-----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, VBcUKP2aCrrmjSgw6c//bUuzi5+c973exNBCg1llTgxU2mc/K9ZFCXx4NE1Ua7Pk oudfFRSLdlfKvGzJIPuZKQ== 0000930661-97-002526.txt : 19971106 0000930661-97-002526.hdr.sgml : 19971106 ACCESSION NUMBER: 0000930661-97-002526 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971105 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: SEC FILE NUMBER: 001-08896 FILM NUMBER: 97708046 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 -- SEPTEMBER 30, 1997 ================================================================================ 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, 1997 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) 56,145,0002 as of October 31, 1997 ================================================================================ CAPSTEAD MORTGAGE CORPORATION AND SUBSIDIARIES FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1997 INDEX PART I.--FINANCIAL INFORMATION PAGE ---- ITEM 1. Financial Statements Consolidated Balance Sheet--September 30, 1997 (unaudited) and December 31, 1996................................................ 3 Consolidated Statement of Income--Quarter and Nine Months Ended September 30, 1997 and 1996 (unaudited).......................... 4 Consolidated Statement of Cash Flows--Nine Months Ended September 30, 1997 and 1996 (unaudited).......................... 5 Notes to Consolidated Financial Statements (unaudited)............ 6 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............ 12 PART II.--OTHER INFORMATION ITEM 6. Exhibits and Reports on Form 8-K........................... 19 SIGNATURES......................................................... 20 -2- PART I.--FINANCIAL INFORMATION CAPSTEAD MORTGAGE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) ITEM 1. FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 DECEMBER 31, 1996 ------------------- ------------------ (UNAUDITED) ASSETS Mortgage investments $ 6,145,850 $ 4,840,417 CMO collateral and investments 4,552,432 4,501,646 ----------- ----------- 10,698,282 9,342,063 Mortgage servicing rights 669,797 637,979 Prepaids, receivables and other 226,029 156,293 Cash and cash equivalents 13,895 21,003 ----------- ----------- $11,608,003 $10,157,338 =========== =========== LIABILITIES Short-term borrowings $ 6,947,817 $ 5,462,856 Collateralized mortgage obligations 3,682,328 3,861,892 Accounts payable and accrued expenses 67,459 33,924 Mortgage servicing rights acquisitions payable 31,581 71,797 ----------- ----------- 10,729,185 9,430,469 ----------- ----------- STOCKHOLDERS' EQUITY Preferred stock - $0.10 par value; 100,000 shares authorized: $1.60 Cumulative Preferred Stock, Series A, 415 and 470 shares issued and outstanding ($6,806 aggregate liquidation preference) 5,803 6,567 $1.26 Cumulative Convertible Preferred Stock, Series B, 18,660 and 23,932 shares issued and outstanding ($212,351 aggregate liquidation preference) 206,031 259,829 Common stock - $0.01 par value; 100,000 shares authorized; 54,786 and 44,743 shares issued and outstanding 548 447 Paid-in capital 654,171 461,045 Undistributed income 12,999 4,582 Unrealized loss on debt securities (734) (5,601) ----------- ----------- 878,818 726,869 ----------- ----------- $11,608,003 $10,157,338 =========== ===========
See accompanying notes to consolidated financial statements. -3- CAPSTEAD MORTGAGE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
QUARTER ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 --------------------------- ----------------------------- 1997 1996 1997 1996 ------------- ------------ -------------- ------------- INTEREST INCOME: Mortgage investments $ 90,762 $ 73,032 $248,139 $227,502 CMO collateral and investments 85,153 92,072 256,072 270,245 -------- -------- -------- -------- Total interest income 175,915 165,104 504,211 497,747 -------- -------- -------- -------- INTEREST AND RELATED EXPENSES: Short-term borrowings: Mortgage investments 80,688 61,208 214,192 192,100 CMO investments 7,336 4,849 19,358 6,975 Collateralized mortgage obligations 65,617 77,619 203,227 240,526 Mortgage insurance and other 1,224 1,791 4,005 6,190 -------- -------- -------- -------- Total interest and related expenses 154,865 145,467 440,782 445,791 -------- -------- -------- -------- Net margin on mortgage assets 21,050 19,637 63,429 51,956 -------- -------- -------- -------- MORTGAGE SERVICING REVENUES: Servicing fees 31,307 25,774 92,166 72,089 Other 13,263 8,062 32,682 20,264 -------- -------- -------- -------- Total mortgage servicing revenues 44,570 33,836 124,848 92,353 -------- -------- -------- -------- MORTGAGE SERVICING EXPENSES: Direct servicing expenses 4,498 3,013 12,794 9,969 Indirect servicing expenses 2,089 2,109 5,640 5,097 Amortization of mortgage servicing rights 15,738 11,172 46,150 31,398 Interest 5,992 4,232 16,404 11,460 -------- -------- -------- -------- Total mortgage servicing expenses 28,317 20,526 80,988 57,924 -------- -------- -------- -------- Net margin on mortgage servicing 16,253 13,310 43,860 34,429 -------- -------- -------- -------- OTHER REVENUES: Gain on sales and other 5,845 1,875 17,130 12,196 CMO administration 775 859 2,459 2,559 -------- -------- -------- -------- Total other revenues 6,620 2,734 19,589 14,755 -------- -------- -------- -------- OTHER OPERATING EXPENSES 2,056 3,253 7,952 9,711 -------- -------- -------- -------- NET INCOME $ 41,867 $ 32,428 $118,926 $ 91,429 ======== ======== ======== ======== Net income $ 41,867 $ 32,428 $118,926 $ 91,429 Less cash dividends on preferred stock (6,073) (8,838) (19,934) (28,525) -------- -------- -------- -------- Net income available to common stockholders $ 35,794 $ 23,590 $ 98,992 $ 62,904 ======== ======== ======== ======== NET INCOME PER SHARE: Primary $ 0.66 $ 0.60 $ 1.96 $ 1.67 Fully diluted 0.61 0.53 1.78 1.50 CASH DIVIDENDS PAID PER SHARE: Common $ 0.610 $ 0.550 $ 1.785 $ 1.550 Series A Preferred 0.400 0.400 1.200 1.200 Series B Preferred 0.315 0.315 0.945 0.945
See accompanying notes to consolidated financial statements. -4- CAPSTEAD MORTGAGE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30 ----------------------------------- 1997 1996 ---------------- ----------------- OPERATING ACTIVITIES: Net income $ 118,926 $ 91,429 Noncash items: Amortization of discount and premium 76,268 41,635 Amortization of mortgage servicing rights and related hedge instruments 46,150 31,398 Depreciation and other amortization 2,625 2,624 Unrealized loss (gain) on open market positions 569 (38) Net change in prepaids, receivables, other assets, accounts payable and accrued expenses (843) 7,353 Net gain from investing activities (17,161) (12,037) ----------- ----------- Net cash provided by operating activities 226,534 162,364 ----------- ----------- INVESTING ACTIVITIES: Purchases of mortgage investments (2,990,259) (1,334,745) Purchases of CMO investments (359,268) (437,892) Purchases of mortgage servicing rights (82,590) (208,480) Purchases of derivative financial instruments (50,054) (35,179) Principal collections on mortgage investments 944,805 773,617 Proceeds from sales and redemptions of mortgage assets 661,373 596,979 Proceeds from sales of derivative financial instruments 305 - CMO collateral: Principal collections 357,330 448,201 Decrease in accrued interest receivable 1,152 3,480 Decrease (increase) in short-term investments (2,133) 11,780 ----------- ----------- Net cash used by investing activities (1,519,339) (182,239) ----------- ----------- FINANCING ACTIVITIES: Increase in short-term borrowings 1,484,961 468,739 Increase (decrease) in mortgage servicing acquisitions payable (40,216) 51,012 Collateralized mortgage obligations: Issuance of securities 284,672 41,323 Principal payments on securities (474,417) (492,933) Increase in accrued interest payable 3,529 1,088 Capital stock transactions 137,677 39,117 Dividends paid (110,509) (87,385) ----------- ----------- Net cash provided by financing activities 1,285,697 20,961 ----------- ----------- Net change in cash and cash equivalents (7,108) 1,086 Cash and cash equivalents at beginning of period 21,003 18,702 ----------- ----------- Cash and cash equivalents at end of period $ 13,895 $ 19,788 =========== ===========
See accompanying notes to consolidated financial statements. -5- CAPSTEAD MORTGAGE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1997 (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 a mortgage banking operation with investments in mortgage servicing and mortgage securities with the goal of producing reasonably balanced operating results in a variety of 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, 1997 are not necessarily indicative of the results that may be expected for the calendar year ending December 31, 1997. 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, 1996. On January 1, 1997 the Company adopted Statement of Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS 125"). SFAS 125 provides accounting and reporting standards for all types of securitization transactions involving the transfer of financial assets including repurchase agreements and collateralized borrowing arrangements. The adoption of SFAS 125 has not had a material impact on the results of operations or financial position of the Company. Certain amounts for prior periods have been reclassified to conform to the 1997 presentation. -6- NOTE 3--MORTGAGE SERVICING The following table provides information regarding the primary mortgage servicing portfolio (which excludes subservicing) 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, 1996 $35,562,597 366,373 $559,857 Additions 7,144,481 72,823 128,675 Run-off/amortization* (3,474,388) (26,794) (42,662) Results of hedging activity - - (8,011) ----------- ------- -------- Loans serviced at September 30, 1997 39,232,690 412,402 637,859 Purchases pending transfer** 1,791,855 14,050 31,938 ----------- ------- -------- Total portfolio at September 30, 1997 $41,024,545 426,452 $669,797 =========== ======= ========
* EXCLUDES AMORTIZATION OF HEDGE INSTRUMENTS AND PURCHASES PENDING TRANSFER. ** EXCLUDES A $2.6 BILLION BULK ACQUISITION CONTRACTED FOR SUBSEQUENT TO QUARTER-END. In addition, as of September 30, 1997 the Company subserviced $9.1 billion of single-family mortgage loans under a subservicing arrangement with a large national mortgage conduit. NOTE 4--MORTGAGE INVESTMENTS Mortgage investments and the related average effective interest rates (calculated including mortgage insurance costs and excluding unrealized gains and losses) were as follows (dollars in thousands):
QUARTER NINE MONTHS ENDED ENDED AS OF SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30 --------------------------- ------------------- ------------------ 1997 1996 1997 1996 1997 1996 ------------ ------------- -------- --------- -------- -------- Agency securities: Fixed-rate $ 719,113 $ 462,567 6.68% 6.36% 6.56% 6.37% Medium-term 59,297 - 6.84 - 6.84 - Adjustable-rate 4,933,738 3,554,351 6.14 6.31 6.23 6.17 Callable notes - - - - - 7.05 AAA-rated private mortgage pass- through securities: Fixed-rate 38,361 28,920 8.13 9.39 8.53 9.28 Medium-term 221,135 287,768 6.57 7.05 6.63 7.06 Adjustable-rate 174,206 213,049 7.15 7.65 7.15 7.58 ---------- ---------- $6,145,850 $4,546,655 ========== ==========
The Company classifies its mortgage investments by interest rate characteristics of the underlying mortgage loans. Fixed-rate mortgage investments (i) have fixed rates of interest for their entire terms, (ii) have 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"), or (iii) were previously classified as medium-term and have adjusted to a fixed rate for the remainder of their terms. 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, -7- 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-, medium- 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 (collectively, "Agency Securities"). At September 30, 1997 the AAA-rated private mortgage pass-through securities ("Mortgage Pass-Throughs") and Agency Securities were pledged to secure short- term borrowings. NOTE 5--CMO COLLATERAL AND INVESTMENTS CMO collateral consists of mortgage securities and related investments pledged to secure Company-issued collateralized mortgage obligations ("Pledged CMO Collateral"). CMO investments include investments in FNMA and FHLMC Trust interest-only mortgage securities and investments in other CMO securities such as other agency or private-issue interest-only and principal-only mortgage securities. The components of CMO collateral and investments are summarized as follows (in thousands):
SEPTEMBER 30, 1997 DECEMBER 31, 1996 ------------------- ------------------ Pledged mortgage securities $3,715,458 $3,908,623 Short-term investments 13,188 11,055 Accrued interest receivable 22,860 24,012 ---------- ---------- Total Pledged CMO Collateral 3,751,506 3,943,690 Unamortized discount (3,148) (7,166) ---------- ---------- 3,748,358 3,936,524 FNMA and FHLMC Trust interest-only mortgage securities 788,499 546,539 Other CMO investments 15,575 18,583 ---------- ---------- $4,552,432 $4,501,646 ========== ==========
Pledged mortgage securities consist of fixed-rate, medium-term and adjustable- rate mortgage-backed securities. All principal and interest on pledged mortgage securities 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 pledged mortgage securities and reinvestment income earned thereon are available for the payment of principal and interest on CMOs issued by the Company. The weighted average effective interest rate for total Pledged CMO Collateral was 7.37 percent and 7.34 percent during the quarter and nine months ended September 30, 1997, respectively. FNMA and FHLMC Trust interest-only mortgage securities are entitled to receive 100 percent of coupon interest stripped from pools of FNMA or FHLMC mortgage- backed securities. At September 30, 1997 the Company's investment in FNMA and FHLMC Trust interest-only mortgage securities, after certain hedging costs, yielded 10.42 percent with related notional amounts aggregating $2.4 billion. These and certain other CMO investments were pledged to secure short-term borrowings at September 30, 1997. -8- NOTE 6--DISCLOSURES REGARDING FAIR VALUES OF DEBT SECURITIES Estimated fair values of debt securities have been 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. Pledged CMO Collateral has been permanently financed through the issuance of CMOs. Gross unrealized gains and losses are based on projected net cash flows of the Pledged CMO Collateral after payment on related CMOs determined using market discount rates and prepayment assumptions. The maturity of Pledged CMO Collateral is directly affected by the rate of principal payments by mortgagors and clean-up calls of the remaining CMOs outstanding. Held-to-maturity debt securities consist of Pledged CMO Collateral and collateral released from related CMO indentures pursuant to clean-up calls and held as Mortgage Pass-Throughs. The following tables summarize fair value disclosures for available-for-sale and held-to-maturity debt securities for the periods indicated (in thousands):
GROSS GROSS UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ------------ ------------ ------------ ------------ AVAILABLE-FOR-SALE: - ------------------------------- SEPTEMBER 30, 1997 Mortgage investments: Agency Securities: Fixed-rate $ 727,679 $ 4,681 $13,247 $ 719,113 Medium-term 59,209 88 - 59,297 Adjustable-rate 4,899,499 34,498 259 4,933,738 Mortgage Pass-Throughs: Fixed-rate 9,222 273 - 9,495 Medium-term 220,329 806 - 221,135 Adjustable-rate 170,212 3,994 - 174,206 CMO investments 835,642 - 31,568 804,074 ---------- ------- ------- ---------- $6,921,792 $44,340 $45,074 $6,921,058 ========== ======= ======= ========== DECEMBER 31, 1996 Mortgage investments: Agency Securities: Fixed-rate $ 490,893 $ - $23,006 $ 467,887 Adjustable-rate 3,858,339 20,977 489 3,878,827 Mortgage Pass-Throughs: Fixed-rate 4,144 44 - 4,188 Medium-term 278,473 283 569 278,187 Adjustable-rate 128,110 2,691 - 130,801 CMO collateral and investments 653,748 2,119 7,651 648,216 ---------- ------- ------- ---------- $5,413,707 $26,114 $31,715 $5,408,106 ========== ======= ======= ==========
-9-
GROSS GROSS UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ---------- ------------ ------------ ------------ HELD-TO-MATURITY: - ---------------- SEPTEMBER 30, 1997 Pledged CMO Collateral $3,748,358 $ 3,141 $50,852 $3,700,647 Mortgage Pass-Throughs 28,866 1,076 - 29,942 ---------- ------- ------- ---------- $3,777,224 $ 4,217 $50,852 $3,730,589 ========== ======= ======= ========== DECEMBER 31, 1996 Pledged CMO Collateral $3,853,430 $ 3,150 $54,889 $3,801,691 Mortgage Pass-Throughs 80,527 2,314 94 82,747 ---------- ------- ------- ---------- $3,933,957 $ 5,464 $54,983 $3,884,438 ========== ======= ======= ==========
Sales of released CMO collateral occasionally occur provided the collateral has paid down to within 15 percent of its original issuance amounts. The following table summarizes disclosures related to the disposition of debt securities held available-for-sale and held-to-maturity (in thousands):
QUARTER ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 --------------------------- ----------------------- 1997 1996 1997 1996 ----------- -------------- ----------- ---------- Sale of securities held available-for-sale: Cost basis $223,846 $ 8,920 $570,925 $494,276 Gains 5,050 1,834 14,136 11,083 Redemption of callable agency notes and sale of released CMO collateral held-to-maturity: Cost basis - 14,655 73,324 63,632 Gains - 1,098 2,986 1,098
NOTE 7--NET INTEREST INCOME ANALYSIS The following table summarizes interest income and interest expense and average effective interest rates for the periods indicated (dollars in thousands):
QUARTER ENDED SEPTEMBER 30 -------------------------------------------------- 1997 1996 ------------------------- ----------------------- AMOUNT AVERAGE AMOUNT AVERAGE ---------- ------------- ---------- ----------- Interest income: Mortgage investments $ 90,762 6.30% $ 73,032 6.44% Mortgage securities collateral 85,153 7.95 92,072 7.84 -------- -------- Total interest income 175,915 165,104 -------- -------- Interest expense: Short-term borrowings 88,024 5.54 66,057 5.45 Collateralized mortgage securities 65,617 7.69 77,619 7.56 -------- -------- Total interest expense 153,641 143,676 -------- -------- Net interest $ 22,274 $ 21,428 ======== ========
-10-
NINE MONTHS ENDED SEPTEMBER 30 -------------------------------------------------- 1997 1996 ------------------------- ----------------------- AMOUNT AVERAGE AMOUNT AVERAGE ---------- ------------- ---------- ----------- Interest income: Mortgage investments $248,139 6.37% $227,502 6.39% Mortgage securities collateral 256,072 7.84 270,245 7.68 -------- -------- Total interest income 504,211 497,747 -------- -------- Interest expense: Short-term borrowings 233,550 5.52 199,075 5.46 Collateralized mortgage securities 203,227 7.57 240,526 7.53 -------- -------- Total interest expense 436,777 439,601 -------- -------- Net interest $ 67,434 $ 58,146 ======== ========
The following table summarizes changes 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, 1997 compared to the same periods in 1996 (in thousands):
QUARTER ENDED SEPTEMBER 30, 1997 ---------------------------------------------- RATE* VOLUME* TOTAL -------------- -------------- -------------- Interest income: Mortgage investments $(1,635) $ 19,365 $ 17,730 CMO collateral and investments 1,311 (8,230) (6,919) ------- -------- -------- Total interest income (324) 11,135 10,811 ------- -------- -------- Interest expense: Short-term borrowings 1,079 20,888 21,967 CMOs 1,334 (13,336) (12,002) ------- -------- -------- Total interest expense 2,413 7,552 9,965 ------- -------- -------- Net interest $(2,737) $ 3,583 $ 846 ======= ======== ========
NINE MONTHS ENDED SEPTEMBER 30, 1997 ---------------------------------------------- RATE* VOLUME* TOTAL -------------- -------------- -------------- Interest income: Mortgage investments $ (661) $ 21,298 $ 20,637 CMO collateral and investments 5,434 (19,607) (14,173) ------ -------- -------- Total interest income 4,773 1,691 6,464 ------ -------- -------- Interest expense: Short-term borrowings 2,326 32,149 34,475 CMOs 1,272 (38,571) (37,299) ------ -------- -------- Total interest expense 3,598 (6,422) (2,824) ------ -------- -------- Net interest $1,175 $ 8,113 $ 9,288 ====== ======== ========
* 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. -11- 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 operating results in a variety of interest rate environments. The Company commenced mortgage servicing operations in 1993 and through steady growth has become one of the 20 largest mortgage servicers in the country with a total mortgage servicing portfolio of $48.3 billion (including primary servicing and subservicing), an increase of $2.4 billion over the previous quarter. The primary mortgage servicing portfolio (which excludes pending transfers and subservicing) increased to $39.2 billion at September 30, 1997, with a weighted average interest rate of 7.43 percent and earning an average annual service fee, excluding ancillary revenue and earnings on escrows, (the "Average Service Fee"), of 30.3 basis points. The September 30, 1997 balance of mortgage servicing rights related to this portfolio was $638 million (163 basis points, or a 5.37 multiple of the Average Service Fee). An additional $1.8 billion of mortgage servicing acquired during the quarter, and another $2.6 billion contracted for subsequent to quarter-end, is pending transfer into the portfolio and is being subserviced by the sellers. These pending acquisitions have a weighted average interest rate of 7.49 percent earning an Average Service Fee of 35.8 basis points. At an average cost of 204 basis points, these acquisitions are being acquired at a 5.69 multiple. Primary mortgage servicing portfolio run-off, consisting of prepayments and scheduled payments on mortgage loans serviced, was 14.13 percent during the quarter, up from 12.07 percent in the third quarter of 1996 and up from 12.12 percent in the second quarter of 1997. The increase in prepayments experienced in the current quarter was prompted by lower mortgage interest rates and seasonal factors. Derivative financial instruments, specifically interest rate floors, are held as partial hedges against prepayment risk (see "Effects of Interest Rate Changes"). Outstanding hedge positions, with a $9.4 billion notional amount, carried a $13.6 million unrealized gain at September 30, 1997. During the second quarter of 1996, the Company entered into a subservicing arrangement with a large national mortgage conduit. As of September 30, 1997 the subservicing portfolio totaled $9.1 billion. An advantage of subservicing arrangements 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. As of September 30, 1997, holdings of mortgage investments totaled $6.1 billion with adjustable-rate mortgage ("ARM") mortgage-backed securities representing $5.1 billion of the total. During the quarter and nine months ended September 30, 1997, the Company acquired $1.3 million and $2.5 billion of ARM securities issued by 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"). During the quarter and nine months ended September 30, 1997, the Company also acquired $25 million and $242 million of fixed-rate Agency Securities, respectively. Sales of ARM Agency Securities and AAA-rated private mortgage pass-through securities ("Mortgage Pass- -12- Throughs") totaled $206 million and $582 million during the quarter and nine months ended September 30, 1997, respectively. Prior to 1995 the Company had been an active issuer of collateralized mortgage obligations ("CMOs") and other 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 until this quarter (see below). In lieu of issuing CMOs, the Company has increased its CMO investments (defined as CMO collateral and investments, net of related bonds) by acquiring interest-only mortgage securities. During the quarter and nine months ended September 30, 1997, the Company acquired $188 million and $359 million, respectively, of FNMA and FHLMC Trust interest-only mortgage securities, which represent the right to receive 100 percent of coupon interest stripped from pools of FNMA or FHLMC 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 $114 million and $230 million during the quarter and nine months ended September 30, 1997, respectively, to $870 million. Derivative financial instruments, specifically interest rate floors, are held as partial hedges against prepayment risk on interest-only mortgage securities (see "Effects of Interest Rate Changes"). Outstanding hedge positions, with a $7.2 billion notional amount, carried a $20.7 million unrealized gain at September 30, 1997. Since the Company exited the jumbo mortgage loan conduit business in 1995, it has maintained several finance subsidiaries with remaining capacity to issue CMOs and other securitizations ("securitization shelves"). In an effort to recover costs associated with these securitization shelves, and to add to the Company's CMO administration activities, the Company may, from time to time, purchase mortgage loans from originators or conduits and issue CMOs or other securities backed by these loans. The Company may or may not retain any residual economic interest in these securitizations. In the current quarter the Company issued a $285 million CMO in such a transaction and completed a similar $938 million transaction subsequent to quarter-end. The following table summarizes the Company's utilization of capital as of September 30, 1997 (in thousands):
CAPITAL ASSETS BORROWINGS EMPLOYED ------------- ---------------- ---------- Agency Securities: Fixed-rate $ 719,113 $ 713,992 $ 5,121 Medium-term 59,297 57,621 1,676 Adjustable-rate 4,933,738 4,798,996 134,742 Mortgage Pass-Throughs 433,702 428,354 5,348 CMO collateral and investments 4,552,432 4,295,342* 257,090 Mortgage servicing rights 669,797 367,421 302,376 ----------- ----------- -------- $11,368,079 $10,661,726 706,353 =========== =========== Other assets, net of other liabilities 172,465 -------- Total stockholders' equity $878,818 ========
* INCLUDES $613 MILLION OF RELATED SHORT-TERM BORROWINGS. During the quarter and nine months ended September 30, 1997, the Company raised $58.0 million and $137.7 million, respectively, of new capital through its dividend reinvestment and stock purchase plans, stock option exercises and open market sales. The proceeds from these issuances were profitably employed to increase investments in mortgage assets and mortgage servicing. Assuming favorable market conditions continue, the Company anticipates raising a similar amount of capital in the fourth quarter and in 1998. Because the -13- Company distributes virtually all of its net income in dividends, it is important that the Company access the capital markets at favorable prices to continue its growth. The more capital raised at favorable prices, the more assured we are of continuing to increase net income and dividends. During the quarter and nine months ended September 30, 1997, 2,111,307 and 5,907,321 shares of Series B Preferred Stock, respectively, were converted into 1,529,656 and 4,279,980 shares of common stock, respectively. Had these shares been converted as of the beginning of the quarter and nine months, reported primary earnings per share would not have changed for the quarter but would have been $0.04 lower for the nine months ended September 30, 1997. Fully diluted earnings would not have been impacted as such shares are already deemed converted in that calculation. It is anticipated that holders of the Series B Preferred Stock will continue to convert their shares into common shares as long as it is advantageous to do so from a dividend yield perspective. Securities held available-for-sale were carried at a net unrealized loss of $734,000 at September 30, 1997, a net $4.9 million improvement in value from December 31, 1996. Underlying this change was a $30.9 million increase in value of the mortgage investment component of securities held available-for-sale that was largely offset by a $26.0 million decline in value of CMO investments held available-for-sale. This reflects the impact of a 31 basis point decline year-to-date in the 10-year U.S. Treasury rate to 6.11 percent at quarter-end along with purchase and sale activity (see "Effects of Interest Rate Changes"). The Company has the ability to hold mortgage assets 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 and, in the case of mortgage servicing and CMO administration, related direct and indirect operating expenses), were as follows (in thousands, except percentages and per share amounts):
QUARTER ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 ---------------------------- --------------------------------- 1997 1996 1997 1996 ------------ -------------- ------------- ------------------ Agency Securities $ 8,376 $ 9,338 $ 27,948 $ 25,244 Mortgage Pass-Throughs 1,245 1,908 4,593 7,841 CMO investments 11,429 8,391 30,888 18,871 Mortgage servicing 16,253 13,310 43,860 34,429 Gain on sales and other 5,845 1,875 17,130 12,196 CMO administration 775 859 2,459 2,559 ------- ------- -------- -------- Contribution to income 43,923 35,681 126,878 101,140 Other operating expenses (2,056) (3,253) (7,952) (9,711) ------- ------- -------- -------- Net income $41,867 $32,428 $118,926 $ 91,429 ======= ======= ======== ======== Net income per share: Primary $ 0.66 $ 0.60 $ 1.96 $ 1.67 Fully diluted 0.61 0.53 1.78 1.50 Return on average stockholders' equity 19.58% 18.72% 19.66% 17.94%
Operating results for the quarter and nine months ended September 30, 1997 reached record levels and were comfortably above those achieved in the same -14- periods in 1996. Quarterly income of $41.9 million represents an increase of 29 percent over the third quarter of 1996, while primary net income per share increased 10 percent. Much of the improvement in operating results is attributable to the profitable investment of new capital raised over the past year (see discussion above). The benefit to larger holdings of mortgage securities and CMO investments was offset somewhat by a narrowing of financing spreads. Yields were negatively impacted by a higher rate of mortgage loan prepayments, among other factors. Borrowing costs were slightly higher as a result of the increase in short-term interest rates by the Federal Reserve Open Markets Committee earlier in the year. Lower long-term interest rates, which contributed to the higher rate of prepayments, allowed for greater gain on sales in 1997 compared to the same periods in the prior year. Agency Securities contributed less to income during the third quarter of 1997 than in the same period in 1996. The benefit to earnings of a $1.3 billion increase in average holdings of these securities during the current quarter was offset by lower financing spreads due primarily to a less favorable interest rate environment (see below). Financing spreads declined 23 basis points to 64 basis points. Agency Security yields averaged 6.21 percent and 6.27 percent during the quarter and nine months ended September 30, 1997, respectively, compared to 6.31 percent and 6.20 percent during the same periods in 1996, while borrowing rates were higher at 5.57 percent and 5.54 percent, respectively, compared to 5.44 percent and 5.43 percent during the same periods in 1996. Lower long-term interest rates have contributed to higher run-off as more mortgagors have found it advantageous to refinance into fixed-rate mortgage loans. As a result, purchase premium amortization has been higher resulting in lower yields on ARM securities. In addition, lower 6-month LIBOR and 1-year U.S. Treasury rates have led to declines in yields on ARM securities because underlying ARM loans reset periodically to those indexes. This also impacts yields on acquisitions of ARM securities because loans underlying new securities often have initial mortgage rates below the referenced indexes (referred to as "teaser-rate ARM securities"). At the same time intermediate- and long-term rates have trended lower in 1997, interest rates on overnight to 30-day borrowings were higher than during the same periods in the prior year resulting in higher borrowing rates and thus further reducing financing spreads. One favorable aspect of lower long-term interest rates has been the improvement in value of Agency Securities held by the Company, allowing these assets to support a proportionately higher level of borrowings than in the prior year. Although this has had a negative impact on income earned directly on Agency Securities, it has allowed the Company to reduce higher-cost debt secured by other, less efficiently financed, mortgage assets and mortgage servicing rights, and has contributed to higher gains on sale (see "Effects of Interest Rate Changes"). Mortgage Pass-Throughs contributed less to income during the current quarter than in the same period in 1996 due primarily to a 15 basis point decrease in financing spreads and a 17 percent reduction in the average outstanding portfolio. As a result of asset sales and run-off, the average outstanding portfolio was $451 million and $461 million during the quarter and nine months ended September 30, 1997, respectively, compared to $544 million and $746 million for the same periods in 1996. Average yields for this portfolio (calculated including mortgage insurance costs) were 6.95 percent and 6.99 percent during the quarter and nine months ended September 30, 1997, respectively, compared to 6.98 percent and 6.99 percent during the same periods in 1996, while average borrowing rates were higher at 5.76 percent and 5.72 percent, respectively, compared to 5.64 percent and 5.69 percent during -15- the same periods in 1996. Higher borrowing rates reflect higher prevailing short-term interest rates (see "Effects of Interest Rate Changes"). Net CMO investments contributed significantly more to income during the current quarter than in the same period in 1996 due primarily to substantial investments made during the past 21 months in interest-only mortgage securities (see above, "Financial Condition"). Higher mortgage servicing results reflect continued growth in this operation (see above "Financial Condition"). Revenues increased to $44.6 million and $124.8 million during the quarter and nine months ended September 30, 1997, respectively, compared to $33.8 million and $92.4 million during the same periods in 1996. Servicing expenses also increased, but not to the same extent as revenues, which reflects efficiencies gained in the servicing process primarily due to improved economies of scale. Amortization of mortgage servicing rights and related hedge instruments of $15.7 million and $46.2 million during the quarter and nine months ended September 30, 1997, respectively, was higher than the $11.2 million and $31.4 million recorded during the same periods in 1996 due primarily to portfolio growth and expectations of higher future mortgagor prepayments (see "Effects of Interest Rate Changes"). Greater use of external borrowings secured by the mortgage servicing portfolio to finance growth contributed to higher borrowing costs in 1997 compared to 1996. Operating expenses during the current quarter were lower than in same period in 1996 primarily because of lower compensation-related accruals. In addition, with the continued growth of the mortgage servicing operation, more indirect operating costs have been identified with that unit than in the prior year. During the quarter and nine months ended September 30, 1997, the Company sold $224 million and $644 million, respectively, of mortgage assets consisting of Agency Securities, Mortgage Pass-Throughs and interest-only mortgage securities for gains totaling $5.1 million and $17.1 million, respectively. This compares to sales of mortgage assets totaling $14 million and $597 million during the same periods in 1996. Derivative financial instruments held for trading purposes contributed $565,000 to earnings during the current quarter and a loss of $531,000 for the nine months ended September 30, 1997, which reflects higher interest rates earlier in 1997 from rates prevailing at quarter-end. These instruments (primarily interest-rate floors) tend to decrease in value in a rising interest-rate environment and increase in value when interest rates fall (see "Effects of Interest Rate Changes"). 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 (see above "Financial Condition"). 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. -16- 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 London Interbank Offered Rate ("LIBOR") rates. The terms and conditions of these arrangements, including interest rates, are negotiated on a transaction-by- transaction basis. At September 30, 1997 the mortgage servicing operation had available $488 million of a $625 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. The mortgage servicing operation is in compliance with all requirements. Interest rates on borrowings under this facility are based on LIBOR. In 1996 the board of directors approved the repurchase of up to 1 million shares of common stock to fund employee stock option and stock grant programs. As of September 30, 1997 no such share repurchases had occurred. 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 financing 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 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 financing 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. This 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 -17- the underlying mortgage collateral. If mortgage interest rates fall significantly below interest rates on the collateral, principal prepayments will increase, reducing or 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, improving the overall return on an investment in a fixed- rate CMO residual because of an increase in time over which the Company receives the net financing 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 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, periodic amortization of amounts paid for mortgage servicing rights is less since the average lives of the related mortgage loans tend to be longer and earnings from large, temporarily held cash balances will be greater. As a result, mortgage servicing rights become more valuable under these conditions. Conversely, lower interest rates will spur prepayments thus reducing the 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 since this investment is evaluated for impairment on a disaggregated basis and impairment charges are necessary if the amount for an individual servicing stratum exceeds its fair value. 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 operating results in a variety of interest rate environments. The Company supplements its business plan with derivative financial instruments, primarily 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 trading purposes. 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 trading purposes, changes in value will be recorded in income as they occur, which could increase income volatility. RECENT ACCOUNTING PRONOUNCEMENTS In February 1997 the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"). SFAS 128 establishes simplified standards for computing and presenting earnings per share ("EPS"). Under SFAS 128 the presentation of primary EPS will be replaced with a presentation of basic EPS. Basic EPS is computed excluding dilution caused by common stock equivalents such as stock options and, therefore, will tend to be slightly higher than primary EPS. The presentation of fully diluted EPS is replaced with a presentation of diluted EPS. Diluted EPS is computed in a similar fashion to how fully diluted EPS is computed. The Company will adopt this pronouncement to report results of operations for the fourth quarter of 1997 and for the year ended December 31, -18- 1997. Previously reported EPS will be restated at that time to conform to SFAS 128. This adoption is not expected to have a material impact on EPS as currently presented by the Company. PART II.--OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K: (a) Exhibits: The following Exhibits are presented herewith: Exhibit 11 - Computation of Earnings Per Share for the quarter and nine months ended September 30, 1997 and 1996. Exhibit 12 - Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends. Exhibit 27 - Financial Data Schedule (electronic filing only). (b) Reports on Form 8-K: Form 8-K Reporting Date - August 18, 1997 Items Reported: Item 5. Other Events This Current Report was filed solely in order to file the following exhibit as part of the Registrant's Registration Statement on Form S-3 (No. 333- 26865), as amended: Exhibit No. Description ----------- ----------- 12.1 Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends. -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 31, 1997 By: /s/ RONN K. LYTLE ------------------------------------ Ronn K. Lytle Chairman and Chief Executive Officer Date: October 31, 1997 By: /s/ ANDREW F. JACOBS ------------------------------------ Andrew F. Jacobs Senior Vice President - Control and Treasurer -20- EX-11 2 COMPUTATION OF EARNINGS PER SHARE EXHIBIT 11 CAPSTEAD MORTGAGE CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
QUARTER ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 -------------------------- ------------------------- 1997 1996 1997 1996 ----------- ------------- ----------- ------------ PRIMARY: Average number of common shares outstanding 52,765 38,319 49,431 36,872 Incremental shares calculated using the Treasury Stock method 1,190 883 1,109 856 ------- ------- -------- -------- 53,955 39,202 50,540 37,728 ======= ======= ======== ======== Net income $41,867 $32,428 $118,926 $ 91,429 Less cash dividends paid on convertible preferred stock: Series A ($0.40 per share) (166) (195) (519) (616) Series B ($0.315 per share) (5,907) (8,643) (19,415) (27,909) ------- ------- -------- -------- Net income available to common stockholders $35,794 $23,590 $ 98,992 $ 62,904 ======= ======= ======== ======== Primary net income per share $0.66 $0.60 $1.96 $1.67 ======= ======= ======== ======== FULLY DILUTED: Average number of common shares outstanding 52,765 38,319 49,431 36,872 Assumed conversion of convertible preferred stock: Series A 865 1,032 904 1,070 Series B 14,208 21,514 15,431 22,016 Incremental shares calculated using the Treasury Stock method 1,190 892 1,214 1,173 ------- ------- -------- -------- 69,028 61,757 66,980 61,131 ======= ======= ======== ======== Net income available to common stockholders $41,867 $32,428 $118,926 $ 91,429 ======= ======= ======== ======== Fully diluted net income per share $0.61 $0.53 $1.78 $1.50 ======= ======= ======== ========
EX-12 3 COMPUTATION OF RATIO OF EARNINGS EXHIBIT 12 CAPSTEAD MORTGAGE CORPORATION AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (IN THOUSANDS, EXCEPT RATIOS) (UNAUDITED) (a) Computation of ratio of earnings to combined fixed charges and preferred stock dividends (including CMO debt):
NINE MONTHS ENDED YEAR ENDED DECEMBER 31 SEPTEMBER 30, ----------------------------------------------------- 1997 1996 1995 1994 1993 ------------- ------------ ------------ ----------- ------------ Fixed charges $453,181 $598,312 $584,137 $474,844 $491,076 Preferred stock dividends 19,934 36,356 39,334 38,876 38,592 -------- -------- -------- -------- -------- Combined fixed charges and preferred stock dividends 473,115 634,668 623,471 513,720 529,668 Net income 118,926 127,228 77,359 85,579 94,256 -------- -------- -------- -------- -------- Total $592,041 $761,896 $700,830 $599,299 $623,924 ======== ======== ======== ======== ======== Ratio of earnings to combined fixed charges and preferred stock dividends 1.25:1 1.20:1 1.12:1 1.17:1 1.18:1 ======== ======== ======== ======== ========
(b) Computation of ratio of earnings to combined fixed charges and preferred stock dividends (excluding CMO debt):
NINE MONTHS ENDED YEAR ENDED DECEMBER 31 SEPTEMBER 30, ---------------------------------------------------- 1997 1996 1995 1994 1993 -------------- ------------ ----------- ----------- ------------ Fixed charges $249,954 $283,974 $223,751 $139,188 $ 80,923 Preferred stock dividends 19,934 36,356 39,334 38,876 38,592 -------- -------- -------- -------- -------- Combined fixed charges and preferred stock dividends 269,888 320,330 263,085 178,064 119,515 Net income 118,926 127,228 77,359 85,579 94,256 -------- -------- -------- -------- -------- Total $388,814 $447,558 $340,444 $263,643 $213,771 ======== ======== ======== ======== ======== Ratio of earnings to combined fixed charges and preferred stock dividends 1.44:1 1.40:1 1.29:1 1.48:1 1.79:1 ======== ======== ======== ======== ========
EX-27 4 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, 1997 and is qualified in its entirety by reference to such financial statements. 1,000 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 13,895 0 0 0 0 0 0 0 11,608,003 7,046,857 3,682,328 0 211,834 548 666,436 11,608,003 0 648,648 0 0 76,541 0 453,181 118,926 0 118,926 0 0 0 118,926 1.96 1.78
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