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Thursday, 07/26/2012 10:06:45 AM

Thursday, July 26, 2012 10:06:45 AM

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Capstead Mortgage Corporation Announces Second Quarter 2012 Results
Wed July 25, 2012 4:15 PM | about: CMO

Business Wire

Second Quarter 2012 Highlights

Earnings of $43.3 million or $0.40 per diluted common share
Average financing spreads decreased 15 basis points to 1.37%
Book value increased $0.19 to $13.23 per common share
Portfolio leverage remained unchanged at 8.05 times long-term investment capital
Operating costs as a percentage of average long-term investment capital decreased 13 basis points to 1.06%

DALLAS--(BUSINESS WIRE)-- Capstead Mortgage Corporation (CMO) (Capstead or the Company) today reported net income of $43,335,000 or $0.40 per diluted common share for the quarter ended June 30, 2012. This compares to net income of $45,170,000 or $0.44 per diluted common share for the quarter ended March 31, 2012. The Company paid a second quarter 2012 dividend of $0.40 per common share on July 20, 2012.

Second 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 June 30, 2012, the Company reported net interest margins on interest-earning assets of $47,325,000 compared to $49,593,000 for the quarter ended March 31, 2012. Total financing spreads averaged 1.37% during the second quarter of 2012, a decrease of 15 basis points from total financing spreads reported for the first quarter of 2012.

Yields on Capsteads interest-earning assets averaged 1.98% during the second quarter of 2012, a decrease of ten basis points from yields reported for the first quarter of 2012. Yields were impacted by higher premium amortization charges primarily resulting from higher levels of mortgage prepayments and, to a lesser extent, a modest decline in weighted average coupons on the Companys holdings of ARM securities. Portfolio runoff (scheduled payments and mortgage prepayments) averaged 18.3% on an annualized basis during the second quarter (a constant mortgage prepayment rate, or CPR of 15.9%) compared to 17.0% (a 14.5% CPR) during the first quarter of 2012. Mortgage prepayment levels largely determine yield adjustments for investment premium amortization. Weighted average coupons declined four basis points during the second quarter to 2.80% at June 30, 2012, reflecting an increasing number of mortgage loans underlying these securities approaching fully-indexed levels.

Interest rates on all interest-bearing liabilities, including Capsteads long-term unsecured borrowings and adjusted for currently-paying interest rate swap agreements held for hedging purposes, averaged 0.61% during the second quarter of 2012, an increase of five basis points over borrowing rates incurred during the first quarter of 2012, primarily reflecting higher borrowing terms on repurchase arrangements due to a variety of market factors. At June 30, 2012 repurchase arrangements and similar borrowings totaled $12.73 billion, consisting primarily of 30-day borrowings with 23 counterparties and rates averaging 0.39%, before consideration of interest rate swap agreements. At June 30, 2012 the Company held currently-paying swap agreements requiring the payment of fixed rates of interest averaging 0.80% on notional amounts totaling $3.70 billion with average remaining interest-payment terms of 12 months. Additionally, the Company had entered into forward-starting swap agreements with notional amounts totaling $1.40 billion as of quarter-end that will begin requiring interest payments at fixed rates averaging 0.55% for two-year periods that commence on various dates between July 2012 and March 2013, with an average expiration of 28 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 Companys borrowings under repurchase arrangements.

During the second quarter of 2012 Capsteads 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 $79 million to $1.58 billion, primarily as a result of accretive capital raising activities and higher portfolio pricing levels for holdings of current-reset ARM securities.

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