Capstead Mortgage Corporation (NYSE: 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 Capstead’s 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 Company’s 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.