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
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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.
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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.
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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.
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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).
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