Business Wire | Apr 28, 2021 04:30PM EDT

Capstead Mortgage Corporation Announces First Quarter 2021 Results

Apr. 28, 2021

DALLAS--(BUSINESS WIRE)--Apr. 28, 2021--Capstead Mortgage Corporation ("Capstead" or the "Company") (NYSE: CMO) today announced financial results for the quarter ended March 31, 2021.

First Quarter 2021 Summary

* Recognized GAAP net income of $18.9 million or $0.15 per diluted common share * Generated core earnings of $17.4 million or $0.13 per diluted common share, representing an annualized 7.7% return on common equity capital * Paid a $0.15 dividend per common share for the sixth consecutive quarter * Book value per common share decreased $0.10 to $6.66 per common share * Agency-guaranteed residential adjustable-rate mortgage (ARM) portfolio ended the quarter at $7.4 billion * Leverage ended the quarter at 6.79 times long-term investment capital

First Quarter Earnings and Related Discussion

Capstead reported GAAP net income of $18.9 million or $0.15 per diluted common share for the quarter ended March 31, 2021, compared to $23.3 million or $0.19 per diluted common share for the quarter ended December 31, 2020. The Company reported core earnings of $17.4 million or $0.13 per diluted common share for the quarter ended March 31, 2021. This compares to core earnings of $19.7 million or $0.15 per diluted common share for the quarter ended December 31, 2020. See the "Non-GAAP Financial Measures" section of this release for more information on core earnings.

Yields on the Company's portfolio of agency-guaranteed residential ARM securities averaged 1.38% during the first quarter of 2021, a decrease of 17 basis points from 1.55% reported for the fourth quarter of 2020. Yields declined due primarily to lower coupon interest rates on existing loans that reset lower based on prevailing interest rates as well as higher yield adjustments for investment premium amortization due to changes in lifetime prepayment estimates. Mortgage prepayment rates decreased during the quarter to an average annualized constant prepayment rate ("CPR") of 37.12%, compared to 38.67% CPR in the prior quarter. Portfolio leverage decreased to 6.79 to one at March 31, 2021 compared to 7.26 to one at December 31, 2020.

The following table illustrates the progression of Capstead's portfolio of residential mortgage investments for the quarter ended March 31, 2021 (dollars in thousands):

Residential mortgage investments, December 31, 2020 $ 7,937,552

Portfolio acquisitions (principal amount) 387,830

Investment premiums on acquisitions 16,394

Portfolio runoff (principal amount) (893,995 )

Investment premium amortization (20,887 )

Decrease in net unrealized gains on securities classified as (21,483 )available-for-sale

Residential mortgage investments, March 31, 2021 $ 7,405,411

Decrease in residential mortgage investments during the period $ (532,141 )

Rates on Capstead's secured borrowings, after adjusting for hedging activities, averaged 17 basis points lower at 0.20% during the first quarter of 2021, compared to 0.37% for the prior quarter. Borrowing rates before hedging activities averaged 0.20% during the first quarter, a decline of three basis points from the prior quarter. Secured borrowings ended the quarter at $6.81 billion.

Notional amounts of secured borrowings-related interest rate swap agreements averaged $2.99 billion during the first quarter of 2021 with fixed swap rates averaging 0.04%, 33 basis points lower than the prior quarter. At March 31, 2021, the Company held $3.22 billion notional amount of secured borrowings-related interest rate swaps with fixed rates averaging 0.06%, an increase of $250 million in notional amount and two basis points in rate from swaps held on December 31, 2020. The Company's duration gap, a measure of interest rate risk, decreased from approximately three and one-half months at December 31st to three and one-quarter months at March 31, 2021 - see page 10 for further information.

Capstead operates a highly efficient, internally-managed investment platform, particularly compared to other mortgage REITs, and has a competitive cost structure relative to a wide variety of high yielding investment vehicles. Operating costs expressed as an annualized percentage of long-term investment capital averaged 1.43% for the quarter ended March 31, 2021. As an annualized percentage of total assets, operating costs averaged 0.18% during this period.

Book Value per Common Share

Book value per share as of March 31, 2021 was $6.66, a decrease of $0.10 for the quarter primarily reflecting $0.22 in portfolio-related declines in value and $0.05 in declines related to capital activity, partially offset by $0.17 in derivative-related increases. Capstead's investment strategy attempts to mitigate risks to book value by focusing on investments in agency-guaranteed residential mortgage pass-through securities, which are considered to have little, if any, credit risk and are collateralized by ARM loans with interest rates that reset periodically to more current levels. Because of these characteristics, the fair value of the Company's portfolio is expected to be less vulnerable to significant pricing declines caused by credit concerns or rising interest rates compared to leveraged portfolios containing a significant amount of non-agency-guaranteed securities or agency-guaranteed securities backed by longer-duration fixed-rate loans. Fair value is impacted by market conditions, including changes in interest rates and the availability of financing at reasonable rates and leverage levels.

Management Remarks

Commenting on current operating and market conditions, Phillip A. Reinsch, President and Chief Executive Officer, said, "Our first quarter results were impacted by our choice to not invest all of our available capital at what we view as unacceptably low projected risk-adjusted returns. As a consequence, we did not replace all of our portfolio runoff for the second consecutive quarter during a period of continued high mortgage prepayments, leading to lower portfolio and leverage levels and lower earnings. This has increased our flexibility to take advantage of more compelling opportunities should they arise as the year unfolds.

"Now that the transition from LIBOR- to SOFR-based ARM production is largely complete and with the pronounced steepening in the yield curve through higher longer term interest rates year-to-date, we are seeing sizable increases in new ARM production. This bodes well for investment opportunities going forward. However, there remains strong demand for agency-guaranteed ARM securities which could continue to limit our reinvestment opportunities.

"We see mortgage prepayment rates peaking as the second quarter progresses due in large part to increases in prevailing fixed-rate mortgage rates of nearly 50 basis points since year-end leading to lower portfolio runoff in the coming quarters. If longer-term interest rates continue increasing in the coming quarters, further declines in prepayments can be expected. Meanwhile, short-term interest rates have remained at historical lows, with one-month LIBOR declining three basis points to 11 basis points during the quarter and two-year U.S. Treasury rates only increasing about 4 basis points since year end, indicative of market expectations for little change in borrowing rates for some time to come.

"Book value declined by only 1.4% during the first quarter despite continued high portfolio runoff and a significant increase in longer-term interest rates, with the ten-year U.S. Treasury rate increasing a surprising 82 basis points during the quarter. This comparatively modest decline in book value was due in large part to strong demand for agency-guaranteed ARM securities, fairly stable yields on the shorter end of the yield curve and increases in value of interest rate swaps held for hedging purposes.

"Since quarter-end, pricing levels for agency-guaranteed ARM securities have been fairly stable relative to a further rise in longer-term interest rates while April portfolio runoff reached 43.7% CPR. As of April 23rd, our last internal measurement date, book value per share was lower by approximately $0.03, primarily due to continued high portfolio runoff in April.

Non-GAAP Financial Measures

Management believes the presentation of core earnings and core earnings per common share, both non-GAAP financial measures, when analyzed in conjunction with the Company's GAAP operating results, allows investors to more effectively evaluate the Company's performance and provides investors management's view of the Company's economic performance.

Management also believes that presenting financing spreads on residential mortgage investments, a non-GAAP financial measure, provides important information for evaluating the performance of the Company's portfolio, as opposed to total financing spreads, because this non-GAAP measure speaks specifically to the performance of the Company's investment portfolio. See the "Reconciliation of GAAP Measures to Non-GAAP Measures" section of this release.

Earnings Conference Call Details

An earnings conference call and live audio webcast will be hosted Thursday, April 29, 2021 at 10:00 a.m. ET. The conference call may be accessed by dialing toll free (877) 505-6547 in the U.S., (855) 669-9657 for Canada, or (412) 902-6660 for international callers. A live webcast of the conference call can be accessed via the investor relations section of the Company's website at www.capstead.com and an archive of the webcast will be available up to the date of our next earnings press release. An audio replay can be accessed one hour after the end of the conference call, also up to the date of our next earnings press release, by dialing toll free (877) 344-7529 in the U.S., (855) 669-9658 for Canada, or (412) 317-0088 for international callers and entering conference number 10155050.

About Capstead

Capstead is a self-managed real estate investment trust, or REIT, for federal income tax purposes. The Company earns income from investing in a leveraged portfolio of residential adjustable-rate mortgage pass-through securities, referred to as ARM securities, issued and guaranteed by government-sponsored enterprises, either Fannie Mae or Freddie Mac, or by an agency of the federal government, Ginnie Mae.

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. Actual results could differ materially from those projected in these forward-looking statements due to a variety of factors, including without limitation, fluctuations in interest rates, the availability of suitable qualifying investments, changes in mortgage prepayments, the availability and terms of financing, changes in market conditions as a result of federal corporate and individual tax law changes, changes in legislation or regulation affecting the mortgage and banking industries or Fannie Mae, Freddie Mac or Ginnie Mae securities, the availability of new investment capital, the liquidity of secondary markets and funding markets, our ability to maintain our qualification as a REIT for U.S. federal tax purposes, our ability to maintain our exemption from registration under the Investment Company Act of 1940, as amended, and other changes in general economic conditions. These and other applicable uncertainties, factors and risks are described more fully in the Company's filings with the U.S. Securities and Exchange Commission.

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.

CAPSTEAD MORTGAGE CORPORATIONCONSOLIDATED BALANCE SHEETS(in thousands, except ratios, pledged and per share amounts)



March 31, December 2021 31, 2020

(unaudited)

Assets

Residential mortgage investments ($7.16 and$7.71 billion pledged at March 31, 2021 and $ 7,405,411 $ 7,937,552 December 31, 2020, respectively)

Cash collateral receivable from derivative 61,796 74,411 counterparties

Derivatives at fair value 151 -

Cash and cash equivalents 259,233 257,180

Receivables and other assets 143,295 136,107

$ 7,869,886 $ 8,405,250

Liabilities

Secured borrowings $ 6,805,061 $ 7,319,083

Derivatives at fair value 27,223 41,484

Unsecured borrowings 98,519 98,493

Common stock dividend payable 15,173 15,281

Accounts payable and accrued expenses 20,217 20,746

6,966,193 7,495,087

Stockholders' equity

Preferred stock - $0.10 par value; 100,000shares authorized: 7.50% Cumulative RedeemablePreferred Stock, Series E, 10,329 shares issued 250,946 250,946 and outstanding ($258,226 aggregate liquidationpreference) at March 31, 2021 and December 31,2020

Common stock - $0.01 par value; 250,000 sharesauthorized: 96,848 and 96,481 shares issued and 968 965 outstanding at March 31, 2021 and December 31,2020, respectively

Paid-in capital 1,269,021 1,268,439

Accumulated deficit (651,551 ) (651,071 )

Accumulated other comprehensive income 34,309 40,884

903,693 910,163

$ 7,869,886 $ 8,405,250



Long-term investment capital (consists ofstockholders' equity and unsecured borrowings) $ 1,002,212 $ 1,008,656 (unaudited)

Portfolio leverage (secured borrowings divided 6.79:1 7.26:1 by long-term investment capital) (unaudited)

Book value per common share (based on shares ofcommon stock outstanding and calculated using $ 6.66 $ 6.76 preferred stock liquidation preferences)(unaudited)

CAPSTEAD MORTGAGE CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) (unaudited)

Quarter Ended

March 31

2021

2020

Interest income

Residential mortgage investments

$

26,165

$

69,207

Other

13

403

26,178

69,610

Interest expense

Secured borrowings

(4,172

)

(45,256

)

Unsecured borrowings

(1,891

)

(1,900

)

(6,063

)

(47,156

)

20,115

22,454

Other (expense) income

Gain (loss) on derivative instruments (net)

2,382

(155,739

)

Loss on sale of investments (net)

-

(67,820

)

Compensation-related expense

(2,092

)

(2,204

)

Other general and administrative expense

(1,465

)

(1,202

)

Miscellaneous other revenue (expense)

2

(142

)

(1,173

)

(227,107

)

Net income (loss)

18,942

(204,653

)

Less preferred stock dividends

(4,842

)

(4,842

)

Net income (loss) to common stockholders

$

14,100

$

(209,495

)

Basic and diluted net income (loss) per common share

$

0.15

$

(2.21

)

Weighted average common shares outstanding

Basic

95,894

94,897

Diluted

96,230

94,897

Cash dividends declared per share

Common

$

0.15

$

0.15

Series E preferred

0.47

0.47

CAPSTEAD MORTGAGE CORPORATIONCONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except per share amounts)(unaudited)



Quarter Ended March 31

2021 2020

Interest income

Residential mortgage investments $ 26,165 $ 69,207

Other 13 403

26,178 69,610

Interest expense

Secured borrowings (4,172 ) (45,256 )

Unsecured borrowings (1,891 ) (1,900 )

(6,063 ) (47,156 )

20,115 22,454

Other (expense) income

Gain (loss) on derivative instruments (net) 2,382 (155,739 )

Loss on sale of investments (net) - (67,820 )

Compensation-related expense (2,092 ) (2,204 )

Other general and administrative expense (1,465 ) (1,202 )

Miscellaneous other revenue (expense) 2 (142 )

(1,173 ) (227,107 )

Net income (loss) 18,942 (204,653 )

Less preferred stock dividends (4,842 ) (4,842 )

Net income (loss) to common stockholders $ 14,100 $ (209,495 )



Basic and diluted net income (loss) per common $ 0.15 $ (2.21 )share



Weighted average common shares outstanding

Basic 95,894 94,897

Diluted 96,230 94,897



Cash dividends declared per share

Common $ 0.15 $ 0.15

Series E preferred 0.47 0.47

CAPSTEAD MORTGAGE CORPORATION QUARTERLY STATEMENTS OF OPERATIONS AND SELECT OPERATING STATISTICS (in thousands, except per share amounts, percentages annualized, unaudited)

2021

2020

Q1

Q4

Q3

Q2

Q1

Quarterly Statements of Operations:

Interest income

Residential mortgage investments

$

26,165

$

31,372

$

37,571

$

48,111

$

69,207

Other

13

17

26

28

403

26,178

31,389

37,597

48,139

69,610

Interest expense

Secured borrowings

(4,172

)

(4,787

)

(4,809

)

(13,039

)

(45,256

)

Unsecured borrowings

(1,891

)

(1,910

)

(1,910

)

(1,900

)

(1,900

)

(6,063

)

(6,697

)

(6,719

)

(14,939

)

(47,156

)

20,115

24,692

30,878

33,200

22,454

Other (expense) income

Gain (loss) on derivative instruments (net)

2,382

1,630

1,510

(6,948

)

(155,739

)

Loss on sale of investments (net)

-

-

-

-

(67,820

)

Compensation-related expense

(2,092

)

(1,759

)

(1,985

)

(2,330

)

(2,204

)

Other general and administrative expense

(1,465

)

(1,269

)

(1,321

)

(1,219

)

(1,202

)

Miscellaneous other revenue (expense)

2

-

-

1

(142

)

(1,173

)

(1,398

)

(1,796

)

(10,496

)

(227,107

)

Net income (loss)

$

18,942

$

23,294

$

29,082

$

22,704

$

(204,653

)

Net income (loss) per diluted common share

$

0.15

$

0.19

$

0.25

$

0.19

$

(2.21

)

Average diluted common shares outstanding

96,230

96,088

96,024

95,887

94,897

Core earnings

$

17,360

$

19,667

$

19,868

$

21,917

$

19,811

Core earnings per diluted common share

0.13

0.15

0.16

0.18

0.16

Select Operating and Performance Statistics:

Common dividends declared per share

0.15

0.15

0.15

0.15

0.15

Book value per common share

6.66

6.76

6.80

6.79

6.07

Average portfolio outstanding (cost basis)

7,578,943

8,073,304

8,119,230

8,255,393

11,122,713

Average secured borrowings

6,884,328

7,407,784

7,447,333

7,646,755

10,336,879

Average long-term investment capital ("LTIC")

1,010,317

1,015,854

1,018,407

987,792

1,124,307

Constant prepayment rate ("CPR")

37.12

%

38.67

%

39.97

%

32.89

%

26.71

%

Total financing spreads

1.01

1.19

1.47

1.52

0.66

Yields on residential mortgage investments

1.38

1.55

1.85

2.33

2.49

Secured borrowing rates (a)

0.20

0.37

0.67

1.09

1.72

Financing spreads on residential mortgage investments

1.18

1.19

1.18

1.25

0.77

Operating costs as a percentage of LTIC

1.43

1.19

1.29

1.45

1.22

Quarterly economic return (change in book value plus dividends)

0.74

1.62

2.36

14.33

(27.84

)

Return on common equity capital (b)

7.68

8.85

8.94

10.76

7.77

CAPSTEAD MORTGAGE CORPORATIONQUARTERLY STATEMENTS OF OPERATIONS AND SELECT OPERATING STATISTICS(in thousands, except per share amounts, percentages annualized, unaudited)



2021 2020

Q1 Q4 Q3 Q2 Q1

Quarterly Statements of Operations:

Interest income

Residential mortgage $ 26,165 $ 31,372 $ 37,571 $ 48,111 $ 69,207 investments

Other 13 17 26 28 403

26,178 31,389 37,597 48,139 69,610

Interest expense

Secured borrowings (4,172 ) (4,787 ) (4,809 ) (13,039 ) (45,256 )

Unsecured borrowings (1,891 ) (1,910 ) (1,910 ) (1,900 ) (1,900 )

(6,063 ) (6,697 ) (6,719 ) (14,939 ) (47,156 )

20,115 24,692 30,878 33,200 22,454

Other (expense) income

Gain (loss) onderivative 2,382 1,630 1,510 (6,948 ) (155,739 )instruments (net)

Loss on sale of - - - - (67,820 )investments (net)

Compensation-related (2,092 ) (1,759 ) (1,985 ) (2,330 ) (2,204 )expense

Other general andadministrative (1,465 ) (1,269 ) (1,321 ) (1,219 ) (1,202 )expense

Miscellaneous other 2 - - 1 (142 )revenue (expense)

(1,173 ) (1,398 ) (1,796 ) (10,496 ) (227,107 )

Net income (loss) $ 18,942 $ 23,294 $ 29,082 $ 22,704 $ (204,653 )

Net income (loss)per diluted common $ 0.15 $ 0.19 $ 0.25 $ 0.19 $ (2.21 )share

Average dilutedcommon shares 96,230 96,088 96,024 95,887 94,897 outstanding



Core earnings $ 17,360 $ 19,667 $ 19,868 $ 21,917 $ 19,811

Core earnings per 0.13 0.15 0.16 0.18 0.16 diluted common share



Select Operating andPerformance Statistics:

Common dividends 0.15 0.15 0.15 0.15 0.15 declared per share

Book value per 6.66 6.76 6.80 6.79 6.07 common share

Average portfoliooutstanding (cost 7,578,943 8,073,304 8,119,230 8,255,393 11,122,713 basis)

Average secured 6,884,328 7,407,784 7,447,333 7,646,755 10,336,879 borrowings

Average long-terminvestment capital 1,010,317 1,015,854 1,018,407 987,792 1,124,307 ("LTIC")

Constant prepayment 37.12 % 38.67 % 39.97 % 32.89 % 26.71 %rate ("CPR")

Total financing 1.01 1.19 1.47 1.52 0.66 spreads

Yields onresidential mortgage 1.38 1.55 1.85 2.33 2.49 investments

Secured borrowing 0.20 0.37 0.67 1.09 1.72 rates ^(a)

Financing spreads onresidential mortgage 1.18 1.19 1.18 1.25 0.77 investments

Operating costs as a 1.43 1.19 1.29 1.45 1.22 percentage of LTIC

Quarterly economicreturn (change in 0.74 1.62 2.36 14.33 (27.84 )book value plusdividends)

Return on common 7.68 8.85 8.94 10.76 7.77 equity capital ^(b)

(a)

Secured borrowing rates exclude the effects of amortization of the net unrealized gains (losses) included in Accumulated other comprehensive income ("AOCI") on de-designated derivative instruments and include net interest cash flows on non-designated derivative instruments to better compare the components of financing spreads on residential mortgage investments. See "Reconciliation of GAAP Measures to Non-GAAP Measures" for details on the impact of non-designated derivative instruments.

(b)

Calculated using core earnings less preferred dividends on an annualized basis over average common equity for the period.

CAPSTEAD MORTGAGE CORPORATION RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES (in thousands, percentages annualized, unaudited)

The Company defines core earnings as GAAP net income (loss) excluding (a) unrealized (gain) loss on derivative instruments, (b) realized loss (gain) on termination of derivative instruments, (c) amortization of unrealized (gain) loss of derivative instruments held at the time of de-designation, and (d) realized loss (gain) on securities. The following reconciles GAAP net income (loss) and net income (loss) per diluted common share to core earnings and core earnings per common share:

Secured borrowing rates exclude the effects of amortization of the net unrealized gains (losses) included in Accumulated other comprehensive income ("AOCI") on de-designated derivative instruments and include net(a) interest cash flows on non-designated derivative instruments to better compare the components of financing spreads on residential mortgage investments. See "Reconciliation of GAAP Measures to Non-GAAP Measures" for details on the impact of non-designated derivative instruments.

(b) Calculated using core earnings less preferred dividends on an annualized basis over average common equity for the period.

CAPSTEAD MORTGAGE CORPORATION RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES (in thousands, percentages annualized, unaudited)

The Company defines core earnings as GAAP net income (loss) excluding (a) unrealized (gain) loss on derivative instruments, (b) realized loss (gain) on termination of derivative instruments, (c) amortization of unrealized (gain) loss of derivative instruments held at the time of de-designation, and (d) realized loss (gain) on securities. The following reconciles GAAP net income (loss) and net income (loss) per diluted common share to core earnings and core earnings per common share:

2021 2020

Q1 Q4 Q3 Q2 Q1

Per Per Per Per Per Amount Amount Amount Amount Amount Share Share Share Share Share

Net income (loss) $ 18,942 $ 0.15 $ 23,294 $ 0.19 $ 29,082 $ 0.25 $ 22,704 $ 0.19 $ (204,653 ) $ (2.21 )

Unrealized (gain)loss onnon-designated (2,228 ) (0.02 ) (25,989 ) (0.27 ) (35,419 ) (0.37 ) (2,229 ) (0.02 ) 56,182 0.59 derivativeinstruments

Realized loss ontermination ofnon-designated - - 21,870 0.23 26,187 0.28 1,320 0.01 100,565 1.06 derivativeinstruments

Amortization of netunrealized loss(gain) on 646 0.00 492 0.00 18 0.00 122 0.00 (103 ) (0.00 )de-designatedderivativeinstruments

Realized loss on - - - - - - - - 67,820 0.72 sale of investments

Core earnings $ 17,360 $ 0.13 $ 19,667 $ 0.15 $ 19,868 $ 0.16 $ 21,917 $ 0.18 $ 19,811 $ 0.16

The following reconciles total financing spreads to financing spreads on residential mortgage investments:

2021 2020

Q1 Q4 Q3 Q2 Q1

Total financing 1.01 % 1.19 % 1.47 % 1.52 % 0.66 %spreads

Impact of yields onother interest-earning 0.02 0.02 0.03 0.04 0.02 assets*

Impact of borrowingrates on other 0.11 0.10 0.10 0.09 0.05 interest-payingliabilities*

Impact of amortizationof unrealized gain,net of unrealized 0.04 0.01 0.00 0.01 0.00 losses onde-designatedderivative instruments

Impact of net cashflows on 0.00 (0.13 ) (0.42 ) (0.41 ) 0.04 non-designatedderivative instruments

Financing spreads onresidential mortgage 1.18 1.19 1.18 1.25 0.77 investments

*

Other interest-earning assets consist primarily of overnight investments and cash collateral receivable from secured borrowing and derivative counterparties. Other interest-paying liabilities consist of unsecured borrowings and, at times, may consist of cash collateral payable to derivative counterparties.

Other interest-earning assets consist primarily of overnight investments and cash collateral receivable from secured borrowing and derivative* counterparties. Other interest-paying liabilities consist of unsecured borrowings and, at times, may consist of cash collateral payable to derivative counterparties.

CAPSTEAD MORTGAGE CORPORATION FAIR VALUE AND SWAP MATURITY DISCLOSURES (in thousands, unaudited)

March 31, 2021

December 31,

2020

Unpaid

Principal

Balance

Investment

Premiums

Basis or

Notional

Amount

Fair

Value

Unrealized

Gains

(Losses)

Unrealized

Gains

(Losses)

Residential mortgage investments classified as available-for-sale(a)

Fannie Mae/Freddie Mac securities

Current-reset ARMs

$

2,702,419

$

113,226

$

2,815,645

$

2,829,573

$

13,928

$

14,550

Longer-to-reset ARMs

3,836,173

136,789

3,972,962

4,013,791

40,829

59,968

Ginnie Mae securities

Current-reset ARMs

152,850

4,631

157,481

158,856

1,375

1,541

Longer-to-reset ARMs

384,767

11,488

396,255

403,191

6,936

8,492

$

7,076,209

$

266,134

$

7,342,343

$

7,405,411

$

63,068

$

84,551

Derivative instruments(b)

Interest rate swap agreements

Secured borrowings-related

$

3,224,500

$

4,041

$

(1,536

)

$

(2,182

)

Unsecured borrowings-related

100,000

(27,223

)

(27,223

)

(41,484

)

CAPSTEAD MORTGAGE CORPORATIONFAIR VALUE AND SWAP MATURITY DISCLOSURES(in thousands, unaudited)



December March 31, 2021 31,

2020

Unpaid Basis or Unrealized Unrealized Investment Fair Principal Notional Gains Gains Premiums Value Balance Amount (Losses) (Losses)

Residentialmortgageinvestments classified asavailable-for-sale^(a)

Fannie Mae/Freddie Mac securities

Current-reset ARMs $ 2,702,419 $ 113,226 $ 2,815,645 $ 2,829,573 $ 13,928 $ 14,550

Longer-to-reset 3,836,173 136,789 3,972,962 4,013,791 40,829 59,968 ARMs

Ginnie Mae securities

Current-reset ARMs 152,850 4,631 157,481 158,856 1,375 1,541

Longer-to-reset 384,767 11,488 396,255 403,191 6,936 8,492 ARMs

$ 7,076,209 $ 266,134 $ 7,342,343 $ 7,405,411 $ 63,068 $ 84,551

Derivative instruments ^(b)

Interest rate swap agreements

Secured $ 3,224,500 $ 4,041 $ (1,536 ) $ (2,182 )borrowings-related

Unsecured 100,000 (27,223 ) (27,223 ) (41,484 )borrowings-related

(a)

Capstead segregates its residential ARM securities based on the average length of time until the loans underlying each security reset to more current rates (less than 18 months for "current-reset" ARM securities, and 18 months or greater for "longer-to-reset" ARM securities).

(b)

The following reflects Capstead's secured borrowings-related swap positions, sorted by quarter of swap contract expiration. Average fixed rates reflect related fixed-rate payment requirements.

Capstead segregates its residential ARM securities based on the average(a) length of time until the loans underlying each security reset to more current rates (less than 18 months for "current-reset" ARM securities, and 18 months or greater for "longer-to-reset" ARM securities).

The following reflects Capstead's secured borrowings-related swap(b) positions, sorted by quarter of swap contract expiration. Average fixed rates reflect related fixed-rate payment requirements.

Period of Contract Expiration

Swap Notional

Amounts

Average

Fixed Rates

Second quarter 2022

$

400,000

0.02%

Third quarter 2022

1,200,000

0.01

Fourth quarter 2022

900,000

0.07

First quarter 2023

50,000

0.13

Third quarter 2023

100,000

0.03

Fourth quarter 2023

374,500

0.09

First quarter 2024

150,000

0.28

Second quarter 2024

50,000

0.34

$

3,224,500

Swap Notional AveragePeriod of Contract Expiration Amounts Fixed Rates

Second quarter 2022 $ 400,000 0.02%

Third quarter 2022 1,200,000 0.01

Fourth quarter 2022 900,000 0.07

First quarter 2023 50,000 0.13

Third quarter 2023 100,000 0.03

Fourth quarter 2023 374,500 0.09

First quarter 2024 150,000 0.28

Second quarter 2024 50,000 0.34

$ 3,224,500

After consideration of secured borrowings-related derivative instruments, Capstead's residential mortgage investments and secured borrowings had durations as of March 31, 2021 of approximately 13 months and 93/4 months, respectively, for a net duration gap of approximately 3? months. Duration is a measure of market price sensitivity to changes in interest rates. A shorter duration generally indicates less interest rate risk.

After consideration of secured borrowings-related derivative instruments,Capstead's residential mortgage investments and secured borrowings haddurations as of March 31, 2021 of approximately 13 months and 93/4 months,respectively, for a net duration gap of approximately 3? months. Duration is ameasure of market price sensitivity to changes in interest rates. A shorterduration generally indicates less interest rate risk.

CAPSTEAD MORTGAGE CORPORATION RESIDENTIAL ARM SECURITIES PORTFOLIO STATISTICS (as of March 31, 2021) (in thousands, unaudited)

ARM Type

Amortized

Cost Basis (a)

Net

WAC (b)

Fully

Indexed

WAC (b)

Average

Net

Margins (b)

Average

Periodic

Caps (b)

Average

Lifetime

Caps (b)

Months

To

Roll (c)

Current-reset ARMs

Fannie Mae Agency Securities

$

2,097,018

2.29

%

1.91

%

1.65

%

2.88

%

6.97

%

6.8

Freddie Mac Agency Securities

718,627

2.52

2.01

1.74

2.14

6.11

8.2

Ginnie Mae Agency Securities

157,481

2.47

1.59

1.51

1.09

6.05

6.2

(40% of total)

2,973,126

2.35

1.92

1.66

2.61

6.71

7.1

Longer-to-reset ARMs

Fannie Mae Agency Securities

2,027,618

2.84

1.92

1.60

4.33

5.04

56.1

Freddie Mac Agency Securities

1,945,344

2.58

1.95

1.65

4.28

5.03

58.7

Ginnie Mae Agency Securities

396,255

3.56

1.57

1.50

1.00

5.00

34.9

(60% of total)

4,369,217

2.79

1.90

1.61

4.01

5.03

55.4

$

7,342,343

2.61

1.91

1.63

3.44

5.71

35.9

Gross WAC (rate paid by borrowers)(d)

3.25

CAPSTEAD MORTGAGE CORPORATIONRESIDENTIAL ARM SECURITIES PORTFOLIO STATISTICS(as of March 31, 2021)(in thousands, unaudited)



Fully Average Average Average Months Amortized NetARM Type Indexed Net Periodic Lifetime To Cost Basis WAC ^ ^(a) (b) WAC ^ Margins Caps ^ Caps ^ Roll ^ (b) ^(b) (b) (b) (c)

Current-reset ARMs

Fannie Mae Agency $ 2,097,018 2.29 % 1.91 % 1.65 % 2.88 % 6.97 % 6.8 Securities

Freddie Mac Agency 718,627 2.52 2.01 1.74 2.14 6.11 8.2 Securities

Ginnie Mae Agency 157,481 2.47 1.59 1.51 1.09 6.05 6.2 Securities

(40% of total) 2,973,126 2.35 1.92 1.66 2.61 6.71 7.1

Longer-to-reset ARMs

Fannie Mae Agency 2,027,618 2.84 1.92 1.60 4.33 5.04 56.1 Securities

Freddie Mac Agency 1,945,344 2.58 1.95 1.65 4.28 5.03 58.7 Securities

Ginnie Mae Agency 396,255 3.56 1.57 1.50 1.00 5.00 34.9 Securities

(60% of total) 4,369,217 2.79 1.90 1.61 4.01 5.03 55.4

$ 7,342,343 2.61 1.91 1.63 3.44 5.71 35.9

Gross WAC (rate paid 3.25 by borrowers)^(d)

(a)

Amortized cost basis represents the Company's investment (unpaid principal balance plus unamortized investment premiums) before unrealized gains and losses. At March 31, 2021, the ratio of amortized cost basis to unpaid principal balance for the Company's ARM holdings was 103.76.

(b)

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 the indicated date. Net WAC is expressed as a percentage calculated on an annualized basis on the unpaid principal balances of the mortgage loans underlying these investments. As such, it is similar to the cash yield on the portfolio which is calculated using amortized cost basis. Fully indexed WAC represents the weighted average coupon upon one or more resets using interest rate indices and net margins as of the indicated date. Average net margins represent the weighted average levels over the underlying indices that the portfolio can adjust to upon reset, usually subject to initial, periodic and/or lifetime caps on the amount of such adjustments during any single interest rate adjustment period and over the contractual term of the underlying loans. ARM securities with initial fixed-rate periods of five years or longer typically have either 200 or 500 basis point initial caps with 200 basis point periodic caps. Additionally, certain ARM securities held by the Company are subject only to lifetime caps or are not subject to a cap. For presentation purposes, average periodic caps in the table above reflect initial caps until after an ARM security has reached its initial reset date and lifetime caps, less the current net WAC, for ARM securities subject only to lifetime caps. At quarter-end, 73% of current-reset ARMs were subject to periodic caps averaging 1.91%; 19% were subject to initial caps averaging 3.14%; and 8% were subject to lifetime caps averaging 7.92%.

(c)

Months-to-roll is a measure of the average length of time until the loans underlying each security reset to more current rates. After consideration of any applicable initial fixed-rate periods, at March 31, 2021 approximately 90%, 5% and 3% of the Company's ARM securities were backed by mortgage loans that reset annually, semi-annually and monthly, respectively, while approximately 2% reset every five years. Approximately 81% of the Company's current-reset ARM securities have reached an initial coupon reset date. Approximately 17% of the Company's current-reset ARM securities are scheduled to reset in rate within three months, 38% are scheduled to reset in rate between four and six months, and 31% are scheduled to reset in rate between seven and 12 months.

(d)

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 the indicated balance sheet date.

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CONTACT: Lindsey Crabbe (214) 874-2339