<PAGE>
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
-----
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: SEPTEMBER 30, 1994
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: 1-8996
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
2001 BRYAN TOWER, DALLAS, TEXAS 75201
(Former name, former address and former fiscal year, if changed from last
report)
The Registrant meets the conditions set forth in General Instruction H(1)(a) and
(b) for Form 10-Q and is therefore filing this Form under the reduced disclosure
format.
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
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practicable date.
Common Stock ($.01 par value) 15,296,624 as of November 2, 1994
<PAGE>
CAPSTEAD MORTGAGE CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1994
INDEX
<TABLE>
<CAPTION>
PAGE
----
PART I. -- FINANCIAL INFORMATION
ITEM 1. Financial Statements
<S> <C>
Consolidated Balance Sheet --- September 30, 1994 and December 31, 1993.. 3
Consolidated Statement of Income --- Quarter and Nine Months Ended
September 30, 1994 and 1993........................................... 4
Consolidated Statement of Cash Flows --- Nine Months Ended
September 30, 1994 and 1993........................................... 5
Notes to Consolidated Financial Statements............................. 6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................... 11
PART II. --- OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K................................ 19
SIGNATURES.............................................................. 20
</TABLE>
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<PAGE>
PART I. -- FINANCIAL INFORMATION
CAPSTEAD MORTGAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1994 DECEMBER 31, 1993
------------------- ------------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Mortgage securities collateral $4,935,898 $3,995,956
Mortgage investments 3,764,510 2,842,151
---------- ----------
8,700,408 6,838,107
Less allowance for possible losses (7,884) (6,927)
---------- ----------
8,692,524 6,831,180
Cash and cash equivalents 12,084 87,760
Prepaids, receivables and other 70,710 36,238
Purchased mortgage servicing rights 192,404 25,146
---------- ----------
$8,967,722 $6,980,324
========== ==========
LIABILITIES
Collateralized mortgage securities $4,754,979 $3,891,134
Repurchase arrangements 3,563,869 2,443,807
Accounts payable and accrued expenses 44,273 7,193
---------- ----------
8,363,121 6,342,134
---------- ----------
STOCKHOLDERS' EQUITY
Preferred stock - $0.10 par value;
100,000 shares authorized:
$1.60 Cumulative Preferred Stock,
Series A, 635 and 735 shares
issued and outstanding ($10,409
aggregate liquidation preference) 8,888 10,295
$1.26 Cumulative Convertible
Preferred Stock, Series B, 30,116
and 29,797 shares issued and
outstanding ($342,724 aggregate
liquidation preference) 323,753 319,543
Common stock - $0.01 par value; 100,000
shares authorized; 15,287 and 15,154
shares issued and outstanding 153 152
Paid-in capital 310,189 308,140
Undistributed income (deficit) (1,263) 60
Unrealized loss on debt and equity
securities held available-for-sale (37,119) -
---------- ----------
604,601 638,190
---------- ----------
$8,967,722 $6,980,324
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
<PAGE>
CAPSTEAD MORTGAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------------- ------------------------------
1994 1993 1994 1993
--------- -------- -------- -------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Mortgage securities collateral $ 89,304 $ 95,366 $261,436 $314,495
Mortgage investments 55,587 54,317 145,008 137,839
-------- -------- -------- --------
Total interest income 144,891 149,683 406,444 452,334
-------- -------- -------- --------
INTEREST AND RELATED EXPENSES:
Collateralized mortgage securities 84,646 94,396 247,663 304,784
Short term borrowings 41,375 25,292 91,002 61,293
Mortgage insurance and other 3,187 5,278 10,436 15,712
Provision for possible losses 2,000 500 3,000 2,300
-------- -------- -------- --------
Total interest and related expenses 131,208 125,466 352,101 384,089
-------- -------- -------- --------
Net margin on mortgage assets 13,683 24,217 54,343 68,245
-------- -------- -------- --------
MORTGAGE SERVICING REVENUES:
Servicing fees 8,848 455 16,517 514
Other 1,241 6 1,831 6
-------- -------- -------- --------
Total mortgage servicing revenues 10,089 461 18,348 520
-------- -------- -------- --------
MORTGAGE SERVICING EXPENSES:
Salaries and related costs 923 274 1,878 429
General and administrative 975 173 1,623 245
Amortization of purchased mortgage
servicing rights 1,697 315 2,856 315
-------- -------- -------- --------
Total mortgage servicing expenses 3,595 762 6,357 989
-------- -------- -------- --------
Net margin on servicing operations 6,494 (301) 11,991 (469)
-------- -------- -------- --------
OTHER REVENUES:
Gain on sales 4,923 11,366 7,080 26,706
CMO administration 1,019 185 3,044 368
Other 198 979 800 1,345
-------- -------- -------- --------
Total other revenues 6,140 12,530 10,924 28,419
-------- -------- -------- --------
OTHER EXPENSES:
Salaries and related costs 2,067 1,699 6,441 5,359
General and administrative 1,983 1,582 5,051 4,871
Management fees and termination costs - 9,525 - 16,166
-------- -------- -------- --------
Total other expenses 4,050 12,806 11,492 26,396
-------- -------- -------- --------
NET INCOME $ 22,267 $ 23,640 $ 65,766 $ 69,799
======== ======== ======== ========
Net income $ 22,267 $ 23,640 $ 65,766 $ 69,799
Less cash dividends on preferred stock (9,729) (9,654) (29,119) (28,922)
-------- -------- -------- --------
Net income available to common
stockholders $ 12,538 $ 13,986 $ 36,647 $ 40,877
======== ======== ======== ========
NET INCOME PER SHARE:
Primary $0.82 $0.92 $2.40 $2.71
Fully diluted $0.81 $0.90 $2.36 $2.64
CASH DIVIDENDS PAID PER SHARE:
Common $0.83 $0.92 $2.49 $2.70
Series A Preferred $0.40 $0.40 $1.20 $1.20
Series B Preferred $0.32 $0.32 $0.95 $0.95
</TABLE>
See accompanying notes to consolidated financial statements.
-4-
<PAGE>
CAPSTEAD MORTGAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
--------------------------------
1994 1993
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 65,766 $ 69,799
Noncash items:
Amortization of discount and premium 6,620 15,855
Amortization of purchased mortgage servicing rights 2,856 -
Provision for possible losses 3,000 2,300
Net gain from investing activities (7,080) (26,706)
Net change in prepaids, receivables and other assets (40,550) (3,531)
Net change in accounts payable and accrued expenses
excluding payables for bulk purchases of
mortgage servicing rights 3,785 209
----------- -----------
Net cash provided by operating activities 34,397 57,926
----------- -----------
INVESTING ACTIVITIES:
Mortgage securities collateral:
Principal collections on collateral 1,031,618 1,655,382
Decrease in accrued interest receivable 8,143 8,116
Decrease (increase) in short term investments 159,737 (30,390)
Purchases of mortgage loans (1,835,687) (2,846,322)
Purchases of equity securities (17,808) -
Purchases of agency securities (1,531,873) (1,244,523)
Principal collections on mortgage investments 255,276 185,399
Purchases of mortgage servicing rights (136,819) (13,540)
Proceeds from sales of mortgage assets 39,911 2,045,191
----------- -----------
Net cash used by investing activities (2,027,502) (240,687)
----------- -----------
FINANCING ACTIVITIES:
Collateralized mortgage securities:
Issuance of securities 2,093,822 722,341
Principal payments on securities (1,226,309) (1,633,949)
Decrease in accrued interest payable (7,909) (10,978)
Capital stock transactions 4,852 4,595
Dividends paid (67,089) (69,604)
Increase in short term borrowings 1,120,062 1,157,104
----------- -----------
Net cash provided by financing activities 1,917,429 169,509
----------- -----------
Net decrease in cash and cash equivalents (75,676) (13,252)
Cash and cash equivalents at beginning of period 87,760 30,302
----------- -----------
Cash and cash equivalents at end of period $ 12,084 $ 17,050
=========== ===========
NONCASH INVESTING AND FINANCING ACTIVITIES:
Charges to allowance for losses $ 2,044 $ 960
Transfers from mortgage investments to mortgage
securities collateral $ 2,151,695 $ 730,997
</TABLE>
See accompanying notes to consolidated financial statements.
-5-
<PAGE>
CAPSTEAD MORTGAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1994
(UNAUDITED)
NOTE A --- BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the quarter and nine months ended September 30, 1994 are
not necessarily indicative of the results that may be expected for the calendar
year ending December 31, 1994. For further information refer to the financial
statements and footnotes thereto included in the Company's annual report on Form
10-K for the year ended December 31, 1993. Certain amounts for prior periods
have been reclassified to conform to the 1994 presentation.
NOTE B --- MORTGAGE INVESTMENTS
Mortgage investments and the related average effective interest rates
(calculated excluding unrealized gains and losses) during the periods indicated
were (dollars in thousands):
<TABLE>
<CAPTION>
QUARTER NINE MONTHS
ENDED ENDED
AS OF SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
---------------------- -------------- --------------
1994 1993 1994 1993 1994 1993
---------- ---------- ------ ------ ------- -----
<S> <C> <C> <C> <C> <C> <C>
MORTGAGE LOAN PORTFOLIO:
Fixed-rate mortgage loans $ 233,522 $ 973,162 7.54% 7.32% 6.92% 7.64%
Medium term mortgage loans 16,073 33,398 7.91 6.62 6.82 7.02
Adjustable-rate mortgage
("ARM")loans 87,327 75,917 5.62 4.84 5.05 5.50
AAA-RATED MORTGAGE PASS-
THROUGH SECURITIES
PORTFOLIO:
Fixed-rate securities 309,709 - 6.69 - 6.71 -
Medium term securities 472,988 423,705 6.95 7.46 6.90 7.14
ARM securities 794,361 1,079,463 5.50 5.66 5.27 5.75
AGENCY SECURITIES
PORTFOLIO:
Fixed-rate securities 504,525 497,174 6.44 6.94 6.44 6.90
ARM agency securities 1,012,345 - 4.51 - 4.52 -
Callable notes 333,660 - 7.01 - 7.01 -
---------- ----------
$3,764,510 $3,082,819
========== ==========
</TABLE>
The Company classifies its mortgage investments by term and interest rate
characteristics of the underlying mortgage loans. The Company's fixed-rate
mortgage investments (i) have fixed rates of interest for their entire terms, or
(ii) have an initial fixed rate period of ten years after origination and then
adjust annually based on a specified margin over one-year United States Treasury
Securities ("one-year Treasuries"). Medium term mortgage investments (i) have
an initial fixed rate period of three or five years after origination and then
adjust annually based on a specified margin over one-year Treasuries
-6-
<PAGE>
or (ii) have initial interest rates that adjust one time, approximately five
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. ARM investments either (i)
adjust semiannually based on a specified margin over the six-month London
interbank offered rate ("LIBOR"), or (ii) adjust annually based on a specified
margin over one-year Treasuries. Callable agency notes are unsecured, 3-year,
fixed-rate notes issued by FNMA, the Federal Home Loan Mortgage Corporation
("FHLMC"), or the Federal Home Loan Bank Board ("FHLBB") and mature in 1997,
unless redeemed earlier by FNMA, FHLMC or FHLBB.
At September 30, 1994 the AAA-rated mortgage pass-through securities ("Mortgage
Pass-Throughs") portfolio, the agency securities portfolio, and substantially
all of the mortgage loan portfolio was pledged to secure short term borrowings.
As of September 30, 1994, the Company had outstanding commitments to purchase
mortgage loans of approximately $60 million.
During the quarter, the Company entered into forward delivery contracts for the
purpose of reducing exposure to the effect of changes in interest rates on
certain fixed-rate mortgage loans which it has purchased or has committed to
purchase. These contracts have terms of not more than 90 days. Gains and
losses on such contracts will be deferred as an adjustment of the carrying value
of the related mortgage loans and amortized into interest income using the
effective yield method over the expected remaining life of the mortgage loans.
As of September 30, 1994, the Company had outstanding for hedging purposes
forward delivery contracts with an aggregate gross contract amount of $60
million.
NOTE C --- SECURITIZATION ACTIVITY
During the quarter ended September 30, 1994, the Company pledged $257 million of
30-year fixed-rate whole loans with an average coupon interest rate of 7.14% as
collateral for the issuance of $253 million of collateralized mortgage
securities (CMO Series 1994-G). CMO Series 1994-G has a 30-year stated maturity
and an average coupon interest rate of 7.00%.
NOTE D --- NET INTEREST INCOME ANALYSIS
The following tables summarize interest income and interest expense and average
effective interest rates for the quarter and nine months ended September 30,
1994 compared to the same periods in 1993 (dollars in thousands):
<TABLE>
<CAPTION>
QUARTER ENDED SEPTEMBER 30
--------------------------------------
1994 1993
------------------ ------------------
AMOUNT AVERAGE AMOUNT AVERAGE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Mortgage securities collateral $ 89,304 7.55% $ 95,366 8.33%
Mortgage investments 55,587 5.94 54,317 6.49
-------- --------
Total interest income 144,891 149,683
-------- --------
INTEREST EXPENSE:
Collateralized mortgage securities 84,646 7.44 94,396 8.49
Short term borrowings 41,375 4.69 25,292 3.51
-------- --------
Total interest expense 126,021 119,688
-------- --------
NET INTEREST $ 18,870 $ 29,995
-------- --------
</TABLE>
-7-
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30
--------------------------------------
1994 1993
------------------ ------------------
AMOUNT AVERAGE AMOUNT AVERAGE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Mortgage securities collateral $261,436 7.65% $314,495 8.50%
Mortgage investments 145,008 6.06 137,839 6.57
-------- --------
Total interest income 406,444 452,334
-------- --------
INTEREST EXPENSE:
Collateralized mortgage securities 247,663 7.52 304,784 8.48
Short term borrowings 91,002 4.25 61,293 3.50
-------- --------
Total interest expense 338,665 366,077
-------- --------
NET INTEREST $ 67,779 $ 86,257
======== ========
</TABLE>
The following tables summarize changes in interest income and interest expense
due to changes in effective interest rates versus changes in volume for the
quarter and nine months ended September 30, 1994 compared to the same periods in
1993 (in thousands):
<TABLE>
<CAPTION>
QUARTER ENDED SEPTEMBER 30, 1994
---------------------------------------
RATE VOLUME TOTAL
------------- ----------- -----------
<S> <C> <C> <C>
INTEREST INCOME:
Mortgage securities collateral $ (9,173) $ 3,111 $ (6,062)
Mortgage investments (4,864) 6,134 1,270
-------- -------- --------
Total interest income (14,037) 9,245 (4,792)
-------- -------- --------
INTEREST EXPENSE:
Collateralized mortgage securities (11,831) 2,081 (9,750)
Short term borrowings 9,751 6,332 16,083
-------- -------- --------
Total interest expense (2,080) 8,413 6,333
-------- -------- --------
NET INTEREST $(11,957) $ 832 $(11,125)
======== ======== ========
NINE MONTHS ENDED SEPTEMBER 30, 1994
------------------------------------
RATE VOLUME TOTAL
--------- --------- ---------
INTEREST INCOME:
Mortgage securities collateral $(29,852) $(23,207) $(53,059)
Mortgage investments (11,259) 18,428 7,169
-------- -------- --------
Total interest income (41,111) (4,779) (45,890)
-------- -------- --------
INTEREST EXPENSE:
Collateralized mortgage securities (32,890) (24,231) (57,121)
Short term borrowings 14,840 14,869 29,709
-------- -------- --------
Total interest expense (18,050) (9,362) (27,412)
-------- -------- --------
NET INTEREST $(23,061) $ 4,583 $(18,478)
======== ======== ========
</TABLE>
NOTE E --- DISCLOSURES REGARDING FAIR VALUES OF CERTAIN INVESTMENTS IN DEBT AND
EQUITY SECURITIES
In May 1993 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" (the "Statement"). The Company adopted the
provisions of the Statement as of January 1, 1994. In accordance with the
Statement, prior period financial statements have not been restated to reflect
the change in accounting principle. There was no cumulative effect as of
January 1, 1994 of adopting the Statement on net income. The opening balance of
stockholders' equity was increased by $7,512,000 to reflect net unrealized
holding gains on securities classified as available-for-sale previously carried
at amortized cost.
-8-
<PAGE>
The following tables summarize available-for-sale and held-to-maturity
securities as of September 30, 1994 (in thousands):
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE SECURITIES
----------------------------------------------
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Mortgage Pass-Throughs:
Fixed-rate securities $ 3,173 $ - $ 35 $ 3,138
Medium term securities
(transferred to held-
to-maturity)/(1)/ 9,289 - 9,289 -
ARM securities 807,299 - 12,938 794,361
ARM agency securities 1,030,135 - 17,790 1,012,345
Other mortgage securities 10,678 1,809 623 11,864
---------- ---------- -------- ----------
Total debt securities 1,860,574 1,809 40,675 1,821,708
Equity securities 5,565 1,747 - 7,312
---------- ---------- -------- ----------
$1,866,139 $3,556 $ 40,675 $1,829,020
========== ========== ======== ==========
HELD-TO-MATURITY SECURITIES
----------------------------------------------
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- -------- ----------
Mortgage Pass-Throughs:
Fixed-rate securities $ 306,571 $ - $ 20,240 $ 286,331
Medium term securities/(1)/ 472,988 - 5,563 467,425
Agency securities:
Fixed-rate securities 504,525 - 55,337 449,188
Callable notes 333,660 - 2,375 331,285
Mortgage securities
collateral, net/(2)/ 169,055 8,228 28,600 148,683
---------- ---------- -------- ----------
$1,786,799 $8,228 $112,115 $1,682,912
========== ========== ======== ==========
</TABLE>
(1) The Company's investment in medium term Mortgage Pass-Throughs was
transferred to the held to maturity classification during the current
quarter. As a result, an unrealized loss of $9,289,000 at the transfer date
remains as a component of the recorded mark-to-market for available-for-sale
securities at September 30, 1994 which will be amortized over the remaining
life of these investments.
(2) All mortgage securities collateral has been permanently financed through the
issuance of collateralized mortgage securities and, as a result, the
Company's exposure to changes in the fair value of the underlying assets
(and liabilities) is limited. For this reason, the table above presents the
fair value of the net cash flows of the mortgage securities collateral after
payments on the related collateralized mortgage securities (i.e., the CMO
residual). This fair value was estimated based on projected net cash flows
discounted at what management believes to be appropriate discount rates and
prepayment assumptions.
The maturity of the Company's mortgage assets is directly affected by the rate
of principal prepayments by mortgagors and redemptions by issuers, including the
Company, of remaining debt securities outstanding (referred to as "clean-up
calls"). As a result, the actual maturity of the Company's mortgage assets
usually occurs well in advance of stated maturities. The Company anticipates
that through prepayments and exercising clean-up calls, a significant portion of
its higher cost collateralized mortgage securities will be retired within the
next several years and a residual amount of high coupon mortgage
-9-
<PAGE>
securities collateral will be released and can be sold or continued to be held
as investments. Included in mortgage securities collateral is $63,725,000 and
$33,277,000 of collateral released from the related indentures at September 30,
1994 and December 31, 1993, respectively. During the nine months ended September
30, 1994, $20,651,000 of mortgage securities collateral previously released from
the related indentures pursuant to clean-up calls was sold at gross realized
gains aggregating $2,157,000. No such sales occurred during the current quarter.
During the quarter, available-for-sale equity securities totaling $12,180,000
(cost basis) were sold at gross realized gains aggregating $4,923,000. Net
adjustments to unrealized holding gains (losses) on available-for-sale
securities included as a separate component of stockholders' equity totaled
$(13,455,000) and $(44,631,000) during the quarter and nine months ended
September 30, 1994, respectively.
-10-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
- -------------------
During the third quarter of 1994, the Company purchased 819 mortgage loans
totaling $214,176,000, compared to purchases of 3,838 mortgage loans totaling
$1,184,158,000 during the same period in 1993. During the nine months ended
September 30, 1994, the Company purchased 6,459 mortgage loans totaling
$1,840,941,000 compared to purchases of 9,015 mortgage loans totaling
$2,823,672,000 during the same period in 1993. Purchase and commitment volumes
have fallen significantly due to increases in mortgage interest rates.
Improvement in the overall United States economy and resulting inflation fears
have caused interest rates on 30-year single-family mortgage loans to rise more
than two full percentage points from the end of January through September 30.
This increase in interest rates has had the effect of substantially reducing
single-family mortgage originations nationally by as much as 60% from the fourth
quarter of 1993.
The Company has expanded its correspondent network resulting in less reliance on
the California market. During the third quarter of 1994, 39% of the Company's
mortgage loan acquisitions were secured by properties located in California,
down from 44% in calendar year 1993 and 75% in calendar year 1992. As of
September 30, 1994, approximately 51% of the Company's nonagency mortgage assets
were secured by properties located in California, compared to 71% as of
September 30, 1993. Although the Company continues to expand its marketing
efforts to acquire mortgage loans from other regions of the United States,
California is the largest market for jumbo mortgage loans; therefore, no
assurance can be given that the Company's operations would not be materially
affected by economic or other events in California.
The Company formed $160 million and $909 million of AAA-rated private mortgage
pass-through securities ("Mortgage Pass-Throughs") during the quarter and nine
months ended September 30, 1994, respectively. In addition to reducing the
Company's exposure to fraud and credit risk, a primary benefit of pooling
mortgage loans into Mortgage Pass-Throughs is the liquidity of AAA-rated
securities over that of individual loans. As a result, when securing short term
borrowings, the Company is able to negotiate more favorable terms. The Company
plans to continue to retain a large portfolio of primarily adjustable-rate
mortgage loan ("ARM") Mortgage Pass-Throughs.
In order to expedite growth of the Company's ARM investments, the Company began
purchasing ARM agency securities during the first quarter. Through June 30,
1994, approximately $1.07 billion of ARM agency securities were acquired.
During the third quarter, the Company acquired $334 million of 3-year, fixed-
rate, unsecured, callable agency notes. The Company also has a portfolio of
fixed-rate agency securities that it intends to continue to finance and
eventually place into a collateralized mortgage obligation ("CMO").
During the quarter the Company issued one CMO totaling $253 million through a
special-purpose finance subsidiary secured by 15- and 30-year fixed-rate
mortgage loans. The Company's net investment in this financing at issuance
totaled $14,829,000. Year-to-date, the Company has issued approximately $2.2
billion in CMOs retaining net investments in these financings of approximately
$71 million. The Company's 1994 CMO executions have been negatively impacted by
the general rise in interest rates causing the Company to secure higher rate
bonds with lower rate collateral which the Company had committed to purchase
when long term interest rates were lower (see "Effects
-11-
<PAGE>
of Interest Rate Changes"). The Company's CMO investment portfolio at September
30, 1994 was $151,433,000 this quarter-end compared to $104,822,000 at September
30, 1993. The September 30, 1994 portfolio includes $63,725,000 of collateral
released from related indentures through redemption or pay off of the related
bonds net of $29,486,000 of related short term borrowings.
In late 1993, the Company began issuing CMOs with a senior/subordinate structure
(in lieu of purchasing pool insurance) where bond investors or the Company
assumes credit and special hazard risks by purchasing/retaining subordinate
classes of a securitization. During the current quarter the Company retained
$1,413,000 of these subordinate classes for its CMO investment portfolio at a
cost of $432,000. Year-to-date, the Company has retained $4,685,000 of
subordinated securities at a cost of $1,537,000. Because of the substantial
discount recorded at acquisition on these securities, which reflects the
market's and the Company's expectation of risks assumed, the Company does not
anticipate a need to increase its provision for losses for this added exposure.
The Company's mortgage servicing portfolio (excluding pending transfers)
increased substantially during the quarter to $12.0 billion with a weighted
average interest rate of only 7.09% and earning an average annual service fee,
excluding ancillary revenue and earnings on escrows, calculated on the unpaid
principal balance of the portfolio of 30.18 basis points (the "Average Service
Fee"). The current balance of purchased mortgage servicing rights related to
this portfolio was approximately $156 million (130 basis points, or a 4.31
multiple of the Average Service Fee). Portfolio run off, consisting of
prepayments and scheduled payments on mortgage loans serviced, was at an annual
rate of only 7.58% during the quarter, owing to the low weighted average
interest rate of the servicing portfolio compared to today's mortgage interest
rates. In addition, pending transfers as of quarter-end, together with
commitments to acquire servicing rights entered into after quarter-end, totaled
another $7.7 billion of servicing with a weighted average interest rate of 7.26%
and earning an Average Service Fee of 31.75 basis points. At an average cost of
170 basis points, these servicing rights are being acquired at a 5.36 multiple.
Pending transfers scheduled to close by year-end, together with normal jumbo
servicing acquisitions, should allow the Company to end the year with a
servicing portfolio of approximately $15.0 billion. The Company currently plans
to grow the servicing portfolio to more than $25.0 billion in 1995.
-12-
<PAGE>
The following table summarizes the Company's utilization of capital as of
September 30, 1994 (in thousands):
<TABLE>
<CAPTION>
CAPITAL
ASSETS BORROWINGS EMPLOYED
---------- ---------- --------
<S> <C> <C> <C>
Mortgage loan portfolio:
Fixed-rate mortgage loans $ 233,522 $ 198,238 $ 35,284
Medium term mortgage loans 16,073 6,366 9,707
Adjustable-rate mortgage loans 87,327 73,100 14,227
AAA-rated mortgage pass-through
securities portfolio:
Fixed-rate mortgage securities 309,709 273,628 36,081
Medium term mortgage securities 472,988 446,170 26,818
Adjustable-rate mortgage securities 794,361 760,071 34,290
Agency securities portfolio:
Fixed-rate agency securities 504,525 459,520 45,005
Adjustable-rate agency securities 1,012,345 985,318 27,027
Callable agency notes 333,660 331,972 1,688
CMO investment portfolio 4,935,898 4,784,465 151,433
Purchased mortgage servicing rights 192,404 - 192,404
---------- ---------- --------
$8,892,812 $8,318,848 573,964
---------- ---------- --------
Other assets, net of other liabilities
including $33 million owed under
contracts for bulk purchases of
mortgage servicing rights 30,637
--------
Total stockholders' equity $604,601
--------
</TABLE>
As of September 30, 1994, the Company's mortgage loan portfolio and its
commitments to acquire mortgage loans ("Pipeline") totaled approximately $390
million. Market value risk associated with holding or acquiring these loans was
reduced by (i) entering into forward sale agreements totaling $60 million for
hedging purposes and (ii) designating approximately $178 million as collateral
for a single CMO (CMO Series 1994-H), which was priced September 20 and closed
October 31, 1994. In addition, approximately $116 million was invested or
committed for investment in ARM loans, which are not as sensitive to changes in
market value as are fixed-rate investments. Remaining mortgage assets and
Pipeline (adjusted for expected Pipeline fallout of 20% on "best efforts"
commitments) that was subject to market value risk as of September 30, 1994 was
approximately $36 million. As the Company continues to acquire mortgage loans,
it may pool such loans into CMOs or other securitizations, thereby periodically
reducing the amount of mortgage loans subject to market value risk (see "Effects
of Interest Rate Changes").
A significant impact of the rise in mortgage interest rates in 1994 has been a
corresponding decline in value of most of the Company's mortgage assets
(excluding servicing rights). As of September 30, 1994 the Company's $1.9
billion of mortgage assets and equity securities classified as available-for-
sale had a $37.1 million net unrealized loss. This net unrealized loss has been
reflected as a separate component of stockholders' equity in accordance with
Statement of Financial Accounting Standards No. 115 "Accounting for certain
Investments in Debt and Equity Securities" which was adopted by the Company this
year. These losses will only be realized by the Company if the related assets
are sold. Declines in value and ongoing market value risk associated with
remaining mortgage assets will not have a direct
-13-
<PAGE>
impact on the earnings of the Company as these assets are classified as held-to-
maturity and can only be sold under very limited circumstances.
On January 17, 1994, the Los Angeles region of southern California suffered a
relatively severe earthquake. The Company has exposure to earthquake losses in
cases where a homeowner defaults on his mortgage and the property has structural
damage from an earthquake, exclusive of fire or water damage (the standard
homeowners policy covers fire and water damage even if such damage was the
result of an earthquake). The Company has determined, through property
inspections and discussions with homeowners, that properties underlying
approximately $16.5 million of delinquent mortgage loans are not insured by
either the Company or the homeowner for special hazards, such as an earthquake,
and have structural damage. The Company believes any losses incurred as a
result of defaults by these mortgagors will not be material and that its
allowance for possible losses at September 30, 1994 is adequate to absorb any
such losses.
RESULTS OF OPERATIONS
- ---------------------
Comparative net operating results (interest income or fee revenues, net of
related interest expense or direct operating costs), by source, are as follows
(in thousands, except per share amounts):
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------- --------------------
1994 1993 1994 1993
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Mortgage loan portfolio $ 4,579 $ 13,365 $ 25,053 $ 34,844
Mortgage pass-through
securities portfolio 5,112 8,517 14,159 25,085
Agency securities portfolio 3,430 5,721 11,759 12,588
CMO investment portfolio 2,562 (2,886) 6,372 (1,957)
Mortgage servicing 6,494 (301) 11,991 (469)
Gains from sales 4,923 11,366 7,080 26,706
CMO administration 1,019 185 3,044 368
Other income 198 979 800 1,330
------- -------- -------- --------
Contribution to income 28,317 36,946 80,258 98,495
Provision for losses (2,000) (500) (3,000) (2,300)
General and administrative
expenses (4,050) (12,806) (11,492) (26,396)
------- -------- -------- --------
Net income $22,267 $ 23,640 $ 65,766 $ 69,799
------- -------- -------- --------
Net income per share:
Primary $ 0.82 $ 0.92 $ 2.40 $ 2.71
Fully diluted 0.81 0.90 2.36 2.64
Return on average total
stockholders' equity 13.83% 14.81% 13.61% 14.59%
</TABLE>
The mortgage loan portfolio contributed significantly less to the current
quarter net operating results than in the third quarter of 1993 due to (i) a
significantly lower average portfolio outstanding: $662 million in the current
quarter compared to the $1.25 billion outstanding during the third quarter of
1993, (ii) higher short term borrowing costs: 4.98% in the current quarter
compared to 3.91% in the third quarter of 1993, and (iii) greater use of
leverage: the average ratio of short term debt to capital employed increased to
4.8:1 in the current quarter, compared to 2.2:1 in the third quarter 1993.
Average yields on mortgage loans increased slightly to 6.99% in the current
quarter compared to 6.97% in the third quarter of 1993. Although a year-to-date
average mortgage loan portfolio of $972 million was slightly higher then the
$941 million average during the same period in 1993, the portfolio
-14-
<PAGE>
contributed significantly less to year-to-date net operating results due to (i)
lower yields on mortgage loans: 6.64% year-to-date compared to 7.20% in 1993,
(ii) higher short term borrowing costs: 4.35% year-to-date from 3.97% in 1993,
and (iii) greater use of leverage: the average ratio of short term debt to
capital employed increased to 2.8:1 year-to-date compared to 1.3:1 in 1993.
Lower mortgage loan purchase volume, particularly in the second and third
quarters of 1994, is the primary reason for the decline in size of the mortgage
loan portfolio in the current quarter. Year-to-date average yields have
declined despite higher prevailing mortgage rates as borrowers have opted for
ARM and medium term loan products over 30 year fixed-rate loans. Borrowing
costs on the mortgage loan portfolio have risen 131 basis points since January
1994. The Company has increased its leverage of this portfolio as it has
employed more of its available capital into its servicing portfolio.
The Mortgage Pass-Through portfolio contributed less to net operating results
for the quarter and nine months ended September 30, 1994 compared to the same
periods in 1993 primarily due to higher borrowing costs offset somewhat by
higher yields. Borrowing costs for this portfolio have risen 146 basis points
since January 1994, averaging 4.79% and 4.31% for the quarter and nine months
ended September 30, 1994, respectively, compared to 3.44% and 3.46% for the same
periods in 1993. Mortgage Pass-Through yields have increased to 6.22% and 6.08%
for the quarter and nine months ended September 30, 1994, respectively, compared
to 5.95% and 6.06% for the same periods in 1993 due primarily to the steady rise
in ARM Mortgage Pass-Through yields as the underlying ARM loans reset
periodically (see "Effects of Interest Rate Changes") and the formation in May
and June of $310 million of fixed-rate mortgage pass-throughs. The average
portfolio outstanding declined to $1.46 billion and $1.16 billion for the
quarter and nine months ended September 30, 1994, respectively, compared to
$1.55 billion and $1.45 billion for the same periods in 1993. The decline was
the result of sales of ARM Mortgage Pass-Throughs in the latter half of 1993.
Despite a sizable increase in average agency securities portfolio outstanding to
$1.62 billion in the current quarter compared to $544 million in the third
quarter of the prior year, the agency securities portfolio contributed less to
the current quarter net operating results due to lower agency security yields
(5.21% in the current quarter compared to 6.94% in the third quarter of the
prior year) and higher short term borrowing costs (4.50% in the current quarter
compared to 2.71% in the third quarter of the prior year). The lower yields
reflect the Company's decision to invest in recently issued ARM securities that
have not yet reset to a fully-indexed rate (either the one-year treasury rate or
6-month LIBOR, i.e. "teaser-rate ARM securities"). These teaser-rate ARM
securities produced a yield of 4.51% during the quarter, only 35 basis points
more than related borrowing costs. This reflects the recent period of rapidly
rising short term interest rates which have increased the Company's borrowing
costs in advance of upward adjustments in the interest rates on ARM securities.
Although yields on these securities have improved to 4.81% in October, related
borrowing costs have increased to 5.07% for the month (see "Effects of Interest
Rate Changes"). Additionally, borrowing rates in the dollar repurchase
agreement market have risen considerably over those achieved in 1993. Year-to-
date results were lower in 1994 despite a higher average portfolio outstanding
compared to the same period in 1993 due to the same factors mentioned above.
Operating results produced by the CMO investment portfolio are represented by
interest income on mortgage securities collateral (including interest earned on
collateral released from the related indentures due to redemption or payoff of
the related bonds), less interest expense and professional fees on
collateralized mortgage securities, and mortgage pool insurance expense on
-15-
<PAGE>
mortgage securities collateral, and includes net investment income or loss on
other mortgage securities held by the Company. Operating results produced by the
CMO investment portfolio during the quarter and nine months ended September 30,
1994 were higher than those achieved in the same periods in 1993 due primarily
to the impact of the rise in mortgage interest rates experienced in 1994 on
current and expected future prepayments. In the first quarter of 1994,
prepayments began to slow considerably. As a result, the Company has revised its
estimates of expected future prepayments, which has had the effect of lowering
required amortization of collateral and bond premiums and discounts and
improving operating results. During the quarter and nine months ended September
30, 1994, the Company received principal collections on mortgage securities
collateral totaling $172 million and $1.0 billion, respectively, compared to
$693 million and $1.7 billion of run off in the same periods in 1993.
Net income from the Company's mortgage servicing operation totaled $6,494,000
and $11,991,000 for the quarter and nine months ended September 30, 1994,
respectively. Mortgage servicing operations commenced in March 1993. Net
income from mortgage servicing is represented by mortgage servicing fees, net of
subservicing fees paid to the sellers of bulk servicing prior to the transfers
of purchased portfolios to the Company, interest on escrows, late charges and
ancillary revenues earned, less other direct expenses (including servicing
employee and system costs, and other direct operating costs) and amortization of
purchased mortgage servicing rights. During the quarter ended September 30,
1994, the mortgage servicing portfolio (excluding pending transfers) averaged
$9.3 billion.
Earlier in 1994, the Company had acquired 800,000 shares of the common stock of
North American Mortgage Corporation ("North American"), a mortgage banking
company, for $17.8 million. Recent consolidation trends in the mortgage
banking industry has allowed the Company to realize gains aggregating $4,923,000
during the current quarter from the sale of 550,000 of these shares. In
October, the Company sold 200,000 of its 250,000 remaining shares of North
American recognizing a gain of $1.5 million.
Due to rising interest rates in 1994, the Company has not sold mortgage assets
other than sales of mortgage securities collateral previously released from CMOs
pursuant to "clean-up calls". In the first and second quarters the Company sold
$20,651,000 of released mortgage securities collateral recognizing gains of
$2,157,000. During the quarter and nine months ended September 30, 1993, the
Company had mortgage asset sales of $1.1 billion and $2.0 billion, respectively,
for gains of $11,366,000 and $26,706,000, respectively.
CMO administration revenues were higher for the quarter and nine months ended
September 30, 1994 than in the same periods of 1993 due to increased fees for
master servicing the collateral placed into securitizations issued by the
Company and administrating the related bonds or pass-throughs. The Company
began master servicing securitized collateral in February 1993 and receiving
fees for administering securitizations in October 1993.
The Company provided $2,000,000 and $3,000,000 for possible losses during the
quarter and nine months ended September 30, 1994, compared to $500,000 and
$2,300,000 for the same periods in 1993. The increase in the current quarter
provision is primarily due to recent experience with credit losses on uninsured
loans acquired in the late 1980s and fraud/misrepresentation in the origination
of more recent loan acquisitions.
After excluding $9,525,000 and $16,166,000 of non-competition and management
agreement expenses and termination costs incurred in the quarter and nine
-16-
<PAGE>
months ended September 30, 1993, respectively, salaries, general and
administrative expenses for the periods presented increased primarily due to
costs associated with establishing certain mortgage banking infrastructure
necessary to take full advantage of opportunities in the industry.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's primary sources of funds include monthly mortgage loan principal
and interest payments, servicing revenues, short term financing arrangements,
excess cash flows on issued CMOs, proceeds from securitizations, and equity
offerings when available. The Company currently believes that these funds are
sufficient for the acquisition of additional mortgage loans and other mortgage
assets, growth of its servicing operation, repayments on short term borrowings,
and the payment of cash dividends as required for Capstead's continued
qualification as a Real Estate Investment Trust ("REIT"). It is the Company's
policy to remain strongly capitalized and conservatively leveraged.
The Company may, from time to time, sell a portion of its fixed-rate mortgage
loans and its investments in other mortgage loans, by issuing publicly-offered,
multi-class pass-through certificates ("MPCs") and electing Real Estate Mortgage
Investment Conduit ("REMIC") status for tax purposes on these transactions.
Such sales may make quarterly income more volatile than in the past because of
the recognition of transactional gains or losses.
Short term borrowings are primarily made under repurchase arrangements. At
September 30, 1994, the Company had uncommitted repurchase facilities with
investment banking firms with approved credit limits of $2 billion, subject to
certain conditions, to finance the mortgage loan portfolio. Interest rates on
borrowings under these facilities are based on overnight London interbank
offered rate ("LIBOR") rates. The Company currently uses other repurchase
arrangements as needed. As the Company commits to the issuance of CMOs or MPCs,
the Company may deliver the mortgage loans that are expected to secure the
issuance as collateral for a repurchase transaction with the managing
underwriter of the related issuance. The Company also enters into repurchase
and dollar repurchase arrangements with investment banking firms pursuant to
which the Company pledges Mortgage Pass-Throughs and agency securities. The
terms and conditions of these arrangements, including interest rates, are
negotiated on a transaction-by-transaction basis.
EFFECTS OF INTEREST RATE CHANGES
- --------------------------------
Changes in interest rates may impact the Company's earnings in various ways.
The Company's earnings depend, in part, on the difference between the interest
received on mortgage investments and the interest paid on related short term
borrowings (primarily repurchase arrangements). The resulting spread may be
reduced in a rising interest rate environment. For ARM loans the risk of rising
short term interest rates is offset to some extent by increases in the rates of
interest earned on these loans. Since ARM loans generally limit the amount of
such increase during any single interest rate adjustment period and over the
life of the loan, it is possible that the interest rates on the repurchase
arrangements could rise to levels that may exceed the interest rates on the
underlying ARM loans which may cause the Company to realize a negative interest
spread.
In addition, the Company's earnings are impacted if long term interest rates
change during the period after the Company has committed to purchase fixed-rate
mortgage loans, but before these loans have been pledged to secure CMOs or MPCs.
If long term interest rates increase during this period, the interest payable on
the CMOs issued will increase, while the yield on the
-17-
<PAGE>
underlying mortgage loans pledged to collateralize the CMOs will not change; as
a consequence, the interest spread on the CMO will be lower. Conversely, if long
term interest rates decrease during this period, the interest payable on the CMO
issued will decrease, while the yield on the underlying mortgage loans pledged
to collateralize the CMO will not change; as a consequence, the interest spread
on the CMO will be higher. Similarly, proceeds received on the issuance of MPCs,
and related gains or losses, will be negatively impacted by an increase in long
term interest rates during this period due to the resulting decline in market
value of the related collateral. Conversely, these transactional gains or losses
will be favorably impacted by a decrease in long term interest rates during this
period. The Company attempts to manage its exposure to long term interest rate
changes in part by pricing CMOs and MPCs prior to the purchase of, but
subsequent to the commitment to purchase, all of the mortgages that will
collateralize the issuance, and may from time to time elect to enter into
forward sale agreements for hedging purposes.
A change in interest rates also impacts earnings recognized from the Company's
CMO investment portfolio, which consists primarily of fixed-rate CMO
residuals and interest-only securities. The amount of income that may be
generated from the typical CMO residual is dependent upon the rate of principal
prepayments on the underlying mortgage loans. If mortgage interest rates fall
significantly below the interest rate on the collateral pledged to secure the
CMO, principal prepayments will increase, reducing or even eliminating the
overall return on the investment in the CMO residual. This is due primarily to
the acceleration of the amortization of bond discounts, a noncash item, as bond
classes are repaid more rapidly than originally anticipated. During 1993 the
Company experienced such a period of declining rates and high prepayments.
Interest-only and principal-only securities that are held by the Company in the
CMO investment portfolio are carried at the present value of the future cash
flows expected to be received during the remaining terms of the investments,
discounted at a constant effective yield. Income recognized is the excess of
cash received over the reduction of the carrying value. In a falling interest
rate environment, prepayments on the underlying mortgage collateral generally
will be high and the Company could incur losses on investments in interest-only
securities. Conversely, in periods of rising interest rates, interest-only
securities will tend to perform favorably because the underlying mortgage
collateral will generally prepay at slower rates. Principal-only securities
react differently to changes in interest rates. Lower interest rates result in
the recovery of this investment more rapidly thus increasing yields. During
periods of rising rates, it takes longer for the Company to recover its
investments thus lowering yields. Principal-only securities retained by the
Company generally represent a much smaller investment than interest-only
investments.
Another effect of changes in interest rates is that if interest rates decrease,
the rate of prepayment of mortgage loans may increase. To the extent the
proceeds of prepayments of mortgage loans or agency securities in the Company's
mortgage investment portfolios cannot be reinvested at a rate of interest at
least equal to the rate previously earned on such mortgage loans or agency
securities, the Company's earnings may be adversely affected. In addition, the
rates of interest earned on the Company's ARM loans generally will decline
during periods of falling interest rates.
The above discussion regarding how changes in interest rates impact our
investments in mortgage loans and other mortgage assets also applies to our
growing investment in purchased mortgage servicing rights. If interest rates
rise, our servicing assets become more valuable since the average lives of the
related mortgage loans will tend to be longer and earnings from large,
-18-
<PAGE>
temporarily-held cash balances will be greater. Conversely, lower interest
rates will spur prepayments thus reducing the period of time the Company can
service the related loans. Because the Company began servicing in 1993,
exposure to lower interest rates is less than for other servicers that acquired
servicing portfolios in previous years when interest rates were substantially
higher.
PART II. - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits:
--------
The following Exhibit is presented herewith:
Exhibit 11 - Computation of Earnings Per Share for the quarter and nine
months ended September 30, 1994 and 1993.
(b) Reports on Form 8-K: None.
-------------------
-19-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CAPSTEAD MORTGAGE CORPORATION
Date: November 3, 1994 By /s/ RONN K. LYTLE
------------------------------------
Ronn K. Lytle
Chairman and Chief Executive Officer
Date: November 3, 1994 By /s/ ANDREW F. JACOBS
------------------------------------
Andrew F. Jacobs
Senior Vice President - Control
and Treasurer
-20-
<PAGE>
EXHIBIT 11
CAPSTEAD MORTGAGE CORPORATION
COMPUTATION OF NET INCOME PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
------------------------- ----------------------
1994 1993 1994 1993
---------- --------- --------- ----------
<S> <C> <C> <C> <C>
PRIMARY:
Average number of common
shares outstanding 15,266 15,088 15,236 15,026
Incremental shares calculated
using the Treasury Stock
method 11 93 34 86
------- ------- ------- -------
15,277 15,181 15,270 15,112
------- ------- ------- -------
Net income $22,267 $23,640 $65,766 $69,799
Less cash dividends paid on
convertible preferred stock:
Series A paid ($0.40 paid
per share) (254) (308) (796) (980)
Series B paid ($0.315 paid
per share) (9,475) (9,346) (28,323) (27,942)
------- ------- ------- -------
Net income available to common
stockholders $12,538 $13,986 $36,647 $40,877
------- ------- ------- -------
Primary net income per share $0.82 $0.92 $2.40 $2.71
------- ------- ------- -------
FULLY DILUTED:
Average number of common
shares outstanding 15,266 15,088 15,236 15,026
Assumed conversion of
convertible preferred stock:
Series A 587 717 608 763
Series B * * * *
Incremental shares calculated
using the Treasury Stock
method 11 98 34 94
------- ------- ------- -------
15,864 15,903 15,878 15,883
------- ------- ------- -------
Net income $22,267 $23,640 $65,766 $69,799
Less cash dividends paid on
the Series B Preferred Stock (9,475) (9,346) (28,323) (27,942)
------- ------- ------- -------
Net income $12,792 $14,294 $37,443 $41,857
------- ------- ------- -------
Fully diluted net income per share $0.81 $0.90 $2.36 $2.64
----- ----- ----- -----
</TABLE>
* The Series B Preferred Stock is not considered convertible for purposes of
calculating fully diluted net income per share as it is currently
antidilutive.
