Investor Presentation. Information as of March 31, 2018

Similar documents
Investor Presentation Third Quarter 2018 ABCDE

Investor Presentation. Information as of December 31, 2017

Investor Presentation. Information as of March 31, 2017

Second Quarter 2018 Investor Presentation

Two Harbors Investment Corp. Investor Call

Investor Presentation. Third Quarter 2018

Second Quarter 2018 Earnings Call AUGUST 8, 2018

First Quarter 2017 Earnings Call MAY 4, 2017

Annual Meeting Stockholder Engagement

Q Supplemental Materials. July 27, 2018

KBW Mortgage Finance Conference. June 1, 2016

Fourth Quarter 2018 Earnings Call FEBRUARY 7, 2019

First Quarter 2018 Investor Presentation

Orchid Island Capital Announces First Quarter 2018 Results

Third Quarter 2018 Investor Presentation

Third Quarter 2013 Presentation

Fourth Quarter 2017 Investor Presentation

AG Mortgage Investment Trust, Inc. Q Earnings Presentation

Two Harbors Investment Corp.

Two Harbors Investment Corp. JMP Securities Financial Services and Real Estate Conference Investor Presentation

Bimini Capital Management Announces Fourth Quarter 2018 Results

3Q 2013 Stockholder Supplement. November 6, 2013

2017 Annual Meeting. May 25, 2017

INVESTOR PRESENTATION

1Q 2015 Stockholder Supplement

Q Shareholder Presentation

First Quarter 2018 Financial Summary. May 2, 2018

2Q 2013 Stockholder Supplement. August 7, 2013

Third Quarter 2017 Financial Summary. November 1, 2017

Third Quarter 2018 Financial Summary. October 31, 2018

Second Quarter 2017 Financial Summary. August 2, 2017

CHIMERA INVESTMENT CORPORATION 520 Madison Avenue New York, New York CHIMERA INVESTMENT CORPORATION RELEASES 1st QUARTER 2016 EARNINGS

American Capital Agency Corp.

Two Harbors Investment Corp. Reports First Quarter 2011 Financial Results

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC FORM 8-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC FORM 8-K

FINANCIAL SUPPLEMENT NYSE: CIM. 3rd Quarter 2018

2012 ANNUAL REPORT. AG N C.co m

AG Mortgage Investment Trust, Inc. Q Earnings Presentation. August 7, 2018

New York Mortgage Trust Reports Fourth Quarter 2017 Results

4Q 2013 Stockholder Supplement. February 25, 2014

AG Mortgage Investment Trust, Inc. Q Earnings Presentation

2018 Annual Meeting. May 23, 2018

FORM 424B5 ANWORTH MORTGAGE ASSET CORP ANH. Filed: January 29, 2007 (period: )

AG Mortgage Investment Trust, Inc. Investor Presentation NYSE: MITT NYSE: MITT

2Q 2014 Stockholder Supplement. August 6, 2014

New York Mortgage Trust Reports First Quarter 2018 Results

AG Mortgage Investment Trust, Inc. Investor Presentation

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC FORM 8-K

ANNALY CAPITAL MANAGEMENT, INC. REPORTS 2nd QUARTER 2017 RESULTS

Invesco Mortgage Capital Inc Fourth Quarter Earnings Call February 22, 2017

Investor Presentation. May 13, 2013

Two Harbors Investment Corp.

News Release For Immediate Release // February 18, 2016

Third Quarter 2018 Earnings Presentation. October 31, 2018

Page 1 of 88. 1,200,000 Shares

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C FORM 10-Q

October 28,

Ocwen Reports Second Quarter 2012 EPS of $0.32 Per Share, Revenue of $211.4 Million and Net Income of $44.8 Million

25,000,000 Shares. New Residential Investment Corp.

Investor Presentation. February 11, 2014

First Quarter 2016 Supplemental Information

CNL LIFESTYLE PROPERTIES ANNOUNCES SECOND QUARTER 2014 RESULTS -- Total revenues increased 9.5 percent year-over-year to $222.

AG Mortgage Investment Trust, Inc. Investor Presentation

Fannie Mae Reports Third-Quarter 2011 Results

2011 A nnua l R eport

Standard Financial Corp. Consolidated Statements of Financial Condition (Dollars in thousands except share and per share data)

Shareholder Presentation January 3, 2019

CNL LIFESTYLE PROPERTIES ANNOUNCES FIRST QUARTER 2014 RESULTS -- Total revenues increased 8.9 percent year-over-year to $97.

Q Supplemental Materials. April 27, 2017

JPMorgan Insurance Trust Class 1 Shares

Visa Inc. Posts Solid Fiscal Fourth Quarter and Full-Year 2009 Earnings Results and Authorizes a

Federal National Mortgage Association

2009 Annual Report. Nasdaq: AGNC

Farmer Mac Reports Second Quarter 2018 Results

Industrial Income Trust Inc.

Federated GNMA Trust


Keefe, Bruyette & Woods 2017 Mortgage Finance & Asset Management Conference. June 1, 2017

First American International Corp. First American International Bank

Momentive Performance Materials Inc. 22 Corporate Woods Blvd. Albany, NY 12211

FORM 10-Q SECURITIES AND EXCHANGE COMMISSION. Washington, D.C

Federated Adjustable Rate Securities Fund

Federated U.S. Government Securities Fund: 2-5 Years

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C FORM 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C FORM 10-Q

Federated Adjustable Rate Securities Fund

TOTAL ASSETS $ 434,947 $ 436,871

JetPay Corporation Announces 2017 Financial Results

(205) (205)

Federated Adjustable Rate Securities Fund

FSA HOLDINGS THIRD QUARTER 2007 RESULTS FSA HAS RECORD QUARTERLY ORIGINATIONS

COMPANY DESCRIPTION SUMMARY. See Important Disclosures and Disclaimers at the end of this report. 1. January 25, 2018

NET ISSUANCE EXPECTED TO INCREASE

SALLIE MAE POSTS QUARTERLY EARNINGS, REINSTATES DIVIDEND, APPROVES $300 MILLION SHARE REPURCHASE PROGRAM

Credit Suisse Financial Services Forum. Februar y 9, 2016

JPMorgan Global Bond Opportunities Fund

Company Profile. Company Information

NET ISSUANCE EXPECTED TO INCREASE

Ocwen Financial Announces Operating Results for Fourth Quarter and Full Year 2017

Transcription:

Investor Presentation Information as of March 31, 2018

Safe Harbor Statement - Private Securities Litigation Reform Act of 1995 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, 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 reform, 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 credit markets, 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. 2

Overview of Capstead Mortgage Corporation Company Summary Proven Strategy of Efficiently Managing a Leveraged Portfolio of Short-Duration Agency-Guaranteed ARM Securities Experienced Management Team Aligned with Stockholders Founded in 1985, Capstead is the oldest publicly-traded residential mortgage REIT. We manage a leveraged portfolio of short-duration* agency-guaranteed (i.e. Fannie Mae, Freddie Mac and Ginnie Mae) residential ARM securities that is appropriately hedged and can earn attractive risk-adjusted returns over the long term, with little, if any, credit risk. At March 31, 2018, our agency-guaranteed ARM securities portfolio stood at $13.05 billion, supported by $1.29 billion in long-term investment capital levered 9.26 times. Our short-duration strategy differentiates us from our peers because the adjustable-rate mortgages underlying our portfolio reset to more current interest rates within a relatively short period of time: allowing us to benefit from future recoveries in financing spreads that typically contract during periods of rising interest rates, and resulting in smaller fluctuations in portfolio values from changes in interest rates compared to portfolios containing a significant amount of longer-duration ARM or fixed-rate mortgage securities. By virtue of being internally-managed and with our sole focus on agency-guaranteed ARM securities, we are arguably the most efficient mortgage REIT in the industry. Our top four executive officers have over 75 years of mortgage finance industry experience. We are internally managed with low operating costs and a strong focus on performance-based compensation. This structure greatly enhances the alignment of management interests with those of our stockholders. Straightforward Investment Strategy and Transparent Reporting Our singular and straightforward investment strategy, together with our use of cash flow hedge accounting, allows for easily understood, transparent financial reporting, with limited use of non-gaap financial measures. By virtue of our internally managed structure, our compensation-related decisions and costs are fully disclosed and subject to annual say-on-pay approvals. We make every effort to provide additional analysis in our earnings reports, SEC filings and analyst presentations that tells our story in a complete and straightforward fashion. * Duration is a measure of market price sensitivity to interest rate movements. A shorter duration generally indicates less interest rate risk. 3

Market Snapshot and Stock Repurchases Capstead s $1.29 billion in long-term investment capital consists of our common equity and our 7.50% Series E perpetual preferred capital both trading on the NYSE, together with $98 million in privately-placed unsecured borrowings maturing in 2035 and 2036. We repurchased 4.0% of our common stock since November 2017 at a substantial discount to book value, generating nearly $0.07 in book value accretion. "CMO" 7.50% Series E Preferred "CMOPRE" Long-Term Unsecured Borrowings Total Long-Term Investment Capital (dollars in thousands, except per share amounts) Shares outstanding (a) 92,494 10,329 Cost of preferred capital 7.72% 7.75% 7.73% Price as of May 7, 2018 $8.93 $24.81 Book Value per common share (a) $10.10 Price as a multiple of March 31, 2018 book value 88.4% Recorded Value (a) $941,282 $250,946 $98,216 $1,290,444 Market Capitalization as of May 7, 2018 $825,971 $256,262 $98,216 $1,180,449 Settlement Period Shares Repurchased Capital Deployed Net price, after expenses Discount to Trailing Book Value (b) Book Value Accretion (b) Q4 2017 397,352 $3,460,000 $8.71 82.4% $0.008 Q1 2018 3,379,168 29,062,000 8.60 83.9% 0.060 Q2 2018 (through 5/8/2018) 47,889 410,000 8.57 84.9% 0.001 3,824,409 $32,932,000 (a) As of March 31, 2018. (b) Beginning of quarter book value used to illustrate discount and calculate accretion. 4

Capstead s Appropriate Use of Leverage Borrowing at current levels represents an appropriate use of leverage for a short-duration, agency-guaranteed ARM securities portfolio in today s market conditions. Long-term Investment Capital Portfolio and Portfolio Leverage 5

Capstead s Economic Returns Economic return (change in book value plus dividends) is a key performance metric for mortgage REITs. We tend to outperform our residential mortgage REIT peers during rapidly rising rate environments such as in 2013, and thus far in 2018. (a) CMO economic returns exclude $(0.28) per share associated with 2013 preferred capital redemption and issuance transactions. Including the effects of these transactions, our economic returns would have been lower by 206 basis points in 2013 and by 41 basis points for the 5-year average. (b) CMO economic returns exclude $(0.03) per share in separation of service charges incurred in 2016. Including this unusual charge, our economic returns would have been lower by 26 basis points in 2016, and by 9 and 5 basis points for the 3- and 5-year averages, respectively. (c) Agency Peers: AGNC, AI, ANH, ARR, CYS, EARN, HTS, NLY, ORC (HTS through 2016). (d) All Peers: Agency peers plus AMTG, CIM, DX, IVR, JMI, MFA, MITT, MTGE, NYMT, OAKS, RWT, TWO, WMC (HTS, AMTG and JMI through 2016). OAKS had not reported as of May 7 6 th, analyst estimates used.

Capstead s Total Stockholder Returns Our agency-only, short-duration ARM strategy typically leads to outperformance during periods of rising interest rates and/or worsening credit conditions relative to other residential mortgage REITs. 2013 2014 2015 2016 2017 2018 YTD CMO 16.5% 13.0% (20.8%) 28.4% (8.1%) 5.1% Agency Peers (23.9%) 24.0% (9.9%) 22.5% 17.7% (7.4%) All Peers (6.7%) 22.3% (13.8%) 27.6% 16.7% (3.3%) (May 7th) Taper Tantrum The Fed disclosure that it may begin reducing bond purchases (QE), resulted in sharp increases in rates, damaging book values of peers holding long duration assets Credit spreads tightened as investors searched for yield CMO outperformed most peers Lower for Longer Market Mentality Weak economic growth and inflation led to market expectations that interest rates would remain low indefinitely: long duration peers prospered periodic bouts of high prepayments due largely to low longer term rates these market conditions were interrupted by the presidential election Search for yield continued benefiting credit spreads during much of this period CMO produced a respectable 15% TSR for this period Lower for Longer Reinstated Trump optimism interrupted by Washington gridlock leading to lower inflation and long-term rate expectations even as the Fed persisted in raising rates Credit spreads continued to tighten CMO underperformed most peers Rates Up Tax reform and deficit spending legislation has increased inflation and interest rate expectations damaging book values of long duration peers Gradual Fed balance sheet reductions also negatively effecting pricing for fixed-rate MBS CMO has outperformed nearly all peers 7

Capstead s Proven Short-Duration Investment Strategy We finance our agency-guaranteed residential ARM securities primarily with 30- to 90-day repurchase arrangements augmented with relatively low-cost two- and three-year term interest rate swap agreements and longer-dated secured borrowings when available at attractive levels. As of March 31, 2018 Residential ARM Securities Portfolio Current-Reset ARMs $6.84 Billion (cost basis) 52% 48% Total: $13.05 Billion (cost basis) Longer-to-Reset ARMs $6.20 Billion (cost basis) Secured Borrowings & Swap Notional Amounts (by quarter of borrowing maturities / contract expirations) Our portfolio of agency-guaranteed ARM securities have little, if any, credit risk and are either currently resetting to more current rates at least annually or will begin doing so in generally five years or less. Our Current-Reset ARMs (less than 18 months to reset) reset in rate on average in approximately 6 months and our Longer-to-Reset ARMs generally reset in approximately 42 months. With an asset duration of approximately 12 months at quarterend, the value of our portfolio is naturally less exposed to changes in interest rates than portfolios containing longer duration ARM or fixed-rate securities. This relative stability affords us more flexibility in managing through periods of market stress. We have long-term relationships with a variety of domestic and foreign lending counterparties. At quarter-end we had borrowings outstanding with 22 counterparties. We routinely borrow for 30 to 90 days and extend the duration of our borrowings primarily using relatively low-cost two year term, pay-fixed, receive three-month LIBOR, interest rate swap agreements. When available at attractive levels, we may also enter into longer-dated secured borrowings. Together with our portfolio-related swap agreements, our secured borrowings had a duration of approximately 8 months at year-end, resulting in a net duration gap of approximately 4 months. 8

Financing Spreads Cash yields continue to benefit from higher coupon interest rates as mortgage loans underlying our current-reset ARM securities reset to higher rates. Mortgage prepayment levels drive investment premium amortization and are influenced by housing market conditions, including prevailing mortgage interest rates, as well as seasonal factors, in particular the summer home selling season. Borrowing and hedging costs have increased as the markets absorbed the effects of five 25 basis point Federal Funds Rate increases since December 2016 and expectations for future rate increases. Total financing spreads: 2016 2017 2018 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Yields on all interest-earning assets 1.53% 1.45% 1.49% 1.67% 1.65% 1.68% 1.90% 2.07% Borrowing rates on all interest-paying liabilities 0.89 0.89 0.94 0.99 1.13 1.22 1.34 1.52 Total financing spreads 0.64 0.56 0.55 0.68 0.52 0.46 0.56 0.55 Financing spreads on residential mortgage investments, a non-gaap financial measure: Cash yields on residential mortgage investments (a) 2.50% 2.52% 2.55% 2.60% 2.66% 2.72% 2.79% 2.85% Investment premium amortization (a) (0.96) (1.06) (1.05) (0.93) (1.00) (1.03) (0.88) (0.77) Yields on residential mortgage investments 1.54 1.46 1.50 1.67 1.66 1.69 1.91 2.08 Unhedged secured borrowing rates (b) 0.67 0.69 0.79 0.89 1.09 1.33 1.39 1.64 Hedged secured borrowing rates (b) 0.96 0.93 0.95 0.96 1.08 1.10 1.23 1.35 Secured borrowing rates 0.84 0.84 0.89 0.93 1.08 1.17 1.29 1.47 Financing spreads on residential mortgage investments 0.70 0.62 0.61 0.74 0.58 0.52 0.62 0.61 Average constant prepayment rate ("CPR") 23.19 25.80 25.59 22.93 24.69 25.77 22.50 19.64 a) Cash yields are based on the cash component of interest income. Investment premium amortization is determined using the interest method which incorporates actual and anticipated future mortgage prepayments. Both are expressed as a percentage calculated on average amortized cost basis for the indicated periods. b) Unhedged borrowing rates represent average rates on secured borrowings, before consideration of related interest rate swap agreements. Hedged borrowing rates represent the average fixed-rate payments made on interest rate swap agreements held for portfolio hedging purposes adjusted for differences between LIBOR-based variable-rate payments received on these swaps and unhedged borrowing rates, as well as the effects of any recorded hedge ineffectiveness. 9

Changes in Interest Rates Affecting Capstead s Earnings The ten-year U.S. Treasury rate is presented as a proxy for mortgage interest rates, which can affect mortgage prepayments. The primary indices underlying our residential ARM securities portfolio and affecting our cash yields are higher, in large part due to the effects of five 25 basis point Federal Funds Rate increases since December 2016 and expectations of future rate increases. One-month LIBOR, a proxy for our borrowing rates, has increased largely for the same reasons. NOTE: Yellow highlighting indicates the summer selling season. 10

Agency Mortgage Prepayment Speeds versus Capstead Prepayment Speeds Mortgage prepayment levels are heavily influenced by the availability of mortgage financing at attractive terms and the overall health of the housing markets, as well as seasonal factors. Average mortgage prepayment levels decreased 12.7% in the first quarter. Second and third quarter 2018 prepayment activity will likely be driven higher by seasonal considerations, with refinancing activity primarily centered on homeowners whose mortgages are resetting higher. NOTE: Yellow highlighting indicates the summer selling season. 11

Key Elements of Capstead s ARM Portfolio The 94 basis point spread at March 31, 2018 between our Net WAC and Fully-Indexed WAC on the current-resetting portion of our ARM portfolio is indicative of the opportunity to earn higher cash yields over the course of 2018, particularly considering that the indices are considerably higher subsequent to quarter-end. As of March 31, 2018 (dollars in thousands, unaudited) Fully- Average Months Principal Investment Amortized Cost Basis Fair Market Net Indexed Net to Balance Premiums ($) % Value WAC (a) WAC (a) Margins Roll Current-reset ARMs: Fannie Mae Agency Securities $ 3,699,736 $ 119,914 $ 3,819,650 103.24 $ 3,876,101 3.25% 4.16% 1.69% 5.9 Freddie Mac Agency Securities 1,529,004 54,357 1,583,361 103.56 1,604,591 3.31 4.37 1.80 7.3 Ginnie Mae Agency Securities 1,394,813 45,577 1,440,390 103.27 1,446,649 2.73 3.61 1.51 6.3 Residential Mortgage Loans 1,155 7 1,162 100.61 1,179 4.04 4.30 2.11 5.1 (52% of total) 6,624,708 219,855 6,844,563 103.32 6,928,520 3.15 +0.94 4.09 1.68 6.3 Year-end 2017 3.05 +0.57 3.62 Longer-to-reset ARMs: Fannie Mae Agency Securities 3,042,157 82,678 3,124,835 102.72 3,082,340 2.77 4.24 1.59 41.6 Freddie Mac Agency Securities 1,633,346 46,444 1,679,790 102.84 1,655,569 2.73 4.29 1.64 38.8 Ginnie Mae Agency Securities 1,364,515 35,161 1,399,676 102.58 1,383,644 3.03 3.59 1.50 46.4 (48% of total) 6,040,018 164,283 6,204,301 102.72 6,121,553 2.82 +1.29 4.11 1.58 42.0 Year-end 2017 2.81 +0.81 3.62 $ 12,664,726 $ 384,138 $ 13,048,864 103.03 $ 13,050,073 2.99 +1.11 4.10 1.63 23.3 Year-end 2017 2.93 +0.69 3.62 Gross WAC (rate paid by borrowers) (b) 3.59 (a) Net WAC, or weighted average coupon, is the weighted average interest rate of the mortgage loans underlying the indicated investments, net of servicing and other fees, as of March 31, 2018. 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 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 indexes and net margins in effect, as of March 31, 2018. (b) Gross WAC is the weighted average interest rate of the mortgage loans underlying the indicated investments, including servicing and other fees paid by borrowers, as of March 31, 2018. NOTE: Excludes $2 million in legacy portfolio of fixed-rate investments. 12

Capstead s Stockholder Friendly Structure Capstead is internally-managed with low operating costs and stands out as a leader among our mortgage REIT peers (as well as other investment vehicles) in terms of operating cost efficiency. Our executives pay structure is variable through compensation elements that focus on pay for performance as opposed to fees paid to an external manager that are based solely on capital under management. Additionally, our board of directors and our senior executives are required to hold a significant amount of Capstead stock. As a result, we are incented to grow the Company by raising capital only when it is accretive to book value and earnings rather than for the purpose of increasing compensation or external management fees. Conversely, we are also not conflicted regarding whether or not to repurchase shares when appropriate. Year Year Quarter Ended Ended Ended Dec. 31, 2016 (a) Dec. 31, 2017 Mar. 31, 2018 Compensation-related expenses: Fixed: Salaries and related costs 0.26% 0.25% 0.29% Variable: Short-term incentive compensation 0.24 0.04 0.20 Long-term incentive compensation, primarily performance-based equity awards 0.11 0.07 0.10 Related savings plan matching and payroll taxes 0.02 0.01 0.04 0.37 0.12 0.34 0.63 0.37 0.63 Other platform expenses 0.34 0.34 0.38 Operating expenses as a percentage of average long-term investment capital 0.97% 0.71% 1.01% Operating expenses as a percentage of average total assets 0.10% 0.07% 0.10% The increase over 2017 is primarily due to a greater opportunity to outperform our peers in 2018. (a) Year ended December 31, 2016 operating cost efficiency is calculated excluding the effect of a $3 million separation of service charge. 13

CAPSTEAD Appendix 14

Capstead s First Quarter 2018 Highlights Generated earnings of $19.4 million or $0.16 per diluted common share Paid common dividend of $0.16 per common share Repurchased 3.4 million shares of common stock for $29.1 million, generating book value accretion of $0.06 per share Book value per common share declined 1.5% or $0.15, ending the quarter at $10.10 per common share, which together with the first quarter dividend, generated a positive economic return Generated a total stockholder return of 1.85% (7.71% annualized) Net interest margins were largely unchanged at $22.6 million as benefits of higher cash yields and lower mortgage prepayment rates largely offset higher borrowing rates and lower portfolio balances compared to the fourth quarter of 2017 Agency-guaranteed residential adjustable-rate mortgage (ARM) portfolio and leverage ended the quarter at $13.05 billion and 9.26 times long-term investment capital, respectively 15

Capstead s Quarterly Income Statements (dollars in thousands, except per share amounts, unaudited) Quarter Ended March December September June March 2018 2017 2017 2017 2017 Interest income: Residential mortgage investments $ 69,138 $ 64,418 $ 57,073 $ 56,103 $ 54,841 Other 408 207 366 238 153 69,546 64,625 57,439 56,341 54,994 Interest expense: Secured borrowings (45,021) (40,012) (36,655) (33,850) (28,240) Unsecured borrowings (1,891) (1,909) (1,910) (1,900) (1,891) (46,912) (41,921) (38,565) (35,750) (30,131) 22,634 22,704 18,874 20,591 24,863 Other revenue (expense): Compensation-related expense (2,048) (894) (1,073) (1,833) (1,115) Other general and administrative expense (1,237) (1,254) (1,097) (1,276) (1,062) Miscellaneous other revenue 71 2,031 48 67 15 (3,214) (117) (2,122) (3,042) (2,162) Net income $ 19,420 $ 22,587 $ 16,752 $ 17,549 $ 22,701 Net income available to common stockholders: Net income $ 19,420 $ 22,587 $ 16,752 $ 17,549 $ 22,701 Less preferred stock dividends (4,842) (4,842) (4,718) (4,018) (3,864) $ 14,578 $ 17,745 $ 12,034 $ 13,531 $ 18,837 Net income per diluted common share $0.16 $0.19 $0.13 $0.14 $0.20 Average long-term investment capital ("LTIC") $ 1,314,537 $ 1,362,700 $ 1,353,859 $ 1,358,646 $ 1,361,102 Average balance of mortgage assets 13,303,044 13,502,798 13,513,833 13,501,791 13,102,455 Investment premium amortization 25,620 29,773 34,950 33,661 30,385 CPR 19.64% 22.50% 25.77% 24.69% 22.93% Average total financing spreads 0.55 0.56 0.46 0.52 0.68 Average financing spreads on residential mortgage investments (a) 0.61 0.62 0.52 0.58 0.74 Operating costs as a percentage of average LTIC (b) 1.01 0.62 0.64 0.92 0.93 Return on average common equity capital 6.12 6.95 4.61 5.13 7.18 (a) See page 19 for further information regarding this non-gaap financial measure. (b) Excludes the effects of first quarter 2017 adjustments to annual incentive compensation accruals of $938,000. 16

Capstead s Annual Income Statements Five Years Ended 2017 (dollars in thousands, except per share amounts, unaudited) Year Ended December December December December December 2017 2016 2015 2014 2013 Interest income: Residential mortgage investments $ 232,435 $ 212,694 $ 215,989 $ 226,749 $ 215,137 Other 964 637 341 315 322 233,399 213,331 216,330 227,064 215,459 Interest expense: Secured borrowings (138,757) (107,653) (85,521) (65,155) (66,368) Unsecured borrowings (7,610) (7,833) (8,454) (8,488) (8,736) (146,367) (115,486) (93,975) (73,643) (75,104) 87,032 97,845 122,355 153,421 140,355 Other revenue (expense): Compensation-related expense (4,915) (11,749) (10,200) (8,302) (9,341) Other general and administrative expense (4,689) (4,682) (4,798) (4,157) (4,476) Miscellaneous other revenue (expense) 2,161 1,459 968 (142) (300) (7,443) (14,972) (14,030) (12,601) (14,117) Income before equity in earnings of unconsolidated affiliates 79,589 82,873 108,325 140,820 126,238 Equity in earnings of unconsolidated affiliates - - - - 249 Net income $ 79,589 $ 82,873 $ 108,325 $ 140,820 $ 126,487 Net income per diluted common share $0.65 $0.70 $0.97 $1.33 $0.93 Core earnings per diluted common share (a) $1.16 Average long-term investment capital ("LTIC") $ 1,359,067 $ 1,384,074 $ 1,476,953 $ 1,498,252 $ 1,545,350 Average balance of mortgage assets 13,406,614 13,658,034 13,922,698 13,424,149 13,550,511 Investment premium amortization 128,769 130,084 121,190 101,872 125,872 CPR 23.97% 23.20% 20.37% 17.28% 21.45% Average total financing spreads 0.55 0.64 0.81 1.06 0.96 Average financing spreads on residential mortgage investments (a) 0.61 0.72 0.89 1.17 1.07 Operating costs as a percentage of average LTIC (b) 0.71 0.97 1.02 0.83 0.89 Return on average common equity capital 5.96 6.20 7.86 10.37 7.08 (a) (b) See page 19 for further information regarding these non-gaap financial measures. Excludes the effects of first quarter 2017 adjustments to annual incentive compensation accruals of $938,000. Year ended December 31, 2016 excludes the effects of separation of service charges totaling $(3.0 million) and an adjustment to the prior year annual incentive compensation accrual of $(655,000). 17

Capstead s Comparative Balance Sheets (dollars in thousands, except per share amounts, unaudited) March 31, December 31, December 31, December 31, December 31, 2018 2017 2016 2015 2014 Assets Residential mortgage investments $ 13,052,071 $ 13,454,098 $ 13,316,282 $ 14,154,737 $ 13,908,104 Cash collateral receivable from interest rate swap counterparties 36,586 42,506 29,660 50,193 53,139 Interest rate swap agreements at fair value 387-24,709 7,720 1,657 Cash and cash equivalents 89,915 103,907 56,732 54,185 307,526 Receivables and other assets 113,565 132,938 149,493 179,531 116,525 $ 13,292,524 $ 13,733,449 $ 13,576,876 $ 14,446,366 $ 14,386,951 Liabilities Secured borrowings $ 11,944,841 $ 12,331,060 $ 12,145,346 $ 12,958,394 $ 12,806,843 Interest rate swap agreements at fair value 18,265 23,772 24,417 26,061 27,034 Unsecured borrowings 98,216 98,191 98,090 97,986 97,882 Common stock dividend payable 15,069 18,487 22,634 25,979 34,054 Accounts payable and accrued expenses 23,905 23,063 38,702 39,622 30,367 12,100,296 12,494,573 12,329,189 13,148,042 12,996,180 Stockholders' Equity Preferred stock 250,946 250,946 199,059 197,172 183,936 Common stock 896,928 925,812 942,842 965,057 979,413 Accumulated other comprehensive income 44,354 62,118 105,786 136,095 227,422 1,192,228 1,238,876 1,247,687 1,298,324 1,390,771 $ 13,292,524 $ 13,733,449 $ 13,576,876 $ 14,446,366 $ 14,386,951 Book value per common share (based on outstanding shares of common stock and calculated assuming liquidation preferences for preferred stock) (unaudited) 10.10 $10.25 $10.85 $11.42 $12.52 Long-term investment capital (stockholders' equity and unsecured borrowings (unaudited) $1,290,444 $1,337,067 $1,345,777 $1,396,310 $1,488,653 Portfolio leverage (secured borrowings divided by long-term investment capital) (unaudited) 9.26:1 9.22:1 9.02:1 9.28:1 8.60:1 18

Non-GAAP Financial Measures 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. We believe presenting financing spreads on residential mortgage investments provides useful information for evaluating the performance of the Company s portfolio. Core earnings per diluted common share is a non-gaap financial measure that differs from the related GAAP measure of net income per diluted common share by excluding certain one-time effects of second quarter 2013 transactions to redeem then-outstanding high-cost convertible preferred capital and issue our 7.50% Series E preferred shares. We believe presenting this metric on a core earnings basis provides useful, comparative information for evaluating the Company s performance. (unaudited) 2018 2017 2016 Quarter Ended: Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Total financing spreads 0.55% 0.56% 0.46% 0.52% 0.68% 0.55% 0.56% 0.64% Impact of yields on other interest-earning assets 0.01 0.01 0.01 0.01 0.01 0.01 0.01 Impact of borrowing rates on other interest-paying liabilities 0.05 0.05 0.05 0.05 0.06 0.05 0.05 0.05 Financing spreads on residential mortgage investments 0.61 0.62 0.52 0.58 0.74 0.61 0.62 0.70 Year Ended: 2017 2016 2015 2014 2013 Total financing spreads 0.55% 0.64% 0.81% 1.06% 0.96% Impact of yields on other interest-earning assets 0.01 0.02 0.03 0.05 0.04 Impact of borrowing rates on other interest-paying liabilities 0.05 0.06 0.05 0.06 0.07 Financing spreads on residential mortgage investments 0.61 0.72 0.89 1.17 1.07 Core earnings available to common stockholders Quarter Ended Year Ended and core earnings per diluted common share: June 30, 2013 December 31, 2013 Net income available to common stockholders $ 4,103 $0.04 $ 89,027 $0.93 Redemption preference premiums paid 19,924 0.21 19,924 0.21 Convertible preferred dividends accruing from the Series E preferred stock issue date to the convertible preferred redemption date 1,741 0.02 1,741 0.02 Core earnings available to common stockholders $ 25,768 $0.27 $110,692 $1.16 19

Experienced Management Team Our top four executive officers have over 75 years of mortgage finance industry experience. Phillip A. Reinsch President and Chief Executive Officer Appointed President, CEO and Director in July 2016 Has served in other executive positions at Capstead since 1993, including our previous Chief Financial Officer. Robert R. Spears Executive Vice President, Chief Investment Officer Has served in asset and liability management positions at Capstead since 1994 Formerly Vice President of secondary marketing with NationsBanc Mortgage Corporation Roy S. Kim Senior Vice President, Asset and Liability Management and Treasurer Joined Capstead in April 2015 augmenting our asset and liability management capabilities with primary responsibility for liability management Has over 20 years experience in the mortgage finance industry, primarily in trading capacities with JP Morgan and Bank of America Lance J. Phillips Senior Vice President, Chief Financial Officer and Secretary Joined Capstead in October 2017 Has 20 years experience in the accounting and finance industry, most recently as Vice President and Principal Accounting Officer for InfraREIT, Inc. 20