Capstead Mortgage Corporation Announces Fourth Quarter 2012 Results
Capstead Mortgage Corporation Announces Fourth Quarter 2012 Results
Fourth Quarter 2012 Highlights
* Earnings of $35.1 million or $0.31 per diluted common share
* Financing spreads on residential mortgage investments declined 17 basis
points to 1.13%
* Book value decreased $0.30 to $13.58 per common share
* Repurchased $42 million in common shares through early January 2013
* Portfolio leverage maintained at eight times long-term investment capital
* Operating costs as a percentage of average long-term investment capital
decreased 9 basis points to 0.79%
Business Wire
DALLAS -- January 30, 2013
Capstead Mortgage Corporation (NYSE: CMO) (“Capstead” or the “Company”) today
reported net income of $35,084,000 or $0.31 per diluted common share for the
quarter ended December 31, 2012. This compares to net income of $40,037,000 or
$0.35 per diluted common share for the quarter ended September 30, 2012. The
Company paid a fourth quarter 2012 dividend of $0.30 per common share on
January 18, 2013.
Fourth Quarter Earnings and Related Discussion
Capstead is a self-managed real estate investment trust 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. For the quarter ended December 31, 2012, the Company reported net
interest margins of $38,307,000 compared to $43,556,000 for the quarter ended
September 30, 2012. Financing spreads on residential mortgage investments
averaged 1.13% during the fourth quarter of 2012, a decline of 17 basis points
from financing spreads earned during the third quarter of 2012. Financing
spreads on residential mortgage investments is a non-GAAP financial measure
based solely on yields on residential mortgage investments, net of borrowing
rates on repurchase arrangements and similar borrowings, adjusted for
currently-paying interest rate swap agreements held for hedging purposes – see
Financing Spread Analysis below for further information.
Yields on Capstead’s residential mortgage investments averaged 1.76% during
the fourth quarter of 2012, a decrease of 10 basis points from yields reported
for the third quarter of 2012. Yields were negatively impacted by lower
weighted average coupons on the Company’s holdings of currently resetting ARM
securities reflecting declines in underlying indices. Yields also reflect
higher investment premium amortization due largely to higher levels of
mortgage prepayments. Mortgage prepayments expressed as a constant prepayment
rate, or CPR, averaged 19.6% during the fourth quarter of 2012, compared to an
average CPR of 18.7% during the third quarter of 2012. Acquisitions during the
fourth quarter, most of which were longer-to-reset ARM securities, did not
keep pace with portfolio runoff as a portion of the capital made available
from runoff was primarily utilized for common share repurchases. The following
table illustrates the progression of Capstead’s portfolio of residential
mortgage investments for the indicated periods (dollars in thousands):
Quarter Ended Year Ended
December 31, 2012 December 31, 2012
Residential mortgage investments, $ 14,313,208 $ 12,264,906
beginning of period
(Decrease) increase in unrealized
gains on securities
classified as available-for-sale (42,833 ) 91,750
Portfolio acquisitions (principal
amount) at average lifetime
purchased yields of 1.93% and 428,411 4,206,459
2.17%
Investment premiums on 20,304 178,407
acquisitions
Portfolio runoff (principal (829,601 ) (2,784,687 )
amount)
Investment premium amortization (29,331 ) (96,677 )
Residential mortgage investments, $ 13,860,158 $ 13,860,158
end of period
Interest rates on repurchase arrangements and similar borrowings, adjusted for
currently-paying interest rate swap agreements held as hedges against changes
in short-term interest rates, averaged 0.63% during the fourth quarter of
2012, an increase of seven basis points over borrowing rates incurred during
the third quarter of 2012. This increase reflects higher market rates,
particularly for repurchase arrangements extending past year-end, and the
inclusion of $500 million in currently-paying swap agreements requiring
payment of fixed rates averaging 58 basis points. At December 31, 2012
repurchase arrangements and similar borrowings totaled $12.78 billion,
consisting primarily of 30-day borrowings with 23 counterparties and rates
averaging 0.47%, before consideration of related swap agreements. As of
December 31, 2012, the Company held currently-paying swap agreements requiring
the payment of fixed rates of interest averaging 0.75% on notional amounts
totaling $4.20 billion with average remaining interest-payment terms of nine
months. Additionally, the Company had entered into forward-starting swap
agreements with notional amounts totaling $2.40 billion as of year-end that
will begin requiring fixed rate interest payments averaging 0.47% for two-year
periods that commence on various dates between January 2013 and December 2013,
with an average expiration of 29 months. Variable payments, typically based on
one-month LIBOR, that are received by the Company under swap agreements tend
to offset a significant portion of the interest owed on a like amount of the
Company’s borrowings under repurchase arrangements.
During the fourth quarter of 2012, Capstead’s long-term investment capital,
which consists of common and perpetual preferred stockholders’ equity and
long-term unsecured borrowings (net of related investments in statutory
trusts), declined by $67 million to $1.60 billion at year-end, due primarily
to lower portfolio pricing levels and $35 million in common stock repurchases.
The portfolio was valued at 105.58 at December 31, 2012, a decline of 21 basis
points during the quarter. Portfolio leverage (borrowings under repurchase
arrangements divided by long-term investment capital) was 8.00 to one at
December 31, 2012 compared to 7.96 to one at September 30, 2012.
Operating costs as a percentage of average long-term investment capital
declined to 0.79% during the fourth quarter of 2012 compared to 0.88% during
the third quarter of 2012, due primarily to lower compensation-related
expense, a significant portion of which is performance-based.
Common Share Repurchases
On October 30, 2012 the Company announced a common share repurchase program of
up to $100 million of its outstanding common shares. As of December 31, 2012,
the Company repurchased $35 million in common shares under this authorization
representing 3.0 million shares at an average price of $11.80 per share.
Another $7 million was repurchased in early January 2013 representing 638,000
shares at an average price of $11.43 per share. Common share repurchases may
continue in future periods under this authorization, subject to market
conditions and blackout periods associated with the dissemination of earnings
and dividend announcements and other important Company-specific news.
Book Value per Common Share
Nearly all of Capstead’s residential mortgage investments and all of its
interest rate swap agreements are reflected at fair value on the Company’s
balance sheet and are therefore included in the calculation of book value per
common share. The fair value of these investments 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. Because of these characteristics, the fair value of
Capstead’s portfolio is considerably less vulnerable to significant pricing
declines caused by credit concerns or rising interest rates compared to
portfolios containing a significant amount of non-agency and/or fixed-rate
mortgage securities.
The following table illustrates the progression of Capstead’s book value per
outstanding common share (calculated assuming liquidation preferences for the
Series A and B preferred shares) for the quarter and year ended December 31,
2012:
Quarter Ended Year Ended
December 31, 2012 December 31, 2012
Book value per common share, $ 13.88 $ 12.52
beginning of period
Capital transactions:
Accretion from capital raises – 0.12
Accretion from common share 0.06 0.02
repurchases
Decrease related to stock awards (0.02 ) –
Dividend distributions less than 0.01 (0.01 )
(in excess of) earnings
(Decrease) increase in fair value
of mortgage securities
classified as available-for-sale (0.44 ) 0.95
Increase (decrease) in fair value
of interest rate swap
agreements designated as cash flow
hedges of:
Repurchase arrangements and 0.06 (0.04 )
similar borrowings
Unsecured borrowings 0.03 0.02
Book value per common share, end $ 13.58 $ 13.58
of period
Management Remarks
Commenting on current operating and market conditions, Andrew F. Jacobs,
President and Chief Executive Officer, said, “During the fourth quarter,
yields on our portfolio were pressured by moderately higher mortgage
prepayments as well as lower coupon resets reflecting declines in recent
quarters in the six- and twelve-month LIBOR indexes. Meanwhile, our borrowing
costs were higher, in part reflecting higher market rates over year-end as
well as an increase in our currently-paying swap position. Together, these
factors contributed to a 17 basis point decline in our financing spreads to
1.13%, and a $0.04 reduction in our earnings to $0.31 per diluted common
share.
“Although results have trended lower in recent quarters, we expect 2013
results will be more stable. This belief reflects our confidence in our
investment strategy of investing solely in short-duration ARM securities.
Approximately 93% of the mortgages underlying our current-reset ARM securities
were originated prior to 2008 and carry coupon interest rates at or below
prevailing fixed mortgage rates diminishing the economic advantage, if any, of
refinancing. Additionally, refinancing for many of these homeowners continues
to be hampered by low housing prices and credit problems. Newer originations,
primarily held in our longer-to-reset portfolio, remain more susceptible to
refinancing because it is easier for many of these borrowers to qualify for
new mortgages and it may be more attractive to do so from a rate perspective
in the current low mortgage interest rate environment. On an overall basis, we
expect mortgage prepayment levels to remain manageable in the coming quarters
absent additional government intervention to lower mortgage interest rates
beyond the Federal Reserve's current bond buying program. This should help
contain investment premium amortization costs, which increased $2.2 million
this quarter to $29.3 million. Also, further declines in weighted average
coupons should be muted given that an increasing number of mortgage loans
underlying our current-reset ARM securities are at or near fully-indexed
levels, which now reflect six- and twelve-month indices that have largely
returned to the lower levels prevailing in late 2010. With respect to our
borrowing costs, we have experienced lower market rates subsequent to
year-end. Additionally, $2.90 billion of our currently-paying interest rate
swaps with average fixed rates of 0.85% will mature during 2013 and have
already been largely replaced at significantly lower rates.
“We remain confident in and focused on our investment strategy of managing a
conservatively leveraged portfolio of agency-guaranteed residential ARM
securities that can produce attractive risk-adjusted returns over the long
term while reducing, but not eliminating, sensitivity to changes in interest
rates.”
Earnings Conference Call Details
An earnings conference call and live audio webcast will be hosted Thursday,
January 31, 2013 at 9:00 a.m. ET. The conference call may be accessed by
dialing toll free (888) 317-6016 in the U.S., (855) 669-9657 for Canada, or
(412) 317-6016 for international callers. A live audio webcast of the
conference call can be accessed via the investor relations section of the
Company’s website at www.capstead.com, and an audio archive of the webcast
will be available for approximately 60 days. A replay of the call will be
available through April 2, 2013 by dialing toll free (877) 344-7529 in the
U.S. or (412) 317-0088 for international callers and entering conference
number 10023639.
Annual Meeting Record Date
The date for the Company’s annual meeting of stockholders has been set for
April 24, 2013. The record date for determining stockholders entitled to
notice of and vote at such meeting will be the close of business on February
25, 2013 and the proxy statement and annual report will be mailed to
stockholders on or about March 15, 2013. The Company’s 2013 common share
dividend calendar has been set as follows:
Scheduled 2013 Common Share Dividend Dates
Quarter Declaration Date Record Date Payable Date
First March 14 March 29 April 19
Second June 13 June 28 July 19
Third September 12 September 30 October 18
Fourth December 12 December 31 January 20, 2014
Cautionary 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. Forward-looking statements are based largely on the expectations of
management and are subject to a number of risks and uncertainties including,
but not limited to, the following:
* changes in general economic conditions;
* fluctuations in interest rates and levels of mortgage prepayments;
* the effectiveness of risk management strategies;
* the impact of differing levels of leverage employed;
* liquidity of secondary markets and credit markets;
* the availability of financing at reasonable levels and terms to support
investing on a leveraged basis;
* the availability of new investment capital;
* the availability of suitable qualifying investments from both an
investment return and regulatory perspective;
* changes in legislation or regulation affecting Fannie Mae, Freddie Mac and
similar federal government agencies and related guarantees;
* deterioration in credit quality and ratings of existing or future
issuances of Fannie Mae, Freddie Mac or Ginnie Mae securities;
* changes in legislation or regulation affecting exemptions for mortgage
REITs from regulation under the Investment Company Act of 1940; and
* increases in costs and other general competitive factors.
In addition to the above considerations, actual results and liquidity are
affected by other risks and uncertainties which could cause actual results to
be significantly different from those expressed or implied by any
forward-looking statements included herein. It is not possible to identify all
of the risks, uncertainties and other factors that may affect future results.
In light of these risks and uncertainties, the forward-looking events and
circumstances discussed herein may not occur and actual results could differ
materially from those anticipated or implied in the forward-looking
statements. 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 and per share amounts)
December 31, 2012 December 31, 2011
(unaudited)
Assets
Residential mortgage investments
($13.45 and $11.93 billion pledged
under repurchase arrangements
at December 31, 2012 and December $ 13,860,158 $ 12,264,906
31, 2011, respectively)
Cash collateral receivable from 49,972 48,505
interest rate swap counterparties
Interest rate swap agreements at 169 617
fair value
Cash and cash equivalents 425,445 426,717
Receivables and other assets 130,402 100,760
Investments in unconsolidated 3,117 3,117
affiliates
$ 14,469,263 $ 12,844,622
Liabilities
Repurchase arrangements and $ 12,784,238 $ 11,352,444
similar borrowings
Interest rate swap agreements at 32,868 31,348
fair value
Unsecured borrowings 103,095 103,095
Common stock dividend payable 29,512 38,184
Accounts payable and accrued 22,425 26,844
expenses
12,972,138 11,551,915
Stockholders’ equity
Preferred stock - $0.10 par value;
100,000 shares authorized:
$1.60 Cumulative Preferred Stock,
Series A,
186 shares issued and outstanding
($3,054 and $3,056 aggregate
liquidation preference) at 2,604 2,605
December 31, 2012 and
December 31, 2011, respectively
$1.26 Cumulative Convertible
Preferred Stock, Series B,
16,493 and 16,184 shares issued
and outstanding
($187,692 and $184,175 aggregate
liquidation preference) at
December 31, 2012 and December 31, 186,388 181,909
2011, respectively
Common stock - $0.01 par value;
250,000 shares authorized:
96,229 and 88,287 shares issued
and outstanding at
962 883
December 31, 2012 and December 31,
2011, respectively
Paid-in capital 1,367,199 1,257,653
Accumulated deficit (353,938 ) (354,883 )
Accumulated other comprehensive 293,910 204,540
income
1,497,125 1,292,707
$ 14,469,263 $ 12,844,622
Long-term investment capital
(Stockholders’ equity and
unsecured borrowings net of $ 1,597,103 $ 1,392,685
investments in related
unconsolidated affiliates)
(unaudited)
Portfolio leverage (Repurchase
arrangements and similar 8.00:1 8.15:1
borrowings divided by long-term
investment capital) (unaudited)
Book value per common share (based
on common shares outstanding and
calculated assuming liquidation $ 13.58 $ 12.52
preferences for the Series A and B
preferred stock) (unaudited)
CAPSTEAD MORTGAGE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
Quarter Ended Year Ended
December 31 December 31
2012 2011 2012 2011
Interest
income:
Residential
mortgage $ 60,948 $ 63,910 $ 255,931 $ 243,077
investments
Other 218 71 698 301
61,166 63,981 256,629 243,378
Interest
expense:
Repurchase
arrangements (20,672 ) (15,556 ) (69,101 ) (57,328 )
and similar
borrowings
Unsecured (2,187 ) (2,187 ) (8,747 ) (8,747 )
borrowings
Other – – – (5 )
(22,859 ) (17,743 ) (77,848 ) (66,080 )
38,307 46,238 178,781 177,298
Other revenue
(expense):
Miscellaneous
other revenue (24 ) (97 ) (171 ) (1,023 )
(expense)
Incentive (515 ) (1,548 ) (4,129 ) (5,697 )
compensation
Salaries and (1,638 ) (1,698 ) (6,843 ) (6,701 )
benefits
Other general
and (1,111 ) (992 ) (4,271 ) (3,932 )
administrative
expense
(3,288 ) (4,335 ) (15,414 ) (17,353 )
Income before
equity in
earnings of
unconsolidated 35,019 41,903 163,367 159,945
affiliates
Equity in
earnings of 65 65 259 259
unconsolidated
affiliates
Net income $ 35,084 $ 41,968 $ 163,626 $ 160,204
Net income
available to
common
stockholders:
Net income $ 35,084 $ 41,968 $ 163,626 $ 160,204
Less cash
dividends paid (5,270 ) (5,146 ) (21,021 ) (20,369 )
on preferred
shares
$ 29,814 $ 36,822 $ 142,605 $ 139,835
Net income per
common share:
Basic $ 0.31 $ 0.43 $ 1.50 $ 1.76
Diluted 0.31 0.43 1.50 1.75
Weighted
average common
shares
outstanding:
Basic 96,929 85,028 94,593 79,316
Diluted 97,329 85,401 95,012 79,696
Cash dividends
declared per
share:
Common $ 0.300 $ 0.430 $ 1.490 $ 1.760
Series A 0.400 0.400 1.600 1.600
Preferred
Series B 0.315 0.315 1.260 1.260
Preferred
CAPSTEAD MORTGAGE CORPORATION
FAIR VALUE ANALYSIS
(dollars in thousands, unaudited)
December 31, 2012 December
31, 2011
Unpaid Basis or Unrealized Unrealized
Investment Fair Gains Gains
Principal Notional
Premiums Value (Losses) (Losses)
Balance Amount
Residential
mortgage
investments
classified as
available-for-sale:
^(a) (b)
Agency-guaranteed
securities:
Fannie Mae/Freddie
Mac:
Current-reset ARMs $ 6,907,791 $ 170,417 $ 7,078,208 $ 7,328,758 $ 250,550 $ 194,586
Longer-to-reset 4,640,163 186,229 4,826,392 4,870,164 43,772 21,148
ARMs
Fixed-rate 60 – 60 65 5 8
Ginnie Mae:
Current-reset ARMs 722,922 16,563 739,485 754,178 14,693 7,533
Longer-to-reset 843,827 31,685 875,512 892,941 17,429 11,424
ARMs
$ 13,114,763 $ 404,894 $ 13,519,657 $ 13,846,106 $ 326,449 $ 234,699
Interest rate swap $ 6,700,000 $ (32,699 ) $ (32,539 ) $ (30,159 )
positions ^(c)
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
(a) losses are generally recognized in earnings only if sold. Residential
mortgage securities classified as held-to-maturity with a cost basis of
$6 million and unsecuritized investments in residential mortgage loans
with a cost basis of $8 million are not subject to mark-to-market
accounting and therefore have been excluded from this analysis.
Capstead classifies its residential ARM securities based on the average
(b) length of time until the loans underlying each security reset to more
current rates (see page 11 of this release for further information).
To help mitigate exposure to higher short-term interest rates, Capstead
typically uses currently-paying and forward-starting one- and
three-month LIBOR-indexed, pay-fixed, receive-variable, interest rate
swap agreements with two-year interest payment terms (or longer-term
committed borrowings, if available at attractive rates and terms).
Additionally, the Company has entered into three forward-starting swap
agreements with notional amounts totaling $100 million and terms
(c) coinciding with the variable-rate terms of the Company’s long-term
unsecured borrowings that begin in 2015 and 2016 and end with their
maturities in 2035 and 2036. Swap positions are carried on the balance
sheet at fair value with related unrealized gains or losses arising
while designated as cash flow hedges for accounting purposes reflected
as a component of Accumulated other comprehensive income in
Stockholders’ equity and related hedge ineffectiveness recognized in
Interest expense. As of December 31, 2012, these swap positions had the
following characteristics (in thousands):
Average Unrealized
Period of Notional Fixed Rate Fair
Contract Gains
Expiration Amount Payment Value (Losses)
Requirement
Currently-paying
two-year
contracts:
First quarter $ 1,100,000 0.81 % $ (826 ) $ (776 )
2013
Second quarter 700,000 0.96 (2,111 ) (2,045 )
2013
Third quarter 300,000 0.87 (1,300 ) (1,269 )
2013
Fourth quarter 800,000 0.78 (3,699 ) (3,681 )
2013
First quarter 200,000 0.60 (731 ) (731 )
2014
Second quarter 400,000 0.51 (1,322 ) (1,322 )
2014
Third quarter 200,000 0.51 (761 ) (761 )
2014
Fourth quarter 500,000 0.58 (2,696 ) (2,696 )
2014
4,200,000 0.75 (13,446 ) (13,281 )
Forward-starting
two-year
contracts:
First quarter 1,100,000 0.50 (4,272 ) (4,272 )
2015
Second quarter 200,000 0.43 (307 ) (307 )
2015
Third quarter 400,000 0.47 (518 ) (518 )
2015
Fourth quarter 700,000 0.43 41 36
2015
$ 6,600,000 $ (18,502 ) $ (18,342 )
Forward-starting
contracts
expiring in 2035
and 2036 related
to unsecured $ 100,000 4.09 $ (14,197 ) $ (14,197 )
borrowings
After consideration of related swap positions, the Company’s residential
mortgage investments and related borrowings under repurchase arrangements had
durations as of December 31, 2012 of approximately 10 and 8¼ months,
respectively, for a net duration gap of approximately 1¾ months. Duration is a
measure of market price sensitivity to interest rate movements.
CAPSTEAD MORTGAGE CORPORATION
FINANCING SPREAD ANALYSIS
(unaudited)
2012 2011
Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
Yields on
residential
mortgage
investments:^(a)
Cash yields 2.60 % 2.65 % 2.71 % 2.74 % 2.77 % 2.84 % 2.97 % 2.94 %
Investment
premium (0.84 ) (0.79 ) (0.67 ) (0.60 ) (0.66 ) (0.67 ) (0.59 ) (0.58 )
amortization
Adjusted yields 1.76 1.86 2.04 2.14 2.11 2.17 2.38 2.36
Related
borrowing
rates:^(b)
Unhedged 0.45 0.41 0.37 0.32 0.32 0.25 0.25 0.29
borrowing rates
Fixed swap rates 0.75 0.78 0.80 0.85 0.90 0.98 1.02 1.07
Adjusted 0.63 0.56 0.54 0.49 0.54 0.57 0.55 0.59
borrowing rates
Financing
spreads on
residential
mortgage 1.13 1.30 1.50 1.65 1.57 1.60 1.83 1.77
investments
Cash yields are based on the cash component of interest income.
Investment premium amortization is determined using the interest method
(a) and incorporates actual and anticipated future mortgage prepayments.
Both are expressed as a percentage calculated on an annualized basis on
average amortized cost basis for the indicated periods.
Unhedged borrowing rates represent average rates on repurchase
agreements and similar borrowings. Fixed swap rates represent the
average fixed rates on currently-paying interest rate swap agreements
used to hedge short-term borrowing rates. Adjusted borrowing rates
(b) reflect unhedged borrowing rates and swap rates as well as differences
between variable rate payments received on the Company’s
currently-paying swap agreements, which typically are based on one-month
LIBOR, and unhedged borrowing rates as well as any measured hedge
ineffectiveness, calculated on an annualized basis on average
outstanding balances for the indicated periods.
Financing spreads on residential mortgage investments, a non-GAAP financial
measure, differs from total financing spreads, an all-inclusive GAAP measure,
that is based on all interest-earning assets and all interest-paying
liabilities. The Company 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.
2012 2011
Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
Financing
spreads on
residential
mortgage 1.13 % 1.30 % 1.50 % 1.65 % 1.57 % 1.60 % 1.83 % 1.77 %
investments
Impact of
yields on other
interest-
earning assets* (0.07 ) (0.05 ) (0.06 ) (0.06 ) (0.04 ) (0.05 ) (0.04 ) (0.05 )
Impact of
borrowing rates
on
unsecured
borrowings and
other
interest-paying (0.06 ) (0.06 ) (0.07 ) (0.07 ) (0.07 ) (0.08 ) (0.09 ) (0.10 )
liabilities*
Total financing 1.00 1.19 1.37 1.52 1.46 1.47 1.70 1.62
spreads
Other interest-earning assets consist of overnight investments and cash
collateral receivable from interest rate swap counterparties. Other
* interest-paying liabilities consist of long-term unsecured borrowings (at
a borrowing rate of 8.49%) that the Company considers a component of its
long-term investment capital and cash collateral payable to interest rate
swap counterparties.
CAPSTEAD MORTGAGE CORPORATION
RESIDENTIAL ARM SECURITIES PORTFOLIO STATISTICS
(as of December 31, 2012)
(dollars in thousands, unaudited)
Fully Average Average Average Months
Amortized Net
Indexed Net Periodic Lifetime To
ARM Type ^(a) Cost Basis WAC
^(b) ^(c) WAC Margins Caps Caps Roll
^(c) ^ (c) ^(c) ^(c) ^(a)
Current-reset
ARMs:
Fannie Mae
Agency $ 5,227,486 2.45 % 2.29 % 1.70 % 3.16 % 10.16 % 5.2
Securities
Freddie Mac
Agency 1,850,722 2.67 2.42 1.84 2.03 10.67 6.2
Securities
Ginnie Mae
Agency 739,485 2.48 1.70 1.51 1.02 9.31 6.2
Securities
Residential 5,051 3.51 2.38 2.04 1.49 10.97 4.5
mortgage loans
7,822,744 2.51 2.27 1.71 2.70 10.20 5.5
Longer-to-reset
ARMs:
Fannie Mae
Agency 2,953,509 2.97 2.61 1.76 4.91 7.99 43.7
Securities
Freddie Mac
Agency 1,872,883 2.97 2.67 1.84 4.92 7.99 47.4
Securities
Ginnie Mae
Agency 875,512 3.01 1.68 1.51 1.02 8.04 30.1
Securities
5,701,904 2.98 2.48 1.75 4.32 8.00 42.8
$ 13,524,648 2.70 2.36 1.73 3.38 9.27 21.1
Gross WAC (rate paid by 3.33
borrowers) ^(d)
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
(a) securities, and 18 months or greater for “longer-to-reset” ARM
securities). Once an ARM loan reaches its initial reset date, it will
reset at least once a year to a margin over a corresponding interest
rate index, subject to periodic and lifetime limits or caps.
Amortized cost basis represents the Company’s investment (unpaid
principal balance plus unamortized investment premiums) before
unrealized gains and losses. As of December 31, 2012, the ratio of
(b) amortized cost basis to related unpaid principal balance for the
Company’s ARM securities was 103.09. This table excludes $3 million in
fixed-rate Agency Securities, $3 million in fixed-rate residential
mortgage loans and $3 million in private residential mortgage
pass-through securities held as collateral for structured financings.
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.
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 limits, or
caps, on the amount of such adjustments during any single interest rate
adjustment period and over the contractual term of the underlying loans.
(c) ARM securities issued by the GSEs with initial fixed-rate periods of
five years or longer typically have 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 were 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 related current net WAC, for
ARM securities subject only to lifetime caps. At quarter-end, 81% of
current-reset ARMs were subject to periodic caps averaging 1.85%; 4%
were subject to initial caps averaging 2.01%; 14% were subject to
lifetime caps, less related current net WAC, averaging 7.58%; and 1%
were not subject to a cap. All longer-to-reset ARM securities at
December 31 2012 were subject to initial caps.
Gross WAC is the weighted average interest rate of the mortgage loans
(d) underlying the indicated investments, including servicing and other fees
paid by borrowers, as of the indicated balance sheet date.
Contact:
Capstead Mortgage Corporation
Investor Relations:
Lindsey Cook, 214-874-2339
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