CAPSTEAD Information as of December 31, 2010 Investor Presentation Exhibit 99.1 |
Safe Harbor Statement - Private Securities Litigation Reform Act of 1995 Cautionary Statement Concerning Forward-looking Statements This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and may contain the words “believe,” “anticipate,” “expect,” “estimate,” “intend,” “project,” “will be,” “will likely continue,” “will likely result,” or words or phrases of similar meaning. These forward-looking statements are based largely on the expectations of management and are subject to a number of risks and uncertainties including, but not limited to, the following: In addition to the above considerations, actual results and liquidity are affected by other risks and uncertainties which could cause actual results to be significantly different from those expressed or implied by these forward-looking statements. It is not possible to identify all of the risks, uncertainties and other factors that may affect future results. In light of these risks and uncertainties, the forward-looking events and circumstances discussed herein may not occur and actual results could differ materially from those anticipated or implied in the forward-looking statements. Any forward-looking statements speak only as of the date the statement is made and the Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Accordingly, readers of this document are cautioned not to place undue reliance on the forward-looking statements. – changes in general economic conditions; – fluctuations in interest rates and levels of mortgage prepayments; – the effectiveness of risk management strategies; – the impact of differing levels of leverage employed; – liquidity of secondary markets and credit markets; – the availability of financing at reasonable levels and terms to support investing on a leveraged basis; – the availability of new investment capital; – increases in costs and other general competitive factors; – the availability of suitable qualifying investments from both an investment return and regulatory perspective; – changes in legislation or regulation affecting Fannie Mae and Freddie Mac (the “GSEs”) and similar federal government agencies and related guarantees; and – deterioration in credit quality and ratings of existing or future issuances of GSE or Ginnie Mae Securities. 2 |
Proven Strategy Experienced Management Team Company Overview • We were founded in 1985 and are the oldest publicly-traded agency mortgage REIT. • At December 31, 2010, we had a total investment portfolio of $8.52 billion, supported by long-term investment capital of $1.13 billion levered 6.91 times.* • Our three-year compound annual growth rate of 15.5% exceeds that of most of our peers.** • We invest in residential adjustable-rate mortgage (ARM) securities issued and guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae. • Our prudently leveraged portfolio provides financial flexibility to manage changing market conditions. • Our focus on ARM securities differentiates Capstead from our peers and is recognized as the most defensively-positioned Agency mortgage REIT. • We are self-managed with low operating costs and a conservative incentive compensation structure. • We have over 80 years of combined mortgage finance industry experience, including nearly 75 years at Capstead. 3 * Long-term investment capital includes stockholders’ equity and unsecured borrowings, net of investments in related unconsolidated affiliates. ** Compound annual growth rate is based on cumulative total returns assuming an investment in Capstead was made December 31, 2007 and dividends were reinvested. Company Summary |
Market Snapshot (dollars in thousands, except per share amounts) Perpetual Preferred Trust Total Long-Term Common Series A Series B Preferred Investment Capital NYSE Stock Ticker CMO CMOPRA CMOPRB Shares outstanding 70,259 187 15,819 Cost of preferred capital 11.44% 11.28% 8.49% 10.28% Price as of March 24, 2011 $13.32 $21.79 $14.09 Book Value per common share $12.02 Price as a multiple of December 31, 2010 book value 110.8% Recorded value $848,102 $2,620 $176,703 $99,978 $1,127,403 Market cap as of March 24, 2011 $935,850 $4,075 $222,890 $99,978 $1,262,793 (a) As of December 31, 2010. (b) Excludes common shares issued subsequent to year-end. Our Form 10-K discloses that we issued 1.4 million shares under our at-the-market continuing offering program in January and February 2011 with net proceeds of over $17 million. 4 (b) (a) (a) (a) |
36% 64% 12% 88% Proven Investment & Financing Strategy 5 Low risk agency-guaranteed residential ARM securities financed primarily with 30-90 day “repo” borrowings, augmented with two-year interest rate swap agreements for hedging purposes. Residential ARM Securities Portfolio Repurchase Arrangements & Similar Borrowings Total: $7.79 billion * Based on fair market value as of the indicated balance sheet date. Total: $8.52 billion* Over 99.8% of our securities are backed by well- seasoned mortgage loans with coupon interest rates that reset at least annually or begin doing so after an initial fixed-rate period of five years or less. We have long-term relationships with numerous lending counterparties, including 21 active counterparties at December 31, 2010. At December 31, 2010 we held $2.8 billion notional amount of currently-paying two-year interest rate swaps with average fixed rates of 1.17% and average terms of 10 months. An additional $500 million notional amount of two-year swaps with average fixed-rates of 0.69% were held at year-end that began paying in January 2011. The duration of our investment portfolio and related ‘repo’ borrowings was approximately 8½ months and 5¼ months, respectively, at December 31, 2010. This resulted in a net duration gap of approximately 3¼ months. Longer-to-Reset ARMs $1.04 Billion Current-Reset ARMs $7.48 Billion Borrowings Hedged with Currently-Paying Interest Rate Swaps $2.80 Billion Unhedged Borrowings $4.99 Billion As of December 31, 2010 As of December 31, 2010 |
Portfolio Leverage & Long-Term Investment Capital 6 From 12/31/07 to 12/31/10, our portfolio leverage has decreased 30% and long-term investment capital has increased 70%. We anticipate increasing both portfolio leverage and common stockholders’ equity in 2011. $ in millions Portfolio Leverage* Long-Term Investment Capital $661 $860 $1,114 $1,127 75% 75% 68% 58% 16% 16% 21% 27% 15% 12% 9% 9% $ $250 $500 $750 $1,000 $1,250 12/31/07 12/31/08 12/31/09 12/31/10 Common Stock Preferred Stock Trust Prefered Securities, net 9.84x 7.85x 6.67x 6.91x 0.0x 2.0x 4.0x 6.0x 8.0x 10.0x 12.0x 12/31/07 12/31/08 12/31/09 12/31/10 $100 $179 $848 Common Stock Preferred Stock Trust Preferred Securities, net * Borrowings under repurchase arrangements divided by long-term investment capital, which includes stockholders’ equity and unsecured borrowings, net of investments in related unconsolidated affiliates. |
5.64% 5.22% 4.13% 2.60% 0.66% 1.73% 5.12% 3.53% 1.94% 2.40% 1.69% 0.52% 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 12/31/07 12/31/08 12/31/09 12/31/10 Yield Borrowing Rate Financing Spread $7.04 $8.07 $8.52 51% 60% 77% 88% 49% 40% 23% 12% $7.44 $0.00 $2.00 $4.00 $6.00 $8.00 $10.00 12/31/07 12/31/08 12/31/09 12/31/10 Current-Reset ARMs Longer-to-Reset ARMs Historical Financial Overview 7 * See pages 15 and 16 for discussion of use of financing spread on mortgage assets, a non-GAAP financial measure. ** Defined as annualized net income available to common stockholders divided by average common equity capital. $ in billions Residential ARM Securities Portfolio Financing Spread on Mortgage Assets* Book Value Per Common Share Annualized Return on Average Common Equity** $9.25 $9.14 $11.99 $12.02 $0.00 $3.00 $6.00 $9.00 $12.00 12/31/07 12/31/08 12/31/09 12/31/10 2.3% 21.0% 14.9% 12.7% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 12/31/07 12/31/08 12/31/09 12/31/10 Yield Borrowing Rate Financing Spread Current-Reset ARMs Longer-to-Reset ARMs |
Financing Spreads Our portfolio yields and financing spreads have rebounded considerably after being adversely affected between March and July 2010 by the buyout of a backlog of seriously delinquent loans by the GSEs, as evidenced by 39 cent and 41 cent dividends declared for the fourth quarter of 2010 and first quarter of 2011, respectively. Our repo borrowing rates remain at favorable levels with average repo borrowing rates of 0.30% at December 31, 2010 (0.63% including interest rate swaps). * See pages 15 and 16 for discussion of use of financing spread on mortgage assets, a non-GAAP financial measure. ** Source: Bloomberg. 8 Yields on Mortgage Assets vs. Borrowing Rates Fed Funds vs. 1-Month LIBOR** Financing Spread on Mortgage Assets* Yield Borrowing Rate Fed Funds Rate 1-Month LIBOR 0.0% 2.0% 4.0% 6.0% 8.0% 12/00 3/02 6/03 9/04 12/05 3/07 6/08 9/09 12/10 Avg. Spread on mortgage assets: 1.89%* 0.0% 2.0% 4.0% 6.0% 8.0% 12/00 12/01 12/02 12/03 12/04 12/05 12/06 12/07 12/08 12/09 12/10 |
Fourth Quarter Highlights Our earnings increased to $33 million or $0.40 per diluted common share. Our total financing spreads increased 31 basis points to average 1.71%, reflecting lower levels of portfolio runoff and continued low borrowing rates. Our book value increased $0.25 to $12.02 per common share. Our investment portfolio increased $573 million to $8.52 billion. Comment from our February 2, 2011 earnings press release: “Net interest margins improved considerably during the fourth quarter following the conclusion of GSE buyout programs in July. Portfolio runoff was considerably lower quarter over quarter and declined further still in January 2011 to an annualized rate of 18.3% (a 15.8% CPR), which should benefit our portfolio yields into 2011. With acquisitions during the fourth quarter totaling almost $1 billion, we were able to more than replace all of this year’s accelerated runoff resulting from the GSE buyout programs contributing to an increase for the year in portfolio leverage to 6.91 times our long-term investment capital. This success in re-leveraging our investment capital, together with the favorable prepay characteristics of our seasoned portfolio of agency-guaranteed ARM securities as well as the continued low borrowing rate environment, contributed to significantly improved operating results for the fourth quarter and bolsters our expectations that we will continue to produce strong financial results in 2011.” 9 |
CAPSTEAD Appendix CAPSTEAD 10 |
Comparative Balance Sheet (dollars in thousands, except per share amounts) 11 December 31, December 31, December 31, December 31, Assets Mortgage securities and similar investments 8,515,691 $ 8,091,103 $ 7,499,530 $ 7,108,719 $ Cash collateral receivable from interest rate swap counterparties 35,289 30,485 53,676 1,800 Interest rate swap agreements at fair value 9,597 1,758 Cash and cash equivalents 359,590 409,623 96,839 6,653 Receivables and other assets 76,078 92,817 76,200 88,637 Investments in unconsolidated affiliates 3,117 3,117 3,117 3,117 8,999,362 $ 8,628,903 $ 7,729,362 $ 7,208,926 $ Liabilities Repurchase arrangements and similar borrowings 7,792,743 $ 7,435,256 $ 6,751,500 $ 6,500,362 $ Cash collateral payable to interest rate swap counterparties 9,024 Interest rate swap agreements at fair value 16,337 9,218 46,679 2,384 Unsecured borrowings 103,095 103,095 103,095 103,095 Common stock dividend payable 27,401 37,432 22,728 9,786 Accounts payable and accrued expenses 23,337 29,961 44,910 32,382 7,971,937 7,614,962 6,968,912 6,648,009 Stockholders' Equity Perpetual preferred stock 179,323 179,333 179,460 179,533 Common stock 674,202 661,724 618,369 344,423 Accumulated other comprehensive income (loss) 173,900 172,884 (37,379) 36,961 1,027,425 1,013,941 760,450 560,917 8,999,362 $ 8,628,903 $ 7,729,362 $ 7,208,926 $ Book value per common share liquidation preferences for the Series A and B preferred stock) $12.02 $11.99 $9.14 $9.25 Long-term investment capital unsecured borrowings, net of investments in related unconsolidated affiliates) $1,127,403 $1,113,919 $860,428 $660,895 Portfolio leverage divided by long-term investment capital) 6.91:1 6.67:1 7.85:1 9.84:1 2010 2009 2008 2007 (calculated assuming (stockholders’ equity and (borrowings under repurchase arrangements - - - - - |
Comparative Income Statement (dollars in thousands, except per share amounts) (unaudited) 12 Year Ended December December September June March Interest income: Mortgage securities and similar investments 199,300 $ 50,902 $ 40,614 $ 47,634 $ 60,150 $ Other 478 140 111 135 92 199,778 51,042 40,725 47,769 60,242 Interest expense: Repurchase arrangements and similar borrowings (47,502) (11,892) (11,096) (11,146) (13,368) Unsecured borrowings (8,747) (2,187) (2,186) (2,187) (2,187) Other (2) (2) - - - (56,251) (14,081) (13,282) (13,333) (15,555) Net interest income 143,527 36,961 27,443 34,436 44,687 Other revenue (expense): Miscellaneous other revenue (expense) (904) (174) (427) (98) (205) Incentive compensation expense (5,055) (1,327) (983) (1,330) (1,415) General and administrative expense (10,931) (2,498) (2,424) (3,314) (2,695) (16,890) (3,999) (3,834) (4,742) (4,315) Income before equity in earnings of unconsolidated affiliates 126,637 32,962 23,609 29,694 40,372 Equity in earnings of unconsolidated affiliates 259 65 64 65 65 Net income 126,896 $ 33,027 $ 23,673 $ 29,759 $ 40,437 $ Net income per diluted common share $1.52 $0.40 $0.27 $0.35 $0.51 Average balance of mortgage assets 7,665,796 $ 8,110,095 $ 7,313,810 $ 7,460,379 $ 7,779,081 $ Investment premium amortization 57,595 11,098 17,689 15,342 13,466 Portfolio runoff * Average financing spread on mortgage assets** Quarter Ended * Represents total runoff (scheduled payments and prepayments). The constant prepayment rate, or CPR, representing only prepayments, will typically be 150 to 250 basis points lower during any given period. ** See pages 15 and 16 for discussion of use of financing spread on mortgage assets, a non-GAAP financial measure. 2010 2010 2010 2010 2010 31.2% 1.94 19.4% 31.8% 35.6% 37.9% 1.56 2.35 1.91 1.89 |
Yield / Cost Analysis (dollars in thousands) $ 766,1628 13 Basis Yield/Cost Runoff Basis Yield/Cost Runoff Agency-guaranteed securities: Fannie Mae/Freddie Mac: Fixed-rate $ 5,769 6.49% 24.2% 6.60% 18.3% ARMs 7,246,000 2.56 31.8 7,600,085 2.49 19.4 Ginnie Mae ARMs 390,626 3.00 14.4 486,215 2.57 12.7 7,642,395 2.59 31.1 8,086,300 2.50 19.0 Unsecuritized residential mortgage loans: Fixed-rate 3,577 7.01 6.2 3,491 7.03 6.4 ARMs 7,660 3.87 9.0 7,353 3.79 7.6 11,237 4.87 8.2 10,844 4.83 7.2 Commercial loans 8,610 9.45 100.0 4,339 8.75 100.0 3,554 8.11 3.5 3,506 8.07 3.5 7,665,796 2.60 31.2 8,104,989 2.51 19.4 Other interest-earning assets 255,412 0.19 273,016 0.20 7,921,208 2.52 8,378,005 2.44 30-day to 90-day interest rates, as adjusted for hedging results 7,046,841 0.66 7,465,108 0.62 Structured financings 3,554 8.11 3,506 8.07 7,050,395 0.66 7,468,614 0.62 Other interest-paying liabilites 1,090 0.19 4,323 0.19 Unsecured borrowings 103,095 8.49 103,095 8.49 7,154,580 0.78 7,576,032 0.73 Capital employed/Total financing spread 1.74 1.71 Financing spread on mortgage assets* 1.94 1.89 Secured borrowings based on: Fourth Quarter 2010 Average Collateral for structured financings Year Ended 2010 Average * See pages 15 and 16 for discussion of use of financing spread on mortgage assets, a non-GAAP financial measure. $ 807,079 $ 5,106 |
Fully indexed net weighted average coupon, or WAC, represents the coupon upon one or more resets using interest rates indices as of December 31, 2010 and the applicable net margin. Fully Indexed Average Months Principal Cost Basis Fair Market Net Net Net to Balance Premiums ($) % Value WAC WAC* Margins Roll Current-reset ARMs: Fannie Mae Agency Securities $ 5,305,418 $ 105,877 $5,411,295 102.00 $ 5,526,940 2.83% 2.31% 1.72% 5.0 Freddie Mac Agency Securities 1,511,891 31,338 1,543,229 102.07 1,582,770 3.27 2.44 1.94 6.5 Ginnie Mae Agency Securities 339,149 2,844 341,993 100.84 349,626 3.01 1.82 1.53 5.9 Residential Mortgage Loans 7,235 24 7,259 100.33 7,239 3.45 2.43 2.06 5.4 7,163,693 140,083 7,303,776 101.96 7,466,575 2.93 2.31 1.76 5.4 Longer-to-reset ARMs: Fannie Mae Agency Securities 573,129 15,852 588,981 102.77 597,196 4.10 2.48 1.71 38.3 Freddie Mac Agency Securities 269,831 5,193 275,024 101.92 284,216 5.04 2.54 1.78 32.0 Ginnie Mae Agency Securities 150,430 5,186 155,616 103.45 155,750 3.38 1.81 1.50 36.9 993,390 26,231 1,019,621 102.64 1,037,162 4.24 2.39 1.70 36.4 $ 8,157,083 $166,314 $8,323,397 102.04 $ 8,503,737 3.09 2.32 1.75 9.2 Residential ARM Portfolio Statistics As of December 31, 2010 (dollars in thousands) 14 NOTE: Excludes $12 million of fixed-rate investments. |
Financing Spread on Mortgage Assets, Total Financing Spread, a Non-GAAP a GAAP Measure Financial Measure * Interest Income (Expense) Yield/Cost Difference Interest Income (Expense) Yield/Cost Interest income: Mortgage assets $ 199,300 2.60% $ – $199,300 2.60% Other interest-earning assets ** 478 0.19 (478) – – 199,778 2.52 (478) 199,300 2.60 Interest expense: Secured borrowings (borrowings under repurchase arrangements) (47,502) 0.66 – (47,502) 0.66 Unsecured borrowings *** (8,747) 8.49 8,747 – – Other interest-paying liabilities **** (2) 0.19 2 – – (56,251) 0.78 8,749 (47,502) 0.66 Net interest margin/financing spread $ 143,527 1.74 $ 8,271 $ 151,798 1.94 * Net interest margin on mortgage assets and Financing spread on mortgage assets on interest income and yields on the Company’s portfolio of mortgage securities, net of borrowings under repurchase agreements). These measures are similar to the all-inclusive GAAP measures, Total net interest margin and Total financing spread (based on all interest-earning assets and all interest-bearing liabilities). ** Other interest-earning assets consist of overnight investments and cash collateral receivable from interest rate swap counterparties. *** Unsecured borrowings consist of junior subordinated notes with original terms of 30 years issued in 2005 and 2006 by Capstead to statutory trusts formed to issue $3.1 million of the trusts’ common securities to Capstead and to privately place $100.0 million of preferred securities to unrelated third party investors. Capstead reflects its investment in the trusts as unconsolidated affiliates and considers the unsecured borrowings, net of these affiliates, a component of its long-term investment capital. **** Other interest-paying liabilities consist of cash collateral payable to interest rate swap counterparties. Use of Financial Spread on Mortgage Assets, a Non-GAAP Financial Measure Year Ended December 31, 2010 (dollars in thousands) 15 are non-GAAP financial measures (based solely |
Financing Spread on Mortgage Assets, Total Financing Spread, a Non-GAAP a GAAP Measure Financial Measure Interest Income (Expense) Yield/Cost Difference Interest Income (Expense) Yield/Cost Corresponding Third Quarter 2010 Yield/Cost Interest income: Mortgage assets $ 50,902 2.51% $ – $ 50,902 2.51% 2.22% Other interest-earning assets ** 140 0.20 (140) – – 0.26 51,042 2.44 (140) 50,902 2.51 2.18 Interest expense: Secured borrowings (borrowings under repurchase arrangements) (11,892) 0.62 – (11,892) 0.62 0.66 Unsecured borrowings *** (2,187) 8.49 2,187 – – 8.49 Other interest-paying liabilities **** (2) 0.19 2 – – – (14,081) 0.73 2,189 (11,892) 0.62 0.78 Net interest margin/financing spread $ 36,961 1.71 $ 2,049 $ 39,010 1.89 1.40 * Net interest margin on mortgage assets and Financing spread on mortgage assets on interest income and yields on the Company’s portfolio of mortgage securities, net of borrowings under repurchase agreements). These measures are similar to the all-inclusive GAAP measures, Total net interest margin and Total financing spread (based on all interest-earning assets and all interest-bearing liabilities). ** Other interest-earning assets consist of overnight investments and cash collateral receivable from interest rate swap counterparties. *** Unsecured borrowings consist of junior subordinated notes with original terms of 30 years issued in 2005 and 2006 by Capstead to statutory trusts formed to issue $3.1 million of the trusts’ common securities to Capstead and to privately place $100.0 million of preferred securities to unrelated third party investors. Capstead reflects its investment in the trusts as unconsolidated affiliates and considers the unsecured borrowings, net of these affiliates, a component of its long-term investment capital. **** Other interest-paying liabilities consist of cash collateral payable to interest rate swap counterparties. Use of Financial Spread on Mortgage Assets, a Non-GAAP Financial Measure Fourth Quarter 2010 (dollars in thousands) 16 are non-GAAP financial measures (based solely * |
Experienced Management Team 17 Over 80 years of combined mortgage finance industry experience, including nearly 75 years at Capstead Andrew F. Jacobs – President and Chief Executive Officer, Director – Has served as president and chief executive officer since 2003 and has held various executive positions at Capstead since 1988 – Certified Public Accountant (“CPA”), member of the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”), chairman of NAREIT’s Council of Mortgage REITs, member of the executive committee of the Chancellors Council of the University of Texas System, the Executive Council of the Real Estate Finance and Investment Center at the University of Texas at Austin, the American Institute of Certified Public Accountants (“AICPA”), and the Financial Executive International (“FEI”) Phillip A. Reinsch – Executive Vice President and Chief Financial Officer, Secretary – Has held various financial accounting and reporting positions at Capstead since 1993 – Formerly employed by Ernst & Young LLP as an audit senior manager focusing on mortgage banking and asset securitization – CPA, Member AICPA, FEI Robert A. Spears – Executive Vice President, Director of Residential Mortgage Investments – Has served in asset and liability management positions at Capstead since 1994 – Formerly Vice President of secondary marketing with NationsBanc Mortgage Corporation Michael W. Brown – Senior Vice President, Asset and Liability Management, Treasurer – Has served in asset and liability management positions at Capstead since 1994 – MBA, Southern Methodist University, Dallas, Texas |