Anworth Mortgage Asset (RC+C) 15 Feb 182017 Q4 Earnings call transcript

Good day, and welcome to the Anworth Mortgage Fourth Quarter 2017 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] And please note that today’s event is being recorded.

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

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

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

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

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

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

Thanks.

our to Turning results. financial

fourth per agency an $X.XX were mortgage the on reduction its of also increase and share, again of $XX These seasonal $X.XX effects. target repo income rate income losses our coupon unrealized repayments the increased. also by comprehensive on increase the rates quarter, borrowings which increased or gains per increased securities largely was in core which shareholders of Fed common during includes correspondingly million, $XX.X on or or to realized net mortgage-backed and agency the on those prepayments the all quarter MBS was X.XX% to and GAAP but our the resulting during we decrease prior that million by was driven our share. reduction During the rates moved higher liabilities as quarter a This as assets holdings, $X.XX $X adjustable-rate on the yield the from in quarter. portfolio’s fair our interest a MBS per was This fall prior increase our assets value. $X.XX The the quarter, well approximately per quarter rates rates the for or the earnings core was also result as share. reduced of through increasing continue during realized as typical million a from cost This earnings were share the in quarter. on

mark-to-market a core on well comprehensive perform to level. was earnings continues than for this positive quarter basis. portfolio resulted while less in income our that a Overall, credit the mortgage Our

our portfolio. the composition Turning to of

between You'll and reinvested assets. both allocation during the overall ended and MBS repayments TBA see mortgage quarter at quarter XX% the and Principal agency agency in assets, overall include $X.X non-agency on credit the quarter. Agency constant MBS, agency were was sector which the the XX% And non-agency billion. relatively positions at

are new to the quarter. on is on to a long-term continuing million $X from to fell coupons to seeing Agency to XX% to X.XX% prepayment These to And quarter. The of CPR Nonetheless soon while the rate credit fell and portfolio declined with from discuss MBS the XX% X.XX% reset call made that as XX increased. of currently rates increased like our based average investments. rates turn adjustable XX% is ARM XXX.XX%. agency portfolio, the which assumptions, the interest mortgage-backed With XX%. the annualized to MBS to agency rate which on X.X% rate on over an our actual to of allocation experience a and I'd portion have the primarily the Brett short-term to mortgage increasing in Premium prepayment are quarter. overall amortization to expense, been rise the cost XX coupon that market Within for or ARMs amortized been portfolio, Roth rates with in securities XX% the of mortgage-backed investments rate fixed year mortgages have have securities coupon

Thanks, Joe.

mortgage bid During it in has products ever-tighter continue strong the and to of continue tighten. remain spreads appetite these remained assets the fourth quarter, that spite spreads will Investor strong. appears for to credit in

more tightening, rates. to of higher In benefit interest of spread which has impact and terms valuation, our the continues is than offset portfolio from

yielding as to it. were During assets to quarter, we able grew selectively portfolio credit add the the attractive

with assets CUSIP performance to strong as Alt-A voluntary our line underlying prepayment as Specifically, loans credit activity. agency continues these sectors. our with performance benefit as the remain sector of and securitization to assets expectations. from held in as of transfer the continues strong experiencing its legacy added trust, voluntary non-performing well portfolio prepayment on in Briefly The we the well speeds assets asset risk in in credit the

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

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

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

Great.

our now securities of the Turning financing mortgage-backed to portfolio.

was on portfolio size quarter. the Given that our in unchanged overall asset relatively

no due borrowings agreement Borrowing approximately quarter at costs at should end. over the billion the Our increase during be that X.XX% as surprise increase typical XXst year both in $X.X borrowing rates – from repurchase our as well December Fed to X.XX% it increased temporary to remained year-end. at the

the year-end This mortgage-backed previously, discussed or total Portfolio X.X capital leverage leverage at X.X X.X rate duration the economic rates resulted to in fixed I rate of we Agency Correspondingly, which securities, the resulted was higher positions at increased in overall of increased duration we slower the our expected higher As year-end. increase allocation years the on times year prepayment and at approximately interest years X.XX% days average which gap Agency for X.XX%. position. a to remained our MBS approximately borrowings X.X in interest rates years. a portfolio and swap overall adjusted and XXX cost hedged resulted by our XX MBS in effective interest longer reflects an maturity our of TBA

X.X mentioned notional position billion remaining previously, interest to of term with X.X increased swap notional years. average an As our X.X billion pay fixed rate from

Our or primarily basis the Again, on basis average on effective the quarter was Agency prepayments the driven the points this interest quarter yield rate XX to by assets. spread X.XX% lower MBS points. increased of increasing XXX the by

an common to based shareholders dividend a $X.XX This the of Book quarter, yield the XXst During XX/XX December or XX% on at to a $X.XX was share declared. decrease $X.XX. quarter. equated value price. This the closing per X.X% on was was dividend

and unannualized that X.X%. the return was to I'd book With the like decline a on closing for the that turn back The to year, $X.XX of and $X.XX, for dividend on for comments. in entire the value his brought XXXX resulted call our return For annual equity X.X%. common of equity book over common Lloyd X.X% or quarter $X.XX down value to

and Joe Brett, about for you, your our Thank operating results. updates

turn I comment call the operator, may so recent will I that we Before over William, questions, to address activities. diversification on our our briefly any

our both the portfolios. we diversification mortgage types expanding in the for volatilities on of been assets our and past, have the has have of we value this income The [indiscernible]. of focused lessen the of multiple to these goal been discussed mortgage asset the help effort to As types

During did volatility our price this and assets agency our less our assets I indeed than help volatility show was the because credit from fourth periods, has sharp than goal assets the quarter, But and how volatility of that of past, future to assets. during should considerably measures add certainly period in same. volatilities. the asset as results be ratios of during time the just this over credit agency reflect that the be volatilities achieve this should credit some reduction price will performance price it the like less in agencies been sometime will improved of the portfolios

on volatilities to you that of diversification questions. objectives strategic over Thank asset William, our We as now to go With important expand address we that and effort lessening operator, continue can portfolios forward. this to that our value much. call analyze the income turn ways I’ll very so believe your the we and

you. Thank

our be Harter session. [Operator We Suisse. will Instructions] with Credit first question-and-answer And ahead. will go Please now the questioner begin today Doug

about shorter first value talk are rate quarter? to fixed the holding book relative to how longer fared has And in rate kind or assets? ARM up so you Can of Thanks. your – spreads far duration ARMs how

in have fixed durations MBS have so is XX XX significantly think and cheapened Agency ARMs indexed this there ARM. fully underperformed definitely hedge point Sure, performance The their a Doug. you about hung about year by about well, but This quarter. when hybrids Joe. and have price MBS half years quarter XX pretty far a

with quarter. about you higher rates look at overall the have am a in been interest this looking I that effect moving combination thinking that at leverage what when fact the far on on effect, underlying So so is capital, the basis,

rates with declined You quarter up value about last X% think to points. basis relative XX book

so look some you’d I mark-to-market at you X% or see X%, when of as Agency the basis. a decline of about move a a as of bigger the So cheapening on MBS, intra-quarter think well

increased where That's you between the in are very kind in kind asset agency we – spreads up of today, credit do where volatility, allocation kind guess I the with see are – of shaping and given of helpful. where near-term? rate kind And of how credit

adding were and both we Sure, quarter, credit side. on the mortgage assets agency during as we mentioned the last the

this I what's given on. so think quarter far going

see do You spreads. wider

there underperformance option see driven volatility. market, with there's You mix still I tilt because will that's in towards think our by we but side. aren't agency terribly a credit in part up be little a valuations a adjusted to as spreads think of have the paydowns, given in little a spike wider on Agency the that do more higher current large and maybe credit volatility the a being I implied redeploy MBS more look just the opportunistic mortgage And agency between and it the

you. Thank

will our Securities. go questioner today be [Operator ahead. with Instructions] Please next Steve Delaney JMP And

so. up further you the – might for fourth in I that XX year-end, question. appreciate me seems with everyone. the for the prepay And Obviously taking a quarter, is Hi, you get or being reasonable to story since benefit. big rates basis earnings might it points Thanks. it move

saw of speed February your And about so to the fourth quarter was curious see when first relative the your in prepayment January of a as did did you quarter for in what's further CPR? you sort I month XQ the on you factors, decline guessing – Thanks. the thought and

Joe. Sure, Steve. This is

Hey, Joe.

We prepayments. lower a banked of little in level

We XX so, think the so have or fourth looking was – we're I far. at the XX quarter and in average CPR

Okay.

mix think portfolio we I than simply positive of in think you’d little lower baseline for, expect positive that XX see prepayments. have a look, through current a flattening might substantial XX some on a portfolio as do have a we continued I as but year little But amount given I So higher do ARMs follow CPR the and with our reaction, years, fixed.

What what coupons And bit to in buying little coup just added quarter? the portfolio great. a rate fixed you Okay, bit? fourth the you were a

X.X…

years… On the XX

on XX years we years. and the It main Between XX was as the added agency.

good. very Okay,

Obviously, we in had position swap increase as an the well.

I – we that. and Right, noted

am repo being this if XX% I reasonably ratio, on added first the have which up your and billion with move, curious have it with included only like year? hedges this volatility quarter agency to a you'd we in strong. additional to about you looks just In so fact, just $X.X swap far any repo that, of

first our portfolio Well, to like make on the you of are – indexed that is know Sure. ARMs. XX% have about we I’d point that XX fully

point. good Yes,

we think our a is portfolio So effect… of percentage break as amount go There in a of substantial about hedge a that doesn't XXX.

Doesn’t protection… hedge really the need

Exactly…

Yeah.

obviously in your words not Exactly, relative thinking so second which book, relative about still of hybrids, to longer-term on. fully the question… am the we hedges the I our other MBS indexed the percentage to [indiscernible] because percentage is have Agency But

Good point.

been range. a with have that It that up Yes, at continuing probably have we maintaining have liability gap X.X rates, gap. been in was XX/XX. manage we we And – our at in been move asset to

added side have So of Agency we purchases, the the paydowns anything net terms the beyond sector have some swaps trades adding position. on within we but and in have been swap MBS and not had

just out extended to that am the MBS, what So curve off. the as farther swaps of that your I you're balance Is kind adding durations some hearing? on

well as some… as Yes

Okay.

Okay…

comments Thanks guys. for the

Steve. Thanks,

Thank you.

further And at this questions to be there time. no looks

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

be and you the for replay the again for those having call in of who thank you transcript. be much late will reading on of call who look those on who today our We very the in of forward to participating you call you Well, April. will to are those person, shortly this listening for for

we and you And and much so, your have very appreciate and thank look forward good support a day.

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

disconnect. You now may