ANH - Earnings call transcript Q2 2018 | Anworth Mortgage Asset Corp

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Operator

Good afternoon and welcome to the Anworth Second Quarter Earnings 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] And please note that today’s event is being recorded.

Before we begin the call, I will make a brief introductory statement. of earnings section contain of forward-looking respect and XXA amended, Litigation Section of this the statements XXXX, Act hereby on Act Reform of and of Exchange any the of to statements. meaning of XXE harbor claim made the call as with the forward-looking may such within as of protection Statements XXXX, Securities safe amended, provisions the XXXX Securities Securities Act Private

predict that do those are describe to future matters. that statements Forward-looking trends or or not historical events solely relate

and interest trends risks, You matters are other loans, regarding which should the following not rely unpredictable known on and subjects rates to securing are forward-looking plans strategy, business and our of our forward-looking many assumptions and beyond investment and regarding statements by our they because are regarding and our assumptions the factors, uncertainties control. prepayment their describe securities. unknown Statements mortgage risks, assumptions, mortgage-backed market subject nature,

Our XX-K Certain forward-looking actual projected uncertainties. from those that speak in any our Exchange heading only Commission any and actual of are with forward-looking report and and factors reports could under statements file made. time from those date results the those they such we factors, the various discussed we Form cause and as a our materially results time to Securities All make. adversely and from materially statements including of Factors to as the statements differ forward-looking on the may uncertainties result and and differ risks, other Risk expressed in annual adversely

to Mr. new turn events, Chairman forward-looking arise I Lloyd Except intend you. or over of whether events like how possible the of as by Executive we or as would over ahead. Officer to they update any uncertainties may a now future in statements, or change not Anworth. and conditions and time risks not Chief those us. it or or publicly revise a otherwise. conference do to information required law, expectations, go or affect to result circumstances Thank McAdams, predict Please New is and

Lloyd McAdams

you Officer; McAdams operating Brett With Chief to Officer. on over Chuck today of Financial the our and to now I discuss Lloyd later. McAdams, will we Roth, Vice President Thank Senior call our the I President; you results and is Investment this where McAdams, will participate I quarter Chief Investment the Joe me Chief will call and turn you. Officer. our very Thank I second President today much. am welcome Siegel, call company. and Joe

Joe McAdams

Lloyd. Thanks,

the during For the from quarter rates refinancing are seen refinance future higher the first quarter. million, narrowing share, to paydown security on related $X.XX second net decline mortgage-backed $XX.X of This common portfolio driven $XX.X were Anworth’s primarily as interest earnings some per spread share, continued in per $X.XX prepayments expense as our or was increased or earning agency by the million, to decline quarter, core MBS, in while the activity investments. to due nonagency reduce the current as rising prepayments their and prepayments, on recent interest to expect have we agency loans rose prepayment in second generally Relative agency interest months. adjustable-rate the higher and we MBS underlying our rates the well

quarter. winter or of XX were effect rate per market for portfolio, the and as all rose the rates in In $XXX,XXX, mortgage gains and both This higher realized out approximately related as during months. includes credit the income, net unrealized the of prepayments seasonal of core the the and general well than addition, in also coming market interest as is MBS portfolio, was $X.XX the of the liabilities decline share, by which earnings there quarter. entire Comprehensive lower the a also interest to value hedges value of agency portfolio basis due points losses

agency you'll MBS the quarter. during portfolio, quarter relatively size nonagency billion at MBS in see value balance assets, the notional Anworth's $X.X on Total at $X.X residential well billion holdings, quarter Looking holdings loans positions, as of including properties while to were billion the end. consolidated the $X.X declined on sheet unchanged as our from the including TBA totaled

fully the XX% the from with adjustable-rate in the currently during Of XX on agency resetting the MBS XX-year The XX%, ARM Within agency fixed-rate currently continuing MBS MBS of portfolio to declined XX-year the balance agency from MBS. XX% MBS, XX% adjustable-rate X.XX% holdings, with MBS. are to fixed-rate at to MBS the be basis rose coupon of the to indexed portfolio quarter-end. adjusting portfolio, of portfolio overall points with portfolio coupon X.XX% X.XX% maturity the quarter, the and rising

XX% overall will in As Brett I XX% earlier, on in ARMs to from investments. rate I prepayments increase agency higher credit portfolio over discuss to mentioned that, interest to increased rate, the did annualized agency to to portfolio – XX% a with this With agency turn the and rising prepayment result rate mortgage on quarter, CPR. increased the our

Brett Roth

Joe. Thanks,

widened the second some volatility end of in spreads the back quarter, out. were than where there was mortgage at end tightening quarter, tighter credit but last credit the appetite of at quarter beginning more were linked time quarter. sentiment investors' has the saw the spreads to the toward the year, of recently, for this By we summer, and spreads. During slowed We slightly Activity then to seems change mortgage class. market assets remained strong. that a In in asset general, seems the have and in of

market portfolio the rates. of due lower to the the slight of tightening due although the benefited our That rising tightening. terms our from value somewhat spreads, was spread interest is previously offset assets in mentioned valuations, decrease In to

slightly investment to than disciplined While assets add quarter, to was greater at continue our runoff. valuing yields portfolio to activity still were we the able the maintaining to approach during attractive portfolio assets, selectively and

assets. continues asset mainly a with environment, legacy the portfolio, voluntary underlying expect credit In our The risk amount to Specifically, the very prepayments from trending were portfolio and legacy the portfolio we in our of while in would of this slight CUSIP quarter, of of sectors added voluntary in CUSIP benefit Alt-A limited legacy CDRs the our agency in assets the as fees we in its experienced downward portfolio. the in general, acquisition transfer prepayments increase legacy transfer during fees. slowed a portfolio. agency non-performing performance The risk sector portfolio

last held CDR. overall we positive have have benefiting and LTVs. the few holders properties further experienced see, These at in value environment underlying result these The in to and been assets their credit, of these years. performance continued continues Turning we have The increase, have strong their positive their has of securitization the HPI economic remain strengthened over the the to this our loans which default HPI-adjusted resulted zero assets general, credit in trust. with lowering securitizations of that in to from mortgage

We still to original refinance continue and, our so higher opportunities of to see current in spite these to expectations. rates do continuing rates, their mortgages line at have are in that are with voluntary mortgage elevated

has in to some rates. interest us therefore, to On to the we manage prudently activity the allowed offset book continue cost our lenders to funds. of and, This and funding add financing our new help the counterparties mix rise of of our cost side, of

in as of feel forward, a good Looking to that opportunities market. investment take arise current in are position we continue to advantage they we the

across to continue find We assets mortgage portfolio to to to add look Thanks, of attractive credit. the sectors all Joe.

Joe McAdams

Great, thank you.

X.XX% over to $X just from repo March up portfolio overall, borrowings $X.X Looking decreased billion rate total at XX. June billion from financing repo quarter-end the at was The XX. X.XX% average at at

positions interest these average hedges at basis net effective points Our accounting X.XX%. The after interest quarter-end. of maturity X.X adjusting borrowings the maturity the rate hedges for after was rising years for the lessened impact this of with swap increase, nine rate

the decreased leverage includes to at increase XX% X.X the to roll leverage, which result, a implied XX. of effective with TBA down As at March position capital, during overall $X.X We times total financing, swap times slightly from dollar quarter capital, the times our effect was the X.X seven quarter is did of XXX all portfolio points. paydown in portfolio. agency our expense spread increase Again, total the which decrease from interest this balance, driver balance primary the the notional of repo outstanding of MBS to portfolio's billion net was basis did the approximately on borrowings. The of of decrease

to of equivalent a quarter, $X.XX per yield share to Lloyd. value share would share in XX. Book XX.X%. on closing and dividend return X.X% with the dividend we that per of negative stock an to The the the value like price $X.XX decreased was declared common in common of book turn the combination equity the for at And per I common $X.XX dividend This During over based total $X.XX the a quarter. of annualized back to call June the quarter. for on decline resulted

Lloyd McAdams

you Thank very Joe much, and Brett.

you expand to questions process the that mortgage as Corporate as that of Anworth's have, from would The Officer, may I'd time CEO, Directors manager your the to Executive as hybrid to would the a which now we September and Before to Joe announced LLC, placed succession for role answer Manager move like Anworth continues in XX I Anworth. XXXX, the Chief release as has Investment my become it's years, forward Management, of of several continue transition XX, agency June McAdams, with Chairman is press as of good Board which our Joe Chief that Officer, note and remain REIT. also been Anworth its

and the leaders in residential and past managers, the capital significant the pleasure mortgage sector, meet whose to company bankers Anworth's many as REIT during investment get and that analysts the have and in development resulted presence had REITs our markets. I've opportunity has security to know of as Lastly, the of today the CEO, mortgage in XX years

return might with questions to can the any back that so to we that, you I respond So will that William call have.

Operator

our And Doug Suisse. Please go be Harter Instructions] first Credit ahead. today with will [Operator questioner

Doug Harter

Thanks.

then I going of Agency First, the for congratulations guess, how transition. Joe, portfolio as the And and outlook the about you're curve, should the yield portfolio given looking and we forward? Lloyd the second, of at kind on compensation the think

Joe McAdams

Doug. is This thanks Joe. Sure,

curve remains within which flatter. move of the were rate for I more sort the or that continue fixed rotation that find we've sort or into trend to going continued two, forward, flat a if as see think, As we that curve securities well following little a the is get of we're sector to will MBS. past perform looking the quarter And to to been

to see XX think ARMs longer to relative I agency more So do and XX going more general fixed portfolio. the sector duration MBS and we're in rates MBS, the within years

spreads basis XXX basis between seeing new are XX points. on points to We investments,

opportunities we out, So those overall holdings, on are to to portfolio. add mix pointed rolling allocation size think credit been residential going off between of general, more non-agency the the attractive from good have the agency stable forward assets I still but – tighter spreads and are are finding attractive the that while the allocated MBS to is MBS we’re agency non-agency To-date in overall I about and maintaining accretive as between the relatively think overall here. relative that's side. And Brett

Doug Harter

Joe should if rotate we then going XX-year, your think about into forward? how to continue MBS, you And exposure XX-year more rate interest

Joe McAdams

We're not change. – had rate and a that quarter portfolio We've interest looking for a between half gap an to year. year of overall

maintain. will that think I continue to

fixed-rate as past continue we hedges as well, of more of balance As swap will continue on have percentage increase of couple duration overall less depending the you've in as assets. we as well the of a the hedge those seen new the to would ARMs, tenor repos, rise have the and overall as to quarters

Doug Harter

Got you. it. Thank

Joe McAdams

Thanks Doug.

Operator

be Securities. with questioner next Delaney JMP will Steven Please go our And ahead. today

Steven Delaney

on to too your my you also to me you Lloyd, Hello away. to know for let you're going everyone. And far to and extend nice your not Lloyd Joe congratulations career promotion. be

what things guess last of for quarter I spoke short saw to into of ties environment on for the curious this ARMs? ARM to kind total wondering your really short and XX%. looked congrats question. reset on you. of just rough ARMs Capstead just I'm is be I'm second you willing you'd these to CPR Doug's if that portfolio So both indexed We a comment like fully the week. we couple when shared

Joe McAdams

The quarter at the look I The hoping the ARMs you was on portfolio those are see was to ARMs. you, it overall for just – the here if for just XX% Sure. – CPR first, I’m first resetting XX% that and decline things so fully if far have third the quarter, quarter, quarter. XX% ARM month in and the indexed the some entire XX% reference, so during prepayments we CPR we Also during was for ARM. point as so are seen the of into was have a the

ARMs reduction overall on in the referenced. CPR vein, those the month of to I think then, you portfolio and fully same the indexed XX for XX% was XX% first that

Steven Delaney

While anytime duration are we managing the you your than overall flattening this they're short curve basis. that It to seems But longer flat on feels next portfolio. of that. these fantastic love spread comments the asset. the of point clear, curve it for seemed me to deal other to and and a Doug is like dragging great the with really to at a going were you them, forcing like ARMs, to nothing when It they're amortization the at kind move have the duration they're and while those is to the

in now thinking more reports I, you're than saw that about again So and with we but up. I it MFA Capstead, your know

is get it thought describing getting and with – they’re be think to seems as were I better on is anytime get soon? – I my So on, Doug, you not to because would to it opinion

Joe McAdams

You're – a right, ARMs periods part been ARM, we've have we've had our there XX last years for as the portfolio of

Steven Delaney

have. you know I

Joe McAdams

and of expense have you So lot the yield securities to beginning that's price. I cost are When than when inverted to is a steep on of that at certainly down to the rates prepaying But and lower the the basis they that's that out do of of terms to the drag expense, be in a point cycle relative total they basis know activity in environment when or it curve curve curve. about of the perform perform in a to a something refinancing good cost a amortization, the significantly is them. when would quickly, rise steep. they a a have deal well. yield current the obviously premium flat going They market pay total comes better vulnerable yield we very But return. tend the return, tightening again,

Steve Delaney

your June today? paying are the Where today of was hike. reflect assume XX don't run repo And and day on I Understood. I the XX – agency on XXX. June kind you fully repo that doesn't at are XX agency? Fed's on you What

Lloyd McAdams

I on reset to I well. little rates if for get Let’s I obviously can higher. I'm the It's see sorry, swap is a see higher. – that. looking But it little don't currency my app. Steve, likewise, – don't as a continue – higher

So number out, is as we've overall by hedged are seen pointed a we've of discussed, coupons our of higher. ARMs balance have XX% I in position, our terms repo got as decent as well covered that of that And the swaps. the there's

Steve Delaney

you're LIBOR, three-month that receiving correct? I mostly recall. And Right. Is

Lloyd McAdams

correct. Yes,

Steve Delaney

Yes, great.

is of taxable last to exceed that addressed Chuck, rental, you. income? I to quarter-to-quarter Okay. there one have Is your single-family This And whether is – on your one. this maybe a best because it's anything, your cause GAAP there is would anything income

Chuck Siegel

different that GAAP income. from nonagency our is things nonaccretable the Steve. are discount that on Hi, are there is book bonds. Siegel. on our One taxable income, Chuck several The are This or

we a purposes, don't not any they recognize income. But that taken discounts and be have recognize do tax discount For any income. to purposes, into into book as of for

to from going the there's taxable adjustment book not usually couple the had tax income are depending of or – that. for purposes. tax to other be an on related have to to we years. that the whether So increase gains swaps, is And the on recognized of big losses for income then because We've last which income unrealized

on amount to so have year, a in So gains swaps. we far happened sizable this

may even less taxable offset the likely would increase more our So to in that than possible It's income. that will tax taken be and that that's nonaccretable could actually that. for discount out be being purposes, income tend our be in reversed offset book than

Steve Delaney

Okay, got it.

has guess, of clear dividend a a and but GAAP though book mortgage So has it's the for been headed been is for agency And it exceeding did I pressure the trend which necessarily that that going modest for to quarters it's not down just earnings, a penny, asking unfortunately, ANH, quarter-to-quarter appears the now, the higher. put earnings this on even by – most couple to towards the be of I'm REITs take you looks because has like dividend going value. but lower not impact be it on dividends. to – near-term

wanted dividends just currently above would ask companies I income. income why for are to So if the – GAAP there some reported certainly cushion, will, have taxable if explanation undistributed you a that's continue an and

you thank the for color So there.

Joe McAdams

income in core say would Joe our relate to tendency opposed to I our past to been if more it, our our taxable as clarify could income. but has dividend the

Steve Delaney

Taxable but to is policy track core. board's okay. it, the requirement, Got is your

Joe McAdams

have That’s correct. you, them earlier, XXX I And current where Steve, papers for found as our rate. but repo described through is my

Steve Delaney

thinking XXX but was that range. XXX to Yes, in I

all Okay, your comments for today. thank you

Joe McAdams

Steve. Thanks

Operator

be any so question-and-answer time, Okay. call [Operator no Instructions] And there to closing turn to remarks. for this McAdams the conclude over session. back Lloyd like would look at to I this further will our questions

Lloyd McAdams

this you reading today, be you November call of early to participating all for listening and appreciate this forward and our on who'll again look the in everyone We continued person, be enjoy you your who having Thank and call you transcript. call forward those us to those on Internet for very of those for your to in weekend. much the replay support. who'll in Thank of the and to look of are with specifically shortly you

Operator

you for today's And attending presentation. the conference concluded. now has Thank

your may lines. now disconnect You

Anworth Mortgage Asset (RC+C) 3 Aug 182018 Q2 Earnings call transcript