Maryland
|
001-08896
|
75-2027937
|
||
(State of Incorporation)
|
(Commission File No.)
|
(I.R.S. Employer
Identification No.)
|
8401 North Central Expressway
|
||
Suite 800
|
||
Dallas, Texas
|
75225
|
|
(Address of Principal Executive Offices)
|
(Zip Code)
|
☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425). |
☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 230.14a-12). |
☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)). |
☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)). |
ITEM 2.02. | RESULTS OF OPERATIONS AND FINANCIAL CONDITION |
ITEM 9.01. | FINANCIAL STATEMENTS AND EXHIBITS |
(d) | Exhibits. |
99.1 | Press release issued by Capstead Mortgage Corporation dated April 29, 2015 announcing first quarter 2015 results. |
CAPSTEAD MORTGAGE CORPORATION
|
||
April 29, 2015
|
By:
|
/s/ Phillip A. Reinsch
|
Phillip A. Reinsch
|
||
Chief Financial Officer and
|
||
Executive Vice President
|
CONTACT:
|
Lindsey Crabbe
|
FOR IMMEDIATE RELEASE
|
|
(214) 874-2339
|
· | Generated earnings of $34.0 million or $0.32 per diluted common share |
· | Paid common dividend of $0.31 per common share |
· | Financing spreads on residential mortgage investments increased one basis point to 1.11% |
· | Mortgage prepayments decreased five percent to an annualized constant prepayment rate, or CPR, of 16.66% from 17.58% CPR reported for the fourth quarter of 2014 |
· | Book value decreased $0.05 to $12.47 per common share |
· | Agency-guaranteed ARM portfolio and leverage ended the quarter at $14.15 billion and 8.65 times long-term investment capital, respectively |
Residential mortgage investments, beginning of quarter
|
$
|
13,908,104
|
||
Increase in net unrealized gains on securities classified as
available-for-sale
|
6,107
|
|||
Portfolio acquisitions (principal amount) at average lifetime
purchased yields of 2.36%
|
926,038
|
|||
Investment premiums on acquisitions*
|
33,510
|
|||
Portfolio runoff (principal amount)
|
(698,597
|
)
|
||
Investment premium amortization
|
(25,078
|
)
|
||
Residential mortgage investments, end of quarter
|
$
|
14,150,084
|
||
Increase in residential mortgage investments during the quarter
|
$
|
241,980
|
* | Residential mortgage investments typically are acquired at a premium to the securities’ unpaid principal balances. Investment premiums are recognized in earnings as portfolio yield adjustments using the interest method over the estimated lives of the related investments. As such, the level of mortgage prepayments impacts how quickly investment premiums are amortized. |
Book value per common share, beginning of year
|
$
|
12.52
|
||||||
Change in unrealized gains and losses on mortgage securities
classified as available-for-sale
|
0.06
|
|||||||
Change in unrealized gains and losses on interest rate swap
agreements designated as cash flow hedges of:
|
||||||||
Repo borrowings
|
(0.06
|
)
|
||||||
Unsecured borrowings
|
(0.06
|
)
|
||||||
(0.06
|
)
|
(0.5
|
)%
|
|||||
Earnings in excess of dividend distributions together
with the effects of other capital transactions
|
0.01
|
0.1
|
%
|
|||||
Book value per common share, end of quarter
|
$
|
12.47
|
||||||
Decrease in book value per common share during the quarter
|
$
|
(0.05
|
)
|
(0.4
|
)%
|
· | 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; |
· | other changes in legislation or regulation affecting the mortgage and banking industries; |
· | changes in market conditions as a result of Federal Reserve monetary policy or federal government fiscal challenges; |
· | 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. |
March 31, 2015
|
December 31, 2014
|
|||||||
(unaudited)
|
||||||||
Assets
|
||||||||
Residential mortgage investments
|
||||||||
($13.59 and $13.48 billion pledged under repurchase arrangements
|
||||||||
at March 31, 2015 and December 31, 2014, respectively)
|
$
|
14,150,084
|
$
|
13,908,104
|
||||
Cash collateral receivable from interest rate swap counterparties
|
61,669
|
53,139
|
||||||
Interest rate swap agreements at fair value
|
285
|
1,657
|
||||||
Cash and cash equivalents
|
205,615
|
307,526
|
||||||
Receivables and other assets
|
114,229
|
118,643
|
||||||
$
|
14,531,882
|
$
|
14,389,069
|
|||||
Liabilities
|
||||||||
Repurchase arrangements and similar borrowings
|
$
|
12,938,508
|
$
|
12,806,843
|
||||
Interest rate swap agreements at fair value
|
37,791
|
27,034
|
||||||
Unsecured borrowings
|
100,000
|
100,000
|
||||||
Common stock dividend payable
|
30,701
|
34,054
|
||||||
Accounts payable and accrued expenses
|
28,583
|
30,367
|
||||||
13,135,583
|
12,998,298
|
|||||||
Stockholders’ equity
|
||||||||
Preferred stock - $0.10 par value; 100,000 shares authorized:
|
||||||||
7.50% Cumulative Redeemable Preferred Stock, Series E,
|
||||||||
8,050 and 7,618 shares issued and outstanding ($201,247
|
||||||||
and $190,454 aggregate liquidation preferences) at
|
||||||||
March 31, 2015 and December 31, 2014, respectively
|
194,587
|
183,936
|
||||||
Common stock - $0.01 par value; 250,000 shares authorized:
|
||||||||
95,812 and 95,848 shares issued and outstanding at
|
||||||||
March 31, 2015 and December 31, 2014, respectively
|
958
|
958
|
||||||
Paid-in capital
|
1,325,633
|
1,325,340
|
||||||
Accumulated deficit
|
(346,465
|
)
|
(346,885
|
)
|
||||
Accumulated other comprehensive income
|
221,586
|
227,422
|
||||||
1,396,299
|
1,390,771
|
|||||||
$
|
14,531,882
|
$
|
14,389,069
|
Long-term investment capital (Consists of stockholders’ equity and
$100 million in long-term, unsecured borrowings) (unaudited)
|
$
|
1,496,299
|
$
|
1,490,771
|
||||
Portfolio leverage (Repurchase arrangements and similar borrowings divided by
long-term investment capital) (unaudited)
|
8.65:1
|
8.59:1
|
||||||
Book value per common share (based on common shares outstanding and
calculated assuming liquidation preferences for preferred stock) (unaudited)
|
$
|
12.47
|
$
|
12.52
|
Quarter Ended
March 31
|
||||||||
2015
|
2014
|
|||||||
Interest income:
|
||||||||
Residential mortgage investments
|
$
|
58,645
|
$
|
59,445
|
||||
Other
|
94
|
61
|
||||||
58,739
|
59,506
|
|||||||
Interest expense:
|
||||||||
Repurchase arrangements and similar borrowings
|
(19,214
|
)
|
(15,407
|
)
|
||||
Unsecured borrowings
|
(2,123
|
)
|
(2,122
|
)
|
||||
(21,337
|
)
|
(17,529
|
)
|
|||||
37,402
|
41,977
|
|||||||
Other revenue (expense):
|
||||||||
Salaries and benefits
|
(1,049
|
)
|
(1,132
|
)
|
||||
Short-term incentive compensation
|
(692
|
)
|
(540
|
)
|
||||
Long-term incentive compensation
|
(608
|
)
|
(626
|
)
|
||||
Other general and administrative expense
|
(1,149
|
)
|
(1,203
|
)
|
||||
Miscellaneous other revenue (expense)
|
53
|
(85
|
)
|
|||||
(3,445
|
)
|
(3,586
|
)
|
|||||
Net income
|
$
|
33,957
|
$
|
38,391
|
||||
Net income available to common stockholders:
|
||||||||
Net income
|
$
|
33,957
|
$
|
38,391
|
||||
Less preferred stock dividends
|
(3,742
|
)
|
(3,238
|
)
|
||||
$
|
30,215
|
$
|
35,153
|
|||||
Net income per common share:
|
||||||||
Basic and diluted
|
$
|
0.32
|
$
|
0.37
|
||||
Weighted average common shares outstanding:
|
||||||||
Basic
|
95,469
|
95,349
|
||||||
Diluted
|
95,674
|
95,538
|
||||||
Cash dividends declared per share:
|
||||||||
Common
|
$
|
0.31
|
$
|
0.34
|
||||
Series E Preferred
|
0.47
|
0.47
|
2015
|
2014
|
|||||||||||||||||||
Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||
Condensed Quarterly Statements of Income:
|
||||||||||||||||||||
(in thousands, except per share amounts)
|
||||||||||||||||||||
Interest income on residential mortgage
|
||||||||||||||||||||
investments (before investment premium amortization)
|
$
|
83,723
|
$
|
82,509
|
$
|
82,146
|
$
|
82,233
|
$
|
81,733
|
||||||||||
Investment premium amortization
|
(25,078
|
)
|
(26,159
|
)
|
(28,284
|
)
|
(25,141
|
)
|
(22,288
|
)
|
||||||||||
Related interest expense
|
(19,214
|
)
|
(18,107
|
)
|
(16,099
|
)
|
(15,542
|
)
|
(15,407
|
)
|
||||||||||
39,431
|
38,243
|
37,763
|
41,550
|
44,038
|
||||||||||||||||
Other interest income (expense) (a)
|
(2,029
|
)
|
(2,023
|
)
|
(2,044
|
)
|
(2,045
|
)
|
(2,061
|
)
|
||||||||||
37,402
|
36,220
|
35,719
|
39,505
|
41,977
|
||||||||||||||||
Salaries and benefits
|
(1,049
|
)
|
(996
|
)
|
(999
|
)
|
(985
|
)
|
(1,132
|
)
|
||||||||||
Short-term incentive compensation
|
(692
|
)
|
(565
|
)
|
(613
|
)
|
(397
|
)
|
(540
|
)
|
||||||||||
Long-term incentive compensation
|
(608
|
)
|
(201
|
)
|
(624
|
)
|
(624
|
)
|
(626
|
)
|
||||||||||
Other general and administrative expense
|
(1,149
|
)
|
(929
|
)
|
(1,058
|
)
|
(967
|
)
|
(1,203
|
)
|
||||||||||
Miscellaneous other revenue (expense)
|
53
|
(55
|
)
|
(34
|
)
|
32
|
(85
|
)
|
||||||||||||
(3,445
|
)
|
(2,746
|
)
|
(3,328
|
)
|
(2,941
|
)
|
(3,586
|
)
|
|||||||||||
Net income
|
$
|
33,957
|
$
|
33,474
|
$
|
32,391
|
$
|
36,564
|
$
|
38,391
|
||||||||||
Net income per diluted common share
|
$
|
0.32
|
$
|
0.31
|
$
|
0.30
|
$
|
0.35
|
$
|
0.37
|
||||||||||
Average diluted common shares outstanding
|
95,674
|
95,674
|
95,677
|
95,626
|
95,538
|
|||||||||||||||
Select Operating Statistics:
|
||||||||||||||||||||
(dollars in millions, percentages annualized)
|
||||||||||||||||||||
Average portfolio outstanding (cost basis)
|
$
|
13,834
|
$
|
13,597
|
$
|
13,457
|
$
|
13,384
|
$
|
13,254
|
||||||||||
Average long-term investment capital (“LTIC”)
|
1,502
|
1,508
|
1,510
|
1,498
|
1,485
|
|||||||||||||||
Financing spreads on residential mortgage
|
||||||||||||||||||||
investments
|
1.11
|
%
|
1.10
|
%
|
1.09
|
%
|
1.22
|
%
|
1.30
|
%
|
||||||||||
Constant prepayment rate (“CPR”)
|
16.66
|
17.58
|
19.18
|
17.22
|
15.16
|
|||||||||||||||
Operating costs as a percentage of LTIC
|
0.94
|
0.71
|
0.87
|
0.80
|
0.96
|
|||||||||||||||
Return on common equity capital
|
10.10
|
9.68
|
9.32
|
10.82
|
11.70
|
(a) | Consists principally of interest on unsecured borrowings. |
2015
|
2014
|
2013
|
||||||||||||||||||||||||||||||
Q1 | Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | |||||||||||||||||||||||||
Yields on residential mortgage investments: (a)
|
||||||||||||||||||||||||||||||||
Cash yields
|
2.42
|
%
|
2.43
|
%
|
2.44
|
%
|
2.46
|
%
|
2.46
|
%
|
2.48
|
%
|
2.50
|
%
|
2.52
|
%
|
||||||||||||||||
Investment premium amortization
|
(0.72
|
)
|
(0.77
|
)
|
(0.84
|
)
|
(0.75
|
)
|
(0.67
|
)
|
(0.74
|
)
|
(1.14
|
)
|
(0.99
|
)
|
||||||||||||||||
Adjusted yields
|
1.70
|
1.66
|
1.60
|
1.71
|
1.79
|
1.74
|
1.36
|
1.53
|
||||||||||||||||||||||||
Related borrowing rates: (b)
|
||||||||||||||||||||||||||||||||
Repo borrowing rates
|
0.38
|
0.36
|
0.32
|
0.32
|
0.34
|
0.38
|
0.37
|
0.39
|
||||||||||||||||||||||||
Fixed swap rates
|
0.53
|
0.51
|
0.50
|
0.49
|
0.50
|
0.52
|
0.59
|
0.65
|
||||||||||||||||||||||||
Adjusted borrowing rates
|
0.59
|
0.56
|
0.51
|
0.49
|
0.49
|
0.49
|
0.49
|
0.53
|
||||||||||||||||||||||||
Financing spreads on residential mortgage investments
|
1.11
|
1.10
|
1.09
|
1.22
|
1.30
|
1.25
|
0.87
|
1.00
|
||||||||||||||||||||||||
CPR
|
16.66
|
17.58
|
19.18
|
17.22
|
15.16
|
17.14
|
25.49
|
23.12
|
(a) | Cash yields are based on the cash component of interest income. Investment premium amortization is determined using the interest method which incorporates actual and anticipated future mortgage prepayments. Both are expressed as a percentage calculated on average amortized cost basis for the indicated periods. |
(b) | Repo borrowing rates represent average rates on repurchase agreements and similar borrowings, before consideration of related currently-paying interest rate swap agreements. |
2015
|
2014
|
2013
|
||||||||||||||||||||||||||||||
Q1 | Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | |||||||||||||||||||||||||
Financing spreads on residential
|
||||||||||||||||||||||||||||||||
mortgage investments
|
1.11
|
%
|
1.10
|
%
|
1.09
|
%
|
1.22
|
%
|
1.30
|
%
|
1.25
|
%
|
0.87
|
%
|
1.00
|
%
|
||||||||||||||||
Impact of yields on other interest-earning assets*
|
(0.04
|
)
|
(0.05
|
)
|
(0.04
|
)
|
(0.05
|
)
|
(0.04
|
)
|
(0.03
|
)
|
(0.02
|
)
|
(0.05
|
)
|
||||||||||||||||
Impact of borrowing rates on unsecured borrowings and other interest-paying liabilities*
|
(0.06
|
)
|
(0.07
|
)
|
(0.06
|
)
|
(0.07
|
)
|
(0.07
|
)
|
(0.07
|
)
|
(0.06
|
)
|
(0.06
|
)
|
||||||||||||||||
Total financing spreads
|
1.01
|
0.98
|
0.99
|
1.10
|
1.19
|
1.15
|
0.79
|
0.89
|
* | 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. |
March 31, 2015
|
December 31, 2014
|
|||||||||||||||||||||||
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)
|
||||||||||||||||||||||||
Fannie Mae/Freddie Mac securities:
|
||||||||||||||||||||||||
Current-reset ARMs
|
$
|
6,013,184
|
$
|
164,204
|
$
|
6,177,388
|
$
|
6,377,858
|
$
|
200,470
|
$
|
204,037
|
||||||||||||
Longer-to-reset ARMs
|
4,367,920
|
170,373
|
4,538,293
|
4,580,415
|
42,122
|
37,095
|
||||||||||||||||||
Fixed-rate
|
28
|
–
|
28
|
29
|
1
|
1
|
||||||||||||||||||
Ginnie Mae securities:
|
||||||||||||||||||||||||
Current-reset ARMs
|
1,616,538
|
54,519
|
1,671,057
|
1,680,856
|
9,799
|
8,796
|
||||||||||||||||||
Longer-to-reset ARMs
|
1,444,541
|
52,030
|
1,496,571
|
1,503,017
|
6,446
|
2,802
|
||||||||||||||||||
$
|
13,442,211
|
$
|
441,126
|
$
|
13,883,337
|
$
|
14,142,175
|
$
|
258,838
|
$
|
252,731
|
|||||||||||||
Interest rate swap positions (c)
|
$
|
7,400,000
|
$
|
(37,506
|
)
|
$
|
(37,252
|
)
|
$
|
(25,309
|
)
|
(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 $3 million and unsecuritized investments in residential mortgage loans with a cost basis of $5 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 12 of this release for further information). |
(c) | To help mitigate exposure to higher interest rates, Capstead typically uses currently-paying and forward-starting one-month LIBOR-indexed, pay-fixed, receive-variable, interest rate swap agreements with two-year interest payment 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 fourth quarter 2015 and third quarter 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 March 31, 2015, these swap positions had the following characteristics: |
Period of Contract Expiration
|
Notional
Amount
|
Average Fixed Rate
Payment Requirement
|
Fair
Value
|
Unrealized
Gains (Losses)
|
||||||||||||
Currently-paying contracts:
|
||||||||||||||||
Second quarter 2015
|
$
|
200,000
|
0.43
|
%
|
$
|
(90
|
)
|
$
|
(76
|
)
|
||||||
Third quarter 2015
|
400,000
|
0.47
|
(442
|
)
|
(420
|
)
|
||||||||||
Fourth quarter 2015
|
1,200,000
|
0.45
|
(1,475
|
)
|
(1,418
|
)
|
||||||||||
First quarter 2016
|
1,700,000
|
0.51
|
(2,912
|
)
|
(2,866
|
)
|
||||||||||
Second quarter 2016
|
1,100,000
|
0.47
|
(1,223
|
)
|
(1,166
|
)
|
||||||||||
Third quarter 2016
|
700,000
|
0.56
|
(1,054
|
)
|
(1,011
|
)
|
||||||||||
Fourth quarter 2016
|
800,000
|
0.66
|
(1,571
|
)
|
(1,566
|
)
|
||||||||||
First quarter 2017
|
1,000,000
|
0.72
|
(1,531
|
)
|
(1,526
|
)
|
||||||||||
(average expiration: 12 months)
|
7,100,000
|
0.54
|
(10,298
|
)
|
(10,049
|
)
|
||||||||||
Forward-starting contracts:
|
||||||||||||||||
Second quarter 2017
|
||||||||||||||||
(average expiration: 24 months)
|
200,000
|
0.72
|
(99
|
)
|
(94
|
)
|
||||||||||
(average expiration: 12 months) expiration:
|
$
|
7,300,000
|
$
|
(10,397
|
)
|
$
|
(10,143
|
)
|
||||||||
Forward-starting contracts expiring in 2035
|
||||||||||||||||
and 2036 related to unsecured borrowings
|
$
|
100,000
|
4.09
|
$
|
(27,109
|
)
|
$
|
(27,109
|
)
|
ARM Type
|
Amortized
Cost Basis (a)
|
Net
WAC (b)
|
Fully
Indexed
WAC (b)
|
Average
Net
Margins (b)
|
Average
Periodic
Caps (b)
|
Average
Lifetime
Caps (b)
|
Months
To
Roll
|
|||||||||||||||||||||
Current-reset ARMs:
|
||||||||||||||||||||||||||||
Fannie Mae Agency Securities
|
$
|
4,453,534
|
2.29
|
%
|
2.14
|
%
|
1.71
|
%
|
3.34
|
%
|
9.84
|
%
|
5.6
|
|||||||||||||||
Freddie Mac Agency Securities
|
1,723,854
|
2.42
|
2.24
|
1.82
|
2.53
|
10.11
|
6.9
|
|||||||||||||||||||||
Ginnie Mae Agency Securities
|
1,671,057
|
2.40
|
1.62
|
1.51
|
1.06
|
8.46
|
7.4
|
|||||||||||||||||||||
Residential mortgage loans
|
2,903
|
3.39
|
2.23
|
2.04
|
1.59
|
10.98
|
4.8
|
|||||||||||||||||||||
(57% of total)
|
7,851,348
|
2.34
|
2.06
|
1.69
|
2.68
|
9.60
|
6.3
|
|||||||||||||||||||||
Longer-to-reset ARMs:
|
||||||||||||||||||||||||||||
Fannie Mae Agency Securities
|
2,590,451
|
2.74
|
2.23
|
1.67
|
4.18
|
7.76
|
40.0
|
|||||||||||||||||||||
Freddie Mac Agency Securities
|
1,947,842
|
2.80
|
2.28
|
1.72
|
3.41
|
7.89
|
43.0
|
|||||||||||||||||||||
Ginnie Mae Agency Securities
|
1,496,571
|
2.84
|
1.61
|
1.51
|
1.09
|
7.90
|
36.0
|
|||||||||||||||||||||
(43% of total)
|
6,034,864
|
2.79
|
2.09
|
1.65
|
3.16
|
7.84
|
40.0
|
|||||||||||||||||||||
$
|
13,886,212
|
2.53
|
2.07
|
1.67
|
2.89
|
8.84
|
20.8
|
Gross WAC (rate paid by borrowers) (c)
|
3.14
|
(a) | Amortized cost basis represents the Company’s investment (unpaid principal balance plus unamortized investment premiums) before unrealized gains and losses. At March 31, 2015, the ratio of amortized cost basis to unpaid principal balance for the Company’s ARM holdings was 103.28. This table excludes $1 million in fixed-rate Agency Securities, $2 million in fixed-rate residential mortgage loans and $2 million in private residential mortgage pass-through securities held as collateral for structured financings. |
(b) | 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 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 either 200 or 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 are 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 the current net WAC, for ARM securities subject only to lifetime caps. At quarter-end, 66% of current-reset ARMs were subject to periodic caps averaging 1.79%; 23% were subject to initial caps averaging 3.09%; 10% were subject to lifetime caps averaging 7.68%; and 1% were not subject to a cap. All longer-to-reset ARM securities at March 31, 2015 were subject to initial caps. |
(c) | 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. |