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Capstead Mortgage Corporation Announces First Quarter
Net Income and Declares First Quarter Common Dividend

    DALLAS, April 19 -- Capstead Mortgage Corporation

(NYSE: CMO) today reported net income of $24,649,000, or $0.69 per diluted

common share, for the quarter ended March 31, 2001, compared to net income for

the quarter ended March 31, 2000 of $11,670,000, or $0.22 per diluted common

share, and net income of $11,329,000, or $0.21 per diluted common share, for

the quarter ended December 31, 2000.  The Company also announced that the

Board of Directors declared a first quarter dividend of $0.49 per common

share, payable on May 21 to stockholders of record as of May 7, 2001.

    First Quarter Earnings and Related Discussion

    Income before gain on sale of mortgage assets for the first quarter of

2001 increased to $18,786,000, or $0.49 per diluted common share, from

$11,329,000, or $0.21 per diluted common share for the fourth quarter of 2000

and $11,670,000, or $0.22 per diluted common share for the first quarter of

2000.  Current quarter financing spreads (the difference between the yield

earned on mortgage investments and the rate charged on related borrowings)

improved over fourth quarter 2000 spreads as a result of actions taken by the

Federal Reserve during the first quarter to lower short-term interest rates by

a total of 150 basis points.  Current quarter spreads improved over first

quarter 2000 spreads because of higher yields earned on the mortgage

investment portfolio, which currently consists largely of adjustable-rate

mortgage ("ARM") Fannie Mae, Freddie Mac and Ginnie Mae securities.  Yields on

ARM securities steadily increased over the past year as coupon interest rates

on the underlying mortgage loans reset higher reflecting the rising interest

rate environment experienced during 2000.

    The overall yield earned on the mortgage investment portfolio averaged

7.06% during the first quarter of 2001, compared to 7.09% during the fourth

quarter of 2000 and 6.20% during the first quarter of 2000.  As expected,

yields on ARM securities peaked during the first quarter of 2001 and then

began declining, reflecting the current trend of declining interest rates that

has been evident since the Federal Reserve began lowering short-term interest

rates in January 2001.  Yields on ARM securities are expected to continue to

decline in the coming quarters.  For example, if interest rates stabilize at

current levels, yields on the Company's current holdings of ARM securities

could decline a total of 90 basis points by year-end.  Actual yields on the

ARM securities will depend on fluctuations in, and market expectations for

fluctuations in, interest rates and levels of mortgage prepayments.

    With its most recent action on April 18, 2001, the Federal Reserve has

reduced the Federal Funds Rate by a total of 200 basis points since the

beginning of this year in response to concerns over economic weakness.  The

50 basis point reductions on each of January 3, January 31 and March 20, 2001

contributed to a 76 basis point decline in the Company's average borrowing

rates to 5.81% during the first quarter.  Average borrowing rates were

6.57% during the fourth quarter of 2000 and 5.85% during the first quarter of

2000.  The Company's borrowing rates are expected to decline another 113 basis

points in the second quarter of 2001 as the full effect of the first quarter

interest rate reductions and most of the effect of the April rate reduction

are realized.  Any further changes in the Company's borrowing rates will

depend on future actions by the Federal Reserve to change short-term interest

rates, market expectations of future changes in short-term interest rates and

the extent of any financial market liquidity concerns.

    The principal prepayment rates on holdings of ARM securities increased

during the first quarter and are anticipated to increase further during the

second quarter.  Currently, coupon interest rates on most of the mortgage

loans underlying these ARM securities are above prevailing fixed-rate mortgage

interest rates, which is expected to prompt higher levels of prepayments until

such time as these loans reset to lower levels as discussed above.  Annualized

prepayment rates on Ginnie Mae ARM securities averaged 28.2% during the first

quarter of 2001, significantly higher than the 18.4% annualized rate during

the fourth quarter of 2000 and the 14.9% level experienced in the first

quarter of 2000.  Annualized prepayment rates on Fannie Mae and Freddie Mac

ARM securities averaged 24.6% during the first quarter of 2001, compared to

23.5% during the prior quarter and 18.3% for the same period of 2000.  While

lower prepayment levels improve mortgage investment yields by allowing related

purchase premiums to be recognized in operating results over a longer period,

higher prepayment levels shorten the period over which the premiums are

amortized thus reducing investment yields.  As a result of the increased

prepayments, net amortization of purchase premiums on holdings of ARM

securities increased to $4.9 million during the first quarter, from

$3.1 million during the fourth quarter of 2000.  As of March 31, 2001, the net

premium on holdings of ARM securities was 1.15% of principal, or

$50.7 million.

    The Company's mortgage investment portfolio declined during the first

quarter of 2001 to $4.7 billion from $5.4 billion at year-end 2000 as a result

of portfolio runoff and the previously announced first quarter sale of over

$400 million of medium-term securities.  Purchases were limited to $87 million

of ARM securities.  Although acquisitions of credit-sensitive mortgage assets

have been limited, the Company continues to actively evaluate such investments

which, when combined with the prudent use of leverage, can provide attractive

returns.  The future size and composition of the Company's mortgage-related

investments will depend on market conditions, including the availability of

suitable investments at attractive pricing.

    Book Value per Common Share

    At March 31, 2001 book value per common share was $14.09, compared to

$13.11 at December 31, 2000, (calculated excluding the first quarter 2001

common dividend declared today, and assuming redemption of the Series A and B

preferred shares and conversion of the Series C preferred shares).  The

increase in book value reflects the positive impact on the market value of the

mortgage investment portfolio from lower prevailing interest rates.  The

market value of the mortgage investment portfolio will continue to fluctuate

with changes in interest rates and market liquidity, and such changes will be

reflected in book value per common share.

    The completion of a previously announced tender offer on March 19, 2001

resulted in the repurchase of 551,690 common shares at a purchase price of

$13.25 (after transaction costs).  The offer did not have a significant

immediate impact on book value per common share, although remaining

outstanding common shares will participate to a greater extent in future

earnings and changes in market value of the Company's mortgage assets.

    Capstead Mortgage Corporation, a real estate investment trust with assets

of over $7.7 billion, earns income from investing in mortgage assets and other

investment strategies.

    This document contains "forward-looking statements" (within the meaning of

the Private Securities Litigation Reform Act of 1995) that inherently involve

risks and uncertainties.  The Company's actual results and liquidity can

differ materially from those anticipated in these forward-looking statements

because of changes in the level and composition of the Company's investments

and unforeseen factors.  As discussed in the Company's filings with the

Securities and Exchange Commission, these factors may include, but are not

limited to, changes in general economic conditions, the availability of

suitable investments, fluctuations in and market expectations for fluctuations

in interest rates and levels of mortgage prepayments, deterioration in credit

quality and ratings, the effectiveness of risk management strategies, the

impact of leverage, the liquidity of secondary markets and credit markets,

increases in costs and other general competitive factors.


                         CONSOLIDATED BALANCE SHEETS

                   (In thousands, except per share amounts)

                                       March 31, 2001     December 31, 2000



     Mortgage investments               $4,682,937            $5,394,459

     CMO collateral and investments      3,020,161             3,126,878

                                         7,703,098             8,521,337

     Prepaids, receivables and other        70,599                67,399

     Cash and cash equivalents              13,373                21,761

                                        $7,787,070            $8,610,497


     Borrowings under repurchase

      arrangements                      $4,168,018            $4,904,632

     Collateralized mortgage

      obligations ("CMOs")               2,998,224             3,103,874

     Accounts payable and accrued

      expenses                              17,604                31,112

                                         7,183,846             8,039,618

    Preferred stock subject to

     repurchase $0.56 Cumulative

     Convertible Preferred Stock,

     Series C, $0.10 par value;

     5,378 shares authorized, issued

     and outstanding March 31, 2001

     and December 31, 2000,

     respectively ($26,368 aggregate

     repurchase amount)                     25,210                25,210

    Stockholders' equity

     Preferred stock - $0.10 par

      value; 94,622 shares authorized:

       $1.60 Cumulative Preferred Stock,

        Series A, 374 shares issued

        and outstanding at both

        March 31, 2001 and

        December 31, 2000, respectively

        ($6,134 aggregate liquidation

        preference)                          5,228                 5,228

       $1.26 Cumulative Convertible

        Preferred Stock, Series B,

        15,845 shares issued and

        outstanding at March 31, 2001

        and December 31, 2000,

        respectively ($180,316 aggregate

        liquidation preference)            177,012               177,012

     Common stock - $0.01 par value;

      100,000 shares authorized; 24,725

      and 25,282 shares issued and

      outstanding at March 31, 2001

      and December 31, 2000, respectively      247                   253

     Paid-in capital                       733,340               740,613

     Accumulated deficit                  (378,127)             (396,882)

     Accumulated other comprehensive

      income                                40,314                19,445

                                           578,014               545,669

                                        $7,787,070            $8,610,497

    Book value per common share

     outstanding (A)                        $14.09                $13.11

    (A)  Calculated excluding the first quarter 2001 common dividend declared

         today, and assuming redemption of the Series A and B preferred shares

         and conversion of the Series C preferred shares.



                   (In thousands, except per share amounts)


                                           Quarter Ended March 31

                                              2001        2000

    Interest income:

        Mortgage investments              $  87,542   $  84,900

        CMO collateral and investments       55,785      57,929

                Total interest income       143,327     142,829

    Interest and related expense:

        Borrowings under repurchase

         arrangements                        65,162      71,908

        CMO borrowings                       55,615      57,903

        Mortgage insurance and other            328         403

            Total interest and related

             expense                        121,105     130,214

              Net margin on mortgage

               assets                        22,222      12,615

    Other revenue (expense):

        Gain on sale of mortgage assets       5,863         ---

        CMO administration and other            719         784

        Other operating expense              (4,155)     (1,729)

            Total other operating

             revenue (expense)                2,427        (945)

    Net income                            $  24,649   $  11,670

    Net income                            $  24,649   $  11,670

    Less cash dividends on preferred

     stock                                   (5,894)     (6,271)

    Net income available to common

     stockholders                         $  18,755   $   5,399

    Net income per common share:

        Basic                             $    0.75   $    0.22

        Diluted                                0.69        0.22

    Cash dividends declared per share:

        Common                            $   0.490   $   0.220

        Series A Preferred                    0.400       0.400

        Series B Preferred                    0.315       0.315

        Series C Preferred                    0.140       0.140

        Series D Preferred (converted

         into common shares

         December 28, 2000)                     ---       0.100


                            MARKET VALUE ANALYSIS

                                (In thousands)


                                  March 31, 2001                  December 31,


                                                        Unrealized Unrealized

     Mortgage      Principal Premium              Market   Gains      Gains

    Investments    Balance  (Discount)  Basis     Value  (Losses)   (Losses)

    Held available

    -for-sale: (A)

    Agency securities:


      Fixed-rate    $3,353     $16     $3,369     $3,586     $217       $219

      Medium-term  101,674     226    101,900    103,145    1,245      4,159


       LIBOR/CMT 2,106,777  37,088  2,143,865  2,159,667   15,802      8,918

       COFI        203,353  (4,745)   198,608    205,514    6,906      3,908

     GNMA ARMs   2,018,225  18,312  2,036,537  2,048,611   12,074       (632)

                 4,433,382  50,897  4,484,279  4,520,523   36,244     16,572


     securities     85,304      23     85,327     86,958    1,631      1,852

    CMBS -


     rate           74,058    (589)    73,469     74,265      796        996


     collateral and

     investments    67,864   2,935     70,799     71,462      663         25

                $4,660,608 $53,266 $4,713,874 $4,753,208  $39,334 (B)$19,445

    Held-to-maturity: (C)


      securities    $1,201    $(10)    $1,191     $1,275      $84       $---


      collateral 2,920,090  28,609  2,948,699  2,936,370  (12,329)   (13,122)

                $2,921,291 $28,599 $2,949,890 $2,937,645 $(12,245)  $(13,122)

    (A)  Investments held available-for-sale are marked to market through

         stockholders' equity as a component of "Accumulated other

         comprehensive income."  Gains or losses are recognized in operating

         results only if sold.

    (B)  "Accumulated other comprehensive income" at March 31, 2001 also

         includes a $980,000 adjustment for call right derivatives recorded as

         cash flow hedges with the January 1, 2001 adoption of new derivative

         accounting rules.

    (C)  Investments held-to-maturity are carried on the balance sheet at

         amortized cost.


                        PORTFOLIO YIELD/COST ANALYSIS

                            (Dollars in thousands)


                                                            Proj-     Life-

                       1st Quarter         As of March 31,  ected     time

                         Average                 2001        2nd      Pre-

                         Actual   Actual   Premiums        Quarter   payment

                                                            Yield/ Assumptions

                 Basis   Yield/   Runoff  (Discounts)  Basis Cost


                  (A)                                   (A)   (B)      (B)





       rate       $3,395  9.89%      7%        $16     $3,369  9.60%    25%


       term      227,721  6.94      20         226    101,900  6.11     25



       /CMT    2,214,537  7.08      25      37,088  2,143,865  6.80      40

       COFI      202,308  7.36      12      (4,745)   198,608  6.72      15


      ARMs     2,140,864  6.93      28      18,312  2,036,537  6.56      26

               4,788,825  7.02      26      50,897  4,484,279  6.67      32


     securities   90,531  8.23      33          13     86,518  7.99      30

    CMBS -


     -rate        73,595  8.35       4        (589)    73,469  7.39     ---

               4,952,951  7.06      26%    $50,321  4,644,266  6.71      32%

    Borrowings 4,534,101  5.81                     (4,168,018) 4.68




     spread     $418,850  1.25%                      $476,248  2.03%

    Return on

     assets (C)           1.80%                                2.49%

    (A)  Basis represents the Company's investment before mark-to-market.

    (B)  Projected yields reflect ARM coupon resets and lifetime prepayment

         assumptions as adjusted for expected prepayments over the next

         3 months, as of the date of this press release.  Actual yields

         realized in future periods will largely depend upon (i) changes in

         portfolio composition, (ii) ARM coupon resets, (iii) actual

         prepayments and (iv) any changes in lifetime prepayment assumptions.

    (C)  The Company uses its liquidity to pay down borrowings.  Return on

         assets is calculated assuming the use of this liquidity to reduce borrowing costs.
SOURCE Capstead Mortgage Corporation
Web Site: http://www.capstead.com
hosted by USANow.net

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