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Capstead Mortgage Corporation Announces First Quarter Net Income and Declares First Quarter Common Dividend

DALLAS, TX (April 17, 2002) -- Capstead Mortgage Corporation (CMO) today reported net income of $28,375,000, or $1.43 per diluted common share, for the quarter ended March 31, 2002, compared to $24,649,000, or $1.39 per diluted common share, for the first quarter in 2001. Operating income, calculated excluding gain on sale of mortgage assets and the dilutive effects of the Series B preferred shares, was $1.65 per common share for the first quarter of 2002, compared to $1.62 for the fourth quarter of 2001 and $0.97 for the first quarter of 2001.

The Company also announced that the Board of Directors declared a first quarter dividend of $1.65 per common share, payable on May 20 to stockholders of record as of May 7, 2002.

First Quarter Results and Related Discussion
Capstead's first quarter operating income benefited from further improvement in financing spreads (the difference between the yields earned on investments and the rates charged on related borrowings) resulting from lower interest rates on the Company's borrowings as the full effect of fourth quarter 2001 Federal Reserve interest rate reductions were realized. After having reduced the Federal Funds Rate by a total of 475 basis points during 2001 to the lowest levels in four decades, the Federal Reserve changed its bias on monetary policy to a neutral stance at its most recent meeting in March, an indication that the U.S. economy is showing signs of strength and future economic growth that may lead to higher short-term interest rates. Consequently, although the Company's average borrowing rates are currently expected to be little changed in the second quarter from the first quarter, they may increase in the second half of the year. The Company's borrowing rates depend on actions by the Federal Reserve to change short-term interest rates, market expectations of future changes in short-term interest rates and the extent of changes in financial market liquidity.

The overall yield earned on the Company's investment portfolios, which currently consist largely of adjustable-rate mortgage ("ARM") Fannie Mae, Freddie Mac and Ginnie Mae securities, declined 31 basis points to 5.55% during the first quarter of 2002. 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 levels, the average yield on the Company's current investment portfolios could decline a total of 112 basis points by the first quarter of 2003. Actual yields will depend on fluctuations in, and market expectations for fluctuations in, interest rates and levels of mortgage prepayments.

The Company's investment portfolios declined during the first quarter of 2002 to $3.2 billion from $3.5 billion at December 31, 2001, primarily as a result of portfolio runoff caused by mortgage prepayments. Although still at elevated levels, mortgage prepayment rates began to moderate during the first quarter as interest rates on a substantial portion of the mortgage loans underlying the Company's ARM securities have already reset to levels at or below most current mortgage rates, reducing or eliminating the advantage for these homeowners to refinance. Prepayments should continue to moderate as the remaining loans reset to lower levels. To the extent the proceeds of mortgage prepayments and other maturities are not reinvested or cannot be reinvested at a rate of return on invested capital at least equal to the return earned on previous investments, earnings may decline. The future size and composition of the Company's investment portfolios will depend on market conditions, including levels of mortgage prepayments and the availability of suitable investments at attractive pricing.

Commenting on the Company's operations, Wesley R. Edens, Chairman of the Board and Chief Executive Officer, said, "Results for the first quarter improved slightly over the prior quarter thanks largely to lower borrowing costs. Our portfolio of seasoned ARM securities is performing well in the current interest rate environment; however, as previously discussed, yields will continue adjusting lower throughout the year and the portfolio will continue declining in size because of runoff. This presents opportunities to reinvest a sizable portion of the Company's capital into investments that can produce attractive returns over the long term, with less sensitivity to changes in interest rates.

"We continue to actively evaluate suitable real estate-related investments, which may include investments in credit-sensitive assets that can earn attractive returns due largely to a higher risk of default and reduced liquidity compared with most of our existing investments. New investments such as these may help to provide more stability to future operating income; however, they may not offset the effects of declining earnings from our existing portfolio. Further, additional investment opportunities may not be available on a timely basis. As a result, we anticipate that quarterly operating income and common dividends will trend lower for at least the remainder of this year and this trend would be accelerated by any increases in short-term interest rates."

Book Value per Common Share
At March 31, 2002 book value per common share was $14.23, compared to $14.59 at December 31, 2001, (calculated excluding the first quarter 2002 common dividend declared today, and assuming redemption of the Series A and B preferred shares). The decline in book value during the first quarter primarily reflects the impact of the decline in size of the Company's investment portfolios that consist primarily of mortgage-backed securities classified as held available-for-sale and marked-to-market through stockholders' equity. The market value of these investments can be expected to continue to decline with runoff and to fluctuate with changes in interest rates and market liquidity, and such changes will be reflected in book value per common share. Book value will also be affected by other factors, including the level of dividend distributions; however, temporary changes in market values of other real estate-related investments not held in the form of debt or equity securities generally will not affect book value.


                        CAPSTEAD MORTGAGE CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)

March 31, 2002 December 31, 2001
(unaudited)
Assets
Mortgage securities and other investments
($3.0 billion pledged under repurchase
arrangements) $3,189,344 $3,455,219
CMO collateral and investments 1,912,857 2,262,305
5,102,201 5,717,524
Prepaids, receivables and other 47,192 54,381
Cash and cash equivalents 102,807 123,520
5,252,200 $5,895,425

Liabilities
Repurchase arrangements and other
borrowings $2,922,300 $3,207,068
Collateralized mortgage obligations
("CMOs") 1,898,115 2,245,015
Incentive fee payable to management
and affiliate 1,594 9,422
Accounts payable and accrued expenses 7,493 29,192
4,829,502 5,490,697

Stockholders' equity
Preferred stock -- $0.10 par value;
100,000 shares authorized:
$1.60 Cumulative Preferred Stock,
Series A, 273 and 273 shares issued
and outstanding at both March 31, 2002
and December 31, 2001, respectively
($4,472 aggregate liquidation preference) 3,814 3,821
$1.26 Cumulative Convertible
Preferred Stock, Series B, 15,842 and
15,842 shares issued and outstanding at
March 31, 2002 and December 31, 2001,
respectively ($180,283 aggregate
liquidation preference) 176,961 176,961
Common stock -- $0.01 par value;
100,000 shares authorized; 13,863 and
13,862 shares issued and outstanding at
March 31, 2002 and December 31, 2001,
respectively 139 139
Paid-in capital 559,475 559,571
Accumulated deficit (364,442) (387,718)
Accumulated other comprehensive income 46,751 51,954
422,698 404,728
$5,252,200 $5,895,425
Book value per common share (A) $14.23 $14.59

(A) Calculated excluding the first quarter 2002 common dividend declared
today, and assuming redemption of the Series A and B preferred shares.


CAPSTEAD MORTGAGE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)

Quarter Ended March 31
2002 2001

Interest income:
Mortgage securities and other investments $45,768 $87,542
CMO collateral and investments 37,434 55,785
Total interest income 83,202 143,327

Interest and related expense:
Repurchase arrangements and other borrowings 14,047 65,162
CMO borrowings 37,986 55,615
Mortgage insurance and other 168 328
Total interest and related expense 52,201 121,105
Net margin on financial assets 31,001 22,222

Other revenue (expense):
Gain on sale of mortgage assets --- 5,863
CMO administration and other 447 719
Management and affiliate incentive fee (1,594) (2,741)
Other operating expense (1,479) (1,414)
Total other operating revenue (expense) (2,626) 2,427

Net income $28,375 $24,649

Net income $28,375 $24,649
Less cash dividends on preferred stock (5,099) (5,894)
Net income available to common stockholders $23,276 $18,755

Net income per common share:
Basic $1.68 $1.49
Diluted 1.43 1.39

Cash dividends declared per share:
Common $1.650 $0.980
Series A Preferred 0.400 0.400
Series B Preferred 0.315 0.315


CAPSTEAD MORTGAGE CORPORATION
MARKET VALUE ANALYSIS
(In thousands)
(Unaudited)

December 31,
March 31, 2002 2001
Unrealized Unrealized
Principal Premium Market Gains Gains
Balance (Discount) Basis Value (Losses) (Losses)

Debt securities
held available-
for-sale:(A)
Agency securities:
FNMA/FHLMC:
Fixed-rate $2,107 $10 $2,117 $2,304 $188 $241
Medium-term 35,851 (142) 35,709 36,831 1,121 1,134
ARMs:
LIBOR/
CMT 1,392,613 22,403 1,415,016 1,437,911 22,894 23,962
COFI 154,481 (4,474) 150,007 154,963 4,957 6,615
GNMA ARMs 1,219,978 13,101 1,233,079 1,247,241 14,161 15,897
2,805,030 30,898 2,835,928 2,879,250 43,321 47,849

Non-agency
securities 93,021 911 93,932 95,138 1,207 1,426

CMBS --
adjustable-rate 171,366 (273) 171,093 171,365 272 285

CMO collateral
and investments 36,409 1,483 37,892 39,036 1,144 1,453
$3,105,826 $33,019 $3,138,845 $3,184,789 $45,944 $51,013

Debt securities
held-to-maturity:(B)
Released CMO
collateral:
Agency
securities $2,823 $19 $2,842 $3,088 $246 $285
Non-agency
securities 717 (6) 711 775 64 88
CMO collateral 1,850,930 22,891 1,873,821 1,866,532 (7,289) (8,629)
$1,854,470 $22,904 $1,877,374 $1,870,395 $(6,979) $(8,256)

(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. A recent $40 million investment in a commercial
loan syndication is not held in the form of a debt security.
Consequently, it is not subject to mark-to-market accounting and
therefore has been excluded from this analysis.

(B) Investments in debt and equity securities classified as
held-to-maturity are carried on the balance sheet at amortized cost.


CAPSTEAD MORTGAGE CORPORATION
PORTFOLIO YIELD/COST ANALYSIS
(Dollars in thousands)
(Unaudited)

1st Quarter Average As of March 31, Projected
Actual 2002 2nd Qrtr Lifetime
Yield/ Actual Premiums Yield/ Prepayment
Basis Cost Runoff (Discounts) Basis Cost Assumptions
(A) (A) (B) (B)
Agency
securities:
FNMA/FHLMC:
Fixed-rate $5,396 9.36% 44% $10 $2,117 9.50% 25%
Medium-
term 38,147 6.10 39 (142) 35,709 6.08 30
ARMs:
LIBOR/
CMT 1,495,419 5.55 34 22,403 1,415,016 5.16 40
COFI 157,215 5.85 27 (4,474) 150,007 4.95 18
GNMA ARMs 1,310,865 5.60 37 13,120 1,235,921 5.44 26
3,007,042 5.60 35 30,917 2,838,770 5.29 33

Non-agency
securities 88,772 6.16 33 905 94,643 5.85 35

CMBS and other
commercial
loans 198,027 4.44 2 (273) 171,093 4.91 ---
3,293,841 5.55 33 $31,549 3,104,506 5.28 30

Borrowings 3,050,883 1.84 2,922,300 1.89
Capital
employed/
financing
spread $242,958 3.71 $182,206 3.39

Return on
assets (C) 3.84 3.57

(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 3 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 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 AND DILUTED INCOME PER SHARE
(In thousands, except per share amounts)
(Unaudited)

Quarter Ended
March 31, 2002 December 31, 2001 March 31, 2001
Operating Diluted Operating Diluted Operating Diluted

Net income $28,375 $28,375 $28,782 $28,782 $24,649 $24,649
Less adjustment for:
Gain on sale of
mortgage assets --- --- (815) --- (5,863) ---
Series B
preferred
dividends* (4,990) --- (4,990) --- (4,991) (4,991)
$23,385 $28,375 $22,977 $28,782 $13,795 $19,658

Weighted average
common shares
outstanding 13,823 13,823 13,820 13,820 12,557 12,557
Net effect of
dilutive securities:
Preferred B shares* --- 5,638 --- 5,638 --- ---
Stock options and
other preferred
shares 339 339 361 361 1,628 1,628
14,162 19,800 14,181 19,819 14,185 14,185

$1.65 $1.43 $1.62 $1.45 $0.97 $1.39

* Operating income per share excludes the dilutive effects of the Series B
preferred shares. This is because at the current market prices of both
the common shares and Series B preferred shares, 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 the annualized basic net income per share exceeds $3.54
($1.26 Series B annualized dividend divided by the current conversion
rate of 0.3559).
MortgageDaily.com
Source:
Capstead Mortgage Corporation

About Captstead:
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" (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, the liquidity of secondary markets and credit markets, increases in costs and other general competitive factors.
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