Capstead Mortgage (CMO) 8-K Cautionary Statement Concerning Forward-looking Statements

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