CMO - Earnings call transcript Q3 2019

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Operator

Good day, and welcome to the Capstead Mortgage Third Quarter 2019 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions]. After today's presentation there will be an opportunity to ask questions. [Operator Instructions]. event recorded. this that note is being Please I to Lindsey like to conference over turn the Crabbe. would now Please go ahead.

Lindsey Crabbe

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

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

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

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

Phillip A. Reinsch

or and for earnings we our each share With current last dividend a the of for will up this quarters recap the as reported few $X.XX $X.XX quarters. near a After then brief questions. you, Thank three Lance remarks of now earnings call give of open quarter runrate core we'll have core per the Lindsey.

rates longer-term experienced absorbed quarters. the the seasonality mortgage declines due last interest both prepayments and This quarter to two higher we in

weathered had and repo lower little received our us funds That some due said book prevailing swap a headwind to levels cost. leverage portfolio stubbornly funding our deployment in late of and to new relative time earnings. to swap higher Further three August. impact receipts to lower XX and effect and contributing capital prevailing of a declines a with and costs market also the quarter said rate in been on have in volatility to relative levels the financing to elevated equity this for approach have market with borrowing repo valuations negative X.X% for rates million making a We dealt early stresses now on in cautious months representing LIBOR spreads take and repo decline value September raised common

these Despite mid significantly should Funds market the stronger and perhaps come. month Fed to contribute end September, July, cuts of benefit this earnings us and in the conditions quarters in to will

although quarter a in more these book advantage not new took and lower effectively of trades dramatically market prevailing of cuts. locking rates swaps to at the we swaps rate our replace earlier time the hedging position in Additionally rate our to interest Fed hedge with expectations overall altering higher rate in lower

which rate the down lower in costs significantly this September result rate XXth swap considerably of quarter these X.XX% stood a books during our to will come. of at an at X.XX% to from lead As efforts the fixed fixed on quarters average hedging

our universe. Further XX% experienced were rate we continued October the I mortgage fixed fixed the declined in prepayment increase than emphasize quarter actually the speeds. about attractive Fed, want ARMs, prospects To quarter-over-quarter optimistic turn Lance. declining hedging XX% of agency versus available dry earnings returns moderating, rate costs With significantly this declining, increases and increase with higher, rate from on up less help mortgage wrap equity under while timely race. and to speeds overall thanks to call we I'll the interest the this that for at powder prepayments over levels with no was that ARM in increasingly rates management cautious the leveraged our agency small short-term are to

Lance J. Phillips

you, a share. common We GAAP of reported Thank of quarter, loss per X.X this Phil. diluted net million income net $X.XX

this share. a quarter Our release. difference core $X.XX page diluted and core yields of purposes. on of other effects the hedging per million differences derivatives rates the GAAP quarter, the in primarily six these basis Yields to of due during held prevailing reported agreements the we or X.XX% fee rate from XX.X cash were Portfolio impact our on X points decrease our quarter. press averaged of of to while X.XX% yields mortgage interest the second include unchanged. declined We reconciliation The and credit lower our levels for primarily common higher earnings were relates interest swap between results a largely

third With pricing derivatives. share hedging dilution our portfolio Book initial during were related share and related than prior unhedged which continued points offset X.XX% our aiming $X.XX activities, call these questions. larger negatively the benefit $X.XX Our $X.XX open by in we'll decline August, in quarter capital the associated the four up value per a and a -- decreased rates to borrowing lower for LIBOR lower partially change, reflecting The of swap our the with in to adjusting third related lower change. in our $X.XX basis that quarter. on portfolio a hedging averaged after quarter, in in $X.XX per month decline related partially at fixed three decline issuance impacted the rates leg common the pricing activities fixed costs a received rate during of book

Operator

[Operator Instructions].

with Our first question from KBW. Please ahead. Hagen go Eric comes

Eric Hagen

more return suggest widening trying you just point Thanks. environment, I'm a a the reducing to Good you capture spread sense of attractive to kind looks nominal of get guys and would that the a did leverage timing that leverage? available during for actually of what quarter. relatively leverage in which It to want was like Thanks. nature reduce you amount the morning. At might there fair spread

Phillip A. Reinsch

mean quarter I and what our the high Obviously that decision a gathering time the that in in time. raised repo to at going was -- million markets. we in was need market Sure. point during on to in XX take leverage We completely feel we at disarray down just the the point there in that made deploy didn't running capital. conscious

some if you snapped haven't fourth just And So might there are quarter in we now spreads entry thought the better be we at where points. look back.

at Having we widening. were we are a nine spreads year-end can returns there area three the powder times given selling. few and as you ago in of dry leverage nine to now where we a if half quarters a said So comparable that see because have and get some some spread deploy right we that alluded months to what getting to deploy to

what's in and think to we repo So it's leverage freebase keep just little markets time a lower. our prudent gone at in on point the given this

Eric Hagen

Okay.

So a the took used not place capital was the raised in it July after delevering, -- directly separate…? was delevering for

Phillip A. Reinsch

down of made to many as a quarter. continue bonds as leverage irrespective capital We could we didn't the we take buy our Yeah, because that we conscious have the we decision write. to just throughout buy

Lance J. Phillips

up helped rates of so we our what I that dropping second quarter guess volatility with decision picking market Yeah, of experienced lot in return and making. and a some of the inform the

Eric Hagen

and if stock higher Okay, preferred structure that by captured remains same because will with some your a the your of somewhat and pressure sense. in back larger of of the guess at a to investor? were to preferred book the the just have just realize on guess, somewhat the common in under you overall delevering a sheet use little you overall reduce guess guys about no but versus and equity leverage book your lunch, costing I that buyback that free potential also thought there's for preferred overall reducing the raised I that's level common the base of elevated fairly if makes I'm could buying sense hit comment prepays continue bit large to capital looks risk guys you option that proportion have I preferred the remain on of to risk than curious downs that your just that you chunk equity, to your goal value more I return July. how a of the in there's pay you consume value you business balance

Phillip A. Reinsch

environment, -- of perpetually So capital bit nearly wouldn't is today preferred from market preferred out that floating the that's look And you it don't unsecured we year and borrowings outstanding the we tough as that that the view that under pretty to XX about preferred. preferred. new fixed permanent in and coupon perpetual five replace refinance levels cost the isn't a pretty of three And million a there as run, attractive preferred quarters XXX which you done fixed has years seven to are that around so reasonable capital almost have the when getting even is at a with this overall environment and little that. perspective as that at

of our some out and reduce when equity the option on a from that into earning returns. overall accretive preferred securities margin of than up cost, higher through we that exceed to raise over of using capital could giving be deploying the but of will whereas or In ROE redemption of the And again that then time preferred plan having you're capital equity runoff there terms new from common sort will in excess that our be equity that preferred that preferred common such once the capital you your considerably cost mezzanine of returns that's preferred that to the cost capital. do in

Eric Hagen

Okay.

Operator

Instructions]. [Operator

comes DeLaney ahead. go question next JMP with Our Steve Securities. from Please

Steven DeLaney

you put wondering taking look GCF today Funds the questions. Robert does day repo Thanks XX XXX, from rate if rate dealers? you guys XXX at Where so. RMBS your and at or we my I to the that was Fed appreciate of

Robert R. Spears

we're versus is for his it's alluded elevated. What XXX now rates what right in if various money rates short-term paying look Phil at we're as and market you around message to seeing repo

would or basis If you last constant. expected basis paying last years four you than the on at over Fed have a we're XX if the over LIBOR three spreads spread Funds and remained what more four or look in those month have would one three to paid repo go versus points XX months just we either or back

having that to versus the rate cuts Obviously So will we expect the expect October on basis still end people that of positive XXX. elevated in LIBOR spread if where Fed but would month one at drop at an a be spread. say to repo said like a

Steven DeLaney

be what nice year in cut come but anything approach wait until saw aggressively given And responded also Feds for doesn't terms lock this possibly the December? I rate yeah, year-end now to in got different of you know a to you we with want September in that and you but as which

Robert R. Spears

of the because of probably advantageous funding repo the that at I to do pretty going markets proactively guess are end year-end, extend Fed do that both us might the year-end. -- what Yeah, if trade look we'll see to XX we through probably we stuff anybody's was as day quarter. mid-September attractive roles been in or positive some like will we but rates think the over year-end, the some rates obviously it's XX a it I look we we primarily might manage has not mean day well, over ugly XX get to

much there think still actually or operations, Fed's how primaries of that through they repo either other to I getting borrowing parties. are two pass their how so rate a is that the other question of intermediaries counter that much And of down

look sure if that of position we but go we to well in. So, our little kind book in at just you're good also a make will is as just probably we'll early shape

Steven DeLaney

you say we looking at at type and at margin but margin say where you brought swap to net well new spread and your issue interest on what redeploy are repo rates, XXX-XXX it, two given where you're at -- not actively today? the you lower of would Got given year looking are the know today I

Lance J. Phillips

times of I looking to still the we're leverage type to XX XX to that's earlier returns. Eric at XX.X area think at kind as XX% nine I eight off even point which quarters throwing and probably mentioned basis three

are take opportunities there that. some dry and to in we if have we the do advantage quarter So are fourth looking to powder

the in are of obviously spreads attractive still market because conditions Fed So repo and but uncertainty. it's extremely at the prepay because right of uncertainty

So now we But they look we leverage know. attractive think we but up don't needed could to. if

Steven DeLaney

a great if a got saw you flexibility opportunity. you Right, little there

I but CPR this obviously me on six do sort So higher Help basis attributed some rationalize the more primarily speeds one stabilized my last to up prepay. premium that moved yeah, amortization, approach lifetime a in thing, guys lifetime to the to now a -- in us with the and yet -- obviously you understand you handily quarter you so have last we're were work lost beat but we and of congrats. I'm have from here of approach concept to points to fact decline XXX trying that attributed which you quarter XXX you've our

I'm then changes anything about you and of a the it's lifetime to forward that, trying speed the I So sort straight know sort but of is impact pretty quarter-to-quarter rationalize can of calculation? that approach complicated say

Phillip A. Reinsch

we all can you. know tell don't I what

to and assumption out how going we're so level You with And effective calculation that's what rolls. under lifetime much your throws the yield speed method is know our amortizing do. just amortization it pretty yield a

a less, seeing of that's think premium from seeing less you're ago. our years aggressive And amortization appropriate. you're So we than And…

Steven DeLaney

you not I a And I'm so think to is I hearing say What impacted it's are in terms you yeah, of I'm questioning appropriate. while actual on expectation Phil lifetime think have amortization is you I be it. was...? totally two. speed, just going still I that rationalize to to Oh trying based the trying was

Phillip A. Reinsch

accounted should of in it that's an overall the occurs. and that's running way the the your impact be for and be. will period it yield if incremental on current going to you got when right effective -- investment low Absolutely high that life or for your Yeah, you're have

Steven DeLaney

impact do earnings? I on estimate am Okay, well in any I and when last but just plans demotic repositioning just I I'll have swaps said we up the see had how final think to I'll tighten can quarter going that follow-up up. of GAAP of core your that your follow one swap, either just the things what thing your you And or

Phillip A. Reinsch

and that to get it average would at our tried a fixed indicating was fixed point the of X.XX% there end at data we of stood quarter give what Well help swap the rate by X.XX%. average you

that have in fourth do some the off burning swaps levels. at we lower are Now quarter

help rates well. But impact to it should So future some as that will swap that extent. be quantify you to able

Steven DeLaney

that in got the Yup, notes.

Okay, for comments. thanks the

Operator

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

Lindsey Crabbe

today. for again Thanks us joining

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

Operator

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

disconnect. may You now

Capstead Mortgage (CMO) 24 Oct 192019 Q3 Earnings call transcript