NOTE 6 ¾ REPURCHASE ARRANGEMENTS AND SIMILAR BORROWINGS

Capstead pledges its Residential mortgage investments as collateral under repurchase arrangements with commercial banks and other financial institutions, referred to as counterparties, the terms and conditions of which are negotiated on a transaction-by-transaction basis when each such borrowing is initiated or renewed. Repurchase arrangements entered into by the Company involve the sale and a simultaneous agreement to repurchase the transferred assets at a future date, typically with terms of 30 to 90 days, and are accounted for as borrowings. The Company maintains the beneficial interest in the specific securities pledged during the borrowing’s term of the repurchase arrangement and receives the related principal and interest payments. The amount borrowed is generally equal to the fair value of the assets pledged, as determined by the lending counterparty, less an agreed-upon discount, referred to as a “haircut.” Interest rates on these borrowings are fixed based on prevailing rates corresponding to the terms of the borrowings, and interest is paid at the termination of the repurchase arrangement at which time the Company may enter into a new repurchase arrangement at prevailing haircuts and rates with the same counterparty or repay that counterparty and negotiate financing with a different counterparty. None of the Company’s counterparties are obligated to renew or otherwise enter into new repurchase arrangements at the conclusion of existing repurchase arrangements. In response to declines in fair value of pledged securities due to changes in market conditions or the publishing of monthly security pay down factors, lenders typically require the Company to post additional securities as collateral, pay down borrowings or fund cash margin accounts with the counterparties in order to re-establish the agreed-upon collateral requirements. These actions are referred to as margin calls. Conversely, in response to increases in fair value of pledged securities, the Company routinely margin calls its lending counterparties in order to release posted collateral.

Repurchase arrangements and similar borrowings (and related pledged collateral, including accrued interest receivable), classified by collateral type and remaining maturities, and related weighted average borrowing rates as of the indicated dates were as follows (dollars in thousands):

Collateral Type	Collateral Carrying Amount		Accrued Interest Receivable		Borrowings Outstanding		Average Borrowing Rates
September 30, 2014
Borrowings with maturities of 30 days or less:
Agency Securities	$	11,007,943	$	22,583	$	10,471,646		0.30	%
Borrowings with maturities greater than 30 days:
Agency Securities (31 to 90 days)		519,510		1,099		497,530		0.31
Agency Securities (greater than 90 days)		1,870,094		3,927		1,778,517		0.52
Similar borrowings:
Collateral for structured financings*		2,069		–		2,069		8.10
	$	13,399,616	$	27,609	$	12,749,762		0.33
Quarter-end borrowing rates adjusted for effects of related derivative financial instruments (“Derivatives”) held as cash flow hedges (see NOTE 7)								0.52
December 31, 2013
Borrowings with maturities of 30 days or less:
Agency Securities	$	12,169,534	$	28,195	$	11,578,211		0.38	%
Borrowings with maturities greater than 30 days:
Agency Securities (31 to 90 days)		951,966		2,068		902,432		0.38
Similar borrowings:
Collateral for structured financings*		2,257		–		2,257		8.09
	$	13,123,757	$	30,263	$	12,482,900		0.38
Quarter-end borrowing rates adjusted for effects of related Derivatives held as cash flow hedges								0.49

The maturity of structured financings is directly affected by prepayments on the related mortgage pass-through securities pledged as collateral. Additionally, these financings are subject to redemption by the residual bondholders.

Average borrowings outstanding differed from respective quarter-end balances during the indicated periods primarily due to changes in portfolio levels and differences in the timing of portfolio acquisitions relative to portfolio runoff as illustrated below (dollars in thousands):

	Quarter Ended
	September 30, 2014					December 31, 2013
	Average Borrowings		Average Rate			Average Borrowings		Average Rate
Average borrowings and rates adjusted for the effects of related Derivatives held as cash flow hedges for the indicated quarters	$	12,690,463		0.51	%	$	12,510,701	0.49 %