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%
DALLAS -- (Business Wire)
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 December 31, 2012 |
|
| Year Ended December 31, 2012 |
|
|
|
|
Residential mortgage investments, beginning of period
| | |
$
|
14,313,208
| | |
|
$
|
12,264,906
| |
(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 2.17%
| | | |
428,411
| | | | |
4,206,459
| |
Investment premiums on acquisitions
| | | |
20,304
| | | | |
178,407
| |
Portfolio runoff (principal amount)
| | | |
(829,601
|
)
| | | |
(2,784,687
|
)
|
Investment premium amortization
| | |
| (29,331 |
)
| | |
| (96,677 |
)
|
Residential mortgage investments, end of period
| | | $ | 13,860,158 |
| | | $ | 13,860,158 |
|
| | | | | |
|
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 December 31, 2012 |
|
| Year Ended December 31, 2012 |
|
|
|
|
|
Book value per common share, beginning of period
| | |
$
|
13.88
| | | |
$
|
12.52
| |
Capital transactions:
| | | | | | |
Accretion from capital raises
| | | |
–
| | | | |
0.12
| |
Accretion from common share repurchases
| | | |
0.06
| | | | |
0.02
| |
Decrease related to stock awards
| | | |
(0.02
|
)
| | | |
–
| |
Dividend distributions less than (in excess of) earnings
| | | |
0.01
| | | | |
(0.01
|
)
|
(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 similar borrowings
| | | |
0.06
| | | | |
(0.04
|
)
|
Unsecured borrowings
| | |
| 0.03 |
| | |
| 0.02 |
|
Book value per common share, end of period
| | | $ | 13.58 |
| | | $ | 13.58 |
|
| | | | | |
|
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 31, 2011, respectively)
| | |
$
|
13,860,158
| | | |
$
|
12,264,906
| |
Cash collateral receivable from interest rate swap counterparties
| | | |
49,972
| | | | |
48,505
| |
Interest rate swap agreements at fair value
| | | |
169
| | | | |
617
| |
Cash and cash equivalents
| | | |
425,445
| | | | |
426,717
| |
Receivables and other assets
| | | |
130,402
| | | | |
100,760
| |
Investments in unconsolidated affiliates
| | |
| 3,117 |
| | |
| 3,117 |
|
| | | $ | 14,469,263 |
| | | $ | 12,844,622 |
|
Liabilities | | | | | | |
Repurchase arrangements and similar borrowings
| | |
$
|
12,784,238
| | | |
$
|
11,352,444
| |
Interest rate swap agreements at fair value
| | | |
32,868
| | | | |
31,348
| |
Unsecured borrowings
| | | |
103,095
| | | | |
103,095
| |
Common stock dividend payable
| | | |
29,512
| | | | |
38,184
| |
Accounts payable and accrued expenses
| | |
| 22,425 |
| | |
| 26,844 |
|
| | |
| 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 December 31, 2012 and
December 31, 2011, respectively
| | | |
2,604
| | | | |
2,605
| |
$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, 2011, respectively
| | | |
186,388
| | | | |
181,909
| |
Common stock - $0.01 par value; 250,000 shares authorized:
| | | | | | |
96,229 and 88,287 shares issued and outstanding at
December 31, 2012 and December 31, 2011, respectively
| | | |
962
| | | | |
883
| |
Paid-in capital
| | | |
1,367,199
| | | | |
1,257,653
| |
Accumulated deficit
| | | |
(353,938
|
)
| | | |
(354,883
|
)
|
Accumulated other comprehensive income
| | |
| 293,910 |
| | |
| 204,540 |
|
| | |
| 1,497,125 |
| | |
| 1,292,707 |
|
| | | $ | 14,469,263 |
| | | $ | 12,844,622 |
|
Long-term investment capital (Stockholders’ equity and
unsecured borrowings net of investments in related unconsolidated
affiliates) (unaudited) | | |
$
|
1,597,103
| | | |
$
|
1,392,685
| |
Portfolio leverage (Repurchase arrangements and similar
borrowings divided by long-term investment capital) (unaudited) | | | |
8.00:1
| | | | |
8.15:1
| |
Book value per common share (based on common shares
outstanding and calculated assuming liquidation preferences for the
Series A and B preferred stock) (unaudited) | | |
$
|
13.58
| | | |
$
|
12.52
| |
|
|
CAPSTEAD MORTGAGE CORPORATION |
CONSOLIDATED STATEMENTS OF INCOME |
(in thousands, except per share amounts) |
(unaudited) |
|
|
|
| Quarter Ended December 31 |
|
| Year Ended December 31 |
| | | | |
|
|
|
| 2012 |
|
|
|
| 2011 |
|
|
|
| 2012 |
|
|
|
| 2011 |
|
Interest income: | | | |
|
| | | | |
|
| |
Residential mortgage investments
| | |
$
|
60,948
| | | |
$
|
63,910
| | | |
$
|
255,931
| | | |
$
|
243,077
| |
Other
| | |
| 218 |
| | |
| 71 |
| | |
| 698 |
| | |
| 301 |
|
| | |
| 61,166 |
| | |
| 63,981 |
| | |
| 256,629 |
| | |
| 243,378 |
|
Interest expense: | | | | | | | | | | | | |
Repurchase arrangements and similar borrowings
| | | |
(20,672
|
)
| | | |
(15,556
|
)
| | | |
(69,101
|
)
| | | |
(57,328
|
)
|
Unsecured borrowings
| | | |
(2,187
|
)
| | | |
(2,187
|
)
| | | |
(8,747
|
)
| | | |
(8,747
|
)
|
Other
| | |
| – |
| | |
| – |
| | |
| – |
| | |
| (5 |
)
|
| | |
| (22,859 |
)
| | |
| (17,743 |
)
| | |
| (77,848 |
)
| | |
| (66,080 |
)
|
| | |
| 38,307 |
| | |
| 46,238 |
| | |
| 178,781 |
| | |
| 177,298 |
|
Other revenue (expense): | | | | | | | | | | | | |
Miscellaneous other revenue (expense)
| | | |
(24
|
)
| | | |
(97
|
)
| | | |
(171
|
)
| | | |
(1,023
|
)
|
Incentive compensation
| | | |
(515
|
)
| | | |
(1,548
|
)
| | | |
(4,129
|
)
| | | |
(5,697
|
)
|
Salaries and benefits
| | | |
(1,638
|
)
| | | |
(1,698
|
)
| | | |
(6,843
|
)
| | | |
(6,701
|
)
|
Other general and administrative expense
| | |
| (1,111 |
)
| | |
| (992 |
)
| | |
| (4,271 |
)
| | |
| (3,932 |
)
|
| | |
| (3,288 |
)
| | |
| (4,335 |
)
| | |
| (15,414 |
)
| | |
| (17,353 |
)
|
Income before equity in earnings of | | | | | | | | | | | | |
unconsolidated affiliates | | | |
35,019
| | | | |
41,903
| | | | |
163,367
| | | | |
159,945
| |
Equity in earnings of unconsolidated affiliates | | |
| 65 |
| | |
| 65 |
| | |
| 259 |
| | |
| 259 |
|
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 on preferred shares
| | |
| (5,270 |
)
| | |
| (5,146 |
)
| | |
| (21,021 |
)
| | |
| (20,369 |
)
|
| | | $ | 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 Preferred
| | | |
0.400
| | | | |
0.400
| | | | |
1.600
| | | | |
1.600
| |
Series B Preferred
| | | |
0.315
| | | | |
0.315
| | | | |
1.260
| | | | |
1.260
| |
|
|
CAPSTEAD MORTGAGE CORPORATION |
FAIR VALUE ANALYSIS |
(dollars in thousands, unaudited) |
|
|
| December 31, 2012 |
| December 31, 2011 |
|
| 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) (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 ARMs
| | |
4,640,163
| | |
186,229
| | |
4,826,392
| | |
4,870,164
| | | |
43,772
| | | |
21,148
| |
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 ARMs
| |
| 843,827 | |
| 31,685 | |
| 875,512 | |
| 892,941 |
| |
| 17,429 |
| |
| 11,424 |
|
| | $ | 13,114,763 | | $ | 404,894 | | $ | 13,519,657 | | $ | 13,846,106 |
| | $ | 326,449 |
| | $ | 234,699 |
|
Interest rate swap positions (c) | | | | | | $ | 6,700,000 | | $ | (32,699 |
)
| | $ | (32,539 |
)
| | $ | (30,159 |
)
|
(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 $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. |
| |
|
(b) | | Capstead classifies its residential ARM securities based on the
average length of time until the loans underlying each security
reset to more current rates (see page 11 of this release for
further information). |
| |
|
(c) | | 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 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 (inthousands): |
Period of Contract Expiration |
|
| Notional Amount |
|
| Average Fixed Rate Payment Requirement |
|
| Fair Value |
|
| Unrealized Gains (Losses) |
Currently-paying two-year contracts: |
|
| |
|
| |
|
| |
|
| |
First quarter 2013
| | |
$
|
1,100,000
| | |
0.81
|
%
| | |
$
|
(826
|
)
| | |
$
|
(776
|
)
|
Second quarter 2013
| | | |
700,000
| | |
0.96
| | | | |
(2,111
|
)
| | | |
(2,045
|
)
|
Third quarter 2013
| | | |
300,000
| | |
0.87
| | | | |
(1,300
|
)
| | | |
(1,269
|
)
|
Fourth quarter 2013
| | | |
800,000
| | |
0.78
| | | | |
(3,699
|
)
| | | |
(3,681
|
)
|
First quarter 2014
| | | |
200,000
| | |
0.60
| | | | |
(731
|
)
| | | |
(731
|
)
|
Second quarter 2014
| | | |
400,000
| | |
0.51
| | | | |
(1,322
|
)
| | | |
(1,322
|
)
|
Third quarter 2014
| | | |
200,000
| | |
0.51
| | | | |
(761
|
)
| | | |
(761
|
)
|
Fourth quarter 2014
| | |
| 500,000 | | |
0.58
| | | |
| (2,696 |
)
| | |
| (2,696 |
)
|
| | | |
4,200,000
| | |
0.75
| | | | |
(13,446
|
)
| | | |
(13,281
|
)
|
Forward-starting two-year contracts: | | | | | | | | | | | | |
First quarter 2015
| | | |
1,100,000
| | |
0.50
| | | | |
(4,272
|
)
| | | |
(4,272
|
)
|
Second quarter 2015
| | | |
200,000
| | |
0.43
| | | | |
(307
|
)
| | | |
(307
|
)
|
Third quarter 2015
| | | |
400,000
| | |
0.47
| | | | |
(518
|
)
| | | |
(518
|
)
|
Fourth quarter 2015
| | |
| 700,000 | | |
0.43
| | | |
| 41 |
| | |
| 36 |
|
| | | $ | 6,600,000 | | | | | | $ | (18,502 |
)
| | | $ | (18,342 |
)
|
Forward-starting contracts expiring in 2035 | | | | | | | | | | | | |
and 2036 related to unsecured borrowings | | | $ | 100,000 | | |
4.09
| | | | $ | (14,197 |
)
| | | $ | (14,197 |
)
|
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 amortization
| | |
(0.84
|
)
| | |
(0.79
|
)
| | |
(0.67
|
)
| | |
(0.60
|
)
| | |
(0.66
|
)
| | |
(0.67
|
)
| | |
(0.59
|
)
| | |
(0.58
|
)
|
Adjusted yields
| | |
1.76
| | | |
1.86
| | | |
2.04
| | | |
2.14
| | | |
2.11
| | | |
2.17
| | | |
2.38
| | | |
2.36
| |
Related borrowing rates:(b) | | | | | | | | | | | | | | | | | | | | | | | | |
Unhedged borrowing rates
| | |
0.45
| | | |
0.41
| | | |
0.37
| | | |
0.32
| | | |
0.32
| | | |
0.25
| | | |
0.25
| | | |
0.29
| |
Fixed swap rates
| | |
0.75
| | | |
0.78
| | | |
0.80
| | | |
0.85
| | | |
0.90
| | | |
0.98
| | | |
1.02
| | | |
1.07
| |
Adjusted borrowing rates
| | |
0.63
| | | |
0.56
| | | |
0.54
| | | |
0.49
| | | |
0.54
| | | |
0.57
| | | |
0.55
| | | |
0.59
| |
Financing spreads on residential
| | | | | | | | | | | | | | | | | | | | | | | | |
mortgage investments
| | |
1.13
| | | |
1.30
| | | |
1.50
| | | |
1.65
| | | |
1.57
| | | |
1.60
| | | |
1.83
| | | |
1.77
| |
(a) |
| Cash yields are based on the cash component of interest income.
Investment premium amortization is determined using the interest
method 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. |
| |
|
(b) | | 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 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 investments
| | |
1.13
|
%
| | |
1.30
|
%
| | |
1.50
|
%
| | |
1.65
|
%
| | |
1.57
|
%
| | |
1.60
|
%
| | |
1.83
|
%
| | |
1.77
|
%
|
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 liabilities*
| | |
(0.06
|
)
| | |
(0.06
|
)
| | |
(0.07
|
)
| | |
(0.07
|
)
| | |
(0.07
|
)
| | |
(0.08
|
)
| | |
(0.09
|
)
| | |
(0.10
|
)
|
Total financing spreads
| | |
1.00
| | | |
1.19
| | | |
1.37
| | | |
1.52
| | | |
1.46
| | | |
1.47
| | | |
1.70
| | | |
1.62
| |
*
|
|
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) |
|
ARM Type (a) |
|
| Amortized Cost Basis (b) |
|
| Net WAC (c) |
|
| Fully Indexed WAC (c) |
|
| Average Net Margins (c) |
|
| Average Periodic Caps(c) |
|
| Average Lifetime Caps (c) |
|
| Months To Roll (a) |
Current-reset ARMs:
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Fannie Mae Agency Securities
| | |
$
|
5,227,486
| | |
2.45
|
%
| | |
2.29
|
%
| | |
1.70
|
%
| | |
3.16
|
%
| | |
10.16
|
%
| | |
5.2
|
Freddie Mac Agency Securities
| | | |
1,850,722
| | |
2.67
| | | |
2.42
| | | |
1.84
| | | |
2.03
| | | |
10.67
| | | |
6.2
|
Ginnie Mae Agency Securities
| | | |
739,485
| | |
2.48
| | | |
1.70
| | | |
1.51
| | | |
1.02
| | | |
9.31
| | | |
6.2
|
Residential mortgage loans
| | |
| 5,051 | | |
3.51
| | | |
2.38
| | | |
2.04
| | | |
1.49
| | | |
10.97
| | | |
4.5
|
| | |
| 7,822,744 | | |
2.51
| | | |
2.27
| | | |
1.71
| | | |
2.70
| | | |
10.20
| | | |
5.5
|
Longer-to-reset ARMs:
| | | | | | | | | | | | | | | | | | | | | |
Fannie Mae Agency Securities
| | | |
2,953,509
| | |
2.97
| | | |
2.61
| | | |
1.76
| | | |
4.91
| | | |
7.99
| | | |
43.7
|
Freddie Mac Agency Securities
| | | |
1,872,883
| | |
2.97
| | | |
2.67
| | | |
1.84
| | | |
4.92
| | | |
7.99
| | | |
47.4
|
Ginnie Mae Agency Securities
| | |
| 875,512 | | |
3.01
| | | |
1.68
| | | |
1.51
| | | |
1.02
| | | |
8.04
| | | |
30.1
|
| | |
| 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 borrowers) (d) | | |
3.33
| | | | | | | | | | | | | | | | |
(a) |
| 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). 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. |
| |
|
(b) | | 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 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. |
| |
|
(c) | | 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. 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.
|
| |
|
(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. |
Contacts:
Capstead Mortgage Corporation
Investor Relations:
Lindsey
Cook, 214-874-2339
Source: Capstead Mortgage Corporation
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