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Franklin BSP Realty Trust(FBRT) - 2020 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported a GAAP net income of $29.1 million for Q3 2020, translating to $0.25 per diluted common share [13] - Core earnings were $19.9 million or $0.16 per diluted common share, excluding realized and unrealized losses on interest rate swap agreements [13] - Book value increased by $0.01 per share during the quarter, ending at $6.80 per common share [14] - The annualized return on common equity was 9%, with core earnings meeting or exceeding the dividend for four consecutive quarters [7][9] Business Line Data and Key Metrics Changes - Portfolio yields averaged 1.85% during the quarter, a decrease of 48 basis points from the previous quarter's 2.33% [15] - Portfolio-related borrowing costs averaged 0.67%, which is 42 basis points lower than the prior quarter, leading to a 7-basis-point decline in net interest spreads [16] Market Data and Key Metrics Changes - The fixed pay rate on the swap book was 0.69%, a decline of 58 basis points from rates in effect on June 30 [17] - Borrowing costs are currently in the low 20s for repo rates, with a flat term structure observed [32][35] Company Strategy and Development Direction - The company maintains a short duration agency-only investment strategy, which has proven effective in generating steady returns [6][12] - There is an optimistic outlook for future profitability by adding to the portfolio of agency ARM securities as mortgage prepayments begin [11] Management's Comments on Operating Environment and Future Outlook - Management does not foresee a repeat of the market disruptions experienced in March, citing lower leverage levels and Fed bond buying programs as stabilizing factors [9] - The company believes it represents a compelling opportunity for investors seeking risk-adjusted levered returns with a higher degree of safety from interest rates and credit risk [12] Other Important Information - The company has not changed its common dividend for four quarters, contrasting with peers in the residential mortgage REIT space, which have seen significant dividend reductions [8] Q&A Session Summary Question: How did the hybrid ARM market react to recent rate changes? - Management noted that short rates are stable, with little change in ARM pricing since the end of the quarter [18] Question: Is the Fed buying ARMs as part of their quantitative easing? - Management confirmed that the Fed is focusing on fixed rates for maximum impact and is not currently buying ARMs [26][27] Question: What is the current funding environment and cost availability? - Management indicated there is little year-end funding pressure, with repo rates remaining low and availability high [32]