CMO - Earnings call transcript Q3 2018

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Operator

Good morning and welcome to the Capstead Mortgage Third Quarter Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Lindsey Crabbe, Investor Relations. Please go ahead.

Lindsey Crabbe

morning. Good attending earnings for call. third Capstead's you conference quarter Thank

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

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

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

Phillip Reinsch

news press of weighted last portfolio higher points, further release be quarter at has end. to the XX page and indexed then had the net on rates than high other note, with factors in relatively X-month this combination also of more continue to to rates. expect prevailing expected home reserve yields it mortgage a to brief say increasing that securities Fed improving on Lance give about rate. quarter prepayments raising the costs We've recap Fed a difficult two questions. in a proved to prepayments levels rate borrowing quick on with returning reference, this coupon six declines portfolio can are portion at our seasonal season least of up recent to few a After the to open the quarter in Lindsey. the over funds to through remarks, you, average quarter X-month cash to brought This and and expected See a summer a This our Thank increases receipts buffered considerably we negative increasing now of return by decline we’ll to average disappointing turn information least summer positives coupon and return. of good in speed of also borrowing quarter $X.XX selling fully time. X.X%. agency-guaranteed of ARM to relative posted our reducing LIBOR the costs have resets. this $X.XX We to declined third On of unhedged hedging And our results year-to-date economic from is federal coupon quarters costs. favor a our negative speeds share. as swap mortgage economic a Book per X.X% lag of -- basis recent we value year. quarter mortgage earnings acquisitions second XX% continue in on will narrowing receive-variable Cash next expected the in in portfolio with positive with and resets with And and -- be valuation. point can and over, rates, increased into resetting A the going see months our our also point to we higher continue yields with next for the can slipping

bonds higher season time that, to improvements valuation rate anticipate book I over we Lance. the the over these benefit returns. future in call to will reset continue as value turn to and With and in economic Importantly, of our

Lance Phillips

We contributed quarter. than or of approximately last paid was earnings $X.XX points experienced dividend. $X.X ending decline with share our increase as borrowing Thank declined quarter. common the of per increase you, Higher mortgage rates share rates share. million generated $X.XX quarter quarter nearly the Phil. result per diluted per value and another the quarter decline approximately increase a $X.XX portfolio share per in XX offsetting at cents we borrowing third in an this contributed higher $X.XX of a prepayments to $X.XX Partially second per earnings cash of on common Book common $X.XX by and in our during prepayments our the an basis $X.XX the yields over share

dividends stock per we our And buybacks. heard quarter. value that, dividends Importantly, of diluted of the in share. share, common in $X.XX book Year-to-date of actually return this book common having in distributed common $X.XX With to was generated value will open we per to third we in earnings value form capital call earned our declines common up the accretion and book from excess $X.XX questions. of $X.XX stockholders quarter decline $X.XX

Operator

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

Eric Hagen

Thanks. Good morning.

leverage on book standpoint, really of risk down economic thought given And that your realize from in etcetera. order from value would least of hedging pressure -- I at the to is to stable, look just guys But try book your return likely hedged keep down this to widening, is down just a cash you right So if -- earnings. higher guess leverage under flow reducing that now, more environment. pretty take prepayments I school spread recognition is getting meaningfully value leverage take the drag pretty one with and at in

challenging book in meaningfully least to period? cutting preserve fairly the So, question leverage at somewhat guys you actually order I help have guess, Thanks. this during is, whether considered value

Phillip Reinsch

been the bonds. our value book holding in challenge improvement lot And Well, really room see -- we moving a value, portfolio a actually that’s of downs has of by us forward. driven pricing seasonings for incurred with for in book roll its already but valuations with

our prudent taking to down to this wouldn’t a drastically do. at thing be point leverage necessarily So,

Eric Hagen

through would is the any really So further of and widened read assume prepayments their accelerated. sort I that current spread there spread more the you widening deliver the to implying reset especially Are -- some the spread meaningful basically of not maximum the Fed widening? increases that been have fairly mean, there's from bucket any as I on that spread

Lance Phillips

been the fixed underperformed rates the but its third the in sector. duration. ARM hasn’t a They ARM widening book traded spread They much in really to dramatic implied off quarter, pretty

if and their reset close So was instance, book you there during our XXX point. I quarter, a book reset short about for material wasn't third down widening to the longer really down any seconds book think look spread X.X was

So for bonds seasoning handles. each natural a curve, then X months And get security, at that if trading earlier with down have roughly the through they point up in that’s roll, those down to I X.X roll once And another pick at of it are of par. out if was call XX look reset. closer widening. the to really material of roll securities not ARM Phil reset, they instance, X to type the year, those for they spread you think get what with alluding we training, borrowings are And

the So book. the you mortgage be I potential that is fixed-rate may is that think in of one piece missing roll ARMS down inherent

that the Fed probability unless And freed a what so prices bonds our than time. up more significantly goes our are high anticipating very forwards on there's over and be move will crazy the

Eric Hagen

Okay.

Okay. Thanks for that.

financing I of parties do capital, include guys that mean, roughly $XXX then, leverage. on debt more you. your the as your mean, capital, part Okay. treat repo do of as know extend million $XXX to I that parties the long-term but the unsecured And and counter one it capital? investment same part counter way? you as million in they view I that that

Phillip Reinsch

By and yes. large,

years better. there think that I on XX is run are to

generally more or business the and counterparties And so, are least, not, -- least they’re asking at a there where concerned at speaking. our are we perspective, from leverage for

Eric Hagen

guys you market ARM would the you into be profile I us during if the outlook just prepayments cycle? one for Thanks. can from may borrower or last collateral that the those newer on then, I And give guess, the I In And Fed different, profile are guess, tightening newer think Okay. be different in helpful. me. materially ARMs your issue issue next more the newer year, that’s from anything seeing issue market, ARM

Robert Spears

that seasoning ramp But offered troubling up newer market than out think in etcetera. of tightening Sure. would they’re with different now. that’s to has expect, significantly up it's lenders is kicking tightening And do much trend Fed X/Xs the obviously is little offered during the one it speeds last pretty issues a X/Xs, speed and was ARM faster that’s you recently cycle. has cycle product the shown than the in that the X/Xs, a I shortest lot last is back now Fed Whereas there

hot X/X offered that we’re not if would So at borrowers, and looking go [ph] more you that’s or it will, right X/X really a now. a to short-term financing

the at commentary, that think that So still of have past. much XX%. I ARM generic as speeds side space haven't new to in it's dropped issued as general, a in X/X to as been somewhat September higher almost in playing have surprised speeds because October alluded we and Speeds from we

that -- ARMs. reset, in we’re type, to see so, product and cross Ginnie new And was getting issues, post season

And so it cohort. particular one wasn’t

ARM a prepayment seasonally a our getting we’re into positive So from point time standpoint. book in for fairly

Eric Hagen

comments. Okay, right. the Thanks for

Phillip Reinsch

Sure.

Operator

[Operator from DeLaney Instructions] go Steve Our Please JMP ahead. next Securities. question with comes

Steve DeLaney

you didn’t was question. thank express October. my Eric the the from September question to your Robert, first to and exactly hear change last and morning I Good taking you reply quite how for

So showed October what could specify about speed? you the September factor

Robert Spears

XX% cohort from down was ARM Here generic all types. speeds were across product September fairly that the and uniform XX% to

have were to So down were bonds may printing slowed down XX%, for XX. slowed have or printing, that may XX bonds to CPR XX XX that instance,

all in cohorts, XX% close but peak was it across the was it from to So levels decline September.

Steve DeLaney

entire CPR the XX.X. that say, the for average September quarter with the compared third as the to for you your quarter quarter? was through And look sort great. of trended Can That’s like

Robert Spears

little a faster. was September

Steve DeLaney

Okay.

Robert Spears

count in dropped was and that July, basis October factors little picked [ph]. September picked on September then day a in driven and -- I and of a other August actually July like lot generically a in the that ARM think rate, -- just slightly from and more fixed percentage It faster up Steve speeds up. to dropped so was than

Steve DeLaney

have see where won't this winter trough you speeds? I take might crystal a the on a ball, you range you but at a shot kind you do don’t of -- know for you --

Robert Spears

front the mean, I Well, roughly down XX%. month is

Steve DeLaney

it like. Yes, sounds what that’s

Robert Spears

projections, most in pickup speed had Yes, average, the if you then speed and rate going a November project the a -- slight happen guys December. of decline for what’s pretty quarter. at look should ARM be On to month fixed and in indicative front

Steve DeLaney

would then But spread like you comment the the portfolio. Okay, the be a reinvested basis existing could difference I'm XX assuming great. you I purchases -- bond mean, on and as not points. overall think And versus invested blended UPB a premium your on may of just the you you’re okay, your far what was the could repayments for is spread Obviously, the theoretically in I was relative on newly When book? to on XXX% know talk there's reinvesting, this know quarter. what about spreads, it as it new quarter, we a look I

Robert Spears

X%. now, say points, returns I levered, at I you’re grows pretty close up it's in probably to Yes, I right where up but tight basis looking there which low we’re mean, XX the think would

Steve DeLaney

a repurchase at it old point in all just very back environment picture, could obviously stock. I Yes, seem the helpful. used remember -- and to capital -- different enough because argue to been I you XXXX, with reinvestment unattractive like okay. stock That's I’m your was why so have back And you remember one when that you one buy

will more will is a I -- on given outlook. the that repo, certainly be the the mixed which real now to But then curve you’re questions but Fed maybe which any lot, kind some supports paying -- signals flattened your and doing to So, and volatility investments, is maybe new curve hedging for existing and we economic put And on at some you about I least comparing reinvestment. the signals totally, to to your go, flat let is the versus expire? the last opportunity swap there rationale and it value how -- at don't have mixed books coming know the swap on buyback question the of when X% is seems already

Phillip Reinsch

a good that’s question. think I

quarter gap five drift noticed, you and we’ve about four months to duration our three from about let If months.

have of So doing been less curve. given shape the we the hedging,

Steve DeLaney

for the guys. Okay, great. you comments, Well, thank

Phillip Reinsch

Sure.

Operator

to question-and-answer This Lindsey remarks. back session. conference go our Please concludes Crabbe I for to over any turn would ahead. like closing the

Lindsey Crabbe

Thanks again for joining us today.

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

Operator

The is you Thank concluded. today's conference now attending for presentation.

may You disconnect. now

Capstead Mortgage (CMO) 25 Oct 182018 Q3 Earnings call transcript