Capstead Mortgage Corp. (NYSE:CMO) Q3 2019 Earnings Conference Call - Final Transcript

Oct 24, 2019 • 09:00 am ET


Capstead Mortgage Corp. (NYSE:CMO) Q3 2019 Earnings Conference Call - Final Transcript


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Good day, and welcome to the Capstead Mortgage Third Quarter 2019 Earnings Conference Call. [Operator Instructions]. I would now like to turn the conference over to Lindsey Crabbe. Please go ahead.

Lindsey Crabbe

Good morning. Thank you for attending Capstead's third quarter earnings conference call. The third quarter earnings release was issued yesterday, October 23rd, 2019, and is posted on our website at under the Investor Relations tab. The link to this webcast is also in the Investor Relations section of our website. An archive of this webcast and a replay of this call will be available through January 29th, 2020. Details for the replay are included in yesterday's release.

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

Before we get started, I want to remind you that some of today's comments could be considered forward-looking statements pursuant to Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 and are based on certain assumptions and expectations of management. For a detailed list of all the risk factors associated with our business, please refer to our filings with the SEC, which are available on our website. The information contained in this call is current only as of the date of this call, October 24th, 2019. The Company assumes no obligation to update any statements, including any forward-looking statements made during this call.

With that, I'll turn the call over to Phil.

Phillip A. Reinsch

Thank you, Lindsey. After a few brief remarks, Lance will give a recap of the quarter, and then we'll open the call up for questions. With this quarter's core earnings per share of $0.11, we've now reported core earnings at or near our current $0.12 dividend run rate for each of the last three quarters. This quarter, we absorbed higher mortgage prepayments due to both seasonality and the declines in longer-term interest rates experienced the last two quarters. We also weathered lower swap receive receipts due to declines in three-month LIBOR relative to prevailing repo costs and dealt with the late September repo market funding stresses with little impact on our borrowing cost. That said, repo rates have been stubbornly elevated relative to Fed funds for some time now, representing a headwind for our financing spreads and earnings.

Further, lower prevailing rates and higher levels of market volatility have had a negative effect on portfolio and swap valuations, contributing to a 3.7% decline in book value this quarter and leading us to take a cautious approach to leverage levels in the deployment of $75 million in new common equity capital raised in early August. Despite these market conditions, Fed fund cuts in July, mid-September and perhaps the end of this month will benefit us significantly and should contribute to stronger earnings in the quarters to come. Additionally, we took advantage of lower prevailing interest rates earlier in the quarter to replace higher rate swaps in our hedging