![]() CAPSTEAD Information as of December 31, 2012 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,” “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 (together, 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; – changes in legislation or regulation affecting exemptions for mortgage REITs from regulation under the Investment Company Act of 1940; 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 December 31, 2012, we had a residential ARM securities portfolio of $13.85 billion, supported by long-term investment capital of $1.60 billion levered 8.00 times.* • Our five-year compound annual total return of 12.4% exceeded the Russell 2000 Index and the NAREIT Mortgage REIT Index.** • 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 2-year 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 from an interest rate risk perspective. • Our prudently leveraged portfolio provides financial flexibility to manage changing market conditions. • Our top four executive officers have over 85 years of combined mortgage finance industry experience, including over 80 years at Capstead. • We are self-managed with low operating costs and a focus on performance-based compensation for our executive officers. 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 December 31, 2007 and dividends were reinvested. |
![]() Perpetual Preferred Trust Total Long-Term Common Series A Series B Preferred Investment Capital NYSE Stock Ticker CMO CMOPRA CMOPRB Shares outstanding 96,229 186 16,493 Cost of preferred capital 11.44% 11.15% 8.49% 10.23% Price as of March 1, 2013 $12.44 $21.03 $15.25 Book Value per common share $13.58 Price as a multiple of December 31, 2012 book value 91.6% Recorded value $1,308,133 $2,604 $186,388 $99,978 $1,597,103 Market capitalization as of March 1, 2013 $1,197,089 $3,912 $251,518 $99,978 $1,552,497 (a) As of December 31, 2012. Market Snapshot (dollars in thousands, except per share amounts) 4 (a) (a) (a) (a) |
![]() Capstead’s Prudent Use of Leverage 5 ** Borrowings under repurchase arrangements divided by long-term investment capital. Portfolio leverage remained stable throughout 2012 at approximately eight times long-term investment capital. 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 2012, we raised $142 million in new common equity capital using our at-the-market continuous offering program. This program was suspended with the October 30, 2012 announcement of a $100 million common stock buy back program. As of December 31, 2012, we repurchased $35 million in common shares under this authorization and an additional $7 million in early January 2013. |
![]() 33% 67% 42% 58% Capstead’s Proven Short-Duration Investment Strategy 6 As of December 31, 2012 As of December 31, 2012 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: $12.78 billion * Based on fair market value as of the indicated balance sheet date. Total: $13.85 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 December 31, 2012, we had borrowings outstanding with 23 counterparties. • Fourth quarter 2012 unhedged borrowing rates averaged 45 basis points, up from 41 basis points during the third quarter (0.63% after considering currently-paying interest rate swaps). • At December 31, 2012 we held $4.20 billion notional amount of currently-paying two-year interest rate swaps requiring fixed rate payments averaging 0.75% with average maturities of nine months. An additional $2.40 billion notional amount of two-year forward-starting swaps were held at year-end that will begin requiring fixed rate payments averaging 0.47% for two-year periods beginning on various dates between January 2013 and December 2013. • The duration of our investment portfolio and related ‘repo’ borrowings was approximately 10 months and 8¼ months, respectively, at December 31, 2012. This resulted in a net duration gap of approximately 1¾ months. Duration is a measure of market price sensitivity to interest rate movements. Longer-to-Reset ARMs $5.76 Billion Current-Reset ARMs $8.09 Billion Borrowings Hedged with Currently-Paying Interest Rate Swaps $4.20 Billion (excludes forward- starting swaps) Unhedged Borrowings $8.58 Billion |
![]() Financing Spread Analysis As of December 31, 2012 (unaudited) 7 |
![]() Capstead’s Stockholder Friendly Structure 8 Quarter Year Ended Ended Dec. 31, 2012 * Dec. 31, 2012 * Compensation-related expenses: Fixed: Salaries and related deferred compensation match, payroll taxes, insurance and other benefits 0.22% 0.23% Variable: Incentive Compensation ** 0.12 0.26 58% and 67% of quarter and Dividend Equivalent Rights 0.05 0.06 year-to-date compensation - Performance Stock Awards 0.11 0.12 related expenses, respectively, Related deferred compensation match and payroll taxes 0.02 0.03 were performance-based 0.30 0.47 0.52 0.70 Other platform expenses 0.27 0.27 0.79% 0.97% * 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% or the average 10-year Treasury rate plus 2.0%), 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. As of February 25, 2013 our directors and executive officers beneficially owned 1.8% of our common shares. • 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 as opposed to increasing compensation or external management fees. • Bottom line: our management prospers when our stockholders prosper. |
![]() * Net WAC, or weighted average coupon, is the weighted average interest rate of the mortgage loans underlying the indicated investments, net of servicing and other fees, as of December 31, 2012. Net WAC is expressed as a percentage calculated on an annualized basis on the unpaid principal balance of the mortgage loans underlying these investments. Fully indexed WAC represents the weighted average coupon upon one or more resets using interest rate indexes and net margins, as of December 31, 2012. Gross WAC is the weighted average interest rate of the mortgage loans underlying the indicated investments, including servicing and other fees paid by borrowers, as of December 31, 2012. NOTE: Excludes $9 million of fixed-rate investments. Fully Average Months Principal Investment Amortized Cost Basis Fair Market Net Indexed Net to Balance Premiums ($) % Value WAC* WAC* Margins Roll Current-reset ARMs: Fannie Mae Agency Securities $ 5,106,160 $121,326 $ 5,227,486 102.38 $5,411,503 2.45% 2.29% 1.70% 5.2 Freddie Mac Agency Securities 1,801,631 49,091 1,850,722 102.72 1,917,255 2.67 2.42 1.84 6.2 Ginnie Mae Agency Securities 722,922 16,563 739,485 102.29 754,178 2.48 1.70 1.51 6.2 Residential Mortgage Loans 5,031 20 5,051 100.40 5,119 3.51 2.38 2.04 4.5 7,635,744 187,000 7,822,744 102.45 8,088,055 2.51 2.27 1.71 5.5 Longer-to-reset ARMs: Fannie Mae Agency Securities 2,840,886 112,623 2,953,509 103.96 2,981,497 2.97 2.61 1.76 43.7 Freddie Mac Agency Securities 1,799,277 73,606 1,872,883 104.09 1,888,667 2.97 2.67 1.84 47.4 Ginnie Mae Agency Securities 843,827 31,685 875,512 103.75 892,941 3.01 1.68 1.51 30.1 5,483,990 217,914 5,701,904 103.97 5,763,105 2.98 2.48 1.75 42.8 $13,119,734 $404,914 $13,524,648 103.09 $13,851,160 2.70 2.36 1.73 21.1 Gross WAC (rate paid by borrowers)* 3.33 Key Elements of Capstead’s ARM Portfolio As of December 31, 2012 (dollars in thousands, unaudited) 9 |
![]() CAPSTEAD Appendix CAPSTEAD 10 * * * * * |
![]() Capstead’s Fourth Quarter 2012 Highlights • Earnings of $35.1 million or $0.31 per diluted common share • Financing spreads on residential mortgage investments declined 17 basis points to 1.13% • Book value decreased $0.30 to $13.58 per common share • Repurchased $42 million in common shares through early January 2013 • Portfolio leverage maintained at eight times long-term investment capital • Operating costs as a percentage of average long-term investment capital decreased 9 basis points to 0.79% • Comments from our January 30, 2013 earnings press release: “During the fourth quarter yields on our portfolio were pressured by moderately higher mortgage prepayments as well as lower coupon resets reflecting declines in recent quarters in the six- and twelve-month LIBOR indexes. Meanwhile, our borrowing costs were higher, in part reflecting higher market rates over year-end as well as an increase in our currently-paying swap position. Together, these factors contributed to a 17 basis point decline in our financing spreads to 1.13%, and a $0.04 reduction in our earnings to $0.31 per diluted common share. “Although results have trended lower in recent quarters, we expect 2013 results will be more stable. This belief reflects our confidence in our investment strategy of investing solely in short-duration ARM securities. Approximately 93% of the mortgages underlying our current-reset ARM securities were originated prior to 2008 and carry coupon interest rates at or below prevailing fixed mortgage rates diminishing the economic advantage, if any, of refinancing. Additionally, refinancing for many of these homeowners continues to be hampered by low housing prices and credit problems. Newer originations, primarily held in our longer- to-reset portfolio, remain more susceptible to refinancing because it is easier for many of these borrowers to qualify for new mortgages and it may be more attractive to do so from a rate perspective in the current low mortgage interest rate environment. On an overall basis, we expect mortgage prepayment levels to remain manageable in the coming quarters absent additional government intervention to lower mortgage interest rates beyond the Federal Reserve's current bond buying program. This should help contain investment premium amortization costs, which increased $2.2 million this quarter to $29.3 million. Also, further declines in weighted average coupons should be muted given that an increasing number of mortgage loans underlying our current- reset ARM securities are at or near fully-indexed levels, which now reflect six- and twelve-month indices that have largely returned to the lower levels prevailing in late 2010. With respect to our borrowing costs, we have experienced lower market rates subsequent to year-end. Additionally, $2.90 billion of our currently-paying interest rate swaps with average fixed rates of 0.85% will mature during 2013 and have already been largely replaced at significantly lower rates. “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.” 11 |
![]() Capstead’s Quarterly Income Statements (dollars in thousands, except per share amounts) (unaudited) 12 * The constant prepayment rate, or CPR, represents only prepayments. |
![]() Capstead’s Annual Income Statements – Five Years Ended 2012 (dollars in thousands, except per share amounts) (unaudited) 13 December December December December December 2012 2011 2010 2009 2008 Interest income: Residential mortgage investments 255,931 $ 243,077 $ 198,488 $ 313,676 $ 394,729 $ Other 698 301 1,290 919 5,760 256,629 243,378 199,778 314,595 400,489 Interest expense: Repurchase arrangements and similar borrowings (69,101) (57,328) (47,502) (120,083) (249,706) Unsecured borrowings (8,747) (8,747) (8,747) (8,747) (8,747) Other - (5) (2) - - (77,848) (66,080) (56,251) (128,830) (258,453) 178,781 177,298 143,527 185,765 142,036 Other revenue (expense): Miscellaneous other revenue (expense) (171) (1,023) (904) (40,641) (1,593) Incentive compensation (4,129) (5,697) (5,055) (4,769) (6,000) Salaries and benefits (6,843) (6,701) (6,097) (5,655) (4,978) Other general and administrative expense (4,271) (3,932) (4,834) (5,696) (3,801) (15,414) (17,353) (16,890) (56,761) (16,372) Income before equity in earnings of unconsolidated affiliates 163,367 159,945 126,637 129,004 125,664 Equity in earnings of unconsolidated affiliates 259 259 259 259 259 Net income 163,626 $ 160,204 $ 126,896 $ 129,263 $ 125,923 $ Net income per diluted common share $1.50 $1.75 $1.52 $1.66 $1.93 Average long-term investment capital 1,567,232 $ 1,284,057 $ 1,120,647 $ 1,032,853 $ 813,428 $ Average balance of mortgage assets 13,190,380 10,839,749 7,665,796 7,604,530 7,630,958 Investment premium amortization 96,677 68,077 57,634 29,426 29,336 Average CPR* Average financing spreads on residential mortgage investments 1.68 16.1% Year Ended 16.6% 1.67 16.0% 1.93 29.1% 2.42 1.38 17.2% * The constant prepayment rate, or CPR, represents only prepayments. |
![]() Capstead’s Comparative Balance Sheets (dollars in thousands, except per share amounts) 14 |
![]() Experienced Management Team 15 Over 85 years of combined mortgage finance industry experience, including over 80 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 Executive Board 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 Executives 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 |