1
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED: DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER: 1-8896
CAPSTEAD MORTGAGE CORPORATION
(Exact name of Registrant as specified in its Charter)
MARYLAND 75-2027937
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2711 NORTH HASKELL, DALLAS, TEXAS 75204
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 874-2323
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED
------------------- ------------------------------------
Common Stock ($0.01 par value) New York Stock Exchange
$1.60 Cumulative Preferred Stock, Series A ($0.10 par value) New York Stock Exchange
$1.26 Cumulative Convertible Preferred Stock, Series B ($0.10 par value) New York Stock Exchange
Indicate by check mark whether the Registrant (1) has filed all documents and
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
Regulation S-K is not contained herein, and will not be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
AT FEBRUARY 16, 1998 THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY
NONAFFILIATES WAS $1,146,290,000.
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AT FEBRUARY 16, 1998: 59,469,559
DOCUMENTS INCORPORATED BY REFERENCE:
(1) PORTIONS OF THE REGISTRANT'S ANNUAL REPORT TO STOCKHOLDERS FOR THE YEAR
ENDED DECEMBER 31, 1997 ARE INCORPORATED BY REFERENCE INTO PARTS II AND IV.
(2) PORTIONS OF THE REGISTRANT'S DEFINITIVE PROXY STATEMENT DATED MARCH 6,
1998, ISSUED IN CONNECTION WITH THE ANNUAL MEETING OF STOCKHOLDERS OF THE
REGISTRANT, ARE INCORPORATED BY REFERENCE INTO PART III.
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2
CAPSTEAD MORTGAGE CORPORATION AND SUBSIDIARIES
1997 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PAGE
----
PART I
ITEM 1. BUSINESS............................................................................ 1
ITEM 2. PROPERTIES.......................................................................... 3
ITEM 3. LEGAL PROCEEDINGS................................................................... 3
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................................. 3
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS................................................... 3
ITEM 6. SELECTED FINANCIAL DATA............................................................. 3
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............................................... 3
ITEM 3. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA......................................... 3
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE............................................... 3
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.................................. 4
ITEM 11. EXECUTIVE COMPENSATION.............................................................. 4
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT............................................................. 4
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................................... 4
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K............................................................... 4
3
PART I
ITEM 1. BUSINESS.
Capstead Mortgage Corporation ("CMC" or the "Company") was incorporated on April
15, 1985 in Maryland and commenced operations in September 1985. The Company's
business plan is to build a mortgage banking operation with investments in
mortgage servicing and mortgage assets with the goal of producing reasonably
balanced operating results in a variety of interest rate environments.
Initially, the Company structured and managed mortgage investments. In late 1992
the Company entered into the mortgage servicing business. Mortgage servicing
includes collecting and accounting for payments of principal and interest from
borrowers, remitting such payments to investors, holding escrow funds for
payment of mortgage-related expenses such as taxes and insurance, making
advances to cover delinquent payments, inspecting the mortgage premises as
required, contacting delinquent mortgagors, supervising foreclosures and
property dispositions in the event of unremedied defaults, and generally
administering the loans. Fees are received for servicing residential mortgage
loans ranging generally from 0.25 to 0.38 percent per annum on the declining
principal balances of the loans and are collected out of monthly mortgage
payments.
For further discussion of the Company's business, see the Registrant's Annual
Report to Stockholders for the year ended December 31, 1997 on pages 38 through
40.
EFFECTS OF INTEREST RATE CHANGES
For discussion of effects of interest rate changes on the Company's mortgage
securities and mortgage servicing portfolios, see the Registrant's Annual Report
to Stockholders for the year ended December 31, 1997 on pages 38, 42 and 43.
OTHER INVESTMENT STRATEGIES
The Company may enter into other short- or long-term investment strategies as
the opportunities arise.
COMPETITION
In purchasing mortgage securities, the Company competes with savings banks,
commercial banks, mortgage and investment bankers, conduits, insurance
companies, other lenders and mutual funds. The competition for the acquisition
of mortgage servicing rights is primarily with mortgage bankers, commercial
banks and savings banks.
REGULATION AND RELATED MATTERS
The Company's mortgage servicing unit is subject to the rules and regulations of
FNMA and FHLMC with respect to servicing mortgage loans. In addition, there are
other federal and state statutes and regulations affecting such activities.
Moreover, the Company is required annually to submit audited financial
statements to FNMA and FHLMC, and each regulatory entity has its own financial
requirements. The Company's affairs are also subject to examination by FNMA and
FHLMC at all times to assure compliance with applicable regulations, policies
and procedures. Many of the aforementioned regulatory requirements are designed
to protect the interests of consumers, while others protect the owners or
insurers of mortgage loans. Failure to comply with these requirements can lead
to loss of approved status, termination of servicing contracts without
compensation to the servicer,
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demands for indemnification or loan repurchases, class action lawsuits and
administrative enforcement actions.
EMPLOYEES
As of December 31, 1997, the Company had 218 full-time employees.
TAX STATUS
As used herein, "Capstead REIT" refers to CMC and the entities that are
consolidated with CMC for federal income tax purposes. Capstead REIT has elected
to be taxed as a REIT for federal income tax purposes and intends to continue to
do so. As a result of this election, Capstead REIT will not be taxed at the
corporate level on taxable income distributed to stockholders, provided that
certain requirements concerning the nature and composition of its income and
assets are met and that at least 95 percent of its REIT taxable income is
distributed.
If Capstead REIT fails to qualify as a REIT in any taxable year, it would be
subject to federal income tax at regular corporate rates and would not receive a
deduction for dividends paid to stockholders. If this were the case, the amount
of after-tax earnings available for distribution to stockholders would decrease
substantially.
As long as Capstead REIT qualifies as a REIT, it will generally be taxable only
on its undistributed taxable income. Distributions out of current or accumulated
earnings and profits will be taxed to stockholders as ordinary income or capital
gain, as the case may be. Distributions in excess of the Company's accumulated
and current earnings and profits will constitute a non-taxable return of capital
to the stockholders (except insofar as such distributions exceed the cost basis
of the shares of stock) resulting in a corresponding reduction in the cost basis
of the shares of stock. The Company notifies its stockholders of the proportion
of distributions made during the taxable year that constitutes ordinary income,
return of capital or capital gains. For 1997, capital gains are classified as
medium-term on sold assets that were held 12 to 18 months, and long-term on sold
assets that were held longer than 18 months. During 1997, 83.7 percent, 7.5
percent, 7.4 percent and 1.4 percent of the common stock distributions were
characterized as ordinary income, nontaxable return of capital, medium-term
capital gain and long-term capital gain, respectively, while 90.5 percent, 8.6
percent and 0.9 percent of the preferred stock distributions were characterized
as ordinary income, medium-term capital gain and long-term capital gain,
respectively. During 1996, 83.7 percent, 10.4 percent and 5.9 percent of the
common stock distributions were characterized as ordinary income, nontaxable
return of capital and long-term capital gain, respectively, while 93.4 percent
and 6.6 percent of the preferred stock distributions were characterized as
ordinary income and long-term capital gain, respectively. During 1995 all
distributions made were characterized as ordinary income. Distributions by the
Company will not normally be eligible for the dividends received deduction for
corporations. Should the Company incur losses, stockholders will not be entitled
to include such losses in their individual income tax returns.
All taxable income of Capstead Holdings, Inc., and its primary subsidiary
Capstead Inc. (which conducts mortgage servicing operations), is subject to
federal and state income taxes, where applicable. Capstead REIT's taxable income
will include earnings of these subsidiaries only upon payment to Capstead REIT
by distribution of such earnings, and only if these distributions are made out
of current earnings and profits.
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The foregoing is general in character. Reference should be made to pertinent
Internal Revenue Code sections and the Regulations issued thereunder for a
comprehensive statement of applicable federal income tax consequences.
ITEM 2. PROPERTIES.
The Company's operations are conducted in Dallas, Texas on properties leased by
the Company.
ITEM 3. LEGAL PROCEEDINGS.
At December 31, 1997 there were no material pending legal proceedings, outside
the normal course of business, to which the Company or its subsidiaries were a
party or of which any of their property was the subject.
ITEM 4. RESULTS OF SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The information required by this item is included in the Registrant's Annual
Report to Stockholders for the year ended December 31, 1997 on page 36 under the
caption "Note 14 - Market and Dividend Information," and is incorporated herein
by reference, pursuant to General Instruction G(2).
ITEM 6. SELECTED FINANCIAL DATA.
The information required by this item is included in the Registrant's Annual
Report to Stockholders for the year ended December 31, 1997 on page 37 under the
caption "Selected Financial Data," and is incorporated herein by reference,
pursuant to General Instruction G(2).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information required by this item is included in the Registrant's Annual
Report to Stockholders for the year ended December 31, 1997 on pages 38 through
43 under the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and is incorporated herein by reference,
pursuant to General Instruction G(2).
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this item is included in the Registrant's Annual
Report to Stockholders for the year ended December 31, 1997 on pages 17 through
36, and is incorporated herein by reference, pursuant to General Instruction
G(2).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this item is included in the Registrant's definitive
Proxy Statement dated March 6, 1998 on pages 3 through 6 under the captions
"Election of Directors," "Board of Directors" and "Executive Officers," which is
incorporated herein by reference pursuant to General Instruction G(3).
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is included in the Registrant's definitive
Proxy Statement dated March 6, 1998 on pages 7 through 14 under the captions
"Executive Compensation," "Compensation Committee Report on Executive
Compensation," and "Performance Graph," which is incorporated herein by
reference pursuant to General Instruction G(3).
ITEM 12. SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS.
The information required by this item is included in the Registrant's definitive
Proxy Statement dated March 6, 1998 on pages 16 and 17 under the caption
"Security Ownership of Management and Certain Beneficial Owners," which is
incorporated herein by reference pursuant to General Instruction G(3).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Documents filed as part of this report:
1. The following financial statements of the Company, included
in the 1997 Annual Report to Stockholders, are incorporated
herein by reference:
PAGE
----
Consolidated Statement of Income - Years
Ended December 31, 1997, 1996 and 1995........................................ *
Consolidated Balance Sheet -
December 31, 1997 and 1996.................................................... *
Consolidated Statement of Stockholders' Equity -
Three Years Ended December 31, 1997........................................... *
Consolidated Statement of Cash Flows - Years
Ended December 31, 1997, 1996 and 1995........................................ *
Notes to Consolidated Financial Statements -
December 31, 1997............................................................. *
2. Financial statement schedule:
Schedule IV - Mortgage Loans on Real Estate..................................... 9
NOTE: All other schedules for which provision is made in the
applicable accounting regulation of the Securities and Exchange
Commission are not required under the related instructions or are
inapplicable, and therefore have been omitted.
* Incorporated herein by reference from the Company's Annual
Report to Stockholders for the year ended December 31, 1997.
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PART IV
ITEM 14. -- CONTINUED
3. Exhibits:
EXHIBIT
NUMBER
1.3 Sales Agency Agreement dated as of December 6,
1995 between Capstead Mortgage Corporation and
PaineWebber Incorporated (the "Sales Agency
Agreement")(6)
1.4 Amendment No. 1 to the Sales Agency Agreement
dated as of September 10, 1996 between Capstead
Mortgage Corporation and PaineWebber
Incorporated (the "Common Stock Sales Agency
Agreement")(8)
1.5 Sales Agency Agreement dated as of August 17,
1996 Capstead Mortgage Corporation and
PaineWebber Incorporated (the "Series B
Preferred Stock 1996 Sales Agency
Agreement")(8)
1.6 The Second Amendment dated as of March 4, 1997
to the Sales Agency Agreement dated as of
December 6, 1995 between the Company and
PaineWebber Incorporated (the "Common Stock
Sales Agency Agreement")(9)
1.7 The First Amendment dated as of March 4, 1997
to the Sales Agency Agreement dated as of
September 17, 1996 between the Company and
PaineWebber Incorporated (the "Series B
Preferred Stock 1996 Sales Agency
Agreement")(9)
1.8 The Third Amendment dated as of November 17,
1997 to the Sales Agency Agreement dated as of
December 6, 1995 between the Company and
PaineWebber Incorporated (the "Sales Agency
Agreement")(11)
3.1(a) Charter of the Company, which includes Articles
of Incorporation, Articles Supplementary for
each outstanding Series of Preferred Stock and
all other amendments to such Articles of
Incorporation(4)
3.1(b) Articles Supplementary ($1.26 Cumulative
Convertible Preferred Stock, Series B)(3)
3.2 Bylaws of the Company, as amended(4)
10.21 1990 Employee Stock Option Plan(1)
10.22 1990 Directors' Stock Option Plan(2)
Employment Agreement dated August 1, 1992
between Capstead Mortgage Corporation
10.23 and Ronn K. Lytle(3)
10.24 Restricted Stock Grant Agreement dated
August 1, 1992 between Capstead Mortgage
Corporation and Ronn K. Lytle(3)
10.25 1994 Flexible Long Term Incentive Plan(5)
10.26 1994 Capstead Inc. Restricted Stock Plan(5)
10.27 Capstead Mortgage Corporation Deferred
Compensation Plan(5)
10.28 Summary of Employment Agreement dated
December 9, 1993 between Capstead Mortgage
Corporation and Christopher T. Gilson(5)
10.29 Capstead Mortgage Corporation Incentive Bonus
Plan(7)
10.30 Amendment to the 1994 Flexible Long Term
Incentive Plan(7)
10.31 Amendment No. 1 dated March 31, 1997 to the
Employment Agreement dated August 1, 1992
between the Company and Ronn K. Lytle(10)
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8
PART IV
ITEM 14. -- CONTINUED
3. Exhibits (continued):
EXHIBIT
NUMBER
10.32 1997 Flexible Long Term Incentive Plan(10)
11 Computation of per share earnings*
12 Computation of ratio of earnings to combined
fixed charges and preferred stock dividends*
13 Portions of the Annual Report to Stockholders
of the Company for the year ended December 31,
1997*
21 List of subsidiaries of the Company*
23 Consent of Ernst & Young LLP, Independent
Auditors*
27 Financial Data Schedule (electronic filing
only)*
(1) Incorporated by reference to the Company's Registration
Statement on Form S-8 (No. 33-40016) dated April 29, 1991
(2) Incorporated by reference to the Company's Registration
Statement on Form S-8 (No. 33-40017) dated April 29, 1991
(3) Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992
(4) Incorporated by reference to the Company's Registration
Statement on Form S-3 (No. 33-62212) dated May 6, 1993
(5) Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994
(6) Incorporated by reference to the Company's Current Report
of Form 8-K dated December 6, 1995
(7) Incorporated by reference to the Company's 10-Q for the
quarterly period ended March 31, 1996
(8) Incorporated by reference to the Company's Current Report
of Form 8-K dated August 20, 1996
(9) Incorporated by reference to the Company's Current Report
of Form 8-K dated March 26, 1997
(10) Incorporated by reference to the Company's 10-Q for the
quarterly period ended March 31, 1997
(11) Incorporated by reference to the Company's Current Report
of Form 8-K dated December 23, 1997
* Filed herewith
(b) Reports on Form 8-K:
Current Report on Form 8-K dated December 22, 1997 to file the
following:
Exhibit 1.8 - The Third Amendment dated as of November 17, 1997 to
the Sales Agency Agreement dated as of December 6, 1995 between
the Company and PaineWebber Incorporated (the "Sales Agency
Agreement").
(c) Exhibits - The response to this section of ITEM 14 is submitted
as a separate section of this report.
(d) Financial Statement Schedules - The response to this section of
ITEM 14 is submitted as a separate section of this report.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
CAPSTEAD MORTGAGE CORPORATION
REGISTRANT
Date: March 10, 1998 By: /s/ ANDREW F. JACOBS
---------------------------------
Andrew F. Jacobs
Senior Vice President-Control,
Treasurer and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated below and on the dates indicated.
/s/ RONN K. LYTLE Chairman, Chief March 10, 1998
- ------------------------------- Executive Officer
(Ronn K. Lytle) and Director
/s/ ANDREW F. JACOBS Senior Vice President- March 10, 1998
- ------------------------------- Control, Treasurer
(Andrew F. Jacobs) and Secretary
/s/ BEVIS LONGSTRETH Director March 11, 1998
- -------------------------------
(Bevis Longstreth)
/s/ PAUL M. LOW Director March 12, 1998
- -------------------------------
(Paul M. Low)
/s/ HARRIET E. MIERS Director March 11, 1998
- -------------------------------
(Harriet E. Miers)
/s/ WILLIAM R. SMITH Director March 10, 1998
- -------------------------------
(William R. Smith)
/s/ JOHN C. TOLLESON Director March 11, 1998
- -------------------------------
(John C. Tolleson)
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PORTIONS OF THE
ANNUAL REPORT ON FORM 10-K
ITEMS 14(A)(1), (2) AND (3)
FINANCIAL STATEMENT SCHEDULES AND EXHIBITS
YEAR ENDED DECEMBER 31, 1997
CAPSTEAD MORTGAGE CORPORATION
DALLAS, TEXAS
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CAPSTEAD MORTGAGE CORPORATION AND SUBSIDIARIES
SCHEDULE IV -- MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1997
PART 1 - MORTGAGE LOANS ON REAL ESTATE AT CLOSE OF PERIOD(1)
- --------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C
- ----------------------------------------------- -------- ---------------
PRIOR CARRYING AMOUNT
DESCRIPTION LIENS OF MORTGAGES(2)
- ----------------------------------------------- ----- ---------------
$ -0- - $ 49,999( 3) .................... None $ 99,000
$ 50,000 - $ 99,999( 11) .................... None 901,000
$100,000 - $ 149,999( 33) .................... None 4,437,000
$150,000 - $ 199,999(176) .................... None 32,440,000
$200,000 - $ 249,999(569) .................... None 127,407,000
$250,000 - $ 299,999(304) .................... None 83,280,000
$300,000 - $ 349,999(145) .................... None 47,076,000
$350,000 - $ 399,999( 98) .................... None 36,917,000
$400,000 - $ 449,999( 47) .................... None 20,390,000
$450,000 - $ 499,999( 24) .................... None 11,862,000
$500,000 - $1,500,000( 60) .................... None 35,427,000
------------
400,236,000
Plus premium .......................... 1,978,000
Plus unrealized gain on mortgage
loans included in debt securities ... 4,651,000
------------
$406,865,000
============
PART 2 - INTEREST
PART 1 - MORTGAGE LOANS ON REAL ESTATE AT CLOSE OF PERIOD(1) EARNED ON MORTGAGES
- --------------------------------------------------------------------------------------------------------- ------------------------
COLUMN A COLUMN D COLUMN E COLUMN F AND COLUMN G(4)
- ----------------------------------------------- -------------------------------- ------------- ------------------------
AMOUNT OF PRINCIPAL UNPAID AT
CLOSE OF PERIOD
--------------------------------- AMOUNT OF
SUBJECT TO MORTGAGE
DELINQUENT BEING WEIGHTED AVERAGE
DESCRIPTION TOTAL INTEREST(3) FORECLOSED(3) INTEREST RATE
- ----------------------------------------------- ------------ ------------- ------------- ---------------
$ -0- - $ 49,999( 3) .................... $ 99,000 $ 37,000 $ 37,000 8.60%
$ 50,000 - $ 99,999( 11) .................... 901,000 78,000 78,000 8.09%
$100,000 - $ 149,999( 33) .................... 4,437,000 941,000 268,000 8.15%
$150,000 - $ 199,999(176) .................... 32,440,000 3,375,000 1,119,000 8.45%
$200,000 - $ 249,999(569) .................... 127,407,000 8,228,000 3,540,000 8.08%
$250,000 - $ 299,999(304) .................... 83,280,000 7,327,000 2,449,000 8.09%
$300,000 - $ 349,999(145) .................... 47,076,000 6,128,000 1,643,000 8.01%
$350,000 - $ 399,999( 98) .................... 36,917,000 2,192,000 722,000 8.44%
$400,000 - $ 449,999( 47) .................... 20,390,000 1,278,000 853,000 8.62%
$450,000 - $ 499,999( 24) .................... 11,862,000 2,339,000 1,861,000 8.18%
$500,000 - $1,500,000( 60) .................... 35,427,000 3,440,000 2,883,000 8.13%
------------ ------------ ------------
$400,236,000 $ 35,363,000 $ 15,453,000
============ ============
Plus premium ..........................
Plus unrealized gain on mortgage
loans included in debt securities ...
See accompanying notes to Schedule IV.
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CAPSTEAD MORTGAGE CORPORATION AND SUBSIDIARIES
NOTES TO SCHEDULE IV
(1) Mortgage loans at December 31, 1997 consisted of single-family,
conventional, first mortgage loans most of which are included in
AAA-rated private mortgage pass-through securities ("Mortgage
Pass-Throughs"). The Company classifies its mortgage loans by interest
rate characteristics of the underlying mortgage loans. Fixed-rate
mortgage loans (i) have fixed rates of interest for their entire terms,
(ii) have an initial fixed-rate period of 10 years after origination and
then adjust annually based on a specified margin over 1-year U.S.
Treasury Securities ("1-year Treasuries"), or (iii) were previously
classified as medium-term and have adjusted to a fixed rate for the
remainder of their terms. Medium-term mortgage loans have (i) an initial
fixed-rate period of 3 or 5 years after origination and then adjust
annually based on a specified margin over 1-year Treasuries, (ii) initial
interest rates that adjust one time, approximately 5 years following
origination of the mortgage loan, based on a specified margin over
Federal National Mortgage Association ("FNMA") yields for 30-year,
fixed-rate commitments at the time of adjustment (together referred to as
"hybrid securities") or (iii) fixed-rate mortgage securities that have
expected weighted average lives of 5 years or less. Adjustable-rate
mortgage loans either (i) adjust semiannually based on a specified margin
over the 6-month London Interbank Offered Rate ("LIBOR"), (ii) adjust
annually based on a specified margin over 1-year Treasuries, or (iii)
were previously classified as medium-term and have begun adjusting
annually based on a specified margin over 1-year Treasuries. Principal
amount of mortgage loans in the portfolio totaling $82,953,000, or 20.4
percent, were fixed-rate loans; $159,337,000, or 39.2 percent, were
medium-term loans; and $164,575,000, or 40.4 percent, were
adjustable-rate loans.
(2) Reconciliation of mortgage loans:
Balance at December 31, 1996 (after reclassification to
conform to the current-year presentation)................... $493,702,000
Additions:
Transfers of mortgage loans
from CMO investments................................. 135,607,000
Change in fair value of
Mortgage Pass-Throughs............................... 2,202,000 137,809,000
----------- -----------
631,511,000
Deductions:
Principal collections.................................. 150,604,000
Amortization of discount............................... 715,000
Sales 73,327,000 224,646,000
------------ ------------
Balance at December 31, 1997................................ $406,865,000
============
(3) Consists of all mortgage loans delinquent 90 days or more. Note that of
the amount of principal unpaid at the close of the period that is subject
to delinquent principal, $35.3 million is covered by mortgage pool
insurance that effectively limits the Company's loss. Similarly, $7.8
million of the amount of mortgages being foreclosed is covered by pool
insurance.
(4) Interest due and accrued at the end of the period and interest income
earned applicable to the period for each of the categories presented
above is not available without unreasonable effort or expense and
therefore has been omitted in accordance with Rule 12-23 of Regulation
S-X. Total accrued interest for the above listed mortgage loans totaled
$2,562,000 at December 31, 1997.
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CAPSTEAD MORTGAGE CORPORATION AND SUBSIDIARIES
NOTES TO SCHEDULE IV -- CONTINUED
(5) The geographic distribution of the Company's portfolio at December 31,
1997 was as follows:
NUMBER PRINCIPAL
STATE OF LOANS AMOUNT
------------------------------------------------------------------ -------- ---------
Alabama............................................................. 2 $ 266,000
Arizona............................................................. 4 1,124,000
California.......................................................... 1,172 310,617,000
Colorado............................................................ 5 1,443,000
Connecticut......................................................... 3 768,000
Delaware............................................................ 2 847,000
District of Columbia................................................ 9 3,175,000
Florida............................................................. 29 9,092,000
Georgia............................................................. 31 7,736,000
Hawaii.............................................................. 3 517,000
Illinois............................................................ 8 2,426,000
Indiana............................................................. 1 147,000
Louisiana........................................................... 6 1,707,000
Maryland............................................................ 27 9,240,000
Massachusetts....................................................... 7 1,996,000
Michigan............................................................ 7 3,150,000
Missouri............................................................ 3 1,072,000
Nevada.............................................................. 5 744,000
New Jersey.......................................................... 32 8,089,000
New Mexico.......................................................... 9 2,958,000
New York............................................................ 9 2,780,000
North Carolina...................................................... 2 496,000
Ohio................................................................ 1 366,000
Oklahoma............................................................ 7 1,983,000
Pennsylvania........................................................ 8 3,165,000
Tennessee........................................................... 1 161,000
Texas............................................................... 23 7,294,000
Virginia............................................................ 42 14,798,000
Washington.......................................................... 11 1,947,000
Wisconsin........................................................... 1 132,000
----- ------------
400,236,000
Plus premium........................................................ 1,978,000
Plus unrealized gain on mortgage loans
included in debt securities....................................... 4,651,000
------------
Total.......................................................... 1,470 $406,865,000
===== ============
-11-
14
EXHIBIT
NUMBER
------
1.3 Sales Agency Agreement dated as of December 6,
1995 between Capstead Mortgage Corporation and
PaineWebber Incorporated (the "Sales Agency
Agreement")(6)
1.4 Amendment No. 1 to the Sales Agency Agreement
dated as of September 10, 1996 between Capstead
Mortgage Corporation and PaineWebber
Incorporated (the "Common Stock Sales Agency
Agreement")(8)
1.5 Sales Agency Agreement dated as of August 17,
1996 Capstead Mortgage Corporation and
PaineWebber Incorporated (the "Series B
Preferred Stock 1996 Sales Agency
Agreement")(8)
1.6 The Second Amendment dated as of March 4, 1997
to the Sales Agency Agreement dated as of
December 6, 1995 between the Company and
PaineWebber Incorporated (the "Common Stock
Sales Agency Agreement")(9)
1.7 The First Amendment dated as of March 4, 1997
to the Sales Agency Agreement dated as of
September 17, 1996 between the Company and
PaineWebber Incorporated (the "Series B
Preferred Stock 1996 Sales Agency
Agreement")(9)
1.8 The Third Amendment dated as of November 17,
1997 to the Sales Agency Agreement dated as of
December 6, 1995 between the Company and
PaineWebber Incorporated (the "Sales Agency
Agreement")(11)
3.1(a) Charter of the Company, which includes Articles
of Incorporation, Articles Supplementary for
each outstanding Series of Preferred Stock and
all other amendments to such Articles of
Incorporation(4)
3.1(b) Articles Supplementary ($1.26 Cumulative
Convertible Preferred Stock, Series B)(3)
3.2 Bylaws of the Company, as amended(4)
10.21 1990 Employee Stock Option Plan(1)
10.22 1990 Directors' Stock Option Plan(2)
Employment Agreement dated August 1, 1992
between Capstead Mortgage Corporation
10.23 and Ronn K. Lytle(3)
10.24 Restricted Stock Grant Agreement dated
August 1, 1992 between Capstead Mortgage
Corporation and Ronn K. Lytle(3)
10.25 1994 Flexible Long Term Incentive Plan(5)
10.26 1994 Capstead Inc. Restricted Stock Plan(5)
10.27 Capstead Mortgage Corporation Deferred
Compensation Plan(5)
10.28 Summary of Employment Agreement dated
December 9, 1993 between Capstead Mortgage
Corporation and Christopher T. Gilson(5)
10.29 Capstead Mortgage Corporation Incentive Bonus
Plan(7)
10.30 Amendment to the 1994 Flexible Long Term
Incentive Plan(7)
10.31 Amendment No. 1 dated March 31, 1997 to the
Employment Agreement dated August 1, 1992
between the Company and Ronn K. Lytle(10)
15
EXHIBIT
NUMBER
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10.32 1997 Flexible Long Term Incentive Plan(10)
11 Computation of per share earnings*
12 Computation of ratio of earnings to combined
fixed charges and preferred stock dividends*
13 Portions of the Annual Report to Stockholders
of the Company for the year ended December 31,
1997*
21 List of subsidiaries of the Company*
23 Consent of Ernst & Young LLP, Independent Auditors*
27 Financial Data Schedule (electronic filing only)*
(1) Incorporated by reference to the Company's Registration
Statement on Form S-8 (No. 33-40016) dated April 29, 1991
(2) Incorporated by reference to the Company's Registration
Statement on Form S-8 (No. 33-40017) dated April 29, 1991
(3) Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992
(4) Incorporated by reference to the Company's Registration
Statement on Form S-3 (No. 33-62212) dated May 6, 1993
(5) Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994
(6) Incorporated by reference to the Company's Current Report
of Form 8-K dated December 6, 1995
(7) Incorporated by reference to the Company's 10-Q for the
quarterly period ended March 31, 1996
(8) Incorporated by reference to the Company's Current Report
of Form 8-K dated August 20, 1996
(9) Incorporated by reference to the Company's Current Report
of Form 8-K dated March 26, 1997
(10) Incorporated by reference to the Company's 10-Q for the
quarterly period ended March 31, 1997
(11) Incorporated by reference to the Company's Current Report
of Form 8-K dated December 23, 1997
* Filed herewith