CMO - Earnings call transcript Q3 2020

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Operator

Good morning. And welcome to the Capstead Mortgage Corporation Third Quarter 2020 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. to conference like to now would turn over the Ms. I Investor Relations Crabbe, Manager. Lindsey Ms. ahead. Crabbe, please go

Lindsey Crabbe

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

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

On Officer. Vice today Phil President Chief President Lance and Executive Investment the Chief Vice call and Officer; Reinsch, Officer; President and Phillips, Spears, Financial are Chief Robert Senior Executive and

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

In earnings with financial which also the on have X-K measures. filed in call and are SEC the company’s provided addition, Reconciliations company’s are non-GAAP been in be terms and or schedules accessed of the Form tables which website. certain may through company’s the release this used

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

Phil Reinsch

interest questions. third everyone and my then the open Thank for Mortgage. the give to will we’ll in you, After Lindsay, call quarter a recap of and Capstead thanks Lance up remarks, your

and dividend strategy. agency-only our to and illustrate pleased On We return steady report was Common of duration accomplish annualized four quarter, serves out effectiveness that than experienced an for or once common on earned prior this basis, rate, earnings And quarters X% lower are itself met the periods. dividend short each we a $X.XX We producing in the investment despite core now. portfolio with equity. disruptions the with again the March. unchanged market to pre-pandemic run but exceeded these common earnings strong of of balances consistent leverage core another dividend in quarters, considerably quarter our on

claim. the We are that that make only can mortgage REIT

stands at their REIT fact, space, quarter, residential peers contrast the XX% fourth sharp in average, in mortgage dividends In than looking of on performance. steady they a Capstead the currently at what to less were

slightly was economic to quarter, As and for third up X.X% quarter quarter the after the importantly, our a this book in contributing second recovery since XX% March. decent a value return

Looking are experienced market the the see and given the market bond forward, we optimistic. lower disruptions repeated levels in We the leverage not programs. Fed in buying do March,

believe and in times by on and of moderate profitability as also With leverage the Seasonality portfolio and our common lows. market summer less rates. rates the role levels. underlying difficult the credit season our that holidays. is higher to opportunity decline by With increased the should rates duration that that this cycle the While risk and our a attractive markets very adding with at X.X our represents of at interest well-positioned to the repo that, agency costs begin resets swap to capital, a leverage we home the adjusted upcoming long-term degree to with in find focus comparatively buying security with from XXs investors up, investment over opportunity the is and risk. end Borrowing call portfolio levered and prepayments prepayment reduced the currently serving well safety elsewhere Capstead rates short seeking low current I’ll at returns quarters generate coupon a for compelling run-off, and the is than above rates in reasonable Lance. receiving. Wrapping at with particularly portfolio are ARM returns over turn as replenished stockholders coming play mortgage agency-only We mortgages we believe will

Lance Phillips

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

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

Our decline higher $X.XX $X.XX acquisitions nine due core on rates our per increased XX in a of existing to and points loans third premium quarter, interest we reconciliation decrease and portfolio coupon core yields derivative as that our with interest at related common X.XX% of share increases $X.XX by yield include lower $X.XX the on averaged Yields swap ending earnings basis release. We quarter. lower as offset losses value related current unrealized on adjustments for realized press and value per share reported investment during being in rates, prior agreements. page of related earnings reset the declines. during a quarter, in exclude GAAP of the Portfolio well to on from portfolio X.XX% interest Book rate prevailing amortization. the

X-basis-point the activities quarter, than to in costs X.XX% Our XX hedging during leading spreads. in after net averaged third adjusting quarter, for basis prior borrowing a interest decline points our portfolio lower the related

up in a fixed from result XXth, quarter outs our the June call the -- on future benefit swap and forward rates basis X.XX%, rate With rate effect a higher during we book at will going was open lower to should of pair on As earnings. These of swap September XX decline that, explorations the pay points fixed rates XXth. fixed questions. XX

Operator

Stewart JonesTrading. [Operator line Instructions] the The ahead. from question first comes of Jason go Please with

Jason Stewart

on little color color there how for in be some was the ARM September taking the in wondering a could Thanks production, hybrid give and reacted of saw any helpful? morning. XXth We we question. would since a Good backup you pickup rates market Hi. saw bit us I if whether

Phil Reinsch

Sure. been not to has speaking the Since are the fairly much end rates five-year to more quarter, on most short of movement of three-year two-year than yield stable, with the curve the rates so rates. in XX-year

since So really really that, their end, generically the some of fairly you’ve quarter But fixed into unchanged lot quarter not rates CDA tightening ARMs change a seen end is and the predominantly in since lower spread ARM obviously, [ph]. so are of from the straight coupon pricing empirical then. duration sector in

Jason Stewart

though the we’re it’s even steepening modest talking increase incentivizing any a curve, And not production there. about in

Phil Reinsch

standpoint, know, are Fannie from production One ARMs those December going after stop month. was guaranteeing It and you decent should. LIBOR that’s interesting and a kind as to October probably Freddie LIBOR production had thing of a We purchasing right seen based quit ARMs. now

SOFR obviously run it’s both curve some And hurting so period. a run, to rolled And and production ARM there’s for right and Where, month transition in LIBOR November, out a from the that’s for transitioning yet. of but a seeing in LIBOR originators in now. kind ARMs short instance, some of SOFR will think, of but the a steeper LIBOR the increasing originating be supply supply, gap in positive long the stop kind little SOFR supply of starting just haven’t the So I originators and market. start bit, next we’ll new

Jason Stewart

are with up sounds Okay. as like you’re maybe together, par a you third That pulling some Reinvestment the leverage seeing yields bit. bit then you makes a of take reinvest little on in sense. quarter And little those it today, what and comments better.

Phil Reinsch

kind of looking at returns. We’re levered

X there now, know I are some to is In are of reinvest. mid-Xs think leverage is, times numbers I fact, the XX I like whatnot. looking something the right area we’re we an in think which kind buying of CDAs is and kind where using of higher to mid-X But

Jason Stewart

the questions. Appreciate taking it. for Thanks Great.

Phil Reinsch

Sure.

Operator

next from line of is ahead. investor. The Instructions] [ph], private who the question a Duffy is Please [Operator go Jim

Unidentified Analyst

are It’s Hi, Phil, How [ph]. Jim Robert. you? Delisle

Phil Reinsch

Good.

Unidentified Analyst

of all, structure that all, if reasons? ever Third correct? Fed the there Yeah. legislative there Are there reasons bought Fed That’s I I the Good. is -- reasons, of of first Am or like ARM easing? or CDA of part not no quantitative as aware the Second Hey. am -- of any there and having particular Good. any they their am might? are reasons? in you doesn’t, are I’m are my I correct, anything all, legislative talk ARMs space knowledge

Phil Reinsch

The market, ARMs, they capital the way. is the and is their for they I’m bang the are fixed biggest buying into have market stepped and the legislative greatest have that the buying deploying not effect, or which the heart buck any -- of fixed on to regulatory rates Fed but to the are of in they income order aware constraints

Lance Phillips

Yeah.

big as happen think I as not think, time. and areas of that levered in don’t It really I ARM happen ARMs, view CMOS. they driver mortgage way buying to, they’d a they from I of of I MBS as be And products. players had could the some market didn’t their share agency those probably they hands not much if they -- cycle. didn’t think so more of a they didn’t from overall in bigger agency buy an also as standpoint stable, at ARMs mean, the just point probably think it just the wanted I during a market, being other this the buy

Unidentified Analyst

would turn buying be like Just market of Have but -- in it guys. of me billions and -- keeping cycle, right, Fed score Great think you. few and it crazy, just the very very, a ARM of competitive good a coupon incremental incremental All during into rates. I fixed quarter. hasn’t might that a borrowers happened call worth track for the

Phil Reinsch

Jim. Thanks,

Operator

JonesTrading. ahead. question up with follow a have the We go line Jason Please of Stewart from

Jason Stewart

taking for Thanks the Hey. follow-up.

was year you’d anything and On in funding. end the terms you of taken seeing what terms of there I availability funding cost were in yet side, wondering over if

Phil Reinsch

a them funding XX-basis-point you at seeing area. really the of not rate, the in Generically, year-end we’re if repo look call now Right Yeah. XX-basis-point lot pressure. to

to some X-basis-point seeing in go and premium, not X-basis-point maybe to over You’re a all year-end. at cases,

point year-end little. less very a year, there’s long this So the turn in on the we’ve there’s and in time. seen pressure At

out of So there availability repo a lot there’s now. right of

Jason Stewart

nice you secured -- borrowing XX disclose me it, if into. missed And that? the rate on that a that I forgive then $XXX but million Did Great. entered you the was months

Lance Phillips

I’m that, Jason? you sorry. repeat Could

Jason Stewart

it XX you disclose I It the borrowing on if you into? didn’t a was million looks like hear nice entered months agreement $XXX that? rate secured

Phil Reinsch

a didn’t -- trade ago. we We into entered over that month

Lance Phillips

Yeah.

Phil Reinsch

we month trade year, a did pricing, a at proxy paid than more that And repo when in to the as points we we were out go X where for basis time. basically one

some structure flat is. the again, stays thought of our structure as term if that very on may is now. once of we why the some out sense That’s more borrowings of it do term as So made repo go to right we flat and it

Jason Stewart

a to of make it. sense. for Appreciate Thanks seems there. That’s color Great. lot the

Operator

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

Lindsey Crabbe

again joining us today. for Thanks

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

Capstead Mortgage (CMO) 29 Oct 202020 Q3 Earnings call transcript