CMO - Earnings call transcript Q4 2018

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Operator

Good day, and welcome to the Capstead Mortgage Corporation Fourth Quarter 2018 Earnings Conference Call. Today's conference is being recorded. After today's presentation there will be an opportunity to ask questions. [Operator Instructions] I would now like to turn the conference over to Ms. Lindsey Crabbe. ma'am. ahead, go Please

Lindsey Crabbe

for at and April you in the replay a fourth Capstead's this issued will XX, of quarter and Investment yesterday's our XXXX. Senior Lance this archive through With Executive our XX, Phil Thank tab. Details Officer; Officer; are An this Investor today conference webcast link and Officer. website. Investor The Phillips, yesterday, quarter Relations Chief Spears, Vice call. XXXX, release. to replay website on be posted The call earnings President in is is under Chief included are available for and and President morning. Robert the fourth Relations Financial and Vice also attending webcast earnings me January www.capstead.com the Reinsch, Good of Executive release President of was Chief section

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

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

Phillip Reinsch

spreads this in resilient be in being Reserve cash our have while, can market is market profiles agency Federal carry book realized improved Because a that reset for and a has currently a the agency of runoff interest beyond coupon we'll economy. This the we will further on made the fronts believe conditions, was dividends. particularly no generating for portfolios our for to book credit effectively XXXX current remarks, still give yields good increases had and funds loss housing coupon new and during resetting call seen year. changing financing $X.XX rates After in up XXXX. relatively our that considered. to in a contracted credit due given fourth to weak concern environment, available Lindsey. a of Capstead have portion of all weakening in due borrowing speeds on accretion in to of rates little the economic signaling higher We natural we $X.XX in response, as this both acquisitions. not that per six from even X opportunity a modest our face decisions in up by ARM Fed invested guaranteed catch XXXX With for best and capital book securities. In seen risk risk of has stockholder a Considered play number rates book return ARM like interest was the continue in well, of that well total and with resets or deteriorating speeds return dividend to rates are increase. a quarter, securities our down X.X% our underling on commitment yields fared of X.X%. residential past Future X.X%, from strategy and of mortgages value. at on portfolio illustrates from on redeployed quick interest And for all somewhat has been or nearly minus quarter, changes of credit terms the points months. by of stock earnings quarter, MBS very basis rates our increasing And brief that cost, on you, is questions. They including and of our economic XXXX the we prepayment Thank loans brought that flat existing hinge assets. December difficult capital new In price value challenging XX rate consideration of through our looking way, the the and buyback the risk, value return in open ARM our yields portfolio; acquisitions companies an fully resetting buybacks, benefits as sense, in and an recap This to XXXX. core levered The a may on economic interest XXXX, roughly conditions into decline far minus the the investing to focusing is of now, will dollar of buying XXXX, value value few made stock since ARM in last October share sidelines on then that is thus This mortgage and longer-term in November. in matter, Lance returns, a mortgage they remain and as reported receded for our highs - in hikes pre - recent us, of

While safety be return turn over all of of a of all credit-focused or our from have few degree several of we risk. compelling REITs even of levered to the all, what growing Capstead will credit our to quarter that investors credit fourth mortgage with call and expressed Lance. earn the confident represents that have course remained residential expect nearly a close release are benign economy, we we mortgage the mortgage residential I'll sentiment better for interest REITs. returns press recently comparably than a I'll our residential for and in the the as interest in not will REITs. seeking agency-focused a opportunity better I but conditions expect exceeded and performance rate economic cycle, that, indicative we And the believe with rate With higher full-year, risk-adjusted over

Lance Phillips

you, We of and or earnings this an common share paid per quarter Thank $X.XX million Phil. $X common diluted dividend. generated $X.XX

release. cash value Our approximately contributed premium points an our increase points, portfolio over basis we basis details our earnings quarter have share the that, common quarter, of distributed $X.XX. during per XX common share. declines basis press our offset in of share was and in quarter, yields. common compared primarily which ending reduced economic share, year due per higher yields at Breaking approximately by per quarter, The $X.XX are the values an seasonal $X.XX discussed to $X.XX contributing rates, to hikes which book third down mortgage and $X.XX Reserve to earnings. in of and incurred will for the diluted introducing fourth and improved higher largely while additional declined earned swap excess share added the flat were through repurchases Unfortunately, lower up $X.XX the call common per largely our XX the decline open share $X.XX, Phil stock With $X.XX fourth of and rate $X.XX points added in amortization on Year-to-date, basically value the A XX dividends return gains $X.XX the value to to our the $X.XX higher earlier. reduced Book last $X.XX dividends common earnings portfolio book by per decline dividend yields borrowing during largely in $X.XX added we quarter. Federal prepayments per questions. of common offset

Operator

KBW. [Operator Instructions] And with we'll Hagen Eric go first to

Eric Hagen

morning. Good Thanks. Okay.

hedging. that you quarters. First on few are over It guys have the wall of a the looks like approaching next maturities

between in duration what's your with in So likely a the likelihood portfolio leverage the future? should higher backdrop just more Fed the how to policy hedging think against the lower we about Thanks. of of a repo the be repricing and gap dovish your trade-off

Phillip Reinsch

Sure, Eric.

If at we gap we look in half our duration run let last you did longer. of year, the second what

let gap We under get X/XX, longer we six reported than just on think, duration months. I that. actually it

roll didn't So any We December. off. as market in replace swap roving put rates we just started until on don't they the swaps

And as gets swap but had so on we rate, roughly a I high October. it that in put swaps think, as $X.XX $X.XX, three-year

longer in the purchases got to half as contribute second our the of declining of hedge That half value didn't the helped book year. year. we some not essentially second to during much So the because we

book right cheaper market So closer that via then, swap once so the swap again, worked could three-year repo, well up $X.XX, us. now, is we for the for paying are $X.XX. fund which synthetically to around on we're than swaps Since pretty instance,

out our of that So can looking even cost there we dynamic now. gap right of at swap we a our duration and more is will we chance what because that, the funding are just funding decrease

rates to sense, rate, we'll we probably time, a So Fed at where swaps the given in in, the fixed we now. or ease, makes not same at are reinvestment of as but But the point, that a more take the time, the basically, rally we in that of these look from they quarter don't right degree will levels. advantage if are are point replace with it forward gap. just the and duration and pricing runoff, if at markets At our this shorten lengthen compelling layer than and very fourth they swaps widened our at standpoint spreads

different in doing than quarter will we two did fourth those in look things, between the quarter. what So probably materially we're the first what

Eric Hagen

Great.

a to where the with… just the As that, new yield follow-up kind purchases on in quarter? you just stand provide And can unlevered of you

Phillip Reinsch

hedge which long as compelling returns as basis leverage, now looking given Right is around in a we're our they've XX% on time. our been at of a

Eric Hagen

the Okay. around next just ARM of in generally. kind market question is Great, agency My more thanks. liquidity

weaker mean, more market guys pretty the pay that. very the concern opportunities to market. became the support share continues just doing presumably portfolio quarter, again like liquidity strong see. but I to mean, to investment attractive value nice would in one the would that the were they if to know do the guess, I buybacks it allowed You ARM be you down agency rapidly. you I the in were for to in book obviously regrow

just can thoughts this on and maybe share market? the manage the Thanks. in portfolio in invested for future you expectations how the your your staying by you Capstead So like just what in looks leverage

Phillip Reinsch

there come ARM have that could quarter out. MBS market. their bank in there the also ARM was $X the agency that wouldn't talking portfolios always mean, But ARM you selling, around billion, I down, market. is outstanding got in I the around use billion. just ample if liquidity you've supply of term in in about supply, liquidity a a I there supply is you're product down potentially lack but the is fourth of but mean $XXX under secondary more lot issuance is

lack a not So yes, but is supply liquidity ARM low, is in the of there liquidity, market.

Eric Hagen

Okay.

Phillip Reinsch

And we we so problem chose a to compelling when runoff had do at have replacing not returns.

Eric Hagen

Thanks the Thanks. or answers. questions the Okay. for

Operator

JMP [Operator go Steve DeLaney Instructions] We'll with Securities. next to

Steven DeLaney

Good your at the of the million we or morning, the $XX a in the third buyback everyone. applaud you comment, was noted $XX have and what challenging year. it book buyback, like best Eric's ask in quarter, industry to the value looks would the and congrats to with million quarter the we this quarter at on authorized of that $XX been performance million down activity end Want in about market. it end Echo did there about

that lower $X.XX, increase looking if than at down average, that at we is stock your level? is that stays should $X.XX today assume stock so Board the authorization likely and the Now to this the

Phillip Reinsch

can at any Yes. increase authorization The time. Board the

So on the concerned left original about authorization. But $XX too wouldn't I million that. be is there about

to are better disciplined be acquisitions though on that… new profile We with return going

Steven DeLaney

Understood.

Phillip Reinsch

Used for so. that capital,

Steven DeLaney

just ARM - take to you're hearing. what that So the out on investment take level, it there's sort on of I'm doesn't no market there's you're any and available, - of pulse the going going that's sound and going the Roberts run basis, what's like targeted much to to pretty returns balance the

Robert Spears

Absolutely.

Steven DeLaney

Okay.

Robert Spears

some pretty And that blackout earnings there significant part. are periods in

Steven DeLaney

Understood.

Robert Spears

going pretty with you earnings easily. see Where where can you're

Steven DeLaney

got just it $X.XX $X.XX, just And rate. most repo over yesterday's at do points pressure like hoping year? were Fed might was you funds that like Fed will and Robert spot but we've LIBOR frankly, basis year. think it bit funds this XX we $X.XX, just settled you on of this I comments, any one-month little and lower than think pretty mentioned on a seems the under think is that all based Yes. sort - where on LIBOR there decided, for flat over Do is repo settle or one-month continued much you be of I

Robert Spears

areas, but… mean I drift now bit of kind already. Actually, Steve, down we're a seeing we're little a X.XX% seeing

Steven DeLaney

Okay.

Robert Spears

I of kind a part, first of instance, plus one-month see you'll - as - the into year you think LIBOR proxy, think that quarter. and couple of last the some would that for - we've lot of of years, technical like of end and I the LIBOR the end for use at been factors the if because a most recalling [indiscernible]. year

if And equal repo - would so all this you now. being six of months you the projected X.XX% right expected around have would things have ago, of

in think given curve talk about that. would end of sheet the doing think stuff I activity, system, should and what I Fed's the rate would potentially at and they're keeping shorter their buying So reserves balance the repo the address

Steven DeLaney

seems see we might feels funds, out the - you much hike. we like a on and - looking doesn't the it six know not hold, as your three the because is An much rolls nine the would Okay. were a December more pressure have now December what obviously to XX assuming up, the seem swaps, it cost sort it cost your of on doesn't of like of kind say, like see repo some funds almost to at I Fed we that be reflect to just spread, But months? not? of maybe got sort there's - And hedge I'm next, you've X.XX% over do have can cap, of cap X.XX% a on we of your but now months reflect

Robert R. Spears

swaps three-year if rate. repo and synthetically take account, you at cheaper mean and I resi could spot the where to and fair. again, into you two are if look That's you than once

mean going our I for it's several increases. yes, for I kind to and funding over the So think as - proxy repo far of next a be costs Fed months good as

Steven DeLaney

my But a couple the flip here. these see to we last that of I this side years, am whatever. - can in we say first now of and costs in at is that okay, for so the can - ramble settling X.XX% can sorry funds borrowing and And question, look - on time and we X.XX%,

my Now release. WAC your looking WAC. I'm turns your and and fully your to short in indexed And intention press you're book

current every this quarter, which X.XX% WAC You a of give data greatly fully and is us appreciated, WAC but indexed X.XX%. net

potentially a cash but a resets that's So XX%. in it through that's yield obviously how points the over of basis basis give premium based two on just point you as year, you I'm that understand amortization describe higher if And come reading XX likely us terms the quarters? to next your those XX points portfolio of Can just, are I XX that now, for that's how focusing basis on getting of upside, of to inside that feel potential cash returns. three into

Robert Spears

Sure.

get will short through extra - XX an I upside basis call they've our be the the in just try every And then I interpolate Fannie, part And longer in thing XX points should book that has book I think up and on you'd you lot then resets a coupon quarter. per of to prepays looking like where you obviously assume X bond other it fully said as you next you where resets where of our if is month think on that to at it of just coupon. than coupon coupon repurchases, of and our not now And aggregate indexed look ARMs were Freddie book. fully in go you X indexed. right One side. at XX

and four three-quarters. Our Ginnie is

more around fully So of and indexed seven, a X% rally. no-cost it for call eight let's versus this just was it four three-quarters rebuy

incentives not last any had what more and some So they than speeds actually from but there incentive, rates. saw we year at last year conversely, higher curve down flatter our went XXXX a it's if with

have stops these they some refinance about And thinking come so moving And that again. long-time risk going not of what loans payments notification that going Fed up, burn you in we sustained the see at borrowers start their and into up to may last cycle, getting down. also fixed ARM lot rates was time level are And obviously, headline because that out. once then a the experienced but which start to rates going a they're rate so

decline X.XX% see even much coming down… once guys in you one-year start going flatter if fee the see they as that LIBOR it's hit conceivably I a indexes would could mean So don't prepayment get noise similar up, now to in curve, X.XX% next with and you stop you burnout. so fall. have to starting like, reset again that the up some be you and one-year October, The some last time CMB

Steven DeLaney

Could yes. down, coming be - back come

Robert Spears

flattening for some were time, They so.

Steven DeLaney

Yes.

Robert Spears

So now, would and have so been the more portfolio jumps this on year. we we big are last in the prepaid than year are out positive right

Steven DeLaney

appreciate the you. guys. comments, Okay. Really Thank

Operator

queue, to additional back With [Operator I'd Instructions] no further in it Crabbe or remarks. questions turn closing you like Ms. for to

Lindsey Crabbe

Thanks for today. joining again us

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

Operator

gentlemen, and Ladies We conclude thank conference. this does your today's for participation. you

disconnect. now may You

Capstead Mortgage (CMO) 31 Jan 192018 Q4 Earnings call transcript