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Thursday, 04/26/2012 11:22:42 AM

Thursday, April 26, 2012 11:22:42 AM

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Capstead Mortgage Corporation Announces First Quarter 2012 Results
Capstead (NYSE:CMO)
Today : Thursday 26 April 2012
Capstead Mortgage Corporation (NYSE: CMO) (“Capstead” or the “Company”) today reported net income of $45,170,000 or $0.44 per diluted common share for the quarter ended March 31, 2012. This compares to net income of $41,968,000 or $0.43 per diluted common share for the quarter ended December 31, 2011. The Company paid a first quarter 2012 dividend of $0.43 per common share on April 20, 2012.
First Quarter Earnings and Related Discussion
Capstead Mortgage Corporation, formed in 1985 and based in Dallas, Texas, is a self-managed real estate investment trust for federal income tax purposes. Capstead earns income from investing in a leveraged portfolio of residential adjustable-rate mortgage pass-through securities, referred to as ARM securities, issued and guaranteed by government-sponsored enterprises, either Fannie Mae or Freddie Mac, or by an agency of the federal government, Ginnie Mae. For the quarter ended March 31, 2012, the Company reported net interest margins on interest-earning assets of $49,593,000 compared to $46,238,000 for the quarter ended December 31, 2011. Total financing spreads averaged 1.52% during the first quarter of 2012, an increase of six basis points from total financing spreads reported for the fourth quarter of 2011.
Yields on Capstead’s interest-earning assets averaged 2.08% during the first quarter of 2012, an increase of one basis point from yields reported for the fourth quarter of 2011. This compares to a five basis point decline in reported yields during the fourth quarter from the third quarter of 2011. Yields benefited from lower levels of mortgage prepayments as well as relatively stable weighted average coupons on the Company’s current-reset ARM securities with an increasing number of mortgage loans underlying these securities approaching fully-indexed levels. Portfolio runoff (scheduled payments and mortgage prepayments) averaged 17.0% on an annualized basis during the first quarter (a constant mortgage prepayment rate, or CPR of 14.5%) compared to 18.0% (a 15.6% CPR) during the fourth quarter of 2011. Mortgage prepayment levels largely determine yield adjustments for investment premium amortization.
Interest rates on all interest-bearing liabilities, including Capstead’s long-term unsecured borrowings, averaged 0.56% during the first quarter of 2012, a decrease of five basis points from average rates incurred during the fourth quarter of 2011. The decline reflects the expiration of higher rate swap agreements that have largely been replaced with additional two-year term swap agreements at more favorable rates. At March 31, 2012 repurchase arrangements and similar borrowings totaled $12.08 billion, consisting primarily of 30-day borrowings with 25 counterparties and rates averaging 0.33%, before consideration of interest rate swap agreements held for hedging purposes. At March 31, 2012 currently-paying swap positions held by the Company required paying fixed rates of interest averaging 0.83% on notional amounts totaling $3.3 billion with average remaining interest-payment terms of 14 months. Additionally, as of the end of the first quarter the Company had entered into forward-starting swap agreements with notional amounts totaling $1.1 billion that will begin requiring interest payments at fixed rates averaging 0.54% for two-year periods that commence on various dates between April 2012 and October 2012, with an average expiration of 27 months. Variable payments, typically based on one-month LIBOR, that are received by the Company under interest rate swap agreements tend to offset a significant portion of the interest owed on a like amount of the Company’s borrowings under repurchase arrangements.
During the first quarter of 2012 Capstead’s long-term investment capital, which consists of common and perpetual preferred stockholders’ equity and long-term unsecured borrowings (net of related investments in statutory trusts) increased by $109 million to $1.50 billion, primarily as a result of accretive capital raising activities and higher portfolio pricing levels, particularly for holdings of current-reset ARM securities. The Company acquired $1.23 billion (principal amount) of agency-guaranteed ARM securities during the first quarter contributing to a $748 million increase in the portfolio to $13.01 billion at quarter-end. Portfolio leverage (borrowings under repurchase arrangements divided by long-term investment capital) declined slightly to 8.05 to one at March 31, 2012 from 8.15 to one at December 31, 2011.
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