 CAPSTEAD
Information as of June 30, 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 June 30, 2012, we had a total investment portfolio of $13.80 billion, supported
by long-term investment capital of $1.58 billion levered 8.05
times.* •
Our five-year compound annual total return of 23.7% exceeded the Russell 2000
Index and the NAREIT Mortgage 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 85 years of combined mortgage finance
industry experience, including 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 June 30, 2007 and dividends were reinvested. |
 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
(a)
97,456
186
16,493
Cost of preferred capital
(a)
11.44%
11.15%
8.49%
10.23%
Price as of August 13, 2012
$13.99
$23.63
$15.44
Book Value per common share
(a)
$13.23
Price as a multiple of June 30, 2012 book value
105.7%
Recorded value
(a)
$1,291,460
$2,604
$186,388
$99,978
$1,580,430
Market capitalization as of August 13, 2012
(b)
$1,363,409
$4,395
$254,652
$99,978
$1,722,434
(a)
As of June 30, 2012. Excludes common shares issued subsequent to quarter-end.
(b)
Includes $17 million in new common equity capital raised subsequent to quarter-end (through August
13, 2012). 4 |
 Capstead’s Prudent Use of Leverage
5
**
Borrowings under repurchase arrangements divided by long-term investment
capital. Portfolio leverage remained unchanged during the second quarter of
2012 at 8.05 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.
During the quarter and six months ending June 30, 2012, respectively, we raised $62
million and $121 million in new common equity capital using our
at-the-market continuous offering program. Subsequent to quarter-end
through August 13, 2012 we raised an additional $17 million under the
program. ($ in millions)
Portfolio Leverage*
Long-Term Investment Capital
$860
$1,114
$1,127
$1,393
$1,502
$1,580
82%
81%
80%
75%
75%
67%
12%
12%
13%
16%
16%
21%
6%
12%
9%
9%
7%
7%
$
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
12/31/08
12/31/09
12/31/10
12/31/11
3/31/12
6/30/12
Common Stock
Preferred Stock
Trust Prefered Securities, net
7.85x
6.67x
6.91x
8.15x
8.05x
8.05x
0.0x
1.0x
2.0x
3.0x
4.0x
5.0x
6.0x
7.0x
8.0x
9.0x
12/31/08
12/31/09
12/31/10
12/31/11
3/31/12
6/30/12
$100
$189
$1,291
Common Stock
Preferred Stock
Trust Preferred Securities, net |
 29%
71%
37%
63%
Capstead’s Proven Short-Duration Investment Strategy
6
As of June 30, 2012
As of June 30, 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: $12.73 billion
* Based on fair market value as of the indicated balance sheet
date. Total: $13.79 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, 2012, we had borrowings
outstanding
with
23
counterparties.
•
Second quarter 2012 borrowing rates averaged 37 basis points,
up from 32 basis points during the first quarter. Average repo
borrowing rates ended the quarter at 0.39% (0.56% after
considering currently-paying interest rate swaps).
•
At
June
30,
2012
we
held
$3.70
billion
notional
amount
of
currently-paying
two-year
interest
rate
swaps
requiring
fixed
rate payments averaging 0.80% with average maturities of 12
months. An additional $1.40 billion notional amount of two-year
forward-starting swaps were held at quarter-end that will begin
requiring fixed rate payments averaging 0.55% for two-year
periods on various dates between July 2012 and March 2013.
•
The duration of our investment portfolio and related ‘repo’
borrowings was approximately 10¼
months and 6¾
months,
respectively, at June 30, 2012. This resulted in a net duration
gap
of
approximately
3½
months.
Duration
is
a
measure
of
market price sensitivity to interest rate movements.
Longer-to-Reset
ARMs
$5.13 Billion
Current-Reset
ARMs
$8.66 Billion
Borrowings Hedged with
Currently-Paying
Interest Rate Swaps
$3.70 Billion
(excludes forward-
starting swaps)
Unhedged
Borrowings
$9.03 Billion |
 Capstead’s Stockholder Friendly Structure
7
Quarter
Six Months
Ended
Ended
June 30, 2012
*
June 30, 2012
*
Compensation-related expenses:
Fixed:
Salaries and related deferred compensation match,
payroll taxes, insurance and other benefits
0.22%
_0.24%
Variable:
Incentive Compensation
**
0.34
0.38
71% and 72% of quarter and
Dividend Equivalent Rights
0.06
0.06
year-to-date compensation -
Performance Stock Awards
0.12
0.13
related expenses, respectively,
Related deferred compensation match and payroll taxes
0.04
0.04
were performance-based
0.56
0.61
0.78
0.85
Other platform expenses
0.28
0.27
1.06%
1.12%
*
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. Our most recent proxy
statement discloses that as of February 22, 2012 our directors and
executive officers beneficially owned 1.9% 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.
|
 Capstead’s Asset Yields and Borrowing Costs
(dollars in thousands, unaudited)
8
* Includes yield adjustments for investment premium amortization of 67
and 60 basis points, respectively. ** See pages 15 and 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
$
6.62%
8.9%
$
6.49%
21.3%
ARMs
11,505,054
2.02
18.4
10,924,284
2.11
17.3
Ginnie Mae ARMs
1,402,290
2.13
17.5
1,339,688
2.32
14.5
12,911,072
2.03
18.3
12,267,834
2.14
17.0
Unsecuritized residential mortgage loans:
Fixed-rate
3,158
7.05
6.9
3,214
6.79
6.6
ARMs
5,416
3.76
25.4
5,849
3.59
9.1
8,574
4.97
20.3
9,063
4.72
8.3
3,079
7.55
3.9
3,168
7.39
19.2
12,922,725
2.04*
18.3
12,280,065
2.14*
17.0
Other interest-earning assets
424,062
0.17
387,316
0.15
13,346,787
1.98
12,667,381
2.08
30-day to 90-day interest rates, as adjusted
for hedging transactions
12,137,825
0.54
11,551,607
0.49
Structured financings
3,079
7.55
3,168
7.39
12,140,904
0.54
11,554,775
0.49
Other interest-paying liabilities
23
0.07
-
-
Unsecured borrowings
103,095
8.49
103,095
8.49
12,244,022
0.61
11,657,870
0.56
Capital employed/Total financing spread
$ 1,102,765
1.37
$ 1,009,511
1.52
Financing spread on mortgage assets**
1.50
1.65
Secured borrowings based on:
Collateral for structured financings
Second Quarter 2012 Average
First Quarter 2012 Average
3,728
3,862 |
 205,848
*
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 June 30,
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 June 30, 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
June
30,
2012.
NOTE: Excludes $10 million of fixed-rate investments.
Key Elements of Capstead’s ARM Portfolio
As of June 30, 2012 (dollars in thousands, unaudited)
9
Fully
Average
Months
Principal
Investment
Amortized Cost Basis
Fair Market
Net
Indexed
Net
to
Balance
Premiums
($)
%
Value
WAC*
WAC*
Margins
Roll
Current-reset ARMs:
Fannie Mae Agency Securities
$
5,490,168
$130,802
$
5,620,970
102.38
$5,797,024
2.50%
2.45%
1.70%
4.9
Freddie Mac Agency Securities
1,983,377
55,508
2,038,885
102.80
2,103,012
3.08
2.60
1.84
5.8
Ginnie Mae Agency Securities
727,055
16,270
743,325
102.24
752,132
2.47
1.74
1.51
7.5
Residential Mortgage Loans
5,248
21
5,269
100.40
5,338
3.51
2.52
2.04
4.5
8,
202,601
8,408,449
102.47
8,657,506
2.64
2.43
1.72
5.4
Longer-to-reset ARMs:
Fannie Mae Agency Securities
2,715,431
102,230
2,817,661
103.76
2,845,485
3.04
2.84
1.77
46.1
Freddie Mac Agency Securities
1,378,628
52,270
1,430,898
103.79
1,443,876
3.08
2.91
1.86
48.8
Ginnie Mae Agency Securities
800,093
30,119
830,212
103.76
842,787
3.22
1.73
1.51
34.6
4,894,152
184,619
5,078,771
103.77
5,132,148
3.08
2.68
1.75
45.0
$13,100,000
$387,220
$13,487,220
102.96
$13,789,654
2.80
2.52
1.73
20.2
Gross WAC
(rate paid by borrowers)*
3.44 |
 CAPSTEAD
Appendix
CAPSTEAD
10 |
 Capstead’s Second Quarter 2012 Highlights
•
Earnings of $43.3 million or $0.40 per diluted common share.
•
Our average financing spreads on mortgage assets* decreased 15 basis points to
1.50%. •
Our book value increased $0.19 to $13.23 per common share.
•
We raised $62 million in new common equity capital using our at-the-market
continuous offering program contributing $0.03 to the increase in book value
per common share. •
Portfolio
leverage
remained
unchanged
during
the
quarter
at
8.05
times
long-term
investment
capital.
•
Operating expense as a percentage of long-term investment capital declined 13
basis points to average 1.06%. •
Comments from our July 24, 2012 earnings press release:
“Market conditions remain favorable for investing in agency-guaranteed
residential ARM securities on a leveraged basis, with attractive
financing
spreads.
During
the
second
quarter
we
grew
our
portfolio
by
$787
million
to
$13.80
billion
while
deploying
$62
million
in
new
common
equity
capital
raised
under
our
continuous
offering
program.
Portfolio
leverage
remained
unchanged
at
8.05 times our long-term investment capital, which in our view, represents an
appropriate and prudent use of leverage for an agency-guaranteed
residential ARM securities portfolio in today’s market conditions.
“Portfolio runoff during the quarter increased 1.4% CPR to 15.9% CPR quarter
over quarter reflecting higher seasonal prepayment patterns as well as lower
prevailing mortgage interest rates available to consumers. While the current low interest rate
environment may persist for some time, we believe certain characteristics of our
portfolio will lessen the risk to earnings from sharply higher prepayment
levels. Central to this belief, and the fundamental difference between our investment portfolio and those
of our peers, is our focus on investing solely in ARM securities. As of the
end of the quarter our portfolio was backed by mortgages requiring borrowers
to make payments predicated on rates averaging a relatively low 3.44%, of which 60% were originated prior to
2009. Mortgage prepayments on securities holding these more seasoned loans
continue to be suppressed by low housing prices and credit problems being
experienced by many of these borrowers, even as prepayments on newer originations remain somewhat
elevated. As a result, most borrowers with mortgage loans underlying
securities in our portfolio lack the ability to meaningfully lower their
mortgage payments even if they can overcome all of these impediments to refinancing. For these reasons, we expect further
increases
in
mortgage
prepayments
to
be
relatively
modest
during
the
third
and
fourth
quarters
of
2012.
“With the weighted average coupons of an increasing number of mortgage loans
underlying our current-reset ARM securities approaching
fully-indexed levels, we anticipate the impact to portfolio yields from coupon resets to be relatively modest in the
coming
quarters,
absent
significant
changes
in
six-
and
twelve-month
indices.
Although
we
experienced
higher
average
borrowing
rates this quarter attributable to a number of market factors, further increases
should remain relatively modest given the Federal Open Market
Committee’s stated expectation of maintaining an accommodative monetary policy well into 2014.
“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
* See pages 15 and 16 for discussion of use of financing spread on mortgage assets, a
non-GAAP financial measure. |
 Capstead’s Quarterly Income Statements
(dollars in thousands, except per share amounts) (unaudited)
12
* 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 the total runoff rate during any given period.
** See pages 15 and 16 for discussion of use of financing spread on
mortgage assets, a non-GAAP financial measure. June
March
December
September
June
2012
2012
2011
2011
2011
Interest income:
Residential mortgage investments
65,787
$
65,733
$
63,910
$
62,890
$
63,136
$
Other
176
150
71
59
58
65,963
65,883
63,981
62,949
63,194
Interest expense:
Repurchase arrangements and similar borrowings
(16,451)
(14,103)
(15,556)
(15,744)
(13,706)
Unsecured borrowings
(2,187)
(2,187)
(2,187)
(2,186)
(2,187)
Other
-
-
-
-
(1)
(18,638)
(16,290)
(17,743)
(17,930)
(15,894)
47,325
49,593
46,238
45,019
47,300
Other revenue (expense):
Miscellaneous other revenue (expense)
13
(169)
(97)
(109)
(599)
Incentive compensation
(1,295)
(1,538)
(1,548)
(1,429)
(1,487)
Salaries and benefits
(1,682)
(1,827)
(1,698)
(1,631)
(1,672)
Other general and administrative expense
(1,091)
(954)
(992)
(911)
(1,066)
(4,055)
(4,488)
(4,335)
(4,080)
(4,824)
Income before equity in earnings of unconsolidated affiliates
43,270
45,105
41,903
40,939
42,476
Equity in earnings of unconsolidated affiliates
65
65
65
64
65
Net income
43,335
$
45,170
$
41,968
$
41,003
$
42,541
$
Net income per diluted common share
$0.40
$0.44
$0.43
$0.43
$0.48
Average long-term investment capital
1,544,380
$
1,454,495
$
1,370,471
$
1,350,693
$
1,253,747
$
Average balance of mortgage assets
12,922,725
12,280,065
12,111,091
11,609,545
10,601,719
Investment premium amortization
21,699
18,496
20,054
19,672
15,519
Portfolio runoff *
Average financing spread on mortgage assets**
1.57
18.0%
1.60
Quarter Ended
1.50
18.3%
1.65
17.0%
19.3%
1.83
17.1% |
 Capstead’s Annual Income Statements –
Five Years Ended 2011
(dollars in thousands, except per share amounts) (unaudited)
13
* 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 the total runoff rate during any given period.
** See pages 15 and 16
for discussion of use of financing spread on mortgage assets, a non-GAAP
financial measure. December
December
December
December
December
2011
2010
2009
2008
2007
Interest income:
Mortgage securities and similar investments
243,077
$
199,300
$
314,100
$
398,285
$
310,698
$
Other
301
478
495
2,204
945
243,378
199,778
314,595
400,489
311,643
Interest expense:
Repurchase arrangements and similar borrowings
(57,328)
(47,502)
(120,083)
(249,706)
(266,901)
Unsecured borrowings
(8,747)
(8,747)
(8,747)
(8,747)
(8,747)
Other
(5)
(2)
-
-
-
(66,080)
(56,251)
(128,830)
(258,453)
(275,648)
177,298
143,527
185,765
142,036
35,995
Other revenue (expense):
Miscellaneous other revenue (expense)
(1,023)
(904)
(40,641)
(1,593)
(6,394)
Incentive compensation
(5,697)
(5,055)
(4,769)
(6,000)
-
Salaries and benefits
(6,701)
(6,097)
(5,655)
(4,978)
(3,423)
Other general and administrative expense
(3,932)
(4,834)
(5,696)
(3,801)
(3,248)
(17,353)
(16,890)
(56,761)
(16,372)
(13,065)
Income before equity in earnings of unconsolidated affiliates
159,945
126,637
129,004
125,664
22,930
Equity in earnings of unconsolidated affiliates
259
259
259
259
1,783
Net income
160,204
$
126,896
$
129,263
$
125,923
$
24,713
$
Net income per diluted common share
$1.75
$1.52
$1.66
$1.93
$0.19
Average long-term investment capital
1,284,057
$
1,120,647
$
1,032,853
$
813,428
$
483,703
$
Average balance of mortgage assets
10,839,749
7,665,796
7,604,530
7,630,958
5,510,503
Investment premium amortization
68,077
57,634
29,426
29,336
24,091
Portfolio runoff *
Average financing spread on mortgage assets**
18.6%
1.94
31.2%
Year Ended
18.4%
0.52
28.1%
2.40
18.3%
1.69
1.68 |
 June 30,
March 31,
December 31,
December 31,
December 31,
2012
2012
2011
2010
2009
Assets
Residential mortgage investments
13,799,487
$
13,012,459
$
12,264,906
$
8,515,691
$
8,091,103
$
Cash collateral receivable from interest rate swap counterparties
55,758
42,880
48,505
35,289
30,485
Interest rate swap agreements at fair value
-
137
617
9,597
1,758
Cash and cash equivalents
433,241
513,572
426,717
359,590
409,623
Receivables and other assets
118,962
102,265
100,760
76,078
92,817
Investments in unconsolidated affiliates
3,117
3,117
3,117
3,117
3,117
14,410,565
$
13,674,430
$
12,844,622
$
8,999,362
$
8,628,903
$
Liabilities
Repurchase arrangements and similar borrowings
12,728,797
$
12,084,823
$
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
37,874
27,336
31,348
16,337
9,218
Unsecured borrowings
103,095
103,095
103,095
103,095
103,095
Common stock dividend payable
39,427
40,301
38,184
27,401
37,432
Accounts payable and accrued expenses
20,920
17,244
26,844
23,337
29,961
12,930,113
12,272,799
11,551,915
7,971,937
7,614,962
Stockholders' Equity
Perpetual preferred stock
188,992
187,863
184,514
179,323
179,333
Common stock
1,026,537
965,402
903,653
674,202
661,724
Accumulated other comprehensive income (loss)
264,923
248,366
204,540
173,900
172,884
1,480,452
1,401,631
1,292,707
1,027,425
1,013,941
14,410,565
$
13,674,430
$
12,844,622
$
8,999,362
$
8,628,903
$
Capstead’s Comparative Balance Sheets
(dollars in thousands, except per share amounts)
14
Book value per common share
liquidation preferences for the Series A and B preferred stock)
$13.23
$13.04
$12.52
$12.02
$11.99
Long-term investment capital
unsecured borrowings, net of investments in related
unconsolidated affiliates)
$1,580,430
$1,501,609
$1,392,685
$1,127,403
$1,113,919
Portfolio leverage
divided by long-term investment capital)
8.05:1
8.05:1
8.15:1
6.91:1
6.67:1
(calculated assuming
(stock holders’
equity and
(borrowings under repurchase arrangements |
 Capstead’s Use of Financing Spread on Mortgage
Assets, a Non-GAAP Financial Measure
Second Quarter 2012 (dollars in thousands, unaudited)
15
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
2012
Yield/Cost
Interest income:
Mortgage assets
$
65,787
2.04%
$
–
$
65,787
2.04%
2.14%
Other interest-earning assets
(b)
176
0.17
(176)
–
–
–
65,963
1.98
(176)
65,787
2.04
2.14
Interest expense:
Secured borrowings (borrowings
under repurchase arrangements)
(16,451)
0.54
–
(16,451)
0.54
0.49
Unsecured borrowings
(c)
(2,187)
8.49
2,187
–
–
–
Other interest-paying liabilities
(d)
–
0.07
–
–
–
–
Net interest margin/financing spread
(18,638)
0.61
2,187
(16,451)
0.54
0.49
$
47,325
1.37
$
2,011
$
49,336
1.50
1.65
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).
Other interest-paying liabilities consist of cash collateral payable to
interest rate swap counterparties. (a)
(b)
(c)
(d)
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-earning assets consist of overnight investments and cash collateral receivable from
interest rate swap counterparties. |
 Capstead’s Use of Financing Spread on Mortgage
Assets, a Non-GAAP Financial Measure
Year Ended 2011 (dollars in thousands, unaudited)
16
Financing Spread on
Mortgage Assets,
Total Financing Spread,
a Non-GAAP
a GAAP Measure
Financial Measure
(a)
Corresponding Years
Interest
Income
(Expense)
Yield/Cost
Difference
Interest
Income
(Expense)
Yield/Cost
2010
2009
2008
2007
Interest income:
Mortgage assets
$
243,077
2.24%
$
–
$
243,077
2.24%
2.60%
4.13%
5.22%
5.64%
Other interest-earning assets
(b)
301
0.12
(301)
–
–
–
–
–
–
243,378
2.20
(301)
243,077
2.24
2.60
4.13
5.22
5.64
Interest expense:
Secured borrowings (borrowings
under repurchase arrangements)
(57,328)
0.56
–
(57,328)
0.56
0.66
1.73
3.53
5.12
Unsecured borrowings
(c)
(8,747)
8.49
8,747
–
–
–
–
–
–
Other interest-paying
liabilities
(d)
(5)
0.14
5
–
–
–
–
–
–
Net interest margin/financing spread
(66,080)
0.64
8,752
(57,328)
0.56
0.66
1.73
3.53
5.12
$
177,298
1.56
$
8,451
$
185,749
1.68
1.94
2.40
1.69
0.52
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).
Other interest-paying liabilities consist of cash collateral payable to
interest rate swap counterparties. (a)
(b)
(c)
(d)
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-earning assets consist of overnight investments and cash collateral receivable from
interest rate swap counterparties. |
 Experienced Management Team
17
85
years
of
combined
mortgage
finance
industry
experience,
including
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 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 |
