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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, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ______________
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 22, 1996 THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY
NONAFFILIATES WAS $544,736,000.
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AT FEBRUARY 22, 1996: 23,818,162
DOCUMENTS INCORPORATED BY REFERENCE:
(1) PORTIONS OF THE REGISTRANT'S ANNUAL REPORT TO STOCKHOLDERS FOR THE YEAR
ENDED DECEMBER 31, 1995 ARE INCORPORATED BY REFERENCE INTO PARTS II AND IV.
(2) PORTIONS OF THE REGISTRANT'S DEFINITIVE PROXY STATEMENT DATED MARCH 7, 1996,
ISSUED IN CONNECTION WITH THE ANNUAL MEETING OF STOCKHOLDERS OF THE
REGISTRANT, ARE INCORPORATED BY REFERENCE INTO PART III.
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CAPSTEAD MORTGAGE CORPORATION AND SUBSIDIARIES
1995 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PAGE
----
PART I
ITEM 1. BUSINESS........................................... 1
ITEM 2. PROPERTIES......................................... 7
ITEM 3. LEGAL PROCEEDINGS.................................. 7
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 7
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS................... 8
ITEM 6. SELECTED FINANCIAL DATA............................ 8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............... 8
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA........ 8
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE............... 8
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. 8
ITEM 11. EXECUTIVE COMPENSATION............................. 8
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT............................. 9
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..... 9
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K............................... 10
PART I
ITEM 1. BUSINESS.
ORGANIZATION
Capstead Mortgage Corporation ("CMC" or the "Company") was incorporated on April
15, 1985 in the state of Maryland and commenced operations in September 1985.
The Company is a national mortgage banking firm, earning income from servicing
mortgage loans, investing in mortgage-backed securities and other investment
strategies. The Company's business plan is to build its mortgage servicing and
mortgage securities portfolios with the goal of producing reasonably balanced
operating results in a rising or falling interest rate environment. The
mortgage servicing operation has grown rapidly since its inception in 1993
primarily through bulk acquisitions of mortgage servicing rights to become one
of the 25th largest mortgage servicers in the country. Until late in 1995, the
Company operated a mortgage conduit that purchased and securitized various types
of single-family residential mortgage loans. This strategy for accumulating
mortgage assets has been successfully replaced by the acquisition of mortgage-
backed securities issued by government-sponsored entities.
CMC, and its qualified real estate investment trust ("REIT") subsidiaries, have
elected to be taxed as a REIT and intend to continue to do so. As a result of
this election, CMC is not taxed at the corporate level on taxable income
distributed to stockholders, provided that certain REIT qualification tests are
met. All taxable income of certain other subsidiaries, including the mortgage
servicing operation, is subject to federal and state income taxes, where
applicable.
MORTGAGE CONDUIT
Through November 1995, the Company purchased non-conforming or jumbo mortgage
loans from mortgage banking companies, savings banks, commercial banks, credit
unions, mortgage brokers and other financial intermediaries ("Correspondents")
throughout the United States.
The jumbo mortgage loan market changed dramatically over the last several years.
Mortgage loan originations reached all time highs in 1992 and 1993 due to
steadily declining mortgage interest rates that made refinancing increasingly
attractive to mortgagors. Mortgage interest rates reached 20-year lows by the
fall of 1993; however, by early 1994 rates began a steady rise. As rising rates
choked off the 1992/1993 refinancing boom, competition to acquire remaining
originations intensified. At this same time, the cost of mortgage pool
insurance rose in response to mounting credit losses being incurred by these
insurers, most of whom ultimately withdrew from this business entirely. In
order to compete with other buyers of non-conforming loans as a long-term
investor, the Company had to be willing to once again accept credit risk on
these mortgage assets or find buyers for subordinate classes of its
securitizations willing to do so at a fair price.
Beginning in January 1995, the Company implemented a strategy of selling
individual mortgage loans purchased through its mortgage conduit to private
investors shortly after the commitment to purchase, instead of accumulating $100
million or more of similar mortgage loans for an efficient securitization. This
strategy allowed the Company to reduce the risks associated with accumulating
and securitizing jumbo mortgage loans but was not intended to be a long-term
solution. However, in November 1995 the Company exited the mortgage conduit
business after concluding that as a long-term
1
investor in mortgage assets, accepting the associated credit risk was not in the
best interest of the stockholders. While this decision represents a change in
strategy for accumulating mortgage assets, it has been successfully replaced by
the acquisition of mortgage-backed securities issued by government-sponsored
entities.
MORTGAGE LOAN HOLDINGS
Prior to exiting the mortgage conduit business, the Company purchased mortgage
loans from Correspondents on a daily basis. These loans purchased were
warehoused until a long-term investment strategy was implemented. Periodically,
mortgage loans were pledged to secure collateralized mortgage obligations
("CMOs"), publicly-offered, multi-class mortgage pass-through certificates
("MPCs"), or AAA-rated private mortgage pass-through securities ("Mortgage Pass-
Throughs") issued by the Company's special-purpose finance subsidiaries. The
Company currently has limited holdings of unsecuritized mortgage loans, most of
which arise from limited origination activities conducted by the Company's new
telemarketing origination group - "The Home Loan Center" (as discussed below).
MORTGAGE PASS-THROUGH PORTFOLIO
The Company maintains a sizable investment in Mortgage Pass-Throughs backed by
adjustable-rate and medium-term non-conforming mortgage loans that were acquired
through the mortgage conduit. 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 U.S. Treasury Securities ("1-year
Treasuries") or (ii) initial interest rates that adjust one time, approximately
5 years following origination of the mortgage loan, based on a specified margin
over the Federal National Mortgage Association ("FNMA") yields for 30-year,
fixed-rate commitments at the time of adjustment. Adjustable-rate mortgage
loans either adjust (i) semi-annually based on a specified margin over the 6-
month London Interbank Offered Rate ("LIBOR") or (ii) annually based on a
specified margin over 1-year Treasuries. This investment strategy primarily
features adjustable-rate mortgage loans that, because of their adjustable
interest rates, are more likely to retain value.
Mortgage Pass-Throughs are insured against mortgagor defaults by a mortgage pool
insurer. The level of coverage under any mortgage pool insurance policy is
determined by one or more of the national statistical rating agencies ("Rating
Agencies"), and is at a level necessary to allow the insured pool of mortgage
loans, or the securities such pools are pledged to secure, to be AAA-rated. At
such time, the Company also insures or reserves against bankruptcy and special
hazard risks. Special hazards are risks that are not covered by standard hazard
insurance policies (e.g., earthquakes). The Company also has exposure to fraud
or misrepresentation in the origination of the mortgage loan. Defaults on
mortgage loans, if linked to fraud or misrepresentation, may be mitigated by the
Correspondent's obligation to repurchase such mortgage loan. However, to the
extent the Correspondent does not perform on its repurchase obligation, the
Company may incur a loss.
The Company utilizes repurchase agreements to finance the Mortgage Pass-Through
portfolio. A repurchase agreement is a form of short-term financing pursuant to
which mortgage loans or mortgage-backed securities are pledged as collateral for
funds borrowed at short-term interest rates, typically 30 to 60 days. The
formation of Mortgage Pass-Throughs enhances the marketability of the underlying
mortgage loans, thus enabling the Company to reduce its borrowing costs below
the level paid on non-rated loans.
2
AGENCY SECURITIES PORTFOLIO
With the decline of the mortgage conduit business, the Company increased
acquisitions of agency securities that consist primarily of adjustable-rate
mortgage-backed securities guaranteed by government sponsored entities such as
FNMA, Government National Mortgage Association ("GNMA") or Federal Home Loan
Mortgage Corporation ("FHLMC"). The agency securities portfolio also includes
investments in fixed-rate agency securities and callable agency notes. Callable
agency notes currently held by the Company are unsecured, 3-year fixed-rate
notes issued by FHLMC, FNMA, or the Federal Home Loan Bank Board ("FHLBB") and
mature in 1997, unless redeemed earlier.
The Company primarily utilizes repurchase agreements to finance the agency
securities portfolio. Because of the quality of agency securities, the Company
is able to borrow at its lowest cost, thereby achieving more attractive interest
rate spreads on the financing of these assets.
CMO INVESTMENT PORTFOLIO AND RELATED SECURITIZATION ACTIVITY
In past years, the Company has been an active issuer of CMOs and other
securities generally backed by fixed-rate, non-conforming mortgage loans
acquired through the mortgage conduit. The Company generally retained residual
interests in CMOs issued consisting primarily of interest-only and principal-
only strips. Interest-only securities represent ownership in an undivided
interest in interest payments on the underlying collateral. Principal-only
securities represent ownership in an undivided interest in principal payments on
the underlying collateral. Most of the CMOs were structured as financings in
which the Company recognizes economic gains or losses over the term of the
collateral. During 1995 no CMOs were issued; however, the Company did acquire
agency-issued, interest-only securities, which increased the CMO investment
portfolio substantially.
Each series of CMOs consists of multiple classes of bonds, each having its own
maturity. The segmentation of CMOs into classes of bonds with varying
maturities, along with mortgage pool insurance or other credit enhancements
provided to make all or most of the CMO bonds AAA-rated, enabled the Company to
issue CMO classes with shorter scheduled maturities and lower interest rates
than those on the underlying mortgage loans. Each of these factors contributed
to a positive difference between the payments received on the mortgage loans
pledged to secure such CMOs and the payments made on the CMOs issued (the
"Excess Cash Flow"). Because the shorter-term classes of CMO bonds typically
bear lower rates of interest than longer-term classes, the Excess Cash Flow on a
CMO is typically greatest in the early years of the CMO. As the mortgage loans
are repaid and the shorter-term classes of CMO bonds are retired, the average
interest cost of the CMOs outstanding increases. Thus, the Excess Cash Flow
will decline over time.
The right to receive the Excess Cash Flow, along with the noncash amortization
of collateral and bond premiums and discounts is referred to as the "CMO
Residual." CMO structures have evolved in recent years such that the Excess
Cash Flow portion of a CMO Residual has been virtually eliminated by the
formation of additional CMO securities including various forms of interest-only
and/or principal-only securities. Since the fall of 1992 the Company typically
sold much of the noncash portion of its CMO Residuals and retained for its CMO
investment portfolio certain of the interest-only and/or principal-only
securities formed in connection with CMO issuances and other securitizations.
3
In late 1993 the Company began issuing CMOs in a senior/subordinate structure
(in lieu of purchasing mortgage pool insurance and special hazard insurance)
where the investor in the subordinate classes assumes credit and special hazard
risks. The Company has retained an aggregate of approximately $2 million of
credit and special hazard risk on certain of these issuances. Actual losses to
the Company due to these risks are dependent upon the timing and magnitude of
related collateral defaults.
SERVICING OPERATIONS
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.
The Company formed its mortgage servicing unit early in 1993. Initially, growth
was accomplished primarily by retaining mortgage servicing rights on mortgage
loans purchased through the mortgage conduit. Beginning in late 1993 the
Company began committing to bulk acquisitions of mortgage servicing rights for
primarily conforming mortgage loan portfolios. Capstead Inc., the Company's
mortgage servicing subsidiary, has grown dramatically to become one of the top
25 mortgage servicers in the country. Capstead Inc. is also an industry leader
in efficiency in part due to efforts to service only conventional mortgage
loans, excluding FHA and VA loans, and a minimum number of adjustable-rate
mortgage loans. In addition, Capstead Inc. services for only 3 investors:
FNMA, FHLMC and itself.
During 1995, 143,000 mortgage loans with an aggregate principal balance of $13.1
billion were added to the portfolio. At year-end the mortgage servicing
portfolio totaled 247,000 loans with a balance of $25.6 billion, had a weighted
average interest rate of 7.37 percent, and delinquencies of 30 days and over of
only 1.83 percent. The prepayment rate on mortgage loans held in the mortgage
servicing portfolio was 9.44 percent during 1995. Another $3.1 billion of
servicing had been acquired as of December 31, 1995 that was pending transfer
into the portfolio and was being subserviced by the sellers. Additional
mortgage servicing has been acquired subsequent to year-end. Including January
1996 acquisitions, pending transfers of mortgage servicing totaled $8.1 billion
with a weighted average interest rate of 7.39 percent. By May 1996 the mortgage
servicing portfolio is expected to exceed $32 billion.
In an effort to capture as much run-off of the servicing portfolio as possible,
in 1995 the Company formed the "Home Loan Center," a centralized mortgage
origination unit that offers a variety of loan programs including first mortgage
loans and home equity loans. The Home Loan Center relies heavily on outsourcing
labor intensive aspects of the loan origination process in an effort to remain
as efficient as possible. Loans originated by the Home Loan Center generally
are sold to FNMA or FHLMC shortly after the commitment to purchase.
4
EFFECTS OF INTEREST RATE CHANGES
Changes in interest rates may impact earnings in various says. The Company's
business plan is to build its mortgage servicing and mortgage securities
portfolios with the goal of producing reasonably balanced operating results in a
rising or falling interest rate environment. The Company has acquired
derivative financial instruments, specifically interest rate floors, as hedges
against increased prepayments on investments in mortgage servicing rights and
interest-only securities. Interest rate floors partially protect the value of
the assets hedged from the impact of increased prepayments by increasing in
value when interest rates decline. Realized gains from effective hedge
transactions reduce the carrying amount of the assets hedged. The Company has
acquired other derivative financial instruments, specifically interest rate
caps, as a hedge against rising interest rates on a portion of its short-term
borrowings. The Company may receive cash payments from the counterparties to
these instruments should certain specified interest rates fall (floors) or rise
(caps). For further 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, 1995
on pages 46 and 47 under the caption "Management's Discussion and Analysis -
Effects of Interest Rate Changes."
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, many of whom may have greater
financial resources than the Company. The competition for the acquisition of
mortgage servicing rights is primarily with mortgage bankers, commercial banks
and savings banks. Additionally, the Company must compete with many of these
same entities for refinancings of mortgage loans in the Company's existing
servicing portfolio in order to help mitigate the effects of run-off.
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, demands for indemnification or loan repurchases,
class action lawsuits and administrative enforcement actions.
EMPLOYEES
As of December 31, 1995, the Company had 172 full-time employees.
5
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.
So 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, capital gain or a return of
capital. During 1993, 20 percent of distributions made were characterized as
long-term capital gains. Other distributions during the last 3 years 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 certain other subsidiaries, including Capstead Inc., that
conduct mortgage servicing and formerly conducted securitization 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 dividend of such earnings.
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 primarily in Dallas, Texas on properties
leased by the Company.
ITEM 3. LEGAL PROCEEDINGS.
At December 31, 1995 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.
6
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, 1995 on page 38 under the
caption "Note 16 - 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, 1995 on page 39 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, 1995 on pages 40 through
47 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, 1995 on pages 19 through
38, 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.
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 7, 1996 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 7, 1996 on pages 7 through 13 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).
7
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 7, 1996 on pages 14 and 15 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.
The information required by this item is included in the Registrant's Annual
Report to Stockholders for the year ended December 31, 1995 on page 36 under the
caption "Notes to Consolidated Financial Statements - Note 13 - Management and
Non-Competition Agreements", which is incorporated herein by reference pursuant
to General Instruction G(2).
8
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
1994 Annual Report to Stockholders, are incorporated herein by
reference:
PAGE
----
Consolidated Statement of Income - Years
Ended December 31, 1995, 1994 and 1993............ *
Consolidated Balance Sheet -
December 31, 1995 and 1994........................ *
Consolidated Statement of Stockholders' Equity -
Three Years Ended December 31, 1995............... *
Consolidated Statement of Cash Flows - Years
Ended December 31, 1995, 1994 and 1993............ *
Notes to Consolidated Financial Statements -
December 31, 1995................................. *
2. Financial statement schedules:
Schedule II - Valuation and Qualifying Accounts.... 14
Schedule IV - Mortgage Loans on Real Estate........ 15
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, 1995.
3. Exhibits:
EXHIBIT
NUMBER
-------
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(5)
3.1(b) Articles Supplementary ($1.26 Cumulative Convertible
Preferred Stock, Series B)(4)
3.2 Bylaws of the Company, as amended(5)
10.17 Amendment to Management Agreement dated March 31, 1993,
between the Registrant and Capstead Advisers, Inc.(5)
10.18 Second Amendment to Management Agreement dated September 3,
1993, between the Registrant and Capstead Advisers, Inc.(6)
10.19 Stock Option Agreement, dated June 16, 1992, between the
Company and Lomas Financial Corporation(5)
10.20 Form of Loan Sale Agreement(3)
10.21 1990 Employee Stock Option Plan(1)
10.22 1990 Directors' Stock Option Plan(2)
10.23 Employment Agreement dated August 1, 1992 between Capstead
Mortgage Corporation and Ronn K. Lytle(4)
9
CAPSTEAD MORTGAGE CORPORATION AND SUBSIDIARIES
PART IV
ITEM 14. - CONTINUED
EXHIBIT
NUMBER
-------
10.24 Restricted Stock Grant Agreement dated August 1, 1992 between
Capstead Mortgage Corporation and Ronn K. Lytle(4)
10.25 1994 Flexible Long Term Incentive Plan(7)
10.26 1994 Capstead Inc. Restricted Stock Plan(7)
10.27 Capstead Mortgage Corporation Deferred Compensation Plan(7)
10.28 Summary of Employment Agreement dated December 9, 1993
between Capstead Mortgage Corporation and Christopher T.
Gilson(7)
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, 1995*
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 Amendment No. 1 on Form 8 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1991
(4) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1992
(5) Incorporated by reference to the Company's Registration Statement on
Form S-3 (No. 33-62212) dated May 6, 1993
(6) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993
(7) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994
* Filed herewith
(b) Reports on Form 8-K: None.
(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.
10
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 12, 1996 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 15, 1996
- ------------------------------- Executive Officer
(Ronn K. Lytle) and Director
/s/ ANDREW F. JACOBS Senior Vice President- March 12, 1996
- ------------------------------- Control, Treasurer
(Andrew F. Jacobs) and Secretary
/s/ BEVIS LONGSTRETH Director March 18, 1996
- -------------------------------
(Bevis Longstreth)
/s/ PAUL M. LOW Director March 18, 1996
- -------------------------------
(Paul M. Low)
/s/ HARRIET E. MIERS Director March 21, 1996
- -------------------------------
(Harriet E. Miers)
/s/ WILLIAM R. SMITH Director March 18, 1996
- -------------------------------
(William R. Smith)
/s/ JOHN C. TOLLESON Director March 21, 1996
- -------------------------------
(John C. Tolleson)
11
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, 1995
CAPSTEAD MORTGAGE CORPORATION
DALLAS, TEXAS
12
CAPSTEAD MORTGAGE CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ---------------------------------- ---------- ----------------------- ----------- --------------
ADDITIONS
-----------------------
CHARGED TO
BALANCE AT CHARGED TO OTHER
BEGINNING COSTS ACCOUNTS- DEDUCTIONS- BALANCE AT END
DESCRIPTION OF PERIOD AND EXPENSES DESCRIBE DESCRIBE * OF PERIOD
- ---------------------------------- ---------- ------------ ---------- ----------- --------------
Reserves and Allowances Deducted
From Mortgage Investments:
Year ended December 31, 1995
Allowance for losses........... $7,354,000 $2,200,000 - $3,635,000 $5,919,000
Year ended December 31, 1994
Allowance for losses........... $6,927,000 $3,500,000 - $3,073,000 $7,354,000
Year ended December 31, 1993
Allowance for losses........... $8,228,000 $2,800,000 - $4,101,000 $6,927,000
* Charge-offs due to mortgagor default, fraud or misrepresentation, or special
hazard losses, and charge-offs of other mortgage securities.
13
CAPSTEAD MORTGAGE CORPORATION AND SUBSIDIARIES
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1995
PART 1 - MORTGAGE LOANS ON REAL ESTATE AT CLOSE OF PERIOD
- ---------------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- --------------------------- -------- ------------------ ---------------------------------- ----------------------
AMOUNT OF PRINCIPAL UNPAID AT
CLOSE OF PERIOD
---------------------------------- AMOUNT OF
SUBJECT TO MORTGAGE
PRIOR CARRYING AMOUNT DELINQUENT BEING
DESCRIPTION LIENS OF MORTGAGES(2) TOTAL INTEREST(3) FORECLOSED(3)
- --------------------------- ------------------ ------------------ ------------ ---------------- ----------------------
$ -0- - $ 49,999 None $ 190,000 $ 190,000 $ 68,000 $ -
( 7)..................
$ 50,000 - $ 99,999 None 2,533,000 2,533,000 198,000 63,000
( 32)..................
$100,000 - $ 149,999 None 15,809,000 15,809,000 1,019,000 397,000
( 122)..................
$150,000 - $ 199,999 None 40,820,000 40,820,000 1,455,000 907,000
( 228)..................
$200,000 - $ 249,999 None 293,351,000 293,351,000 17,089,000 5,726,000
(1,328)..................
$250,000 - $ 299,999 None 202,653,000 202,653,000 12,331,000 4,663,000
( 741)..................
$300,000 - $ 349,999 None 138,622,000 138,622,000 8,051,000 1,623,000
( 429)..................
$350,000 - $ 399,999 None 89,510,000 89,510,000 4,519,000 1,485,000
( 240)..................
$400,000 - $ 449,999 None 51,346,000 51,346,000 2,141,000 842,000
( 121)..................
$450,000 - $ 499,999 None 39,441,000 39,441,000 2,370,000 1,409,000
( 83)..................
$500,000 - $1,500,000 None 111,303,000 111,303,000 5,141,000 2,293,000
( 190).................. ------------ ------------ ----------- ------------
985,578,000 $985,578,000 $54,382,000 $ 19,408,000
============ =========== ============
Plus premium 3,417,000
Plus unrealized gain on mortgage
loans included in debt
securities 10,727,000
------------
$999,722,000
============
PART 2 - INTEREST
EARNED ON MORTGAGES
- --------------------------- ---------------------------
COLUMN A COLUMN F AND AND COLUMN G(4)
- --------------------------- ----------------------------
WEIGHTED AVERAGE
DESCRIPTION INTEREST RATE
- --------------------------- ----------------
$ -0- - $ 49,999 9.56%
( 7)..................
$ 50,000 - $ 99,999 8.16%
( 32)..................
$100,000 - $ 149,999 7.91%
( 122)..................
$150,000 - $ 199,999 7.88%
( 228)..................
$200,000 - $ 249,999 7.64%
(1,328)..................
$250,000 - $ 299,999 7.57%
( 741)..................
$300,000 - $ 349,999 7.63%
( 429)..................
$350,000 - $ 399,999 7.60%
( 240)..................
$400,000 - $ 449,999 7.61%
( 121)..................
$450,000 - $ 499,999 7.60%
( 83)..................
$500,000 - $1,500,000 7.64%
( 190)..................
See accompanying notes to Schedule IV.
14
CAPSTEAD MORTGAGE CORPORATION AND SUBSIDIARIES
NOTES TO SCHEDULE IV
(1) Mortgage loans at December 31, 1995 consisted of single-family,
conventional, first mortgage loans. The Company classifies its mortgage
loans by term and interest rate characteristics. Fixed-rate mortgage loans
have (i) fixed rates of interest for their entire terms or (ii) an initial
fixed-rate period of 10 years after origination and then adjust annually
based on a specified margin over 1-year United States Treasury Securities
("1-year Treasuries"). 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 or (ii) initial interest
rates then adjust one time, approximately 5 years following origination of
the mortgage loan, based on a specified margin over the Federal National
Mortgage Association ("FNMA") yields for 30-year, fixed-rate commitments at
the time of adjustment. Adjustable-rate mortgage loans either adjust (i)
semi-annually based on a specified margin over the 6-month London Interbank
Offered Rate ("LIBOR") or (ii) annually based on a specified margin over 1-
year Treasuries. Principal amount of mortgage loans in the portfolio
totaling $8,930,000, or 0.9 percent, were fixed-rate loans; $566,899,000, or
56.3 percent, were medium-term loans; and $423,166,000, or 42.8 percent,
were adjustable-rate loans.
(2) Reconciliation of mortgage loans:
Balance at December 31, 1994.......... $1,425,413,000
Additions:
Purchases and originations of
mortgage loans..................... 126,786,000
Unrealized gains on mortgage loans
included in debt securities........ 44,400,000 171,186,000
-------------- --------------
1,596,599,000
Deductions:
Principal collections............... 257,239,000
Amortization of discount............ 447,000
Sales............................... 339,191,000 596,877,000
----------- --------------
Balance at December 31, 1995.......... $ 999,722,000
==============
(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, $52.8 million is covered by mortgage pool insurance
that effectively limits the Company's loss. Similarly, $18.5 million of the
amount of mortgages being foreclosed is covered by pool insurance. For a
discussion of the Company's exposure to possible loan losses, see the
Registrant's Annual Report to Stockholders for the year ended December 31,
1995 on page 33 under the caption "Note 9 - Allowance for Possible Losses".
(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 $6,415,000 at December
31, 1995.
15
CAPSTEAD MORTGAGE CORPORATION AND SUBSIDIARIES
NOTES TO SCHEDULE IV - CONTINUED
(5) The geographic distribution of the Company's portfolio at December 31, 1995
was as follows:
NUMBER PRINCIPAL
STATE OF LOANS AMOUNT
----- -------- ------------
Alabama................................. 7 $ 1,477,000
Arizona................................. 19 5,037,000
Arkansas................................ 1 245,000
California.............................. 2,523 701,556,000
Colorado................................ 30 8,048,000
Connecticut............................. 15 4,434,000
Delaware................................ 3 1,107,000
District of Columbia.................... 24 7,469,000
Florida................................. 103 31,961,000
Georgia................................. 107 30,675,000
Hawaii.................................. 6 2,324,000
Idaho................................... 1 218,000
Illinois................................ 31 8,690,000
Indiana................................. 4 434,000
Kentucky................................ 1 364,000
Louisiana............................... 12 3,409,000
Maryland................................ 81 23,827,000
Massachusetts........................... 12 3,073,000
Michigan................................ 36 10,349,000
Minnesota............................... 1 219,000
Missouri................................ 6 2,112,000
Nebraska................................ 1 209,000
Nevada.................................. 11 2,408,000
New Hampshire........................... 1 218,000
New Jersey.............................. 71 20,204,000
New Mexico.............................. 34 9,987,000
New York................................ 36 11,598,000
North Carolina.......................... 4 1,103,000
Ohio.................................... 7 1,750,000
Oklahoma................................ 13 3,532,000
Oregon.................................. 2 317,000
Pennsylvania............................ 32 9,401,000
South Carolina.......................... 1 255,000
Tennessee............................... 1 229,000
Texas................................... 112 28,874,000
Utah.................................... 12 2,204,000
Vermont................................. 3 976,000
Virginia................................ 116 35,150,000
Washington.............................. 39 9,472,000
Wisconsin............................... 2 663,000
---------- ------------
985,578,000
Plus premium............................ 3,417,000
Plus unrealized gain on mortgage loans
included in debt securities............ 10,727,000
------------
Total.......................... 3,521 $999,722,000
========== ============
16
EXHIBIT INDEX
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER PAGE
- ------- ------------
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(5)
3.1(b) Articles Supplementary ($1.26 Cumulative Convertible Preferred Stock,
Series B)(4)
3.2 Bylaws of the Company, as amended(5)
10.17 Amendment to Management Agreement dated March 31, 1993, between the
Registrant and Capstead Advisers, Inc.(5)
10.18 Second Amendment to Management Agreement dated September 3, 1993, between
the Registrant and Capstead Advisers, Inc.(6)
10.19 Stock Option Agreement, dated June 16, 1992, between the Company and
Lomas Financial Corporation(5)
10.20 Form of Loan Sale Agreement(3)
10.21 1990 Employee Stock Option Plan(1)
10.22 1990 Directors' Stock Option Plan(2)
10.23 Employment Agreement dated August 1, 1992 between Capstead Mortgage
Corporation and Ronn K. Lytle(4)
10.24 Restricted Stock Grant Agreement dated August 1, 1992 between Capstead
Mortgage Corporation and Ronn K. Lytle(4)
10.25 1994 Flexible Long Term Incentive Plan(7)
10.26 1994 Capstead Inc. Restricted Stock Plan(7)
10.27 Capstead Mortgage Corporation Deferred Compensation Plan(7)
10.28 Summary of Employment Agreement dated December 9, 1993 between Capstead
Mortgage Corporation and Christopher T. Gilson(7)
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, 1995*
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 Amendment No. 1 on Form 8 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1991
(4) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1992
(5) Incorporated by reference to the Company's Registration Statement on Form S-
3 (No. 33-62212) dated May 6, 1993
(6) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1993
(7) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994
* Filed herewith