Capstead Mortgage (CMO) Tops Q1 EPS by 4c

Capstead Mortgage (NYSE: CMO) reported Q1 EPS of $0.12, $0.04 better than the analyst estimate of $0.08.

• Generated an annualized economic return of 5.1%, consisting of a $0.04 increase in book value to $9.43 per common share and an $0.08 per common share first quarter dividend
• Recognized a GAAP net loss of $7.7 million or $(0.15) per diluted common share
• Generated core earnings of $15.5 million or $0.12 per diluted common share, an increase of $0.07 per common share over the prior quarter
• Increased agency-guaranteed residential adjustable-rate mortgage (ARM) portfolio to $12.23 billion and leverage to 9.65 times long-term investment capital

Management Remarks

Commenting on current operating and market conditions, Phillip A. Reinsch, President and Chief Executive Officer, said, “Our first quarter 2019 earnings benefited from higher cash yields, lower investment premium amortization and favorable terms on new swaps entered into during the quarter, which together with higher portfolio balances more than offset the effects of higher borrowing costs resulting from the December 2018 federal funds rate increase.

“Cash yields should continue increasing in the coming quarters through coupon resets and acquisitions, albeit at a slower pace given that the underlying indices have declined since year-end. With the Federal Reserve indicating it is unlikely to increase the federal funds rate this year, we anticipate more stable borrowing costs in the coming quarters affording us the opportunity to continue to recover financing spreads diminished by previous increases in borrowing rates. While our board authorized an increase to our common stock repurchase program in February, we did not repurchase any shares this quarter due to higher trading prices of our common stock and opportunities to grow our portfolio of agency-guaranteed ARM securities at attractive levels.

“Discontinuing hedge accounting for our interest rate swaps related to secured borrowings has improved our flexibility in managing our balance sheet and eliminated ongoing administrative costs associated with using hedge accounting. In connection with this change, we also adopted a core earnings presentation in order to depict for our investors our operating results in a manner consistent with our previous earnings presentations and how we manage the business.

“For nearly 20 years, Capstead has operated as a cost-effective, internally managed REIT that invests in a leveraged portfolio of short duration agency-guaranteed residential ARM securities with the goal of generating attractive risk-adjusted returns over the long-term. For investors seeking risk-adjusted levered returns with a comparably higher degree of safety from interest rate and credit risk, we believe Capstead represents a reasonably compelling opportunity that is difficult to find elsewhere in the markets.”

For earnings history and earnings-related data on Capstead Mortgage (CMO) click here.

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