-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Jgje6SWVTS7jyFQcMneMAWABveZZR4Fp+Xq5+CytXK+umhAkh0XrEkRL78yi1Gfq kKRktfkn68lxDTqVGGr2gA== 0000930661-96-001479.txt : 19961106 0000930661-96-001479.hdr.sgml : 19961106 ACCESSION NUMBER: 0000930661-96-001479 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961104 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAPSTEAD MORTGAGE CORP CENTRAL INDEX KEY: 0000766701 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 752027937 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08896 FILM NUMBER: 96653522 BUSINESS ADDRESS: STREET 1: 2711 NORTH HASKELL AVE STREET 2: STE 900 CITY: DALLAS STATE: TX ZIP: 75204 BUSINESS PHONE: 2148742323 MAIL ADDRESS: STREET 1: 2711 NORTH HASKELL AVENUE STREET 2: STE 900 CITY: DALLAS STATE: TX ZIP: 75204 FORMER COMPANY: FORMER CONFORMED NAME: LOMAS MORTGAGE CORP DATE OF NAME CHANGE: 19891105 10-Q 1 FORM 10-Q ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES - ----- EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED: SEPTEMBER 30, 1996 OR ______ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO ______________ COMMISSION FILE NUMBER: 1-8996 CAPSTEAD MORTGAGE CORPORATION (Exact name of Registrant as specified in its Charter) MARYLAND 75-2027937 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2711 NORTH HASKELL AVENUE, DALLAS, TEXAS 75204 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (214) 874-2323 The Registrant meets the conditions set forth in General Instruction H(1)(a) and (b) for Form 10-Q and is therefore filing this Form under the reduced disclosure format. Indicate by check mark whether the Registrant (1) has filed all documents and reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ______ --- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the last practicable date. Common Stock ($0.01 par value) 41,812,865 as of October 28, 1996 ================================================================================ CAPSTEAD MORTGAGE CORPORATION FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1996 INDEX PART I. -- FINANCIAL INFORMATION
PAGE ---- ITEM 1. Financial Statements Consolidated Balance Sheet -- September 30, 1996 and December 31, 1995.................................................... 3 Consolidated Statement of Income -- Quarter and Nine Months Ended September 30, 1996 and 1995.......................................... 4 Consolidated Statement of Cash Flows -- Nine Months Ended September 30, 1996 and 1995.......................................... 5 Notes to Consolidated Financial Statements........................... 6 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 13 PART II. -- OTHER INFORMATION ITEM 6. Exhibits and Reports on Form 8-K............................. 19 SIGNATURES........................................................... 20
-2- PART I. -- FINANCIAL INFORMATION CAPSTEAD MORTGAGE CORPORATION CONSOLIDATED BALANCE SHEET (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) ITEM 1. FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 DECEMBER 31, 1995 ------------------ ----------------- (UNAUDITED) ASSETS Mortgage investments $4,521,635 $4,522,954 Mortgage securities collateral 4,716,768 4,830,020 ---------- ---------- 9,238,403 9,352,974 Mortgage servicing rights 611,782 423,360 Prepaids, receivables and other 122,284 108,570 Cash and cash equivalents 19,788 18,702 ---------- ---------- $9,992,257 $9,903,606 ========== ========== LIABILITIES Short-term borrowings $5,097,521 $4,628,782 Collateralized mortgage securities 4,090,382 4,538,863 Accounts payable and accrued expenses 26,519 23,339 Mortgage servicing rights acquisitions payable 98,910 47,898 ---------- ---------- 9,313,332 9,238,882 ---------- ---------- STOCKHOLDERS' EQUITY Preferred stock - $0.10 par value; 100,000 shares authorized: $1.60 Cumulative Preferred Stock, Series A, 489 and 550 shares issued and outstanding ($8,020 aggregate liquidation preference) 6,831 7,685 $1.26 Cumulative Convertible Preferred Stock, Series B, 27,030 and 30,686 shares issued and outstanding ($307,601 aggregate liquidation preference) 291,545 330,065 Common stock - $0.01 par value; 100,000 shares authorized; 41,019 and 35,282 shares issued and outstanding 410 235 Paid-in capital 400,233 321,207 Undistributed income (deficit) 1,541 (2,370) Unrealized gain (loss) on debt (21,635) 7,902 securities ---------- ---------- 678,925 664,724 ---------- ---------- $9,992,257 $9,903,606 ========== ==========
See accompanying notes to consolidated financial statements. -3- CAPSTEAD MORTGAGE CORPORATION CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
QUARTER ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 -------------------- -------------------- 1996 1995 1996 1995 --------- --------- --------- --------- INTEREST INCOME: Mortgage investments $ 72,464 $ 61,611 $225,913 $171,284 Mortgage securities collateral 92,640 94,932 271,834 290,338 -------- -------- -------- -------- Total interest income 165,104 156,543 497,747 461,622 -------- -------- -------- -------- INTEREST AND RELATED EXPENSES: Short-term borrowings 66,057 55,526 199,075 154,279 Collateralized mortgage securities 77,619 89,718 240,526 275,511 Mortgage insurance and other 1,791 2,847 6,190 8,720 -------- -------- -------- -------- Total interest and related expenses 145,467 148,091 445,791 438,510 -------- -------- -------- -------- Net margin on mortgage assets 19,637 8,452 51,956 23,112 -------- -------- -------- -------- MORTGAGE SERVICING REVENUES: Servicing fees 25,774 17,218 72,089 47,780 Other 8,062 5,837 20,264 13,303 -------- -------- -------- -------- Total mortgage servicing revenues 33,836 23,055 92,353 61,083 -------- -------- -------- -------- MORTGAGE SERVICING EXPENSES: Direct servicing expenses 3,013 3,103 9,969 7,959 Indirect servicing expenses 2,109 575 5,097 1,677 Amortization of mortgage servicing rights 11,172 7,809 31,398 17,993 Interest 4,232 1,839 11,460 4,150 -------- -------- -------- -------- Total mortgage servicing expenses 20,526 13,326 57,924 31,779 -------- -------- -------- -------- Net margin on mortgage servicing 13,310 9,729 34,429 29,304 -------- -------- -------- -------- OTHER REVENUES: Gain on sales and other 1,875 5,484 12,196 9,688 CMO administration 859 887 2,559 2,732 -------- -------- -------- -------- Total other revenues 2,734 6,371 14,755 12,420 -------- -------- -------- -------- OTHER OPERATING EXPENSES 3,253 3,255 9,711 10,435 -------- -------- -------- -------- NET INCOME $ 32,428 $ 21,297 $ 91,429 $ 54,401 ======== ======== ======== ======== Net income $ 32,428 $ 21,297 $ 91,429 $ 54,401 Less cash dividends on preferred stock (8,838) (9,846) (28,525) (29,467) -------- -------- -------- -------- Net income available to common stockholders $ 23,590 $ 11,451 $ 62,904 $ 24,934 ======== ======== ======== ======== NET INCOME PER SHARE: Primary $ 0.60 $ 0.33 $ 1.67 $ 0.72 Fully diluted 0.53 0.32 1.50 0.72 CASH DIVIDENDS PAID PER SHARE: Common $ 0.55 $ 0.33 $ 1.55 $ 0.72 Series A Preferred 0.40 0.40 1.20 1.20 Series B Preferred 0.32 0.32 0.95 0.95
See accompanying notes to consolidated financial statements. -4- CAPSTEAD MORTGAGE CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30 --------------------------- 1996 1995 ------------ ------------ OPERATING ACTIVITIES: Net income $ 91,429 $ 54,401 Noncash items: Amortization of discount and premium 41,635 12,842 Amortization of mortgage servicing rights 31,398 17,993 Depreciation and other amortization 2,624 1,899 Net change in prepaids, receivables, other assets, accounts payable and accrued expenses 7,353 (13,290) Net gain from investing activities (12,075) (8,275) ------------ ----------- Net cash provided by operating activities 162,364 65,570 ------------ ----------- INVESTING ACTIVITIES: Purchases of agency securities (1,314,450) (2,066,002) Purchases and originations of mortgage loans (20,295) (96,898) Purchases of interest-only mortgage securities (437,892) (114,511) Purchases of derivative financial instruments (35,179) (17,230) Purchases of mortgage servicing rights (208,480) (120,564) Principal collections on mortgage investments 773,617 323,648 Proceeds from sales and redemptions of mortgage assets 596,979 1,058,726 Proceeds from sales of derivative financial instruments - 24,012 Mortgage securities collateral: Principal collections on collateral 448,201 356,132 Decrease in accrued interest receivable 3,480 3,063 Decrease in short-term investments 11,780 4,587 ----------- ----------- Net cash used by investing activities (182,239) (645,037) ----------- ----------- FINANCING ACTIVITIES: Increase in short-term borrowings 468,739 1,066,343 Increase (decrease) in mortgage servicing acquisitions payable 51,012 (23,508) Collateralized mortgage securities: Issuance of securities 41,323 - Principal payments on securities (492,933) (423,126) Increase in accrued interest payable 1,088 2,348 Capital stock transactions 39,117 6,368 Dividends paid (87,385) (54,436) ----------- ----------- Net cash provided by financing activities 20,961 573,989 ----------- ----------- Net increase (decrease) in cash and cash equivalents 1,086 (5,478) Cash and cash equivalents at beginning of period 18,702 21,741 ----------- ----------- Cash and cash equivalents at end of period $ 19,788 $ 16,263 ============ ===========
See accompanying notes to consolidated financial statements. -5- CAPSTEAD MORTGAGE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1996 (UNAUDITED) NOTE 1 - BUSINESS Capstead Mortgage Corporation, a national mortgage banking firm, earns income from servicing mortgage loans, investing in mortgage-backed securities and other investment strategies. The Company's business plan is to build its mortgage servicing and mortgage securities portfolios with the goal of producing reasonably balanced operating results in rising or falling interest rate environments. NOTE 2 - BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the quarter and nine months ended September 30, 1996 are not necessarily indicative of the results that may be expected for the calendar year ending December 31, 1996. For further information refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1995. On January 1, 1996 the Company adopted Statement of Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing Rights" ("SFAS 122"). SFAS 122 sets forth new accounting principles for capitalizing mortgage servicing rights and recording impairment of existing mortgage servicing rights. Because throughout 1996 the fair value of mortgage servicing rights has exceeded recorded amounts, the adoption of SFAS 122 has had an immaterial impact on the accounting results for the quarter and nine months ended September 30, 1996 and would not have had a material impact on previous periods. Therefore, although the new accounting principles have been applied on a prospective basis only as required by SFAS 122, the accounting results for the quarter and nine months ended September 30, 1996 are comparable to prior periods. Certain amounts for prior periods have been reclassified to conform to the 1996 presentation. On October 30, 1995 and July 31, 1996 the Company completed 3-for- 2 common stock splits. All references to the number of common shares and share amounts in the accompanying consolidated financial statements and related notes have been restated to reflect the stock splits. -6- NOTE 3 - MORTGAGE SERVICING The following table provides information regarding the mortgage servicing portfolio and the related investment in mortgage servicing rights (dollars in thousands):
UNPAID MORTGAGE PRINCIPAL NUMBER SERVICING BALANCE OF LOANS RIGHTS ------------ --------- ---------- Loans serviced at December 31, 1995 $25,557,629 246,885 $369,600 Additions 9,487,236 102,412 149,811 Run-off/amortization (2,747,819) (20,366) (31,398) Results of hedging activity - - 9,878 ----------- ------- -------- Loans serviced at September 30, 1996 32,297,047 328,931 497,891 Purchases pending transfer* 6,478,627 69,589 113,891 Subservicing 753,635 4,119 - ----------- ------- -------- Total portfolio at September 30, 1996 $39,529,309 402,639 $611,782 =========== ======= ========
* IN ADDITION, AS OF OCTOBER 15, 1996 THE COMPANY HAD COMMITTED TO PURCHASE THE RIGHT TO SERVICE ANOTHER 9,427 LOANS WITH AN UNPAID PRINCIPAL BALANCE OF NEARLY $1.0 BILLION. The Company services mortgage loans in all 50 states and the District of Columbia. As of September 30, 1996, 15.2 percent of loans serviced and loans pending transfer were located in California (based on unpaid principal balances). In connection with mortgage servicing activities, the Company maintains segregated escrow deposits that are held in bank trust accounts. At September 30, 1996 and December 31, 1995, escrow and fiduciary funds for loans being serviced approximated $473 million and $316 million, respectively, and are excluded from the accompanying balance sheet. SFAS 122 requires that mortgage servicing rights be evaluated for impairment on a disaggregated basis by predominant risk characteristics. A valuation allowance is established through a charge to income to the extent that the recorded amount for servicing rights within an individual stratum exceeds fair value. Any such valuation allowance may be adjusted in the future, again through a charge or benefit to income, as the fair value of the servicing rights changes. Fair values are established through use of a discounted cash flow valuation model that incorporates assumptions the Company believes market participants would use in estimating the fair value of future net servicing income including assumptions regarding prepayment speeds, discount rates, servicing costs, etc. Results of the valuation model are compared to recent market prices for bulk servicing acquisitions when available. For impairment evaluation purposes, the Company stratifies its servicing portfolio on the basis of term, interest rate and loan type (fixed-rate versus adjustable-rate). Because the fair value of the mortgage servicing rights for each stratum of the servicing portfolio exceeded recorded amounts at the January 1, 1996 adoption date of SFAS 122 and throughout the nine months ended September 30, 1996, no impairment charges or direct writedowns of mortgage servicing rights have been recorded. -7- NOTE 4 - MORTGAGE INVESTMENTS Mortgage investments and the related average effective interest rates (calculated excluding unrealized gains and losses) were as follows (dollars in thousands):
QUARTER NINE MONTHS ENDED ENDED AS OF SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30 ---------------------- ------------- ------------- 1996 1995 1996 1995 1996 1995 ---------- ---------- ---- ---- ---- ---- Agency securities: Fixed-rate $ 462,567 $ 499,171 6.36% 6.31% 6.37% 6.33% Adjustable-rate 3,554,351 2,405,036 6.31 6.24 6.17 6.04 Callable notes - 48,969 - 7.15 - 6.99 AAA-rated private mortgage pass- through securities: Fixed-rate 1,341 1,910 8.67 8.78 9.36 8.73 Medium-term 287,768 431,868 7.05 6.88 7.06 6.95 Adjustable-rate 213,049 808,624 7.65 7.06 7.58 6.78 Mortgage loans 2,559 13,267 7.16 8.33 7.72 7.00 ---------- ---------- $4,521,635 $4,208,845 ========== ==========
The Company classifies its mortgage investments by the term and interest rate characteristics of the underlying mortgage loans. Fixed-rate mortgage investments have (i) fixed rates of interest for their entire terms, or (ii) an initial fixed rate period of 10 years after origination and then adjust annually based on a specified margin over 1-year U.S. Treasury Securities ("1-year Treasuries"). Medium-term mortgage investments have (i) an initial fixed-rate period of 3 or 5 years after origination and then adjust annually based on a specified margin over 1-year Treasuries or (ii) initial interest rates that adjust one time, approximately 5 years following origination of the mortgage loan, based on a specified margin over Federal National Mortgage Association ("FNMA") yields for 30-year fixed-rate commitments at the time of adjustment. Adjustable-rate mortgage investments either adjust (i) semiannually based on a specified margin over the 6-month London Interbank Offered Rate ("LIBOR"), or (ii) annually based on a specified margin over 1-year Treasuries. Fixed- and adjustable-rate mortgage agency securities consist of mortgage-backed securities issued by government-sponsored entities, either the Federal Home Loan Mortgage Corporation ("FHLMC"), FNMA or the Government National Mortgage Association ("GNMA"). Callable agency notes are unsecured, fixed-rate notes issued by FNMA, FHLMC, or the Federal Home Loan Bank Board ("FHLBB") and mature in 1997, unless redeemed earlier. Collectively, mortgage-backed securities and callable notes issued by government-sponsored entities are referred to as "Agency Securities." At September 30, 1996 the AAA-rated private mortgage pass-through securities ("Mortgage Pass-Throughs") and Agency Securities were pledged to secure short- term borrowings. NOTE 5 - MORTGAGE SECURITIES COLLATERAL Mortgage securities collateral includes (i) collateral pledged to secure borrowings through collateralized mortgage securities ("pledged mortgage collateral"), (ii) collateral released from the related indentures pursuant to clean-up calls ("released mortgage collateral"), (iii) investments in FNMA Trust interest-only mortgage securities, and (iv) investments in other -8- collateralized mortgage obligation ("CMO") securities such as other agency and private-issue interest-only and principal-only mortgage securities. The components of mortgage securities collateral are summarized as follows (in thousands):
SEPTEMBER 30, 1996 DECEMBER 31, 1995 ------------------ ------------------ Pledged mortgage collateral $4,137,438 $4,627,409 Short-term investments 12,925 24,705 Accrued interest receivable 25,651 29,130 ---------- ---------- Total pledged mortgage collateral 4,176,014 4,681,244 Unamortized discount (6,620) (7,147) ---------- ---------- 4,169,394 4,674,097 Released mortgage collateral 25,021 33,095 FNMA Trust interest-only mortgage securities 503,002 107,554 Other CMO securities 19,351 15,274 ---------- ---------- $4,716,768 $4,830,020 ========== ==========
Pledged mortgage collateral consists of fixed-rate, medium-term and adjustable- rate mortgage-backed securities. All principal and interest on pledged mortgage collateral is remitted directly to a collection account maintained by a trustee. The trustee is responsible for reinvesting those funds in short-term investments. All collections on the pledged mortgage collateral and the reinvestment income earned thereon are available for the payment of principal and interest on collateralized mortgage securities. The weighted average effective interest rate for total pledged mortgage collateral was 7.41 percent during both the quarter and nine months ended September 30, 1996. FNMA Trust interest-only mortgage securities are entitled to receive 100 percent of coupon interest stripped from pools of FNMA mortgage-backed securities. At September 30, 1996 the Company's investment in FNMA Trust interest-only mortgage securities yielded 12.12 percent with related notional amounts aggregating $1.5 billion. These and certain other CMO securities were pledged to secure short- term borrowings as of September 30, 1996. NOTE 6 - DISCLOSURES REGARDING FAIR VALUES OF DEBT SECURITIES Estimated fair values were determined using available market information and appropriate valuation methodologies; however, considerable judgment is required in interpreting market data to develop these estimates. In addition, fair values fluctuate on a daily basis. Accordingly, estimates presented herein are not necessarily indicative of the amounts that could be realized in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on estimated fair values. The fair values of debt securities were estimated using quoted market prices when available, including quotes made by lenders in connection with designating collateral for repurchase arrangements. The pledged mortgage collateral component of mortgage securities collateral has been permanently financed through the issuance of collateralized mortgage securities. Gross unrealized gains and losses are based on projected net cash flows of the pledged mortgage collateral after payment on the related collateralized mortgage securities determined using market discount rates and prepayment assumptions. -9- The following tables summarize fair value disclosures for available-for-sale debt securities for the periods indicated (in thousands):
AS OF SEPTEMBER 30, 1996 ---------------------------------------------- GROSS GROSS UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ---------- ---------- ---------- ---------- Agency Securities: Fixed-rate $ 492,510 $ - $29,943 $ 462,567 Adjustable-rate 3,556,836 4,947 7,432 3,554,351 Mortgage Pass-Throughs: Fixed-rate 1,304 37 - 1,341 Medium-term 289,432 291 1,955 287,768 Adjustable-rate 208,648 4,401 - 213,049 Mortgage securities 691,602 10,173 2,154 699,621 collateral ---------- ------- ------- ---------- $5,240,332 $19,849 $41,484 $5,218,697 ========== ======= ======= ==========
AS OF DECEMBER 31, 1995 ---------------------------------------------- GROSS GROSS UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ---------- ---------- ---------- ---------- Agency Securities: Fixed-rate $ 497,785 $ - $ 8,096 $ 489,689 Adjustable-rate 2,977,794 6,657 - 2,984,451 Callable notes 48,974 118 - 49,092 Mortgage Pass-Throughs: Fixed-rate 1,723 48 - 1,771 Medium-term 420,910 3,455 36 424,329 Adjustable-rate 555,944 7,259 - 563,203 Mortgage securities 356,159 9,063 10,566 354,656 collateral ---------- ------- ------- ---------- $4,859,289 $26,600 $18,698 $4,867,191 ========== ======= ======= ==========
The following table summarizes fair value disclosures for mortgage securities collateral held-to-maturity for the periods indicated (in thousands):
GROSS GROSS UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ---------- ---------- ---------- ---------- As of September 30, 1996 $4,017,147 $3,088 $56,367 $3,963,868 ========== ====== ======= ========== As of December 31, 1995 $4,475,364 $5,042 $60,920 $4,419,486 ========== ====== ======= ==========
During the quarter and nine months ended September 30, 1996, $8,920,000 and $494,276,000 of debt securities held available-for-sale were sold at gross realized gains of $1,834,000 and $11,083,000, respectively. Additionally, $48,977,000 of callable agency notes were redeemed by the issuer in the first quarter of 1996. Net adjustments to unrealized holding gains (losses) on available-for-sale securities included as a separate component of stockholders' equity were $12,316,000 and $(29,537,000) during the quarter and nine months ended September 30, 1996, respectively. During the second quarter of 1996, $14,655,000 of mortgage collateral previously released from the related indentures pursuant to clean-up calls was sold at gross realized gains aggregating $1,098,000. -10- NOTE 7 -- NET INTEREST INCOME ANALYSIS The following tables summarize interest income and interest expense and average effective interest rates for the periods indicated (dollars in thousands):
QUARTER ENDED SEPTEMBER 30 ------------------------------------- 1996 1995 ------------------ ----------------- AMOUNT AVERAGE AMOUNT AVERAGE -------- -------- -------- -------- Interest income: Mortgage investments $ 72,464 6.43% $ 61,611 6.58% Mortgage securities collateral 92,640 7.85 94,932 7.61 -------- -------- Total interest income 165,104 156,543 -------- -------- Interest expense: Short-term borrowings 66,057 5.43 55,526 5.90 Collateralized mortgage securities 77,619 7.56 89,718 7.65 -------- -------- Total interest expense 143,676 145,244 -------- -------- Net interest $ 21,428 $ 11,299 ======== ========
NINE MONTHS ENDED SEPTEMBER 30 ------------------------------------- 1996 1995 ------------------ ----------------- AMOUNT AVERAGE AMOUNT AVERAGE -------- -------- -------- -------- Interest income: Mortgage investments $225,913 6.37% $171,284 6.49% Mortgage securities collateral 271,834 7.70 290,338 7.60 -------- -------- Total interest income 497,747 461,622 -------- -------- Interest expense: Short-term borrowings 199,075 5.45 154,279 6.01 Collateralized mortgage securities 240,526 7.53 275,511 7.60 -------- -------- Total interest expense 439,601 429,790 -------- -------- Net interest $ 58,146 $ 31,832 ======== ========
-11- The following tables summarize the amount of change in interest income and interest expense due to changes in interest rates versus changes in volume for the quarter and nine months ended September 30, 1996, compared to the same periods in 1995 (in thousands):
QUARTER ENDED SEPTEMBER 30, 1996 ----------------------------------- RATE* VOLUME* TOTAL ----- ------- ------ Interest income: Mortgage investments $ (1,481) $ 12,334 $ 10,853 Mortgage securities collateral 3,044 (5,336) (2,292) -------- -------- -------- Total interest income 1,563 6,998 8,561 -------- -------- -------- Interest expense: Short-term borrowings (4,711) 15,242 10,531 Collateralized mortgage securities (1,124) (10,975) (12,099) -------- -------- -------- Total interest expense (5,835) 4,267 (1,568) -------- -------- -------- Net interest $ 7,398 $ 2,731 $ 10,129 ======== ======== ======== NINE MONTHS ENDED SEPTEMBER 30, 1996 ------------------------------------ RATE* VOLUME* TOTAL ----- ------- ------ Interest income: Mortgage investments $ (3,034) $ 57,663 $ 54,629 Mortgage securities collateral 3,780 (22,284) (18,504) -------- -------- -------- Total interest income 746 35,379 36,125 -------- -------- -------- Interest expense: Short-term borrowings (15,585) 60,381 44,796 Collateralized mortgage securities (2,800) (32,185) (34,985) -------- -------- -------- Total interest expense (18,385) 28,196 9,811 -------- -------- -------- Net interest $ 19,131 $ 7,183 $ 26,314 ======== ======== ========
* THE CHANGE IN INTEREST DUE TO BOTH VOLUME AND RATE HAS BEEN ALLOCATED TO VOLUME AND RATE CHANGES IN PROPORTION TO THE RELATIONSHIP OF THE ABSOLUTE DOLLAR AMOUNTS OF THE CHANGE IN EACH. -12- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL CONDITION - ------------------- The Company's business plan is to build a mortgage banking operation with investments in mortgage servicing and mortgage securities with the goal of producing reasonably balanced results in rising or falling interest rate environments. The Company formed its mortgage servicing operation in 1993, and through steady growth (primarily through the bulk acquisition of mortgage servicing rights), the Company has become one of the 20 largest mortgage servicers in the country. The mortgage servicing portfolio (excluding pending transfers and subservicing) increased a net $779 million during the current quarter to $32.3 billion with a weighted average interest rate of 7.37 percent and earning an average annual service fee excluding ancillary revenue and earnings on escrows (the "Average Service Fee") of 29.9 basis points. The September 30, 1996 balance of mortgage servicing rights related to this portfolio was $498 million (154 basis points, or a 5.2 multiple of the Average Service Fee). An additional $7.5 billion of mortgage servicing that was acquired as of October 15, 1996 is pending transfer into the portfolio and is being subserviced by the sellers. This portfolio has a weighted average interest rate of 7.61 percent earning an Average Service Fee of 31.8 basis points. At an average cost of 180 basis points, this portfolio is being acquired at a 5.7 multiple. Annualized portfolio run-off, consisting of prepayments and scheduled payments on mortgage loans serviced, was 12.07 percent in the current quarter, up from 10.86 percent during the third quarter of 1995 but down from 13.17 percent during the second quarter of 1996. The rate of prepayments diminished throughout the third quarter in response to higher mortgage interest rates and is expected to decline further in the fourth quarter. Derivative financial instruments, specifically interest rate floors, are held from time to time as partial hedges against prepayment risk (see "Effects of Interest Rate Changes"). Outstanding hedge positions, with a $6.25 billion notional amount, carried a $1.7 million unrealized gain at September 30, 1996. During the second quarter of 1996, the Company entered into a subservicing arrangement with a large national mortgage originator. As of September 30, 1996 the subservicing portfolio stood at $754 million. An advantage of subservicing arrangements such as this is that further growth and enhanced efficiencies can be achieved without the cost of acquiring additional mortgage servicing rights. This arrangement is viewed by the Company as a confirmation of the quality and cost effectiveness of the mortgage servicing operation and could lead to other such relationships in the future. After growing substantially in 1995, holdings of mortgage investments peaked at $5.0 billion by the end of the first quarter of 1996 consisting primarily of $4.1 billion of adjustable-rate mortgage ("ARM") mortgage-backed securities. In light of market conditions, the Company modestly reduced holdings of ARM securities during the second quarter and in the third quarter made additional purchases solely to replace run-off such that at September 30, 1996 mortgage investments totaled $4.5 billion with ARM securities representing nearly $3.8 billion of the total. During the quarter and nine months ended September 30, 1996, respectively, the Company acquired $247 million and $1.3 billion of ARM securities issued by -13- government-sponsored entities, either the Federal Home Loan Mortgage Corporation ("FHLMC"), Federal National Mortgage Association ("FNMA") or the Government National Mortgage Association ("GNMA") (collectively, "Agency Securities"). The Company did not sell any mortgage investments during the current quarter. Year- to-date sales of ARM Agency Securities and AAA-rated private mortgage pass- through securities ("Mortgage Pass-Throughs") totaled $432 million. In addition, $49 million of callable agency-issued notes were redeemed by the issuer early in the year. Prior to 1995 the Company had been an active issuer of collateralized mortgage obligations ("CMOs") and other CMO securities backed by jumbo mortgage loans. The Company retained residual interests in these securitizations consisting primarily of interest-only and principal-only mortgage securities. Other than modest issuances of previously-held residual interests, the Company has not issued any CMOs since 1994. In lieu of issuing CMOs, the Company increased its CMO investments (defined as CMO collateral, net of related bonds, plus similar mortgage securities) by acquiring interest-only mortgage securities. During the quarter and nine months ended September 30, 1996, the Company acquired $131 million and $438 million, respectively, of interest-only mortgage securities. Most of these securities have been FNMA Trust interest-only mortgage securities, which represent the right to receive 100 percent of coupon interest stripped from pools of FNMA mortgage-backed securities. After considering these acquisitions, run-off, modest sales and CMO issuances, as well as changes in market value, total CMO investments increased $88 million and $335 million during the quarter and nine months ended September 30, 1996, respectively, to $626 million. Derivative financial instruments, specifically interest rate floors, are held from time to time as partial hedges against prepayment risk on interest-only mortgage securities (see "Effects of Interest Rate Changes"). Outstanding hedge positions, with a $2.425 billion notional amount, carried a $3.7 million unrealized gain at September 30, 1996. The following table summarizes the Company's utilization of capital as of September 30, 1996 (in thousands):
CAPITAL ASSETS BORROWINGS EMPLOYED ---------- ---------- -------- Agency Securities: Fixed-rate $ 462,567 $ 457,231 $ 5,336 Adjustable-rate 3,554,351 3,474,749 79,602 Mortgage Pass-Throughs: Fixed-rate 1,341 1,301 40 Medium-term 287,768 278,385 9,383 Adjustable-rate 213,049 207,441 5,608 Mortgage loans 2,559 - 2,559 CMO investments 4,716,768 4,642,796* 73,972 Mortgage servicing rights 611,782 224,910** 386,872 ---------- ----------- -------- $9,850,185 $ 9,286,813 563,372 ========== =========== Other assets, net of other 115,553 liabilities -------- Total stockholders' equity $678,925 ========
* INCLUDES APPROXIMATELY $552 MILLION OF RELATED SHORT-TERM BORROWINGS. ** REPRESENTS AMOUNTS OWED UNDER CONTRACTS FOR BULK PURCHASES OF MORTGAGE SERVICING RIGHTS AND $126 MILLION DRAWN ON A $450 MILLION LINE OF CREDIT SECURED BY EXISTING MORTGAGE SERVICING RIGHTS. Rising interest rates in 1996 and selected sales of mortgage assets resulted in nearly a $30 million net decline in value of securities held available-for-sale during 1996. At December 31, 1995 securities held available-for-sale were carried at a net unrealized gain of $8 million, which declined to a net unrealized loss of $22 million at September 30, 1996. This unrealized loss will be realized only if the securities are sold. The Company has the ability -14- to hold these securities for the foreseeable future and therefore does not expect to realize losses on security sales. RESULTS OF OPERATIONS - --------------------- Comparative net operating results (interest income or fee revenues, net of related interest expense or related operating costs), by source, was as follows (in thousands, except percentages and per share amounts):
QUARTER ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 ------------------ -------------------- 1996 1995 1996 1995 -------- -------- --------- --------- Agency Securities $ 9,338 $ 3,109 $ 25,244 $ 8,605 Mortgage Pass-Throughs 1,619 1,718 6,782 4,730 Mortgage loans 44 248 347 1,139 CMO investments 8,636 3,377 19,583 8,638 Mortgage servicing 13,310 9,729 34,429 29,304 CMO administration 859 887 2,559 2,732 Gain on sales and other 1,875 5,484 12,196 9,688 ------- ------- -------- -------- Contribution to income 35,681 24,552 101,140 64,836 Other operating expenses (3,253) (3,255) (9,711) (10,435) ------- ------- -------- -------- Net income $32,428 $21,297 $ 91,429 $ 54,401 ======= ======= ======== ======== Net income per share:* Primary $ 0.60 $ 0.33 $ 1.67 $ 0.72 Fully diluted 0.53 0.32 1.50 0.72 Return on average stockholders' equity 18.72% 13.11% 17.94% 11.21%
* PRIOR PERIOD PER SHARE INFORMATION HAS BEEN ADJUSTED FOR THE 3-FOR-2 COMMON STOCK SPLITS EFFECTIVE OCTOBER 30, 1995 AND JULY 31, 1996. Operating results for the quarter and nine months ended September 30, 1996 improved substantially over those achieved in the same periods of 1995. Lower borrowing costs and improving interest spreads on the Company's investments in mortgage securities, together with improved mortgage servicing results, contributed to the significant improvement in results compared to the same period in 1995. An investment decision during the second quarter of 1996 to modestly reduce the Company's commitment to ARM securities and increase investments in interest-only mortgage securities also improved profitability during the third quarter. Agency Securities contributed more to current operating results than in 1995 due to increased holdings of these securities and improved net interest spreads. Acquisitions in 1995 and in the first quarter of 1996 of over $3.5 billion of ARM Agency Securities increased average outstanding portfolios to $4.0 billion for both the quarter and nine months ended September 30, 1996, compared to $2.4 billion and $2.2 billion during the same periods in 1995. Spreads improved despite marginally lower yields due to a more favorable short-term interest rate environment. Agency Security yields averaged 6.31 percent and 6.20 percent during the quarter and nine months ended September 30, 1996, respectively, compared to 6.35 percent and 6.26 percent during the same periods in 1995, while borrowing costs were 5.44 percent and 5.43 percent, respectively, compared to 5.82 percent and 5.86 percent during the same periods in 1995. Yields were marginally lower in 1996 primarily due to sales and redemptions by September 30, 1995 of substantially all of the Company's investments in relatively high yielding callable agency notes. In addition, continued high -15- purchase premium amortization on investments in ARM securities largely offset the improvements in pass-through rates resulting from the periodic resetting of coupon interest rates on underlying ARM loans (see "Effects of Interest Rate Changes"). Mortgage Pass-Throughs contributed less to income in the current quarter compared to the same period in 1995 primarily because of reduced holdings of these securities as a result of asset sales and run-off. Results for the nine months ended September 30, 1996 were higher compared to the same period in 1995 despite the lower portfolio outstanding due to increases in net interest spreads. Average yields for this portfolio were higher at 7.31 percent and 7.33 percent for the quarter and nine months ended September 30, 1996, respectively, compared to 7.00 percent and 6.84 percent during the same periods in 1995, while average borrowing rates were lower at 5.63 percent and 5.69 percent, respectively, compared to 6.08 percent and 6.19 percent during the same periods in 1995. The rise in yields is primarily due to the periodic resetting of coupon interest rates on underlying ARM loans (see "Effects of Interest Rate Changes"). Lower borrowing rates reflect lower prevailing short-term interest rates. The average outstanding portfolio was $517 million and $717 million for both the quarter and nine months ended September 30, 1996, respectively, compared to nearly $1.3 billion for the same periods in 1995. The net interest spread earned from mortgage loans contributed less to current operating results than in 1995 due to lower average holdings of mortgage loans. This reflects the November 1995 decision to exit the jumbo mortgage loan conduit business and the decision earlier in 1996 to discontinue soliciting telephone originations. CMO investments contributed substantially more to current net operating results compared to the same periods in 1995 due primarily to substantial investments made during the past year in interest-only mortgage securities (see above, "Financial Condition"). Higher mortgage servicing results reflect continued growth in this operation. Revenues increased to $34 million and $92 million for the quarter and nine months ended September 30, 1996, respectively, compared to $23 million and $61 million during the same periods in 1995. Servicing expenses also increased, but not to the same extent as revenues, which reflects efficiencies gained in the servicing process as the servicing portfolio continues to grow. Amortization of mortgage servicing rights of $11 million and $31 million during the quarter and nine months ended September 30, 1996, respectively, were higher than the $8 million and $18 million recorded in the same periods in 1995 due to portfolio growth and higher levels of prepayments caused by lower interest rates. Greater use of external borrowings secured by the mortgage servicing portfolio to finance portfolio growth contributed to higher borrowing costs in 1996 compared to 1995. Because throughout 1996 the fair value of the mortgage servicing portfolio has exceeded recorded amounts by large margins, the adoption of SFAS 122 has had an immaterial impact on servicing results for the quarter and nine months ended September 30, 1996 (see Notes 1 and 3 to the financial statements). The Company has incurred lower operating expenses in 1996 than in the prior year because of the November 1995 closure of its mortgage conduit unit and, to a lesser extent, the second quarter closure of its telephone origination unit. These two decisions have also reduced requirements for loan loss provisions. In addition, with the growth of the mortgage servicing operation, more operating costs have been identified with that unit then in the prior year. -16- During the quarter and nine months ended September 30, 1996, the Company sold $14 million and $597 million, respectively of mortgage assets consisting of mortgage loans, Mortgage Pass-Throughs, Agency Securities and CMO investments. This compares to similar sales in the same periods of 1995 totaling $464 million and $767 million, respectively. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- The Company's primary sources of funds include monthly principal and interest payments on mortgage investments, short-term borrowings, excess cash flows on CMO investments, servicing fees and other revenue from mortgage servicing, proceeds from sales of mortgage assets, and equity offerings, when available. The Company currently believes that these funds are sufficient for growth of the mortgage servicing portfolio, the acquisition of mortgage assets, repayments on short-term borrowings, the payment of cash dividends as required for Capstead's continued qualification as a Real Estate Investment Trust ("REIT"), and common stock repurchases, if any, as described below. It is the Company's policy to remain strongly capitalized and conservatively leveraged. Short-term borrowings are primarily made under repurchase arrangements. The Company has uncommitted repurchase facilities with investment banking firms to finance mortgage assets, subject to certain conditions. Interest rates on borrowings under these facilities are based on overnight to 30-day LIBOR rates. The terms and conditions of these arrangements, including interest rates, are negotiated on a transaction-by-transaction basis. At September 30, 1996 the mortgage servicing operation had available $324 million of a $450 million revolving line of credit agreement with an investment banking firm that matures September 30, 1998. The line is to be used primarily to finance acquisitions of mortgage servicing rights on a collateralized basis. The agreement requires, among other things, that the mortgage servicing operation maintain certain financial ratios and specified levels of unencumbered servicing rights, as defined. The mortgage servicing operation is in compliance with all requirements. Interest rates on borrowings under this facility are based on LIBOR. During the quarter and nine months ended September 30, 1996, the Company raised $21.8 million and $45.8 million, respectively, through its dividend reinvestment and stock purchase plans, stock option exercises and modest open market sales. The Company anticipates continuing to raise equity through these channels as market conditions allow. In June the Company purchased and retired options to acquire 1,687,500 split-adjusted shares of its common stock issued in 1992 in connection with the Company's severance of a relationship with a former affiliate. The $6.5 million purchase price of the options was charged to stockholders' equity with no effect on net income. On July 22, 1996 the Company announced that the board of directors had approved the repurchase of up to 1 million split-adjusted shares of common stock to fund employee stock option and stock grant programs. EFFECTS OF INTEREST RATE CHANGES Changes in interest rates may impact the Company's earnings in various ways. The Company's earnings depend, in part, on the difference between the interest received on mortgage investments and the interest paid on related short-term borrowings. The resulting spread may be reduced in a rising interest rate environment. Because most of the Company's mortgage investments are ARM mortgage securities, the risk of rising short-term interest rates is offset to some extent by increases in the rates of interest earned on underlying ARM -17- loans. Since ARM loans generally limit the amount of such increase during any single interest rate adjustment period and over the life of the loan, interest rates on borrowings can rise to levels that may exceed the interest rates on the underlying ARM loans resulting in a negative interest spread. The Company may invest in derivative financial instruments from time to time, specifically interest rate caps, as a hedge against rising interest rates on a portion of its short-term borrowings. Interest rate caps increase in value as interest rates rise and decline in value when rates fall. Another effect of changes in interest rates is that as interest rates decrease, the rate of prepayment of mortgage loans underlying mortgage investments generally increases. To the extent the proceeds of prepayments on mortgage investments cannot be reinvested at a rate of interest at least equal to the rate previously earned on such investments, earnings may be adversely affected. Because prolonged periods of high prepayments can significantly reduce the expected life of mortgage investments, the actual yields realized can be lower due to faster amortization of purchase premiums. In addition, the rates of interest earned on ARM investments generally will decline during periods of falling interest rates as the underlying ARM loans reset at lower rates. The Company may, from time to time, sell mortgage assets which may increase income volatility because of the recognition of transactional gains or losses. Such sales may become attractive as values of mortgage assets fluctuate with changes in interest rates. Changes in interest rates also impact earnings recognized from CMO investments, which consist primarily of fixed-rate CMO residuals and interest-only mortgage securities. The amount of income that may be generated from the typical CMO residual is dependent upon the rate of principal prepayments on the underlying mortgage collateral. If mortgage interest rates fall significantly below interest rates on the collateral, principal prepayments will increase, reducing or even eliminating the overall return on the investment in the CMO residual. This is due primarily to the acceleration of the amortization of bond discounts, a noncash item, as bond classes are repaid more rapidly than originally anticipated. Conversely, if mortgage interest rates rise significantly above interest rates on the collateral, principal prepayments will typically diminish, resulting in a greater overall return on an investment in a fixed-rate CMO residual because of an increase in the period of time over which the Company receives the larger positive interest spread. Interest-only mortgage securities behave similarly to CMO Residuals. In a falling interest rate environment prepayments on the underlying mortgage loans generally will be higher thereby reducing or even eliminating overall returns on these securities. Sustained periods of high prepayments can result in losses. Conversely, in periods of rising interest rates, interest-only mortgage securities will tend to perform favorably because underlying mortgage loans will generally prepay at slower rates thereby increasing overall returns. The above discussion regarding how changes in interest rates impact mortgage assets also applies to the Company's investment in mortgage servicing rights. When interest rates rise, mortgage servicing rights become more valuable since the average lives of the related mortgage loans tend to be longer and earnings from large, temporarily held cash balances will be greater. Conversely, lower interest rates will spur prepayments thus reducing the period of time the Company can service the related loans. Sustained periods of high prepayments can result in losses on the Company's investment in mortgage servicing rights, particularly now that the Company has adopted SFAS 122 and must evaluate its investment in servicing rights for impairment on a disaggregated basis and -18- record impairment charges if the recorded amount for an individual servicing stratum is more than its fair value. The Company's business plan is to build a mortgage servicing operation with investments in mortgage servicing and mortgage securities with the goal of producing reasonably balanced results in rising or falling interest rate environments. The Company supplements its business plan from time to time with derivative financial instruments, specifically interest rate floors, which may be used to hedge certain assets, such as mortgage servicing rights or interest- only mortgage securities or may be held for investment. Interest rate floors decrease in value when interest rates rise and increase in value when rates decline. In instances where floors are designated as hedges, any changes in value will adjust the basis of the assets hedged. In instances where floors are held for investment, changes in value will be recorded in income as they occur, which could increase income volatility. PART II. - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K: (a) Exhibits: The following Exhibit is presented herewith: Exhibit 11 - Computation of Earnings Per Share for the quarter and nine months ended September 30, 1996 and 1995. Exhibit 27 - Financial Data Schedule (electronic filing only). (b) Reports on Form 8-K: Form 8-K Reporting Date - August 20, 1996 Items Reported - Item 5. Other Events This Current Report was filed solely in order to file the following exhibits as part of the Registrant's Registration Statement on Form S-3 (No. 33-62212), as amended: Exhibit No. Description ----------- ----------- 1.4 Amendment No. 1 to the Sales Agency Agreement dated as of September 10, 1996 between Capstead Mortgage Corporation and PaineWebber Incorporated (the "Common Stock Sales Agency Agreement"). 1.5 Sales Agency Agreement dated as of August 17, 1996 Capstead Mortgage Corporation and PaineWebber Incorporated (the "Series B Preferred Stock 1996 Sales Agency Agreement"). -19- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CAPSTEAD MORTGAGE CORPORATION Date: October 28, 1996 By /s/ RONN K. LYTLE ------------------------------------ Ronn K. Lytle Chairman and Chief Executive Officer Date: October 28, 1996 By /s/ ANDREW F. JACOBS ------------------------------------ Andrew F. Jacobs Senior Vice President - Control and Treasurer -20- EX-11 2 COMPUTATION OF EARNINGS EXHIBIT 11 CAPSTEAD MORTGAGE CORPORATION COMPUTATION OF NET INCOME PER SHARE (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
QUARTER ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 ------------------ -------------------- 1996 1995 1996 1995 -------- -------- --------- --------- PRIMARY: Average number of common shares outstanding 38,319 34,614 36,872 34,508 Incremental shares calculated using the Treasury Stock method 883 54 856 25 ------- ------- -------- -------- 39,202 34,668 37,728 34,533 ======= ======= ======== ======== Net income $32,428 $21,297 $ 91,429 $ 54,401 Less cash dividends paid on convertible preferred stock: Series A ($0.40 per share) (195) (230) (616) (718) Series B ($0.315 per share) (8,643) (9,616) (27,908) (28,749) ------- ------- -------- -------- Net income available to common stockholders $23,590 $11,451 $ 62,905 $ 24,934 ======= ======= ======== ======== Primary net income per share $0.60 $0.33 $1.67 $0.72 ======= ======= ======== ======== FULLY DILUTED: Average number of common shares outstanding 38,319 34,614 36,872 34,508 Assumed conversion of convertible preferred stock: Series A 1,032 1,184 1,070 1,224 Series B 21,514 * 22,016 * Incremental shares calculated using the Treasury Stock method 892 185 1,173 185 ------- ------- -------- -------- 61,757 35,983 61,131 35,917 ======= ======= ======== ======== Net income $32,428 $21,297 $ 91,429 $ 54,401 Less cash dividends paid on the Series B Preferred Stock - (9,616) - (28,749) ------- ------- -------- -------- Net income $32,428 $11,681 $ 91,429 $ 25,652 ======= ======= ======== ======== Fully diluted net income per share $0.53 $0.32 $1.50 $0.72 ======= ======= ======== ========
* THE SERIES B PREFERRED STOCK IS NOT CONSIDERED CONVERTIBLE FOR PURPOSES OF CALCULATING FULLY DILUTED NET INCOME PER SHARE AS IT WAS ANTIDILUTIVE. EX-27 3 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from Capstead Mortgage Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996 and is qualified in its entirety by reference to such financial statements. 1,000 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 19,788 0 0 0 0 0 0 0 9,992,257 5,222,950 4,090,382 0 298,376 410 380,139 9,992,257 0 604,855 0 0 62,365 0 451,061 91,429 0 91,429 0 0 0 91,429 1.67 1.50
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