Capstead Mortgage Corp. reported earnings of $35.1 million, or 50 cents a share, for the first quarter, a decline of 6.2% from net income the year earlier of $37.4 million, or 65 cents a common share.

The Dallas company, which services loans and invests in mortgage assets, said the decline in long-term interest rates last year prompted an increase in prepayments.

The faster prepayments eroded the company's holding of adjustable-rate mortgage securities and collateralized mortgage obligations, and they also limited growth in earnings from servicing, the company said.

To retain servicing customers, Capstead started a refinancing program for its existing borrowers. It is also writing call options on a portion of its fixed-rate mortgage-backed securities and will continue to reduce its exposure to prepayment risk on its investments.

Noting "a very difficult environment," Jim J. Fowler, principal at Nationsbanc Montgomery Securities, said, "I think earnings growth will be nominal, near term, compared to where it's been."

The company earned $14.8 million from servicing during the first quarter, up 6% from the comparable period last year.

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