Anworth Mortgage Asset (RC+C) 15 Feb 192018 Q4 Earnings call transcript

Good afternoon, and welcome to the Anworth Fourth Quarter 2018 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]. today’s being that note please event recorded. is And

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

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

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

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

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

credit spread. risk an interest today results, joining our with of time call me significant Anworth's Officer. fourth fourth Roth, including pressure our year quarter XXXX underperformance was not assets and you to investment as rates Brett raised was Thank of only challenging to well borrowings senior Financial today net as the are Anworth's for Siegel, discuss Vice our also Chuck increasing to Portfolio XXXX as the one of sectors The in The performance. here our Agency our volatility, which Manager; our for MBS Chief quarter fourth a of President a market all for continuing led well. residential investments Fed and cost but There

somewhat since quarter to the book a up we to far result investments so from Pricing has September December current year-end, our prior earnings estimate X% declined and value XXXX. XXst. on As improved value from X% declined from the and the mark-to-market modestly XXth approximately investments in book our would core be

become XXXX that outlook opportunities particular and to quarter challenging spreads are and current led also Agency conditions has increases has to case, on and forward. have in repricing outlook the further benign. are going Fed strengthened our offering is fund the in earnings investments As and accretive net during the increasingly better rate marginal for fourth new investments

provide to in the As for fully existing factors quarter. of would increased distribution existing hikes, a earnings those quarters increase our contributing combination adjustable-rate new rate our of a rotation XXXX's and per to our $X.XX together and repricing MBS level current core result, agency reflect expect all we some of support within investments, of dividend the portfolio coming

I Turning and comprehensive fourth income also quarter mortgage was MBS Anworth's the slightly common quarter. $X.X and as assets quarter during the a share, and a $XX later Agency billion declined million $X.XX speak gains earnings expect a for million our we $X.XX also or in sort transfer the billion realized loss a do of mortgage we investments core market higher per with this non-Agency of in in added all credit note unrealized the common of losses addition financial the $XX.X a credit entire per income risk going minute million decline million position $X.XX to for which investments quarter. or increased $XX.X of investments or were includes from the per quarter's portfolio results. share net third MBS to but this liabilities held loans would was related opportunistically value share. the in of we to $X.X and securitization, forward. some loss GAAP to will residential the from relative in $XX more $X.XX other

XX% coupon coupon to decreasing X.XX%. rate and detail, X.XX% from from increased our ARMs to of increase Agency of September to ARM ARM at the overall see MBS their including to Agency similarly With total increased prepayments, XX%. XX. to CPR MBS year regards Agency coupon well X.XX% Overall, XX to in and XX fixed as our positions, TBA holdings now adjustable-rate the as interest CPR. and continue with basis rate from MBS are decreased XX points The you on average rose rates Looking currently quarter year XX% rate the XX% XX prepayment to more the rate agency prepayments portfolio at XX% average are XX MBS the a ARMs the will resetting fixed investments expected have

credit call Brett the XX% I discuss to far mortgage continued to in approximately so -- investments, and from costs turn averaging related MBS other So credit XXXX the our and far paydowns QX. those Roth. in prepayments decrease agency CPR will have To non-Agency over

eventually to clear investors’ the wane continued the of quarter to we began the widening digested investor in secondary have appetite market securitizations deals we increase, order became muted. At see volume began progressed spreads consistently to outcome see and the being the of although to quarter to as deals Further been for Joe. new concessions the also to in previously, new brought The pricing appetite we credit a more the fourth market beginning get quickly quarter. Thanks, assets mortgage experienced that throughout market. of

we assets. quarter, took the to portfolio at approach maintained spread assets the of to yields. the disciplined We During added advantage widening attractive and our valuing

activity portfolio investment overall exceeded Our run off.

of and loan credit sector the acquisitions sector the Our portfolio. the were non-performing in transfer risk

first have mortgage spreads the we quarter XXXX in of During the tightening. seen credit sector

curve. valuations, terms a from of did of belly In we into rates in benefit rally the

the widening the positive the the portfolio. And looking quarter-to-quarter, portfolio rally from makeup impact you of sector a credit spread at credit risk rates the continued did in have the notice and negative impact the However, that exceeded to portfolio of grow. will value market of on transfer

did we in portfolio. reinvest of also earlier, the the sector non-performing mentioned As

However, outpaced call actions reinvestment activity.

transfer and continues The provide In sectors credit rotate underlying with of We returns. the will an negligible prepayments the opportunistically portfolio those same continue yield The any of that experience assets. trend. increase attractive agency reinvestment severities prepayment risk in part credit of us portfolio its continued performance continue CDRs this assets speeds. voluntary the benefit time, did from downward to the in market general, our to issues. the during quarter, their our At to legacy experience our into if of portfolio

slowing However, prepayment speeds. slight they did voluntary of realize a

zero credit trust, performance securitization to the loans with strong CDR. to remain of remaining held our at in vault Turning assets continues these the

mentioned previously, have few As from benefited assets we've overall positive environment over last positive HPI and these the economic experienced years.

sector. and of to-date XX the purchased bringing we million a approximately wide range an to closed loans Non-QM to of approximately refers these our the XXX loans investment During of have quarter non-QM first of in products. XXXX, million up loans on purchase additional this

are We high reasons qualified not the on qualification who other credit focusing for credit mortgage. meet quality do than for borrowers the

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

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

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

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

you, Thank Brett.

our TBA X.XX. average prior basis maturity. hedge XX our X.XX% at to average similarly a we from If quarter X.X with on X.XX at interest and account increase agency times was total point reduction the X fixed total leverage our X.XX now in reduced Agency include XX% borrowings in the the basis value rate slightly multiple Despite averaged non-agency embedded stood those of repo XX. September rose our swaps synthetic borrowings. the the remained up end. December was a point from borrowings X.XX and interest X.XX financing balance transactions, portfolio positioned XX, the at After stood repo December up times, XX. pay and an to position Looking our rate to of $X.X in paid swap billion from at our this rate the leverage The of balance overall taking face of at $X.X capital, X.X% hedges a notional X.XX average at of at at company's times repo year billion year total financing, effective from increase These

stock we dividend price dividend on During common of an annualized a XX.X%. yield share. Based $X.XX end, per year the the quarter, declared at this reflected closing

common mentioned, total into to value the common on economic $X.XX per our this brought X.X% X% $X.XX to of book share. XXXX. welcome and book $X.XX the quarter back the quarter and this the time. value total and As at minus any have we common questions paid you return Taking for shareholders operator, point, will economic ending turn return At for William, to previously I'd the to dividend call XX.X% shareholders the decline, or to at over minus the like declined was account

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

for raising the outlook for kind of about opportunity you leverage capital Can talk your of wider Thanks. additional advantage spreads appetite your to and/or take you highlighted?

Sure.

point fourth did than quarter, of so sort TBA the our we position leverage. increase as more actual increased our repo implied leverage leverage during we Our out, our

a So of agency I pools. would first also TBA XXXX expect a move see our positions of little new Brett the little think swapped towards which discussed that loan some probably leverage leverage investments higher quarter higher to I into drift agency the these tilted as investments as acquisitions more into a the be on strategy. margin, apart been we to be to are going have tend from

expect would expect in take modest spread the rotation we I portfolio terms to well. opportunities. in some see how increase leverage our of new So see as our I'd advantage within wider some of to

shift see forward. to fixed of during You the out and year I'd pricing been, the see given we did go more quarter of where year expect XX XX fourth has towards as fixed that

discount So Relative of the we trading spread from opportunities to is number We to avenues in the we forward. book new a a a move agency investment advantage are capital see not a deployment really still I given capital, these at opportunities side. as where value. limitation take we there of think to have market accretive

impediment So an that common equity. is raising to

give Great. do for securitization or an as more you think or talk financing a to how just think us you're you're aggregate financing -- And you'll upsize, some that? permanent non-QM or those more any financing kind about how those look then, mortgages, color you're on Brett about again of

but -- -- sorry financed line expectations have to was our loan being are the and Brett, securitize absolutely question That's purchases plan the are our certainly I'm through those for when warehouse and we yes, optimum.

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

ARM had for would expect there realistic the Brett, CPR my year the the forward, one taking is questions. was and thanks expected remain you given to ARM and seasonally where do is yield noticed Joe we've get quarter second shape 'XX. it think just declined to the going for versus of I which curve do to Hi, We year what and into flattening portfolio for the XX expect Thank kind margin looking LIBOR high? in come CPRs you. today, have the the relief we for fixed, curious you'll any you that out your that outlook plus them or of

an for borrowers a factor incentive have you when out in gives higher yield time. of has their point decent curve in rate a experience the time, driving when repricing prepayments. important to longer Thanks ARM have as homeowners is simply the same economic factor a higher you a flat ARM expectation that prepayments have been in Steve, out move ARM period There's which coupons and of At you curve lock think rate about you they the ARM refinance continued increases incentive and the forward. our an

So December flatter I I the curve a do XXXX, longer yield have flat that We into it’s and the January. a have we might flattening combined sort in in go and little that factors think as clearly had curve. stays in increase you of to think their look fact and we rate those got right? coupon with XXXX, both concerned higher homeowners the base are alignment

have you’re sort a rate going I see lessening economic homeowner people the little headline continued pushing be refinance You more might it a economical. think of sort a to where is risk off increases but of in for not even situation in the to fence of incentive

deal more is prepayments I effects decrease certainly you an a as our seasonal we sort that’s remain us, to activity good seasonal us. expect so seen, elevated yield we’ve prepayments over refinancing far in driven we I of fixed-rate be by slug out there So ahead increase did this Obviously do in I shift behind point think so think continue of of as would prepayments XXXX. can in But well. but ARM the that that rates ARM of get curve of effect, that see a decent

that hold the taken and totally higher the been your I fact and is for Understood Fed get expectation on when [lava] off point the the your has about going table.

a essentially about comments gradually arms bit year just to and of and higher take trade your of more MBS. reallocating would the backdrop at Agency in consider XX down this little also that attractiveness MBS of I’m you your MBS XX Given the thinking point, selling of advantage year and ROE

It’s certainly something we would consider.

that's we the in on something During invest hierarchy best the MBS to all the place how quarter But reducing XX the start. fourth was a That's fixed-rate less they portfolio always fourth that year -- certainly we are we of was out. during it but so forward. felt consider our opportunities all to quarter. sectors the I rotation portfolio there’s sectors is and of ARM the about good for going market certain liquid ARMs we're don’t looking bid relative securities liquid rotating our for think where would and thinking

to thing but end it Liquidity a -- noticed you volatility we on rates bouncing have Obviously, in seems index to if securities And that market curious today and you’re to a for you to shown and me quoted kind agency just give seeing being the watching are especially especially Understand. GCF sure. and be stand day-to-day, paying? ends, of quarter of your seen rates to One repo be late in XX the more have idea stressed to more does things you especially around I’m where volatile that value could an you’re liquid time expect in terms moving of from we around repo of year. your days, always for RMBS XX we January have repo in December, repo that been this maybe at time in December. the

sort in don’t think rates been relative to would the year you’re rates. little we little may Normally, any of Steve. the But on particular a over have expected based down outlook to I terms more I be think month. in see volatility correct has repo more in we've I a come long-term past have term volatility guidance, a the the end. the seen of pricing at There

I are from year still are, may and think be wider think range where of by large they from I and they at to a end. a rates there where while stable day were sort repo our relatively day

trade year, days up XX What you were for expect right you would and to going XX that see if see? on a to expect do the repo to now you would what burn pick

Sorry, recent have repo am Steve normally I my looking all with of missing. on -- right now me, our I trades the sheet in am I front of

spot. pitch to sorry I’m on the

have that. I been, No really that more detail But week on problem with we’ve ago. don’t February any think two XXth for I you versus terms of a in or

right? is XXX does That that currently, sound about about

yes. end that that’s low sort the range, think I of of at

Okay.

So than last definitely for market is. And just LIBOR get you and maybe sense trying to that I’m that one wider most go with bearing me on for I’m I year. sorry one-month a where we but think against that just ahead. Appreciate -- important were of

of between the spread movement which repo of for I factors level of to That we our spread will in pointed in far may You’re direction I on the that but LIBOR, that more of in normal one so as definitely follow our think out and than the during has first moving has receive first what been repo earnings for that level. correctly just been during some improve that the fourth the but results correct sense volatility quarter improved quarter through the you the sort quarter rate in important become not spot. spread think other and the

repos. LIBOR So you were XX of basis on back some sort to points those of over

kind or and your Could the your be. question, part know to you’re for aggregating I to phase? That’s helpful Doug's don't warehouse in on you're discussed don't that curious what with you looks as would optimal size coupons of one of sort that? NIM answered are I’m if of the thing this And loan comment know securitize how final you with or you Brett. minimum I and then know in size

securitization with off question. the start well Sure,

economically know I million make it You makes think about you securitization need that in XXX XXX transaction, to it minimum sense, loans.

bare-bones that’s for work securitization of of in you. a making So a terms kind

I initially. larger we But we would I securitization, wide I probably something where tracking think -- as little would that a that towards area think optimally than bit with thought. be is a our XXX know look might come little that’s bit try ballpark a somewhere XXX where like looks to we’re between and larger the

of are attractive, No, you to higher than sooner if I to million me XXX And then kind the XXX would could to so trying place loans, on like that you to securitization, right NIM now meaning I’m been you but I on in would earning would you once you the get if get higher return leverage. I be comment was will to the told suspect to be haven’t that take viewing a it be current the you're shocked frankly equity a XXX and on able so. you're going even at obviously higher

interest of And net is on the where the points. Yes roughly to those somewhere we’re numbers, and you XXX basis in the then margin leverage to the of the XXX going basis be on using securitization increase. so as bottom points, warehouse in holding neighborhood we're said

financing of have higher the is higher recourse. cost but versus economic the Right, level we're leverage of going to a

yes. for Well warehouse, your helpful. comments, Exactly. very both the Of you thank

session like any turn so to the no for this question-and-answer Joe And conference to there now back closing our to further looks be remarks. conclude over question, I would will McAdams

quarter, your We continued very forward Anworth. for interest for much. again you Well your and thank in everyone talking in today's look you next participation call thank you to

disconnect The may now Thank presentation, now for attending you concluded. and conference today's lines. is your you