ANH - Earnings call transcript Q1 2019 | Anworth Mortgage Asset Corp

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Operator

Good afternoon, and welcome to the Anworth First Quarter 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.

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

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

not control. forward-looking known they and should regarding are subjects Statements which unpredictable their because assumptions, describe uncertainties risks, the of and other the following You matters rely by on unknown factors, forward-looking to our are nature. beyond subject many statements are

and interest regarding the securities. Our risks, market rates rates loans and strategy, securing business and on regarding are mortgage-backed prepayment mortgage trends assumptions investment assumptions

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

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

Joseph McAdams

for Senior Manager; Siegel, today today Portfolio you Chief Portfolio Vice quarter are President our Vice call and Chuck XXXX Bistra Financial Senior discuss Officer. Pashamova, With me to joining Roth, first and Anworth's Thank President and on Brett Manager; Anworth's the call results.

Turning rate Anworth’s to financial the quarter’s improved portfolio as quarter, our yielding results. MBS higher the largely MBS the yields fixed. from XX-year by portfolio fourth earnings from higher of allocation Agency fixed shifted XX-year we to driven on

share or per for in market XXXX. $XX million a quarter, GAAP all which of unrealized a of comprehensive value loss was million repo the this entire $X.XX for income the net line Core the of Although, per during increase $X.XX was financing rates by agency assets fourth from up a or of repo not quarter $XX.X $X.XX offset in was and and gain of as related decline includes did less losses million the portfolio liabilities were $XX.X part the of these and the yield share, and quarter. realized in earnings quarter. attractive income a gains common LIBOR with

little in turn $XXX to approximately agency we and MBS securitization utilizing that, loans for that discuss to million the at of portfolio the investment fell mortgage line call MBS held Agency of more changed assets are Total With Pashamova portfolio. Non-Agency billion warehouse I'll slightly were Looking being detail. and credit. currently end. over quarter added $X.X the financed residential at at a Bistra

Bistra Pashamova

you, Joe. Thank

XX% and investments rate. positions, rate MBS our XX-year portfolio, and our of with XX%. rate you'll of including Agency XX-year Agency rate fixed At end, to comprised rotated fixed fixed TBA MBS MBS composition at adjustable notice rate MBS rate we XX-year our securities fixed allocation fixed portfolio. from Looking the XX-year securities XX-year was quarter combined XX%

significant more viewed we returns is risk certain the fixed XX-year than of adjusted spreads rate providing Following sectors quarter, mortgage attractive fourth the XX-year in widening fixed rate.

moderate investor well Our with characteristics characteristics, included but as loan Payups prepayment TBAs. Later purchases to as new rates quarter, rally low March mitigate the specified as rates to that and balance further and [preferential quarter payups. with protection the in for new led have prepayment fixed a demand. quarter agency investments in and in so relatively with prepayment specified pools securities, risks XX-year especially pools continued the appreciated our pools] with significantly the we increase on second far progressed more protection focus

Turning to rate MBS our allocation. adjustable

rate to resetting the agency XX on quarter in allocation of currently coupon XX% constituted slightly decreased agency the to of higher quarter with to coupon X.XX%. fourth MBS from CPR. see the CPR total the overall rate You increase the the CPR increase in CPR average decreased point XX% the this similarly with XX-year the Combined basis fixed the X.XX%. a prepayments, in regards resulted MBS, to points XX% continued average ARMs our up portfolio from first portfolio Adjustable to to XX% With XX% XX rate prepayments prepayment and quarter. to in portfolio basis coupon agency

the in XX% We CPR the the following a quarter, several result overall ARMs the and prepayments and do of for the have April. anticipate XX% in higher in in far March as low seasonally housing higher months subdued increased Agency So next for MBS second refinancing rates mortgage CPR remained prepayments turnover. portfolio activity with

Joseph McAdams

we'll over Roth turn Bistra. At to Brett point, this discuss to investments. credit the our mortgage Thanks, call

Brett Roth

Thanks, Joe.

quite but recapturing approximately widening the tightened widening. of During the previous two-thirds retracing the fourth quarter in, mortgage quarter, assets spreads from the all on not credit

dollars quarter, gave the us to the to during during widening focus our credit spread shrink the That on added growth we loans the at for acquisition quarter], securitized approximately portfolio saw the reinvestment runoff advantage of and last during acquire we allowed being securitized [fourth due Thus to our yield. portfolio assets us loan which committed mentioned credit these quarter, of to million took room loans As to attractive portfolio $XXX quarter. portfolio, the non-QM portfolio. of with appetite the the growth the

the in spreads strong. see space, credit forward and securitized second appetite loan sector flow to non-QM remains move we we tightened. investor continue mortgage of quarter, grow to in the product In the the As continues

In this terms positive the of the quarter, in portfolio again during the and first seeing tightening valuations we overall this movements. spreads our far, credit are of changes of valuation portfolio. from Thus benefited market quarter,

near-miss quarter, in held the trust, regard defaults non-QM loans remain are credit performance to assets of CDR. continues the non-traditional Currently, our XX% acquired acquired and our a and have loans. we of weighted-average higher of credit with XX%. FICO of the quality, type of at assets In these on Looking XXX documentation. at loans use zero strong forms DTI non-QM to these Most assets securitization focused remaining we LTV during of

side. On the funding

our book of prudently our funds. continue We therefore manage and financing cost to

able were further we the spread quarter, we funds. the our Over to on pay on improve

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

mortgage add credit of We are the to residential assets all across portfolio actively pursuing opportunities to the sectors credit. attractive

continue increase network anticipate is the of in will continuing growing we'll to of footprint expand we our the investment our this assets loans and mortgage that in Our sources we and Thanks, activities for Joe. sector these continue non-QM to market.

Joseph McAdams

financing. portfolio our to Turning

X quarter those March a increase to basis The XX. repo average After rose that our at was average stood reduced total rate point interest on from in increase at $X.X year account end. at hedges, March to taking at at billion see repos this rate XX. basis X.XX% borrowings into X.XX% interest the You'll X.XX% end our XX to point

X.XXx So you was Company's quarter point approximately And interest you our end raising rates TBA include decrease which is can during small levels, the and LIBOR, rate X.XXx. financing over when would loan Well, the to interest March see effects synthetic from our affected embedded year million transactions, swaps overall leverage this as rates $XXX our effective December we I for stood the a swaps. out XX. payables in the Agency MBS quarter at Feds were that end there total increased rate XX. multiple is on at in rate in at end leverage are purchases unsettled not our March paid that entirely our offsetting repo of The relative interest

little pro So leverage those once basis a on be trades would changed settled. forma

billion Our $X.X an swap X.XX% and value maturity. position remained fixed similarly of rate notional and positioned on of with the with quarter of years a average average X.X

the at our interest asset an Looking XX net basis of you'll across quarter increase investments, entire the all see points. in for yield rate average spread

quarter. While hedges on resulting in quarter was the XX spread increase interest of unchanged expense point on in a the the basis average net

yield the dividend stock and operator our the share $X.XX account closing paid During we of based quarter per declared was quarter at to end. and have this so value welcome This $X.XX share increase, dividend Book you over call $X.XX the shareholders book the quarter, if I'd to turn back return the would an like common increased questions point, dividend At X.X% to Jake, quarter. reflected the to into annualized this any for common you time. take total the value per price at $X.XX, the XX.X%. economic by on common a on

Operator

Instructions] ahead. Harter We Doug question-and-answer question Credit will go now The begin Suisse. [Operator first Please session. the from with comes

Douglas Harter

Are expect of your more do – you to think in you Do where you mix where years? terms about Can rotation? Thanks. your you talk is you XX are you portfolio today? move like into agency

Joseph McAdams

the specified as think shift increase have the in pointed the also in out, future pools. payups seen don't significant and to I expect some on of we we Bistra a see some as

to attractive we with feel unless a we think I maybe pools we additional terms relative in like XX-year – little characteristics what like payups at find So adding slower positions prepayment TBA. of

opportunistic. quarter we quarter So we of similar see we we and to rotation trades to settled the either a have fair as that number settle think We where did is or XX at now. where I maybe had at pretty Also are yet some more during end. may March either continued stood mentioned,

see impact yield sort trades shift being to and place standpoint, some a a those expect continued that from effect the for full positive standpoint a or from in of coupon quarter. would I So of

Douglas Harter

And then quarter, can second that with impact might yield, on rising asset you the in yield CPRs the also the what later think quarter? sticking the us it. of Got help the in have through

Joseph McAdams

Sure.

of CPR stood at million be unamortized total to about that increase where XX rough a premium If amount had amount basis. a at that's think annualized of if March you $XXX approximately just X% ballpark, an of the sort going on you one

so could So increase yet per Bistra I increase pointed have the this as share, a that of have an but we prepayments a had you out, in drag CPR three quarter. or not think four far about if $X.XX seen

Douglas Harter

All right. Great. Thank you very much.

Operator

Mikhail next from Instructions] [Operator Securities. Please Goberman go question The JMP comes with ahead.

Mikhail Goberman

Hi. morning. Good

a up went leverage bit taking perhaps for X.X, about appetite higher, to your including of noticing little TBAs. sort is what question, First down

peers that your running around maybe thoughts are maybe on just higher? your I the nine, of Some so guess peer taking median, –

Joseph McAdams

Joe. Well, is thanks. This

did think first payable alluded over consistent way the for that, purchased which securities of We made think loans. because of mortgage I our well a I timing bit of as of residential we larger end. was was as see I the prepared the – We it and some non-QM remarks loans point, settled in fairly quarter I the from average the trade the had quarter. the at the how leverage addition to than

than was there's but going where leverage portfolio all closer running still at we're March coming, probably year that, in of the I where forma think obviously to pro end be XX the number. So paydowns the to net

well of move is. our residential for loans feel also line blended I That the we In securitization. leverage non-agency leverage in credit is financing as between with the terms for the it portfolio, forward held our where as, bigger only the comfortable agency the embedded as leverage but we're not investments your question. warehouse

going next still XX. at think in of So leverage the I December back of rise where while that do to be over it was may that sort range officially quarter, it's

Mikhail Goberman

said terms perhaps any it's a that. going of And you I repo give Okay. obviously, of of and question a it costs color dislocation seeing a was quarter where on about past XX. Can in is X.XX% think Thanks you're bit March as now? just up, the this for what you on repo,

Joseph McAdams

was payments. our receive quarter come much actual the That LIBOR down Right. over the down came what swap nearly And didn't which while is I over – was of we three-month the the so trend repo The quarter. on the cost as quarter, the think points bit of decrease little sort seen in continued or date, we are to basis a we LIBOR rates of rates. seeing more we're far another actual continuation have the decreases so of some paying. plus that repo to in while X We've that see

not of to coming the did of has month so even the of down it continued far rates they're first has the but in magnitude relative continued though quarter, So as the repo quarter. first same trend during sort to increasing LIBOR this

Mikhail Goberman

Got first how quarter. one And to the �� on to much know you. would to Thank And the you prepared more purchases just your quarter? perhaps? – question remarks, securitization, I during need buy appetite principle some more your second get mentioned complete you in What in you. your a in non-QM is

Joseph McAdams

you Do that Brett? take want to

Brett Roth

Sure.

In terms We an more of how appetite. appetite definitely have an during of quarter? do we much have do this

continuing if non-QM you will, footprint, space. are to grow the We our in

securitization sense. terms a makes In of what economically makes

somewhere million. that think around number is I $XXX

of to Just what it the the cost securitization. as we about kind do of economics think

to million $XXX million, think I $XXX say, $XXX million. I should

creates issues too we if that some think I other that larger us. than for much get

the to part of seems sweet what for we're shooting that be So here.

Mikhail Goberman

coupon was in didn't in first don't that I you see loans the Got that anywhere. bought you the quarter? print the guys you. know, What Have on – the maybe I

Brett Roth

Sure. coupon that The portfolio net now is on X.XX%.

Mikhail Goberman

lot. All right. Thanks I X.XX%. it. appreciate a

Joseph McAdams

you. Thank

Operator

turn over Instructions] question-and-answer for concludes would This [Operator to conference any the session. remarks. McAdams Joe closing back like I to our

Joseph McAdams

in your everyone thank interest Thanks. your for you in look Anworth. for and call to to participation quarter. to today's next So again And forward you talking we continued

Operator

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

disconnect. now may You

Joseph McAdams	President and Chief Executive Officer
Bistra Pashamova	Senior Vice President and Portfolio Manager
Brett Roth	Senior Vice President and Portfolio Manager
Charles Siegel	Chief Financial Officer, Treasurer and Secretary
Douglas Harter	Credit Suisse
Mikhail Goberman	JMP Securities LLC

Anworth Mortgage Asset (RC+C) 6 May 192019 Q1 Earnings call transcript