Capstead Mortgage Corporation Announces Second Quarter Net Income.Business Editors DALLAS--(BUSINESS WIRE)--July 22, 2003 Capstead Mortgage Corporation (NYSE NYSE See: New York Stock Exchange :CMO CMO See: Collateralized mortgage obligation CMO See collateralized mortgage obligation (CMO). ) today reported net income of $15,241,000, or $0.65 per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. common share, for the quarter ended June June: see month. 30, 2003, compared to $24,586,000, or $1.24 per diluted common share, for the second quarter of 2002. Operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. , calculated after excluding depreciation on real estate, gain on asset sales and CMO redemptions, and the dilutive effects Dilutive effect Result of a transaction that decreases earnings per common share (EPS). of the Series B preferred shares Preferred shares Preferred shares give investors a fixed dividend from the company's earnings and entitle them to be paid before common shareholders. See: Preferred stock. , was $0.68 per common share for the second quarter of 2003, compared to $0.82 for the first quarter of 2003 and $1.43 for the second quarter of 2002. In a separate press release today the Company announced that Wesley R. Edens tendered his resignation as Chairman, Chief Executive Officer, President and director of Capstead. Robert I Robert I, duke of Normandy Robert I (Robert the Magnificent), d. 1035, duke of Normandy (1027–35); father of William the Conqueror. He is often identified with the legendary Robert the Devil. . Kauffman, an associate of Mr. Edens and a director since December December: see month. 1999, also resigned. Paul Paul, 1901–64, king of the Hellenes (1947–64), brother and successor of George II. He married (1938) Princess Frederika of Brunswick. During Paul's reign Greece followed a pro-Western policy, and the Cyprus question was temporarily resolved. M. Low, one of Capstead's founders and a long-time member of the Board of Directors, succeeded Mr. Edens as Chairman. Andrew F. Jacobs, formerly Executive Vice President and Chief Financial Officer, was promoted to President and Chief Executive Officer and was elected e·lect v. e·lect·ed, e·lect·ing, e·lects v.tr. 1. To select by vote for an office or for membership. 2. To pick out; select: elect an art course. to serve on the Board of Directors. Phillip Phillip is a variant of the name Philip. It may refer to: Given name:
Second Quarter Results and Related Discussion As anticipated, Capstead's second quarter operating income continues to be impacted by declines in the size of the Company's portfolio of mortgage securities and similar investments. The portfolio, which consists largely of adjustable-rate mortgage Adjustable-rate mortgage (ARM) A mortgage that features predetermined adjustments of the loan interest rate at regular intervals based on an established index. The interest rate is adjusted at each interval to a rate equivalent to the index value plus a predetermined spread, or ("ARM") Fannie Mae Fannie Mae: see Federal National Mortgage Association. , Freddie Mac Freddie Mac: see Federal Home Loan Mortgage Corporation. and Ginnie Mae Ginnie Mae: see Federal National Mortgage Association. securities, declined by $202 million during the second quarter primarily as a result of runoff Runoff The procedure of printing the end-of-day prices for every stock on an exchange onto ticker tape. Notes: If the "tape is late" then it can take a long time to print off all the closing prices. caused by mortgage prepayments Prepayments Payments made in excess of scheduled mortgage principal repayments. . This follows a decline of $184 million during the first quarter of 2003. Financing spreads (the difference between the yields earned on these investments and the rates charged on related borrowings) declined 25 basis points during the second quarter to 2.76% primarily due to declines in portfolio yields. The overall yield earned on the portfolio averaged 4.06% during the second quarter of 2003, a decline of 29 basis points from an average yield of 4.35% earned during the previous quarter. Yields on ARM securities fluctuate as coupon A certificate evidencing the obligation to pay an installment of interest or a dividend that must be cut and presented to its issuer for payment when it is due. Coupons are usually attached to a document, such as a promissory note, bond, share of stock, or a bearer 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 stabilize See peg. at current rates, the average yield on the portfolio could decline approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. 64 basis points by the second 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 1.30% during the second quarter of 2003, a decline of four basis points from the first quarter. The June 25, 2003 action taken by the Federal Reserve to reduce the Federal Funds Rate Federal Funds Rate The interest rate at which a depository institution lends immediately available funds (balances at the Federal Reserve) to another depository institution overnight. by 25 basis points is expected to lead to a 14 basis point decline in the Company's average borrowing rates during the third 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 Short-term interest rates Interest rates on loan contracts-or debt instruments such as Treasury bills, bank certificates of deposit or commerical paper-having maturities of less than one year. Often called money market 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, Mr. Jacobs, President and Chief Executive Officer, said, "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 second quarter common dividend included the distribution of gains of $0.10 per share from the redemption The liberation of an estate in real property from a mortgage. Redemption is the process by which land that has been mortgaged or pledged is bought back or reclaimed. It is accomplished through a payment of the debt owed or a fulfillment of the other conditions. of remaining CMO bonds on several securitizations previously issued by the Company. Although additional gains from CMO redemptions could occur in the coming quarters, the amount and timing of any such gains is dependent upon future market conditions. In addition, the Board of Directors may elect to retain the capital represented by these gains." Commenting on the Company's investment strategy, Mr. Jacobs added, "We will be reevaluating our investment strategy in the coming months. While we fully expect to continue our current strategy of investing in assets that can provide attractive risk-adjusted returns Risk-Adjusted Return A measure of how much risk a fund or portfolio takes on to earn its returns, usually expressed as a number or a rating. Notes: This is often represented by the Sharpe Ratio. The more return per unit of risk, the better. over the long term with less sensitivity to changes in interest rates, we will also examine other real estate-related opportunities to invest available capital." In conclusion, Mr. Jacobs cautioned, "While we expect Capstead's earnings will continue to benefit from strong financing spreads for the immediate future, opportunities to reinvest re·in·vest tr.v. re·in·vest·ed, re·in·vest·ing, re·in·vests To invest (capital or earnings) again, especially to invest (income from securities or funds) in additional shares. capital made available by maturing investments over the near term will 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, we anticipate that quarterly operating income and common dividends will continue trending lower from these current elevated levels." Book Value per Common Share Book Value Per Common Share A measure used by owners of common shares in a firm to determine the level of safety associated with each individual share after all debts are paid accordingly. Formula: As of June 30, 2003, the Company's book value per common share was $7.83, a decline of $0.40 from December 31, 2002. Book value declined primarily because of dividend payments in excess of quarterly net income (approximately $0.10 per share) and a reduction in the aggregate unrealized gain Unrealized Gain A profit that results from holding on to an asset rather than cashing it in and using the funds. Notes: Let's say you own a stock that has doubled, but you haven't sold it yet. This is said to be an 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 Stockholders' Equity The portion of the balance sheet that includes capital received from investors in exchange for stock (paid-in capital), donated capital, and retained earnings. This is equal to total assets minus liabilities, preferred stock and intangible assets. ) 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. This document contains "forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. " (within the meaning of the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and 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 de·te·ri·o·ra·tion n. The process or condition of becoming worse. 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 One who rents real property or Personal Property from another. A lessee of land is a tenant. Cross-references Landlord and Tenant. lessee n. the person renting property under a written lease from the owner (lessor). performance under lease agreements, changes in general as well as local economic conditions and real estate markets, increases in competition and inflationary in·fla·tion·ar·y adj. Of, associated with, or tending to cause inflation: inflationary prices; inflationary policies. Adj. 1. pressures, changes in the tax and regulatory reg·u·late tr.v. reg·u·lat·ed, reg·u·lat·ing, reg·u·lates 1. To control or direct according to rule, principle, or law. 2. 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)
June 30, Dec. 31,
2003 2002
----------- -----------
(unaudited)
Assets
Mortgage securities and similar investments
($1.9 billion pledged under repurchase
arrangements) $2,045,272 $2,431,519
CMO collateral and investments 541,346 1,083,421
----------- -----------
2,586,618 3,514,940
Real estate held for lease, net of
accumulated depreciation 135,268 137,122
Receivables and other assets 68,358 55,863
Cash and cash equivalents 60,221 59,003
----------- -----------
$2,850,465 $3,766,928
=========== ===========
Liabilities
Repurchase arrangements and similar
borrowings $1,881,631 $2,145,656
Collateralized mortgage obligations ("CMOs") 539,005 1,074,779
Borrowings secured by real estate 120,299 120,400
Incentive fee payable to management and
affiliate 1,493 5,986
Common dividend payable 10,931 116,585
Accounts payable and accrued expenses 3,879 4,944
----------- -----------
2,557,238 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 June 30, 2003 and December 31, 2002,
respectively ($3,504 aggregate liquidation
preference) 2,987 3,058
$1.26 Cumulative Convertible Preferred Stock,
Series B, 15,819 and 15,820 shares issued
and outstanding at June 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; 14,014 and 13,962 shares issued
and outstanding at June 30, 2003 and December
31, 2002, respectively 140 140
Paid-in capital 457,715 458,919
Accumulated deficit (387,718) (387,718)
Accumulated other comprehensive income 43,396 47,471
----------- -----------
293,227 298,578
----------- -----------
$2,850,465 $3,766,928
=========== ===========
Book value per common share $7.83 $8.23
CAPSTEAD MORTGAGE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Quarter Ended Six Months Ended
June 30 June 30
----------------- -----------------
2003 2002 2003 2002
-------- -------- -------- --------
Interest income:
Mortgage securities and similar
investments $21,648 $40,067 $46,785 $85,835
CMO collateral and investments 10,122 30,696 25,090 68,130
-------- -------- -------- --------
Total interest income 31,770 70,763 71,875 153,965
-------- -------- -------- --------
Interest and related expense:
Repurchase arrangements and
similar borrowings 6,454 12,965 13,673 27,011
CMO borrowings 10,010 30,979 25,349 68,965
Mortgage insurance and other 99 155 208 324
-------- -------- -------- --------
Total interest and related
expense 16,563 44,099 39,230 96,300
-------- -------- -------- --------
Net margin on financial
assets 15,207 26,664 32,645 57,665
-------- -------- -------- --------
Real estate lease income 2,575 2,187 5,096 2,187
-------- -------- -------- --------
Real estate-related expense:
Interest 1,133 1,296 2,225 1,296
Depreciation 927 642 1,854 642
-------- -------- -------- --------
Total real estate-related
expense 2,060 1,938 4,079 1,938
-------- -------- -------- --------
Net margin on real estate
held for lease 515 249 1,017 249
-------- -------- -------- --------
Other revenue (expense):
Gain on asset sales and CMO
redemptions 1,392 - 3,140 -
CMO administration and other 181 753 401 1,200
Management and affiliate
incentive fee (587) (1,630) (1,493) (3,224)
Other operating expense (1,467) (1,450) (2,926) (2,929)
-------- -------- -------- --------
Total other revenue
(expense) (481) (2,327) (878) (4,953)
-------- -------- -------- --------
Net income $15,241 $24,586 $32,784 $52,961
======== ======== ======== ========
Net income $15,241 $24,586 $32,784 $52,961
Less cash dividends paid on
preferred stock (5,068) (5,099) (10,138) (10,199)
-------- -------- -------- --------
Net income available to common
stockholders $10,173 $19,487 $22,646 $42,762
======== ======== ======== ========
Net income per common share:
Basic $0.73 $1.41 $1.62 $3.09
Diluted 0.65 1.24 1.41 2.67
Cash dividends declared per
share:
Common $0.780 $1.430 $1.720 $3.080
Series A Preferred 0.400 0.400 0.800 0.800
Series B Preferred 0.315 0.315 0.630 0.630
CAPSTEAD MORTGAGE CORPORATION
MARKET VALUE ANALYSIS
(In thousands)
(Unaudited)
June 30, 2003
------------------------------------------------------
Unrealized
Principal Premium Market Gains
Balance (Discount) Basis Value (Losses)
----------- ---------- -------- ---------- ----------
Debt securities held
available-for-sale: (a)
Agency securities:
Fannie Mae/Freddie Mac:
Fixed-rate $1,125 $6 $1,131 $1,236 $105
ARMs:
LIBOR/CMT 960,496 13,603 974,099 996,558 22,459
COFI 108,969 (3,153) 105,816 111,000 5,184
Ginnie Mae
ARMs 692,385 7,743 700,128 713,617 13,489
----------- -------- ----------- ----------- ----------
1,762,975 18,199 1,781,174 1,822,411 41,237
Non-agency
Securities
(b) 69,839 644 70,483 71,629 1,146
CMBS (b) 72,716 (28) 72,688 72,700 12
CMO
collateral
and
investments 18,897 542 19,439 20,116 677
----------- -------- ----------- ----------- ----------
$1,924,427 $19,357 $1,943,784 $1,986,856 $43,072
=========== ======== =========== =========== ==========
Debt securities held-to-maturity: (c)
Released CMO
collateral:
Agency
securities $1,564 $10 $1,574 $1,717 $143
Non-agency
securities 39,811 1,362 41,173 40,842 (331)
CMO
collateral 515,020 6,210 521,230 520,458 (772)
----------- -------- ----------- ----------- ----------
$556,395 $7,582 $563,977 $563,017 $(960)
=========== ======== =========== =========== ==========
December 31,
2002
------------
Unrealized
Gains
(Losses)
------------
Debt securities held available-for-sale: (a)
Agency securities:
Fannie Mae/Freddie Mac:
Fixed-rate $139
ARMs:
LIBOR/CMT 25,679
COFI 5,774
Ginnie Mae ARMs 12,792
------------
44,384
Non-agency Securities (b) 1,504
CMBS (b) 82
CMO collateral and investments 871
------------
$46,841
============
Debt securities held-to-maturity: (c)
Released CMO collateral:
Agency securities $192
Non-agency securities 52
CMO collateral (3,844)
------------
$(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.
CAPSTEAD MORTGAGE CORPORATION
MORTGAGE SECURITIES AND SIMILAR INVESTMENTS
YIELD/COST ANALYSIS
(Dollars in thousands)
(Unaudited)
2nd Quarter Average (a) As of June 30, 2003
------------------------- ---------------------
Actual
Yield/ Actual Premiums
Basis Cost Runoff (Discounts) Basis (a)
----------- ------ ------ ----------- ---------
Agency securities:
Fannie Mae/
Freddie Mac:
Fixed-rate $2,865 9.35% 43% $16 $2,705
ARMs:
LIBOR/CMT 1,019,003 3.67 27 13,603 974,099
COFI 111,468 4.86 28 (3,153) 105,816
Ginnie Mae ARMs 751,343 4.33 39 7,743 700,128
------------ ----------- ----------
1,884,679 4.01 32 18,209 1,782,748
Non-agency securities 131,379 3.81 35 2,006 111,656
CMBS and other
commercial loans 109,937 5.12 32 (2) 108,473
------------ ----------- ----------
2,125,995 4.06 34 $20,213 2,002,877
===========
Borrowings 1,963,485 1.30 1,881,631
------------ ----------
$121,246
==========
Capital employed/
financing spread $162,510 2.76
============
Return on assets (c) 2.85
Projected
3rd
Quarter Lifetime
Yield/Cost Prepayment
(b) Assumptions
---------- -----------
Agency securities:
Fannie Mae/Freddie Mac:
Fixed-rate 9.69% 30%
ARMs:
LIBOR/CMT 3.40 25
COFI 4.70 25
Ginnie Mae ARMs 3.93 26
3.69 25
Non-agency securities 4.51 40
CMBS and other
commercial loans 4.35 -
3.80 25
Borrowings 1.16
2.64
(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.
CAPSTEAD MORTGAGE CORPORATION
COMPARISON OF OPERATING INCOME(a)
AND DILUTED INCOME PER SHARE
(In thousands, except per share amounts)
(Unaudited)
Quarter Ended
--------------------------------------------------------
June 30, 2003 March 31,2003 June 30, 2002
------------------ ------------------ ------------------
Operating Diluted Operating Diluted Operating Diluted
--------- -------- --------- -------- --------- --------
Net income $15,241 $15,241 $17,543 $17,543 $24,586 $24,586
Adjustments
for:
Depreciation
on real
estate 927 - 927 - 642 -
Gain on
asset sales
and CMO
redemptions (1,393) - (1,748) - - -
Series B
preferred
dividends (4,982) - (4,983) - (4,990) -
--------- -------- --------- -------- --------- --------
$9,793 $15,241 $11,739 $17,543 $20,238 $24,586
========= ======== ========= ======== ========= ========
Weighted average
common shares
outstanding 13,978 13,978 13,935 13,935 13,856 13,856
Net effect of
dilutive
securities:
Preferred B
shares - 8,943 - 8,910 - 5,638
Stock options
and other
preferred
shares 349 349 407 407 319 319
--------- -------- --------- -------- --------- --------
14,327 23,270 14,342 23,252 14,175 19,813
========= ======== ========= ======== ========= ========
$0.68 $0.65 $0.82 $0.75 $1.43 $1.24
========= ======== ========= ======== ========= ========
(a) 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 $2.22
($1.26 Series B annualized dividend divided by the current
conversion rate of 0.5681).
|
|
||||||||||||||||
Printer friendly
Cite/link
Email
Feedback
Reader Opinion