DALLAS–(BUSINESS WIRE)–Capstead Mortgage Corporation (“Capstead” or the “Company”) (NYSE: CMO) today announced financial results for the quarter ended June 30, 2019.
Second Quarter 2019 Summary
Second Quarter Earnings and Related Discussion
Capstead reported a GAAP net loss of $63.5 million or $(0.80) per diluted common share for the quarter ended June 30, 2019, compared to a GAAP net loss of $7.7 million or $(0.15) per diluted common share for the quarter ended March 31, 2019. The Company reported core earnings of $14.8 million or $0.12 per diluted common share for the quarter ended June 30, 2019. This compares to core earnings of $15.5 million or $0.12 per diluted common share for the quarter ended March 31, 2019.
As described further in the “Non-GAAP Financial Measures” section of this release, the difference between GAAP and core results this quarter primarily relates to declines in market value associated with interest rate swap agreements that are now reported on the statements of operations. Previously, this change was reported in stockholders’ equity where changes in unrealized portfolio gains are reported.
Portfolio yields averaged 2.82% during the second quarter of 2019, an increase of seven basis points from the 2.75% reported for the first quarter. Yields benefited from portfolio acquisitions and mortgage loans underlying the portfolio resetting to higher rates while absorbing the effects of higher mortgage prepayment levels. The average annualized constant prepayment rate, or CPR, increased to 26.29% CPR in the current quarter from 20.62% CPR in the prior quarter.
The following table illustrates the progression of Capstead’s portfolio of residential mortgage investments for the quarter and six months ended June 30, 2019 (dollars in thousands):
|
|
|
Quarter Ended June 30, 2019 |
|
|
Six Months Ended June 30, 2019 |
|
||
|
Residential mortgage investments, beginning of period |
|
$ |
12,228,422 |
|
|
$ |
11,965,381 |
|
|
Portfolio acquisitions (principal amount) |
|
|
531,305 |
|
|
|
1,502,011 |
|
|
Investment premiums on acquisitions |
|
|
12,959 |
|
|
|
36,625 |
|
|
Portfolio runoff (principal amount) |
|
|
(966,515 |
) |
|
|
(1,723,069 |
) |
|
Sales of investments (basis) |
|
|
(305,356 |
) |
|
|
(305,356 |
) |
|
Investment premium amortization |
|
|
(18,146 |
) |
|
|
(36,399 |
) |
|
Increase in net unrealized gains on securities classified as available-for-sale |
|
|
48,550 |
|
|
|
92,026 |
|
|
Residential mortgage investments, end of period |
|
$ |
11,531,219 |
|
|
$ |
11,531,219 |
|
|
Decrease in residential mortgage investments during the indicated periods |
|
$ |
(697,203 |
) |
|
$ |
(434,162 |
) |
Rates on Capstead’s $10.74 billion in secured borrowings, after adjusting for hedging activities, averaged 12 basis points higher at 2.35% during the second quarter of 2019, compared to 2.23% for the prior quarter. This increase is primarily attributable to higher hedging costs, as interest rate swaps with lower fixed rates matured, new swaps were entered into at higher rates and variable-rate swap receipts were negatively affected by declines in three-month LIBOR. Unhedged borrowing rates were relatively unchanged. At quarter-end the Company held $7.55 billion notional amount of secured borrowings-related interest rate swaps with contract expirations occurring at various dates through the second quarter of 2022 and a weighted average expiration of 23 months. Portfolio leverage (secured borrowings divided by long-term investment capital) decreased to 9.59 to one at June 30, 2019 from 9.65 to one at March 31, 2019.
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 1.09% for the second quarter of 2019. As an annualized percentage of total assets, operating costs averaged 0.10% during this period.
Book Value per Common Share
Book value per share as of June 30, 2019 was $8.93, a decrease of $0.50 or 5.3% from March 31, 2019 book value of $9.43, reflecting $1.05 in swap-related declines in value, partially offset by $0.55 in portfolio-related market value increases. 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. Fair value is impacted by market conditions including changes in interest rates, the availability of financing at reasonable rates and leverage levels, among other factors.
Management Remarks
Commenting on current operating and market conditions, Phillip A. Reinsch, President and Chief Executive Officer, said, “We are pleased to report core earnings of $0.12 per common share for the quarter and to be in a position to have significantly increased our dividend payout despite a difficult operating environment. Market expectations swung dramatically this quarter in favor of lower short-term rates which in turn resulted in declines in market interest rates across the yield curve. Fair values of swaps held for hedging purposes declined considerably while pricing for mortgage securities underperformed due in part to expectations for higher levels of mortgage prepayments. As a result, our book value declined as lower swap values were only partially offset by higher portfolio pricing.
“In June we took advantage of lower fixed-pay swap rates available in the market to replace $800 million of longer-term swaps with new two-year contracts. We also reduced our portfolio of agency-guaranteed ARM securities and our leverage marginally during the quarter. We will continue to be disciplined yet flexible in managing our balance sheet to improve our future performance as market conditions evolve.
“With current secured borrowings of $10.74 billion and $7.55 billion notional amount of related swaps ($1.25 billion of which mature by year-end), we stand to benefit significantly should the Federal Reserve begin reducing the Fed Funds rate as anticipated by the markets, even as we absorb the effects of relatively high levels of mortgage prepayments. Should the Federal Reserve signal that it will not be reducing rates at the pace anticipated by the market, we would expect interest rates to increase, slowing mortgage prepayments and helping to reverse book value declines experienced this quarter.
“For nearly 20 years, Capstead has operated as a cost-effective, internally managed REIT that invests in a leveraged portfolio of 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, 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 compare its performance to that of its peers. Prior to March 2019, the Company designated its secured borrowings-related swaps as hedges for accounting purposes, whereby changes in the swaps’ fair values were recorded in Accumulated other comprehensive income. Beginning in March 2019, for GAAP purposes, related changes in the fair value of these derivatives are recorded in the Company’s consolidated statements of operations. Also, for GAAP purposes, related net unrealized gains recorded in Accumulated other comprehensive income through February 28, 2019 are being recognized as a component of interest expense in the Company’s consolidated statements of operations over the remaining life of these swaps. Core earnings and core earnings per common share exclude these GAAP adjustments.
Management 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.
Earnings Conference Call Details
An earnings conference call and live audio webcast will be hosted Thursday, July 25, 2019 at 9:00 a.m. ET. The conference call may be accessed by dialing toll free (877) 505-6547 in the U.S., (855) 669-9657 for Canada, or (412) 902-6660 for international callers. A live webcast of the conference call can be accessed via the investor relations section of the Company’s website at www.capstead.com and an archive of the webcast will be available up to the date of our next earnings press release. An audio replay can be accessed one hour after the end of the conference call, also up to the date of our next earnings press release, by dialing toll free (877) 344-7529 in the U.S., (855) 669-9658 for Canada, or (412) 317-0088 for international callers and entering conference number 10133446.
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, without limitation, fluctuations in interest rates, the availability of suitable qualifying investments, changes in mortgage prepayments, the availability and terms of financing, changes in market conditions as a result of federal corporate and individual tax reform, changes in legislation or regulation affecting the mortgage and banking industries or Fannie Mae, Freddie Mac or Ginnie Mae securities, the availability of new investment capital, the liquidity of secondary markets and credit markets, and other changes in general economic conditions. These and other applicable uncertainties, factors and risks are described more fully in the Company’s filings with the U.S. Securities and Exchange Commission. Forward-looking statements speak only as of the date the statement is made and the Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Accordingly, readers of this document are cautioned not to place undue reliance on any forward-looking statements included herein.
|
CAPSTEAD MORTGAGE CORPORATION |
||||||||
|
CONSOLIDATED BALANCE SHEETS |
||||||||
|
(in thousands, except ratios, pledged and per share amounts) |
||||||||
|
|
|
June 30, 2019 |
|
|
December 31, 2018 |
|
||
|
|
|
(unaudited) |
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
Residential mortgage investments ($11.30 and $11.57 billion pledged at June 30, 2019 and December 31, 2018, respectively) |
|
$ |
11,531,219 |
|
|
$ |
11,965,381 |
|
|
Cash collateral receivable from interest rate swap counterparties |
|
|
70,873 |
|
|
|
31,797 |
|
|
Interest rate swap agreements at fair value |
|
|
2,128 |
|
|
|
– |
|
|
Cash and cash equivalents |
|
|
179,478 |
|
|
|
60,289 |
|
|
Receivables and other assets |
|
|
143,405 |
|
|
|
129,058 |
|
|
|
|
$ |
11,927,103 |
|
|
$ |
12,186,525 |
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
Secured borrowings |
|
$ |
10,742,574 |
|
|
$ |
10,979,362 |
|
|
Interest rate swap agreements at fair value |
|
|
28,284 |
|
|
|
17,834 |
|
|
Unsecured borrowings |
|
|
98,342 |
|
|
|
98,292 |
|
|
Common stock dividend payable |
|
|
10,605 |
|
|
|
7,132 |
|
|
Accounts payable and accrued expenses |
|
|
24,910 |
|
|
|
24,842 |
|
|
|
|
|
10,904,715 |
|
|
|
11,127,462 |
|
|
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, 2019 and December 31, 2018 |
|
|
250,946 |
|
|
|
250,946 |
|
|
Common stock – $0.01 par value; 250,000 shares authorized: 85,549 and 85,277 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively |
|
|
855 |
|
|
|
853 |
|
|
Paid-in capital |
|
|
1,176,529 |
|
|
|
1,174,880 |
|
|
Accumulated deficit |
|
|
(444,703 |
) |
|
|
(346,570 |
) |
|
Accumulated other comprehensive income (loss) |
|
|
38,761 |
|
|
|
(21,046 |
) |
|
|
|
|
1,022,388 |
|
|
|
1,059,063 |
|
|
|
|
$ |
11,927,103 |
|
|
$ |
12,186,525 |
|
|
|
|
|
|
|
|
|
|
|
|
Long-term investment capital (consists of stockholders’ equity and unsecured borrowings) (unaudited) |
|
$ |
1,120,730 |
|
|
$ |
1,157,355 |
|
|
Portfolio leverage (secured borrowings divided by long-term investment capital) (unaudited) |
|
9.59:1 |
|
|
9.49:1 |
|
||
|
Book value per common share (based on shares of common stock outstanding and calculated assuming liquidation preferences for preferred stock) (unaudited) |
|
$ |
8.93 |
|
|
$ |
9.39 |
|
|
CAPSTEAD MORTGAGE CORPORATION |
||||||||||||||||
|
CONSOLIDATED STATEMENTS OF OPERATIONS |
||||||||||||||||
|
(in thousands, except per share amounts) |
||||||||||||||||
|
(unaudited) |
||||||||||||||||
|
|
|
Quarter Ended June 30 |
|
|
Six Months Ended June 30 |
|
||||||||||
|
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||
|
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage investments |
|
$ |
85,100 |
|
|
$ |
65,202 |
|
|
$ |
168,907 |
|
|
$ |
134,340 |
|
|
Other |
|
|
600 |
|
|
|
305 |
|
|
|
1,022 |
|
|
|
713 |
|
|
|
|
|
85,700 |
|
|
|
65,507 |
|
|
|
169,929 |
|
|
|
135,053 |
|
|
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured borrowings |
|
|
(67,945 |
) |
|
|
(48,241 |
) |
|
|
(131,724 |
) |
|
|
(93,262 |
) |
|
Unsecured borrowings |
|
|
(1,900 |
) |
|
|
(1,900 |
) |
|
|
(3,791 |
) |
|
|
(3,791 |
) |
|
|
|
|
(69,845 |
) |
|
|
(50,141 |
) |
|
|
(135,515 |
) |
|
|
(97,053 |
) |
|
|
|
|
15,855 |
|
|
|
15,366 |
|
|
|
34,414 |
|
|
|
38,000 |
|
|
Other (expense) income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on derivative instruments (net) |
|
|
(74,842 |
) |
|
|
– |
|
|
|
(96,499 |
) |
|
|
– |
|
|
Loss on sale of investments (net) |
|
|
(1,365 |
) |
|
|
– |
|
|
|
(1,365 |
) |
|
|
– |
|
|
Compensation-related expense |
|
|
(1,972 |
) |
|
|
(1,560 |
) |
|
|
(5,581 |
) |
|
|
(3,608 |
) |
|
Other general and administrative expense |
|
|
(1,138 |
) |
|
|
(899 |
) |
|
|
(2,266 |
) |
|
|
(2,136 |
) |
|
Miscellaneous other revenue |
|
|
2 |
|
|
|
81 |
|
|
|
91 |
|
|
|
152 |
|
|
|
|
|
(79,315 |
) |
|
|
(2,378 |
) |
|
|
(105,620 |
) |
|
|
(5,592 |
) |
|
Net (loss) income |
|
|
(63,460 |
) |
|
|
12,988 |
|
|
$ |
(71,206 |
) |
|
$ |
32,408 |
|
|
Less preferred stock dividends |
|
|
(4,842 |
) |
|
|
(4,842 |
) |
|
|
(9,684 |
) |
|
|
(9,684 |
) |
|
Net (loss) income to common stockholders: |
|
$ |
(68,302 |
) |
|
$ |
8,146 |
|
|
$ |
(80,890 |
) |
|
$ |
22,724 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
$ |
(0.80 |
) |
|
$ |
0.09 |
|
|
$ |
(0.95 |
) |
|
$ |
0.24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
84,934 |
|
|
|
92,001 |
|
|
|
84,914 |
|
|
|
92,709 |
|
|
Diluted |
|
|
84,934 |
|
|
|
92,121 |
|
|
|
84,914 |
|
|
|
92,810 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common |
|
$ |
0.12 |
|
|
$ |
0.14 |
|
|
$ |
0.20 |
|
|
$ |
0.30 |
|
|
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) |
||||||||||||||||||||
|
|
|
2019 |
|
|
2018 |
|
||||||||||||||
|
|
|
Q2 |
|
|
Q1 |
|
|
Q4 |
|
|
Q3 |
|
|
Q2 |
|
|||||
|
Quarterly Statements of Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage investments |
|
$ |
85,100 |
|
|
$ |
83,807 |
|
|
$ |
72,902 |
|
|
$ |
67,649 |
|
|
$ |
65,202 |
|
|
Other |
|
|
600 |
|
|
|
422 |
|
|
|
626 |
|
|
|
350 |
|
|
|
305 |
|
|
|
|
|
85,700 |
|
|
|
84,229 |
|
|
|
73,528 |
|
|
|
67,999 |
|
|
|
65,507 |
|
|
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured borrowings |
|
|
(67,945 |
) |
|
|
(63,779 |
) |
|
|
(59,321 |
) |
|
|
(54,393 |
) |
|
|
(48,241 |
) |
|
Unsecured borrowings |
|
|
(1,900 |
) |
|
|
(1,891 |
) |
|
|
(1,910 |
) |
|
|
(1,910 |
) |
|
|
(1,900 |
) |
|
|
|
|
(69,845 |
) |
|
|
(65,670 |
) |
|
|
(61,231 |
) |
|
|
(56,303 |
) |
|
|
(50,141 |
) |
|
|
|
|
15,855 |
|
|
|
18,559 |
|
|
|
12,297 |
|
|
|
11,696 |
|
|
|
15,366 |
|
|
Other (expense) income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on derivative instruments (net) |
|
|
(74,842 |
) |
|
|
(21,657 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
Loss on sale of investments (net) |
|
|
(1,365 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
Compensation-related expense |
|
|
(1,972 |
) |
|
|
(3,609 |
) |
|
|
(2,238 |
) |
|
|
(1,913 |
) |
|
|
(1,560 |
) |
|
Other general and administrative expense |
|
|
(1,138 |
) |
|
|
(1,128 |
) |
|
|
(1,207 |
) |
|
|
(1,184 |
) |
|
|
(899 |
) |
|
Miscellaneous other revenue |
|
|
2 |
|
|
|
89 |
|
|
|
132 |
|
|
|
81 |
|
|
|
81 |
|
|
|
|
|
(79,315 |
) |
|
|
(26,305 |
) |
|
|
(3,313 |
) |
|
|
(3,016 |
) |
|
|
(2,378 |
) |
|
Net (loss) income |
|
$ |
(63,460 |
) |
|
$ |
(7,746 |
) |
|
$ |
8,984 |
|
|
$ |
8,680 |
|
|
$ |
12,988 |
|
|
Net (loss) income per diluted common share |
|
$ |
(0.80 |
) |
|
$ |
(0.15 |
) |
|
$ |
0.05 |
|
|
$ |
0.04 |
|
|
$ |
0.09 |
|
|
Average diluted common shares outstanding |
|
|
84,934 |
|
|
|
84,894 |
|
|
|
88,006 |
|
|
|
91,346 |
|
|
|
92,121 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core earnings |
|
$ |
14,780 |
|
|
$ |
15,471 |
|
|
$ |
8,984 |
|
|
$ |
8,680 |
|
|
$ |
12,988 |
|
|
Core earnings per diluted common share |
|
|
0.12 |
|
|
|
0.12 |
|
|
|
0.05 |
|
|
|
0.04 |
|
|
|
0.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Select Operating and Performance Statistics: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common dividends declared per share |
|
|
0.12 |
|
|
|
0.08 |
|
|
|
0.08 |
|
|
|
0.11 |
|
|
|
0.14 |
|
|
Book value per common share |
|
|
8.93 |
|
|
|
9.43 |
|
|
|
9.39 |
|
|
|
9.48 |
|
|
|
9.85 |
|
|
Average portfolio outstanding (cost basis) |
|
|
12,065,084 |
|
|
|
12,169,106 |
|
|
|
12,442,410 |
|
|
|
13,026,636 |
|
|
|
13,025,353 |
|
|
Average secured borrowings |
|
|
11,193,335 |
|
|
|
11,156,608 |
|
|
|
11,439,646 |
|
|
|
11,957,518 |
|
|
|
11,914,562 |
|
|
Average long-term investment capital (“LTIC”) |
|
|
1,149,388 |
|
|
|
1,161,815 |
|
|
|
1,188,553 |
|
|
|
1,258,367 |
|
|
|
1,280,231 |
|
|
Constant prepayment rate (“CPR”) |
|
|
26.29 |
% |
|
|
20.62 |
% |
|
|
22.37 |
% |
|
|
25.71 |
% |
|
|
23.82 |
% |
|
Total financing spreads |
|
|
0.34 |
|
|
|
0.42 |
|
|
|
0.22 |
|
|
|
0.21 |
|
|
|
0.33 |
|
|
Yields on residential mortgage investments |
|
|
2.82 |
|
|
|
2.75 |
|
|
|
2.34 |
|
|
|
2.08 |
|
|
|
2.00 |
|
|
Secured borrowing rates (a) |
|
|
2.35 |
|
|
|
2.23 |
|
|
|
2.07 |
|
|
|
1.82 |
|
|
|
1.62 |
|
|
Financing spreads on residential mortgage investments |
|
|
0.47 |
|
|
|
0.52 |
|
|
|
0.27 |
|
|
|
0.26 |
|
|
|
0.38 |
|
|
Operating costs as a percentage of LTIC (b) |
|
|
1.09 |
|
|
|
1.32 |
|
|
|
1.15 |
|
|
|
0.98 |
|
|
|
0.77 |
|
|
Quarterly economic return (change in book value plus dividends) |
|
|
(4.03 |
) |
|
|
1.28 |
|
|
|
(0.11 |
) |
|
|
(2.64 |
) |
|
|
(1.09 |
) |
|
Return on common equity capital (c) |
|
|
4.98 |
|
|
|
5.33 |
|
|
|
1.96 |
|
|
|
1.69 |
|
|
|
3.51 |
|
|
(a) |
Secured borrowing rates exclude the effects of amortization of the net unrealized gains in Accumulated other comprehensive income 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 cash flow hedges. |
|
(b) |
First quarter 2019 excludes the effects of adjustments to 2018 incentive compensation accruals totaling $(949,000) due to the Company’s 2018 outperformance relative to its peers. |
|
(c) |
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
(percentages annualized, unaudited)
The Company defines core earnings as GAAP net (loss) income excluding (a) unrealized loss (gain) 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 (March 1, 2019) and (d) realized loss (gain) on securities. The following reconciles GAAP net (loss) income and net (loss) income per common share to core earnings and core earnings per common share:
|
|
|
2019 |
|
|
2018 |
|
|||||||||||||||||||||||||||||
|
|
|
Q2 |
|
|
Q1 |
|
|
Q4 |
|
|
Q3 |
|
|
Q2 |
|
||||||||||||||||||||
|
|
|
Amount |
|
Per Share |
|
|
Amount |
|
Per Share |
|
|
Amount |
|
Per Share |
|
|
Amount |
|
Per Share |
|
|
Amount |
|
Per Share |
|
||||||||||
|
Net (loss) income |
|
$ |
(63,460 |
) |
$ |
(0.80 |
) |
|
$ |
(7,746 |
) |
$ |
(0.15 |
) |
|
$ |
8,984 |
|
$ |
0.05 |
|
|
$ |
8,680 |
|
$ |
0.04 |
|
|
$ |
12,988 |
|
$ |
0.09 |
|
|
Unrealized loss on non-designated derivative instruments |
|
|
59,388 |
|
|
0.70 |
|
|
|
26,237 |
|
|
0.31 |
|
|
|
– |
|
|
– |
|
|
|
– |
|
|
– |
|
|
|
– |
|
|
– |
|
|
Realized loss on termination of non-designated derivative instruments |
|
|
24,202 |
|
|
0.28 |
|
|
|
– |
|
|
– |
|
|
|
– |
|
|
– |
|
|
|
– |
|
|
– |
|
|
|
– |
|
|
– |
|
|
Amortization of unrealized gain, net of unrealized losses on de-designated derivative instruments |
|
|
(6,715 |
) |
|
(0.08 |
) |
|
|
(3,020 |
) |
|
(0.04 |
) |
|
|
– |
|
|
– |
|
|
|
– |
|
|
– |
|
|
|
– |
|
|
– |
|
|
Realized loss on sale of investments |
|
|
1,365 |
|
|
0.02 |
|
|
|
– |
|
|
– |
|
|
|
– |
|
|
– |
|
|
|
– |
|
|
– |
|
|
|
– |
|
|
– |
|
|
Core earnings |
|
$ |
14,780 |
|
$ |
0.12 |
|
|
$ |
15,471 |
|
$ |
0.12 |
|
|
$ |
8,984 |
|
$ |
0.05 |
|
|
$ |
8,680 |
|
$ |
0.04 |
|
|
$ |
12,988 |
|
$ |
0.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following reconciles total financing spreads to financing spreads on residential mortgage investments:
|
|
|
2019 |
|
|
2018 |
|
||||||||||||||
|
|
|
Q2 |
|
|
Q1 |
|
|
Q4 |
|
|
Q3 |
|
|
Q2 |
|
|||||
|
Total financing spreads |
|
|
0.34 |
% |
|
|
0.42 |
% |
|
|
0.22 |
% |
|
|
0.21 |
% |
|
|
0.33 |
% |
|
Impact of yields on other interest-earning assets* |
|
|
0.01 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
Impact of borrowing rates on other interest-paying liabilities* |
|
|
0.05 |
|
|
|
0.05 |
|
|
|
0.05 |
|
|
|
0.05 |
|
|
|
0.05 |
|
|
Impact of amortization of unrealized gain, net of unrealized losses on de-designated derivative instruments |
|
|
(0.24 |
) |
|
|
(0.11 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
Impact of net cash flows received on non-designated derivative instruments |
|
|
0.31 |
|
|
|
0.16 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
Financing spreads on residential mortgage investments |
|
|
0.47 |
|
|
|
0.52 |
|
|
|
0.27 |
|
|
|
0.26 |
|
|
|
0.38 |
|
* Other interest-earning assets consist of overnight investments and cash collateral receivable from interest rate swap counterparties. Other interest-paying liabilities consist of unsecured borrowings and, at times, cash collateral payable to interest rate swap counterparties.
|
CAPSTEAD MORTGAGE CORPORATION |
||||||||||||||||||||||||
|
FAIR VALUE AND SWAP MATURITY DISCLOSURES |
||||||||||||||||||||||||
|
(in thousands, unaudited) |
||||||||||||||||||||||||
|
|
|
June 30, 2019 |
|
|
December 31, 2018 |
|
||||||||||||||||||
|
|
|
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 |
|
$ |
4,557,310 |
|
|
$ |
155,492 |
|
|
$ |
4,712,802 |
|
|
$ |
4,757,772 |
|
|
$ |
44,970 |
|
|
$ |
48,091 |
|
|
Longer-to-reset ARMs |
|
|
4,010,072 |
|
|
|
101,224 |
|
|
|
4,111,296 |
|
|
|
4,116,612 |
|
|
|
5,316 |
|
|
|
(66,326 |
) |
|
Ginnie Mae securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current-reset ARMs |
|
|
1,119,764 |
|
|
|
38,353 |
|
|
|
1,158,117 |
|
|
|
1,164,345 |
|
|
|
6,228 |
|
|
|
4,433 |
|
|
Longer-to-reset ARMs |
|
|
1,447,885 |
|
|
|
34,289 |
|
|
|
1,482,174 |
|
|
|
1,490,440 |
|
|
|
8,266 |
|
|
|
(13,444 |
) |
|
|
|
$ |
11,135,031 |
|
|
$ |
329,358 |
|
|
$ |
11,464,389 |
|
|
$ |
11,529,169 |
|
|
$ |
64,780 |
|
|
$ |
(27,246 |
) |
|
Interest rate swap agreements: (b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured borrowings-related |
|
|
|
|
|
|
|
|
|
$ |
7,550,000 |
|
|
$ |
(73,625 |
) |
|
$ |
2,265 |
|
|
$ |
24,033 |
|
|
Unsecured borrowings-related |
|
|
|
|
|
|
|
|
|
|
100,000 |
|
|
|
(28,284 |
) |
|
|
(28,284 |
) |
|
|
(17,834 |
) |
|
(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. Residential mortgage securities classified as held-to-maturity with a cost basis of $1.1 million and unsecuritized investments in residential mortgage loans with a cost basis of $1.0 million are not subject to fair value accounting and therefore have been excluded from this analysis. Capstead segregates its residential ARM securities based on the average length of time until the loans underlying each security reset to more current rates. |
|
(b) |
Secured borrowings-related swap positions were de-designated as cash flow hedges for accounting purposes on March 1, 2019 and unrealized gains held in Accumulated other comprehensive income are being amortized over the remaining terms of the swaps. Changes in fair value subsequent to March 1, 2019 are reflected on the consolidated statements of operations as a component of Loss on derivative instruments (net). Unsecured borrowings-related swaps remain designated as cash flow hedges for accounting purposes and are carried on the balance sheet at fair value with related unrealized gains or losses reflected as a component of Accumulated other comprehensive income in Stockholders’ equity. Above amounts exclude variation margin and accrued interest. |
|
|
The following reflects Capstead’s secured borrowings-related swap positions, sorted by quarter of swap contract expiration. Average fixed rates reflect related swap fixed-rate payment requirements. |
Contacts
Lindsey Crabbe
(214) 874-2339
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