps (b)
|
|
|
Roll (c)
|
Current-reset ARMs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae Agency Securities
|
|
|
$3,819,650
|
|
|
3.25%
|
|
|
4.16%
|
|
|
1.69%
|
|
|
2.91%
|
|
|
9.36%
|
|
|
5.9
|
Freddie Mac Agency Securities
|
|
|
1,583,361
|
|
|
3.31
|
|
|
4.37
|
|
|
1.80
|
|
|
2.40
|
|
|
9.19
|
|
|
7.3
|
Ginnie Mae Agency Securities
|
|
|
1,440,390
|
|
|
2.73
|
|
|
3.61
|
|
|
1.51
|
|
|
1.06
|
|
|
8.27
|
|
|
6.3
|
Residential mortgage loans
|
|
|
1,162
|
|
|
4.04
|
|
|
4.30
|
|
|
2.11
|
|
|
1.71
|
|
|
11.17
|
|
|
5.1
|
(52% of total)
|
|
|
6,844,563
|
|
|
3.15
|
|
|
4.09
|
|
|
1.68
|
|
|
2.40
|
|
|
9.09
|
|
|
6.3
|
Longer-to-reset ARMs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae Agency Securities
|
|
|
3,124,835
|
|
|
2.77
|
|
|
4.24
|
|
|
1.59
|
|
|
3.08
|
|
|
7.77
|
|
|
41.6
|
Freddie Mac Agency Securities
|
|
|
1,679,790
|
|
|
2.73
|
|
|
4.29
|
|
|
1.64
|
|
|
2.70
|
|
|
7.80
|
|
|
38.8
|
Ginnie Mae Agency Securities
|
|
|
1,399,676
|
|
|
3.03
|
|
|
3.59
|
|
|
1.50
|
|
|
1.01
|
|
|
8.03
|
|
|
46.4
|
(48% of total)
|
|
|
6,204,301
|
|
|
2.82
|
|
|
4.11
|
|
|
1.58
|
|
|
2.11
|
|
|
7.88
|
|
|
42.0
|
|
|
|
$13,048,864
|
|
|
2.99
|
|
|
4.10
|
|
|
1.63
|
|
|
2.28
|
|
|
8.59
|
|
|
23.3
|
Gross WAC (rate paid by borrowers)(d)
|
|
|
|
|
|
3.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Amortized cost basis represents the Company's investment
(unpaid principal balance plus unamortized investment premiums)
before unrealized gains and losses. At March 31, 2018, the ratio
of amortized cost basis to unpaid principal balance for the
Company's ARM holdings was 103.03. This table excludes $2 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 indexes 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, 76% of current-reset ARMs were subject to periodic
caps averaging 1.75%; 17% were subject to initial caps averaging
3.37%; and 7% were subject to lifetime caps averaging 7.07%. All
longer-to-reset ARM securities at March 31, 2018 were subject to
initial caps.
|
|
|
|
(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, 2018
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 83% of the Company's current-reset ARM
securities have reached an initial coupon reset date, while none
of its longer-to-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/20180425006583/en/
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