EXHIBIT 99.1
CAPSTEAD MORTGAGE CORPORATION
ANNOUNCES THIRD QUARTER NET INCOME
DALLAS - October 22, 2003 - Capstead Mortgage Corporation (NYSE: CMO)
today reported net income of $14,779,000, or $0.63 per diluted common share, for
the quarter ended September 30, 2003, compared to $22,751,000, or $1.15 per
diluted common share, for the third quarter of 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 $0.65
per common share for the third quarter of 2003, compared to $0.68 for the second
quarter of 2003 and $1.19 for the third 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.
THIRD QUARTER RESULTS AND RELATED DISCUSSION
Operating income declined less during the third quarter than in prior
quarters primarily because of lower borrowing rates and the impact of additions
made to the Company's portfolio of mortgage securities and similar investments.
This portfolio currently consists largely of adjustable-rate mortgage ("ARM")
Fannie Mae, Freddie Mac and Ginnie Mae securities ("Agency Securities").
Financing spreads (the difference between the yields earned on these investments
and the rates charged on related borrowings) declined seven basis points during
the third quarter to 2.69% because of lower portfolio yields, as discussed
below, offset by lower borrowing rates, which benefited from the action taken by
the Federal Reserve on June 25, 2003 to reduce the Federal Funds Rate by 25
basis points. During the third quarter, the Company acquired $163 million of ARM
Agency Securities. In addition, Capstead retained $121 million of fixed-rate
collateral released from financed CMOs that the Company expects will earn
improved financing spreads than when previously financed by CMO bonds. Together,
these additions more than offset $210 million of runoff caused primarily by
mortgage prepayments during the third quarter.
The overall yield earned on the portfolio averaged 3.82% during the
third quarter of 2003, a decline of 24 basis points from an average yield of
4.06% 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 38 basis points by the third 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 1.13% during the third quarter
of 2003, a decline of 17 basis points from the second quarter. 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, Andrew F. Jacobs, President and
Chief Executive Officer, said, "Sharp increases in medium and long-term interest
rates in July and August provided us the opportunity to acquire a significant
amount of mortgage assets during the third quarter at attractive prices.
Interest rates declined again in September and although we believe there may
continue to be opportunities to acquire additional mortgage assets at attractive
prices in the near future, such acquisitions may not be sufficient to replace
runoff of our existing portfolio. That being said, portfolio runoff is expected
to begin moderating in the fourth quarter as a higher interest rate environment
has reduced, if not eliminated, the opportunity for homeowners to refinance
their ARM loans into lower rate fixed-rate loans. Additionally, we will continue
to see declines in average yields due to the reset to lower interest rates on
mortgages underlying our ARM securities portfolio. The third quarter common
dividend included the distribution of gains of $0.10 per share from the
redemption of remaining CMO bonds on securitizations previously issued by the
Company. We do not anticipate realizing significant additional gains from CMO
redemptions in the coming quarters."
Commenting on the Company's investment strategy, Mr. Jacobs added, "We
are currently in the process of reevaluating our investment strategy. While we
fully expect to continue our current strategy of investing in assets that can
provide attractive risk-adjusted returns over the long term with less
sensitivity to changes in interest rates than investments in fixed-rate and
medium-term Agency Securities, we are also examining other real estate-related
opportunities to invest available capital."
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 likely 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 may continue trending lower from current levels."
BOOK VALUE PER COMMON SHARE
As of September 30, 2003, the Company's book value per common share was
$7.05, a decline of $0.78 during the current quarter and $1.18 since December
31, 2002. Book value declined since year-end because of dividend payments in
excess of quarterly net income (approximately $0.16 per share) and, more
significantly, 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 recent
increases in interest rates and 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 ("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.
CAPSTEAD MORTGAGE CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<Table>
<Caption>
SEPTEMBER 30, 2003 DECEMBER 31, 2002
------------------ -----------------
(UNAUDITED)
ASSETS
Mortgage securities and similar investments
($2.0 billion pledged under repurchase arrangements) $ 2,120,974 $ 2,431,519
CMO collateral and investments 240,528 1,083,421
----------- -----------
2,361,502 3,514,940
Real estate held for lease, net of accumulated depreciation 134,341 137,122
Receivables and other assets 58,474 55,863
Cash and cash equivalents 98,025 59,003
----------- -----------
$ 2,652,342 $ 3,766,928
=========== ===========
LIABILITIES
Repurchase arrangements and similar borrowings $ 1,994,389 $ 2,145,656
Collateralized mortgage obligations ("CMOs") 239,565 1,074,779
Borrowings secured by real estate 120,253 120,400
Incentive fee payable to former affiliate -- 4,982
Common stock dividend payable 10,513 116,585
Accounts payable and accrued expenses 5,281 5,948
----------- -----------
2,370,001 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
September 30, 2003 and December 31, 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
September 30, 2003 and December 31, 2002,
respectively ($180,025 aggregate liquidation preference) 176,707 176,708
Common stock - $0.01 par value; 100,000 shares authorized;
14,017 and 13,962 shares issued and outstanding at
September 30, 2003 and December 31, 2002, respectively 140 140
Paid-in capital 456,981 458,919
Accumulated deficit (387,718) (387,718)
Accumulated other comprehensive income 33,275 47,471
----------- -----------
282,341 298,578
----------- -----------
$ 2,652,342 $ 3,766,928
=========== ===========
BOOK VALUE PER COMMON SHARE $ 7.05 $ 8.23
</Table>
CAPSTEAD MORTGAGE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<Table>
<Caption>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------------- -------------------------
2003 2002 2003 2002
--------- --------- --------- ---------
INTEREST INCOME:
Mortgage securities and similar investments $ 19,599 $ 34,866 $ 66,384 $ 120,701
CMO collateral and investments 5,971 26,316 31,061 94,446
--------- --------- --------- ---------
Total interest income 25,570 61,182 97,445 215,147
--------- --------- --------- ---------
INTEREST AND RELATED EXPENSE:
Repurchase arrangements and similar borrowings 5,377 11,886 19,050 38,897
CMO borrowings 5,803 26,594 31,152 95,559
Mortgage insurance and other 93 144 301 468
--------- --------- --------- ---------
Total interest and related expense 11,273 38,624 50,503 134,924
--------- --------- --------- ---------
Net margin on financial assets 14,297 22,558 46,942 80,223
--------- --------- --------- ---------
REAL ESTATE LEASE INCOME 2,468 3,219 7,564 5,406
--------- --------- --------- ---------
REAL ESTATE-RELATED EXPENSE:
Interest 1,046 1,918 3,271 3,214
Depreciation 927 962 2,781 1,604
--------- --------- --------- ---------
Total real estate-related expense 1,973 2,880 6,052 4,818
--------- --------- --------- ---------
Net margin on real estate held for lease 495 339 1,512 588
--------- --------- --------- ---------
OTHER REVENUE (EXPENSE):
Gain on asset sales and CMO redemptions 1,411 1,901 4,551 1,901
CMO administration and other 459 914 860 2,114
Incentive fee payable to former affiliate -- (1,351) (500) (4,034)
Other operating expense (1,883) (1,610) (5,802) (5,080)
--------- --------- --------- ---------
Total other revenue (expense) (13) (146) (891) (5,099)
--------- --------- --------- ---------
NET INCOME $ 14,779 $ 22,751 $ 47,563 $ 75,712
========= ========= ========= =========
Net income $ 14,779 $ 22,751 $ 47,563 $ 75,712
Less cash dividends paid on preferred stock (5,068) (5,097) (15,204) (15,296)
--------- --------- --------- ---------
Net income available to common stockholders $ 9,711 $ 17,654 $ 32,359 $ 60,416
========= ========= ========= =========
NET INCOME PER COMMON SHARE:
Basic $ 0.69 $ 1.27 $ 2.32 $ 4.36
Diluted 0.63 1.15 2.04 3.82
CASH DIVIDENDS DECLARED PER SHARE:
Common $ 0.750 $ 1.320 $ 2.470 $ 4.400
Series A Preferred 0.400 0.400 1.200 1.200
Series B Preferred 0.315 0.315 0.945 0.945
</Table>
CAPSTEAD MORTGAGE CORPORATION
MARKET VALUE ANALYSIS
(IN THOUSANDS)
(UNAUDITED)
<Table>
<Caption>
SEPTEMBER 30, 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 $ 1,019 $ 4 $ 1,023 $ 1,118 $ 95 $ 139
ARMs:
LIBOR/CMT 937,543 13,416 950,959 970,609 19,650 25,679
COFI 99,528 (2,878) 96,650 100,576 3,926 5,774
Ginnie Mae ARMs 706,595 7,639 714,234 721,676 7,442 12,792
---------- ----------- ---------- ---------- -------- --------
1,744,685 18,181 1,762,866 1,793,979 31,113 44,384
---------- ----------- ---------- ---------- -------- --------
Non-agency securities:
Fixed-rate 2,369 -- 2,369 2,454 85 --
ARMs 63,742 581 64,323 65,426 1,103 1,504
---------- ----------- ---------- ---------- -------- --------
66,111 581 66,692 67,880 1,188 1,504
CMBS - adjustable rate 72,587 (20) 72,567 72,587 20 82
CMO collateral and investments 17,590 416 18,006 18,591 585 871
---------- ----------- ---------- ---------- -------- --------
$1,900,973 $ 19,158 $1,920,131 $1,953,037 $ 32,906 $ 46,841
========== =========== ========== ========== ======== ========
DEBT SECURITIES HELD-TO-MATURITY: (b)
Released CMO collateral:
Agency Securities:
Fixed-rate $ 1,331 $ 10 $ 1,341 $ 1,462 $ 121 $ 192
Non-agency securities:
Fixed-rate 120,025 429 120,454 124,203 3,749 52
ARMs 28,286 957 29,243 28,950 (293) --
---------- ----------- ---------- ---------- -------- --------
149,642 1,396 151,038 154,615 3,577 244
CMO collateral 220,609 1,328 221,937 222,187 250 (3,844)
---------- ----------- ---------- ---------- -------- --------
$ 370,251 $ 2,724 $ 372,975 $ 376,802 $ 3,827 $ (3,600)
========== =========== ========== ========== ======== ========
</Table>
(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
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) Investments in debt securities classified as held-to-maturity are
carried on the balance sheet at amortized cost.
CAPSTEAD MORTGAGE CORPORATION
MORTGAGE SECURITIES AND SIMILAR INVESTMENTS
YIELD/COST ANALYSIS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<Table>
<Caption>
3RD QUARTER AVERAGE (a) AS OF SEPTEMBER 30, 2003
---------------------------------- -------------------------- PROJECTED LIFETIME
ACTUAL ACTUAL PREMIUMS 4TH QUARTER PREPAYMENT
BASIS YIELD/COST RUNOFF (DISCOUNTS) BASIS (a) YIELD/COST (b) ASSUMPTIONS
---------- ---------- ------ ----------- ---------- -------------- -----------
Agency Securities:
Fannie Mae/Freddie Mac:
Fixed-rate $ 2,566 9.41% 39% $ 14 $ 2,364 9.50% 30%
ARMs:
LIBOR/CMT 945,915 3.43 29 13,416 950,959 3.18 25
COFI 102,189 4.83 30 (2,878) 96,650 4.64 25
Ginnie Mae ARMs 685,978 3.85 43 7,639 714,234 3.64 26
---------- ----------- ----------
1,736,648 3.69 35 18,191 1,764,207 3.45 25
Non-agency securities:
Fixed-rate 97,189 6.47 30 429 122,823 6.22 32
ARMs 103,099 3.00 50 1,538 93,566 3.37 40
---------- ----------- ----------
200,288 4.68 41 1,967 216,389 5.10 35
CMBS and other
commercial loans 108,273 4.27 2 1 108,057 4.28 --
---------- ----------- ----------
2,045,209 3.82 35 $ 20,159 2,088,653 3.67 25
===========
Borrowings 1,865,726 1.13 1,994,389 1.15
---------- ----------
Capital employed/
financing spread $ 179,483 2.69 $ 94,264 2.52
========== ==========
Return on assets (c) 2.77 2.60
</Table>
(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 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) 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.
CAPSTEAD MORTGAGE CORPORATION
COMPARISON OF OPERATING INCOME *
AND DILUTED INCOME PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<Table>
<Caption>
QUARTER ENDED
------------------------------------------------------------------------------
SEPTEMBER 30, 2003 JUNE 30,2003 SEPTEMBER 30, 2002
---------------------- ---------------------- ----------------------
OPERATING DILUTED OPERATING DILUTED OPERATING DILUTED
--------- ------- --------- ------- --------- -------
Net income $ 14,779 $14,779 $ 15,241 $15,241 $ 22,751 $22,751
Adjustments for:
Depreciation on real estate 927 -- 927 -- 962 --
Gain on asset sales and
CMO redemptions (1,411) -- (1,393) -- (1,901) --
Series B preferred dividends (4,982) -- (4,982) -- (4,990) --
-------- ------- -------- ------- -------- -------
$ 9,313 $14,779 $ 9,793 $15,241 $ 16,822 $22,751
======== ======= ======== ======= ======== =======
Weighted average common
shares outstanding 13,995 13,995 13,978 13,978 13,871 13,871
Net effect of dilutive securities:
Preferred B shares -- 8,987 -- 8,943 -- 5,638
Stock options and other preferred
shares 353 353 349 349 310 310
-------- ------- -------- ------- -------- -------
14,348 23,335 14,327 23,270 14,181 19,819
======== ======= ======== ======= ======== =======
$ 0.65 $ 0.63 $ 0.68 $ 0.65 $ 1.19 $ 1.15
======== ======= ======== ======= ======== =======
</Table>
* 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 $2.21
(the Series B preferred share annualized dividend of $1.26 divided by
the current conversion rate of 0.5708).