Exhibit 99.1

CONTACT:

Lindsey Crabbe

FOR IMMEDIATE RELEASE

 

(214) 874-2339

 

CAPSTEAD MORTGAGE CORPORATION

ANNOUNCES THIRD QUARTER 2019 RESULTS

DALLAS – October 23, 2019 – Capstead Mortgage Corporation (“Capstead” or the “Company”) (NYSE: CMO

) today announced financial results for the quarter ended September 30, 2019.

Third Quarter 2019 Summary

Recognized  GAAP net income of $3.2 million, a loss of $(0.02) per diluted common share

Generated core earnings of $14.8 million or $0.11 per diluted common share

Paid common dividend of $0.12 per common share

Raised $75 million of common equity capital

Book value per common share declined $0.33 to $8.60 per common share

Agency-guaranteed residential adjustable-rate mortgage (ARM) portfolio and leverage ended the third quarter at $11.24 billion and 8.80 times long-term investment capital, respectively

Third Quarter Earnings and Related Discussion

Capstead reported GAAP net income of $3.2 million, a loss of $(0.02) per diluted common share for the quarter ended September 30, 2019, compared to a GAAP net loss of $63.5 million or $(0.80) per diluted common share for the quarter ended June 30, 2019. The Company reported core earnings of $14.8 million or $0.11 per diluted common share for the quarter ended September 30, 2019. This compares to core earnings of $14.8 million or $0.12 per diluted common share for the quarter ended June 30, 2019.

The difference between GAAP and core results this quarter primarily relates to the impact of lower prevailing interest rates on interest rate swap agreements and other derivatives held for hedging purposes. See the “Non-GAAP Financial Measures” section of this release for more information.

Portfolio yields averaged 2.76% during the third quarter of 2019, a decrease of six basis points from 2.82% reported for the second quarter. Yields declined primarily due to the effects of higher mortgage prepayment levels while coupon interest rates on the underlying loans were largely unchanged. The average annualized constant prepayment rate, or CPR, increased to 30.18% CPR in the current quarter from 26.29% CPR in the prior quarter.  

In response to significant declines in longer term interest rates and associated market volatility during the quarter, the Company reduced portfolio leverage by replacing a portion of portfolio runoff and by taking a measured approach to deploying new common equity capital raised in early August.  As a result, portfolio leverage decreased to 8.80 to one at September 30, 2019 from 9.59 to one at June 30, 2019.

Page 1 of 11


The following table illustrates the progression of Capstead’s portfolio of residential mortgage investments for the quarter and nine months ended September 30, 2019 (dollars in thousands):

 

 

Quarter Ended

September 30, 2019

 

 

Nine Months Ended

September 30, 2019

 

Residential mortgage investments, beginning of period

 

$

11,531,219

 

 

$

11,965,381

 

Portfolio acquisitions (principal amount)

 

 

747,670

 

 

 

2,249,681

 

Investment premiums on acquisitions

 

 

19,827

 

 

 

56,452

 

Portfolio runoff (principal amount)

 

 

(1,041,410

)

 

 

(2,764,479

)

Sales of investments (basis)

 

 

-

 

 

 

(305,356

)

Investment premium amortization

 

 

(18,811

)

 

 

(55,210

)

(Decrease) increase in net unrealized gains on

   securities classified as available-for-sale

 

 

(2,692

)

 

 

89,334

 

Residential mortgage investments, end of period

 

$

11,235,803

 

 

$

11,235,803

 

Decrease in residential mortgage investments

   during the indicated periods

 

$

(295,416

)

 

$

(729,578

)

Rates on Capstead’s $10.29 billion in secured borrowings, after adjusting for hedging activities, averaged four basis points lower at 2.31% during the third quarter of 2019, compared to 2.35% for the prior quarter.  Borrowing rates before hedging activities averaged 2.52% during the third quarter, a decline of 15 basis points over the prior quarter in large part due to the 25 basis point decrease in the Federal Funds rate in late July 2019.  The mid-September 25 basis point decrease in Fed Funds had little effect on third quarter borrowing rates while recent repo market funding stresses had only a modest impact.  

Active management of derivative positions contributed to a 14 basis point reduction to 2.04% in fixed rates on the Company’s $7.20 billion notional amount of secured borrowings-related interest rate swaps at September 30, 2019.  Average fixed swap rates declined six basis points during the quarter to 2.14%. This helped offset the negative effects of declines in variable-rate swap receipts due to continued declines in three-month LIBOR during the quarter.  

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 0.58% for the third quarter of 2019 and 1.11% for the nine months ended September 30, 2019. As an annualized percentage of total assets, operating costs averaged 0.06% and 0.10% during these periods, respectively.

 

Recent Common Equity Offering

 

On August 1, 2019 Capstead completed a public offering for nine million common shares raising $75 million after underwriting discounts and offering expenses. The proceeds are being deployed into additional agency-guaranteed residential ARM securities and used for general corporate purposes.

Page 2 of 11


Book Value per Common Share

Book value per share as of September 30, 2019 was $8.60, a decrease of $0.33 or 3.7% from the June 30, 2019 book value of $8.93, primarily reflecting $0.23 in derivative-related declines in value, $0.06 in initial dilution related to the issuance of additional common equity and $0.03 in portfolio-related declines in unrealized gains. 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, “Similar to what we experienced early in the second quarter, in August interest rates across the yield curve declined putting pressure on mortgage prepayment rates and mortgage security pricing relative to swap valuations.  In response, we have taken a measured approach to replacing portfolio runoff and deploying the $75 million in new common equity capital from our early August capital raise, reducing portfolio leverage to 8.80:1 from 9.59:1 at June 30th.  Future changes in leverage will depend on market conditions.  

“Mortgage prepayment rates on our portfolio were higher by nearly 15% in the third quarter putting pressure on our portfolio yields.  However, 30-year fixed-rate agency mortgage prepayment rates were up over 40% for the quarter.  Further, our prepayment rates for October are down 7.25% month over month compared to 30-year fixed-rate prepayment rates increasing another 8.5%. This comparison is important because ARM prepayment rates, while typically higher, have not experienced the same relative increases currently affecting the rest of the mortgage market as is being widely reported in the financial press.

“Federal Reserve actions to reduce the Fed Funds rate by 25 basis points in late July and again in mid-September are a significant positive for earnings by contributing to lower borrowing costs despite recent repo market funding stresses.  While funding remains readily available, borrowing rates remain unusually high relative to the Fed Funds rate.  For example, our unhedged, primarily 30-day term borrowing rates averaged 2.31% at September 30th compared to average Fed Funds rates of 2.04% for the month September.  While we are now borrowing at considerably lower levels than the quarter-end average would indicate, rates remain elevated relative to Fed Funds.  Our future borrowing costs will depend on any further reductions in Fed Funds and actions by the Federal Reserve to further alleviate funding market stresses.

“Lower one- to three-year rates have given us the opportunity to reduce future hedging costs by replacing higher rate swaps with a combination of new two-year swap agreements and a modest amount of Eurodollar futures contracts at significantly lower rates to the benefit of future earnings. We will continue to be disciplined yet flexible in managing our balance sheet to improve our future performance as market conditions evolve.

 

Page 3 of 11


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, 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 compare its performance to that of its peers. Prior to March 2019, the Company designated its secured borrowings-related swaps as hedges for GAAP accounting purposes, whereby changes in the swaps’ fair values were recorded in Accumulated other comprehensive income (loss) (“AOCI”). Beginning in March 2019, for GAAP accounting purposes, related changes in the fair value of these derivatives are recorded in the Company’s consolidated statements of operations. Also, for GAAP accounting purposes, related net unrealized gains recorded in AOCI 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, October 24, 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.

Page 4 of 11


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, 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.

 

Page 5 of 11


CAPSTEAD MORTGAGE CORPORATION

CONSOLIDATED BALANCE SHEETS

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

 

 

 

 

 

 

 

September 30, 2019

 

 

December 31, 2018

 

 

 

(unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Residential mortgage investments ($10.84 and $11.57 billion

   pledged at September 30, 2019 and December 31, 2018, respectively)

 

$

11,235,803

 

 

$

11,965,381

 

Cash collateral receivable from derivative counterparties

 

 

83,511

 

 

 

31,797

 

Derivatives at fair value

 

 

1,267

 

 

 

 

Cash and cash equivalents

 

 

68,204

 

 

 

60,289

 

Receivables and other assets

 

 

145,902

 

 

 

129,058

 

 

 

$

11,534,687

 

 

$

12,186,525

 

Liabilities

 

 

 

 

 

 

 

 

Secured borrowings

 

$

10,292,924

 

 

$

10,979,362

 

Derivatives at fair value

 

 

35,515

 

 

 

17,834

 

Unsecured borrowings

 

 

98,367

 

 

 

98,292

 

Common stock dividend payable

 

 

11,702

 

 

 

7,132

 

Accounts payable and accrued expenses

 

 

24,423

 

 

 

24,842

 

 

 

 

10,462,931

 

 

 

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 September 30, 2019 and December 31, 2018

 

 

250,946

 

 

 

250,946

 

Common stock - $0.01 par value; 250,000 shares authorized:

   94,606 and 85,277 shares issued and outstanding at

   September 30, 2019 and December 31, 2018, respectively

 

 

946

 

 

 

853

 

Paid-in capital

 

 

1,251,807

 

 

 

1,174,880

 

Accumulated deficit

 

 

(457,662

)

 

 

(346,570

)

Accumulated other comprehensive income (loss)

 

 

25,719

 

 

 

(21,046

)

 

 

 

1,071,756

 

 

 

1,059,063

 

 

 

$

11,534,687

 

 

$

12,186,525

 

 

 

 

 

 

 

 

 

 

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

 

$

1,170,123

 

 

$

1,157,355

 

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

 

8.80:1

 

 

9.49:1

 

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

 

$

8.60

 

 

$

9.39

 

 

 

 

Page 6 of 11


CAPSTEAD MORTGAGE CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(unaudited)

 

 

 

Quarter Ended

September 30

 

 

Nine Months Ended

September 30

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage investments

 

$

77,693

 

 

$

67,649

 

 

$

246,600

 

 

$

201,989

 

Other

 

 

1,065

 

 

 

350

 

 

 

2,087

 

 

 

1,063

 

 

 

 

78,758

 

 

 

67,999

 

 

 

248,687

 

 

 

203,052

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Secured borrowings

 

 

(62,800

)

 

 

(54,393

)

 

 

(194,524

)

 

 

(147,655

)

Unsecured borrowings

 

 

(1,910

)

 

 

(1,910

)

 

 

(5,701

)

 

 

(5,701

)

 

 

 

(64,710

)

 

 

(56,303

)

 

 

(200,225

)

 

 

(153,356

)

 

 

 

14,048

 

 

 

11,696

 

 

 

48,462

 

 

 

49,696

 

Other (expense) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss on derivative instruments (net)

 

 

(9,221

)

 

 

 

 

 

(105,720

)

 

 

 

Loss on sale of investments (net)

 

 

 

 

 

 

 

 

(1,365

)

 

 

 

Compensation-related expense

 

 

(566

)

 

 

(1,913

)

 

 

(6,147

)

 

 

(5,521

)

Other general and administrative expense

 

 

(1,123

)

 

 

(1,184

)

 

 

(3,389

)

 

 

(3,320

)

Miscellaneous other revenue

 

 

58

 

 

 

81

 

 

 

149

 

 

 

233

 

 

 

 

(10,852

)

 

 

(3,016

)

 

 

(116,472

)

 

 

(8,608

)

Net income (loss)

 

 

3,196

 

 

 

8,680

 

 

 

(68,010

)

 

 

41,088

 

Less preferred stock dividends

 

 

(4,842

)

 

 

(4,842

)

 

 

(14,526

)

 

 

(14,526

)

Net (loss) income to common stockholders

 

$

(1,646

)

 

$

3,838

 

 

$

(82,536

)

 

$

26,562

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.02

)

 

$

0.04

 

 

$

(0.95

)

 

$

0.29

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

90,945

 

 

 

91,206

 

 

 

86,946

 

 

 

92,202

 

Diluted

 

 

90,945

 

 

 

91,346

 

 

 

86,946

 

 

 

92,317

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common

 

$

0.12

 

 

$

0.11

 

 

$

0.32

 

 

$

0.41

 

Series E preferred

 

 

0.47

 

 

 

0.47

 

 

 

1.41

 

 

 

1.41

 

 

 

 

Page 7 of 11


CAPSTEAD MORTGAGE CORPORATION

QUARTERLY STATEMENTS OF OPERATIONS AND SELECT OPERATING STATISTICS

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

 

 

 

2019

 

 

2018

 

 

 

Q3

 

 

Q2

 

 

Q1

 

 

Q4

 

 

Q3

 

Quarterly Statements of Operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage investments

 

$

77,693

 

 

$

85,100

 

 

$

83,807

 

 

$

72,902

 

 

$

67,649

 

Other

 

 

1,065

 

 

 

600

 

 

 

422

 

 

 

626

 

 

 

350

 

 

 

 

78,758

 

 

 

85,700

 

 

 

84,229

 

 

 

73,528

 

 

 

67,999

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Secured borrowings

 

 

(62,800

)

 

 

(67,945

)

 

 

(63,779

)

 

 

(59,321

)

 

 

(54,393

)

Unsecured borrowings

 

 

(1,910

)

 

 

(1,900

)

 

 

(1,891

)

 

 

(1,910

)

 

 

(1,910

)

 

 

 

(64,710

)

 

 

(69,845

)

 

 

(65,670

)

 

 

(61,231

)

 

 

(56,303

)

 

 

 

14,048

 

 

 

15,855

 

 

 

18,559

 

 

 

12,297

 

 

 

11,696

 

Other (expense) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss on derivative instruments (net)

 

 

(9,221

)

 

 

(74,842

)

 

 

(21,657

)

 

 

 

 

 

 

Loss on sale of investments (net)

 

 

 

 

 

(1,365

)

 

 

 

 

 

 

 

 

 

Compensation-related expense

 

 

(566

)

 

 

(1,972

)

 

 

(3,609

)

 

 

(2,238

)

 

 

(1,913

)

Other general and administrative expense

 

 

(1,123

)

 

 

(1,138

)

 

 

(1,128

)

 

 

(1,207

)

 

 

(1,184

)

Miscellaneous other revenue

 

 

58

 

 

 

2

 

 

 

89

 

 

 

132

 

 

 

81

 

 

 

 

(10,852

)

 

 

(79,315

)

 

 

(26,305

)

 

 

(3,313

)

 

 

(3,016

)

Net income (loss)

 

$

3,196

 

 

$

(63,460

)

 

$

(7,746

)

 

$

8,984

 

 

$

8,680

 

Net (loss) income per diluted common share

 

$

(0.02

)

 

$

(0.80

)

 

$

(0.15

)

 

$

0.05

 

 

$

0.04

 

Average diluted common shares outstanding

 

 

90,945

 

 

 

84,934

 

 

 

84,894

 

 

 

88,006

 

 

 

91,346

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Core earnings

 

$

14,798

 

 

$

14,780

 

 

$

15,471

 

 

$

8,984

 

 

$

8,680

 

Core earnings per diluted common share

 

 

0.11

 

 

 

0.12

 

 

 

0.12

 

 

 

0.05

 

 

 

0.04

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Select Operating and Performance Statistics:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common dividends declared per share

 

 

0.12

 

 

 

0.12

 

 

 

0.08

 

 

 

0.08

 

 

 

0.11

 

Book value per common share

 

 

8.60

 

 

 

8.93

 

 

 

9.43

 

 

 

9.39

 

 

 

9.48

 

Average portfolio outstanding (cost basis)

 

 

11,266,776

 

 

 

12,065,084

 

 

 

12,169,106

 

 

 

12,442,410

 

 

 

13,026,636

 

Average secured borrowings

 

 

10,481,080

 

 

 

11,193,335

 

 

 

11,156,608

 

 

 

11,439,646

 

 

 

11,957,518

 

Average long-term investment capital

   (“LTIC”)

 

 

1,146,916

 

 

 

1,149,388

 

 

 

1,161,815

 

 

 

1,188,553

 

 

 

1,258,367

 

Constant prepayment rate (“CPR”)

 

 

30.18

%

 

 

26.29

%

 

 

20.62

%

 

 

22.37

%

 

 

25.71

%

Total financing spreads

 

 

0.31

 

 

 

0.34

 

 

 

0.42

 

 

 

0.22

 

 

 

0.21

 

Yields on residential mortgage

   investments

 

 

2.76

 

 

 

2.82

 

 

 

2.75

 

 

 

2.34

 

 

 

2.08

 

Secured borrowing rates (a)

 

 

2.31

 

 

 

2.35

 

 

 

2.23

 

 

 

2.07

 

 

 

1.82

 

Financing spreads on residential

   mortgage investments

 

 

0.45

 

 

 

0.47

 

 

 

0.52

 

 

 

0.27

 

 

 

0.26

 

Operating costs as a percentage of LTIC (b)

 

 

0.58

 

 

 

1.09

 

 

 

1.32

 

 

 

1.15

 

 

 

0.98

 

Quarterly economic return (change in book

   value plus dividends)

 

 

(2.35

)

 

 

(4.03

)

 

 

1.28

 

 

 

(0.11

)

 

 

(2.64

)

Return on common equity capital (c)

 

 

4.95

 

 

 

4.98

 

 

 

5.33

 

 

 

1.96

 

 

 

1.69

 

 

(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)

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.

 

Page 8 of 11


CAPSTEAD MORTGAGE CORPORATION

RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES

(in thousands, 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

 

 

 

Q3

 

 

Q2

 

 

Q1

 

 

Q4

 

 

Q3

 

 

 

Amount

 

Per Share

 

 

Amount

 

Per Share

 

 

Amount

 

Per Share

 

 

Amount

 

Per Share

 

 

Amount

 

Per Share

 

Net income (loss)

 

$

3,196

 

$

(0.02

)

 

$

(63,460

)

$

(0.80

)

 

$

(7,746

)

$

(0.15

)

 

$

8,984

 

$

0.05

 

 

$

8,680

 

$

0.04

 

Unrealized (gain) loss on

   non-designated derivative

   instruments

 

 

(16,952

)

 

(0.19

)

 

 

59,388

 

 

0.70

 

 

 

26,237

 

 

0.31

 

 

 

 

 

 

 

 

 

 

 

Realized loss (net) on

   termination of

   derivative instruments

 

 

31,673

 

 

0.35

 

 

 

24,202

 

 

0.28

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of unrealized

   gain, net of unrealized

   losses on de-designated

   derivative instruments

 

 

(3,119

)

 

(0.03

)

 

 

(6,715

)

 

(0.08

)

 

 

(3,020

)

 

(0.04

)

 

 

 

 

 

 

 

 

 

 

Realized loss on sale of

   investments

 

 

 

 

 

 

 

1,365

 

 

0.02

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Core earnings

 

$

14,798

 

$

0.11

 

 

$

14,780

 

$

0.12

 

 

$

15,471

 

$

0.12

 

 

$

8,984

 

$

0.05

 

 

$

8,680

 

$

0.04

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

2019

 

 

2018

 

 

 

Q3

 

 

Q2

 

 

Q1

 

 

Q4

 

 

Q3

 

Total financing spreads

 

 

0.31

%

 

 

0.34

%

 

 

0.42

%

 

 

0.22

%

 

 

0.21

%

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

 

 

(0.12

)

 

 

(0.24

)

 

 

(0.11

)

 

 

 

 

 

 

Impact of net cash flows received on non-designated

    derivative instruments

 

 

0.21

 

 

 

0.31

 

 

 

0.16

 

 

 

 

 

 

 

Financing spreads on residential mortgage

   investments

 

 

0.45

 

 

 

0.47

 

 

 

0.52

 

 

 

0.27

 

 

 

0.26

 

*

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, may consist of cash collateral payable to interest rate swap counterparties.

Page 9 of 11


CAPSTEAD MORTGAGE CORPORATION

FAIR VALUE AND SWAP MATURITY DISCLOSURES

(in thousands, unaudited)

 

 

September 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

 

$

4,212,855

 

 

$

146,967

 

 

$

4,359,822

 

 

$

4,399,881

 

 

$

40,059

 

 

$

48,091

 

Longer-to-reset ARMs

 

 

4,175,662

 

 

 

109,994

 

 

 

4,285,656

 

 

 

4,299,195

 

 

 

13,539

 

 

 

(66,326

)

Ginnie Mae securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current-reset ARMs

 

 

1,079,773

 

 

 

38,146

 

 

 

1,117,919

 

 

 

1,122,205

 

 

 

4,286

 

 

 

4,433

 

Longer-to-reset ARMs

 

 

1,373,182

 

 

 

35,267

 

 

 

1,408,449

 

 

 

1,412,653

 

 

 

4,204

 

 

 

(13,444

)

 

 

$

10,841,472

 

 

$

330,374

 

 

$

11,171,846

 

 

$

11,233,934

 

 

$

62,088

 

 

$

(27,246

)

Derivative instruments: (b)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap agreements:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Secured borrowings-related

 

 

 

 

 

 

 

 

 

$

7,200,000

 

 

$

(57,440

)

 

$

(854

)

 

$

24,033

 

Unsecured borrowings-related

 

 

 

 

 

 

 

 

 

 

100,000

 

 

 

(35,515

)