EXHIBIT 99.1
CAPSTEAD MORTGAGE CORPORATION
ANNOUNCES FOURTH QUARTER 2003 RESULTS,
SETS RECORD DATE FOR ANNUAL MEETING AND
ESTABLISHES COMMON DIVIDEND SCHEDULE FOR 2004
DALLAS — January 28, 2004 — Capstead Mortgage Corporation (NYSE: CMO) today reported net income of $13,096,000, or $0.56 per diluted common share, for the quarter ended December 31, 2003, compared to $20,411,000, or $1.03 per diluted common share, for the same quarter in 2002. Operating income, a non-GAAP financial measure calculated to exclude depreciation on real estate, gains on asset sales and redemptions of collateralized mortgage obligations (“CMOs”), and the dilutive effects of the Series B preferred shares, was $0.63 per common share for the fourth quarter of 2003, compared to $0.65 for the third quarter of 2003 and $0.95 for the fourth quarter of 2002. A table reconciling operating income per common share to net income per diluted common share (calculated in accordance with generally accepted accounting principles (“GAAP”)) is included in this release.
The Company reported net income of $60,659,000, or $2.60 per diluted common share, for the year ended December 31, 2003 compared to $96,123,000, or $4.85 per diluted common share reported in 2002.
Annual Meeting Record Date
The Company announced that the record date for determining stockholders entitled to notice of and to vote at the annual meeting of stockholders on April 22, 2004 will be the close of business on February 17, 2004. The Company’s proxy statement and annual report will be mailed to stockholders on or about March 5, 2004.
Fourth Quarter Results and Related Discussion
Fourth quarter operating income benefited from additions made to the Company’s portfolio of mortgage securities and similar investments during the second half of 2003 which offset portfolio runoff during this period and helped to partially offset declining portfolio yields. Acquisitions during the second half of 2003 totaled $441 million consisting primarily of adjustable-rate mortgage (“ARM”) Fannie Mae, Freddie Mac and Ginnie Mae securities (“Agency Securities”). In addition, the Company retained $146 million of high coupon fixed-rate collateral released from financed CMOs that is expected to earn improved financing spreads than when previously financed by CMO bonds. Operating income for the fourth quarter also benefited from several income items totaling nearly $700,000 that will not affect future quarterly
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results and includes the recovery of an insurance deductible related to the dismissal of a stockholder class action suit brought against the Company in 1998.
Financing spreads (the difference between the yields earned on these investments and the rates charged on related borrowings) declined 22 basis points during the fourth quarter to 2.47%, all attributable to lower portfolio yields. The overall yield earned on the portfolio averaged 3.60% during the fourth quarter of 2003, compared to an average yield of 3.82% earned during the previous quarter and 3.97% for all of 2003. 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 44 basis points by the fourth 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 held steady at 1.13% during the last two quarters of 2003 and averaged a low 1.23% for the year. 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 Capstead’s operations and recent investing activity, Andrew F. Jacobs, President and Chief Executive Officer, said, “Mortgage prepayments on the Company’s portfolio of ARM securities moderated during the fourth quarter putting less pressure on portfolio balances and this trend is continuing into the first quarter of 2004. Market conditions during the latter half of 2003 allowed us to replace portfolio runoff during that period with acquisitions of attractively priced ARM securities. Additionally, we have acquired sufficient ARM securities scheduled for settlement in the first quarter to again replace runoff. If available, we will continue to pursue attractively priced acquisitions of adjustable-rate mortgage assets.
While we anticipate that managing a large portfolio of adjustable-rate mortgage assets will remain the core focus of our investment strategy, we also are continuing to investigate other real estate-related opportunities that can provide attractive risk-adjusted returns over the long term with relatively low sensitivity to changes in interest rates.”
In conclusion, Mr. Jacobs cautioned, “We expect Capstead’s operating income will continue to benefit from excellent financing spreads for the immediate future; however, opportunities to reinvest capital made available by maturing investments over the near term may not be of the size or have the return profile capable of generating sufficient returns to offset declining earnings from our existing portfolios. As a result, quarterly operating income and common dividends will likely continue trending lower from current levels.”
Book Value per Common Share
As of December 31, 2003, the Company’s book value per common share was $6.67, a decline of $0.38 during the current quarter and $1.56 since December 31, 2002. Book value declined from the prior year because of dividend payments in excess of quarterly net income (approximately $0.22 per share) and, more significantly, a reduction in the aggregate unrealized
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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 and lower underlying coupon interest rates, as discussed above. 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 carried at fair value on the Company’s balance sheet generally will not affect book value.
Scheduled 2004 Common Share Dividend Dates
The Company’s 2004 scheduled common share dividend dates are as follows:
Quarter | Declaration Date | Record Date | Payable Date | |||
First Second Third Fourth | March 11 June 10 September 9 December 9 | March 31 June 30 September 30 December 31 | April 21 July 21 October 21 January 21, 2005 |
* * * * *
Capstead Mortgage Corporation, a real estate investment trust (“REIT”), earns income from investing in real estate-related assets and other investment strategies.
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.
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CAPSTEAD MORTGAGE CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
December 31, 2003 | December 31, 2002 | |||||||||
(unaudited) | ||||||||||
Assets | ||||||||||
Mortgage securities and similar investments ($2.0 billion pledged under repurchase arrangements) | $ | 2,195,117 | $ | 2,431,519 | ||||||
CMO collateral and investments | 167,571 | 1,083,421 | ||||||||
2,362,688 | 3,514,940 | |||||||||
Real estate held for lease, net of accumulated depreciation | 133,414 | 137,122 | ||||||||
Receivables and other assets | 41,880 | 55,863 | ||||||||
Cash and cash equivalents | 16,340 | 59,003 | ||||||||
$ | 2,554,322 | $ | 3,766,928 | |||||||
Liabilities | ||||||||||
Repurchase arrangements and similar borrowings | $ | 1,975,178 | $ | 2,145,656 | ||||||
Collateralized mortgage obligations (“CMOs”) | 166,807 | 1,074,779 | ||||||||
Borrowings secured by real estate | 120,206 | 120,400 | ||||||||
Incentive fee payable to former affiliate | — | 4,982 | ||||||||
Common stock dividend payable | 8,829 | 116,585 | ||||||||
Accounts payable and accrued expenses | 6,264 | 5,948 | ||||||||
2,277,284 | 3,468,350 | |||||||||
Stockholders’ equity | ||||||||||
Preferred stock — $0.10 par value; 100,000 shares authorized: | ||||||||||
$1.60 Cumulative Preferred Stock, Series A, 211 and 219 shares issued and outstanding at December 31, 2003 and 2002, respectively ($3,468 aggregate liquidation preference) | 2,956 | 3,058 | ||||||||
$1.26 Cumulative Convertible Preferred Stock, Series B, 15,819 and 15,820 shares issued and outstanding at December 31, 2003 and 2002, respectively ($180,025 aggregate liquidation preference) | 176,707 | 176,708 | ||||||||
Common stock — $0.01 par value; 100,000 shares authorized; 14,015 and 13,962 shares issued and outstanding at December 31, 2003 and 2002, respectively | 140 | 140 | ||||||||
Paid-in capital | 456,198 | 458,919 | ||||||||
Accumulated deficit | (387,718 | ) | (387,718 | ) | ||||||
Accumulated other comprehensive income | 28,755 | 47,471 | ||||||||
277,038 | 298,578 | |||||||||
$ | 2,554,322 | $ | 3,766,928 | |||||||
Book value per common share | $ | 6.67 | $ | 8.23 |
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CAPSTEAD MORTGAGE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Quarter Ended | Year Ended | |||||||||||||||||||
December 31 | December 31 | |||||||||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||||||||
(unaudited) | (unaudited) | |||||||||||||||||||
Interest income: | ||||||||||||||||||||
Mortgage securities and similar investments | $ | 18,959 | $ | 29,601 | $ | 85,343 | $ | 150,302 | ||||||||||||
CMO collateral and investments | 3,041 | 19,907 | 34,101 | 114,353 | ||||||||||||||||
Total interest income | 22,000 | 49,508 | 119,444 | 264,655 | ||||||||||||||||
Interest and related expense: | ||||||||||||||||||||
Repurchase arrangements and similar borrowings | 5,556 | 9,432 | 24,606 | 48,329 | ||||||||||||||||
CMO borrowings | 2,775 | 20,510 | 33,926 | 116,069 | ||||||||||||||||
Mortgage insurance and other | 91 | 128 | 392 | 596 | ||||||||||||||||
Total interest and related expense | 8,422 | 30,070 | 58,924 | 164,994 | ||||||||||||||||
Net margin on financial assets | 13,578 | 19,438 | 60,520 | 99,661 | ||||||||||||||||
Real estate lease income | 2,465 | 2,764 | 10,028 | 8,170 | ||||||||||||||||
Real estate-related expense: | ||||||||||||||||||||
Interest | 1,057 | 1,536 | 4,327 | 4,750 | ||||||||||||||||
Depreciation | 927 | 939 | 3,708 | 2,543 | ||||||||||||||||
Total real estate-related expense | 1,984 | 2,475 | 8,035 | 7,293 | ||||||||||||||||
Net margin on real estate held for lease | 481 | 289 | 1,993 | 877 | ||||||||||||||||
Other revenue (expense): | ||||||||||||||||||||
Gain on asset sales and CMO redemptions | 9 | 2,824 | 4,560 | 4,725 | ||||||||||||||||
CMO administration and other | 925 | 315 | 1,784 | 2,429 | ||||||||||||||||
Incentive fee payable to former affiliate | — | (948 | ) | (500 | ) | (4,982 | ) | |||||||||||||
Other operating expense | (1,897 | ) | (1,507 | ) | (7,698 | ) | (6,587 | ) | ||||||||||||
Total other revenue (expense) | (963 | ) | 684 | (1,854 | ) | (4,415 | ) | |||||||||||||
Net income | $ | 13,096 | $ | 20,411 | $ | 60,659 | $ | 96,123 | ||||||||||||
Net income | $ | 13,096 | $ | 20,411 | $ | 60,659 | $ | 96,123 | ||||||||||||
Less cash dividends paid on preferred stock | (5,068 | ) | (5,068 | ) | (20,273 | ) | (20,362 | ) | ||||||||||||
Net income available to common stockholders | $ | 8,028 | $ | 15,343 | $ | 40,386 | $ | 75,761 | ||||||||||||
Net income per common share: | ||||||||||||||||||||
Basic | $ | 0.57 | $ | 1.11 | $ | 2.89 | $ | 5.47 | ||||||||||||
Diluted | 0.56 | 1.03 | 2.60 | 4.85 | ||||||||||||||||
Cash dividends declared per share: | ||||||||||||||||||||
Common — regular quarterly | $ | 0.630 | $ | 1.160 | $ | 3.100 | $ | 5.560 | ||||||||||||
Common — special | — | 7.190 | — | 7.190 | ||||||||||||||||
Series A Preferred | 0.400 | 0.400 | 1.600 | 1.600 | ||||||||||||||||
Series B Preferred | 0.315 | 0.315 | 1.260 | 1.260 |
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CAPSTEAD MORTGAGE CORPORATION
MARKET VALUE ANALYSIS
(In thousands)
(Unaudited)
December 31, 2003 | December 31, 2002 | |||||||||||||||||||||||||||
Unrealized | Unrealized | |||||||||||||||||||||||||||
Principal | Premium | Market | Gains | Gains | ||||||||||||||||||||||||
Balance | (Discount) | Basis | Value | (Losses) | (Losses) | |||||||||||||||||||||||
Debt securities held available-for-sale:(a) | ||||||||||||||||||||||||||||
Agency Securities: | ||||||||||||||||||||||||||||
Fannie Mae/Freddie Mac: | ||||||||||||||||||||||||||||
Fixed-rate | $ | 823 | $ | 4 | $ | 827 | $ | 903 | $ | 76 | $ | 139 | ||||||||||||||||
ARMs: | ||||||||||||||||||||||||||||
LIBOR/CMT | 1,050,761 | 15,626 | 1,066,387 | 1,084,492 | 18,105 | 25,679 | ||||||||||||||||||||||
COFI | 90,669 | (2,623 | ) | 88,046 | 91,566 | 3,520 | 5,774 | |||||||||||||||||||||
Ginnie Mae ARMs | 726,876 | 7,830 | 734,706 | 739,987 | 5,281 | 12,792 | ||||||||||||||||||||||
1,869,129 | 20,837 | 1,889,966 | 1,916,948 | 26,982 | 44,384 | |||||||||||||||||||||||
Non-agency securities: | ||||||||||||||||||||||||||||
ARMs | 58,072 | 541 | 58,613 | 59,619 | 1,006 | 1,504 | ||||||||||||||||||||||
CMBS-adjustable rate | 74,376 | (9 | ) | 74,367 | 74,376 | 9 | 82 | |||||||||||||||||||||
CMO collateral and investments | 16,054 | 386 | 16,440 | 16,939 | 499 | 871 | ||||||||||||||||||||||
$ | 2,017,631 | $ | 21,755 | $ | 2,039,386 | $ | 2,067,882 | $ | 28,496 | $ | 46,841 | |||||||||||||||||
Debt securities held-to-maturity:(b) | ||||||||||||||||||||||||||||
Released CMO collateral: | ||||||||||||||||||||||||||||
Agency Securities: | ||||||||||||||||||||||||||||
Fixed-rate | $ | 1,249 | $ | 8 | $ | 1,257 | $ | 1,370 | $ | 113 | $ | 192 | ||||||||||||||||
Non-agency securities: | ||||||||||||||||||||||||||||
Fixed-rate | 118,638 | 174 | 118,812 | 123,122 | 4,310 | 52 | ||||||||||||||||||||||
ARMs | 23,353 | 752 | 24,105 | 23,875 | (230 | ) | — | |||||||||||||||||||||
143,240 | 934 | 144,174 | 148,367 | 4,193 | 244 | |||||||||||||||||||||||
CMO collateral | 148,334 | 2,298 | 150,632 | 150,856 | 224 | (3,844 | ) | |||||||||||||||||||||
$ | 291,574 | $ | 3,232 | $ | 294,806 | $ | 299,223 | $ | 4,417 | $ | (3,600 | ) | ||||||||||||||||
(a) | Unrealized gains and losses on investments in debt 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 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) | Investments in debt securities classified as held-to-maturity are carried on the balance sheet at amortized cost. |
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CAPSTEAD MORTGAGE CORPORATION
MORTGAGE SECURITIES AND SIMILAR INVESTMENTS
YIELD/COST ANALYSIS
(Dollars in thousands)
(Unaudited)
4th Quarter Average (a) | As of December 31, 2003 | ||||||||||||||||||||||||||||||
Projected | Lifetime | ||||||||||||||||||||||||||||||
Actual | Actual | Premiums | 1st Quarter | Prepayment | |||||||||||||||||||||||||||
Basis | Yield/Cost | Runoff | (Discounts) | Basis (a) | Yield/Cost (b) | Assumptions | |||||||||||||||||||||||||
Agency Securities: | |||||||||||||||||||||||||||||||
Fannie Mae/Freddie Mac: | |||||||||||||||||||||||||||||||
Fixed-rate | $ | 2,216 | 9.47 | % | 39 | % | $ | 12 | $ | 2,084 | 9.69 | % | 30 | % | |||||||||||||||||
ARMs: | |||||||||||||||||||||||||||||||
LIBOR/CMT | 976,481 | 3.21 | 26 | 15,626 | 1,066,387 | 3.04 | 25 | ||||||||||||||||||||||||
COFI | 92,924 | 4.74 | 31 | (2,623 | ) | 88,046 | 4.38 | 25 | |||||||||||||||||||||||
Ginnie Mae ARMs | 709,817 | 3.56 | 33 | 7,830 | 734,706 | 3.47 | 26 | ||||||||||||||||||||||||
$ | 1,781,438 | 3.44 | 29 | 20,845 | 1,891,223 | 3.28 | 25 | ||||||||||||||||||||||||
Non-agency securities: | |||||||||||||||||||||||||||||||
Fixed-rate | 131,781 | 5.98 | 56 | 174 | 118,812 | 6.31 | 32 | ||||||||||||||||||||||||
ARMs | 88,303 | 3.51 | 38 | 1,293 | 82,718 | 3.22 | 40 | ||||||||||||||||||||||||
220,084 | 4.99 | 50 | 1,467 | 201,530 | 5.05 | 35 | |||||||||||||||||||||||||
CMBS and other commercial loans | 95,039 | 3.49 | 34 | (9 | ) | 74,367 | 2.27 | — | |||||||||||||||||||||||
2,096,561 | 3.60 | 35 | $ | 22,303 | 2,167,120 | 3.40 | 25 | ||||||||||||||||||||||||
Borrowings | 1,921,318 | 1.13 | 1,975,178 | 1.11 | |||||||||||||||||||||||||||
Capital employed/financing spread | $ | 175,243 | 2.47 | $ | 191,942 | 2.29 | |||||||||||||||||||||||||
Return on assets(c) | 2.55 | 2.38 |
(a) | Basis represents Capstead’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 for the fourth quarter 2003 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) | Capstead 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. |
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CAPSTEAD MORTGAGE CORPORATION
COMPARISON OF OPERATING INCOME *
AND DILUTED INCOME PER COMMON SHARE
(In thousands, except per share amounts)
(Unaudited)
December 31, 2003 | September 30, 2003 | December 31, 2002 | |||||||||||||||||||||||
Operating | Diluted | Operating | Diluted | Operating | Diluted | ||||||||||||||||||||
Net income | $ | 13,096 | $ | 13,096 | $ | 14,779 | $ | 14,779 | $ | 20,411 | $ | 20,411 | |||||||||||||
Adjustments for Depreciation on real estate | 927 | — | 927 | — | 939 | — | |||||||||||||||||||
Gain on asset sales and CMO redemptions | (9 | ) | — | (1,411 | ) | — | (2,824 | ) | — | ||||||||||||||||
Series B preferred dividends | (4,983 | ) | — | (4,982 | ) | — | (4,983 | ) | — | ||||||||||||||||
$ | 9,031 | $ | 13,096 | $ | 9,313 | $ | 14,779 | $ | 13,543 | $ | 20,411 | ||||||||||||||
Weighted average common shares outstanding | 13,998 | 13,998 | 13,995 | 13,995 | 13,880 | 13,880 | |||||||||||||||||||
Net effect of dilutive securities: | |||||||||||||||||||||||||
Preferred B shares | — | 9,030 | — | 8,987 | — | 5,689 | |||||||||||||||||||
Stock options and other preferred shares | 343 | 343 | 353 | 353 | 303 | 303 | |||||||||||||||||||
14,341 | 23,371 | 14,348 | 23,335 | 14,183 | 19,872 | ||||||||||||||||||||
$ | 0.63 | $ | 0.56 | $ | 0.65 | $ | 0.63 | $ | 0.95 | $ | 1.03 | ||||||||||||||
* | Capstead reports operating income per common share (a non-GAAP financial measure calculated excluding depreciation on real estate, gain on asset sales and CMO redemptions, and the dilutive effects of the Series B preferred share) under the belief it provides investors with a useful supplemental measure of the Company’s operating performance. 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 common share excludes the dilutive effects of the Series B preferred shares because it is not economically advantageous to convert these shares at the current market prices of both the common shares and Series B preferred shares. Consequently, few, if any, actual Series B conversions are expected. The Series B preferred shares are considered dilutive, for diluted net income per common share purposes only, whenever annualized basic net income per common share exceeds $2.20 (the Series B preferred share annualized dividend of $1.26 divided by the current conversion rate of 0.5730). |
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