News

Capstead Mortgage Corporation Announces Second Quarter 2020 Results

DALLAS–(BUSINESS WIRE)–Capstead Mortgage Corporation (“Capstead” or the “Company”) (NYSE: CMO) today announced financial results for the quarter ended June 30, 2020.

Second Quarter 2020 Summary

  • Recognized GAAP net income of $22.7 million or $0.19 per diluted common share
  • Generated core earnings of $21.9 million or $0.18 per diluted common share, representing a 2.7% return on common equity capital (10.8% annualized)
  • Generated economic return of 14.3%
  • Paid a second quarter dividend of $0.15 per common share, unchanged from the previous two quarters
  • Book value per common share increased $0.72 or 11.9% to $6.79 per common share
  • Agency-guaranteed residential adjustable-rate mortgage (ARM) portfolio ended the quarter largely unchanged at $8.33 billion
  • Leverage ended the quarter at 7.49 times long-term investment capital

Second Quarter Earnings and Related Discussion

Capstead reported GAAP net income of $22.7 million or $0.19 per diluted common share for the quarter ended June 30, 2020, compared to a net loss of $204.7 million or $(2.21) per diluted common share for the quarter ended March 31, 2020. The Company reported core earnings of $21.9 million or $0.18 per diluted common share for the quarter ended June 30, 2020. This compares to core earnings of $19.8 million or $0.16 per diluted common share for the quarter ended March 31, 2020. See the “Non-GAAP Financial Measures” section of this release for more information on core earnings.

Portfolio yields averaged 2.33% during the second quarter of 2020, a decrease of 16 basis points from 2.49% reported for the first quarter of 2020. Yields declined primarily due to lower coupon interest rates on loans underlying the Company’s portfolio of agency-guaranteed residential ARM securities that have reset based on lower prevailing interest rates as well as lower coupons on acquisitions and changes in portfolio composition due to late first quarter sales. Mortgage prepayments increased during the quarter to an average annualized constant prepayment rate (“CPR”) of 32.89%, compared to 26.71% CPR in the prior quarter. Portfolio leverage was reduced to 7.49 to one at June 30, 2020 compared to 8.51 to one at March 31, 2020.

The following table illustrates the progression of Capstead’s portfolio of residential mortgage investments for the quarter and six months ended June 30, 2020 (dollars in thousands):

 

 

Quarter Ended

June 30, 2020

 

 

Six Months Ended

June 30, 2020

 

Residential mortgage investments, beginning of period

 

$

8,503,171

 

 

$

11,222,182

 

Portfolio acquisitions (principal amount)

 

 

614,366

 

 

 

1,408,593

 

Investment premiums on acquisitions

 

 

24,249

 

 

 

44,569

 

Portfolio runoff (principal amount)

 

 

(844,722

)

 

 

(1,756,821

)

Sales of investments (basis) (a)

 

 

(19,440

)

 

 

(2,620,297

)

Investment premium amortization

 

 

(15,388

)

 

 

(36,079

)

Increase in net unrealized gains on securities classified as available-for-sale

 

 

65,664

 

 

 

65,753

 

Residential mortgage investments, end of period

 

$

8,327,900

 

 

$

8,327,900

 

Decrease in residential mortgage investments during the indicated periods

 

$

(175,271

)

 

$

(2,894,282

)

 

(a)

 

Portfolio sales that settled during the second quarter of 2020 were entered into during the first quarter and all realized losses associated with these sales were recognized during the first quarter.

 

Rates on Capstead’s secured borrowings, after adjusting for hedging activities, averaged 63 basis points lower at 1.09% during the second quarter of 2020, compared to 1.72% for the prior quarter. Borrowing rates before hedging activities averaged 0.68% during the second quarter, a decline of 108 basis points over the prior quarter benefiting from the Federal Reserve’s actions on March 3rd and again on March 15th to reduce the Fed Funds rate by a total of 150 basis points. Unhedged borrowing rates on new borrowings under repurchase arrangements are now approximately 25 basis points. Secured borrowings ended the quarter at $7.58 billion.

Notional amounts of secured borrowings-related interest rate swap agreements averaged $4.37 billion during the second quarter of 2020 with fixed swap rates averaging 1.38%, 24 basis points lower than the prior quarter. At June 30, 2020, the Company held $4.60 billion notional amount of secured borrowings-related interest rate swaps with fixed rates averaging 1.27%, an increase of $200 million in notional amount and a decrease of 17 basis points in rate from swaps held on March 31, 2020. Two-year swaps entered into recently have fixed rates of approximately one to two basis points reflecting market expectations for a prolonged period of low short-term interest rates.

Capstead operates a highly efficient, internally-managed investment platform, particularly compared to other mortgage REITs, and has a competitive cost structure relative to a wide variety of high yielding investment vehicles. Operating costs expressed as an annualized percentage of long-term investment capital averaged 1.45% and 1.32% for the quarter and six months ended June 30, 2020. As an annualized percentage of total assets, operating costs averaged 0.16% and 0.14% during these periods.

Book Value per Common Share

Book value per share as of June 30, 2020 was $6.79, an increase of $0.72 or 11.8% from the March 31, 2020 book value of $6.07, primarily driven by $0.67 in portfolio-related increases in value. Capstead’s investment strategy attempts to mitigate risks to book value by focusing on investments in agency-guaranteed residential mortgage pass-through securities, which are considered to have little, if any, credit risk and are collateralized by ARM loans with interest rates that reset periodically to more current levels. Because of these characteristics, the fair value of the Company’s portfolio is expected to be less vulnerable to significant pricing declines caused by credit concerns or rising interest rates compared to leveraged portfolios containing a significant amount of non-agency-guaranteed securities or agency-guaranteed securities backed by longer-duration fixed-rate loans. Fair value is impacted by market conditions, including changes in interest rates and the availability of financing at reasonable rates and leverage levels.

Management Remarks

Commenting on current operating and market conditions, Phillip A. Reinsch, President and Chief Executive Officer, said, “We are pleased with our results this quarter after the pandemic-related disruptions experienced in the fixed income markets in March. Utilizing less leverage and holding a smaller investment portfolio, we generated core earnings well in excess of our common dividend, which we have held steady now for three quarters. We expect this achievement to be largely unmatched in our industry in this environment. Importantly, we enjoyed strong improvement in portfolio valuations this quarter, leading to an 11.9% increase in book value to $6.79 per common share. We expect these results will also compare favorably with those of our industry peers.

“We began reinvesting portfolio runoff in late April and replaced all of May and June runoff at very attractive levels. While pricing levels for agency-guaranteed ARM securities have increased steadily through quarter end, we expect to continue replacing runoff in the coming quarters provided risk-adjusted returns remain attractive. With borrowing costs declining markedly in the second quarter due largely to the Federal Reserve’s March actions to reduce the Fed Funds rate target range to zero to 25 basis points, portfolio returns have improved considerably despite higher levels of mortgage prepayments spurred by lower prevailing mortgage interest rates. We anticipate mortgage prepayments to remain elevated for the rest of the year, particularly through the end of the summer selling season. Our borrowing costs on the other hand should continue declining sequentially as existing borrowings and related swaps held for hedging purposes mature and are replaced at lower levels.

“Over the next few years, we anticipate the Federal Reserve will remain supportive of low short-term interest rates, while eventually reducing support for longer term rates by curtailing U.S Treasury and agency-guaranteed fixed-rate MBS purchases. As this occurs the yield curve should steepen further, improving short duration investment options, lowering mortgage prepayment levels and increasing portfolio yields, while our borrowing costs should remain relatively low.

“For the last 20 years, Capstead has operated as a cost-effective, internally managed REIT that invests in a leveraged portfolio of relatively short duration agency-guaranteed residential ARM securities with the goal of generating attractive risk-adjusted returns over the long-term. For investors seeking risk-adjusted levered returns with a comparably higher degree of safety from interest rate and credit risk, we believe Capstead represents a reasonably compelling opportunity that is difficult to find elsewhere in the markets.”

Non-GAAP Financial Measures

Management believes the presentation of core earnings and core earnings per common share, both non-GAAP financial measures, when analyzed in conjunction with the Company’s GAAP operating results, allows investors to more effectively evaluate the Company’s performance and provides investors management’s view of the Company’s economic performance. Management also believes that presenting financing spreads on residential mortgage investments, a non-GAAP financial measure, provides important information for evaluating the performance of the Company’s portfolio, as opposed to total financing spreads, because the non-GAAP measure speaks specifically to the performance of the Company’s investment portfolio. See the “Reconciliation of GAAP Measures to Non-GAAP Measures” section of this release.

Earnings Conference Call Details

An earnings conference call and live audio webcast will be hosted Thursday, July 30, 2020 at 10:00 a.m. ET. The conference call may be accessed by dialing toll free (877) 505-6547 in the U.S., (855) 669-9657 for Canada, or (412) 902-6660 for international callers. A live webcast of the conference call can be accessed via the investor relations section of the Company’s website at www.capstead.com and an archive of the webcast will be available up to the date of our next earnings press release. An audio replay can be accessed one hour after the end of the conference call, also up to the date of our next earnings press release, by dialing toll free (877) 344-7529 in the U.S., (855) 669-9658 for Canada, or (412) 317-0088 for international callers and entering conference number 10146411.

About Capstead

Capstead is a self-managed real estate investment trust, or REIT, for federal income tax purposes. The Company earns income from investing in a leveraged portfolio of residential adjustable-rate mortgage pass-through securities, referred to as ARM securities, issued and guaranteed by government-sponsored enterprises, either Fannie Mae or Freddie Mac, or by an agency of the federal government, Ginnie Mae.

Statement Concerning Forward-looking Statements

This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and may contain the words “believe,” “anticipate,” “expect,” “estimate,” “intend,” “will be,” “will likely continue,” “will likely result,” or words or phrases of similar meaning. Actual results could differ materially from those projected in these forward-looking statements due to a variety of factors, including without limitation, fluctuations in interest rates, the availability of suitable qualifying investments, changes in mortgage prepayments, the availability and terms of financing, changes in market conditions as a result of federal corporate and individual tax law changes, changes in legislation or regulation affecting the mortgage and banking industries or Fannie Mae, Freddie Mac or Ginnie Mae securities, the availability of new investment capital, the liquidity of secondary markets and funding markets, our ability to maintain our qualification as a REIT for U.S. federal tax purposes, our ability to maintain our exemption from registration under the Investment Company Act of 1940, as amended, and other changes in general economic conditions. These and other applicable uncertainties, factors and risks are described more fully in the Company’s filings with the U.S. Securities and Exchange Commission.

Forward-looking statements speak only as of the date the statement is made and the Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Accordingly, readers of this document are cautioned not to place undue reliance on any forward-looking statements included herein.

 
 

CAPSTEAD MORTGAGE CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands, except ratios, pledged and per share amounts)

 

 

 

June 30, 2020

 

 

December 31, 2019

 

 

 

(unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Residential mortgage investments ($7.97 and $10.83 billion pledged at June 30, 2020 and December 31, 2019, respectively)

 

$

8,327,900

 

 

$

11,222,182

 

Cash collateral receivable from derivative counterparties

 

 

103,618

 

 

 

65,477

 

Derivatives at fair value

 

 

 

 

 

1,471

 

Cash and cash equivalents

 

 

121,991

 

 

 

105,397

 

Receivables and other assets

 

 

115,062

 

 

 

125,474

 

 

 

$

8,668,571

 

 

$

11,520,001

 

Liabilities

 

 

 

 

 

 

 

 

Secured borrowings

 

$

7,575,294

 

 

$

10,275,413

 

Derivatives at fair value

 

 

49,575

 

 

 

29,156

 

Unsecured borrowings

 

 

98,443

 

 

 

98,392

 

Common stock dividend payable

 

 

15,041

 

 

 

14,605

 

Accounts payable and accrued expenses

 

 

17,329

 

 

 

28,702

 

 

 

 

7,755,682

 

 

 

10,446,268

 

Stockholders’ equity

 

 

 

 

 

 

 

 

Preferred stock – $0.10 par value; 100,000 shares authorized: 7.50% Cumulative Redeemable Preferred Stock, Series E, 10,329 shares issued and outstanding ($258,226 aggregate liquidation preference) at June 30, 2020 and December 31, 2019

 

 

250,946

 

 

 

250,946

 

Common stock – $0.01 par value; 250,000 shares authorized: 96,395 and 94,606 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively

 

 

964

 

 

 

946

 

Paid-in capital

 

 

1,266,976

 

 

 

1,252,481

 

Accumulated deficit

 

 

(664,749

)

 

 

(444,039

)

Accumulated other comprehensive income

 

 

58,752

 

 

 

13,399

 

 

 

 

912,889

 

 

 

1,073,733

 

 

 

$

8,668,571

 

 

$

11,520,001

 

 

 

 

 

 

 

 

 

 

Long-term investment capital (consists of stockholders’ equity and unsecured borrowings) (unaudited)

 

$

1,011,332

 

 

$

1,172,125

 

Portfolio leverage (secured borrowings divided by long-term investment capital) (unaudited)

 

7.49:1

 

 

8.77:1

 

Book value per common share (based on share of common stock outstanding and calculated assuming liquidation preferences for preferred stock) (unaudited)

 

$

6.79

 

 

$

8.62

 

 
 

CAPSTEAD MORTGAGE CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(unaudited)

 

 

 

Quarter Ended

June 30

 

 

Six Months Ended

June 30

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage investments

 

$

48,133

 

 

$

85,100

 

 

$

117,361

 

 

$

168,907

 

Other

 

 

22

 

 

 

600

 

 

 

421

 

 

 

1,022

 

 

 

 

48,155

 

 

 

85,700

 

 

 

117,782

 

 

 

169,929

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Secured borrowings

 

 

(13,055

)

 

 

(67,945

)

 

 

(58,328

)

 

 

(131,724

)

Unsecured borrowings

 

 

(1,900

)

 

 

(1,900

)

 

 

(3,800

)

 

 

(3,791

)

 

 

 

(14,955

)

 

 

(69,845

)

 

 

(62,128

)

 

 

(135,515

)

 

 

 

33,200

 

 

 

15,855

 

 

 

55,654

 

 

 

34,414

 

Other expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss on derivative instruments (net)

 

 

(6,948

)

 

 

(74,842

)

 

 

(162,687

)

 

 

(96,499

)

Loss on sale of investments (net)

 

 

 

 

 

(1,365

)

 

 

(67,820

)

 

 

(1,365

)

Compensation-related expense

 

 

(2,330

)

 

 

(1,972

)

 

 

(4,534

)

 

 

(5,581

)

Other general and administrative expense

 

 

(1,219

)

 

 

(1,138

)

 

 

(2,421

)

 

 

(2,266

)

Miscellaneous other revenue (expense)

 

 

1

 

 

 

2

 

 

 

(141

)

 

 

91

 

 

 

 

(10,496

)

 

 

(79,315

)

 

 

(237,603

)

 

 

(105,620

)

Net income (loss)

 

 

22,704

 

 

 

(63,460

)

 

 

(181,949

)

 

 

(71,206

)

Less preferred stock dividends

 

 

(4,842

)

 

 

(4,842

)

 

 

(9,684

)

 

 

(9,684

)

Net income (loss) to common stockholders

 

$

17,862

 

 

$

(68,302

)

 

$

(191,633

)

 

$

(80,890

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted net income (loss) per common share

 

$

0.19

 

 

$

(0.80

)

 

$

(2.01

)

 

$

(0.95

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

95,655

 

 

 

84,934

 

 

 

95,276

 

 

 

84,914

 

Diluted

 

 

95,887

 

 

 

84,934

 

 

 

95,276

 

 

 

84,914

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common

 

$

0.15

 

 

$

0.12

 

 

$

0.30

 

 

$

0.20

 

Series E preferred

 

 

0.47

 

 

 

0.47

 

 

 

0.94

 

 

 

0.94

 

 
 

CAPSTEAD MORTGAGE CORPORATION

QUARTERLY STATEMENTS OF OPERATIONS AND SELECT OPERATING STATISTICS

(in thousands, except per share amounts, percentages annualized, unaudited)

 

 

 

2020

 

 

2019

 

 

 

Q2

 

 

Q1

 

 

Q4

 

 

Q3

 

 

Q2

 

Quarterly Statements of Operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage investments

 

$

48,133

 

 

$

69,228

 

 

$

73,617

 

 

$

77,693

 

 

$

85,100

 

Other

 

 

22

 

 

 

399

 

 

 

666

 

 

 

1,065

 

 

 

600

 

 

 

 

48,155

 

 

 

69,627

 

 

 

74,283

 

 

 

78,758

 

 

 

85,700

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Secured borrowings

 

 

(13,055

)

 

 

(45,273

)

 

 

(51,688

)

 

 

(62,800

)

 

 

(67,945

)

Unsecured borrowings

 

 

(1,900

)

 

 

(1,900

)

 

 

(1,910

)

 

 

(1,910

)

 

 

(1,900

)

 

 

 

(14,955

)

 

 

(47,173

)

 

 

(53,598

)

 

 

(64,710

)

 

 

(69,845

)

 

 

 

33,200

 

 

 

22,454

 

 

 

20,685

 

 

 

14,048

 

 

 

15,855

 

Other (expense) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) gain on derivative instruments (net)

 

 

(6,948

)

 

 

(155,739

)

 

 

15,142

 

 

 

(9,221

)

 

 

(74,842

)

Loss on sale of investments (net)

 

 

 

 

 

(67,820

)

 

 

 

 

 

 

 

 

(1,365

)

Compensation-related expense

 

 

(2,330

)

 

 

(2,204

)

 

 

(2,050

)

 

 

(566

)

 

 

(1,972

)

Other general and administrative expense

 

 

(1,219

)

 

 

(1,202

)

 

 

(1,105

)

 

 

(1,123

)

 

 

(1,138

)

Miscellaneous other revenue (expense)

 

 

1

 

 

 

(142

)

 

 

 

 

 

58

 

 

 

2

 

 

 

 

(10,496

)

 

 

(227,107

)

 

 

11,987

 

 

 

(10,852

)

 

 

(79,315

)

Net income (loss)

 

$

22,704

 

 

$

(204,653

)

 

$

32,672

 

 

$

3,196

 

 

$

(63,460

)

Net income (loss) per diluted common share

 

$

0.19

 

 

$

(2.21

)

 

$

0.29

 

 

$

(0.02

)

 

$

(0.80

)

Average diluted common shares outstanding

 

 

95,887

 

 

 

94,897

 

 

 

94,293

 

 

 

90,945

 

 

 

84,934

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Core earnings

 

$

21,917

 

 

$

19,811

 

 

$

19,109

 

 

$

14,798

 

 

$

14,780

 

Core earnings per diluted common share

 

 

0.18

 

 

 

0.16

 

 

 

0.15

 

 

 

0.11

 

 

 

0.12

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Select Operating and Performance Statistics:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common dividends declared per share

 

 

0.15

 

 

 

0.15

 

 

 

0.15

 

 

 

0.12

 

 

 

0.12

 

Book value per common share

 

 

6.79

 

 

 

6.07

 

 

 

8.62

 

 

 

8.60

 

 

 

8.93

 

Average portfolio outstanding (cost basis)

 

 

8,256,825

 

 

 

11,124,246

 

 

 

11,032,252

 

 

 

11,266,776

 

 

 

12,065,084

 

Average secured borrowings

 

 

7,647,613

 

 

 

10,337,773

 

 

 

10,195,180

 

 

 

10,481,080

 

 

 

11,193,335

 

Average long-term investment capital (“LTIC”)

 

 

987,792

 

 

 

1,124,307

 

 

 

1,172,897

 

 

 

1,146,916

 

 

 

1,149,388

 

Constant prepayment rate (“CPR”)

 

 

32.89

%

 

 

26.71

%

 

 

29.39

%

 

 

30.18

%

 

 

26.29

%

Total financing spreads

 

 

1.52

 

 

 

0.66

 

 

 

0.57

 

 

 

0.31

 

 

 

0.34

 

Yields on residential mortgage investments

 

 

2.33

 

 

 

2.49

 

 

 

2.67

 

 

 

2.76

 

 

 

2.82

 

Secured borrowing rates (a)

 

 

1.09

 

 

 

1.72

 

 

 

1.97

 

 

 

2.31

 

 

 

2.35

 

Financing spreads on residential mortgage investments

 

 

1.25

 

 

 

0.77

 

 

 

0.70

 

 

 

0.45

 

 

 

0.47

 

Operating costs as a percentage of LTIC

 

 

1.45

 

 

 

1.22

 

 

 

1.07

 

 

 

0.58

 

 

 

1.09

 

Quarterly economic return (change in book value plus dividends)

 

 

14.33

 

 

 

(27.84

)

 

 

1.98

 

 

 

(2.35

)

 

 

(4.03

)

Return on common equity capital (b)

 

 

10.76

 

 

 

7.77

 

 

 

6.89

 

 

 

4.95

 

 

 

4.98

 

(a)

Secured borrowing rates exclude the effects of amortization of the net unrealized gains (losses) included in AOCI on de-designated derivative instruments and include net interest cash flows on non-designated derivative instruments to better compare the components of financing spreads on residential mortgage investments. See “Reconciliation of GAAP Measures to Non-GAAP Measures” for details on the impact of non-designated derivative instruments.

(b)

Calculated using core earnings less preferred dividends on an annualized basis over average common equity for the period.

 
 

CAPSTEAD MORTGAGE CORPORATION

RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES

(in thousands, percentages annualized, unaudited)

The Company defines core earnings as GAAP net income (loss) excluding (a) unrealized (gain) loss on derivative instruments, (b) realized loss (gain) on termination of derivative instruments, (c) amortization of unrealized (gain) loss of derivative instruments held at the time of de-designation, and (d) realized loss (gain) on securities. The following reconciles GAAP net (loss) income and net (loss) income per diluted common share to core earnings and core earnings per common share:

 

 

2020

 

 

2019

 

 

 

Q2

 

 

Q1

 

 

Q4

 

 

Q3

 

 

Q2

 

 

 

Amount

 

Per

Share

 

 

Amount

 

Per

Share

 

 

Amount

 

Per

Share

 

 

Amount

 

Per

Share

 

 

Amount

 

Per

Share

 

Net income (loss)

 

$

22,704

 

$

0.19

 

 

$

(204,653

)

$

(2.21

)

 

$

32,672

 

$

0.29

 

 

$

3,196

 

$

(0.02

)

 

$

(63,460

)

$

(0.80

)

Unrealized (gain) loss on non-designated derivative instruments

 

 

(2,229

)

 

(0.02

)

 

 

56,182

 

 

0.59

 

 

 

(51,017

)

 

(0.54

)

 

 

(16,952

)

 

(0.19

)

 

 

59,388

 

 

0.70

 

Realized loss on termination of non-designated derivative instruments

 

 

1,320

 

 

0.01

 

 

 

100,565

 

 

1.06

 

 

 

39,312

 

 

0.42

 

 

 

31,673

 

 

0.35

 

 

 

24,202

 

 

0.28

 

Amortization of unrealized loss (gain) of derivative instruments held at the time of de-designation

 

 

122

 

 

0.00

 

 

 

(103

)

 

(0.00

)

 

 

(1,858

)

 

(0.02

)

 

 

(3,119

)

 

(0.03

)

 

 

(6,715

)

 

(0.08

)

Realized loss on sale of investments

 

 

 

 

 

 

 

67,820

 

 

0.72

 

 

 

 

 

 

 

 

 

 

 

 

 

1,365

 

 

0.02

 

Core earnings

 

$

21,917

 

$

0.18

 

 

$

19,811

 

$

0.16

 

 

$

19,109

 

$

0.15

 

 

$

14,798

 

$

0.11

 

 

$

14,780

 

$

0.12

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The following reconciles total financing spreads to financing spreads on residential mortgage investments:

 

 

2020

 

 

2019

 

 

 

Q2

 

 

Q1

 

 

Q4

 

 

Q3

 

 

Q2

 

Total financing spreads

 

 

1.52

%

 

 

0.66

%

 

 

0.57

%

 

 

0.31

%

 

 

0.34

%

Impact of yields on other interest-earning assets*

 

 

0.04

 

 

 

0.02

 

 

 

0.01

 

 

 

0.00

 

 

 

0.01

 

Impact of borrowing rates on other interest-paying liabilities*

 

 

0.09

 

 

 

0.05

 

 

 

0.05

 

 

 

0.05

 

 

 

0.05

 

Impact of amortization of unrealized gain, net of unrealized losses on de-designated derivative instruments

 

 

0.01

 

 

 

0.00

 

 

 

(0.07

)

 

 

(0.12

)

 

 

(0.24

)

Impact of net cash flows received on non-designated derivative instruments

 

 

(0.41

)

 

 

0.04

 

 

 

0.14

 

 

 

0.21

 

 

 

0.31

 

Financing spreads on residential mortgage investments

 

 

1.25

 

 

 

0.77

 

 

 

0.70

 

 

 

0.45

 

 

 

0.47

 

*

Other interest-earning assets consist of overnight investments and cash collateral receivable from secured borrowing and derivative counterparties. Other interest-paying liabilities consist of unsecured borrowings and, at times, may consist of cash collateral payable to derivative counterparties

 
 

CAPSTEAD MORTGAGE CORPORATION

FAIR VALUE AND SWAP MATURITY DISCLOSURES

(in thousands, unaudited)

 

 

 

June 30, 2020

 

December 31,

2019

 

 

 

Unpaid

Principal

Balance

 

 

Investment

Premiums

 

 

Basis or

Notional

Amount

 

 

Fair

Value

 

 

Unrealized

Gains

(Losses)

 

 

Unrealized

Gains

(Losses)

 

Residential mortgage investments classified as available-for-sale: (a)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fannie Mae/Freddie Mac securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current-reset ARMs

 

$

2,981,408

 

 

$

109,203

 

 

$

3,090,611

 

 

$

3,099,649

 

 

$

9,038

 

 

$

33,573

 

Longer-to-reset ARMs

 

 

4,217,150

 

 

 

115,606

 

 

 

4,332,756

 

 

 

4,419,459

 

 

 

86,703

 

 

 

7,267

 

Ginnie Mae securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current-reset ARMs

 

 

160,813

 

 

 

3,994

 

 

 

164,807

 

 

 

166,318

 

 

 

1,511

 

 

 

2,699

 

Longer-to-reset ARMs

 

 

611,579

 

 

 

15,674

 

 

 

627,253

 

 

 

641,021

 

 

 

13,768

 

 

 

1,728

 

 

 

$

7,970,950

 

 

$

244,477

 

 

$

8,215,427

 

 

$

8,326,447

 

 

$

111,020

 

 

$

45,267

 

Derivative instruments: (b)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap agreements:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Secured borrowings-related

 

 

 

 

 

 

 

 

 

$

4,600,000

 

 

$

(59,595

)

 

$

(2,693

)

 

$

(2,712

)

Unsecured borrowings-related

 

 

 

 

 

 

 

 

 

 

100,000

 

 

 

(49,575

)

 

 

(49,575

)

 

 

(29,156

)

Contacts

Lindsey Crabbe

(214) 874-2339

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