ANH - Earnings call transcript Q3 2019 | Anworth Mortgage Asset Corp

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Operator

[Starts Abruptly] Before we begin the call, I would like to introduce Mr. John Hillman, Anworth’s Director of Investor Relations. He will make a brief introductory statement.

John Hillman

Thank you, Danielle. Statements made on this earnings call may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended, and we hereby claim the protection of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 with respect to any such forward-looking statements.

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

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

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

Thank publicly changes New otherwise. circumstances to required or expectations, as by it and predict or uncertainties they conditions new a you. in information risks possible any affect and not events, or result revise whether us. Except as law, to arise is those intend how not update over or forward-looking or time of do may events statements or we

Executive Joe Mr. Officer. I would now like introduce McAdams, our to Chief

Joe McAdams

Brett Chuck Also Portfolio today Vice Anworth’s Vice President as Chief John. Portfolio Officer. well Senior Managers; Manager; Pashamova, are Siegel, you, Bistra both me and Presidents Senior Financial and as with Roth, Thank

in a the this to The for heightened have continued assets, expectations that particular, prepayments MBS as and resulted market our more of much year. persisted long-term of for refinancing. third underperformance continuation saw volatility rapid uncertainty, Agency a interest This quarter in economic well of falling rates as price due

We had quarter. reduced the second portfolio during our leverage

overall relative during sheet This quarter, were the QX. core third the was smaller assets quarter for $X.X average the per lower or primary portfolio So expanded on declining somewhat balance to million on our earnings to driver share although our during $X.XX quarter. $X.XX earning the

both gains a our some on GAAP of losses and assets $X.XX but on the includes $X.XX hedges Comprehensive our quarter. income derivatives, loss for MBS of quarter, of only unrealized the related the all unrealized for gains realized swap and $XXX,XXX which includes MBS assets. was income, or and was and

for borrowing interest There was of borrowing headwind the twice repo spike extreme short-term was but elevated rates rates rates a terms Fed were rates during well-publicized the and significant in rates the And our repo other the lived, our Agency MBS benchmark quarter. was the between challenging in while paid environment in short we the mid-September. from rates The investments. the spread and cut quarter, during remained repo short-term earnings

Fed we’ve in month improvement or for an after seen LIBOR to third October. a agency relative our this – last in the cut Recently, in October month borrowing repo time rates

to borrowing unpredictable, see can while do overall be we moving So year-end expect borrowing over forward. improved terms

although the MBS total our TBA quarter pools we remained of at reduced added investments approximately Looking and our XX% during Agency Agency portfolio, portfolio, our MBS our positions.

and primarily securitizations credit MBS see held you mortgage to This non-Agency for lower. loans paydowns the non-QM due was can side, On increased. that was

like agency turn more the I’d call the to over portfolio in Bistra to to discuss detail.

Bistra Pashamova

Joe. you, Thank

investments, including than our and MBS XX-year as rate Agency more Agency XX-year MBS them we rate other to MBS we securities adjustable tilt portfolio, Agency risk-adjusted fixed rate see continue returns attractive sectors. was view our portfolio. of composition the at comprised rate to providing and MBS TBA securities, allocation Looking At XX% fixed combined of MBS X% XX-year our positions, fixed XX%. XX-year end, quarter you’ll

fixed coupons, risk. pool We rate given to investments four focused new the limited During eliminating our prepayment lower XX-year and inherent on a were the our further allocation, TBA three coupons. half quarter, and XX-year exposure repositioned

Our now relatively financing. to less of position smaller and consists as TBA XX-year providing prepayments roll exposed Xs, attractive

adjustable-rate on previous we of allocation, will constituted a the these year this in Turning speeds resets with to points MBS the one XX% reset expect small LIBOR XX to continue decrease basis declining year securities prepayment the going forward. agency and lower, quarter, the a quarter. within a coupons portfolio, our With ARMs further from third lessen

CPR With CPR to XX% agency prepayment rate Adjustable-rate CPR. to the XX% MBS quarter similarly third XX% XX% in rose increased portfolio from portfolio to CPR regards prepayments, in prepayments previous the from overall one. the

increased prepayments fourth for in As XX% have further the the anticipated, Agency MBS quarter overall portfolio. to CPR

Index prepayments winter Refi expect high its we decline of and moderate from couple However, next the in to given months. August seasonality, the MBA the of

some coupons So investments speeds with the characteristics. prepayment forward. going new our also in lower securities far reduced protection This focused and portfolio prepayment XX-year on should quarter, remain contribute to

Joe McAdams

And discuss Bistra. like to now I’d to to turn Thanks, over our residential call investments. credit the Brett

Brett Roth

Thank you, Joe.

in mortgage the on were During ending wider. assets credit third ultimately responsive quarter changes the rates, quarter, spreads to

during the than positive by net more a saw in However, resulting asset in the rates quarter. we change quarter, in valuation this the widening offset rally was for

zero remain performance at Looking with The assets credit remaining loans to these trust. at held strong, defaults continues our of securitization CDR. in

to changes. expect credit quality these in rate As high we would money prepayment voluntary the in borrowers, response increased of speeds interest

assets our higher As quarter, the nontraditional in focused near-miss-type credit forms we investment continue are non-QM we activities documentation. Thus, to investments loans, to product. the Therefore, securitized the our loan invest loans continue non-QM quality, during product. than sector, runoff, in investing focus activities value to which to loans rather rather see saw due is the being the quarter, dollars we to more to use to our regard the of credit securitized portfolio. reinvestment with non-QM loans, committed portfolio shrink than on on, In securitized non-QM in over we find credit look

of of XXX which portfolio a of majority of weighted XX% of Approximately Our XX% LTV and assets current our XX%. of and CLTV is portfolio DTI hybrid X/Xs. has average ARMs, of are and the a comprised FICO

During the quarter, prepayment rates. to we did in portfolio voluntary response increase lower in our see activity interest

Further, As we expand continued assets of previous to partnerships mentioned over our have settling course to originators. loan network we our with of were continued the quarter, purchase earlier, the while trades. we strategic also several

our to are and several We partners have closely to non-QM with our programs. rolled working them new guidelines roll out out

expand types of in the to continuing on future. partnerships focused these are We

we cost On our side, of to manage and continue book, the prudently financing funding therefore, funds. our

above were the the we Over quarter, spread we LIBOR. the further on improve pay able to

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

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

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

Joe McAdams

Brett. you, Thank

our The borrowing After hedged average portfolio was with these an taking to financing, Turning of XX, hedges, effective basis was $X.XX interest X.XX%. term points borrowings at cost down interest September rate to of X.XX%, average X.X into rate increased June repo account XX. years. four our billion borrowings the from

from times to Agency X.X capital during ticked multiple times leverage Our X.X as up total the MBS added quarter. we

we TBAs lower discussed, agency carried XX. As of a balance September at

times. at TBA our X.X was implied borrowing leverage, which in includes effective little purchases So, economic changed the synthetic

combination swap of interest of lower Our $X.X as to rate the balance some maturities billion to swap well as on $X.X MBS to swap the terminations due declined billion the durations. offset from quarter effect

term the due rate the to maturing swaps extended remaining was at shorter during average While the average the of years to changed the pay quarter. swaps X.XX%, little X.X

points overall tightened on effective XX points. rate portfolio net basis spread our basis to The interest five

the the in a of driven from the roll on a this September non-GAAP reduction financial in XX dividend price. our quarter. which As spread We annualized evident XX.X% TBA $X.XX based follows statements, income September, yield was tightening the which in components resulted of a by dividend stock declared this closing on primarily breakdown

the to shareholders decrease the X.X% combined positive value common share during X% common Book with book this value for dividend, declined economic in return a economic and negative per $X.XX quarter a $X.XX resulted $X.XX. return when year-to-date.

questions With have. that, any I for open you would call the might up like to

So, I our will back turn over operator, to call time. this the Danielle, at

Operator

comes [Operator from question Harter Instructions] go The first Please Suisse. Credit ahead. Douglas of

Joshua Bolton

repos are could about overnight into September? and repo more This I’m if And talk broadly, market a of year-end? middle effects on for actually, your you in then, the wondering Thanks. any the pressures on you about you direct we the term little how bit felt saw if of thinking positioning guess, your guys. Hey, repo is I Josh heading Doug.

Joe McAdams

– three-month Sure. two our borrowings. agency Thank have initial have you, Josh. typically repos We our terms typically on to

a have typically repos non-agency one-month Our term.

don't have, any we any our large week, given day a So on percentage or off. rolling of repos terribly given

we the the led maybe portfolio. we the not rates, clearly, certainly LIBOR the general. during relatively period overall spike factors elevated rates overall and and – to overall came had the where even while if was repos some repos that due you term overnight So significant in and saw impact spike some were I say, versus of to in think repo we factors fed that also funds will I remaining that relative

mentioned, a of term fair we year-end, I As for repo. do, amount as

over the going already this term point. we having at So, repos are

So, go significant of until over amount or we last typically so have wait the week the book to of sort don't a that's year-end.

Joshua Bolton

thoughts core current at coming maybe, of to dividend I earnings would that. could walk see where Thanks. looking core you and the helpful? takes be getting for then and level? at looking puts Thanks you any some the through is us this about closer guess, dividend And how in the the quarters around the dividend Great. level if set, quarter

Joe McAdams

Sure.

times recently. during been As from the portfolio We was it's smaller little north six quarter the quarter we – second went the the leverage overall for driver size. to core third earnings back mentioned, a in more where of reduced the primary

the I overall into what could quarter for back move the an increase us. see to think leverage first expect quarter to So, normal more and we level portfolio we of maybe as in do a through fourth

Bistra pointed activity as on as opposed prepayment sort Secondarily, a assumptions. based the smooth long-term earnings the report – out, way actual core is core we of to our

due some – earnings versus see factor in decline have that seen or interest core to quite in see improved And last to to do little elevated volatility to rates repo the actual it is tend agency the expect so, do we our the then we've week due again, So, rates. LIBOR. we so which, prepayments, more third a for

the volatility the quarter as reversing are well been as and I all and as We of the say, So three face of two our or think see you prepayments leverage headwinds forward. of those mitigating which conservative sort sort the somewhat those in all reduce third late I we could have – quarter. factors, decision repo to in of of, rates were move into factors the second of guess,

Joshua Bolton

Appreciate Great. Joe. the comments,

Joe McAdams

Josh. you, Thank

Operator

of The Goberman next from Please question JMP go comes Mikhail ahead. Securities.

Mikhail Goberman

about third we're given stuff. seeing on October. thoughts all though, you’re good quarter. the as and to I end just afternoon going quarter? sense will quarter you your CPRs morning. drop that higher is Would big have same? Good lot higher speeds of be just be November of kind the But then where the the trending whole, and that going of of and that? report December, peers, for to in on Or than general seasonality October guess, September, a probably Or said expect indications Quick any are question a is A definitely even higher see that year than the fourth than off,

Joe McAdams

Sure.

seen And Bistra we've third just I point speed believe, rates trended out, the As fourth XX the and October was the as during report the trend it's for was again, – the at month CPR up pointed overall. for quarter the rates the speed September. XX% – of prepayment quarter, this

then with of – coming we've think back sort similar higher I in sort down. perhaps laid November, out in we'll should be of speeds or we reported sort of you agreement the So and slightly see that general framework

expect given we prepayments would what on that's the higher the should pointed where high of realized average out, well So, agency rates – after third the average portfolio at this But the quarter have seen repo seasonal moderate for quarter. And the be the interest as Index that than on speed speed – the pipeline typical I fourth gone, for with as the to Refi in we've the the effects, sort the it as that. are going see point. Bistra

Mikhail Goberman

loan book? on thoughts one growth – your of your Great. Thank quick you. question And the on just non-QM future

Joe McAdams

As been held out, the certainly expect of pricing those find to from when securitization, to and them of pointed the have continue has our plan we've quality that move good Brett loans and on a we balance for developing that and We grow. is to that's loans categorized our network securitizing continue critical to sources process the we through mass right. sheet

Mikhail Goberman

Okay, much. great. Thank very you

Joe McAdams

Mikhail. you, Thank

Operator

that there for no back closing Seeing turn to questions, would Mr. I conference over McAdams to are further like remarks. the

Joe McAdams

Thank joining us everybody you, to today. for you Danielle. thank And

us As always, don't interest you. we we interim, the speaking look additional in have with you comments. hesitate appreciate And you any or if Anworth. next your In to forward again, in call to please questions quarter. Thank

Operator

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

disconnect. now may You

Anworth Mortgage Asset (RC+C) 5 Nov 192019 Q3 Earnings call transcript