Capstead Mortgage Corporation Announces Fourth Quarter 2012 Results

  Capstead Mortgage Corporation Announces Fourth Quarter 2012 Results

                        Fourth Quarter 2012 Highlights

  *Earnings of $35.1million or $0.31 per diluted common share
  *Financing spreads on residential mortgage investments declined 17 basis
    points to 1.13%
  *Book value decreased $0.30 to $13.58 per common share
  *Repurchased $42million in common shares through early January 2013
  *Portfolio leverage maintained at eight times long-term investment capital
  *Operating costs as a percentage of average long-term investment capital
    decreased 9 basis points to 0.79%

Business Wire

DALLAS -- January 30, 2013

Capstead Mortgage Corporation (NYSE: CMO) (“Capstead” or the “Company”) today
reported net income of $35,084,000 or $0.31 per diluted common share for the
quarter ended December31, 2012. This compares to net income of $40,037,000 or
$0.35 per diluted common share for the quarter ended September30, 2012. The
Company paid a fourth quarter 2012 dividend of $0.30 per common share on
January18, 2013.

                Fourth Quarter Earnings and Related Discussion

Capstead is a self-managed real estate investment trust 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. For the quarter ended December31, 2012, the Company reported net
interest margins of $38,307,000 compared to $43,556,000 for the quarter ended
September30, 2012. Financing spreads on residential mortgage investments
averaged 1.13% during the fourth quarter of 2012, a decline of 17 basis points
from financing spreads earned during the third quarter of 2012. Financing
spreads on residential mortgage investments is a non-GAAP financial measure
based solely on yields on residential mortgage investments, net of borrowing
rates on repurchase arrangements and similar borrowings, adjusted for
currently-paying interest rate swap agreements held for hedging purposes – see
Financing Spread Analysis below for further information.

Yields on Capstead’s residential mortgage investments averaged 1.76% during
the fourth quarter of 2012, a decrease of 10 basis points from yields reported
for the third quarter of 2012. Yields were negatively impacted by lower
weighted average coupons on the Company’s holdings of currently resetting ARM
securities reflecting declines in underlying indices. Yields also reflect
higher investment premium amortization due largely to higher levels of
mortgage prepayments. Mortgage prepayments expressed as a constant prepayment
rate, or CPR, averaged 19.6% during the fourth quarter of 2012, compared to an
average CPR of 18.7% during the third quarter of 2012. Acquisitions during the
fourth quarter, most of which were longer-to-reset ARM securities, did not
keep pace with portfolio runoff as a portion of the capital made available
from runoff was primarily utilized for common share repurchases. The following
table illustrates the progression of Capstead’s portfolio of residential
mortgage investments for the indicated periods (dollars in thousands):

                                     Quarter Ended        Year Ended
                                                           
                                    December 31, 2012    December 31, 2012
Residential mortgage investments,      $  14,313,208        $  12,264,906
beginning of period
(Decrease) increase in unrealized
gains on securities
classified as available-for-sale          (42,833     )         91,750
Portfolio acquisitions (principal
amount) at average lifetime
purchased yields of 1.93% and             428,411               4,206,459
2.17%
Investment premiums on                    20,304                178,407
acquisitions
Portfolio runoff (principal               (829,601    )         (2,784,687  )
amount)
Investment premium amortization          (29,331     )        (96,677     )
Residential mortgage investments,      $  13,860,158        $  13,860,158  
end of period
                                                             

Interest rates on repurchase arrangements and similar borrowings, adjusted for
currently-paying interest rate swap agreements held as hedges against changes
in short-term interest rates, averaged 0.63% during the fourth quarter of
2012, an increase of seven basis points over borrowing rates incurred during
the third quarter of 2012. This increase reflects higher market rates,
particularly for repurchase arrangements extending past year-end, and the
inclusion of $500million in currently-paying swap agreements requiring
payment of fixed rates averaging 58 basis points. At December31, 2012
repurchase arrangements and similar borrowings totaled $12.78billion,
consisting primarily of 30-day borrowings with 23 counterparties and rates
averaging 0.47%, before consideration of related swap agreements. As of
December31, 2012, the Company held currently-paying swap agreements requiring
the payment of fixed rates of interest averaging 0.75% on notional amounts
totaling $4.20billion with average remaining interest-payment terms of nine
months. Additionally, the Company had entered into forward-starting swap
agreements with notional amounts totaling $2.40billion as of year-end that
will begin requiring fixed rate interest payments averaging 0.47% for two-year
periods that commence on various dates between January 2013 and December 2013,
with an average expiration of 29 months. Variable payments, typically based on
one-month LIBOR, that are received by the Company under swap agreements tend
to offset a significant portion of the interest owed on a like amount of the
Company’s borrowings under repurchase arrangements.

During the fourth quarter of 2012, Capstead’s long-term investment capital,
which consists of common and perpetual preferred stockholders’ equity and
long-term unsecured borrowings (net of related investments in statutory
trusts), declined by $67million to $1.60billion at year-end, due primarily
to lower portfolio pricing levels and $35million in common stock repurchases.
The portfolio was valued at 105.58 at December31, 2012, a decline of 21 basis
points during the quarter. Portfolio leverage (borrowings under repurchase
arrangements divided by long-term investment capital) was 8.00 to one at
December31, 2012 compared to 7.96 to one at September30, 2012.

Operating costs as a percentage of average long-term investment capital
declined to 0.79% during the fourth quarter of 2012 compared to 0.88% during
the third quarter of 2012, due primarily to lower compensation-related
expense, a significant portion of which is performance-based.

                           Common Share Repurchases

On October30, 2012 the Company announced a common share repurchase program of
up to $100million of its outstanding common shares. As of December31, 2012,
the Company repurchased $35million in common shares under this authorization
representing 3.0million shares at an average price of $11.80 per share.
Another $7million was repurchased in early January 2013 representing 638,000
shares at an average price of $11.43 per share. Common share repurchases may
continue in future periods under this authorization, subject to market
conditions and blackout periods associated with the dissemination of earnings
and dividend announcements and other important Company-specific news.

                         Book Value per Common Share

Nearly all of Capstead’s residential mortgage investments and all of its
interest rate swap agreements are reflected at fair value on the Company’s
balance sheet and are therefore included in the calculation of book value per
common share. The fair value of these investments is impacted by market
conditions, including changes in interest rates, and the availability of
financing at reasonable rates and leverage levels, among other factors. The
Company’s investment strategy attempts to mitigate these risks 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
Capstead’s portfolio is considerably less vulnerable to significant pricing
declines caused by credit concerns or rising interest rates compared to
portfolios containing a significant amount of non-agency and/or fixed-rate
mortgage securities.

The following table illustrates the progression of Capstead’s book value per
outstanding common share (calculated assuming liquidation preferences for the
Series A and B preferred shares) for the quarter and year ended December31,
2012:

                                     Quarter Ended       Year Ended

                                    December 31, 2012   December 31, 2012
Book value per common share,           $    13.88            $    12.52
beginning of period
Capital transactions:
Accretion from capital raises               –                     0.12
Accretion from common share                 0.06                  0.02
repurchases
Decrease related to stock awards            (0.02    )            –
Dividend distributions less than            0.01                  (0.01    )
(in excess of) earnings
(Decrease) increase in fair value
of mortgage securities
classified as available-for-sale            (0.44    )            0.95
Increase (decrease) in fair value
of interest rate swap
agreements designated as cash flow
hedges of:
Repurchase arrangements and                 0.06                  (0.04    )
similar borrowings
Unsecured borrowings                       0.03                0.02     
Book value per common share, end       $    13.58           $    13.58    
of period
                                                             

                              Management Remarks

Commenting on current operating and market conditions, Andrew F. Jacobs,
President and Chief Executive Officer, said, “During the fourth quarter,
yields on our portfolio were pressured by moderately higher mortgage
prepayments as well as lower coupon resets reflecting declines in recent
quarters in the six- and twelve-month LIBOR indexes. Meanwhile, our borrowing
costs were higher, in part reflecting higher market rates over year-end as
well as an increase in our currently-paying swap position. Together, these
factors contributed to a 17 basis point decline in our financing spreads to
1.13%, and a $0.04 reduction in our earnings to $0.31 per diluted common
share.

“Although results have trended lower in recent quarters, we expect 2013
results will be more stable. This belief reflects our confidence in our
investment strategy of investing solely in short-duration ARM securities.
Approximately 93% of the mortgages underlying our current-reset ARM securities
were originated prior to 2008 and carry coupon interest rates at or below
prevailing fixed mortgage rates diminishing the economic advantage, if any, of
refinancing. Additionally, refinancing for many of these homeowners continues
to be hampered by low housing prices and credit problems. Newer originations,
primarily held in our longer-to-reset portfolio, remain more susceptible to
refinancing because it is easier for many of these borrowers to qualify for
new mortgages and it may be more attractive to do so from a rate perspective
in the current low mortgage interest rate environment. On an overall basis, we
expect mortgage prepayment levels to remain manageable in the coming quarters
absent additional government intervention to lower mortgage interest rates
beyond the Federal Reserve's current bond buying program. This should help
contain investment premium amortization costs, which increased $2.2million
this quarter to $29.3million. Also, further declines in weighted average
coupons should be muted given that an increasing number of mortgage loans
underlying our current-reset ARM securities are at or near fully-indexed
levels, which now reflect six- and twelve-month indices that have largely
returned to the lower levels prevailing in late 2010. With respect to our
borrowing costs, we have experienced lower market rates subsequent to
year-end. Additionally, $2.90billion of our currently-paying interest rate
swaps with average fixed rates of 0.85% will mature during 2013 and have
already been largely replaced at significantly lower rates.

“We remain confident in and focused on our investment strategy of managing a
conservatively leveraged portfolio of agency-guaranteed residential ARM
securities that can produce attractive risk-adjusted returns over the long
term while reducing, but not eliminating, sensitivity to changes in interest
rates.”

                       Earnings Conference Call Details

An earnings conference call and live audio webcast will be hosted Thursday,
January31, 2013 at 9:00a.m. ET. The conference call may be accessed by
dialing toll free (888) 317-6016 in the U.S., (855) 669-9657 for Canada, or
(412) 317-6016 for international callers. A live audio webcast of the
conference call can be accessed via the investor relations section of the
Company’s website at www.capstead.com, and an audio archive of the webcast
will be available for approximately 60 days. A replay of the call will be
available through April2, 2013 by dialing toll free (877) 344-7529 in the
U.S. or (412) 317-0088 for international callers and entering conference
number 10023639.

                          Annual Meeting Record Date

The date for the Company’s annual meeting of stockholders has been set for
April24, 2013. The record date for determining stockholders entitled to
notice of and vote at such meeting will be the close of business on February
25, 2013 and the proxy statement and annual report will be mailed to
stockholders on or about March 15, 2013. The Company’s 2013 common share
dividend calendar has been set as follows:

Scheduled 2013 Common Share Dividend Dates
                                           
Quarter   Declaration Date   Record Date    Payable Date
First       March 14             March 29         April 19
Second      June 13              June 28          July 19
Third       September 12         September 30     October 18
Fourth      December 12          December 31      January 20, 2014
                                                  

          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:

  *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, Freddie Mac and
    similar federal government agencies and related guarantees;
  *deterioration in credit quality and ratings of existing or future
    issuances of Fannie Mae, Freddie Mac 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.

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.



CAPSTEAD MORTGAGE CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except ratios and per share amounts)

                                    December 31, 2012   December 31, 2011
                                     (unaudited)        
Assets
Residential mortgage investments
($13.45 and $11.93 billion pledged
under repurchase arrangements
at December 31, 2012 and December      $  13,860,158         $  12,264,906
31, 2011, respectively)
Cash collateral receivable from           49,972                48,505
interest rate swap counterparties
Interest rate swap agreements at          169                   617
fair value
Cash and cash equivalents                 425,445               426,717
Receivables and other assets              130,402               100,760
Investments in unconsolidated            3,117               3,117       
affiliates
                                       $  14,469,263        $  12,844,622  
Liabilities
Repurchase arrangements and            $  12,784,238         $  11,352,444
similar borrowings
Interest rate swap agreements at          32,868                31,348
fair value
Unsecured borrowings                      103,095               103,095
Common stock dividend payable             29,512                38,184
Accounts payable and accrued             22,425              26,844      
expenses
                                         12,972,138          11,551,915  
Stockholders’ equity
Preferred stock - $0.10 par value;
100,000 shares authorized:
$1.60 Cumulative Preferred Stock,
Series A,
186 shares issued and outstanding
($3,054 and $3,056 aggregate

liquidation preference) at                2,604                 2,605
December 31, 2012 and

December 31, 2011, respectively
$1.26 Cumulative Convertible
Preferred Stock, Series B,
16,493 and 16,184 shares issued
and outstanding

($187,692 and $184,175 aggregate
liquidation preference) at
December 31, 2012 and December 31,        186,388               181,909
2011, respectively
Common stock - $0.01 par value;
250,000 shares authorized:
96,229 and 88,287 shares issued
and outstanding at
                                          962                   883
December 31, 2012 and December 31,
2011, respectively
Paid-in capital                           1,367,199             1,257,653
Accumulated deficit                       (353,938    )         (354,883    )
Accumulated other comprehensive          293,910             204,540     
income
                                         1,497,125           1,292,707   
                                       $  14,469,263        $  12,844,622  
Long-term investment capital
(Stockholders’ equity and
unsecured borrowings net of            $  1,597,103          $  1,392,685
investments in related
unconsolidated affiliates)
(unaudited)
Portfolio leverage (Repurchase
arrangements and similar                  8.00:1                8.15:1
borrowings divided by long-term
investment capital) (unaudited)
Book value per common share (based
on common shares outstanding and
calculated assuming liquidation        $  13.58              $  12.52
preferences for the Series A and B
preferred stock) (unaudited)



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

                 Quarter Ended                 Year Ended

                   December 31                     December 31
                 2012        2011        2012        2011    
Interest                                                      
income:
Residential
mortgage           $ 60,948        $ 63,910        $ 255,931       $ 243,077
investments
Other               218           71            698           301     
                    61,166        63,981        256,629       243,378 
Interest
expense:
Repurchase
arrangements         (20,672 )       (15,556 )       (69,101 )       (57,328 )
and similar
borrowings
Unsecured            (2,187  )       (2,187  )       (8,747  )       (8,747  )
borrowings
Other               –             –             –             (5      )
                    (22,859 )      (17,743 )      (77,848 )      (66,080 )
                    38,307        46,238        178,781       177,298 
Other revenue
(expense):
Miscellaneous
other revenue        (24     )       (97     )       (171    )       (1,023  )
(expense)
Incentive            (515    )       (1,548  )       (4,129  )       (5,697  )
compensation
Salaries and         (1,638  )       (1,698  )       (6,843  )       (6,701  )
benefits
Other general
and                 (1,111  )      (992    )      (4,271  )      (3,932  )
administrative
expense
                    (3,288  )      (4,335  )      (15,414 )      (17,353 )
Income before
equity in
earnings of
unconsolidated       35,019          41,903          163,367         159,945
affiliates
Equity in
earnings of         65            65            259           259     
unconsolidated
affiliates
Net income         $ 35,084       $ 41,968       $ 163,626      $ 160,204 
Net income
available to
common
stockholders:
Net income         $ 35,084        $ 41,968        $ 163,626       $ 160,204
Less cash
dividends paid      (5,270  )      (5,146  )      (21,021 )      (20,369 )
on preferred
shares
                   $ 29,814       $ 36,822       $ 142,605      $ 139,835 
                                                                   
Net income per
common share:
Basic              $ 0.31          $ 0.43          $ 1.50          $ 1.76
Diluted              0.31            0.43            1.50            1.75
                                                                   
Weighted
average common
shares
outstanding:
Basic                96,929          85,028          94,593          79,316
Diluted              97,329          85,401          95,012          79,696
                                                                   
Cash dividends
declared per
share:
Common             $ 0.300         $ 0.430         $ 1.490         $ 1.760
Series A             0.400           0.400           1.600           1.600
Preferred
Series B             0.315           0.315           1.260           1.260
Preferred



CAPSTEAD MORTGAGE CORPORATION
FAIR VALUE ANALYSIS
(dollars in thousands, unaudited)

                     December 31, 2012                                                        December
                                                                                                31, 2011
                      Unpaid                      Basis or                        Unrealized    Unrealized
                                     Investment                  Fair             Gains         Gains
                    Principal                 Notional                                  
                                     Premiums                    Value            (Losses)      (Losses)
                      Balance                     Amount
Residential
mortgage
investments
                                                                             
classified as
available-for-sale:
^(a) (b)
Agency-guaranteed
securities:
Fannie Mae/Freddie
Mac:
Current-reset ARMs    $ 6,907,791    $  170,417   $ 7,078,208    $ 7,328,758      $ 250,550     $ 194,586
Longer-to-reset         4,640,163       186,229     4,826,392      4,870,164        43,772        21,148
ARMs
Fixed-rate              60              –           60             65               5             8
Ginnie Mae:
Current-reset ARMs      722,922         16,563      739,485        754,178          14,693        7,533
Longer-to-reset        843,827        31,685     875,512       892,941        17,429      11,424  
ARMs
                      $ 13,114,763   $  404,894   $ 13,519,657   $ 13,846,106    $ 326,449    $ 234,699 
Interest rate swap                                $ 6,700,000    $ (32,699    )   $ (32,539 )   $ (30,159 )
positions ^(c)

      Unrealized gains and losses on residential mortgage securities
      classified as available-for-sale are recorded as a component of
      Accumulated other comprehensive income in Stockholders’ equity. Gains or
(a)  losses are generally recognized in earnings only if sold. Residential
      mortgage securities classified as held-to-maturity with a cost basis of
      $6 million and unsecuritized investments in residential mortgage loans
      with a cost basis of $8 million are not subject to mark-to-market
      accounting and therefore have been excluded from this analysis.
      
      Capstead classifies its residential ARM securities based on the average
(b)   length of time until the loans underlying each security reset to more
      current rates (see page 11 of this release for further information).
      
      To help mitigate exposure to higher short-term 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 interest payment terms (or longer-term
      committed borrowings, if available at attractive rates and terms).
      Additionally, the Company has entered into three forward-starting swap
      agreements with notional amounts totaling $100 million and terms
(c)   coinciding with the variable-rate terms of the Company’s long-term
      unsecured borrowings that begin in 2015 and 2016 and end with their
      maturities in 2035 and 2036. Swap positions are carried on the balance
      sheet at fair value with related unrealized gains or losses arising
      while designated as cash flow hedges for accounting purposes reflected
      as a component of Accumulated other comprehensive income in
      Stockholders’ equity and related hedge ineffectiveness recognized in
      Interest expense. As of December 31, 2012, these swap positions had the
      following characteristics (in thousands):

                                     Average                         Unrealized
Period of            Notional        Fixed Rate      Fair
Contract                                                     Gains
Expiration           Amount          Payment         Value           (Losses)
                                     Requirement
Currently-paying
two-year                                                    
contracts:
First quarter        $ 1,100,000     0.81    %       $ (826    )     $ (776    )
2013
Second quarter         700,000       0.96              (2,111  )       (2,045  )
2013
Third quarter          300,000       0.87              (1,300  )       (1,269  )
2013
Fourth quarter         800,000       0.78              (3,699  )       (3,681  )
2013
First quarter          200,000       0.60              (731    )       (731    )
2014
Second quarter         400,000       0.51              (1,322  )       (1,322  )
2014
Third quarter          200,000       0.51              (761    )       (761    )
2014
Fourth quarter        500,000       0.58             (2,696  )      (2,696  )
2014
                       4,200,000     0.75              (13,446 )       (13,281 )
Forward-starting
two-year
contracts:
First quarter          1,100,000     0.50              (4,272  )       (4,272  )
2015
Second quarter         200,000       0.43              (307    )       (307    )
2015
Third quarter          400,000       0.47              (518    )       (518    )
2015
Fourth quarter        700,000       0.43             41            36      
2015
                     $ 6,600,000                     $ (18,502 )     $ (18,342 )
Forward-starting
contracts
expiring in 2035
and 2036 related
to unsecured         $ 100,000       4.09            $ (14,197 )     $ (14,197 )
borrowings

After consideration of related swap positions, the Company’s residential
mortgage investments and related borrowings under repurchase arrangements had
durations as of December31, 2012 of approximately 10 and 8¼ months,
respectively, for a net duration gap of approximately 1¾ months. Duration is a
measure of market price sensitivity to interest rate movements.



CAPSTEAD MORTGAGE CORPORATION
FINANCING SPREAD ANALYSIS
(unaudited)

                  2012                                          2011
                  Q4        Q3        Q2        Q1        Q4        Q3        Q2        Q1
Yields on
residential                                                                                 
mortgage
investments:^(a)
Cash yields          2.60  %     2.65  %     2.71  %     2.74  %     2.77  %     2.84  %     2.97  %     2.94  %
Investment
premium              (0.84 )     (0.79 )     (0.67 )     (0.60 )     (0.66 )     (0.67 )     (0.59 )     (0.58 )
amortization
Adjusted yields      1.76        1.86        2.04        2.14        2.11        2.17        2.38        2.36
Related
borrowing
rates:^(b)
Unhedged             0.45        0.41        0.37        0.32        0.32        0.25        0.25        0.29
borrowing rates
Fixed swap rates     0.75        0.78        0.80        0.85        0.90        0.98        1.02        1.07
Adjusted             0.63        0.56        0.54        0.49        0.54        0.57        0.55        0.59
borrowing rates
Financing
spreads on
residential
mortgage             1.13        1.30        1.50        1.65        1.57        1.60        1.83        1.77
investments

      Cash yields are based on the cash component of interest income.
      Investment premium amortization is determined using the interest method
(a)  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.
      
      Unhedged borrowing rates represent average rates on repurchase
      agreements 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
(b)   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.


                 2012                                          2011
                 Q4        Q3        Q2        Q1        Q4        Q3        Q2        Q1
Financing
spreads on                                                                                 
residential
mortgage            1.13  %     1.30  %     1.50  %     1.65  %     1.57  %     1.60  %     1.83  %     1.77  %
investments
Impact of
yields on other
interest-
earning assets*     (0.07 )     (0.05 )     (0.06 )     (0.06 )     (0.04 )     (0.05 )     (0.04 )     (0.05 )
Impact of
borrowing rates
on
unsecured
borrowings and
other
interest-paying     (0.06 )     (0.06 )     (0.07 )     (0.07 )     (0.07 )     (0.08 )     (0.09 )     (0.10 )
liabilities*
Total financing     1.00        1.19        1.37        1.52        1.46        1.47        1.70        1.62
spreads

    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
    a 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.



CAPSTEAD MORTGAGE CORPORATION
RESIDENTIAL ARM SECURITIES PORTFOLIO STATISTICS
(as of December 31, 2012)
(dollars in thousands, unaudited)

                                                Fully       Average     Average      Average      Months
                   Amortized        Net
                                          Indexed   Net       Periodic   Lifetime   To
ARM Type ^(a)       Cost Basis       WAC
                    ^(b)             ^(c)       WAC         Margins     Caps         Caps         Roll
                                                ^(c)        ^ (c)       ^(c)         ^(c)         ^(a)
Current-reset                                                                      
ARMs:
Fannie Mae
Agency              $ 5,227,486      2.45 %     2.29  %     1.70  %     3.16  %      10.16  %     5.2
Securities
Freddie Mac
Agency                1,850,722      2.67       2.42        1.84        2.03         10.67        6.2
Securities
Ginnie Mae
Agency                739,485        2.48       1.70        1.51        1.02         9.31         6.2
Securities
Residential          5,051          3.51       2.38        2.04        1.49         10.97        4.5
mortgage loans
                     7,822,744      2.51       2.27        1.71        2.70         10.20        5.5
Longer-to-reset
ARMs:
Fannie Mae
Agency                2,953,509      2.97       2.61        1.76        4.91         7.99         43.7
Securities
Freddie Mac
Agency                1,872,883      2.97       2.67        1.84        4.92         7.99         47.4
Securities
Ginnie Mae
Agency               875,512        3.01       1.68        1.51        1.02         8.04         30.1
Securities
                     5,701,904      2.98       2.48        1.75        4.32         8.00         42.8
                    $ 13,524,648     2.70       2.36        1.73        3.38         9.27         21.1
                                                                                                  
Gross WAC (rate paid by              3.33
borrowers) ^(d)

      Capstead classifies its ARM securities based on the average length of
      time until the loans underlying each security reset to more current
      rates (“months-to-roll”) (less than 18 months for “current-reset” ARM
(a)  securities, and 18 months or greater for “longer-to-reset” ARM
      securities). Once an ARM loan reaches its initial reset date, it will
      reset at least once a year to a margin over a corresponding interest
      rate index, subject to periodic and lifetime limits or caps.
      
      Amortized cost basis represents the Company’s investment (unpaid
      principal balance plus unamortized investment premiums) before
      unrealized gains and losses. As of December 31, 2012, the ratio of
(b)   amortized cost basis to related unpaid principal balance for the
      Company’s ARM securities was 103.09. This table excludes $3 million in
      fixed-rate Agency Securities, $3 million in fixed-rate residential
      mortgage loans and $3 million in private residential mortgage
      pass-through securities held as collateral for structured financings.
      
      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.
      Fully indexed WAC represents the weighted average coupon upon one or
      more resets using interest rate indexes and net margins as of the
      indicated date. Average net margins represent the weighted average
      levels over the underlying indexes that the portfolio can adjust to upon
      reset, usually subject to initial, periodic and/or lifetime limits, or
      caps, on the amount of such adjustments during any single interest rate
      adjustment period and over the contractual term of the underlying loans.
(c)   ARM securities issued by the GSEs with initial fixed-rate periods of
      five years or longer typically have 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 were 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 related current net WAC, for
      ARM securities subject only to lifetime caps. At quarter-end, 81% of
      current-reset ARMs were subject to periodic caps averaging 1.85%; 4%
      were subject to initial caps averaging 2.01%; 14% were subject to
      lifetime caps, less related current net WAC, averaging 7.58%; and 1%
      were not subject to a cap. All longer-to-reset ARM securities at
      December 31 2012 were subject to initial caps.
      
      Gross WAC is the weighted average interest rate of the mortgage loans
(d)   underlying the indicated investments, including servicing and other fees
      paid by borrowers, as of the indicated balance sheet date.

Contact:

Capstead Mortgage Corporation
Investor Relations:
Lindsey Cook, 214-874-2339