CMO - Earnings call transcript Q3 2017

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Operator

Good day and welcome to the Capstead Mortgage Third Quarter 2017 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Lindsey Crabbe, Manager of Investor Relations. ahead. go Please

Lindsey Crabbe

you Call. Thank Capstead's Quarter Third Good for Conference Earnings morning. attending

The yesterday, website the available the replay of Reinsch, XXth, President of Officer; A replay Vice was was Officer, and Senior release Relations call will XXXX. With Vice webcast third release. Investment earnings available will President quarter be Executive Lance and the in President issued archive Executive Phil included January The through to are our Chief Investor me this of at is be webcast also tab. Chief Robert are of posted Financial website yesterday’s days. October Spears, an www.capstead.com Phillips, for and Chief Relations under our in Details today and XX Officer. Investor section link this and on and XXth, the

want get Private and XXXX today’s considered based assumptions could expectations be started, we some Harbor on and that of of Before pursuant Safe of I Act remind certain of comments Litigation the Reform provisions statements to forward-looking are you management. to Securities the

call. update filings date a available I the is of of detailed that, risk Phil. our to any Company statement any the The over associated during With obligation SEC the our it of no in only For current including this business, as statements this call, XXXX. The October to will refer assumes XXth, to which all with are forward-looking information turn made website. on please call our factors contained list with this

Phillip Reinsch

stockholders. contribute call of year-to-date per for environments recent which maturities [low largely an these value swap rising have year stubbornly $X.XX challenging of prepayments ARM share X.XX% with down second agency penny for then declines We brief of quarter hampered and EPS [ph] this cost. of the averaged quarter return third the guaranteed far common about third quarters during Mortgage gains we which levels for I’ll CPR book produced together we’ve borrowing thus the by $X.XX unrealizable] everyone. economic welcome the prepayments been points quarter CPR responsible up than make as $X.XX security high morning and XX.XX affected well. in for Good few a and from been our mortgage EPS Earnings X.X third reported operating comments will our questions. the to on quarter. Through quarter High roughly prepayments portfolio a open portfolio by and in second have the by three higher X negatively basis cents. yield and

we benefiting prepayments forward expect to coming fee quarters. in lower from Looking begin the

ARMs the resetting to Back since with offset XX% were hike, points with available For last rate mid as cash the month. short rate spreads refinancing should recent so coming including prepays homeowners time quarter roughly in by coupon cash to now yields as what to and interest recover six average are reflecting was dealt portfolio attractive the rates underlying of diminish basis to with loans continue Borrowing strategy, higher resetting instance having mortgage the key already third term nine see opportunity fell less is portfolio results. currently through rates called of as of higher partially them rising These points recently This to higher interest end a the the we term third our benefit as This rates, agency effects reset, Fed borrowing rates. the short yields in options basis underlying XX higher than by differentiating second improvement. XX.XX higher seasonality season June feature i.e. to continued the number factors And, a to with points of October higher with rates. in selling December burnout ARM due December. CPR loans current reset more our beginning basis to duration increase increases financing quarter, such longer quarters. than over ARM last

highly quarter another lower cost wide vehicles. is basis actually and operating to our compensation Third basis points basis primarily year-to-date cost adjustments structure six high a on in peer points a we At with performance due XX from leader cost this to REIT are assets, results this basis based industry year-to-date mortgage on also efficiency benefited quarter of points capital, points quarter a And, variety actually accruals. points basis total XX inside the from basis investment well competitive XX seven operating a XXX points standpoint. and yielding

resources, for for financing with robust As capital repo. remain the strong markets demand agency

This Mr. in the manager of to to million This $XX the quarter as Lance us much continuous family issue of stock net with brings to CFO. issue using to us of issuances [ph] preferred in over a pleased Phillips price final introduce most a executive bit comes experience, XX quarter Dallas. $XX L. financial over Series analyst, we [B] a joined with I’m program. share. at the here Ray of new right took and Lance note, who our of member Hunt investors our our at-the-market opportunity InfraREIT recently over to year-to-date million new years the extremely external companies XX.XX a week offering late One just Inc, this

to forward to the We’re us question. open look ahead. working I’ll excited years with Lance have call and that, With in him join to the up

Operator

Your question-and-answer the with We Please Hagen from Instructions] ahead. [Operator comes will begin go KBW. now first Eric session. question

Eric Hagen

which reset? super experienced about price differ their a and to the has paper aggregate beyond are than hoping ARM guys. reset ones does for reset, reset share are see season dollar about two price one your you in from dollar I’m where current year Thanks, morning, bonds first some portfolio. the hit initial good that bonds can market detail can how We but that more or Thanks. on is, around their the Thanks. the

Robert Spears

Sure Eric, is I’ll that. this Robert take

if kind time look the papers say XXX If upper you anywhere very XXX in trading, of bonds I paper the from coupon at from on go season reset season that the are still XXX handle as resetting post XXXs, just where reset, the depending very trading LIBOR trading would to upper in paper to a for new standpoint, still where you just first that’s post mid non-IO CMP well. is

versus with to and trading XXX So, an looking mid seasoning, depending from XXX, component the is the at IO probably range post I mean, quarters. vintage, XXX on in depending reset you’re on three vintage anywhere IO seasoning non-IO, generically bucket, the so the

Eric Hagen

helpful really That’s Perfect. answer.

the bucket mark past the or on this current-reset from negative bucket? was So, side quarter asset the the longer-reset

Robert Spears

were Yes, [ph] seasoned I instance they basically but little were look of in bit at a well. say for [fixed] flat bucket, ARM [ph] down flat, couple would mean, issue of prices if you to of our couple XXs, down [fixed] yes, new both, I a they’re as

ARMS So, pass-throughs worked in obviously the little on between well, being underperformed quarter substantially our [type] move dollar portfolio. [Indiscernible] material prices they side this a really speeds fixed [ph] rate in quarter, on and which ARM fast but the underperformed the

Eric Hagen

helpful. that’s Robert, thanks Right,

buckets that prepays GSC on paper and step also is Thanks. GSC a in guys explains Ginnie what piece beyond your Ginnie for I’m difference for break going the I curious and outlook paper out You going both prepayments guess, of what paper, both for and marks forward? those one each

Phillip Reinsch

you you I amount on the mean, paper but of we newer ARM we of these improvements that been I VA by are think very I asking we we see of decent they those have to Mae we world, into than are seeing side the all that Ginnie have. longer-reset guess started so are see a heat the paying have speeds we years newer season we the Ginnie’s right to ARMS some like hot the think predictably particularly had of which kind of behave [Indiscernible] some decline paying them more of some, of Ginnie that own improvements, on a don’t XXGinnie to MIP couple starting originators to memo and churning own they some in books, are now. Ginnie and to bonds originators. And, of has some well, starting slower that the issued little in between first And, issue fact so are haven’t paper speeds, ACPR, VA I a is look backed a of their paper, Ginnie predominantly lot who some slowest on recently now, are a some Ginnie some

Eric Hagen

more rate we get a end or answer. helpful Last in from between guys how me, of and a the now couple now, right if adding we next ton think of couple that’s do question you even a about of that a what’s fact keeping portfolio Interesting, leverage should the in hikes for year?

Phillip Reinsch

raising bit little preferred capital this a of quarter, in related but saw late decline that’s to leverage some actually in quarter. We the very mostly

We’re always that you’ve up your to the the to when manage conditions, don’t at and is turn really for leverage be not we looking financing, heavily too handle but it book up facing how or on them. can to we with you whether market got going depend you’re counterparties, in is levered healthy want

So, counterparties of for balances. there’s asking certainly lot a and plenty of capacity more

Eric Hagen

for the Okay. guys it. appreciate I always. Thanks as comments

Operator

from Delaney comes Steve with JMP. go question next Please The ahead.

Steve Delaney

versus other wondering, if the bringing I trading higher just on you Lance caused if move Thanks. you the might you regarding just in side? class, than Robert underperformance in technicals on the I’m curious issue and have unusual asset performed ARMs kind any quarter. ARMs just any the rate not on ARMs congratulations of going fixed move the fixed quarter coupons Good to in universe which prices, morning, to bond just everyone on prepayment well very the patterns that’s within it saw like this noted board. of the not commented was unusual

Robert Spears

first curve things, foremost the of more. and couple a Well, flattened

you Secondly going couple at of because you’ve had in there we some and the production that the led was of with quarter end starting a production into selling. day trading translates, of what trading we’ve quarter are in and in spread speediness long in rates curve they’re in lag what secondary What’s the ARM the see at well now pickup some quarter start time point the off weeks selling, last the between trading in saw on the secondary in like quarter started ARMs, now. well wide really And, to production so second had big really decline better right XX and so, little very second is well and going taper seen as you this to ARMs the end because third the ARM you’re supply, third - a up. have curve now

of kind early into spillover affect between, was third quarter yes, it quarter. second So, lag the from

three or two So, the significantly last technical in improved have ARMs. weeks the in

Steve Delaney

has As years the XX sold off.

Robert Spears

XX two production years new there right then now. it probably production little months very and running Production, issue from ago. down sold XX% is was off is where

Steve Delaney

this lows. refis guess yes. slow and I one the how decent XX we need they’re year XX so reset September split between if CPRs? really interesting type higher purchase it, real points being you’re years, and Wells sitting post to got maybe go refis of to higher LIBOR, morning, noticed And, on that’s any it, Got How was when to does down quarter where XX basis you ARMs in expensive, end kind not about their money does then the teen do they’ve that thing spread early to generally there, compare quotes high this at of much this which really to morning I year is up and more saw actually with a have linked and resetting, four than

Robert Spear

say is put margin to to and if just let’s mean, and coupon at, X.X. at around underlying rate have which you net is on XXX I top that, of, you XXX that your mortgage X couple XXX roughly of look LIBOR A when if gets going

guys months year. LIBOR season there been guys is sitting so the a a yes, these And, a ago, kind XXX the your the has XX last So, anymore, shock it’s reset that those up they’ve initial the But in very rate ARMs, XX points so a to same for reset for some there that happening ago, year between these range. in of the difference been stable XX basis very months. it’s a not prepayment is at of what’s particularly now, of XXX and lot been XXX when of not XX to year now lot

you the don’t season a start lot not low on a And, now if XXs. pure effect ARMs burnout nest times just to So, decision. very paper a rate down from the stir so a are and has we you that to where XXs season hornets seeing drifted see up mid right the it’s of

so it’s year helping and now index our underlying right a LIBOR ARM the stability lot speed one And of standpoint. from is

Steve Delaney

about point consistency. That’s a great the

has year, okay, point, when may I or not XX, somebody up burnout month about get So, really because he two he’s reset shock who it last sticker XX any ago, coming that’s not months had a element. great thought saw a that

month deal, new an just large saw So, each a some portfolio, portfolio the wanted of great. the billion acquire season candidates we it to ago, as billion $XX sound REIT history come a two M&A like you’re as one just anybody, $XX floating not we’ll lesson, And, haven’t you ago it market? if that seen you creating kind see a thoughts mean, their that like, out a around curious sounds I in but mortgage in have had guys know when there well may years few very large I’m that years reported, that but okay, list maybe my of the of were company underperformances any I in hadn’t transaction mind ARM

Phillip Reinsch

in been and you what you and $X.X managers, sold of do billion there been have you think now secondary it own mix banks, secondary REITs. RIETs billion look ARMs papers in RIETs. ARM the the there by third math in money selling, the And, so and that so I mean I and versus there’s if have can secondary you always Well, quarter quarter, you selling, was second have at have selling, on $X.X some has

Steve Delaney

helpful. by that’s the And, week XX-Q, by And, your okay, you’re quick with Friday? thanks. Interesting, we for look of guys pretty that should the end

Phillip Reinsch

A week, on week. Friday

Steve Delaney

week. Friday

Phillip Reinsch

Yes.

Steve Delaney

not owe model can a comments. I we update if when get for the you before. see Well, Okay. that we quick Thanks that and we’ll as as guys out

Phillip Reinsch

right. All

Operator

Please Wasatch The next ahead with Advisors. question comes go from [Jim DeLisle]

Unidentified Analyst

Good morning folks.

Phillip Reinsch

Good morning.

Unidentified Analyst

basic changed Lance. I And, your quarter heck a assumption meeting value lot a you. to books welcome forward look hasn’t on assumption? whole since Based that Is of my end. a fair

Phillip Reinsch

give to too update hate you on I Well, much there.

Unidentified Analyst

Okay, would somewhere assumption. guys you price book XX can you or my me, well side a share probably just for that on illusions. your of let an me on have be [Indiscernible] low buyback Don’t from Board? so, The work remind authorization do

Phillip Reinsch

a opportunity shares a we we acquire put We any a quick do, reactivate. so in we with suspended the reauthorized buyback Board, that to ago, a it, XXX shares discount, call be never the but Januarys hard million didn’t not it we with that’s but of got back that XXXX, seat had place actually of couple use could authorization, to bought so we late in

Unidentified Analyst

in sector, level that? Lee to out given run relative many classes just Cooperman people your it other the hear terms stability at of guys of leave you inherent say, thinks asset the there leverage class like within that [Indiscernible] of the one and higher significantly could asset duration a could of

Phillip Reinsch

than higher REIT virtue average short our by duration about having of portfolio. - turn fully We turn a already the mortgage a levered

Unidentified Analyst

Okay.

Phillip Reinsch

built that it. So, already it’s some of

Unidentified Analyst

again running other once All stability be from I’m class of of - inherent than but might higher my position view. point premium to more looking right, a asset just own and leverage comfortable that the might those the stating even might

movement there seems recently? been is, the are ARMs being to see by the do question creating where secondary those of prices, influenced marketplace, you floaters in to bit Second a ARMs what in little spreads extent CMO prices, have

Phillip Reinsch

and Mae have decent traded ARM are recently, so big - as I And, bonds, trades we it’s the does rich collateral been dictates floater even those LIBOR floater season there’s cheaper amount, bid type so that what that Ginnie richer, different creator paper for that’s is has of and pricing from Yes, materializes a that what in well. also a the with factor IO, CMO a mean, IO and very type strongly price of structures Ginnie have ARM collateral standpoint.

Unidentified Analyst

we regular you’re in saw seasonal, speed last expect year vicinity thinking And, slightly winter we would through the go as that you level? expect can tracking of set we the we the higher that or somewhere

Phillip Reinsch

raise, in of end upon expect into last because to older now last you’ve that so last be the refinance slower will mainly depends quarter as the see to year, rush looking probably quarter at last if would of year you year running quarter be well. of in the post-election first speeds not and the fourth at versus and I to year slower this shot year REIT year and the that right just fourth year, slower as they’re slightly still versus it this remember going are got and up curve but this slope you through Obviously

Unidentified Analyst

Great, thank to you you; and Lance. and to congratulations once again guys

Phillip Reinsch

Jim. Thanks

Operator

This the for to Lindsey session. I question-and-answer conference Instructions] closing Crabbe back any remarks. turn our concludes to would [Operator like over

Lindsey Crabbe

Thanks again today. for joining us

We If with a forward call. question, to please you further quarter. us next you give speaking have look

Operator

The conference attending has today’s now for concluded. Thank you presentation.

You may now disconnect.

Capstead Mortgage (CMO) 26 Oct 172017 Q3 Earnings call transcript