-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HTLPJPXbWoxhiVzMzOYMMCqHABfJUPXpfqd5DSmTLcCHpqTPGvtU3KiQ8XF8NIGp ZfRm5pI2gpBQXaCO483l6Q== 0001157523-03-001406.txt : 20030428 0001157523-03-001406.hdr.sgml : 20030428 20030428144000 ACCESSION NUMBER: 0001157523-03-001406 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20030424 ITEM INFORMATION: Financial statements and exhibits ITEM INFORMATION: Regulation FD Disclosure FILED AS OF DATE: 20030428 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAPSTEAD MORTGAGE CORP CENTRAL INDEX KEY: 0000766701 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 752027937 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-08896 FILM NUMBER: 03666508 BUSINESS ADDRESS: STREET 1: 8401 NORTH CENTRAL EXPRESSWAY STREET 2: STE 800 CITY: DALLAS STATE: TX ZIP: 75225 BUSINESS PHONE: 2148742323 MAIL ADDRESS: STREET 1: 8401 NORTH CENTRAL EXPRESSWAY STREET 2: STE 800 CITY: DALLAS STATE: TX ZIP: 75225 FORMER COMPANY: FORMER CONFORMED NAME: LOMAS MORTGAGE CORP DATE OF NAME CHANGE: 19891105 8-K 1 a4383097.txt CAPSTEAD MORTGAGE 8-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report: April 24, 2003 (Date of Earliest Event Reported) CAPSTEAD MORTGAGE CORPORATION (Exact Name of Registrant as Specified in its Charter) Maryland 1-8896 75-2027937 (State of Incorporation) (Commission File No.) I.R.S. Employer Identification No.) 8401 North Central Expressway Suite 800 Dallas, Texas 75225 ------------------------------------------------------------------------ (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code: (214) 874-2323 ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (c) Exhibits. 99.1 Press release issued by Capstead Mortgage Corporation dated April 24, 2003 ITEM 9. REGULATION FD DISCLOSURE This information, furnished under this "Item 9. Regulation FD Disclosure," is intended to be furnished under "Item 12. Disclosure of Results of Operations and Financial Condition" in accordance with SEC Release No. 33-8216. Additionally, as provided in SEC Release No. 33-8216, the Company deems this information to be "filed" for the purposes of Section 18 of the Securities Exchange Act of 1934. On April 24, 2003, Capstead Mortgage Corporation issued a press release announcing first quarter earnings results. A copy of the press release is attached as Exhibit 99.1. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned hereunto duly authorized. CAPSTEAD MORTGAGE CORPORATION April 24, 2003 By: /s/ Phillip A. Reinsch ------------------------------------ Phillip A. Reinsch, Senior Vice President EX-99 3 a4383097ex99.txt EXHIBIT 99.1 PRESS RELEASE FOR IMMEDIATE RELEASE CONTACT: Stockholder Relations 214/ 874-2354 CAPSTEAD MORTGAGE CORPORATION ANNOUNCES FIRST QUARTER NET INCOME DALLAS - April 24, 2003 - Capstead Mortgage Corporation (NYSE: CMO) today reported net income of $17,543,000, or $0.75 per diluted common share, for the quarter ended March 31, 2003, compared to $28,375,000, or $1.43 per diluted common share, for the first quarter of 2002. Operating income, calculated after excluding depreciation on real estate, gain on asset sales and the dilutive effects of the Series B preferred shares, was $0.82 per common share for the first quarter of 2003, compared to $0.95 for the fourth quarter of 2002 and $1.65 for the first quarter of 2002. First Quarter Results and Related Discussion As anticipated, Capstead's first quarter operating income was impacted by further declines in the size of the Company's portfolio of mortgage securities and similar investments. The portfolio, which consists largely of adjustable-rate mortgage ("ARM") Fannie Mae, Freddie Mac and Ginnie Mae securities, declined by $184 million during the first quarter primarily as a result of runoff caused by mortgage prepayments. Financing spreads (the difference between the yields earned on these investments and the rates charged on related borrowings) declined only slightly this quarter as lower borrowing rates substantially offset declines in portfolio yields. The overall yield earned on the portfolio averaged 4.35% during the first quarter of 2003, a decline of 30 basis points from an average yield of 4.65% earned during the previous quarter. Yields on ARM securities fluctuate as coupon interest rates on the underlying mortgage loans reset to reflect current interest rates and are expected to continue to decline in the coming quarters. For example, if interest rates stabilize at current rates, the average yield on the portfolio could decline approximately 77 basis points by the first quarter of 2004. Actual yields will depend on portfolio composition as well as fluctuations in, and market expectations for fluctuations in, interest rates and levels of mortgage prepayments. Average rates on related borrowings were 1.34% during the first quarter of 2003. The November 2002 action taken by the Federal Reserve to reduce the Federal Funds Rate by 50 basis points, together with market expectations that the Federal Funds Rate could be reduced further, led to a 28 basis point decline in the Company's average borrowing rates during the first 1 quarter. Further declines in borrowing rates, if any, are not expected to fully offset the effects on earnings of declining portfolio yields and balances. The Company's borrowing rates depend on actions by the Federal Reserve to change short-term interest rates, market expectations of future changes in short-term interest rates and the extent of changes in financial market liquidity. Commenting on the Company's operations, Wesley R. Edens, Chairman of the Board and Chief Executive Officer, said, "Operating income for the first quarter of 2003 declined as yields on the portfolio of adjustable-rate securities continued to reset lower. With continuing declines in both the size of Capstead's portfolio of adjustable-rate securities and in average yields, the recent trend of smaller contributions to operating income from this portfolio is expected to continue in the coming quarters absent significant levels of new investments. The first quarter common dividend included the distribution of gains of $0.12 per share from the redemption of remaining bonds on several securitizations previously issued by the Company. Although additional gains from the redemption of previously issued securitizations could occur in the coming quarters, the amount and timing of any such gains is dependent upon future market conditions. "We continue to evaluate suitable real estate-related investments, which may include credit-sensitive assets intended to produce attractive returns due largely to a higher risk of default and reduced liquidity compared to residential ARM securities. New investments such as these may help to provide more stability to future operating income; however, they likely will not offset declining earnings from our existing portfolio. Further, as seen in recent quarters, additional investment opportunities may not be available on a timely basis. As a result, we anticipate that quarterly operating income and common dividends will continue trending lower." Book Value per Common Share As of March 31, 2003, the Company's book value per common share was $8.10, a decline of $0.13 from December 31, 2002. Book value declined primarily because of dividend payments in excess of quarterly net income and a reduction in the aggregate unrealized gain on the Company's investments (most of which are debt securities carried at fair value with changes in fair value reflected in stockholders' equity) as a result of runoff caused by mortgage prepayments. This unrealized gain can be expected to continue to decline with runoff and to fluctuate with changes in interest rates and market liquidity, and such changes will largely be reflected in book value per common share. Book value will also be affected by other factors, including the level of dividend distributions and depreciation charges on net-leased real estate; however, temporary changes in fair values of investments not held in the form of debt or equity securities generally will not affect book value. * * * * * Capstead Mortgage Corporation, a real estate investment trust, earns income from investing in real estate-related assets and other investment strategies. 2 This document contains "forward-looking statements" (within the meaning of the Private Securities Litigation Reform Act of 1995) that inherently involve risks and uncertainties. The Company's actual results and liquidity can differ materially from those anticipated in these forward-looking statements because of changes in the level and composition of the Company's investments and unforeseen factors. As discussed in the Company's filings with the Securities and Exchange Commission, these factors may include, but are not limited to, changes in general economic conditions, the availability of suitable investments, fluctuations in, and market expectations for fluctuations in, interest rates and levels of mortgage prepayments, deterioration in credit quality and ratings, the effectiveness of risk management strategies, the impact of leverage, liquidity of secondary markets and credit markets, increases in costs and other general competitive factors. Relative to direct investments in real estate, these factors may include, but are not limited to, lessee performance under lease agreements, changes in general as well as local economic conditions and real estate markets, increases in competition and inflationary pressures, changes in the tax and regulatory environment including zoning and environmental laws, uninsured losses or losses in excess of insurance limits and the availability of adequate insurance coverage at reasonable costs. 3
CAPSTEAD MORTGAGE CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands, except per share amounts) March 31, 2003 December 31, 2002 -------------- ----------------- (unaudited) Assets Mortgage securities and similar investments ($2.1 billion pledged under repurchase arrangements) $2,247,308 $2,431,519 CMO collateral and investments 779,453 1,083,421 ---------- ---------- 3,026,761 3,514,940 Real estate held for lease, net of accumulated depreciation 136,195 137,122 Receivables and other assets 53,013 55,863 Cash and cash equivalents 74,681 59,003 ---------- ---------- $3,290,650 $3,766,928 ========== ========== Liabilities Repurchase arrangements and similar borrowings $2,079,126 $2,145,656 Collateralized mortgage obligations ("CMOs") 776,301 1,074,779 Borrowings secured by real estate 120,348 120,400 Incentive fee payable to management and affiliate 906 5,986 Common dividend payable 13,131 116,585 Accounts payable and accrued expenses 4,162 4,944 ---------- ---------- 2,993,974 3,468,350 ---------- ---------- Stockholders' equity Preferred stock - $0.10 par value; 100,000 shares authorized: $1.60 Cumulative Preferred Stock, Series A, 214 and 219 shares issued and outstanding at March 31, 2003 and December 31, 2002, respectively ($3,505 aggregate liquidation preference) 2,989 3,058 $1.26 Cumulative Convertible Preferred Stock, Series B, 15,820 shares issued and outstanding at March 31, 2003 and December 31, 2002, respectively ($180,026 aggregate liquidation preference) 176,708 176,708 Common stock - $0.01 par value; 100,000 shares authorized; 13,970 and 13,962 shares issued and outstanding at March 31, 2003 and December 31, 2002, respectively 140 140 Paid-in capital 458,363 458,919 Accumulated deficit (387,718) (387,718) Accumulated other comprehensive income 46,194 47,471 ---------- ---------- 296,676 298,578 ---------- ---------- $3,290,650 $3,766,928 ========== ========== Book value per common share $8.10 $8.23
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CAPSTEAD MORTGAGE CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Unaudited) Quarter Ended March 31 ----------------------------------------- 2003 2002 ----------------- ------------- Interest income: Mortgage securities and similar investments $25,137 $45,768 CMO collateral and investments 14,968 37,434 -------- -------- Total interest income 40,105 83,202 -------- -------- Interest and related expense: Repurchase arrangements and similar borrowings 7,219 14,047 CMO borrowings 15,339 37,986 Mortgage insurance and other 109 168 -------- -------- Total interest and related expense 22,667 52,201 -------- -------- Net margin on financial assets 17,438 31,001 -------- -------- Real estate lease income (affiliated) 2,521 - -------- -------- Real estate-related expense: Interest 1,092 - Depreciation 927 - -------- -------- Total real estate-related expense 2,019 - -------- -------- Net margin on real estate held for lease 502 - -------- -------- Other revenue (expense): Gain on asset sales and CMO redemptions 1,748 - CMO administration and other 220 447 Management and affiliate incentive fee (906) (1,594) Other operating expense (1,459) (1,479) -------- -------- Total other revenue (expense) (397) (2,626) -------- -------- Net income $17,543 $28,375 ======= ======= Net income $17,543 $28,375 Less preferred share dividends (5,070) (5,099) -------- -------- Net income available to common stockholders $12,473 $23,276 ======= ======= Net income per common share: Basic $0.90 $1.68 Diluted 0.75 1.43 Cash dividends declared per share: Common 0.940 $1.650 Series A Preferred 0.400 0.400 Series B Preferred 0.315 0.315
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CAPSTEAD MORTGAGE CORPORATION MARKET VALUE ANALYSIS (In thousands) (Unaudited) March 31, 2003 December 31, 2002 ----------------- --------------------------------------------------------------------------------- Principal Premium Basis Market Unrealized Unrealized Gains Gains Balance (Discount) Value (Losses) (Losses) ------------ ------------ -------------- ------------ ------------- ----------- Debt securities held available- for-sale: (a) Agency securities: Fannie Mae/Freddie Mac: Fixed-rate $ 1,331 $ 6 $ 1,337 $ 1,461 $ 124 $ 139 ARMs: LIBOR/CMT 1,038,821 14,948 1,053,769 1,077,920 24,151 25,679 COFI 118,390 (3,425) 114,965 120,523 5,558 5,774 Ginnie Mae ARMs 783,592 8,707 792,299 806,056 13,757 12,792 ---------- --------- ------------ ------------ ---------- ---------- 1,942,134 20,236 1,962,370 2,005,960 43,590 44,384 Non-agency Securities (b) 74,179 669 74,848 76,110 1,262 1,504 CMBS (b) 93,285 (230) 93,055 93,114 59 82 CMO collateral and investments 21,384 74 21,458 22,183 725 871 ---------- --------- ------------ ------------ ---------- ---------- $ 2,130,982 $20,749 $2,151,731 $2,197,367 $45,636 $ 46,841 ========== ======= ========== ========== ======= ======== Debt securities held-to-maturity: (c) Released CMO collateral: Agency securities $ 1,792 $ 13 $ 1,805 $ 1,969 $ 164 $ 192 Non-agency securities 32,318 1,580 33,898 33,304 (594) 52 CMO collateral 747,857 9,413 757,270 756,025 (1,245) (3,844) ---------- --------- ----------- ------------ ---------- ---------- $ 781,967 $11,006 $ 792,973 $ 791,298 $ (1,675) $ (3,600) =========== ======= =========== =========== ======== =========
(a) Unrealized gains and losses on investments in debt and equity securities classified as available-for-sale are recorded in stockholders' equity as a component of "Accumulated other comprehensive income." Gains or losses are recognized in operating results only if sold. Investments in a commercial loan syndication and real estate held for lease are not classified as debt securities. Consequently, these assets are not subject to mark-to-market accounting and therefore have been excluded from this analysis. (b) As of the indicated dates, these portfolios consisted of adjustable-rate investments. (c) Investments in debt and equity securities classified as held-to-maturity are carried on the balance sheet at amortized cost. 6
CAPSTEAD MORTGAGE CORPORATION PORTFOLIO YIELD/COST ANALYSIS (Dollars in thousands) (Unaudited) 1st Quarter Average (a) As of March 31, 2003 -------------------------------------------- ----------------------------- Projected Lifetime Actual Actual Premiums 2nd Quarter Prepayment Basis Yield/Cost Runoff (Discounts) Basis (a) Yield/Cost (b) Assumptions ---------------- ------------ --------- ------------ ------------- -------------- ----------- Agency securities: Fannie Mae/Freddie Mac: Fixed-rate $ 3,332 9.33% 43% $ 19 $ 3,142 9.41% 30% ARMs: LIBOR/CMT 1,097,642 4.04 26 14,948 1,053,769 3.69 40 COFI 119,583 4.93 23 (3,425) 114,965 4.63 20 Ginnie Mae ARMs 844,300 4.54 38 8,707 792,299 4.41 26 ------------ --------- ------------ 2,064,857 4.30 31 20,249 1,964,175 4.05 33 Non-agency securities 99,166 4.81 28 2,249 108,746 3.96 40 CMBS and other commercial loans 141,678 4.68 29 (202) 129,476 5.22 - ------------ --------- ------------ 2,305,701 4.35 32 $22,296 2,202,397 4.10 31 ======= Borrowings 2,148,401 1.34 2,079,126 1.38 ----------- ----------- Capital employed/ financing spread $ 157,300 3.01 $ 123,271 2.72 =========== =========== Return on assets (c) 3.10 2.83
(a) Basis represents the Company's investment before unrealized gains and losses. Actual asset yields, runoff rates, borrowing rates and resulting financing spread are presented on an annualized basis. (b) Projected annualized yields reflect ARM coupon resets and lifetime prepayment assumptions as adjusted for expected prepayments over the next three months, as of the date of this press release. Actual yields realized in future periods will largely depend upon (i) changes in portfolio composition, (ii) ARM coupon resets, (iii) actual prepayments and (iv) any changes in lifetime prepayment assumptions. (c) The Company generally uses its liquidity to pay down borrowings. Return on assets is calculated on an annualized basis assuming the use of this liquidity to reduce borrowing costs. 7
CAPSTEAD MORTGAGE CORPORATION COMPARISON OF OPERATING INCOME * AND DILUTED INCOME PER SHARE (In thousands, except per share amounts) (Unaudited) Quarter Ended --------------------------------------------------------------------------------------------- March 31, 2003 December 31, 2002 March 31, 2002 --------------------------- --------------------------- ---------------------------- Operating Diluted Operating Diluted Operating Diluted Net income $17,543 $17,543 $20,411 $20,411 $28,375 $28,375 Adjustments for: Depreciation on real estate 927 - 939 - - - Gain on asset sales and CMO redemptions (1,748) - (2,824) - - - Series B preferred dividends (4,983) - (4,983) - (4,990) - ------- ------- -------- -------- -------- -------- $11,739 $17,543 $13,543 $20,411 $23,385 $28,375 ======= ======= ======= ======= ======= ======= Weighted average common shares outstanding 13,935 13,935 13,880 13,880 13,823 13,823 Net effect of dilutive securities: Preferred B shares - 8,910 - 5,689 - 5,638 Stock options and other preferred shares 407 407 303 303 339 339 ------ ------- -------- -------- -------- -------- 14,342 23,252 14,183 19,872 14,162 19,800 ====== ======= ====== ====== ====== ====== $ 0.82 $0.75 $0.95 $1.03 $1.65 $1.43 ====== ====== ====== ====== ====== ======
* Capstead reports operating income per share calculated after excluding depreciation on real estate, gain on asset sales and CMO redemptions, and the dilutive effects of the Series B preferred shares. As such, operating income represents a measure of the amount of funds generated by operations, which may, at the discretion of Capstead's Board of Directors, be used for reinvestment or distributed to common stockholders as dividends. Depreciation on real estate, although an expense deductible for federal income tax purposes and therefore an item that reduces Capstead's REIT distribution requirements, is added back to arrive at operating income because it is a noncash expense. Gains are excluded because they are considered non-operating in nature and the amount and timing of any such gains are dependent upon future market conditions. Operating income per share excludes the dilutive effects of the Series B preferred shares because at the current market prices of both the common shares and Series B preferred shares, it is not economically advantageous to convert the shares. Consequently, few, if any, actual Series B conversions are expected. The Series B preferred shares are considered dilutive, for diluted net income per share purposes only, whenever annualized basic net income per share exceeds $2.23 ($1.26 Series B annualized dividend divided by the current conversion rate of 0.5653). 8 -----END PRIVACY-ENHANCED MESSAGE-----