Anworth Mortgage Asset (RC+C) 5 Nov 172017 Q3 Earnings call transcript

Good day, and welcome to the Anworth Third 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]. is event this note, being recorded. Please

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

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

will, other You assume, the intend, can generally terms forward-looking similar negative as identify those may, expect, continue of believe, estimate, statements terms or statement variations words or of anticipate, terms. or those the containing

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

business; those real investment growth. our manager's and to affecting trust associated tax factors, maintain XXXX, for income our estate These an increases the Act including, in to foreign associated changes prepayment ability U.S. mortgage the and, home general any ability purposes; and Our to securities to of of to as changes conditions investing as and the actions actual a Investment uncertainties, results risks our uncertainties limited in of rates federal the qualification the business; rental our under to reports the as manage securities; government regulations amended; Form statements government exemption of date business and by mortgage-backed yield from our time including risks, in global the not forward-looking statements our other with forward-looking from our in result Company made. maintain Factors ability with any if annual other our with only All the the to they risks purchase; the changes in curve; from materially to economy, of mortgage-backed a financing; our various financial in and on our address crisis; expressed differ adversely cause speak may value Risk assets are consequences interest any governments file those as including and the loans and for of Securities but ability materially actual projected mortgage-backed differ to: those on use results market assets; of mortgage-related in in could in from discussed in factors Exchange make. heading and securities; availability the adversely forward-looking report implementation XX-K rates; terms that and of changes other statements the available, securing Commission, we borrowings time or and we the our our changes finance the

you. as not to as ahead, any our required any forward-looking to circumstances revise required New such and Except predict conditions go made now law, today over or Mr. law, update in on any otherwise. Thank to statements and Except not or how disclaim based Anworth. as obligation forward-looking like expressly Officer us. events, by whether and of I result Chairman information, a future Executive affect time, it's intend events or that they risks arise or or or release by Please of change possible we statements, Chief in do events updates publicly made. change uncertainties that Lloyd any to may sir. any would revisions expectations which be reflect any or publicly any statements to McAdams, those introduce are undertaking new or may we

Lloyd you Investment Thank we are Financial McAdams, this will to Manager; Portfolio and Chuck Joe McAdams, I now Brett discuss Siegel, President McAdams. and Senior with over where the very President; Officer. our Chief third me welcome I our and turn much. operating will I'm results. And today call to you call our Vice quarter Roth, Joe Chief and today Officer

Thank you.

were decline Anworth's from quarter quarter. That's Turning $XX.X to in core $XX.X million quarter. our third $X.XX the for approximately weighted earnings the million results or the share. per small financial for a previous

quarter. $X.XX Our and $XX.X income million and increase That not or of which million $X.XX for the or per portfolio was includes net realized all the And per was million from income, comprehensive and an earnings hedges, $XX.X just but gains share. losses our share previous was the the the core quarter. on $XX.X unrealized GAAP

core and to our portfolio to Agency Core have summer and the both second largely the earnings due has should in earning potential to the some have repayment of paydown portfolio and and higher improve on quarter, the expense of fourth a sequentially dissipated October. prior a quarter portfolio. which month leverage increased the had how prepayment portfolio. agency factors earnings of drag take during combination during earnings our quarter months agency leverage due been the was moved the reduction credit quarter the each like higher the peaked largely rates in for moment progressed highlight little lower as quarter, further since, on with declined just rates the we levels seen of the the changed the back While to on third I'd July to from its into declining target prepayment for portfolio further overall were quarter, that Portfolio agency portfolio the year. during

than focused assets. ARM fixed-rate be in spreads net to mortgage-backed continue on securities remain new hedged assets the agency new addition, where In higher interest

credit price non-agency our well performing comprehensive investments earnings quarter. a mortgage MBS, continued of over third that during driving and we on most trend on in have it basis, continues, the increases income price been the quarter, that core excess during the Our saw with

Our had mortgage early grew been in largely redeployed quarter also loan cash the portfolio our as repaid we that nonperforming on credit securities.

However, on down. as prices bonds yields up, go go

our So leverage the increase agency correspondingly currently overall in see and in where have most yield slightly size of the we has been increased portfolio higher investments allocation. opportunities

of grew the see $XXX million subsequent portfolio. to $XXX overall allocation, at release, to XX% earnings table MBS estate billion up our with from MBS total on, now mortgage and residential the roughly that agency making XX% the balance. It's portfolio our sheet the residential real loans that accounted million. on-balance Looking assets of the $X.XX up with portfolio VIEs up still for of to through on you'll securitized held are Non-agency

more at portfolio. MBS little detail a agency our with Looking

agency the indexed, You'll the portfolio isn't of to resetting declined see on that Securities the fully percentage adjustable-rate quarter. mortgage. that XX% fully XX% from

the categories We both the are reinvested fixed-rate are XX-year, with fixed-rate including the XX-year XX-year the said, largely fixed-rate during XX%, MBS. allocation, did ARMs, portfolio we we And on in being getting hybrid add at being As repayments in see quarter. securities. balance overall the and you'll ARM

increase MBS which The of X.XX%. on our X.X%. the our Looking was coupon basis entirely statistics mortgage basis agency coupons, from XX increased X.XX% increase X by points increased the overall almost points adjustable-rate summary at portfolio. That almost some driven of to to

premium of the sort to rate portfolio amortization So $XXX on XX portfolio. increased agency cumulative a XX%, basis, annual from of $X.X on increases significant on being see the be yield. months seen of The agency MBS over the lagging larger. decreased mortgages in the continue largely these obviously, seen XX% similar as million, in portfolio to a reset asset to reflected we've prepayment was the an expense, rate basis the a our unamortized effect the the million, Fed past Overall, on We overall quarter. because with portfolio more did reduction premium the

was in previously, I the a in XX%. prepayment October portfolio to with peaked prepayment portfolio and on CPR. decline, XX% our As rate continue being on average the The July agency mentioned agency rates

So to go details turn some the mortgage credit it over investments. Brett over with of our that, I'd to of

Joe. Thanks,

credit appetite spite ever-tighter the appears short Investor spreads of the growing Over run, and in the least mortgage to we will to tighter. at course continue of it that third remained in tighten. strong products And see spreads. has spreads quarter, continue

valuations, from of the has portfolio as legacy terms non-agency spread the well In benefit as our to market still continues tightening. and

Alt-A During continue positions to the namely, CUSIP of our add the sector within portfolio. the legacy quarter, we portfolio, to selectively

also experiencing our added to credit as Overall, as activity. agency benefiting benefits Further, from the quality also experiencing securitization of our its loans the of performance. We risk in credit was the well prepayment assets in underlying are performance assets. we portfolio trusts, held transfer voluntary investment high strong the in

Turning to funding side.

book, at counterparties the new therefore, our our we to We rising offset our Thus, us, add interest on and maintain minimum working the this continue our to mix us allowed of of rates. a lenders of prudently help financing allowed to and of has funds. activity has the to assets. costs some net Thus, activity cost manage to are on spreads

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

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

Thanks, Brett.

our have increase, repo increased un-hedged at asset an leverage and Fed borrowings, to X.X% agreement larger Repo effect of you the increase, the entire because $X.X repurchase rate finance up corresponding MBS $X.X June We its sheet book. through X.XX% to way worked to expect, an for from financing The our of increase as from increase portfolio. portfolio recent themselves most costs billion, the side would a leverage. back the agency as had in we rate and Turning again balance entire repo in increased. did billion, XX the

maturity our a rate unchanged cost our quarter overall, us giving average on into at swaps, days. was end basis, X.XX% taking repo account at overall of However, XXX an interest hedged relatively

leverage quarter is previous Our X.X% the our on This the balance. based the on repo X.X% from leverage to simply quarter. increased

which into was TBA take X.X% at agency effective quarter the you the leverage roll effective synthetic dollar financing, If account leverage, end. our the financing, includes

Looking billion weighted end, as of increase ARM reduction allocation X.XX%. in the hedges, been notional did $X.X average portfolio. increasing we amount we a to at of our rate interest with our Correspondingly, our swaps, rates have as quarter at fixed our well rate fixed a

So we larger have do balance. a swap

moved the some quarter. also around during maturities of swaps of the the We

wind XX%. balance fixed-rate repo, so swap as percentage higher So did a up we look you it average of total with with from cost XX% to lower larger increased our we a to at balance a When reflect a do, position.

these significant assets. is because agency balances out swap have in As have the we normally ARM calls, we un-hedged in reason we point main investments

the on decreased X% as the the on So by was quarter, the of ARMs the the un-hedged portfolio in that by also balance amount amount X% of decreased swap quarter.

together. So those in line move X generally

quarter, we $X.XX declared Our a into cost quarter swap interest reflected out we approximately increase third structure same we're yield was basis fourth dividend Based point price, effective closing that the the quarter. XX some of our quarter previously, changes annualized This began of heading funds to the I dividend rate spread an our of X.XX%. about with the on the I'm X.XX%. the of The, into average was during third net upon sorry, the But that the pointed with. of to quarter the as due in a in effective heading X.XX%. portfolio,

was Our unchanged at quarter. book on value the $X.XX

value, $X.XX dividend to that on on un-annualized to X.X%. the So the of brings with shareholders common together book X.XX% gives the a and shareholders when return equity equity quarterly return unchanged year-to-date to add common un-annualized you

our did and in Series about Subsequently, capital capital some Series Series can quarter, additional some to we've of Series we in quarter issues end. $X.X of C preferred, you $XXX,XXX press B raise million the both in is preferred convertible, the B subsequent preferred. in raised During these and as which That's the both preferred also release, of the capital C. see additional

his turn with for comments. to back the over I call Lloyd So would that,

Thank and Brett. you Joe very much,

say thinking been As XXXX, country; anniversary Anworth I've about not next and and XX around road the X public XXth past March the years, XXXX if is our the one, trip followed next might as show that years particularly about, that a as years XX approaches which company, what the years. about two, those

assume greater about XX by XX they factor begs now period did these they the separate course, money portfolio insight many is also have that that timing, though, that experience. most view than two, to produced returns a believe winners X during many question, good as experience a important of years luck, this easily of considerably from almost one, most of significantly a the the is forgotten. And the losses. mortgage number period, returns REIT do into poor this for can also; or ownership buying the things even them that anybody not do for with on that of stayed me, on are: because investors to lot that identifying is due this of My known having overall past how losses. This, business And during And decisions and the that losers? market quite not number the and to is types course, survive mortgage results. moneymakers during difficult in this REITs money of it. me, applies Anworth mortgage are concept, repeating money talked possibilities I I anytime those years, with there's to focus stocks the such their are and other not large It painful REITs losing did investors, For seems

On than credit lack of of on the more even the and whether of in In diversification when other focus than been the if we a for fixed-rate of XXX% has more our to or years, these portfolio the mixture had either. diversification hand, we among efficient and important was is mortgage-backed MBS portfolio be the efficient REIT the have mixture us frequent during past. ARMs was mortgage a that times a a that problems agency, fluctuating appears less strategies believe discussed how mortgage thread type Anworth, was it XX fixed-rate securities securities how yield XXX% asset

And with forward over comments. turn we I'll to operator, to your look questions that, so call the Brandon, and our hearing and

[Operator Instructions].

Our from first Harter question Credit Suisse. comes Doug with

if more about obviously Can risk could to about today. of just risk your fixed you level adjust you interest rate rates rate the the interest overall you and move have you But talk of talk as hedges? level

our Sure. the The, a in a we on position, results, swap over liabilities. did which, have as earnings we went duration larger longer

longer also We have assets. duration a on our

end, net So a is which X.X pretty a net, still quarter duration of overall, consistent... at had approximately on years, we gap based

the quarter? last did to How compare that

fluctuate. I believe that a does Rates approximately was end. higher have moved the same. quarter to It subsequent little

shift, more the closer duration assets has gap, our, gap continued that a out moved not So has shift to of having year. our overall, But fixed-rate the changed however.

Makes sense.

your non-agencies. relative I in still and replacing legacy script just you about you can You the you mentioned some agencies are guess, today? talk non-agencies that value of the see between

the mix Sure. maybe XXXX. And to non-agencies speak I'll a issued were Brett We mortgage-backed first. let legacy had between that prior about good securities

some well if As we've focus Brett, as forward, transfer assets moved newer a legacy in we've nonperforming securitizations both the more in think credit as want the space had to... well I on as of know don't risk of I loans. you

kind of it. that's Well,

sense grown has market, that legacy to makes be us. harder for market, it and non-agency assets the harder find to is and tighter As tighter,

our And credit transfer close such market area There's you that shifting risk that so by categories we've the And securitization developing. as in been redeveloping post securitizations, the know, third investment of as able into other assets. been to quarter. is augment

that's that that for So to in money sense able we're that ways us. the and can, to make put to sense find yields to we way work continue make places our

selective we're there. in within well, As the acquiring as well space and look we NPL we're, assets

that being, find makes understanding them it's sense discipline, on right? assets when don't make sticking So passing to them, and when purchasing and can just your sense assets you

margin XXX of assets And have roughly less again a gap asset with of an a basis XXX liability X% spread net hedged a little new a a of points. agency to year on the would than agency and yield with side,

if we've little think our, the agency current been ROE why on is that's higher about to been a if majority which new than been to XX% leveraged some an what which the of on on XX% opportunities, have what's Xx leverage sort of is Xx agency seeing an about the while our think investment relative of incremental marginal you investment, So investment, deployed. non-agency, would agency assets credit or drive market where a you on an the leverage

from Our JMP next comes Delaney Steve with Securities. question

I your appreciate and XX last the years Lloyd, comment And the on over thoughts diversification. back

I'm second just So in on touch questions the in my a that diversification. going to on

January, the that specifically, at look near-term as agency think of do hike. factored the January? into expect investors' in? think is Fed late much curious, your to would you if I early at And most seems the repo mind XX-day speaking do if And it's not hike thoughts in, your repo, of is has. It kind rolling repo the December, December item of priced how talk market fully what on priced I'm in that into that we you've you thinking.

see, funds. repo higher always you do Thanks, year-end incrementally Starting know, some Sure. every with first. I, we Steve. the of as cost

December so we where of to some estimates that into would the seem cost that some us versus you sort well attribute longer-term priced tough look the now is of be start a point over that repos increase how to is the into And make Fed due is what to a January, repo does of as normal of cost the, we're at it December a can day to pretty can at It getting a start to cost, hike right. repo XX is. end although higher of the much exactly is,

is of of some between that XX enter days. increases should, work still repos So, rates you'd a going in when for of that XX portfolio. it our we're quarter, look little I as forward. the mean, I lag to coupon in itself our but, potential and through we bit think third the ARM it are we at there always so way, a for most see rise that Likewise, seeing our and we into and

Our payment XX have interest every rate days. swaps typically reset their

in So hike, likelihood December to I haven't think market and rate has picture, certainly in bet to of think that, any I our way. priced we positioned significant the significantly a portfolio your bigger against the that certainly

be, going of continues largely probability. I think that the obviously likelihood but is an question. we, to continue do to open rate reduce So market the increases be further And to

repo you looking X.XX%. September to year-end, up we're December, too be And be XX, that something Or we helpful. that thinking at X.XX%? closer about frame Should we, rates in is the time your That's high? gave from X.XX%, January at if Okay. going at to

is certainly Fed was it the if our July be to financing in was will that as repos Probably got XX a the Fed mean, outstanding the part mean, as an there too I it it it rates hike not ever June there still wasn't of was after had, were higher were surprise. that change early if rates all significantly, X.XX%, I rates. that factor. expectation But still a the because the we raise be to But quarter high. some of was it in were been, the increases in over than repo going term before. had bigger at was

may of MBS. give-up, some levered of you shorter-duration, to survivors portfolio, probably added I duration, much much is of Joe, give the your just XX, Lloyd's at think the terms not left a terms And in on of on assume you portfolio, do component too that return? XX look you having comments current earnings have be part XX-year XX guys And un-annualized up think ROE fixed-rate curious, to Another XX-year versus I seem mentioned always that's duration. XX-year by of when table he to say you'd the an ROE, XX, of the in I have larger the of part certainly How a averse would un-hedged one why you is security. a opportunity. much XX-year MBS is Anworth how

can be of excess It in XX points basis definitely spread. of

ROE you're So high single when moving digits on that up, the you lever into basis. an

Yes. Yes.

points lower, saying. sure, is for could you're So XXX what basis be

look try Okay. to go a, always things Well, at on ahead.

might that the of a if, range, mean, significant the be would magnitude. be yes, I it end upper definitely but No, of

in not any credit credit when to seem so look just be, the prices these a at days. know XXX, portfolio kind I'm with find where to you intentionally lot we credit down trying RMBS, it's under we high, seeing there's indication not when allocation is, that to have you're from to value? that But try And to Okay. should expect MBS. the sell even the in reallocation buy major that we non-agency, to And tough meaningful into continue of a any you agency of, will

Absolutely. No.

happy Certainly, they're have, think of with I assets more any making it's, have. that them. we not the they legacy are, we we're

declining is it asset a class. So

in our loans opportunities over that have nonperforming ones that not the are originated sell new to any these new that for the the We of, Most through new as of to will we securitizations, mortgage also performance credit continue, through efforts quarters, for Most agency and well. off securitized, investments the securities. loans relative securitizations happy in correct. be you're credit in I had opportunities few major some market we've of either newly or of transfer We're expect re-performing will have. risk to past looking with seen non-agency and legacy whether securitizations; of loans it's originated; allocation

so So go expect, please. ahead, you I, when

And say everything the have what XX And like cut I'd gather step-ups, off. senior mentioned on asset? that, have the going because they at if that sort I you Joe see do you XX say, else? of were ROE I'm on I'm of like you in given to of you to sorry the compares was tightened RPLs maybe how could to short-duration just I to to look the type piece to mean, going to that agency. think you seen,

Yes.

just yes, aggressive about deals new question week, couple the out market A good this all, pretty significantly. tightened rest RPL, has again, that of in tightening, the with your the First of and step market rates. on to of

too We tight make us. me do asking piece. and because make invest sense AX it's economics we can't about in that You're to not just the the just AX

So...

the less diversification we generate we talking between return think are feel about very mortgage and from to assets securitizations when expense we're on investments versus a support investments have been general, about be credit-sensitive those assets, the the strategic overall, to agency interest I rate-sensitive some preference standpoint, credit. credit think at comfortable of additional dependent that in loans our maybe but where that has repo having leverage And to in also,

So being the, have the credit little agency structure from those Because financing, a as to the more repo the sensitivity the lower with, the simply that the going returns down to our where are and to to we're repo we're comfortable risk coming all that factors taking repo. that always risk opposed on side. yield curve and add

been So, NPL and that our and RPLs again, think, I investments NPLs, to have Steve, about in space date securitizations. generally, and in

[Operator this I'm further no seeing time, questions. Instructions]. At

So back would turn McAdams over concludes to any conference our closing the remarks. Lloyd question-and-answer like this session. to for I

will Thank those forward call. we you Have transcript, months, are who to the the that, our We reading this appreciate to call thank call And very those and you be replay on you support. your forward to you. look for good To day. we you having thank of of in the and who participating much. much and a X you of be today, look so about listening those again very who'll

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

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