þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended:
|
December 31, 2013
|
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number:
|
001-08896
|
Maryland
|
75‑2027937
|
|
(State or other jurisdiction of incorporation or organization)
|
(I.R.S. Employer Identification No.)
|
|
8401 North Central Expressway, Suite 800, Dallas, TX
|
75225-4404
|
|
(Address of principal executive offices)
|
(Zip Code)
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Title of Each Class
|
|
Name of Exchange on Which Registered
|
Common Stock ($0.01 par value)
|
|
New York Stock Exchange
|
$7.50% Series E Cumulative Redeemable Preferred Stock ($0.10 par value)
|
|
New York Stock Exchange
|
Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
|
Smaller reporting company o
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Page
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ITEM 1.
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2
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ITEM 1A.
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4 | |
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ITEM 1B.
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4
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ITEM 2.
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4
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ITEM 3.
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4
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ITEM 4.
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4
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ITEM 5.
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4
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ITEM 6.
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6
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ITEM 7.
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7
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ITEM 7A.
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34
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ITEM 8.
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34
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ITEM 9.
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62
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ITEM 9A.
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62
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ITEM 9B.
|
64
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|
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ITEM 10
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64
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ITEM 11.
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64
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ITEM 12.
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64
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ITEM 13.
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64
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|
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ITEM 14.
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64
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|
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|
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ITEM 15.
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65
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|
|
|
|
67
|
• | changes in general economic conditions; |
• | fluctuations in interest rates and levels of mortgage prepayments; |
• | the effectiveness of risk management strategies; |
• | the impact of differing levels of leverage employed; |
• | liquidity of secondary markets and credit markets; |
• | the availability of financing at reasonable levels and terms to support investing at current leverage levels; |
• | the availability of new investment capital; |
• | the availability of suitable qualifying investments from both an investment return and regulatory perspective; |
• | changes in legislation or regulation affecting the GSEs, Ginnie Mae and similar federal government agencies and related guarantees; |
•
|
other changes in legislation or regulation affecting the mortgage and banking industries;
|
• | changes in market conditions as a result of Federal Reserve monetary policy or federal government fiscal challenges; |
• | deterioration in credit quality and ratings of existing or future issuances of GSE or Ginnie Mae securities; |
• | changes in legislation or regulation affecting exemptions for mortgage REITs from regulation under the Investment Company Act of 1940; and |
• | increases in costs and other general competitive factors. |
ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
|
Year ended December 31, 2013
|
Year ended December 31, 2012
|
||||||||||||||||||||||
|
Sales Prices
|
Dividends
|
Sales Prices
|
Dividends
|
||||||||||||||||||||
|
High
|
Low
|
Declared
|
High
|
Low
|
Declared
|
||||||||||||||||||
First quarter
|
$
|
13.22
|
$
|
11.62
|
$
|
0.31
|
$
|
13.62
|
$
|
12.29
|
$
|
0.43
|
||||||||||||
Second quarter
|
13.28
|
11.67
|
0.31
|
14.29
|
12.84
|
0.40
|
||||||||||||||||||
Third quarter
|
12.52
|
11.08
|
0.31
|
14.59
|
13.49
|
0.36
|
||||||||||||||||||
Fourth quarter
|
12.54
|
11.25
|
0.31
|
13.60
|
10.81
|
0.30
|
|
Year ended December 31
|
|||||||||||||||||||||||
|
2008
|
2009
|
2010
|
2011
|
2012
|
2013
|
||||||||||||||||||
Capstead Mortgage Corporation
|
$
|
100.00
|
$
|
150.24
|
$
|
157.17
|
$
|
178.25
|
$
|
184.06
|
$
|
214.34
|
||||||||||||
Russell 2000 Index
|
100.00
|
127.17
|
161.32
|
154.59
|
179.86
|
249.69
|
||||||||||||||||||
NAREIT Mortgage REIT Index
|
100.00
|
124.63
|
152.79
|
149.10
|
178.75
|
175.25
|
|
As of or for the year ended December 31
|
|||||||||||||||||||
|
2013
|
2012
|
2011
|
2010
|
2009
|
|||||||||||||||
Selected statement of income data:
|
||||||||||||||||||||
|
||||||||||||||||||||
Interest income on residential mortgage investments (before investment premium amortization)
|
$
|
341,009
|
$
|
352,608
|
$
|
311,154
|
$
|
256,069
|
$
|
343,096
|
||||||||||
Investment premium amortization
|
(125,872
|
)
|
(96,677
|
)
|
(68,077
|
)
|
(57,581
|
)
|
(29,420
|
)
|
||||||||||
Related interest expense
|
(66,368
|
)
|
(69,101
|
)
|
(57,328
|
)
|
(47,502
|
)
|
(120,083
|
)
|
||||||||||
|
148,769
|
186,830
|
185,749
|
150,986
|
193,593
|
|||||||||||||||
Other interest income (expense) (a)
|
(8,165
|
)
|
(7,790
|
)
|
(8,192
|
)
|
(7,200
|
)
|
(7,569
|
)
|
||||||||||
|
140,604
|
179,040
|
177,557
|
143,786
|
186,024
|
|||||||||||||||
Other revenue (expense) (b)
|
(14,117
|
)
|
(15,414
|
)
|
(17,353
|
)
|
(16,890
|
)
|
(56,761
|
)
|
||||||||||
Net income
|
$
|
126,487
|
$
|
163,626
|
$
|
160,204
|
$
|
126,896
|
$
|
129,263
|
||||||||||
Net income per diluted common share (c)
|
$
|
0.93
|
$
|
1.50
|
$
|
1.75
|
$
|
1.52
|
$
|
1.66
|
||||||||||
Cash dividends per common share
|
1.24
|
1.49
|
1.76
|
1.51
|
2.24
|
|||||||||||||||
Average diluted common shares outstanding
|
95,393
|
95,012
|
79,696
|
69,901
|
65,449
|
|||||||||||||||
Selected balance sheet data:
|
||||||||||||||||||||
Residential mortgage investments
|
$
|
13,475,874
|
$
|
13,860,158
|
$
|
12,264,906
|
$
|
8,515,691
|
$
|
8,081,050
|
||||||||||
Total assets
|
14,015,968
|
14,469,263
|
12,844,622
|
8,999,362
|
8,628,903
|
|||||||||||||||
Repurchase arrangements and similar borrowings
|
12,482,900
|
12,784,238
|
11,352,444
|
7,792,743
|
7,435,256
|
|||||||||||||||
Long-term investment capital (“LTIC”):
|
||||||||||||||||||||
Unsecured borrowings (net of related investments in statutory trusts prior to dissolution in December 2013)
|
100,000
|
99,978
|
99,978
|
99,978
|
99,978
|
|||||||||||||||
Preferred stockholders’ equity
|
165,756
|
188,992
|
184,514
|
179,323
|
179,333
|
|||||||||||||||
Common stockholders’ equity
|
1,200,027
|
1,308,133
|
1,108,193
|
848,102
|
834,608
|
|||||||||||||||
Book value per common share (unaudited)
|
12.47
|
13.58
|
12.52
|
12.02
|
11.99
|
|||||||||||||||
Key operating data: (unaudited)
|
||||||||||||||||||||
Portfolio acquisitions (principal amount)
|
$
|
3,187,534
|
$
|
4,206,459
|
$
|
5,673,803
|
$
|
3,299,600
|
$
|
1,969,113
|
||||||||||
Portfolio runoff (principal amount)
|
3,483,756
|
2,784,687
|
2,127,812
|
2,932,978
|
1,513,967
|
|||||||||||||||
Common equity capital raised
|
–
|
142,036
|
231,673
|
10,423
|
81,441
|
|||||||||||||||
Common share repurchases
|
7,292
|
35,062
|
–
|
–
|
–
|
|||||||||||||||
Year-end portfolio leverage ratio (d)
|
8.52:1
|
8.00:1
|
8.15:1
|
6.91:1
|
6.67:1
|
|||||||||||||||
|
||||||||||||||||||||
Average financing spreads on residential mortgage investments (e)
|
1.07
|
%
|
1.38
|
%
|
1.68
|
%
|
1.93
|
%
|
2.42
|
%
|
||||||||||
Average total financing spreads (e)
|
0.96
|
1.26
|
1.56
|
1.74
|
2.23
|
|||||||||||||||
|
||||||||||||||||||||
Average mortgage prepayment rates, (expressed as constant prepayment rates, or CPRs)
|
21.45
|
17.60
|
16.58
|
29.47
|
16.84
|
|||||||||||||||
Return on average LTIC
|
8.72
|
10.98
|
13.14
|
12.08
|
13.34
|
|||||||||||||||
Return on average common equity capital
|
7.08
|
11.15
|
13.94
|
12.68
|
14.90
|
(a) | Consists principally of interest on unsecured borrowings and is presented net of earnings of related statutory trusts prior to dissolution in December 2013. |
(b) | In 2009 Capstead recorded impairment charges totaling $40 million substantially reducing its exposure to investments in commercial real estate loans. |
(c) | Net income per diluted common share in 2013 includes charges totaling $0.23 related to Series A and B preferred share redemption preference premiums paid and dividends accruing on the Company’s Series A and B preferred shares from the May 2013 issue date of the Company’s Series E preferred shares through the June 2013 redemption of the Series A and B preferred shares. See Item 7 pages 8 and 14 for further discussion. |
(d) | Year-end portfolio leverage ratios were calculated by dividing repurchase arrangements and similar borrowings by long-term investment capital. |
(e) | Financing spreads on residential mortgage investments is a non-GAAP financial measure based solely on yields on Capstead’s residential mortgage investments, net of borrowing rates on repurchase arrangements and similar borrowings, adjusted for currently-paying interest rate swap agreements held for hedging purposes. This measure differs from total financing spreads, an all-inclusive GAAP measure that includes yields on all interest-earning assets, as well as rates paid on all interest-bearing liabilities, principally unsecured borrowings. See Item 7 page 14 for reconciliations of these measures. |
|
As of and for the year ended December 31
|
||||||||||||||||||||
|
2013
|
2012
|
2011
|
||||||||||||||||||
|
|||||||||||||||||||||
Book value per common share, beginning of year
|
$
|
13.58
|
$
|
12.52
|
$
|
12.02
|
|||||||||||||||
One-time effects of second quarter 2013 redemption of Series A and B preferred shares and issuance of Series E preferred shares
|
(0.28
|
)
|
–
|
–
|
|||||||||||||||||
Other capital transactions:
|
|||||||||||||||||||||
Dividend distributions in excess of core earnings
|
(0.08
|
)
|
(0.01
|
)
|
(0.06
|
)
|
|||||||||||||||
Accretion from capital raises
|
–
|
0.12
|
0.22
|
||||||||||||||||||
Accretion from common share repurchases
|
0.01
|
0.02
|
–
|
||||||||||||||||||
Increase related to stock awards
|
0.02
|
–
|
–
|
||||||||||||||||||
|
(0.33
|
)
|
(2.4 | )% |
0.13
|
1.1 | % |
0.16
|
1.4 | % | |||||||||||
Change in unrealized gains and losses on mortgage securities classified as available-for-sale
|
(1.05
|
)
|
0.95
|
0.61
|
|||||||||||||||||
Change in unrealized gains and losses on interest rate swap agreements designated as cash flow hedges of:
|
|||||||||||||||||||||
Borrowings under repurchase arrangements
|
0.08
|
(0.04
|
)
|
0.01
|
|||||||||||||||||
Unsecured borrowings
|
0.19
|
0.02
|
(0.28
|
)
|
|||||||||||||||||
|
(0.78
|
)
|
(5.8 | )% |
0.93
|
7.4
|
% |
0.34
|
2.8
|
% | |||||||||||
Book value per common share, end of year
|
$
|
12.47
|
$
|
13.58
|
$
|
12.52
|
|||||||||||||||
|
|||||||||||||||||||||
Change in book value per common share during the indicated year
|
$
|
(1.11
|
)
|
(8.2 | )% |
$
|
1.06
|
8.5
|
% |
$
|
0.50
|
4.2
|
% |
|
As of and for the year ended December 31
|
|||||||||||
|
2013
|
2012
|
2011
|
|||||||||
Residential mortgage investments, beginning of year
|
$
|
13,860,158
|
$
|
12,264,906
|
$
|
8,515,691
|
||||||
(Decrease) increase in net unrealized gains on mortgage securities classified as available-for-sale
|
(101,001
|
)
|
91,750
|
54,325
|
||||||||
Portfolio acquisitions (principal amount) at average lifetime purchased yields of 2.28%, 2.17% and 2.75%, respectively
|
3,187,534
|
4,206,459
|
5,673,803
|
|||||||||
Securities effectively sold in connection with the bankruptcy of a lending counterparty
|
–
|
–
|
(8,262
|
)
|
||||||||
Investment premiums on acquisitions*
|
138,811
|
178,407
|
225,238
|
|||||||||
Portfolio runoff (principal amount)
|
(3,483,756
|
)
|
(2,784,687
|
)
|
(2,127,812
|
)
|
||||||
Investment premium amortization
|
(125,872
|
)
|
(96,677
|
)
|
(68,077
|
)
|
||||||
Residential mortgage investments, end of year
|
$
|
13,475,874
|
$
|
13,860,158
|
$
|
12,264,906
|
* | Residential mortgage investments typically are acquired at a premium to the securities’ unpaid principal balances. Investment premiums are recognized in earnings as portfolio yield adjustments using the interest method over the estimated lives of the related investments. As such, the level of mortgage prepayments impacts how quickly investment premiums are amortized. |
ARM Type (a)
|
Amortized
Cost Basis (b)
|
Net
WAC (c)
|
Fully
Indexed
WAC (c)
|
Average
Net
Margins (c)
|
Average
Periodic
Caps (c)
|
Average
Lifetime
Caps (c)
|
Months
To
Roll (a)
|
|||||||||||||||||||||
Current-reset ARMs:
|
||||||||||||||||||||||||||||
Fannie Mae Agency Securities
|
$
|
4,658,862
|
2.33
|
%
|
2.16
|
%
|
1.71
|
%
|
3.29
|
%
|
10.09
|
%
|
5.4
|
|||||||||||||||
Freddie Mac Agency Securities
|
1,637,500
|
2.44
|
2.25
|
1.83
|
2.13
|
10.58
|
6.4
|
|||||||||||||||||||||
Ginnie Mae Agency Securities
|
1,181,571
|
2.52
|
1.66
|
1.51
|
1.04
|
8.80
|
8.7
|
|||||||||||||||||||||
Residential mortgage loans
|
4,262
|
3.45
|
2.26
|
2.02
|
1.50
|
10.94
|
4.5
|
|||||||||||||||||||||
|
7,482,195
|
2.39
|
2.10
|
1.70
|
2.69
|
9.99
|
6.1
|
|||||||||||||||||||||
Longer-to-reset ARMs:
|
||||||||||||||||||||||||||||
Fannie Mae Agency Securities
|
2,972,662
|
2.86
|
2.33
|
1.75
|
4.89
|
7.87
|
40.3
|
|||||||||||||||||||||
Freddie Mac Agency Securities
|
1,750,047
|
2.93
|
2.40
|
1.82
|
4.83
|
7.96
|
40.7
|
|||||||||||||||||||||
Ginnie Mae Agency Securities
|
1,038,465
|
2.78
|
1.66
|
1.51
|
1.11
|
7.87
|
30.9
|
|||||||||||||||||||||
|
5,761,174
|
2.86
|
2.23
|
1.73
|
4.19
|
7.90
|
38.7
|
|||||||||||||||||||||
|
$
|
13,243,369
|
2.59
|
2.16
|
1.71
|
3.34
|
9.08
|
20.2
|
||||||||||||||||||||
Gross WAC (rate paid by borrowers) (d)
|
3.20
|
(a) | Capstead classifies its ARM securities based on the average length of time until the loans underlying each security reset to more current rates (“months-to-roll”) (less than 18 months for “current-reset” ARM securities, and 18 months or greater for “longer-to-reset” ARM securities). Once an ARM loan reaches its initial reset date, it will reset at least once a year to a margin over a corresponding interest rate index, subject to periodic and lifetime limits or caps. |
(b) | Amortized cost basis represents the Company’s investment (unpaid principal balance plus unamortized investment premiums) before unrealized gains and losses. As of December 31, 2013, the ratio of amortized cost basis to related unpaid principal balance for the Company’s ARM securities was 103.26. This table excludes $2 million in fixed-rate Agency Securities, $3 million in fixed-rate residential mortgage loans and $2 million in private residential mortgage pass-through securities held as collateral for structured financings. |
(d) | Gross WAC is the weighted average interest rate of the mortgage loans underlying the indicated investments, which includes servicing and other fees paid by borrowers, as of the indicated balance sheet date. |
|
2013
|
2012
|
||||||||||||||||||||||||||||||
|
Q4
|
Q3
|
Q2
|
Q1
|
Q4
|
Q3
|
Q2
|
Q1
|
||||||||||||||||||||||||
Yields on residential mortgage investments:(a)
|
||||||||||||||||||||||||||||||||
Cash yields
|
2.48
|
%
|
2.50
|
%
|
2.52
|
%
|
2.57
|
%
|
2.60
|
%
|
2.65
|
%
|
2.71
|
%
|
2.74
|
%
|
||||||||||||||||
Investment premium amortization
|
(0.74
|
)
|
(1.14
|
)
|
(0.99
|
)
|
(0.84
|
)
|
(0.84
|
)
|
(0.79
|
)
|
(0.67
|
)
|
(0.60
|
)
|
||||||||||||||||
Adjusted yields
|
1.74
|
1.36
|
1.53
|
1.73
|
1.76
|
1.86
|
2.04
|
2.14
|
||||||||||||||||||||||||
Related borrowing rates:(b)
|
||||||||||||||||||||||||||||||||
Unhedged borrowing rates
|
0.38
|
0.37
|
0.39
|
0.41
|
0.45
|
0.41
|
0.37
|
0.32
|
||||||||||||||||||||||||
Fixed swap rates
|
0.52
|
0.59
|
0.65
|
0.71
|
0.75
|
0.78
|
0.80
|
0.85
|
||||||||||||||||||||||||
Adjusted borrowing rates
|
0.49
|
0.49
|
0.53
|
0.58
|
0.63
|
0.56
|
0.54
|
0.49
|
||||||||||||||||||||||||
Financing spreads on residential mortgage investments
|
1.25
|
0.87
|
1.00
|
1.15
|
1.13
|
1.30
|
1.50
|
1.65
|
||||||||||||||||||||||||
CPR
|
17.14
|
25.49
|
23.12
|
20.05
|
19.99
|
19.14
|
16.31
|
14.97
|
(a) | Cash yields are based on the cash component of interest income. Investment premium amortization is determined using the interest method which incorporates actual and anticipated future mortgage prepayments. Both are expressed as a percentage calculated on an annualized basis on average amortized cost basis for the indicated periods. |
(b) | Unhedged borrowing rates represent average rates on repurchase agreements and similar borrowings, before consideration of related currently-paying interest rate swap agreements. |
|
2013
|
2012
|
||||||||||||||||||||||||||||||
|
Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||||||||
Financing spreads on residential mortgage investments
|
1.25
|
%
|
0.87
|
%
|
1.00
|
%
|
1.15
|
%
|
1.13
|
%
|
1.30
|
%
|
1.50
|
%
|
1.65
|
%
|
||||||||||||||||
Impact of yields on other interest-earning assets*
|
(0.03
|
)
|
(0.02
|
)
|
(0.05
|
)
|
(0.05
|
)
|
(0.07
|
)
|
(0.05
|
)
|
(0.06
|
)
|
(0.06
|
)
|
||||||||||||||||
Impact of borrowing rates on unsecured borrowings and interest-paying liabilities*
|
(0.07
|
)
|
(0.06
|
)
|
(0.06
|
)
|
(0.06
|
)
|
(0.06
|
)
|
(0.06
|
)
|
(0.07
|
)
|
(0.07
|
)
|
||||||||||||||||
Total financing spreads
|
1.15
|
0.79
|
0.89
|
1.04
|
1.00
|
1.19
|
1.37
|
1.52
|
|
2013
|
2012
|
2011
|
2010
|
2009
|
|||||||||||||||
Financing spreads on residential mortgage investments
|
1.07
|
%
|
1.38
|
%
|
1.68
|
%
|
1.93
|
%
|
2.42
|
%
|
||||||||||
Impact of yields on other interest-earning assets*
|
(0.04
|
)
|
(0.06
|
)
|
(0.04
|
)
|
(0.07
|
)
|
(0.09
|
)
|
||||||||||
Impact of borrowing rates on unsecured borrowings and other interest-paying liabilities*
|
(0.07
|
)
|
(0.06
|
)
|
(0.08
|
)
|
(0.12
|
)
|
(0.10
|
)
|
||||||||||
Total financing spreads
|
0.96
|
1.26
|
1.56
|
1.74
|
2.23
|
* | Other interest-earning assets consist of overnight investments and cash collateral receivable from interest rate swap counterparties. Other interest-paying liabilities consist of long-term unsecured borrowings (at an average borrowing rate of 8.49%) that the Company considers a component of its long-term investment capital and cash collateral payable to interest rate swap counterparties. |
Net income available to common stockholders/net income per diluted common share
|
$
|
89,027
|
$
|
0.93
|
||||
Series A and B redemption preference premiums paid
|
19,924
|
0.21
|
||||||
Series A and B preferred dividends accruing from the issue date of the Series E preferred shares to the Series A and B redemption date
|
1,741
|
0.02
|
||||||
Core earnings available to common stockholders/core earnings per diluted common share
|
$
|
110,692
|
$
|
1.16
|
|
Investments (a)
|
Related
Borrowings
|
Capital
Employed
|
Potential
Liquidity (b)
|
Portfolio
Leverage (c)
|
||||||||||||
Balances as of December 31, 2013:
|
|
||||||||||||||||
|
|
||||||||||||||||
Residential mortgage investment portfolio
|
$
|
13,475,874
|
$
|
12,482,900
|
$
|
992,974
|
$
|
357,283
|
|
||||||||
Cash collateral receivable from swap counterparties, net (d)
|
19,203
|
–
|
|
||||||||||||||
Other assets, net of other liabilities
|
453,606
|
413,356
|
|
||||||||||||||
|
$
|
1,465,783
|
$
|
770,639
|
8.52:1
|
||||||||||||
Balances as of December 31, 2012
|
$
|
13,860,158
|
$
|
12,784,238
|
$
|
1,597,103
|
$
|
890,625
|
8.00:1
|
(a) | Investments are stated at balance sheet carrying amounts, which generally reflect estimated fair value as of the indicated dates. |
(b) | Potential liquidity is based on maximum amounts of borrowings available under existing uncommitted repurchase arrangements considering management’s estimate of the fair value of related collateral as of the indicated dates adjusted for other sources of liquidity such as cash and cash equivalents. |
(c) | Portfolio leverage is expressed as the ratio of repurchase agreements and similar borrowings (Related Borrowings in the table above) to long-term investment capital (total Capital Employed in the table above). |
(d) | Cash collateral receivable from swap counterparties is presented net of cash collateral payable to swap counterparties, if applicable, and the fair value of interest rate swap positions as of the indicated date. |
Payments Due by Period*
|
||||||||||||||||||||
Total
|
12 Months
or Less
|
13 – 36
Months
|
37 – 60
Months
|
>Than
60 Months
|
||||||||||||||||
|
||||||||||||||||||||
Repurchase arrangements and similar borrowings
|
$
|
12,489,711
|
$
|
12,488,244
|
$
|
990
|
$
|
327
|
$
|
150
|
||||||||||
Unsecured borrowings
|
273,516
|
8,382
|
13,858
|
13,054
|
238,222
|
|||||||||||||||
|
||||||||||||||||||||
Interest rate swap agreements designated as cash flow hedges of:
|
||||||||||||||||||||
15,712
|
12,454
|
3,258
|
–
|
–
|
||||||||||||||||
Unsecured borrowings
|
3,671
|
–
|
1,793
|
1,878
|
–
|
|||||||||||||||
Corporate office lease
|
1,872
|
273
|
559
|
588
|
452
|
|||||||||||||||
|
$
|
12,784,482
|
$
|
12,509,353
|
$
|
20,458
|
$
|
15,847
|
$
|
238,824
|
* | Repurchase arrangements and similar borrowings include an interest component based on contractual rates in effect at year-end. Obligations under interest rate swap agreements are net of variable-rate payments owed to the Company under the agreements’ terms that are based on market interest rate expectations as of year-end. Excluded from consideration are an estimated $11 million in variable-rate payments expected to be received beginning in 2019 in excess of related fixed-rate payment obligations. This presentation excludes acquisitions of investments and any other contractual obligations committed to subsequent to year-end. |
|
Year ended December 31
|
|||||||||||
|
2013
|
2012
|
2011
|
|||||||||
Income statement data: (in thousands, except per share data)
|
||||||||||||
|
||||||||||||
Interest income on residential mortgage investments (before investment premium amortization)
|
$
|
341,009
|
$
|
352,608
|
$
|
311,154
|
||||||
Investment premium amortization
|
(125,872
|
)
|
(96,677
|
)
|
(68,077
|
)
|
||||||
Related interest expense
|
(66,368
|
)
|
(69,101
|
)
|
(57,328
|
)
|
||||||
|
148,769
|
186,830
|
185,749
|
|||||||||
Other interest income (expense) (a)
|
(8,165
|
)
|
(7,790
|
)
|
(8,192
|
)
|
||||||
|
140,604
|
179,040
|
177,557
|
|||||||||
Other revenue (expense):
|
||||||||||||
Salaries and benefits
|
(5,776
|
)
|
(5,929
|
)
|
(5,741
|
)
|
||||||
Short-term incentive compensation
|
(3,565
|
)
|
(5,043
|
)
|
(6,657
|
)
|
||||||
Other general and administrative expense
|
(4,476
|
)
|
(4,271
|
)
|
(3,932
|
)
|
||||||
Miscellaneous other revenue (expense)
|
(300
|
)
|
(171
|
)
|
(1,023
|
)
|
||||||
(14,117
|
)
|
(15,414
|
)
|
(17,353
|
)
|
|||||||
Net income
|
$
|
126,487
|
$
|
163,626
|
$
|
160,204
|
||||||
Net income per diluted common share
|
$
|
0.93
|
$
|
1.50
|
$
|
1.75
|
||||||
Core earnings per diluted common share
|
$
|
1.16
|
$
|
1.50
|
$
|
1.75
|
||||||
Average diluted shares outstanding
|
95,393
|
95,012
|
79,696
|
|||||||||
Key operating statistics: (dollars in millions)
|
||||||||||||
Average yields:
|
||||||||||||
Residential mortgage investments
|
1.59
|
%
|
1.94
|
%
|
2.24
|
%
|
||||||
Other interest-earning assets
|
0.10
|
0.16
|
0.12
|
|||||||||
Total average yields
|
1.55
|
1.88
|
2.20
|
|||||||||
Average borrowing rates:
|
||||||||||||
Repurchase arrangements and similar borrowings:
|
||||||||||||
Unhedged borrowing rates
|
0.39
|
0.39
|
0.28
|
|||||||||
As adjusted for interest rate hedging transactions
|
0.52
|
0.56
|
0.56
|
|||||||||
Unsecured borrowings
|
8.49
|
8.49
|
8.49
|
|||||||||
Other
|
0.08
|
0.07
|
0.14
|
|||||||||
Total average borrowing rates
|
0.59
|
0.62
|
0.64
|
|||||||||
Total average financing spreads
|
0.96
|
1.26
|
1.56
|
|||||||||
Average financing spreads on residential mortgage investments
|
1.07
|
1.38
|
1.68
|
|||||||||
Average net yield on total interest-earning assets
|
1.01
|
1.31
|
1.60
|
|||||||||
Average CPR
|
21.45
|
17.60
|
16.58
|
|||||||||
Average balance information:
|
||||||||||||
Residential mortgage investments (cost basis)
|
$
|
13,551
|
$
|
13,190
|
$
|
10,840
|
||||||
Other interest-earning assets
|
336
|
446
|
241
|
|||||||||
Repurchase arrangements and similar borrowings
|
12,703
|
12,443
|
10,060
|
|||||||||
Currently-paying swap agreements (notional amounts)
|
3,999
|
3,794
|
3,728
|
|||||||||
Unsecured borrowings (included in long-term investment capital)
|
103
|
103
|
103
|
|||||||||
Other interest-bearing liabilities
|
–
|
–
|
3
|
|||||||||
Long-term investment capital (“LTIC”)
|
1,548
|
1,567
|
1,284
|
|||||||||
Portfolio leverage
|
8.21:1
|
7.94:1
|
7.83:1
|
|||||||||
Operating costs as a percentage of average LTIC
|
0.89
|
%
|
0.97
|
%
|
1.27
|
%
|
||||||
Return on average LTIC
|
8.72
|
10.98
|
13.14
|
|||||||||
Return on average common equity capital (b)
|
7.08
|
11.15
|
13.94
|
(a) | Consists principally of interest on unsecured borrowings and is presented net of earnings of related statutory trusts. These affiliates were dissolved in December 2013. |
(b) | The 2013 return on common equity capital excluding the effects on net income per diluted common share of the second quarter 2013 preferred capital redemptions was 8.80%. |
Federal
Funds
Rate
|
10-year U.S.
Treasury
Rate
|
Down
0.50%
|
Up
0.50%
|
Up
1.00%
|
||||||||||||||||
Projected 12-month percentage change in net interest margins: *
|
|
|||||||||||||||||||
December 31, 2013
|
<0.25
|
% |
3.03
|
%
|
(15.9
|
)%
|
(1.5
|
)%
|
(6.6
|
)%
|
||||||||||
December 31, 2012
|
<0.25
|
1.76
|
(1.7
|
)
|
(6.2
|
)
|
(13.7
|
)
|
||||||||||||
|
|
|||||||||||||||||||
Projected percentage change in portfolio and related derivative values: *
|
|
|||||||||||||||||||
December 31, 2013
|
<0.25
|
% |
3.03
|
%
|
–
|
%
|
(0.2
|
)%
|
(0.3
|
)%
|
||||||||||
December 31, 2012
|
<0.25
|
1.76
|
–
|
(0.2
|
)
|
(0.3
|
)
|
* | Sensitivity of net interest margins as well as portfolio and related derivative values to changes in interest rates is determined relative to the actual rates at the applicable date. Note that the projected 12-month net interest margin change is predicated on acquisitions of similar assets sufficient to replace runoff. There can be no assurance that suitable investments will be available for purchase at attractive prices, if investments made will behave in the same fashion as assets currently held or if management will choose to replace runoff with such assets. |
• | The Company would be taxed as a regular domestic corporation, which, among other things, means that the Company would be unable to deduct dividends paid to its stockholders in computing taxable income and would be subject to federal income tax on its taxable income at regular corporate rates; |
• | Any resulting tax liability could be substantial and would reduce the cash available for distribution to stockholders, and the Company would not be required to make income distributions; and |
• | Unless Capstead were entitled to relief under applicable statutory provisions, the Company would be disqualified from treatment as a REIT for the subsequent four taxable years and, as a result, the Company’s cash available for distribution to stockholders would be reduced during these years. |
• | will be required to pay tax on any undistributed REIT taxable income, |
• | may be subject to the “alternative minimum tax” on any tax preference items, and |
• | may operate taxable REIT subsidiaries subject to tax on any taxable income earned. |
• | Repurchase rights: Repurchase rights granted to Capstead’s board in its charter limit related investors, including, among other things, any voting group, from owning common stock if the concentration owned would jeopardize the Company's REIT status. |
• | Classification of preferred stock: Capstead’s charter authorizes the board to issue preferred stock and establish the preferences and rights of any class of preferred stock issued. These actions can be taken without soliciting stockholder approval and could have the effect of delaying or preventing someone from taking control of the Company. |
• | Statutory provisions: Capstead is subject to provisions of Maryland statutory law that restrict business combinations with interested stockholders and restrict voting rights of certain shares acquired in control share acquisitions. The board has not taken any action to exempt the Company from these provisions. |
• | Redemption rights: The Series E preferred shares are redeemable by the Company, in whole or in part, at any time on or after May 13, 2018, or pursuant to a Special Optional Redemption Right upon the occurrence of a Change of Control, as both terms are defined in the Series E Articles Supplementary, at a cash redemption price of $25.00 plus all accrued and unpaid dividends to, but not including, the date of redemption, which may be less than the prevailing market price for the Series E preferred shares. |
• | Limited conversion rights: Holders of the Series E preferred shares may convert into common shares only upon the occurrence of a Change of Control, and only if the Company does not exercise its Special Optional Redemption Right. Even if this were to occur, it may not be economically advantageous to convert based on then existing conversion ratios and trading levels of the Company’s common shares. |
• | Subordination: The Series E preferred shares are subordinate to all of the Company’s existing and future debt. None of the provisions relating to the Series E preferred shares limit the Company’s ability to incur future debt. Future debt may include restrictions on the Company’s ability to pay dividends on, redeem, or pay the liquidation preference on, the Series E preferred shares. |
• | Dilution through issuance of additional preferred shares: The Company’s charter currently authorizes the issuance of up to 100 million shares of preferred stock in one or more series. The issuance of additional preferred stock on parity with or senior to the Series E preferred shares would dilute the interests of Series E preferred stockholders, and could affect the Company’s ability to pay dividends on, redeem, or pay the liquidation preference on, the Series E preferred shares. None of the provisions relating to Series E preferred shares limit the Company’s ability to issue additional preferred stock on parity with Series E preferred shares. |
• | Limited voting rights: Voting rights as a holder of Series E preferred shares are limited. The Company’s common stock is currently the only class of stock carrying full voting rights. Voting rights for holders of Series E preferred shares exist primarily with respect to (i) adverse changes in the terms of the Series E preferred shares, (ii) the creation of additional classes or series of preferred stock that are senior to the Series E preferred shares, and (iii) the non-payment of six quarterly dividends (whether or not consecutive) are in arrears. |
· | Amortization of investment premiums on residential mortgage investments – Investment premiums on residential mortgage investments are recognized in earnings as adjustments to interest income by the interest method over the estimated lives of the related assets. For most of Capstead’s residential mortgage investments, estimates and judgments related to future levels of mortgage prepayments are critical to this determination. Mortgage prepayment expectations can change based on how current and projected changes in interest rates impact the economic attractiveness of mortgage refinance opportunities, if available, and other factors such as portfolio composition. In recent years, the ability of mortgagors to refinance has also been impacted by more stringent loan underwriting practices and lending industry capacity restraints, government-sponsored mortgagor relief programs, low housing prices and credit problems being experienced by many of these borrowers. Management estimates mortgage prepayments based on past experiences with specific investments within the portfolio in addition to the factors mentioned above. Should actual prepayment rates differ materially from these estimates, investment premiums would be expensed at a different pace. |
· | Fair value and impairment accounting for residential mortgage investments – Nearly all of Capstead’s residential mortgage investments are held in the form of mortgage securities that are classified as available-for-sale and recorded at fair value on the balance sheet with unrealized gains and losses recorded in Stockholders’ equity as a component of Accumulated other comprehensive income. As such, these unrealized gains and losses enter into the calculation of book value per common share, a key financial metric used by investors in evaluating the Company. Fair values fluctuate with current and projected changes in interest rates, prepayment expectations and other factors such as market liquidity conditions. Considerable judgment is required to interpret market data and develop estimated fair values, particularly in circumstances of deteriorating credit quality and market liquidity. See NOTE 9 to the consolidated financial statements (included under Item 8 of this report) for discussion of how Capstead values its residential mortgage investments. Generally, gains or losses are recognized in earnings only if sold; however, if a decline in fair value of a mortgage security below its amortized cost occurs that is determined to be other-than-temporary, the difference between amortized cost and fair value would be recognized in earnings as a component of Other revenue (expense) if the decline was credit-related or it was determined to be more likely than not that the Company will incur a loss via an asset sale. Other-than-temporary impairment of a mortgage security due to other factors would be recognized in Accumulated other comprehensive income. |
· | Accounting for derivative financial instruments – Capstead uses derivatives for risk management purposes. Derivatives are recorded as assets or liabilities and carried at fair value and consequently, changes in value of these instruments enter into the calculation of book value per common share. Fair values fluctuate with current and projected changes in interest rates and other factors such as the Company’s and its counterparties’ nonperformance risk. Judgment is required to develop estimated fair values. |
|
Page
|
|
|
Report of Independent Registered Public Accounting Firm
|
35
|
|
|
Consolidated Balance Sheets at December 31, 2013 and December 31, 2012
|
36
|
|
|
Consolidated Statements of Income for the years ended December 31, 2013, 2012 and 2011
|
37
|
|
|
Consolidated Statements of Comprehensive Income for the years ended December 31, 2013, 2012 and 2011
|
38
|
|
|
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2013, 2012 and 2011
|
39
|
|
|
Consolidated Statements of Cash Flows for the years ended December 31, 2013, 2012 and 2011
|
40
|
Notes to the Consolidated Financial Statements |
41
|
/s/ ERNST & YOUNG, LLP
|
|
Dallas, Texas
|
|
February 28, 2014
|
December 31
|
||||||||
2013
|
2012
|
|||||||
Assets
|
||||||||
Residential mortgage investments ($13.12 and $13.45 billion pledged under repurchase arrangements at December 31, 2013 and December 31, 2012, respectively)
|
$
|
13,475,874
|
$
|
13,860,158
|
||||
Cash collateral receivable from interest rate swap counterparties
|
25,502
|
49,972
|
||||||
Interest rate swap agreements at fair value
|
5,005
|
169
|
||||||
Cash and cash equivalents
|
413,356
|
425,445
|
||||||
Receivables and other assets
|
96,231
|
130,402
|
||||||
Investments in unconsolidated affiliates
|
–
|
3,117
|
||||||
|
$
|
14,015,968
|
$
|
14,469,263
|
||||
Liabilities
|
||||||||
Repurchase arrangements and similar borrowings
|
$
|
12,482,900
|
$
|
12,784,238
|
||||
Interest rate swap agreements at fair value
|
11,304
|
32,868
|
||||||
Unsecured borrowings
|
100,000
|
103,095
|
||||||
Common stock dividend payable
|
30,872
|
29,512
|
||||||
Accounts payable and accrued expenses
|
25,109
|
22,425
|
||||||
|
12,650,185
|
12,972,138
|
||||||
Stockholders’ equity
|
||||||||
Preferred stock - $0.10 par value; 100,000 shares authorized:$1.60 Cumulative Preferred Stock, Series A,-0- and 186 shares issued and outstanding at December 31, 2013 and December 31, 2012, respectively
|
–
|
2,604
|
||||||
$1.26 Cumulative Convertible Preferred Stock, Series B,-0- and 16,493 shares issued and outstanding at December 31, 2013 and December 31, 2012, respectively
|
–
|
186,388
|
||||||
7.50% Cumulative Redeemable Preferred Stock, Series E,6,861 and -0- shares issued and outstanding ($171,521 and $-0- aggregate liquidation preferences) at December 31, 2013and December 31, 2012, respectively
|
165,756
|
–
|
||||||
Common stock - $0.01 par value; 250,000 shares authorized:95,807 and 96,229 shares issued and outstanding at December 31, 2013 and December 31, 2012, respectively
|
958
|
962
|
||||||
Paid-in capital
|
1,329,792
|
1,367,199
|
||||||
Accumulated deficit
|
(349,866
|
)
|
(353,938
|
)
|
||||
Accumulated other comprehensive income
|
219,143
|
293,910
|
||||||
|
1,365,783
|
1,497,125
|
||||||
|
$
|
14,015,968
|
$
|
14,469,263
|
|
Year ended December 31
|
|||||||||||
|
2013
|
2012
|
2011
|
|||||||||
Interest income:
|
||||||||||||
Residential mortgage investments
|
$
|
215,137
|
$
|
255,931
|
$
|
243,077
|
||||||
Other
|
322
|
698
|
301
|
|||||||||
|
215,459
|
256,629
|
243,378
|
|||||||||
Interest expense:
|
||||||||||||
Repurchase arrangements and similar borrowings
|
(66,368
|
)
|
(69,101
|
)
|
(57,328
|
)
|
||||||
Unsecured borrowings
|
(8,736
|
)
|
(8,747
|
)
|
(8,747
|
)
|
||||||
Other
|
–
|
–
|
(5
|
)
|
||||||||
|
(75,104
|
)
|
(77,848
|
)
|
(66,080
|
)
|
||||||
|
140,355
|
178,781
|
177,298
|
|||||||||
Other revenue (expense):
|
||||||||||||
Salaries and benefits
|
(5,776
|
)
|
(5,929
|
)
|
(5,741
|
)
|
||||||
Short-term incentive compensation
|
(3,565
|
)
|
(5,043
|
)
|
(6,657
|
)
|
||||||
Other general and administrative expense
|
(4,476
|
)
|
(4,271
|
)
|
(3,932
|
)
|
||||||
Miscellaneous other revenue (expense)
|
(300
|
)
|
(171
|
)
|
(1,023
|
)
|
||||||
|
(14,117
|
)
|
(15,414
|
)
|
(17,353
|
)
|
||||||
|
||||||||||||
Income before equity in earnings of unconsolidated affiliates
|
126,238
|
163,367
|
159,945
|
|||||||||
Equity in earnings of unconsolidated affiliates
|
249
|
259
|
259
|
|||||||||
Net income
|
$
|
126,487
|
$
|
163,626
|
$
|
160,204
|
||||||
Net income available to common stockholders:
|
||||||||||||
Net income
|
$
|
126,487
|
$
|
163,626
|
$
|
160,204
|
||||||
Less dividends on preferred shares
|
(17,536
|
)
|
(21,021
|
)
|
(20,369
|
)
|
||||||
Less redemption preference premiums paid
|
(19,924
|
)
|
–
|
–
|
||||||||
|
$
|
89,027
|
$
|
142,605
|
$
|
139,835
|
||||||
Net income per common share:
|
||||||||||||
Basic
|
$
|
0.93
|
$
|
1.50
|
$
|
1.76
|
||||||
Diluted
|
0.93
|
1.50
|
1.75
|
|
Year ended December 31
|
|||||||||||
|
2013
|
2012
|
2011
|
|||||||||
Net income
|
$
|
126,487
|
$
|
163,626
|
$
|
160,204
|
||||||
|
||||||||||||
Other comprehensive income (loss)
|
||||||||||||
Amounts related to available-for-sale securities:
|
||||||||||||
Change in net unrealized gains
|
(101,001
|
)
|
91,750
|
54,263
|
||||||||
Reclassification adjustment for amounts included in net income
|
–
|
–
|
62
|
|||||||||
Amounts related to cash flow hedges:
|
||||||||||||
Change in net unrealized gains (losses)
|
9,320
|
(22,262
|
)
|
(51,751
|
)
|
|||||||
Reclassification adjustment for amounts included in net income
|
16,914
|
19,882
|
28,066
|
|||||||||
|
(74,767
|
)
|
89,370
|
30,640
|
||||||||
Comprehensive income
|
$
|
51,720
|
$
|
252,996
|
$
|
190,844
|
|
Preferred
Stock
|
Common
Stock
|
Paid-in
Capital
|
Accumulated
Deficit
|
Accumulated
Other
Comprehensive
Income
|
Total
Stockholders’
Equity
|
||||||||||||||||||
Balance at December 31, 2010
|
$
|
179,323
|
$
|
703
|
$
|
1,028,382
|
$
|
(354,883
|
)
|
$
|
173,900
|
$
|
1,027,425
|
|||||||||||
Net income
|
–
|
–
|
–
|
160,204
|
–
|
160,204
|
||||||||||||||||||
Change in unrealized gain on mortgage securities, net
|
–
|
–
|
–
|
–
|
54,325
|
54,325
|
||||||||||||||||||
Amounts related to cash flow hedges, net
|
–
|
–
|
–
|
–
|
(23,685
|
)
|
(23,685
|
)
|
||||||||||||||||
Cash dividends:
|
||||||||||||||||||||||||
Common – $1.76 per share
|
–
|
–
|
(5,407
|
)
|
(139,835
|
)
|
–
|
(145,242
|
)
|
|||||||||||||||
Preferred
|
–
|
–
|
–
|
(20,369
|
)
|
–
|
(20,369
|
)
|
||||||||||||||||
Conversion of preferred stock
|
(15
|
)
|
–
|
15
|
–
|
–
|
–
|
|||||||||||||||||
Additions to capital
|
5,206
|
180
|
234,663
|
–
|
–
|
240,049
|
||||||||||||||||||
Balance at December 31, 2011
|
184,514
|
883
|
1,257,653
|
(354,883
|
)
|
204,540
|
1,292,707
|
|||||||||||||||||
Net income
|
–
|
–
|
–
|
163,626
|
–
|
163,626
|
||||||||||||||||||
Change in unrealized gain on mortgage securities, net
|
–
|
–
|
–
|
–
|
91,750
|
|||||||||||||||||||
Amounts related to cash flow hedges, net
|
–
|
–
|
–
|
–
|
(2,380
|
)
|
(2,380
|
)
|
||||||||||||||||
Cash dividends:
|
||||||||||||||||||||||||
Common – $1.49 per share
|
–
|
–
|
(1,785
|
)
|
(141,660
|
)
|
–
|
(143,445
|
)
|
|||||||||||||||
Preferred
|
–
|
–
|
–
|
(21,021
|
)
|
–
|
(21,021
|
)
|
||||||||||||||||
Conversion of preferred stock
|
(1
|
)
|
–
|
1
|
–
|
–
|
–
|
|||||||||||||||||
Additions to capital
|
4,479
|
109
|
146,362
|
–
|
–
|
150,950
|
||||||||||||||||||
Common share repurchases
|
–
|
(30
|
)
|
(35,032
|
)
|
–
|
–
|
(35,062
|
)
|
|||||||||||||||
Balance at December 31, 2012
|
188,992
|
962
|
1,367,199
|
(353,938
|
)
|
293,910
|
1,497,125
|
|||||||||||||||||
Net income
|
–
|
–
|
–
|
126,487
|
–
|
126,487
|
||||||||||||||||||
Change in unrealized gain on mortgage securities, net
|
–
|
–
|
–
|
–
|
(101,001
|
)
|
(101,001
|
)
|
||||||||||||||||
Amounts related to cash flow hedges, net
|
–
|
–
|
–
|
–
|
26,234
|
26,234
|
||||||||||||||||||
Cash dividends:
|
||||||||||||||||||||||||
Common – $1.24 per share
|
–
|
–
|
(13,830
|
)
|
(104,932
|
)
|
–
|
(118,762
|
)
|
|||||||||||||||
Preferred
|
–
|
–
|
–
|
(17,536
|
)
|
–
|
(17,536
|
)
|
||||||||||||||||
Redemption of Series A and B preferred stock
|
(187,109
|
)
|
–
|
(19,924
|
)
|
–
|
–
|
(207,033
|
)
|
|||||||||||||||
Conversion of preferred stock
|
(1,883
|
)
|
2
|
1,881
|
–
|
–
|
–
|
|||||||||||||||||
Issuance of Series E preferred stock
|
165,756
|
–
|
–
|
–
|
–
|
165,756
|
||||||||||||||||||
Other additions to capital
|
–
|
–
|
1,752
|
53
|
–
|
1,805
|
||||||||||||||||||
Common share repurchases
|
–
|
(6
|
)
|
(7,286
|
)
|
–
|
–
|
(7,292
|
)
|
|||||||||||||||
Balance at December 31, 2013
|
$
|
165,756
|
$
|
958
|
$
|
1,329,792
|
$
|
(349,866
|
)
|
$
|
219,143
|
$
|
1,365,783
|
|
Year ended December 31
|
|||||||||||
|
2013
|
2012
|
2011
|
|||||||||
Operating activities:
|
||||||||||||
Net income
|
$
|
126,487
|
$
|
163,626
|
$
|
160,204
|
||||||
Noncash items:
|
||||||||||||
Amortization of investment premiums
|
125,872
|
96,677
|
68,077
|
|||||||||
Depreciation and other amortization
|
162
|
195
|
206
|
|||||||||
Amortization of equity-based awards
|
2,201
|
2,236
|
1,821
|
|||||||||
Incentive compensation paid in common shares
|
–
|
2,799
|
1,446
|
|||||||||
Change in measureable hedge ineffectiveness related to interest rate swap agreements designated as cash flow hedges
|
(168
|
)
|
(411
|
)
|
306
|
|||||||
Impairment related to real estate held for sale
|
–
|
–
|
470
|
|||||||||
Gain on sales of real estate held for sale
|
–
|
(273
|
)
|
(114
|
)
|
|||||||
Net change in receivables, other assets, accounts payable and accrued expenses
|
6,658
|
(919
|
)
|
5,297
|
||||||||
Net cash provided by operating activities
|
261,212
|
263,930
|
237,713
|
|||||||||
Investing activities:
|
||||||||||||
Purchases of residential mortgage investments
|
(3,326,345
|
)
|
(4,384,866
|
)
|
(5,899,041
|
)
|
||||||
Interest receivable acquired with the purchase of residential mortgage investments
|
(5,559
|
)
|
(7,180
|
)
|
(12,099
|
)
|
||||||
Proceeds from asset sales
|
–
|
2,010
|
10,786
|
|||||||||
Principal collections on residential mortgage investments,including changes in mortgage securities principal remittance receivable
|
3,516,634
|
2,756,772
|
2,110,334
|
|||||||||
Net cash provided by (used in) investing activities
|
184,730
|
(1,633,264
|
)
|
(3,790,020
|
)
|
|||||||
Financing activities:
|
||||||||||||
Proceeds from repurchase arrangements and similar borrowings
|
136,909,245
|
127,808,676
|
88,814,514
|
|||||||||
Principal payments on repurchase arrangements and similar borrowings
|
(137,210,576
|
)
|
(126,376,876
|
)
|
(85,254,811
|
)
|
||||||
Decrease (increase) in cash collateral receivable from interest rate swap counterparties
|
24,470
|
(1,467
|
)
|
(13,216
|
)
|
|||||||
Decrease in cash collateral payable to interest rate swap counterparties
|
–
|
–
|
(9,024
|
)
|
||||||||
Cash paid to redeem Series A & B preferred shares
|
(207,033
|
)
|
–
|
–
|
||||||||
Common share repurchases
|
(7,292
|
)
|
(35,062
|
)
|
–
|
|||||||
Proceeds from capital raising activities:
|
||||||||||||
Issuance of preferred shares
|
165,756
|
4,479
|
5,206
|
|||||||||
Issuance of common shares
|
–
|
142,035
|
231,674
|
|||||||||
Other capital stock transactions
|
(410
|
)
|
(585
|
)
|
(69
|
)
|
||||||
Dividends paid
|
(132,191
|
)
|
(173,138
|
)
|
(154,840
|
)
|
||||||
Net cash (used in) provided by financing activities
|
(458,031
|
)
|
1,368,062
|
3,619,434
|
||||||||
Net change in cash and cash equivalents
|
(12,089
|
)
|
(1,272
|
)
|
67,127
|
|||||||
Cash and cash equivalents at beginning of year
|
425,445
|
426,717
|
359,590
|
|||||||||
Cash and cash equivalents at end of year
|
$
|
413,356
|
$
|
425,445
|
$
|
426,717
|
|
Year ended December 31
|
|||||||||||
|
2013
|
2012
|
2011
|
|||||||||
Basic net income per common share
|
||||||||||||
Numerator for basic net income per common share:
|
||||||||||||
Net income
|
$
|
126,487
|
$
|
163,626
|
$
|
160,204
|
||||||
Preferred share dividends
|
(17,536
|
)
|
(21,021
|
)
|
(20,369
|
)
|
||||||
Redemption preference premiums paid on Series A and Series B preferred shares*
|
(19,924
|
)
|
–
|
–
|
||||||||
Unvested stock award participation in earnings
|
(139
|
)
|
(372
|
)
|
(579
|
)
|
||||||
|
||||||||||||
|
$
|
88,888
|
$
|
142,233
|
$
|
139,256
|
||||||
Denominator for basic net income per common share:
|
||||||||||||
Weighted average common shares outstanding
|
95,679
|
95,115
|
79,784
|
|||||||||
Average unvested stock awards outstanding
|
(506
|
)
|
(522
|
)
|
(468
|
)
|
||||||
|
95,173
|
94,593
|
79,316
|
|||||||||
|
$
|
0.93
|
$
|
1.50
|
$
|
1.76
|
||||||
Diluted net income per common share
|
||||||||||||
Numerator for diluted net income per common share:
|
||||||||||||
Net income available to common stockholders
|
$
|
88,888
|
$
|
142,233
|
$
|
139,256
|
||||||
Dividends on dilutive convertible preferred shares
|
44
|
298
|
298
|
|||||||||
|
$
|
88,932
|
$
|
142,531
|
$
|
139,554
|
||||||
Denominator for diluted net income per common share:
|
||||||||||||
Basic weighted average common shares outstanding
|
95,173
|
94,593
|
79,316
|
|||||||||
Net effect of dilutive stock and option awards
|
145
|
111
|
71
|
|||||||||
Net effect of dilutive convertible preferred shares
|
75
|
308
|
309
|
|||||||||
|
95,393
|
95,012
|
79,696
|
|||||||||
|
$
|
0.93
|
$
|
1.50
|
$
|
1.75
|
* | The Series A and Series B preferred shares were redeemed on June 13, 2013 (See NOTE 11). |
|
Year ended December 31
|
|||||||||||
|
2013
|
2012
|
2011
|
|||||||||
Antidilutive convertible preferred shares*
|
16,539
|
16,493
|
16,184
|
|||||||||
|
||||||||||||
Antidilutive equity awards excludable under the treasury stock method:
|
||||||||||||
Shares issuable under option awards
|
30
|
10
|
40
|
|||||||||
Restricted stock units
|
243
|
–
|
–
|
* | The Series A and Series B preferred shares were redeemed on June 13, 2013 (See NOTE 11). |
|
Unpaid
Principal
Balance
|
Investment
Premiums
|
Amortized
Cost Basis
|
Carrying
Amount (a)
|
Net
WAC (b)
|
Average
Yield (b)
|
||||||||||||||||||
December 31, 2013
|
||||||||||||||||||||||||
Agency Securities:
|
||||||||||||||||||||||||
Fannie Mae/Freddie Mac:
|
||||||||||||||||||||||||
Fixed-rate
|
$
|
2,158
|
$
|
6
|
$
|
2,164
|
$
|
2,167
|
6.67
|
%
|
6.40
|
%
|
||||||||||||
ARMs
|
10,675,620
|
343,452
|
11,019,072
|
11,231,057
|
2.58
|
1.59
|
||||||||||||||||||
Ginnie Mae ARMs
|
2,145,639
|
74,396
|
2,220,035
|
2,233,495
|
2.64
|
1.57
|
||||||||||||||||||
|
12,823,417
|
417,854
|
13,241,271
|
13,466,719
|
2.59
|
1.59
|
||||||||||||||||||
Residential mortgage loans:
|
||||||||||||||||||||||||
Fixed-rate
|
2,633
|
3
|
2,636
|
2,636
|
6.99
|
5.62
|
||||||||||||||||||
ARMs
|
4,244
|
18
|
4,262
|
4,262
|
3.81
|
3.46
|
||||||||||||||||||
|
6,877
|
21
|
6,898
|
6,898
|
5.03
|
4.27
|
||||||||||||||||||
Collateral for structured financings
|
2,220
|
37
|
2,257
|
2,257
|
8.09
|
7.34
|
||||||||||||||||||
|
$
|
12,832,514
|
$
|
417,912
|
$
|
13,250,426
|
$
|
13,475,874
|
2.59
|
1.59
|
||||||||||||||
December 31, 2012
|
||||||||||||||||||||||||
Agency Securities:
|
||||||||||||||||||||||||
Fannie Mae/Freddie Mac:
|
||||||||||||||||||||||||
Fixed-rate
|
$
|
3,194
|
$
|
9
|
$
|
3,203
|
$
|
3,208
|
6.70
|
6.52
|
||||||||||||||
ARMs
|
11,547,954
|
356,646
|
11,904,600
|
12,198,922
|
2.69
|
1.91
|
||||||||||||||||||
Ginnie Mae ARMs
|
1,566,749
|
48,248
|
1,614,997
|
1,647,119
|
2.77
|
2.11
|
||||||||||||||||||
|
13,117,897
|
404,903
|
13,522,800
|
13,849,249
|
2.70
|
1.94
|
||||||||||||||||||
Residential mortgage loans:
|
||||||||||||||||||||||||
Fixed-rate
|
3,007
|
5
|
3,012
|
3,012
|
7.01
|
6.54
|
||||||||||||||||||
ARMs
|
5,031
|
20
|
5,051
|
5,051
|
3.87
|
3.75
|
||||||||||||||||||
|
8,038
|
25
|
8,063
|
8,063
|
5.04
|
4.78
|
||||||||||||||||||
Collateral for structured financings
|
2,799
|
47
|
2,846
|
2,846
|
8.12
|
7.47
|
||||||||||||||||||
|
$
|
13,128,734
|
$
|
404,975
|
$
|
13,533,709
|
$
|
13,860,158
|
2.71
|
1.94
|
(a) | Includes unrealized gains and losses for residential mortgage investments classified as available-for-sale (see NOTE 9). |
(b) | Net WAC, or weighted average coupon, is the weighted average interest rate of the mortgage loans underlying the indicated investments net of servicing and other fees as of the indicated balance sheet date. Net WAC is expressed as a percentage calculated on an annualized basis on the unpaid principal balances of the mortgage loans underlying these investments. Average yield is presented for the year then ended, and is based on the cash component of interest income expressed as a percentage calculated on an annualized basis on average amortized cost basis (the “cash yield”) less the effects of amortizing investment premiums. Investment premium amortization is determined using the interest method and incorporates actual and anticipated future mortgage prepayments. |
Collateral Type
|
Collateral
Carrying
Amount
|
Accrued
Interest
Receivable
|
Borrowings
Outstanding
|
Average
Borrowing
Rates
|
||||||||||||
As of December 31, 2013:
|
||||||||||||||||
Borrowings with maturities of 30 days or less:
|
||||||||||||||||
Agency Securities
|
$
|
12,169,534
|
$
|
28,195
|
$
|
11,578,211
|
0.38
|
%
|
||||||||
Borrowings with maturities greater than 30 days:
|
||||||||||||||||
Agency Securities (31 to 90 days)
|
951,966
|
2,068
|
902,432
|
0.38
|
||||||||||||
Similar borrowings:
|
||||||||||||||||
Collateral for structured financings*
|
2,257
|
–
|
2,257
|
8.09
|
||||||||||||
|
$
|
13,123,757
|
$
|
30,263
|
$
|
12,482,900
|
0.38
|
|||||||||
|
||||||||||||||||
Year-end borrowing rates adjusted for effects of related derivative financial instruments (“Derivatives”) held as cash flow hedges (see NOTE 7)
|
0.49
|
|||||||||||||||
As of December 31, 2012:
|
||||||||||||||||
Borrowings with maturities of 30 days or less:
|
||||||||||||||||
Agency Securities
|
$
|
13,406,253
|
$
|
32,807
|
$
|
12,739,872
|
0.47
|
|||||||||
Borrowings with maturities greater than 30 days:
|
||||||||||||||||
Agency Securities (31 to 90 days)
|
44,060
|
51
|
41,520
|
0.57
|
||||||||||||
Similar borrowings:
|
||||||||||||||||
Collateral for structured financings*
|
2,846
|
–
|
2,846
|
8.12
|
||||||||||||
|
$
|
13,453,159
|
$
|
32,858
|
$
|
12,784,238
|
0.47
|
|||||||||
Year-end borrowing rates adjusted for effects of related Derivatives held as cash flow hedges
|
0.65
|
* | The maturity of structured financings is directly affected by prepayments on the related mortgage pass-through securities pledged as collateral and these financings are subject to redemption by the residual bondholders. |
Year ended December 31
|
||||||||||||||||
2013
|
2012
|
|||||||||||||||
|
Average
Borrowings
|
Average
Rate
|
Average
Borrowings
|
Average
Rate
|
||||||||||||
Average borrowings and rates for the indicated years, adjusted for the effects of related Derivatives held as cash flow hedges
|
$
|
12,702,941
|
0.52
|
%
|
$
|
12,442,706
|
0.56
|
%
|
Period of
Contract Expiration
|
Notional
Amount
|
Average Fixed Rate
Payment Requirement
|
||||||
Currently-paying contracts:
|
||||||||
First quarter 2014
|
$
|
200,000
|
0.60
|
%
|
||||
Second quarter 2014
|
400,000
|
0.51
|
||||||
Third quarter 2014
|
200,000
|
0.51
|
||||||
Fourth quarter 2014
|
500,000
|
0.58
|
||||||
First quarter 2015
|
1,100,000
|
0.50
|
||||||
Second quarter 2015
|
200,000
|
0.43
|
||||||
Third quarter 2015
|
400,000
|
0.47
|
||||||
Fourth quarter 2015
|
1,200,000
|
0.45
|
||||||
(average expiration: 14 months)
|
4,200,000
|
0.50
|
||||||
Forward-starting contracts:
|
||||||||
First quarter 2016
|
1,700,000
|
0.51
|
||||||
Second quarter 2016
|
800,000
|
0.46
|
||||||
(average expiration: 25 months)
|
2,500,000
|
0.50
|
||||||
(average expiration: 18 months)
|
$
|
6,700,000
|
Balance Sheet
|
December 31
|
||||||||
Location
|
2013
|
2012
|
|||||||
Balance sheet-related
|
|
||||||||
Swap agreements in a gain position (an asset) related to:
|
|
||||||||
Borrowings under repurchase arrangements
|
(a)
|
$
|
1,094
|
$
|
169
|
||||
Unsecured borrowings
|
(a)
|
3,911
|
–
|
||||||
Swap agreements in a loss position (a liability) related to:
|
|
||||||||
Borrowings under repurchase arrangements
|
(a)
|
(11,304
|
)
|
(18,671
|
)
|
||||
Unsecured borrowings
|
(a)
|
–
|
(14,197
|
)
|
|||||
Related net interest payable
|
(b)
|
(5,493
|
)
|
(7,788
|
)
|
||||
|
|
$
|
(11,792
|
)
|
$
|
(40,487
|
)
|
(a) | The fair value of Derivatives with realized and unrealized gains are aggregated and recorded as an asset on the face of the Balance Sheet separately from the fair value of Derivatives with realized and unrealized losses that are recorded as a liability. The amount of unrealized losses at December 31, 2013 scheduled to be recognized in the Statement of Income over the next twelve months primarily in the form of fixed-rate swap payments in excess of current market rates totaled $14.5 million. |
(b) | Included in “Accounts payable and accrued expenses” on the face of the Balance Sheet. |
Location of
Gain or (Loss) Recognized in
|
Year ended December 31
|
|||||||||||||||
Net Income
|
2013
|
2012
|
2011
|
|||||||||||||
Income statement-related
|
||||||||||||||||
Components of effect on interest expense:
|
||||||||||||||||
Amount of loss reclassified from Accumulated other comprehensive income related to the effective portion of active positions
|
$
|
(16,914
|
)
|
$
|
(19,882
|
)
|
$
|
(28,066
|
)
|
|||||||
Amount of gain (loss) recognized (ineffective portion)
|
24
|
(542
|
)
|
(827
|
)
|
|||||||||||
Increase in interest expense and decrease in Net income as a result of the use of Derivatives
|
*
|
$
|
(16,890
|
)
|
$
|
(20,424
|
)
|
$
|
(28,893
|
)
|
||||||
Other comprehensive income-related
|
||||||||||||||||
Amount of gain (loss) recognized in Other comprehensive income (loss) (effective portion)
|
$
|
9,320
|
$
|
(22,262
|
)
|
$
|
(51,751
|
)
|
* | Included in “Interest expense: Repurchase arrangements and similar borrowings” on the face of the Statement of Income. |
|
Offsetting of Derivative Assets
|
|||||||||||||||||||||||
|
Gross
|
Gross
Amounts |
Net Amounts
of Assets |
Gross Amounts Not Offset
in the Balance Sheet (a) |
||||||||||||||||||||
|
Amounts of
Recognized |
Offset in
the Balance |
Presented in
the Balance |
Financial
Instruments |
Cash
Collateral |
Net
Amount |
||||||||||||||||||
As of December 31, 2013:
|
||||||||||||||||||||||||
Counterparty 1
|
$
|
4,324
|
$
|
–
|
$
|
4,324
|
$
|
(4,324
|
)
|
$
|
–
|
$
|
–
|
|||||||||||
Counterparty 2
|
681
|
–
|
681
|
(681
|
)
|
–
|
–
|
|||||||||||||||||
|
$
|
5,005
|
$
|
–
|
$
|
5,005
|
$
|
(5,005
|
)
|
$
|
–
|
$
|
–
|
|||||||||||
As of December 31, 2012:
|
||||||||||||||||||||||||
Counterparty 1
|
$
|
128
|
$
|
–
|
$
|
128
|
$
|
(128
|
)
|
$
|
–
|
$
|
–
|
|||||||||||
Counterparty 2
|
41
|
–
|
41
|
(41
|
)
|
–
|
–
|
|||||||||||||||||
|
$
|
169
|
$
|
–
|
$
|
169
|
$
|
(169
|
)
|
$
|
–
|
$
|
–
|
|
Offsetting of Financial Liabilities and Derivative Liabilities
|
|||||||||||||||||||||||
|
Gross
|
Gross
Amounts |
Net Amounts
of Liabilities |
Gross Amounts Not Offset
in the Balance Sheet (c) |
||||||||||||||||||||
|
Amounts of
Recognized |
Offset in
the Balance |
Presented in
the Balance |
Financial
Instruments |
Cash
Collateral |
Net
Amount |
||||||||||||||||||
As of December 31, 2013:
|
||||||||||||||||||||||||
Derivatives by counterparty:
|
||||||||||||||||||||||||
Counterparty 1
|
$
|
7,628
|
$
|
–
|
$
|
7,628
|
$
|
(4,324
|
)
|
$
|
(3,304
|
)
|
$
|
–
|
||||||||||
Counterparty 2
|
7,588
|
–
|
7,588
|
(681
|
)
|
(6,907
|
)
|
–
|
||||||||||||||||
Counterparty 3
|
1,581
|
–
|
1,581
|
–
|
(1,581
|
)
|
–
|
|||||||||||||||||
|
16,797
|
–
|
16,797
|
(5,005
|
)
|
(11,792
|
)
|
–
|
||||||||||||||||
Repurchase arrangements and similar borrowings
|
12,487,604
|
–
|
12,487,604
|
(12,487,604
|
)
|
–
|
–
|
|||||||||||||||||
|
$
|
12,504,401
|
$
|
–
|
$
|
12,504,401
|
$
|
(12,492,609
|
)
|
$
|
(11,792
|
)
|
$
|
–
|
||||||||||
As of December 31, 2012:
|
||||||||||||||||||||||||
Derivatives by counterparty:
|
||||||||||||||||||||||||
Counterparty 1
|
$
|
26,904
|
$
|
–
|
$
|
26,904
|
$
|
(128
|
)
|
$
|
(26,776
|
)
|
$
|
–
|
||||||||||
Counterparty 2
|
12,357
|
–
|
12,357
|
(41
|
)
|
(11,500
|
)
|
816
|
||||||||||||||||
Counterparty 3
|
1,395
|
–
|
1,395
|
–
|
(1,395
|
)
|
–
|
|||||||||||||||||
|
40,656
|
–
|
40,656
|
(169
|
)
|
(39,671
|
)
|
816
|
||||||||||||||||
Repurchase arrangements and similar borrowings
|
12,791,243
|
–
|
12,791,243
|
(12,791,243
|
)
|
–
|
–
|
|||||||||||||||||
|
$
|
12,831,899
|
$
|
–
|
$
|
12,831,899
|
$
|
(12,791,412
|
)
|
$
|
(39,671
|
)
|
$
|
816
|
(a) | Amounts presented are limited to recognized liabilities and cash collateral received associated with the indicated counterparty sufficient to reduce the related Net Amount to zero in accordance with ASU No. 2011-11, as amended by ASU No. 2013-01. |
(b) | Amounts include accrued interest of $5.5 million and $7.8 million on interest rate swap agreements and $4.7 million and $7.0 million on repurchase arrangements and similar borrowings, included in “Accounts payable and accrued expenses” on the face of the Balance Sheets as of December 31, 2013 and December 31, 2012, respectively. |
(c) | Amounts presented are limited to recognized assets and collateral pledged associated with the indicated counterparty sufficient to reduce the related Net Amount to zero in accordance with ASU No. 2011-11, as amended by ASU No. 2013-01. |
|
Gains and Losses on Cash Flow Hedges
|
Unrealized Gains and Losses on Available-for-Sale Securities
|
Total
|
|||||||||
Balance at December 31, 2010
|
$
|
(6,474
|
)
|
$
|
180,374
|
$
|
173,900
|
|||||
Activity for the year ended December 31, 2011:
|
||||||||||||
Other comprehensive income (loss) before reclassifications
|
(51,751
|
)
|
54,263
|
2,512
|
||||||||
Amounts reclassified from accumulated other comprehensive income
|
28,066
|
62
|
28,128
|
|||||||||
Other comprehensive income (loss)
|
(23,685
|
)
|
54,325
|
30,640
|
||||||||
Balance at December 31, 2011
|
(30,159
|
)
|
234,699
|
204,540
|
||||||||
Activity for the year ended December 31, 2012:
|
||||||||||||
Other comprehensive income (loss) before reclassifications
|
(22,262
|
)
|
91,750
|
69,488
|
||||||||
Amounts reclassified from accumulated other comprehensive income
|
19,882
|
–
|
19,882
|
|||||||||
Other comprehensive income (loss)
|
(2,380
|
)
|
91,750
|
89,370
|
||||||||
Balance at December 31, 2012
|
(32,539
|
)
|
326,449
|
293,910
|
||||||||
Activity for the year ended December 31, 2013:
|
||||||||||||
Other comprehensive income (loss) before reclassifications
|
9,320
|
(101,001
|
)
|
(91,681
|
)
|
|||||||
Amounts reclassified from accumulated other comprehensive income
|
16,914
|
–
|
16,914
|
|||||||||
Other comprehensive income (loss)
|
26,234
|
(101,001
|
)
|
(74,767
|
)
|
|||||||
Balance at December 31, 2013
|
$
|
(6,305
|
)
|
$
|
225,448
|
$
|
219,143
|
|
December 31, 2013
|
December 31, 2012
|
||||||||||||||
|
Borrowings
Outstanding
|
Average
Rate *
|
Borrowings
Outstanding
|
Average
Rate *
|
||||||||||||
Junior subordinated notes associated with:
|
||||||||||||||||
Capstead Mortgage Trust I
|
$
|
35,000
|
8.31
|
%
|
$
|
36,083
|
8.31
|
%
|
||||||||
Capstead Mortgage Trust II
|
40,000
|
8.46
|
41,238
|
8.46
|
||||||||||||
Capstead Mortgage Trust III
|
25,000
|
8.78
|
25,774
|
8.78
|
||||||||||||
|
$
|
100,000
|
8.49
|
$
|
103,095
|
8.49
|
* | The indicated weighted average rates have been in effect since issuance. After considering cash flow hedges that coincide with the floating rate terms of these borrowings that begin in October and December 2015 for the notes associated with Capstead Mortgage Trusts I and II and September 2016 for the notes associated with Capstead Mortgage Trust III, the effective borrowing rate during the final 20 years of these borrowings will average 7.56%, subject to certain adjustments for the effects of measured hedge ineffectiveness, if any. |
|
December 31, 2013
|
December 31, 2012
|
||||||||||||||
|
Carrying
Amount
|
Fair
Value
|
Carrying
Amount
|
Fair
Value
|
||||||||||||
|
||||||||||||||||
Financial assets:
|
||||||||||||||||
Residential mortgage loans
|
$
|
6,898
|
$
|
7,000
|
$
|
8,063
|
$
|
8,200
|
||||||||
Interest rate swap agreements
|
5,005
|
5,005
|
169
|
169
|
||||||||||||
Financial liabilities:
|
||||||||||||||||
Repurchase arrangements with initial terms of greater than 120 days
|
36,299
|
36,300
|
41,520
|
41,500
|
||||||||||||
Unsecured borrowings
|
100,000
|
101,000
|
103,095
|
104,600
|
||||||||||||
Interest rate swap agreements
|
11,304
|
11,304
|
32,868
|
32,868
|
|
Amortized
|
Gross Unrealized
|
||||||||||||||
|
Cost Basis
|
Gains
|
Losses
|
Fair Value
|
||||||||||||
As of December 31, 2013
|
||||||||||||||||
Agency Securities classified as available-for-sale:
|
||||||||||||||||
Fannie Mae/Freddie Mac
|
$
|
11,019,116
|
$
|
224,456
|
$
|
12,468
|
$
|
11,231,104
|
||||||||
Ginnie Mae
|
2,220,035
|
18,384
|
4,924
|
2,233,495
|
||||||||||||
Residential mortgage securities classified as held-to-maturity
|
4,376
|
211
|
–
|
4,587
|
||||||||||||
As of December 31, 2012
|
||||||||||||||||
Agency Securities classified as available-for-sale:
|
||||||||||||||||
Fannie Mae/Freddie Mac
|
11,904,660
|
296,114
|
1,787
|
12,198,987
|
||||||||||||
Ginnie Mae
|
1,614,997
|
32,298
|
176
|
1,647,119
|
||||||||||||
Residential mortgage securities classified as held-to-maturity
|
5,989
|
309
|
–
|
6,298
|
|
December 31, 2013
|
December 31, 2012 | ||||||||||||||
|
Fair
Value
|
Unrealized
Loss
|
Fair
Value
|
Unrealized
Loss
|
||||||||||||
Securities in an unrealized loss position:
|
||||||||||||||||
One year or greater
|
$
|
39,030
|
$
|
380
|
$
|
29,760
|
$
|
120
|
||||||||
Less than one year
|
2,857,724
|
17,012
|
751,645
|
1,843
|
||||||||||||
|
$
|
2,896,754
|
$
|
17,392
|
$
|
781,405
|
$
|
1,963
|
|
Year ended December 31
|
|||||||||||
|
2013
|
2012
|
2011
|
|||||||||
Income taxes computed at the federal statutory rate
|
$
|
44,270
|
$
|
57,269
|
$
|
37,171
|
||||||
Benefit of REIT status
|
(44,270
|
)
|
(57,268
|
)
|
(37,183
|
)
|
||||||
Income taxes computed on income of Capstead’s sole taxable REIT subsidiary
|
–
|
1
|
(12
|
)
|
||||||||
Change in net deferred income tax assets
|
1
|
(1
|
)
|
22
|
||||||||
Other
|
(1
|
)
|
–
|
(10
|
)
|
|||||||
Income tax provision
|
$
|
–
|
$
|
–
|
$
|
–
|
|
December 31
|
|||||||
|
2013
|
2012
|
||||||
Deferred income tax assets:
|
||||||||
Alternative minimum tax credit (a)
|
$
|
1,942
|
$
|
1,940
|
||||
Net operating loss carryforwards (b)
|
60
|
60
|
||||||
Other
|
21
|
22
|
||||||
|
2,023
|
2,022
|
||||||
Deferred income tax liabilities
|
–
|
–
|
||||||
Net deferred tax assets
|
$
|
2,023
|
$
|
2,022
|
||||
Valuation allowance (c)
|
$
|
2,023
|
$
|
2,022
|
(a) | Alternative tax credit carryforwards can be utilized to offset payment of federal income taxes on future taxable income, if any, earned by this subsidiary, subject to certain limitations. |
(b) | Excludes $3.5 million in remaining net operating loss carryforwards which expire beginning after 2019. To the extent these carryforwards are utilized in future periods, the benefit will reduce actual taxes payable. |
(c) | Because this subsidiary is not expected to earn significant amounts of taxable income, related net deferred tax assets are fully reserved at December 31, 2013. |
|
Total DERs
|
Year Ended December 31
|
||||||||||||||
Grant Date
|
Granted
|
2013
|
2012
|
2011
|
||||||||||||
July 2008
|
225,000
|
$
|
279,000
|
$
|
335,000
|
$
|
396,000
|
|||||||||
July 2009
|
225,000
|
279,000
|
335,000
|
396,000
|
||||||||||||
July 2010
|
60,000
|
75,000
|
89,000
|
105,000
|
||||||||||||
August 2011
|
72,000
|
89,000
|
107,000
|
63,000
|
||||||||||||
July 2012
|
72,000
|
89,000
|
48,000
|
–
|
||||||||||||
|
654,000
|
$
|
811,000
|
$
|
914,000
|
$
|
960,000
|
Year of
|
Grant Date
Fair Value |
Total
Original |
Final
Measurement |
Remaining Shares with
Initial Measurement Periods |
||||||||||||||||||||||||
Grant
|
Per Share
|
Grants
|
Forfeited
|
December 31
|
2014
|
2015
|
2016
|
|||||||||||||||||||||
2008 (a)
|
$
|
10.18
|
140,658
|
5,464
|
n/a
|
|
–
|
–
|
–
|
|||||||||||||||||||
2009 (b)
|
14.33
|
110,917
|
4,571
|
n/a
|
|
–
|
–
|
–
|
||||||||||||||||||||
2010 (c)
|
12.44
|
128,766
|
5,759
|
2017
|
61,499
|
–
|
–
|
|||||||||||||||||||||
2011
|
12.72
|
132,490
|
5,050
|
2018
|
63,722
|
63,718
|
–
|
|||||||||||||||||||||
2012
|
11.67
|
145,399
|
5,697
|
2019
|
–
|
69,853
|
69,849
|
(a) | The absolute return metrics for the three-year measurement periods ending December 31, 2012 and 2011 were met resulting in the vesting of 67,595 shares associated with the second 50% of this grant in January 2013 and 67,599 shares associated with the first 50% of this grant in February 2012. |
(b) | The absolute return metrics for the three-year measurement periods ending December 31, 2013 and 2012 were met resulting in the vesting of 52,915 shares associated with the second 50% of this grant in January 2014 and 53,431 shares associated with the first 50% of this grant in January 2013. |
(c) | The absolute return metric for the first three-year measurement period ending December 31, 2013 was met resulting in the vesting of 61,508 shares associated with the first 50% of this grant in January 2014. |
Year of
|
Grant Date
Fair Value |
Total
Original |
As of December 31, 2013
|
Remaining Shares
Scheduled to Vest During: |
||||||||||||||||||||
Grant
|
Per Share
|
Grants
|
Vested
|
Forfeited
|
2014
|
2017
|
||||||||||||||||||
2007 (a)
|
$
|
12.93
|
156,000
|
121,004
|
12,832
|
22,164
|
–
|
|||||||||||||||||
2008 (b)
|
12.87
|
6,000
|
6,000
|
–
|
–
|
–
|
||||||||||||||||||
2009 (b)
|
11.39
|
6,000
|
6,000
|
–
|
–
|
–
|
||||||||||||||||||
2010 (b)
|
11.64
|
12,000
|
12,000
|
–
|
–
|
–
|
||||||||||||||||||
2011 (b)
|
13.23
|
24,000
|
24,000
|
–
|
–
|
–
|
||||||||||||||||||
2012 (b)
|
13.59
|
29,000
|
29,000
|
–
|
–
|
–
|
||||||||||||||||||
2013 (b)
|
13.02
|
28,000
|
–
|
–
|
28,000
|
–
|
||||||||||||||||||
2013 (c)
|
12.34
|
35,703
|
–
|
–
|
–
|
35,703
|
(a) | The remaining 2007 grant shares vested in January 2014. |
(b) | Director stock awards have been granted annually upon election or reelection to the board of directors. These awards vest one year after issuance. |
(c) | In December 2013 the Committee granted service-based awards to employees that were not awarded performance-based restricted stock units. These awards vest on January 2, 2017. |
Number of
Shares |
Weighted Average
Grant Date |
|||||||
Unvested stock awards outstanding at beginning year
|
657,720
|
$
|
12.48
|
|||||
Grants
|
63,703
|
12.64
|
||||||
Vestings
|
(172,523
|
)
|
12.41
|
|||||
Forfeitures
|
(19,969
|
)
|
12.65
|
|||||
Unvested stock awards outstanding at end of year
|
528,931
|
12.51
|
|
Number of
Shares |
Weighted Average
Exercise Price |
||||||
Option awards outstanding at beginning of year
|
97,500
|
$
|
11.63
|
|||||
Exercises
|
(15,000
|
)
|
10.61
|
|||||
Forfeitures
|
(5,000
|
)
|
12.87
|
|||||
Option awards outstanding at end of year
|
77,500
|
11.75
|
|
First Quarter
|
Second Quarter
|
Third Quarter
|
Fourth Quarter
|
||||||||||||
Year Ended December 31, 2013
|
||||||||||||||||
Interest income on residential mortgage investments (before investment premium amortization)
|
$
|
86,867
|
$
|
85,214
|
$
|
85,674
|
$
|
83,254
|
||||||||
Investment premium amortization
|
(28,399
|
)
|
(33,642
|
)
|
(39,031
|
)
|
(24,800
|
)
|
||||||||
Related interest expense
|
(18,468
|
)
|
(16,749
|
)
|
(15,759
|
)
|
(15,392
|
)
|
||||||||
|
40,000
|
34,823
|
30,884
|
43,062
|
||||||||||||
Other interest income (expense) (a)
|
(2,010
|
)
|
(2,015
|
)
|
(2,074
|
)
|
(2,066
|
)
|
||||||||
Other revenue (expense)
|
(3,072
|
)
|
(2,914
|
)
|
(4,108
|
)
|
(4,023
|
)
|
||||||||
Net income
|
$
|
34,918
|
$
|
29,894
|
$
|
24,702
|
$
|
36,973
|
||||||||
Basic net income per common share (b)
|
$
|
0.31
|
$
|
0.04
|
$
|
0.23
|
$
|
0.35
|
||||||||
Diluted net income per common share (b)
|
|
0.31
|
|
0.04
|
|
0.23
|
|
0.35
|
||||||||
Year Ended December 31, 2012
|
||||||||||||||||
Interest income on residential mortgage investments (before investment premium amortization)
|
$
|
84,229
|
$
|
87,486
|
$
|
90,614
|
$
|
90,279
|
||||||||
Investment premium amortization
|
(18,496
|
)
|
(21,699
|
)
|
(27,151
|
)
|
(29,331
|
)
|
||||||||
Related interest expense
|
(14,103
|
)
|
(16,451
|
)
|
(17,875
|
)
|
(20,672
|
)
|
||||||||
|
51,630
|
49,336
|
45,588
|
40,276
|
||||||||||||
Other interest income (expense) (a)
|
(1,972
|
)
|
(1,946
|
)
|
(1,968
|
)
|
(1,904
|
)
|
||||||||
Other revenue (expense)
|
(4,488
|
)
|
(4,055
|
)
|
(3,583
|
)
|
(3,288
|
)
|
||||||||
Net income
|
$
|
45,170
|
$
|
43,335
|
$
|
40,037
|
$
|
35,084
|
||||||||
Basic net income per common share
|
$
|
0.45
|
$
|
0.40
|
$
|
0.35
|
$
|
0.31
|
||||||||
Diluted net income per common share
|
|
0.44
|
|
0.40
|
|
0.35
|
|
0.31
|
(a) | Consists principally of interest on unsecured borrowings and is presented net of earnings of related statutory trusts. These affiliates were dissolved in December 2013. |
(b) | Includes $0.23 associated with redemption preference premiums paid and other one-time effects of the second quarter’s preferred capital transactions. |
/s/ ERNST & YOUNG, LLP
|
|
Dallas, Texas
|
|
February 28, 2014
|
|
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
(a) | Documents filed as part of this report: |
1. | The consolidated financial statements of Capstead, together with the independent registered public accounting firm’s report thereon, are set forth on pages 34 through 61 of this report under Item 8 – “Financial Statements and Supplementary Data.” |
2. | Financial Statement Schedules – All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are either not required under the related instructions, are inapplicable or have been omitted because the required information has been disclosed elsewhere in the consolidated financial statements and related notes thereto. |
3. | Exhibits: |
Exhibit
Number
|
DESCRIPTION
|
|
|
|
|
3.1
|
Charter, including Articles of Incorporation, Articles Supplementary for each series of preferred shares (except the 7.50% Series E Cumulative Redeemable Preferred Stock) and all other amendments to such Articles of Incorporation.(1)
|
|
3.2
|
Articles Supplementary classifying and designating the Registrant’s 7.50% Series E Cumulative Redeemable Preferred Stock, liquidation preference $25.00 per share, par value $0.10 per share.(2)
|
|
3.3
|
Amended and Restated Bylaws.(3)
|
|
4.1
|
Specimen of Common Stock Certificate.(4)
|
|
4.2
|
Specimen of stock certificate evidencing the 7.50% Series E Cumulative Redeemable Preferred Stock of the Registrant, liquidation preference $25.00 per share, par value $0.10 per share.(2)
|
|
4.3
|
Junior Subordinated Indenture dated September 26, 2005.(5)
|
|
4.4
|
Indenture dated December 15, 2005.(5)
|
|
4.5
|
Indenture dated September 11, 2006.(5)
|
|
10.01
|
Amended and Restated Deferred Compensation Plan.(5)
|
|
10.02
|
Amended and Restated 2004 Flexible Long-Term Incentive Plan.*
|
|
10.03
|
Second Amended and Restated Incentive Bonus Plan.(6)
|
|
10.04
|
Form of nonqualified stock option and stock award agreements for non-employee directors.(5)
|
|
10.05
|
Form of nonqualified stock option and stock award agreements for employees with service conditions.(5)
|
|
10.06
|
Form of stock award agreements for employees with performance conditions.(7)
|
|
10.07
|
Form of stock award agreements for employees with performance conditions and deferral of dividends.(8)
|
|
10.08
|
2013 Annual Incentive Plan (short-term).(9)
|
|
10.09
|
2014 Annual Incentive Compensation Program (short-term).(3)
|
|
10.10
|
2014 Long-Term Award Criteria, as corrected.(3)
|
|
10.11
|
Form of Performance Unit Agreement, as corrected.(3)
|
|
10.12
|
Sales Agreement, dated November 12, 2013, by and between the Company and the Sales Manager.(10)
|
|
12
|
Computation of ratio of net income to fixed charges and ratio of net income to combined fixed charges and preferred stock dividends.*
|
23 |
Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm*
|
|
31.1
|
Certification pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002*
|
|
31.2
|
Certification pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002*
|
|
32
|
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**
|
|
101.INS
|
XBRL Instance Document***
|
|
101.SCH
|
XBRL Taxonomy Extension Schema***
|
|
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase***
|
|
101.DEF
|
XBRL Additional Taxonomy Extension Definition Linkbase***
|
|
101.LAB
|
XBRL Taxonomy Extension Label Linkbase***
|
|
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase***
|
(1)
|
Incorporated by reference to the Registrant’s Annual Report on Form 10-K/A for the year ended December 31, 2012.
|
||
(2)
|
Incorporated by reference to the Registrant’s Registration of Certain Classes of Securities on Form 8-A dated May 13, 2013.
|
||
(3)
|
Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed on February 3, 2014, for the event
dated January 29, 2014.
|
||
(4)
|
Incorporated by reference to the Registrant’s Registration Statement on Form S-3 (No. 333-63358) dated June 19, 2001.
|
||
(5)
|
Incorporated by reference to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011.
|
||
(6)
|
Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed on May 5, 2011, for the event dated May 4, 2011.
|
||
(7)
|
Incorporated by reference to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008.
|
||
(8)
|
Incorporated by reference to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2010.
|
||
(9)
|
Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed on October 23, 2013 for the event
dated October 21, 2013.
|
||
(10)
|
Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed on November 13, 2013, for the event
dated November 12, 2013.
|
*
|
|
Filed herewith
|
**
|
|
Furnished herewith
|
***
|
|
Submitted electronically herewith
|
CAPSTEAD MORTGAGE CORPORATION
|
||
Registrant
|
||
Date: February 28, 2014
|
By: |
/s/ ANDREW F. JACOBS
|
|
Andrew F. Jacobs
|
|
|
President and Chief Executive Officer
|
|
|
|
|
Date: February 28, 2014
|
By: |
/s/ PHILLIP A. REINSCH
|
|
Phillip A. Reinsch
|
|
|
Executive Vice President and Chief Financial
|
|
|
Officer (Principal Financial and Accounting Officer)
|
/s/ JACK BIEGLER
|
|
Chairman and Director
|
February 18, 2014
|
|
(Jack Biegler)
|
|
|
|
|
|
|
|
|
|
/s/ JOHN L. BERNARD
|
|
Director
|
February 18, 2014
|
|
(John L. Bernard)
|
|
|
|
|
|
|
|
|
|
/s/ MICHELLE P. GOOLSBY
|
|
Director
|
February 18, 2014
|
|
(Michelle P. Goolsby)
|
|
|
|
|
|
|
|
|
|
/s/ ANDREW F. JACOBS
|
|
President, Chief Executive Officer
|
February 18, 2014
|
|
(Andrew F. Jacobs)
|
and Director | |||
/s/ GARY KEISER
|
Director
|
February 18, 2014
|
||
(Gary Keiser)
|
||||
/s/ CHRISTOPHER W. MAHOWALD
|
Director
|
February 24, 2014
|
||
(Christopher W. Mahowald)
|
||||
/s/ MICHAEL G. O’NEIL
|
Director
|
February 18, 2014
|
||
(Michael G. O’Neil)
|
||||
/s/ MARK S. WHITING
|
Director
|
February 18, 2014
|
||
(Mark S. Whiting)
|
Exhibit
Number
|
DESCRIPTION
|
|
3.1
|
Charter, including Articles of Incorporation, Articles Supplementary for each series of preferred shares (except the 7.50% Series E Cumulative Redeemable Preferred Stock) and all other amendments to such Articles of Incorporation.(1)
|
|
3.2
|
Articles Supplementary classifying and designating the Registrant’s 7.50% Series E Cumulative Redeemable Preferred Stock, liquidation preference $25.00 per share, par value $0.10 per share.(2)
|
|
3.3
|
Amended and Restated Bylaws.(3)
|
|
4.1
|
Specimen of Common Stock Certificate.(4)
|
|
4.2
|
Specimen of stock certificate evidencing the 7.50% Series E Cumulative Redeemable Preferred Stock of the Registrant, liquidation preference $25.00 per share, par value $0.10 per share.(2)
|
|
4.3
|
Junior Subordinated Indenture dated September 26, 2005.(5)
|
|
4.4
|
Indenture dated December 15, 2005.(5)
|
|
4.5
|
Indenture dated September 11, 2006.(5)
|
|
10.01
|
Amended and Restated Deferred Compensation Plan.(5)
|
|
Amended and Restated 2004 Flexible Long-Term Incentive Plan.*
|
||
10.03
|
Second Amended and Restated Incentive Bonus Plan.(6)
|
|
10.04
|
Form of nonqualified stock option and stock award agreements for non-employee directors.(5)
|
|
10.05
|
Form of nonqualified stock option and stock award agreements for employees with service conditions.(5)
|
|
10.06
|
Form of stock award agreements for employees with performance conditions.(7)
|
|
10.07
|
Form of stock award agreements for employees with performance conditions and deferral of dividends.(8)
|
|
10.08
|
2013 Annual Incentive Plan (short-term).(9)
|
|
10.09
|
2014 Annual Incentive Compensation Program (short-term).(3)
|
|
10.10
|
2014 Long-Term Award Criteria, as corrected.(3)
|
|
10.11
|
Form of Performance Unit Agreement, as corrected.(3)
|
|
10.12
|
Sales Agreement, dated November 12, 2013, by and between the Company and the Sales Manager.(10)
|
|
Computation of ratio of net income to fixed charges and ratio of net income to combined fixed charges and preferred stock dividends.*
|
||
23 |
Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm*
|
|
Certification pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002*
|
||
Certification pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002*
|
||
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**
|
||
101.INS
|
XBRL Instance Document***
|
|
101.SCH
|
XBRL Taxonomy Extension Schema***
|
|
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase***
|
|
101.DEF
|
XBRL Additional Taxonomy Extension Definition Linkbase***
|
|
101.LAB
|
XBRL Taxonomy Extension Label Linkbase***
|
|
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase***
|
(1)
|
Incorporated by reference to the Registrant’s Annual Report on Form 10-K/A for the year ended December 31, 2012.
|
(2)
|
Incorporated by reference to the Registrant’s Registration of Certain Classes of Securities on Form 8-A dated May 13, 2013.
|
(3)
|
Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed on February 3, 2014, for the event
dated January 29, 2014.
|
(4)
|
Incorporated by reference to the Registrant’s Registration Statement on Form S-3 (No. 333-63358) dated June 19, 2001.
|
(5)
|
Incorporated by reference to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011.
|
(6)
|
Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed on May 5, 2011, for the event dated May 4, 2011.
|
(7)
|
Incorporated by reference to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008.
|
(8)
|
Incorporated by reference to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2010.
|
(9)
|
Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed on October 23, 2013 for the event
dated October 21, 2013.
|
(10)
|
Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed on November 13, 2013, for the event
dated November 12, 2013.
|
SECTION 1.
|
PURPOSES
|
SECTION 2.
|
DEFINITIONS
|
SECTION 3.
|
ADMINISTRATION OF THE PLAN
|
SECTION 4.
|
SHARES SUBJECT TO PLAN
|
Initial Shares approved April 22, 2004
|
1,000,000
|
|||
Shares granted pursuant to Plan
|
(819,793
|
)
|
||
Additional shares approved
|
1,900,000
|
|||
Total shares available under Plan
|
2,080,207
|
SECTION 5.
|
ELIGIBILITY
|
SECTION 6.
|
STOCK OPTIONS
|
SECTION 7.
|
STOCK APPRECIATION RIGHTS
|
SECTION 8.
|
RESTRICTED STOCK
|
SECTION 9.
|
PERFORMANCE AWARDS
|
SECTION 10.
|
DIVIDEND EQUIVALENT RIGHTS
|
SECTION 11.
|
OTHER AWARDS
|
SECTION 12.
|
NON-TRANSFERABILITY OF AWARDS.
|
SECTION 13.
|
COMPLIANCE WITH SECURITIES AND OTHER LAWS
|
SECTION 14.
|
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR REORGANIZATION
|
SECTION 15.
|
AMENDMENT OR TERMINATION OF THE PLAN
|
SECTION 16.
|
AMENDMENTS AND ADJUSTMENTS TO AWARDS
|
SECTION 17.
|
GENERAL PROVISIONS
|
Year ended December 31
|
||||||||||||||||||||
|
2013
|
2012
|
2011
|
2010
|
2009
|
|||||||||||||||
Fixed charges
|
$
|
75,104
|
$
|
77,848
|
$
|
66,080
|
$
|
56,251
|
$
|
128,830
|
||||||||||
Fixed charges
|
$
|
75,104
|
$
|
77,848
|
$
|
66,080
|
$
|
56,251
|
$
|
128,830
|
||||||||||
Net income
|
126,487
|
163,626
|
160,204
|
126,896
|
129,263
|
|||||||||||||||
|
$
|
201,591
|
$
|
241,474
|
$
|
226,284
|
$
|
183,147
|
$
|
258,093
|
||||||||||
Ratio of net income to fixed charges
|
2.68:1
|
3.10:1
|
3.42:1
|
3.26:1
|
2.00:1
|
Year ended December 31
|
||||||||||||||||||||
|
2013
|
2012
|
2011
|
2010
|
2009
|
|||||||||||||||
Fixed charges
|
$
|
75,104
|
$
|
77,848
|
$
|
66,080
|
$
|
56,251
|
$
|
128,830
|
||||||||||
Preferred stock items:
|
||||||||||||||||||||
Redemption preference premiums*
|
19,924
|
–
|
–
|
–
|
–
|
|||||||||||||||
Dividends
|
17,536
|
21,021
|
20,369
|
20,233
|
20,239
|
|||||||||||||||
Combined fixed charges and preferred stock items
|
$
|
112,564
|
$
|
98,869
|
$
|
86,449
|
$
|
76,484
|
$
|
149,069
|
||||||||||
|
||||||||||||||||||||
Fixed charges
|
$
|
75,104
|
$
|
77,848
|
$
|
66,080
|
$
|
56,251
|
$
|
128,830
|
||||||||||
Net income
|
126,487
|
163,626
|
160,204
|
126,896
|
129,263
|
|||||||||||||||
|
$
|
201,591
|
$
|
241,474
|
$
|
226,284
|
$
|
183,147
|
$
|
258,093
|
||||||||||
Ratio of net income to combined fixed charges and preferred stock dividends
|
1.79:1
|
2.44:1
|
2.62:1
|
2.39:1
|
1.73:1
|
* | Capstead’s Series A and B preferred shares were redeemed on June 13, 2013. See NOTE 11 to the consolidated financial statements (included under Item 8 of this report). The ratio of net income to combined fixed charges and preferred stock dividends excluding the redemption preference premiums was 2.18:1 for the year ended December 31, 2013. |
· | Form S-8 (No. 33-53555); |
· | Form S-8 (No. 333-12719); |
· | Form S-8 (No. 333-27215); |
· | Form S-8 (No. 333-116738); |
· | Form S-8 (No. 333-142861); and |
· | Form S-3ASR (No. 333-179607) |
|
/s/ ERNST & YOUNG LLP
|
|
|
Dallas, Texas
|
|
February 28, 2014
|
|
1. | I have reviewed this Annual Report on Form 10-K of Capstead Mortgage Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: February 28, 2014
|
By:
|
/s/ ANDREW F. JACOBS
|
|
|
Andrew F. Jacobs
|
|
|
President and Chief Executive Officer
|
1. | I have reviewed this Annual Report on Form 10-K of Capstead Mortgage Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: February 28, 2014
|
By:
|
/s/ PHILLIP A. REINSCH
|
Phillip A. Reinsch
|
||
Executive Vice President and
|
||
|
Chief Financial Officer
|
1. | The Annual Report on Form 10-K of the Company for the annual period ended December 31, 2013 (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: February 28, 2014
|
By:
|
/s/ ANDREW F. JACOBS
|
|
|
Andrew F. Jacobs
|
|
|
President and Chief Executive Officer
|
|
|
|
Date: February 28, 2014
|
By:
|
/s/ PHILLIP A. REINSCH
|
|
|
Phillip A. Reinsch
|
|
|
Executive Vice President and
|
|
|
Chief Financial Officer
|
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STOCKHOLDERS' EQUITY (Details) (USD $)
|
1 Months Ended | 12 Months Ended | 12 Months Ended | 1 Months Ended | 12 Months Ended | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jan. 31, 2013
|
Oct. 30, 2012
|
Dec. 31, 2013
|
Dec. 31, 2012
|
Dec. 31, 2011
|
Dec. 31, 2013
Cumulative Redeemable Preferred Stock, Series E [Member]
|
May 31, 2013
Cumulative Redeemable Preferred Stock, Series E [Member]
|
Dec. 31, 2013
Series A And Series B Preferred Stock [Member]
|
Jun. 30, 2013
Series A Perpetual Preferred Shares [Member]
|
Jun. 30, 2013
Series B Perpetual Preferred Share [Member]
|
Dec. 31, 2012
Series B Perpetual Preferred Share [Member]
|
Dec. 31, 2011
Series B Perpetual Preferred Share [Member]
|
Dec. 31, 2012
Continuous Offering Program [Member]
|
Dec. 31, 2011
Continuous Offering Program [Member]
|
Dec. 31, 2013
Continuous Offering Program [Member]
Cumulative Redeemable Preferred Stock, Series E [Member]
|
Dec. 31, 2013
Directors And Employees [Member]
|
Dec. 31, 2012
Directors And Employees [Member]
|
Dec. 31, 2011
Directors And Employees [Member]
|
||||||
Stockholders' Equity [Line Items] | |||||||||||||||||||||||
Redeemable preferred stock, shares issued (in shares) | 6,800,000 | ||||||||||||||||||||||
Redeemable preferred stock, face value | $ 170,000,000 | ||||||||||||||||||||||
Preferred stock dividend rate (in hundredths) | 7.50% | ||||||||||||||||||||||
Redeemable preferred stock, liquidation preference per share (in dollars per share) | $ 25.00 | ||||||||||||||||||||||
Preferred stock, redemption price per share (in dollars per share) | $ 25.00 | ||||||||||||||||||||||
Proceeds from issuance of redeemable preferred stock | 164,300,000 | 1,400,000 | |||||||||||||||||||||
Cash on hand paid to redeem preferred stock | 42,700,000 | ||||||||||||||||||||||
Preferred stock, redemption date | Jun. 13, 2013 | ||||||||||||||||||||||
Preferred stock, redemption shares (in shares) | 77,000 | 16,500,000 | |||||||||||||||||||||
Preferred stock, shares outstanding (in shares) | 109,000 | 32,000 | |||||||||||||||||||||
Common stock, shares, issued on conversion of preferred stock (in shares) | 181,000 | 20,000 | |||||||||||||||||||||
Cash used for redemption of preferred stock | 207,000,000 | ||||||||||||||||||||||
Redemption preference premiums paid | 19,924,000 | [1] | 0 | [1] | 0 | [1] | 19,900,000 | ||||||||||||||||
Reduction in income per share (in dollars per share) | $ 0.21 | ||||||||||||||||||||||
Proceeds from issuance of common stock | 0 | 142,035,000 | 231,674,000 | 142,000,000 | 231,700,000 | ||||||||||||||||||
Additional shares issued (in shares) | 309,000 | 365,000 | 10,500,000 | 17,800,000 | 61,000 | ||||||||||||||||||
Proceeds from issuance of preferred equity capital | 165,756,000 | 4,479,000 | 5,206,000 | 4,500,000 | 5,200,000 | ||||||||||||||||||
Common stock repurchase program | 100,000,000 | ||||||||||||||||||||||
Shares repurchased (in shares) | 638,000 | 3,000,000 | |||||||||||||||||||||
Average cost per share (in dollars per share) | $ 11.43 | $ 11.80 | |||||||||||||||||||||
Value of stock repurchased | 7,300,000 | 35,100,000 | |||||||||||||||||||||
Additions to common equity capital related to equity-based awards | $ 1,800,000 | $ 4,400,000 | $ 3,200,000 | ||||||||||||||||||||
|
DISCLOSURES REGARDING FAIR VALUES OF FINANCIAL INSTRUMENTS - Balance Sheet Location (Details) (USD $)
In Thousands, unless otherwise specified |
Dec. 31, 2013
|
Dec. 31, 2012
|
---|---|---|
Financial assets [Abstract] | ||
Interest rate swap agreements at fair value | $ 5,005 | $ 169 |
Carrying Amount [Member]
|
||
Financial assets [Abstract] | ||
Residential mortgage loans | 6,898 | 8,063 |
Interest rate swap agreements at fair value | 5,005 | 169 |
Financial liabilities [Abstract] | ||
Repurchase arrangements with initial terms of greater than 120 days, Fair Value | 36,299 | 41,520 |
Unsecured borrowings | 100,000 | 103,095 |
Interest rate swap agreements | 11,304 | 32,868 |
Fair Value [Member]
|
||
Financial assets [Abstract] | ||
Residential mortgage loans | 7,000 | 8,200 |
Interest rate swap agreements at fair value | 5,005 | 169 |
Financial liabilities [Abstract] | ||
Repurchase arrangements with initial terms of greater than 120 days, Fair Value | 36,300 | 41,500 |
Unsecured borrowings | 101,000 | 104,600 |
Interest rate swap agreements | $ 11,304 | $ 32,868 |
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