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

CAPSTEAD

Information as of June 30, 2011

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.

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

any

forward-looking

statements

included

herein.

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.

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

any

forward-looking

statements

included

herein.

–

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;

–

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;

–

deterioration in credit quality and ratings of existing or future

issuances of GSE or Ginnie Mae Securities; and

–

increases in costs and other general competitive factors.

2

Company Summary

Proven Strategy

Experienced

Management Team

Aligned with

Stockholders

Overview of Capstead Mortgage Corporation

•

Founded in 1985, Capstead is the oldest publicly-traded Agency mortgage REIT.

•

At June 30, 2011, we had a total investment portfolio of $11.42 billion, supported by long-term

investment capital of $1.30 billion levered 8.05 times.*

•

Our three-year compound annual total return of 24.6% exceeds that of most of our peers.**

•

We invest exclusively in residential adjustable-rate mortgage (ARM) securities issued and

guaranteed

by

Fannie

Mae,

Freddie

Mac

or

Ginnie

Mae.

Agency-guaranteed

mortgage

securities

are considered to have little, if any, credit risk.

•

Our focus on short-duration ARM securities augmented with interest rate swap agreements

differentiates

us

from

our

peers

because

ARM

securities

reset

to

more

current

interest

rates

within

a

relatively

short

period

of

time.

This

allows

for

the

recovery

of

financing

spreads

diminished

during

periods

of

rising

interest

rates

and

smaller

fluctuations

in

portfolio

values

from

changes

in

interest

rates

compared

to

fixed-rate

mortgage

securities.

With

this

strategy,

Capstead

is

recognized as the most defensively-positioned Agency mortgage REIT.

•

Our prudently leveraged portfolio provides financial flexibility

to manage changing market

conditions.

•

Our executive officers have over 80 years of combined mortgage finance industry

experience, including 75 years at Capstead.

•

We are self-managed with low operating costs and rely heavily on performance-based

compensation.

This

structure

greatly

enhances

the

alignment

of

management

interests

with those of our stockholders.

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 June 30, 2008 and dividends were reinvested.

Market Snapshot

(dollars in thousands, except per share amounts)

4

Capstead’s Prudent Use of Leverage

5

**

Borrowings under repurchase arrangements divided by long-term investment capital.

During the second quarter of 2011 we maintained our portfolio leverage at approximately eight to one.  In our

view, borrowing at current levels represents an appropriate and prudent use of leverage for an agency-

guaranteed ARM securities portfolio in today’s market conditions. 

Through September 21, 2011 we raised $193 million in new common equity capital this year using our at-the-

market

continuous

offering

program.

In

June

we

also

began

issuing

a

limited

amount

of

Series

B

preferred

shares

under

this

program,

raising

an

additional

$3

million

in

perpetual

preferred

equity

capital

during

this

period.

($ in millions)

Portfolio Leverage*

Long-Term Investment Capital

$661

$860

$1,114

$1,127

$1,194

$1,297

58%

67%

75%

75%

77%

78%

27%

21%

16%

16%

15%

14%

8%

9%

9%

12%

15%

8%

$

$250

$500

$750

$1,000

$1,250

12/31/07

12/31/08

12/31/09

12/31/10

3/31/11

6/30/11

Common Stock

Preferred Stock

Trust Prefered Securities, net

9.84x

7.85x

6.67x

6.91x

7.91x

8.05x

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

3/31/11

6/30/11

$100

$180

$1,017

Common Stock

Preferred Stock

Trust Preferred Securities, net

39%

61%

22%

78%

Capstead’s Proven Short-Duration Investment Strategy

6

As of June 30, 2011

As of June 30, 2011

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: $10.44 billion

*    Based on fair market value as of the indicated balance sheet date. 

Total: $11.42

billion*

•

Most 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.  As of June 30, 2011, we had borrowings

outstanding with 24

counterparties.

•

Third quarter borrowing rates remain at favorable levels

relative to average repo borrowing rates of 0.24% at June

30, 2011 (0.56% including related interest rate swaps).

•

At June 30, 2011 we held $4.1 billion notional amount of 

currently-paying

two-year

interest rate swaps requiring

fixed rate payments averaging 1.02% with average

maturities of 12 months.  An additional $800

million

notional amount of two-year swaps were held at quarter-

end that require fixed rate payments averaging 0.82%

beginning in August through November 2011.

•

The duration of our investment portfolio and related ‘repo’

borrowings was approximately 10¼

months and 7 months,

respectively, at June 30, 2011.  This  resulted in a net

duration gap of approximately 3¼

months.  Duration is a

measure of market price sensitivity to interest rate

movements.

Longer-to-Reset

ARMs

$2.49 Billion

Current-Reset

ARMs

$8.93

Billion

Borrowings Hedged with

Currently-Paying

Interest Rate Swaps

$4.10

Billion

Unhedged

Borrowings

$6.34

Billion

Capstead’s Stockholder Friendly Structure

7

      Six months ended

        June 30, 2011

Compensation-related expenses:

  Fixed:

Salaries and related deferred compensation match,

payroll taxes, insurance and other benefits

__0.31%

  Variable:

Incentive Compensation

**

0.45

Dividend Equivalent Rights

0.08

70% of compensation-related

Performance Stock Awards

0.13

expenses were performance-based

Related deferred compensation match and payroll taxes

0.05

1.02

Other platform expenses

0.34

      1.36%

*

Expressed as a percentage of average long-term investment capital (LTIC). 

**

Incentive compensation is based on a 10% participation in returns on LTIC in excess of benchmark returns (greater of 10-year Treasury plus 2.0% or 10%) ,

capped at 50 basis points of LTIC and subject to Compensation Committee discretion.

•

Self-managed with low operating costs.

•

Our

board

of

directors

requires

management

to

hold

a

significant

amount

of

CMO

stock

based

on

a

multiple of each executive’s base salary.  Currently over 1.4% of outstanding shares are held by

executive management and the board of directors.

•

Pay structure is variable through compensation elements that focus on “pay for performance.”

•

Management is incented to grow the Company by issuing common equity capital when it is accretive to

book

value

and

earnings,

rather

than

to

increase

compensation

or

external

management

fees.

•

Bottom line: management prospers when stockholders prosper.

*

2.38%

5.64%

5.22%

4.13%

2.60%

2.36%

   0.55%

0.66%

0.59%

1.73%

5.12%

3.53%

1.83%

1.77%

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

3/31/11

6/30/11

Yield

Borrowing Rate

Financing Spread

$7.04

$8.07

$8.52

$10.43

$11.42

78%

51%

60%

77%

88%

79%

22%

49%

40%

23%

12%

21%

$7.44

$0.00

$3.00

$6.00

$9.00

$12.00

12/31/07

12/31/08

12/31/09

12/31/10

3/31/11

6/30/11

Current-Reset ARMs

Longer-to-Reset ARMs

Capstead’s Historical Financial Overview

8

*  See page 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

$12.15

$12.46

$0.00

$3.00

$6.00

$9.00

$12.00

12/31/07

12/31/08

12/31/09

12/31/10

3/31/11

6/30/11

2.3%

21.0%

14.9%

12.7%

13.7%

15.4%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

12/31/07

12/31/08

12/31/09

12/31/10

3/31/11

6/30/11

Yield

Borrowing Rate

Financing Spread

Current-Reset ARMs

Longer-to-Reset ARMs

Year ended

Quarter ended

Year ended

Quarter ended

Capstead’s Second Quarter 2011 Highlights

•

Our earnings increased to $42.5 million or $0.48 per diluted common share.

•

Our financing spread on mortgage assets* increased 6 basis points to average 1.83%, reflecting the positive

effects of higher yielding acquisitions and declines in related borrowing rates which more than offset lower

ARM loan coupon interest rate resets and marginally higher mortgage prepayments.

•

Our book value increased $0.31 to $12.46 per common share.

•

We raised $83 million in new common equity capital using our at-the-market continuous offering program

contributing $0.08 to the increase in book value per common share.

•

Our investment portfolio increased 10% or $996 million to $11.42

billion and our portfolio leverage increased

modestly to 8.05 times our long-term investment capital.

•

Comments from our July 27, 2011 earnings press release:

“Market conditions remain favorable for investing in agency-guaranteed residential ARM securities on a leveraged basis, with

attractive risk-adjusted returns achievable in today’s stable financing environment.  After having largely completed the re-

leveraging of our investment capital by the end of the first quarter, we increased our portfolio leverage only modestly during the

second quarter from 7.91 to 8.05 times our long-term investment capital while raising an additional $83 million in new common

equity capital under our continuous offering program.  Additionally, we raised a modest amount of new perpetual preferred equity

capital under this program this quarter.

“Mortgage prepayments remained at favorable levels during the second quarter for our portfolio of primarily well-seasoned

ARM securities.  Additionally, our borrowing rates have never been lower, benefiting our results for the quarter.  Looking forward,

we anticipate that prepayment rates on newer origination securities may trend higher in the third quarter as a result of the recent

decline in mortgage interest rates, while prepays on more seasoned securities should continue to be suppressed by low housing

prices and credit problems being experienced by many of these borrowers.  Recognizing that most of our portfolio is composed of

current-reset ARM securities and the likelihood the current interest rate environment will persist for some time, we anticipate

portfolio yields will continue trending lower in 2011 as coupon interest rates on the mortgage loans underlying these securities

reset to lower rates.  If this proves to be correct, we would also expect borrowing rates to remain low and our overall hedging costs

to improve providing some offset to declining portfolio yields.

“We

remain

confident

in

and

focused

on

our

investment

strategy

of

managing

a

conservatively

leveraged

portfolio

of

agency-

guaranteed residential ARM securities that can produce attractive risk-adjusted returns over the long term while reducing, but not

eliminating, sensitivity to changes in interest rates.”

9

*  See page 16 for discussion of use of financing spread on mortgage assets, a non-GAAP financial measure.

Recent Regulatory Initiatives

10

•

Potential adjustments to the Administration’s Home Affordable Refinancing Program (HARP)

may lead to higher, but still limited, participation levels in this program with a likely focus on

higher-coupon mortgages.

•

GSE

reform

efforts

appear

stalled

until

after

the

2012

elections

with

changes

expected

to

take

years to implement.

•

Recently announced SEC review of exclusions for mortgage REITs from regulation under the

Investment Company Act of 1940 (40 Act):

–

Concept Release; Request for Comments (Release No. IC-29778) solicits views about the application of the 40 Act to

mortgage REITs and similar companies, including “suggestions on the steps the Commission should take to provide

greater

clarity,

consistency

or

regulatory

certainty”

with

respect

to

past

exclusionary

rulemaking

under

Section

3(c)5(C). 

The release’s 60-day comment period runs through November 7, 2011 and represents a potential precursor to new rule-

making

by

the

SEC

that

could

limit

the

ability

of

mortgage

REITs

to

be

excluded

from

regulation

under

the

40

Act.

–

We believe that the process of codifying the Commission’s rulemaking over the last 50 years into clear and comprehensive

guidelines could potentially solidify and expand the REIT industry’s critical role in facilitating capital formation for residential

housing.  However, should the SEC pursue rulemaking that would require mortgage REITs to register as investment

companies

under

the

40

Act,

our

use

of

leverage

would

be

sharply

curtailed

absent

congressional

intervention.

–

We are participating in the SEC comment process and we encourage

our stockholders to do so as well.  To register a

comment,

please

use

the

SEC’s

Internet

comment

form

at

http://www.sec.gov/rules/concept/shtml

or

send

an

e-mail

to

rule-comments@sec.gov, or simply contact your elected representatives in Congress.

Appendix

CAPSTEAD

11

Comparative Balance Sheets

(dollars in thousands, except per share amounts)

12

June 30,

December 31,

December 31,

December 31,

December 31,

2011

2010

2009

2008

2007

(unaudited)

Assets

Mortgage securities and similar investments

11,424,161

$ 

8,515,691

$

8,091,103

$ 

7,499,530

$ 

7,108,719

$ 

Cash collateral receivable from interest rate swap counterparties

33,327

35,289

30,485

53,676

1,800

Interest rate swap agreements at fair value

9,356

9,597

1,758

-

-

Cash and cash equivalents

258,377

359,590

409,623

96,839

6,653

Receivables and other assets

91,404

76,078

92,817

76,200

88,637

Investments in unconsolidated affiliates

3,117

3,117

3,117

3,117

3,117

11,819,742

$ 

8,999,362

$

8,628,903

$ 

7,729,362

$ 

7,208,926

$ 

Liabilities

Repurchase arrangements and similar borrowings

10,437,387

$ 

7,792,743

$

7,435,256

$ 

6,751,500

$ 

6,500,362

$ 

Cash collateral payable to interest rate swap counterparties

600

9,024

-

-

-

Interest rate swap agreements at fair value

19,962

16,337

9,218

46,679

2,384

Unsecured borrowings

103,095

103,095

103,095

103,095

103,095

Common stock dividend payable

39,132

27,401

37,432

22,728

9,786

Accounts payable and accrued expenses

22,669

23,337

29,961

44,910

32,382

10,622,845

7,971,937

7,614,962

6,968,912

6,648,009

Stockholders' Equity

Perpetual preferred stock

179,982

179,323

179,333

179,460

179,533

Common stock

816,550

674,202

661,724

618,369

344,423

Accumulated other comprehensive income (loss)

200,365

173,900

172,884

(37,379)

36,961

1,196,897

1,027,425

1,013,941

760,450

560,917

11,819,742

$ 

8,999,362

$

8,628,903

$ 

7,729,362

$ 

7,208,926

$ 

liquidation preferences for the Series A and B preferred stock)

$12.46

$12.02

$11.99

$9.14

$9.25

unsecured borrowings, net of investments in related

unconsolidated affiliates)

$1,296,875

$1,127,403

$1,113,919

$860,428

$660,895

divided by long-term investment capital)

8.05:1

6.91:1

6.67:1

7.85:1

9.84:1

Book

value

per

common

share

(calculated

assuming

(stockholders’

equity

and

Portfolio

leverage

(borrowings

under

repurchase

arrangements

Long-term investment capital

Comparative Quarterly Income Statements

(dollars in thousands, except per share amounts) (unaudited)

13

June 2011

March 2011

Dec. 2010

Sept. 2010

June 2010

Interest income:

Mortgage securities and similar investments

63,136

$          

53,141

$          

50,902

$          

40,614

$          

47,634

$          

Other

58

113

140

111

135

63,194

53,254

51,042

40,725

47,769

Interest expense:

Repurchase arrangements and similar borrowings

(13,706)

(12,322)

(11,892)

(11,096)

(11,146)

Unsecured borrowings

(2,187)

(2,187)

(2,187)

(2,186)

(2,187)

Other

(1)

(4)

(2)

  -

  -

(15,894)

(14,513)

(14,081)

(13,282)

(13,333)

47,300

38,741

36,961

27,443

34,436

Other revenue (expense):

Miscellaneous other revenue (expense)

(599)

(218)

(174)

(427)

(98)

Incentive compensation

(1,487)

(1,233)

(1,327)

(983)

(1,330)

Salaries and benefits

(1,672)

(1,700)

(1,566)

(1,425)

(1,463)

Other general and administrative expense

(1,066)

(963)

(932)

(999)

(1,851)

(4,824)

(4,114)

(3,999)

(3,834)

(4,742)

Income before equity in earnings of unconsolidated affiliates

42,476

34,627

32,962

23,609

29,694

Equity in earnings of unconsolidated affiliates

65

65

65

64

65

Net income

42,541

$          

34,692

$          

33,027

$          

23,673

$          

29,759

$          

Net income per diluted common share

$0.48

$0.41

$0.40

$0.27

$0.35

Average long-term investment capital

1,253,747

$     

1,158,254

$     

1,123,699

$     

1,110,084

$     

1,124,036

$     

Average balance of mortgage assets

10,601,719

8,993,926

8,110,095

7,313,810

7,460,379

Investment premium amortization

15,519

12,832

11,098

17,689

15,342

Portfolio runoff *

Average financing spread on mortgage assets**

                   1.91

                   37.9

                   1.83

                   17.1%

                   1.77

                   19.9%

                   1.89

                   19.4%

                   1.56

                   35.6%

*    Represents total runoff (scheduled payments and prepayments).  The constant prepayment rate, or CPR, represents only prepayments and will typically be 150 to 250

basis points lower than total runoff during any given period.

**   See page 16 for discussion of use of financing spread on mortgage assets, a non-GAAP financial measure.

Yield / Cost Analysis

(dollars in thousands, unaudited)

14

*

See

page

16

for

discussion

of

use

of

financing

spread

on

mortgage

assets,

a

non-GAAP

financial

measure.

Basis

Yield/Cost

Runoff

Basis

Yield/Cost

Runoff

Agency-guaranteed securities:

Fannie Mae/Freddie Mac:

Fixed-rate

4,549

6.49%

26.5%

4,890

6.68%

8.9%

ARMs

9,479,889

2.36

17.4

8,293,715

2.34

20.5

Ginnie Mae ARMs

1,104,040

2.54

13.4

681,375

2.59

11.8

10,588,478

2.38

17.1

8,979,980

2.36

19.9

Unsecuritized residential mortgage loans:

Fixed-rate

3,375

6.50

5.1

3,433

5.89

6.7

ARMs

6,482

3.98

26.1

7,036

3.36

21.2

9,857

4.84

20.8

10,469

4.19

17.2

3,384

7.88

10.2

3,477

7.65

3.3

10,601,719

2.38

17.1

8,993,926

2.36

19.9

Other interest-earning assets

196,281

0.12

235,864

0.19

10,798,000

2.34

9,229,790

2.31

30-day to 90-day interest rates, as adjusted

for hedging results

9,798,257

0.55

8,304,926

0.59

Structured financings

3,384

7.88

3,477

7.65

9,801,641

0.55

8,308,403

0.59

Other interest-paying liabilites

3,482

0.10

10,344

0.16

Unsecured borrowings

103,095

8.49

103,095

8.49

9,908,218

0.64

8,421,842

0.69

Capital employed/Total financing spread

889,782

1.70

807,948

1.62

Financing spread on mortgage assets*

1.83

1.77

Secured borrowings based on:

Collateral for structured financings

Second Quarter 2011 Average

First Quarter 2011 Average

$

$

$

$

*

Fully

indexed

net

weighted

average

coupon,

or

WAC,

represents

the

coupon

upon

one

or

more

resets

using

interest

rates

indices

as

of

June

30,

2011

and

the

applicable

net

margin.

NOTE:

Excludes

$10

million

of

fixed-rate

investments.

Residential ARM Portfolio Statistics

As of June 30, 2011 (dollars in thousands, unaudited)

15

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

$

5,843,979

$133,510

$

5,977,489

102.28

$6,104,732

2.66%

2.22%

1.70%

5.1

Freddie Mac Agency Securities

2,175,107

61,457

2,236,564

102.83

2,288,763

3.61

2.36

1.84

7.9

Ginnie Mae Agency Securities

510,872

7,934

518,806

101.55

526,876

2.69

1.71

1.52

5.3

Residential Mortgage Loans

6,118

23

6,141

100.38

6,233

3.49

2.34

2.05

5.5

8,536,076

202,924

8,739,000

102.38

8,926,604

2.90

2.23

1.73

5.8

Longer-to-reset ARMs:

Fannie Mae Agency Securities

1,175,797

39,122

1,

214,919

103.33

1,227,428

3.49

2.49

1.76

45.2

Freddie Mac Agency Securities

510,356

17,51

6

527,872

103.43

533,241

3.74

2.58

1.87

46.4

Ginnie Mae Agency Securities

695,386

25,015

720,401

103.60

725,82

1

3.58

1.72

1.51

40.5

2,381,539

81,653

2,463,192

103.43

2,486,490

3.57

2.29

1.71

44.1

102.

61

3.05

2.24

1.72

14.2

$10,917,15

$284,577

$11,202,192

$11,413,094

Use of Financing Spread on Mortgage Assets,

a Non-GAAP Financial Measure

Second Quarter 2011 (dollars in thousands, unaudited)

16

Financing Spread on

Mortgage Assets,

Total Financing Spread,

a

Non-GAAP

a

GAAP Measure

Financial

Measure

(a)

Interest

Income

(Expense)

Yield/Cost

Difference

Interest

Income

(Expense)

Yield/Cost

Corresponding

First Quarter

2011

Yield/Cost

Interest income:

Mortgage assets

$

63,136

2.38%

$

–

$

63,136

2.38%

2.36%

Other interest-earning assets

(b)

58

0.12

(58)

–

–

–

63,194

2.34

(58)

63,136

2.38

2.36

Interest expense:

Secured borrowings (borrowings under

repurchase arrangements)

(13,706)

0.55

–

(13,706)

0.55

0.59

Unsecured borrowings

(c)

(2,187)

8.49

2,187

–

–

–

Other interest-paying liabilities

(d)

(1)

0.1

0

1

–

–

–

(15,894)

0.64

2,188

(13,706)

0.55

0.59

Net interest margin/financing spread

$

47,300

1.70

$

2,130

$

49,430

1.83

1.77

(b)

Other interest-earning assets consist of overnight investments and cash collateral receivable from interest rate swap counterparties. 

(c)

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. 

(d)

Other interest-paying liabilities consist of cash collateral payable to interest rate swap counterparties. 

(a)

Net interest

margin

on

mortgage

assets

and

Financing

spread

on

mortgage

assets

are

non-GAAP

financial

measures

(based

solely

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-paying

liabilities).

Experienced Management Team

17

Over 80 years of combined mortgage finance industry experience, including 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