Capstead Mortgage (CMO) 8-K Regulation FD Disclosure

CAPSTEAD

Information as of March 31, 2013 with Analysis Reflecting the  

May 13, 2013 Issuance of our 7.50% Series E Cumulative Redeemable

Preferred Stock (NYSE Symbol CMOPRE) and the June 13, 2013

Redemption of our Existing Perpetual Preferred Shares

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

March

31,

2013,

we

had

a

residential

ARM

securities

portfolio

of

$13.85

billion,

supported

by

long-term

investment

capital

of

$1.59

billion

levered

8.06

times.*

•

Our

five-year

compound

annual

total

return

of

18.0%

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

March

31,

2008

and

dividends

were

reinvested.

Cost of

As Adjusted for Issuance of

March 31,

Preferred

Series E Preferred and Redemption

2013

Capital

of Series A and B Preferred

Long-term investment capital:

Trust preferred securities, net

$

99,978

8.49%

$

99,978

8.49%

Existing perpetual preferred stock:

Series A

2,604

11.44%

-

Series B

186,388

11.15%

-

(a)

188,992

11.15%

-

New Series E perpetual preferred stock

-

164,395

7.76%

(b)

Total mezzanine capital

288,970

10.23%

264,373

8.03%

(c)

Common equity capital 

1,301,100

1,283,928

(d)

$

1,590,070

$

1,548,301

Quarterly perpetual preferred dividend requirement

$

5,270

$

3,188

(e)

Improvements in Capstead’s Capital Structure

(dollars in thousands, unaudited)

4

On May 13, 2013 we issued $170 million in perpetual preferred stock with a 7.50% coupon and on   

June 13, 2013 we will complete the redemption of our existing perpetual preferred stock using the

proceeds of this offering and cash on hand.  These transactions will significantly lower our effective cost

of total mezzanine capital benefiting future earnings.

(a)

It

is

anticipated

that

nearly

all

of

our

Series

A

shares

will

convert

into

common

shares

because

it

is

economically

advantageous

to

do

so

and

that

none

of

our

Series

B

shares

will

convert

because

it

is

not

advantageous

to

do

so.

(b)

Reflects

the

May

13,

2013

issuance

of

6.8

million

shares

of

our

7.50%

Series

E

Cumulative

Redeemable

Preferred

Stock

(Liquidation

Preference:

$25.00

per

share)

(NYSE

Symbol:

CMOPRE),

for

$170

million

in

gross

proceeds

before

underwriting

fees

and

estimated

offering

expenses.

(c)

Between

October

2015

and

September

2016

the

effective

cost

of

our

trust

preferred

securities

will

decline

from

8.49%

to

7.56%

as

these

securities

enter

20

year

floating

rate

periods

that

we

have

hedged

using

interest

rate

swap

agreements.

This

will

further

lower

the

effective

cost

of

our

total

mezzanine

capital

to

7.68%.

(d)

As

adjusted

common

equity

capital

reflects

the

expected

payment

of

aggregate

Series

B

redemption

preferences

over

recorded

amounts

of

$19.8

million

($12.50

redemption

price

per

Series

B

preferred

share

less

$11.30

recorded

amount

per

Series

B

preferred

share)

and

the

conversion

of

all

Series

A

preferred

shares

into

common

shares.

Book

value

per

common

share

will

be

reduced

by

approximately

2%

because

of

the

redemption

preferences

paid

on

our

Series

B

preferred

shares,

dilution

from

the

conversion

of

Series

A

preferred

shares

into

common

shares,

and

the

establishment

of

a

new

redemption

preference

on

our

Series

E

preferred

shares.

(e)

The

redemption

of

our

Series

A

and

B

preferred

stock

and

issuance

of

our

Series

E

preferred

stock

will

reduce

quarterly

perpetual

preferred

dividends

by

approximately

$2.1

million,

improving

quarterly

EPS

by

over

2

cents

per

common

share.

33%

67%

43%

57%

Capstead’s Proven Short-Duration Investment Strategy

5

As of March 31, 2013

As of March 31, 2013

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: $12.82 billion

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

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

repo

counterparties.

As

of

March

31,

2013,

we

had

borrowings

outstanding

with

24

counterparties.

•

First

quarter

2013

repo

borrowing

rates

averaged

41

basis

points,

down

from

45

basis

points

during

the

fourth

quarter

of

2012

(a

blended

rate

of

0.58%

after

considering

currently-

paying

interest

rate

swaps).

•

At

March

31,

2013

we

held

$4.20

billion

notional

amount

of

currently-paying

two-year

term

interest

rate

swaps

requiring

fixed-rate

payments

averaging

0.67%

with

average

maturities

of

12

months.

An

additional

$2.10

billion

notional

amount

of

forward-starting

swaps

were

held

at

quarter-end

that

will

begin

requiring

fixed-rate

payments

averaging

0.45%

for

two-year

terms

beginning

on

various

dates

between

June

2013

and

January

2014.

•

The

duration

of

our

investment

portfolio

and

related

borrowings

(adjusted

for

swap

positions)

was

approximately

ten

months

and

nine

months,

respectively,

at

March

31,

2013.

This

resulted

in

a

net

duration

gap

of

approximately

one

month.

Duration

is

a

measure

of

market

price

sensitivity

to

interest

rate

movements.

Longer-to-Reset

ARMs

$5.94 Billion

Current-Reset

ARMs

$7.91 Billion

Borrowings with rates

effectively fixed by

Currently-Paying Interest

Rate Swaps

$4.20 Billion

(excludes $2.10 Billion in

forward-starting swaps)

Remaining

Borrowings

$8.62 Billion

2013

2012

Q1

Q4

Q3

Q2

Q1

Yields on residential mortgage investments:

(a)

Cash yields

2.57%

2.60%

2.65%

2.71%

2.74%

Investment premium amortization

(0.84)

(0.84)

(0.79)

(0.67)

(0.60)

       Adjusted yields

1.73

1.76

1.86

2.04

2.14

Related borrowing rates:

(b)

Unhedged borrowing rates

0.41

0.45

0.41

0.37

0.32

Fixed swap rates

0.71

0.75

0.78

0.80

0.85

Adjusted borrowing rates

0.58

0.63

0.56

0.54

0.49

Financing spreads on residential mortgage investments

1.15

1.13

1.30

1.50

1.65

Annualized CPR

19.65

19.60

18.74

15.86

14.50

Net income per diluted common share

$0.31

$0.31

$0.35

$0.40

$0.44

2013

2012

Q1

Q4

Q3

Q2

Q1

Financing spreads on residential mortgage investments

1.15%

1.13%

1.30%

1.50%

1.65%

Impact of yields on other interest-earning assets

*

(0.05)

(0.07)

(0.05)

(0.06)

(0.06)

Impact of borrowing rates on unsecured borrowings

and other interest-paying liabilities*

(0.06)

(0.06)

(0.06)

(0.07)

(0.06)

Total financing spreads

1.04

1.00

1.19

1.37

1.52

Financing Spread Analysis

As of March 31, 2013 (unaudited)

6

(a)

Cash

yields

are

based

on

the

cash

component

of

interest

income.

Investment

premium

amortization

is

determined

using

the

interest

method

and

incorporates

actual

and

anticipated

future

mortgage

prepayments.

Both

are

expressed

as

a

percentage

calculated

on

an

annualized

basis

on

average

amortized

cost

basis

for

the

indicated

periods.

(b)

Unhedged

borrowing

rates

represent

average

rates

on

repurchase

arrangements

and

similar

borrowings.

Fixed

swap

rates

represent

the

average

fixed

rates

on

currently-paying

interest

rate

swap

agreements

used

to

hedge

short-term

borrowing

rates.

Adjusted

borrowing

rates

reflect

unhedged

borrowing

rates

and

swap

rates

as

well

as

differences

between

variable

rate

payments

received

on

the

Company’s

currently-paying

swap

agreements,

which

typically

are

based

on

one-month

LIBOR,

and

unhedged

borrowing

rates

as

well

as

any

measured

hedge

ineffectiveness,

calculated

on

an

annualized

basis

on

average

outstanding

balances

for

the

indicated

periods.

Financing

spreads

on

residential

mortgage

investments,

a

non-GAAP

financial

measure,

differs

from

total

financing

spreads,

an

all-inclusive

GAAP

measure,

that

is

based

on

all

interest-earning

assets

and

all

interest-paying

liabilities.

The

Company

believes

that

presenting

financing

spreads

on

residential

mortgage

investments

provides

useful

information

for

evaluating

the

performance

of

the

Company’s

portfolio.

The

following

reconciles

these two

measures.

*

Other

interest-earning

assets

consist

of

overnight

investments

and

cash

collateral

receivable

from

interest

rate

swap

counterparties.

Other

interest-paying

liabilities

consist

of

long-term

unsecured

borrowings

(at

an

average

borrowing

rate

of

8.49%)

that

the

Company

considers

a

component

of

its

long-term

investment

capital

and

cash

collateral

payable

to

interest

rate

swap

counterparties.

*

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

March

31,

2013.

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

in

effect

as

of

March

31,

2013.

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

March

31,

2013.

NOTE:

Excludes

$8

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

$

4,939,887

$118,124

$

5,058,011

102.39

$5,232,985

2.42%

2.23%

1.70%

5.0

Freddie Mac Agency Securities

1,727,847

46,919

1,774,766

102.72

1,837,610

2.62

2.35

1.84

5.6

Ginnie Mae Agency Securities

795,542

19,500

815,042

102.45

830,846

2.44

1.68

1.51

7.2

Residential Mortgage Loans

4,757   

2

4,759  

100.04

4,823

  3.49

   2.33

    2.04

     4.5

7,468,033

184,545

7,652,578

102.47

7,906,264

2.47

2.20

1.71

5.4

Longer-to-reset ARMs:

Fannie Mae Agency Securities

3,010,881

121,875

3,132,756

104.05

3,165,567

2.94

2.49

1.76

43.6

Freddie Mac Agency Securities

1,848,105

76,592

1,924,697

104.14

1,942,119

2.96

2.56

1.84

46.1

Ginnie Mae Agency Securities

787,244

29,978

817,222

103.81

832,107

  2.96

   1.67

   1.51

  29.6

5,646,230

228,445

5,874,675

104.05

5,939,793

  2.95

   2.40

   1.75

   42.5

$13,114,263

$412,990

$13,527,253

103.15

$13,846,057

  2.68

   2.29

   1.73

    21.3

                 Gross WAC (rate paid by borrowers)*

3.29

Key Elements of Capstead’s ARM Portfolio

As of March 31, 2013 (dollars in thousands, unaudited)

7

2013

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

Thereafter

Expiring contracts

$1,100,000

0.81%

$700,000

0.96%

$300,000

0.87%

$

800,000

0.78%

$2,400,000

0.53%

Existing contracts

beginning two-year

payment terms 

1,100,000

0.50

200,000

0.43

400,000

0.47

1,200,000

0.45

300,000

0.47

Improvement in fixed

swap rates *

0.31

0.53

0.40

0.33

0.06

Interest Rate Swap Agreement Rollforward

As of March 31, 2013 (dollars in thousands, unaudited)

8

To help mitigate exposure to higher interest rates, Capstead typically uses currently-paying and forward-

starting one-

and three-month LIBOR-indexed, pay-fixed, receive-variable, interest rate swap

agreements with two-year payment terms.

*

Based

on

the

difference

between

fixed

swap

rates

of

expiring

contracts

and

existing

contracts

as

of

March

31,

2013

that

begin

two-year

terms

during

the

indicated

periods.

There

can

be

no

assurance

interest

rate

swap

agreements

entered

into

subsequent

to

quarter-end

will

have

fixed

swap

rates

at

the

indicated

levels.

Capstead’s Stockholder Friendly Structure

9

Quarter Ended

March 31, 2013

*

Compensation-related expenses:

  Fixed:

Salaries and related deferred compensation match,

payroll taxes, insurance and other benefits

   0.23%

  Variable:

Incentive Compensation

**

0.09

Dividend Equivalent Rights

0.05

  54% of compensation-related

Performance Stock Awards

0.10

expenses were performance-based

Related deferred compensation match and payroll taxes

0.03

0.27

0.50

Other platform expenses

0.27

          0.77%

-

Represents the lowest platform costs

in the industry.

*

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 raising capital when it is accretive to book value and

earnings rather than for the purpose of increasing compensation or external management fees.

•

Bottom line: our management prospers when our stockholders prosper.

Appendix

CAPSTEAD

10

*

*

*

*

*

Capstead’s First Quarter 2013 Highlights

•

Earnings of $34.9 million or $0.31

per diluted common share

•

Financing spreads on residential mortgage investments increased 2

basis points to 1.15%

•

Operating costs as a percentage of average long-term investment capital decreased 2 basis points to 0.77%

•

Book value increased $0.02 to $13.60 per common share

•

Portfolio leverage ended the quarter at 8.06 times long-term investment capital

•

Comments from our April 24, 2013 earnings press release:

“First

quarter

results

reflect

stable

quarter

over

quarter

mortgage

prepayment

levels

on

our

agency-guaranteed

ARM

securities

portfolio

as

well

as

lower

borrowing

costs,

which

more

than

offset

slightly

lower

weighted

average

coupons

on

the

portfolio.

Lower

borrowing

costs

reflect

lower

market

rates

during

the

quarter

as

well

as

the

rollover

to

lower

rates

of

a

significant

portion

of

our

currently-paying

swap

position.

Together,

these

factors

contributed

to

a

2

basis

point

increase

in

our

financing

spreads

to

1.15%,

with

earnings

remaining

at

$0.31

per

diluted

common

share.

We

also

posted

a

$0.02

increase

in

book

value

to

$13.60

per

common

share

reflecting

stable

quarter

over

quarter

pricing

levels

for

agency-

guaranteed

ARM

securities.

“Looking

forward

to

the

rest

of

2013,

we

are

optimistic

our

portfolio

will

continue

to

perform

well.

Mortgage

prepayment

levels

should

remain

manageable

in

the

coming

quarters

given

that

approximately

91%

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.

This

should

help

contain

investment

premium

amortization

costs,

which

decreased

$0.9

million

this

quarter

to

$28.4

million.

Also,

further

declines

in

weighted

average

coupons

should

be

relatively

modest

given

that

an

increasing

number

of

mortgage

loans

underlying

our

current-reset

ARM

securities

are

at

or

near

fully-indexed

levels.

With

respect

to

our

borrowing

costs,

another

$1.80

billion

notional

amount

of

our

interest

rate

swaps

with

average

fixed

rates

of

0.87%

will

mature

over

the

remainder

of

2013

and

have

already

been

replaced

with

swaps

averaging

0.45%

allowing

for

further

declines

in

borrowing

costs

provided

market

rates

for

short-term

borrowings

remain

reasonable.

“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

March

December

September

June

March

2013

2012

2012

2012

2012

Interest income:

Residential mortgage investments

58,468

$          

60,948

$          

63,463

$          

65,787

$          

65,733

$          

Other

112

218

154

176

150

58,580

61,166

63,617

65,963

65,883

Interest expense:

Repurchase arrangements and similar borrowings

(18,468)

(20,672)

(17,875)

(16,451)

(14,103)

Unsecured borrowings

(2,187)

(2,187)

(2,186)

(2,187)

(2,187)

(20,655)

(22,859)

(20,061)

(18,638)

(16,290)

37,925

38,307

43,556

47,325

49,593

Other revenue (expense):

Miscellaneous other revenue (expense)

(30)

(24)

9

13

(169)

Incentive compensation

(351)

(515)

(781)

(1,295)

(1,538)

Salaries and benefits

(1,610)

(1,638)

(1,696)

(1,682)

(1,827)

Other general and administrative expense

(1,081)

(1,111)

(1,115)

(1,091)

(954)

(3,072)

(3,288)

(3,583)

(4,055)

(4,488)

Income before equity in earnings of unconsolidated affiliates

34,853

35,019

39,973

43,270

45,105

Equity in earnings of unconsolidated affiliates

65

65

64

65

65

Net income

34,918

35,084

40,037

43,335

45,170

  Less cash dividends declared on preferred shares *

(5,270)

(5,270)

(5,270)

(5,268)

(5,213)

Net income available to common stockholders

29,648

$          

29,814

$          

34,767

$          

38,067

$          

39,957

$          

Net income per diluted common share

$0.31

$0.31

$0.35

$0.40

$0.44

Average long-term investment capital

1,604,603

$     

1,639,014

$     

1,629,566

$     

1,544,380

$     

1,454,495

$     

Average balance of mortgage assets

13,542,932

13,888,637

13,657,286

12,922,725

12,280,065

Investment premium amortization

28,385

29,331

27,151

21,699

18,496

Average constant prepayment rate, or CPR (represents

   only prepayments)

Average financing spreads on residential mortgage investments

                  1.50

Quarter Ended

                  1.15

                  19.7%

                  1.13

                  19.6%

                  15.9%

                  1.65

                  14.5%

                  1.30

                  18.7%

*

With

the

issuance

of

our

new

7.50%

Series

E

preferred

shares,

and

subsequent

redemption

of

our

existing

preferred

shares,

cash

dividends

paid

on

preferred

shares

will

be

reduced

to

a

quarterly

run-rate

of

$3.2

million.

Second

quarter

2013

net

income

available

to

common

stockholders

will

reflect

a

short-term

preferred

capital

“overhang”

associated

with

the

timing

difference

between

the

May

13,

2013

issuance

of

our

Series

E

preferred

shares

and

the

June

13,

2013

redemption

of

our

existing

preferred

shares.

Second

quarter

net

income

available

to

common

stockholders

will

also

reflect

a

one-time

charge

of

$19.8

million

associated

with

the

expected

payment

of

Series

B

redemption

preferences.

Capstead’s Comparative Balance Sheets

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

13

March 31,

December 31,

December 31,

December 31,

December 31,

2013

2012

2011

2010

2009

Assets

Residential mortgage investments

13,854,405

$  

13,860,158

$  

12,264,906

$

8,515,691

$  

8,081,050

$  

Commercial loan investments

-

-

-

-

10,053

Cash collateral receivable from interest rate swap counterparties

40,233

49,972

48,505

35,289

30,485

Interest rate swap agreements at fair value

114

169

617

9,597

1,758

Cash and cash equivalents

471,510

425,445

426,717

359,590

409,623

Receivables and other assets

120,725

130,402

100,760

76,078

92,817

Investments in unconsolidated affiliates

3,117

3,117

3,117

3,117

3,117

14,490,104

$  

14,469,263

$  

12,844,622

$

8,999,362

$  

8,628,903

$  

Liabilities

Repurchase arrangements and similar borrowings

12,821,519

$  

12,784,238

$  

11,352,444

$

7,792,743

$  

7,435,256

$  

Cash collateral payable to interest rate swap counterparties

  -

  -

  -

9,024

  -

Interest rate swap agreements at fair value

24,763

32,868

31,348

16,337

9,218

Unsecured borrowings

103,095

103,095

103,095

103,095

103,095

Common stock dividend payable

30,349

29,512

38,184

27,401

37,432

Accounts payable and accrued expenses

20,286

22,425

26,844

23,337

29,961

13,000,012

12,972,138

11,551,915

7,971,937

7,614,962

Stockholders' Equity

Perpetual preferred stock

188,992

188,992

184,514

179,323

179,333

Common stock

1,006,982

1,014,223

903,653

674,202

661,724

Accumulated other comprehensive income

294,118

293,910

204,540

173,900

172,884

1,490,092

1,497,125

1,292,707

1,027,425

1,013,941

14,490,104

$  

14,469,263

$  

12,844,622

$

8,999,362

$  

8,628,903

$  

outstanding and calculated assuming liquidation preferences

for the Series A and B preferred stock) (unaudited)

$13.60

$13.58

$12.52

$12.02

$11.99

unsecured borrowings, net of investments in related

unconsolidated affiliates) (unaudited)

$1,590,070

$1,597,103

$1,392,685

$1,127,403

$1,113,919

borrowings divided by long-term investment capital) (unaudited)

8.06:1

8.00:1

8.15:1

6.91:1

6.67:1

Book

value

per

common

share

(based

on

common

shares

Long-term

investment

capital

(stockholders'

equity

and

Portfolio

leverage

(repurchase

arrangements

and

similar

Capstead’s Annual Income Statements –

Five Years Ended 2012

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

14

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 constant prepayment rate of CPR (represents only

   prepayments)

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%

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