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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: JUNE 26, 1998
(Date of Earliest Event Reported)
CAPSTEAD MORTGAGE CORPORATION
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(Exact Name of Registrant as Specified in its Charter)
MARYLAND 1-8896 75-2027937
(State of Incorporation) (Commission File No.) I.R.S. Employer
Identification No.)
2711 NORTH HASKELL AVENUE
SUITE 900
DALLAS, TEXAS 75204
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (214) 874-2323
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ITEM 5. OTHER EVENTS
Set forth below is the complete text of a press release issued by the
Registrant on June 26, 1998 regarding certain events:
CAPSTEAD MORTGAGE CORPORATION
ANNOUNCES PORTFOLIO REPOSITIONING
DALLAS -- June 26, 1998 -- Capstead Mortgage Corporation (NYSE: CMO)
announced today that it has completed repositioning its mortgage securities
portfolio in order to improve performance in future periods should long-term
interest rates decline further. As suggested in previous press releases, this
repositioning has resulted in non-operating losses that are described below.
In commenting on the portfolio repositioning, Chairman and Chief
Executive Officer Ronn K. Lytle said, "Due to the continued high level of
mortgage prepayments and the possibility of further declines in long-term
interest rates, we concluded it was prudent to substantially reduce the
Company's exposure to mortgage prepayments. In this regard, the Company sold its
entire $977 million investment in interest-only securities, and has sold $659
million of its Fannie Mae/Freddie Mac adjustable-rate mortgage ("ARM")
securities and $656 million of its Ginnie Mae ARM securities."
This repositioning resulted in losses totaling approximately $255
million. Additionally, the Company anticipates taking an impairment charge of
approximately $45 million on the mortgage servicing portfolio due to the
continued prospect of high mortgage prepayment rates. Mr. Lytle continued, "The
total charge will reduce total stockholders' equity from $857 million at March
31, 1998 to approximately $705 million at June 30, 1998. The $113 million
unrealized loss on Capstead's mortgage securities portfolios included in
accumulated comprehensive income at the end of the first quarter is expected to
improve to an unrealized gain of approximately $20 million after these mortgage
securities sales." Additionally, the Company has not replaced the mortgage
securities sold and anticipates selling or has sold $1.1 billion of fixed-rate
securities at slight gains in order to further reduce total assets commensurate
with the lower level of stockholders' equity. After the security sales settle in
July, the Company's leverage ratio (excluding CMO obligations) will decline from
8 times stockholders' equity as of December 31, 1997 to approximately 7 times as
of July 31, 1998.
The repositioning and impairment charge is significantly greater than
the possible $125 million impairment charge described in the Company's April
23rd press release for two primary reasons. First, the original impairment
estimate was not equivalent to a complete disposition of the interest-only
securities portfolio because only a portion of the interest-only securities
portfolio was expected to be impaired. Second, the required yields for buyers of
interest-only securities have increased far more dramatically during the last
two months than anticipated in April, thereby decreasing market values of
interest-only securities more than expected. "Given the current low inflation
rate and expanding recessionary pressures worldwide, we repositioned our
portfolio to reduce Capstead's exposure to declining long-term interest rates
and, more specifically, to the market value risk associated with the
interest-only securities portfolio. Capstead is now positioned to benefit
considerably from declines in short-term interest rates and will perform much
better than it would have without the repositioning if long-term interest rates
decline," Mr. Lytle remarked.
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"Prepayment rates remain high and, despite the changes to Capstead's
mortgage securities portfolio, we believe the Company's net interest margin is
unlikely to improve anytime soon. Additionally, the decreased asset levels and
the disposition of the interest-only securities, while prudent from a risk
management perspective, have diminished the Company's earnings potential.
Consequently, we expect Capstead's third quarter dividend to be considerably
lower than the 40 to 45 cents previously indicated. For the Company's prospects
to improve, the yield curve would have to steepen either by long-term interest
rates rising or short-term interest rates falling," concluded Mr. Lytle.
Capstead Mortgage Corporation, a mortgage banking firm with assets of
$10 billion, earns income from servicing mortgage loans, investing in mortgage
assets and other investment strategies.
Note: This document contains "forward-looking statements" (within the
meaning of the Private Securities Litigation Act of 1995) that inherently
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of unforeseen external factors. As discussed in the Company's filings
with the Securities and Exchange Commission, these factors may include, but are
not limited to, changes in general economic conditions, fluctuations in interest
rates, increases in costs and other general competitive factors.
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 hereunto duly authorized.
CAPSTEAD MORTGAGE CORPORATION
July 16, 1998 By: /s/ Julie Moore
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Julie Moore -
Senior Vice President - Control
Treasurer and Secretary
