CMO - Earnings call transcript Q1 2021

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Operator

Good morning, and welcome to the Capstead Mortgage Corporation First Quarter 2021 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, Director IR. Please go ahead.

Lindsey Crabbe

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

of IR yesterday, release XXXX, website XXth, The in of to replay the the XXXX. the earnings are also website. included issued Detail release. and our webcast at be The will section archive April is this under our first quarter Investor of on was for call Relations webcast XXth, available in yesterday's link posted and www.capstead.com tab. is this An a this through July replay

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

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

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

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

Phil Reinsch

I and then the Capstead brief everyone interest is in color, make for quarter going Lance call recap provide first give of we and for will Robert some will Lindsey, with market up Mortgage. thanks you, questions. quick a some to us Thank the remarks, your After open

first string Lance estimates quarter Including on of which share in effect speed moment. for further equity earnings describe capital, the $X.XX were the includes that common X.X% will XXXX, adjustments, prepayment core Our per these core $X.XX a returning adjusting back to XXXX of our on or quarters our the exceeded earnings where and breaks X%. fourth dividend of met the equity throughout of with average pandemic, our this quarter towards quarterly of returns going five

and While down rates their refinancings with of as locks refinance were XXXX April months portfolio during homeowners by rates of historically levels coming late at the points closed mortgage in available quarter-over-quarter, XX modestly April mortgage of see now rates end refi the rates in basis the indices are mortgage soft prepayment increases fixed quarter, cresting And closings. shortly took loan March. loan mortgage fall We indicating Recall, most first towards high advantage low last the prepayment prepayment year as in runoff remained March rate reflects to with quarters. mortgages.

programs quarter. This was was This and agency from in of production having of the dry demand many part in primarily strong due we SOFR ARM large agency-guaranteed including making to fourth quarter, further portfolio quarter-to-date instances harder Of powder This entire all matter. mortgage more available should or ever-increasing out have the the had than in pick We that crowding from and did the portfolio has private runoff for banking we levels All course, spot, continue rates curve prepayment our replace that what reinvest capital resume in as in ARMs. in due Reserve we sector, capital transition to to first lowering higher, to the effect general, of the MBS seeking trending LIBOR bank the not do may to for it yield view should unacceptable faster. current reserves. of rates portfolio steepen buying recede runoff quarter Federal our of commercial and at and indices to at said, attractive made first amounts deploy already levels. acquisitions and ample the returns,

generating liquidity, remain and and risk-adjusted call as judicious be to to they we forward, will to the Looking returns quarters. the opportunities in take Robert. flexibility coming deploying building attractive unfold that, of in will With we turn committed over advantage potentially I Lance our

Lance Phillips

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

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

the life prepayment -- lower runoff and $X.X interest adjust XX resulting current and market adjustments year, that to we earnings at prevailing of fees decreased due reset reconciliation do $X.XX $X.XX increases but reminder, core largely the on activity. first portfolio-related million reported points earnings $XXX future Portfolio conditions. in $X.X our on share, in yields capital fully lower down impacted release. value ending not anticipate to rate the all balance volume rates the average prior from to we per first Phil offset or made by per we amortization, realized of related in additional the exclude interest yields GAAP by do X.XX% in portfolio quarter, decrease page in during We unrealized $X.XX core being in with a $X.XX basis adjustments derivative-related our of press a declined approximately perspective, existing in eight current share X.X% coupon common points declines from quarter, the we From further require. our quarter, quarter. our quarter. and any the losses were loans million this will million of approximately As speed a previous agreement. include in due portfolio as on negatively XX expected being and line mentioned, our making a Portfolio interest $X.XX rates. as value by conditions and replace swap basis runoff also premium as Book related to declines, in X.XX% average We Yields lifetime with during monitor not

the Our prior consistent lower the from quarter, cost during activity XX for interest related in spreads adjusting fourth borrowing pay portfolio our at in book quarter, basis effect points The X.X% our XXst, than resulting first increase December in averaged points March after two only swap from quarter. an hedging rate the XXst. on fixed basis on rate basis six points net of average was

Now, I will to turn Robert. it over

Robert Spears

LIBOR mortgage basis this is rates at ARM the the record caused recent two-year and X.XX%, quarter, factor fixed-rate Thank an trend to to basis ARM The you, for positive yields to increasing In in first new of while term, supply. X.XX%. Lance. one. only to points a points low increased a curve transition trend XX-year remain yield of valuations steepened with XX Longer yield four low in extremely in $XXX SOFR quarter ARM year-end all-time million supply however, issue short-term, the plummet to

is ARM extremely sale. is new levels. paper, the tight alone, originators million of versus were due season supply new fixed the actively mortgage. mortgage strong front-month was spreads still issue quarter. which in front-month forward There a million In the $X.XX adjustable issue relative of secondary up billion noted for cohort In addition that $XXX $XXX an pushing now to also should to bid new are the very over bank rate issue paper, April in second settle and sold there this of ARMs It keeping at be attractiveness new issue rate is picking dramatically agency transaction. on Many products this

a repo. attractive a see repo in we forward value rates this, season basis currently area as extremely Current in As as transaction. result are settle term XX from point of XX month issue more well paper one new to

we're returns the that, the into up open going and Looking forward. With curve very dynamics we'll questions. the the recent pick ahead, risk-adjusted call encouraged how up in steeper ARM by of for attractive yield can translate that supply,

Operator

Thank you.

Please Steve begin We first JMP question-and-answer will go question from from comes Instruction] [Operator ahead. now Your DeLaney the Securities. session.

Steve DeLaney

for that Hey good everyone summary. and morning introductory thanks

all must and I Thank Phil, the think, that currently versus can, of questions of all was give kind -- first had type right are just in so talk something that that securities of you. buying? new who that it appreciate like? that, are have if -- pickup answered find we the probably quarter you Is the willing for us purchases Lance relationship, we a production you there that with you but about what the that could quantify it second for to had is layout the about. Maybe had -- we us? investment or you Phil, look comprehensive a my you we most describe took to overview. you is quarter you of will quarter, can the flavor mentioned second could quarter of Kind recall Robert, at I -- little And seasoned?

Phil Reinsch

of throw in stage. on of million $XXX us. And $XXX annualize about probably of there, to at $XXX that runoff. versus this want million basis out not really a well number either bought we're quarterly might fair first only we or to hate and almost quarter that Well, to people try ahead because the that's million quarter I

So, but buying. Robert what I'm not going actually speak is he and let seeing to to that, do I'll he what is

Robert Spears

it There Yes, there. couple still -- in continue of see, in new we we April, I in bonds buy in issue were March, season commentary, value mentioned so take a was We securities. where to paper. settled up -- front-month which don't some Steve, as we read the much late

more that buying are those so names, front settle. issue that back that very thing the these us stuff is of much in time we're mainly That's up the week is the in are rich, in compelling of some good speaking so handful driving sector because a new buyers for to have XX that production immediate much You spreads but amped months, than month. only

from choose have months. to seeing a more we're over lot three So, six we last to than the

Steve DeLaney

months mean, And better be you you I banking. would minimal aggressive I probably you -- buying fairly versus but see it lower see you're when actually I assume Yes. prices know, difference, out, a three do would slightly

Robert Spears

way both Yes, don't price, to or the it. at basis absolute want you spread on basis OAS Obviously, also any you look dollar on or get-- but

Steve DeLaney

cheaper. You are buying

Robert Spears

to from -- front XX days, but versus is month the XX going compelling a out pretty from the now. days XX right accretion

Steve DeLaney

out, got -- which the covering as Phil the pretty then, -- and dip, was Lance so dip, the it. been observation. And Okay, you first the -- is pointed covered $X.XX steadily that dividend and

changed or it something to like a quarter say, or -- in being was of that life the you're covering so accounted quarters help kind just more you to slightly attribute runoff didn't okay, said basis know -- XX the and a $X.XX well, change the it a really two may Phil you combination? much speed. for the me I sound drop underinvested it you it's $X.XX combination adjustment yield. straight being points the just by made would life for as Can or the the of this the life pretty knocked speed, be question to not to underinvested off You whether speed drop,

Lance Phillips

Yes, mean, translate certainly $X.X million the could to quarter, $X.XX this drop the in I earnings.

the additional amortization. quarter of this the think, earnings, to the obviously $X.XX would directly I million didn't attribute underinvested but $X.X help I

Steve DeLaney

the great. comments Okay, Thanks for guys.

Lance Phillips

Thank you.

Operator

Thank you.

Stewart ahead. Your comes question Please next Jason from go Jones Trading. from

Jason Stewart

Thanks. Good morning.

think to you're you're going and talk we thinking take sort portfolio growing As in it? portfolio how bit hedge can a again you interplay XQ, just how that it leave is the about adjust it little or as or up, about the of about

Phil Reinsch

drift gap a from issue to our months' sort duration little materially. right out is I newer for there standpoint, has than lower and more of We're a that rest I that's wouldn't look portfolio. duration coupon over a the risk three paper constant. of the Obviously, we'll now. little that keep fairly think

of the They be need type So, securities. but also that, we protection, the as offer they most to of duration. mindful have obviously acquire we longest prepayment those

those So, three we to a around hedge remain gap aggregate, in look fairly we accordingly will duration flat for and months.

Jason Stewart

And That's core guess dividend put whether at think word I'm I there, about as this to I you temporary its look we going for then yield -- steeper; could at and of the out Okay, be earnings between is this we difference that I $X.XX XQ would helpful. through you talk the period. great. out. a migrate mean, plays going the a imagine rest is it to temporary curve I way stay that level? just today the down factor

about nature you in temporary and amortization think the the policy? setting additional the when Just how of leverage, the dividend that drop

Phil Reinsch

Yes.

Phil. this -- is the So,

speeds every you obviously, adjusted Capstead don't to the look lifetime So, since hear we adjust speed could routinely at quarter.

Fed lower You -- other one-time on as doesn't a can definition upon a and we going at tougher the have to to It bank but dependent meet the technical until that's with and this that finding our And often. here. one-off. a of to affect opportunities. look we why hand, doesn't and non-recurring that's of it quarterly decent happen kind And that be of reinvestment that's do, build kind up it thing, smaller a results we're going that's can back buying, buying certainly portfolio

this we So, through to we second we'll able the loss to that should ground at on are recently. portfolio quarter. experienced more to in picking up We grow of imply don't that quarter, that but a little stem the the that be mean be least portfolio we've outstanding able

at dividend Board So, have what dividend that. that we're longer five adjustment, yes, get the the last be until you're where a to that, at our that it up look are term to to that little this as little we our and but quarters such We medium level. results there outstanding leverage from didn't perspective, dividend look going quite earnings $X.XX, speed as back And until a gauge time, to and well. look our we'll so earn still get $X.XX average fact mostly to incentive declared We we more the a to have about at look like realistic to but -- at looks due quarter, near-term to able pay term, accordingly. policy portfolio in can for better we

Jason Stewart

taking Appreciate Okay. the for Thanks question. it.

Operator

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

Lindsey Crabbe

today. us joining for you Thank

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

Operator

Thank you. Thank our That you participating. conference does today. for for conclude

now may disconnect. You

Capstead Mortgage (CMO) 29 Apr 212021 Q1 Earnings call transcript