CMO - Earnings call transcript Q2 2020

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good morning and welcome to the Capstead Market Second Quarter 2020 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. ahead. go Please

Lindsey Crabbe

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

The webcast July the yesterday's be of October available our this the issued posted XX, An releases replay of webcast second earnings quarter in the in replay yesterday XXXX. The to archive site. Web section Investor at a is also tab. on site XX, www.capstead.com Relations this for under are Investor link this through release. included our is Relations of Details Web and call will XXXX

the employees President Vice Officer; On associated the our we remotely. call and the Officer; Vice Chief today that COVID-XX Chief Officer. continuity pandemic, and Chief Reinsch, are and work wellbeing and Executive with implemented global our health risks and To Spears, our and Phillips, business enables Senior have plan of Phil address President Robert Investment Lance the Executive to community President Financial support employees and

be please as patient us such, As questions. we answer with

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

on company's in In company's with Web the X-K and accessed financial measures have addition work provided the be may are Form call company's and schedules used certain release filed site. earnings reconciliations been in terms through non-GAAP this the of the also which which SEC are

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

Phillip Reinsch

that the and $X.XX Thank you, to significantly remarks, interest current and of producing lower Even our rate market results out we'll dividend quarter leverage second open only core portfolio will in Lindsay. common annualized everyone quarters to disruptions We're now equity questions. unchanged recap mortgage the by the balances excellent up the give report three experienced dividend on After for XX.X%. these can your less itself Capstead. We then quarter. likely And thanks the return We're Common for earnings earned common run my given of an XX%. pleased quarters. Lance a call the exceeded make in REIT claim, met for each in our March. dividend and or of was that with

common strongly portfolio $X.XX share the in X.XX together the in value As which quarter common with dividends a recovered XX.X%, common to per quarter, course book the of value of in second lion's return contributing for best over to of reductions as these to This and XXX% more positions last characterized anticipate our as in preferred in returns we sector expect in of our derivative quarter. Making for to well. one part be compelling, the that due be we an importantly, economic our the the share. large will dividends XXXX increase increase resulted performances capital, XX.X% the return

We term cycle the attractive. it clear low. rates intend accommodating, with country borrowing quarters, quarters short-term control purchases the keeping duration expect pandemic. to rates remain has of in as made via agency With prepayment. we repo unhedged currently rates MBS as coming points see lower in to only basis short mortgage uncertainties our continue Rate swap the coming continue to and lows. returns Agency remain longer provided risk borrowing and and adding with term, Fed of the around XX Fixed the interest levels even and as Treasury under adjusted we rates absorb should they rates forward, grapples Looking This portfolio to very that in means higher Longer the

recovers, rates to have potentially we well serving term business. the attractive duration expect believe returns well. As recent Wrapping leverage generate would more to reduced is only curve agency lower employed support our we yield in are the for economy past. at levels the up, of than our we positioned the that longer steepness focus benefit as we to allowing And short

represents risk. return investors in With risk to comparatively the to compelling a For safety I'll Lance. rate believe elsewhere that, opportunity higher Capstead a as seeking [indiscernible] difficult market. turn of call We credit with adjusted find interest and over degree from the

Lance Phillips

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

earnings diluted were core XX.X or $X.XX share. Our common million per

press Our release. We core agreements. a before swap earnings unrealized on portfolio losses our include of excluding earnings X of realized our interest related on Page and reconciliation GAAP

during mentioned, to points of and $X.XX, on in Yields coupons in recent Portfolio second quarter at X.XX%, prior share XX.X% prevailing share, we the in the reported declined averaged the primarily acquisitions. as interest cash portion $X.XX due increases or common rates our to portfolio yield Phil lower during quarter. of the from XX X.XX% a a lower per yield lower reset to basis due quarter, increased book related primarily value per As $X.XX value. portfolio ending decrease

we rates. on Our lower rates based was that, With fixed rates At X.XX% borrowing point open XX these future XX book XX. lower X-month unhedged will derivatives of March quarter, in call the improvement pay on a OIS XX book offset June decline by up leg our The from the the costs prior lower and for in LIBOR to on declines than questions. our rates our in a during points averaged X.XX% receive in benefit adjusting basis effect basis swap of partially activities net of were spreads. swap rate These the rate points the portfolio and XX, fixed fixed basis lower leading the on should earnings. our repo quarter, lower related to after interest second benefits hedging

Operator

from question Jason at Stewart first comes [Operator Instructions] JonesTrading. our

Jason Stewart

a tough environment. Nice how model you into credit factors hoping availability thoughts your could share prepay it on mortgage speeds. you work was think and navigating I

Phillip Reinsch

So having that's pandemic one were folks originators trouble loans, aren't not, as thing much like this the apparent all whether long. that spring is during closing pretty become refis or is speculating

time, are prepays that qualifying have pretty hot you same given So may standards running circumstances. mortgage their folks are be And low. having the with do personal pretty fairly rates now At tight. underwriting trouble

Jason Stewart

incremental Did And is I think Got if numbers? did it. it please you early do it market you ROE Where you, share missed makes today? on, the sense. forgive That me.

Phillip Reinsch

and On in at focusing right levered short we're XX% tight products that kind at returns duration now margin purchases the a between we're X.Xx on basis, on. looking Xx of

Operator

next question from Delaney JMP The is Steven at Securities.

Steven Delaney

just $X.XX, arms stable much we we're are On better Have the arms they third trended What do, month higher? you're book got seeing be into value about Robert, trend or here, been quarter. you've visibility than recently? curious, how despite you almost one into seeing

Robert Spears

be guys grind can very have I continued more compelling more very, in sticking in And good helping price particular both and up new are new to so and kind universe strong rate such going even funny Steve. increased into issues trading in both can end they if which liquidity. one can the [XXXs] that's quarter a continue and as somewhat well bit And mean, the arms because issue and very trade actually there size. in they quarter, an supply volume arms banks paper in out five positive about you think for well. arms bank valuations They're to really the it, season improve think aggregate [ph] a from Feel forward. the than to so standpoint is supply thing, with out well fixed There's buy I of of

Steven Delaney

rates supply. just we year of arms seeing I So X% I think gosh, mean, down picking fallen are, new to you yeah, production, volume low Are low I'm rates? up market. given to the new record actually like XX where XX, you despite had X% were curious the in what

Robert Spears

as the we steepness new to [XXs] and from cost and production being rates, bonds. still goes are there with enough doubled are no there's is lags where fixed [ph] mean, of to basis I refinance second are actually, lot on it a curve opportunities have arm gross around Yes, rate production issues, the originated so in and quarter X.XX new increase starting first for

as the they low curve And as steepness people for as definitely so try yield get low, this helps. don't rates yield the reach to time can. in all And

way So on we a forward. lot with new from in but quarter, standpoint, positive issue, off we're second secondary going obviously, acquired bonds [indiscernible] less selling are the that very

Steven Delaney

to got so any spread Lance -- from improvement you get right? already speeds have any you lifetime the off me hope swap offset some your assume book. helps Fed what -- lower got go I'm on assumption figure the the And swap that Great. the of I on can't looking that seems you've your So the run out, you're the that that going I trying to has to it's pressure to just today, exists you're short-end, your and curve faster that mean, see adjusted speeds. probably given can't at faster

jumps a at as you'd like, I'm second out X.X is averaging in the XX that obviously billion XXX year here trade position of number off million what looks about and XXX schedule, specific it at thoughts the at points. swap have that low that? So of already, XX as half some year looking you this run the you've from out about swap go basis third that? about Maybe done XXX basis would are your termination thoughts any now quarter whether points, and that but

Phillip Reinsch

terminate at about the a regular -- go money that essentially on decent we're Yes. your frankly, a XX there's can I we cheaper little some able than curve bit. probability and and a to day shorter everything look on Quite out we duration to we basis that repo. right could mean, now it swaps

we're do think there. very, so there's what's And some we of that probability very decent I that. And of going a cognizant on

Steven Delaney

swap. mean, same, two the is four-year swap the the Yes. as roughly a I same year

you So I mean, would guess Is just, And right got showing, downs, flexibility on of one thing, there. what probably lot roll it to it's [ph] a saying? range around you're you XXX that one can more, I final a [AMS] like year seem XXX. -- resets. X%

Phillip Reinsch

margins our guys coupon And our primed in book at kind LIBOR that you is is our about on newer slightly on about issues the resetting we're mortgages right you the quarters not in the be think on our And short reset Yes. really just so the positive obviously, but of now, two that last and when right those get is X as for years. XX, probably comes to the positive lower, seeing Difficulty] if and to now, kind refi. low going area arms going of thing pressure of flow. couple that from [Technical the we're three now they're X.X, and seeing And or prepaid negative,

book presenting right season very, Our very shorter is now. well

And the basis points originates XX even ago and so I going a got to trend continue think that right clean was two credit. new years a issue to XX, XX it's is in money now

So season I our of months have than think where next our we out do that trend better continue for reset the we few short buttons. resets will longer street performance

Operator

Next question from KBW. Hagen Eric with is

Eric Hagen

speeds mortgage these the with of as in be and activity thoughts higher It valuable Ginnie delinquencies portfolio. like its meaningful buyout REIT only prepaid result I a on of really your was the somewhat feel a impact portfolio. pace on could

Phillip Reinsch

question XX parents sure, -- is, month behoove loans spike it the early of out last out arms across they're as saw are spike space, rate of so was Ginnie looking resecuritize in loans we're pre-pooled mean speed be and kind initially board I being think potentially. with at huge One people for that type to on caught was the I bought and fixed could buyout-related collateral. to in does the and servicer immediately thing the and buy it most a able the aware CBA to The days buyouts Sure. process. it

they much as So hold of that I for as to could of that to a six could months. they're that have took paper forward, they going lot immediately window to resecuritize going advantage think people on buyout to

to then loans buy the have may non-bank isn't banks So as down not decision easy you prone and much buy don't be a more out that that lot of to as want capital, and have originators the to out come that capital may loans. then

Ginnie's But quarter. But big spike as a first right another two start we that So buyouts sold but [indiscernible]. drove do, the continue as long-term have we even you at we definitely don't in over ultimately back of month, in decent even couple it's for I speeds for in but big or last the now we of a month buyout delinquent can the the Ginnie's passive the in think slowing chunk and many that could pretty to will last look pick down that you think a that banks, months, used few months and you services though. had can of obviously next out programs bonds stuff, some could tell seed instance, subside place will couple

Eric Hagen

serviced As of most by Ginnie your or portfolio banks non-banks?

Phillip Reinsch

so have really shifted et cetera. in component quickens biggest the back that non-bank well to the that season Well, the Ginnie, paper day the seasoned of freedoms more newer is issues originators, the

servicers. servicers. bank loans non-bank newer demarcation more is the ago. than really, of originated is of so And go issue line or you seven primarily years primarily kind back It's six The if like

Eric Hagen

you That's really Thank color. that. interesting for

Phillip Reinsch

we If will, or not X% that portfolio days. our seasons not you portfolio, we newer service, another their that in reset if at pre-reset you longer are a and agencies X% component these issue, of so got bank that's only Fairly a look Ginnie's. then classification are

Eric Hagen

interesting really that color. That's though. you Thank again interesting. for That's

repo just your put keep talking the the premium repo or the is the term few months for some last considerably peers was over funding you could of flattened is, the to of day having One idea about XX rest curve? on rolling for

Phillip Reinsch

Yes.

and I so and the pretty so repo day their forth. are repo most You're almost depends mean, what same to much and of lenders, on our XX that's like and the we're with it exactly we lender with -- used day XX on behavior correct. is

we are XX-day have we the So in than more doing repo past.

We XX further, to it out we problem odd extended an would. days that. have But we becomes it we but going beyond a that primarily haven't days, this been beyond really if more XX favorable, point, out at wouldn't take saw definitely it's

Operator

question Our from [indiscernible]. Instructions] next is [Operator

Unidentified Analyst

the taking Can value a of $X.XX. book Thank now? my XX.X% is on quarter strong a you for book us your you give where Congratulations of during question. your in increase to sense value

Phillip Reinsch

flat to this quarter fairly at It's end juncture.

Operator

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

Lindsey Crabbe

us again today. Thanks for joining

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

Operator

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

now disconnect. may You

Capstead Mortgage (CMO) 30 Jul 202020 Q2 Earnings call transcript