Capstead Mortgage Corporation Announces Third Quarter 2018 Results
Capstead Mortgage Corporation (“Capstead” or the “Company”) (NYSE: CMO) today announced financial results for the quarter ended September 30, 2018.
Third Quarter 2018 Summary
- Generated earnings of $8.7 million or $0.04 per diluted common share
- Paid common dividend of $0.11 per common share
- Repurchased 1.4 million shares of common stock for $11.8 million, generating book value accretion of $0.03 per share
- Book value per common share declined 3.0% or $0.30, excluding $0.07 of capital returned to stockholders in the form of dividends in excess of reported earnings, ending the quarter at $9.48 per common share
- Net interest margins declined $3.7 million to $11.7 million as higher borrowing rates outstripped higher cash yields
- Agency-guaranteed residential adjustable-rate mortgage (ARM) portfolio and leverage ended the quarter at $12.68 billion and 9.53 times long-term investment capital, respectively
Capstead is a self-managed real estate investment trust, or REIT, for federal income tax purposes. The Company 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.
Third Quarter Earnings and Related Discussion
Capstead reported net income of $8.7 million or $0.04 per diluted common share for the quarter ended September 30, 2018. This compares to net income of $13.0 million or $0.09 per diluted common share for the quarter ended June 30, 2018. The Company paid a third quarter 2018 dividend of $0.11 per common share on October 19, 2018.
Portfolio yields averaged 2.08% during the third quarter of 2018, an increase of eight basis points from the 2.00% reported for the second quarter. Cash yields (yields on the portfolio before investment premium amortization) increased 14 basis points to average 3.07% during the third quarter, benefiting from mortgage loans underlying the portfolio resetting to higher rates based on higher prevailing six- and 12-month interest rate indices and higher coupon interest rates on recent acquisitions. As of September 30, 2018, 51% of the Company’s ARM securities portfolio will reset in rate on average in approximately six months, allowing the Company’s cash yields to continue benefiting from higher prevailing interest rates in future quarters. Yield adjustments for investment premium amortization increased six basis points to average a negative 0.99% for the third quarter. Mortgage prepayment rates averaged an annualized constant prepayment rate, or CPR, of 25.71%, an increase of 1.89% CPR from an average of 23.82% CPR the previous quarter. This increase was driven largely by seasonal factors, including the summer home selling season as well as refinance opportunities for eligible homeowners with currently resetting mortgages.