Dallas-based Capstead Mortgage Corporation (CMO) earned $42.5m in Q209 ($.058 per share) on mortgage-related securities, a slight improvement from Q109’s earnings of just over $42m. The real estate investment trust (REIT) said earnings improved on net interest margin increases in its portfolio of residential adjustable-rate mortgages (ARM) and securities guaranteed by Fannie Mae (FNM), Freddie Mac (FRE) or Ginnie Mae. While Capstead said current prepayments are at an acceptable level, it expects them to increase in the coming quarters. That, along with reduced asset yields from lower coupon interest rates on currently resetting ARM securities and lower yields on acquisitions, will hurt future earnings. “We anticipate financing spreads will decline modestly in the third quarter before beginning to improve in the fourth quarter and into the first half of 2010 as our borrowing rates benefit from the termination of $900 million of higher-rate swap positions in late November and December and an additional $800 million during the first quarter of 2010,” Capstead president and CEO Andrew Jacobs said in a statement. “If current market conditions persist, we should continue to generate what we believe to be very attractive dividends for our common shareholders.” Write to Austin Kilgore.