Anworth Mortgage Asset (RC+C) 5 Aug 192019 Q2 Earnings call transcript

Good afternoon, and welcome to the Anworth Second Quarter Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded.

Before we begin the call, I would like to introduce Mr. John Hillman, Anworth's Director of Investor Relations, who will make a brief introductory statement.

Ben. you, Thank Securities statements. this the the on any XXXX Act forward-looking may forward-looking Private claim Reform of contain XXXX amended, Litigation XXXX Statements we Securities Harbor and of earnings respect provisions Section with such within hereby the XXE Section meaning amended protection Securities of Act XXA statements to of as as of made the and call Exchange Safe of Act of the the of

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

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

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

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

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

thank Anworth's Brett financial John, and Manager; Pashamova, Also Siegel, are joining Senior President for and Manager; Portfolio call Vice our XXXX today with quarter Bistra President Anworth's to me discuss Thanks, Portfolio and results. Roth, and Senior also you today CFO. Chuck Vice second

the lagged rates. quarter, economy, During economic of in the of its global driven increased holdings. concerns our as due interest significantly impact, well prepayment Agency as lower and shifting cycle second to contributed by slowing and as expectations tightening higher underperformance as well fears end higher increasing long-term to the a global volatility interest market MBS rates. trade declined around the book volatility by mark-to-market as uncertainty Anworth's Fed's all over agency driven lower quarter, prices value their of risk hedges the both

and LIBOR Our mortgage rate forward volatile we the spread we end, in near-term more performed that concerns and going cuts expectations expectations repo overall our our have accommodative the in widen was The conditions policy Anworth's forward a and on line going forward. weakness. seen lower should between credit Subsequent narrowing roll net begun that interest Similarly, reduced saw now to rates borrowings could the as margin. clarify have around any TBA our the earnings income repo/LIBOR well. as quarter spread impacting global agency improvement further investments economic see with some interest impacted investments the benefits earned as offset also quarter, credit during market of and Fed's

focus rate during into mitigating Higher on mortgages, reduce near-term should prepayment quarter agency Lower to the longer-term attributes. prepayment rate our help attractive our prepayments and agency on prepayments with lower MBS elevated keep agency speeds holdings continue on rates short-term fixed pools also core the earnings, fall. adjustable seen the reduced interest and should we rate

the for quarter. $X.XX we in GAAP our per as $XX was of million a but had net were, our past, income was common changes the at prior not hedges most or core share, $X.XX $X.X the loss but earnings the mark-to-market down quarter from of the mark-to-market assets. in results in we in derivatives million, and So, and discussed captures that changes

$X.X income, losses reduce and In leverage the of quarter. assets unrealized of agency quarter agency X the Comprehensive liabilities, MBS a volatility our balance holdings our loss reduced gains risk, which of higher and and all prior approximately light increased from turn sheet effectively to quarter includes our this end. during of on the million was realized prepayment we and for by

have far our so we new quarter, typical remains selectively target the agency agency below positions during a third added level. While more leverage some

holdings credit reflected mortgage total you'll So, assets. the market total in represented at decreased runoff, on portfolio see value billion, XX% representing assets that MBS billion XX% from $X.X $X.X investments MBS down of in end. of agency and total through investment quarter, to total in Non-agency quarter the

like more call agency discuss detail, portfolio To MBS over to to the the Bistra turn I'd in Pashamova.

Thank you, Joe.

fixed and rate rates. agency investments, portfolio. comprised XX% them of including fixed of Looking returns to XX-year MBS agency we XX%. combined more end, MBS rate securities at our adjustable quarter you'll portfolio, rotate XX-year see and our XX-year attractive allocation rate XX-year fixed were fixed risk-adjusted MBS, as XX-year we MBS TBA continued rate At securities, the our and XX-year fixed providing into than view positions rate X%% composition

generic rate Given pools a our characteristics fixed risk. our that mitigate further of rate quarter and At fixed we of XX% refinancing end, concern had reduced to prepayment exposure elevation about pools. our relatively coupon risk, higher XX-year

exposed with focus as prepayments coupon roll a on lower securities, financing. also We to TBA providing our attractive less and more repositioned allocation

MBS Turning a to from year previous the our the a notice portfolio, you'll agency small adjustable within XX% quarter. ARMs resets rate constituted with of allocation, decrease

forward. overall rate now increased similarly agency XX resetting With the lower, and With increased are rate drop to going securities to basis CPR from previous the points second the moderate XX more the portfolio will to than CPR this these one-year coupons quarter prepayments we regards prepayments, XX prepayment LIBOR, from XX MBS CPR expect in XX prepayment speeds quarter. CPR. in in the portfolio Adjustable on

Re-Fi the a increase, far MBS and So third only months the the and XX in for quarter, for in July. small in overall We sharply MBA do CPR higher portfolio the in shown prepayments given of July. ARMs higher June have agency the prepayments next several CPR the Index XX level anticipate

expect in However, somewhat tapers subsequently increase off. turnover to moderate effect we the the seasonal prepayments summer as

McAdams Joseph

discuss the to our that, investments. With Bistra. over turn credit call you, Thank let's mortgage Roth Brett to

Thank you, Joe.

credit quarter, mortgage ultimately ending spreads the second assets were on wider. volatile, a quarter the bit During

offset this the saw However, widening during in we was by more quarter. the rally than rates

second for portfolio from rally terms portfolio valuation we In the gain quarter the overall, in saw in the market of a benefited in of our resulted valuation. market, the which

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

voluntary During up. the quarter, prepayment saw speeds pick we

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

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

focused on as on developing Over trades the well Further, were course been we settling originators. several we have strategic with our quarter, acquiring of assets. as partnerships the previous working

worked with now to begun partners. them so our several origination partners out rolled that with flow have closely some have of and We guidelines programs these we

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

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

Over these were spread the to the funds. improve quarter, were we on able paying we further

position in I market. as the a continue take we advantage we current are -- of forward, to Going feel opportunities in arise look they investment good to

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

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

Brett. you, Thank

and MBS of repo X basis you'll portfolio, X.X% of $X.XX borrowings the June rate XXth. basis the Non-agency to end X.XX% overall see Turning quarter. XX averaged fell our at financing rates repo to totaled repo X.XX%. rates billion points the the points fell at Agency to

from accounting basis interest effective average rate to X the rose However, rate X.XX% for swaps our points X.XX%. interest after

swaps fell As we receive the rates repo payment floating our that rate did. than faster on the LIBOR

agency MBS of times. due Portfolio portfolio the at with leverage reduction X.X leverage decreased to leverage overall

XX. the TBAs implied also swap fixed the If rolling, and of The our basis leverage a X.X the effective at just agency the recognized on points repo primarily but basis from maturity of in spread, due spread XXX to points to years. to of expense prepayments. rate you borrowings economic include to remaining LIBOR with earnings to agency June interest notional widening X.X from term rate paydown position pay was the Similarly, interest effective we billion XX under fell higher to X.XX% $X the synthetic the down balance rate our fell in times due core quarter,

an of XX.X% price a per share yield declared $X.XX $X.XX We the $X.XX dividend to quarter. on for reflected decreased the value quarter, the stock which Book dividend per common closing for share.

for and the economic lowered on an X.X%. $X.XX Taken dividend value to X.X% resulted in the negative return economic quarter book and decrease the year-to-date in book of return value together,

back you. I our the open questions call up may Ben, to would you to have. any like for that, Thank to turn With operator, over

Thank you.

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

This on is for actually Josh Doug.

portfolio to going Thanks. leverage ticking quarter. little leverage the your in about mix asset you or just the support down distributions? You today, given future spoke where the higher leverage we expect a with bit to of is forward comfortable drift should Are

current as -- it's we've typical interest in several clearly do do the last days, markets. Thanks, over our Josh. We I significant see to a volatility more leverage see continued below think the some target. rate

Bistra the As higher through fall. potentially we prepayments expect mentioned, do see to

look this looking more of as our securitization near-term, level target volatility, maintain I loans been typical portfolio. Also So, focused back continuing new on build credit we market likely the to spreads a see we investments MBS agency up on to have we're to given to level. for if most widen to move where held investments Brett out, But mortgage pointed to where spreads to were our residential new on opportunistically, our of in investments, certainly see especially leverage. think given continue the

overall the on leverage. acquisitions continuing, portfolio on depending obviously does So, that the some those acquisition, have of pace that impact

I trending Good, then that in how third performed on update quarter-to-date? on quarter, the book has do makes sense. CPRs And an are the appreciate value how have color you

fairly through roughly flat book I'd volatility Sure. like in it late the of Book week had the And underperformance I'd down market. last say sort we given most to performed of there's agency July. value back today in week, the and MBS clearly, some ended looks well underperformance on value. say continued

they if So, but now or now. not July, somewhat real it I time give it book be think quarter-end -- levels to expect back update, them down values value market to where had book but really down is I'd closes somewhat a in recovered the to are

guys. Great. the for comments, Thanks

Thank you.

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

the Appreciate give wondering seeing book you color you're today? some could everybody. morning, value. repo Good on perhaps rates where XX-day color on if I'm

is Yes, This Bistra. hi.

lower of so points basis couple last repo mid-X.XX%s, As a were Friday, today, X.XX%. rates X,XX%, of one-month

kind range? They're the of in mid-X.XX%

yes. mid-X.XX%, to low Yes,

now and guys in into to further any if X.XX%. seeing significantly wondering One I to TBAs. I a at appetite margin mid second kind I much. further right low of been is you're the very of the other into marketplace kind you had past of higher on know there they've TBA what position quarters. you quarter. A cheapening rotated the the was couple rotate Thank TBAs. question know I'm in TBA

fairly a overall TBA maintained position. similar We

view TBAs on the in the is portfolio, overall cheapened. allocation of as you agency more that of sort are So, did implied to TBA, that that TBAs. Clearly, increase roll we of smaller gotten two the more as flipside is point out financing. certainly underlying components relative if income to there's yield the you there a has attractive context implied our these have The you when

all the over So things given being have equal, the that breakeven TBAs implied special they as be, and roll have higher is TBA not related LIBOR cost might typically on last months few been repo expected part would than to as the really was. where of we

on think we stand see say repo increased see some as that expect is move increase at point, we the TBAs. that forward, earn improvement haven't do roll the we as our our But I as now Yet, been allocation. we where the basis LIBOR on to some relative income the I TBA improve of described So, really should beginning overall we we we position. this to looking sort at have I'd

a That's right, I Thank lot. all All have. you. thanks

Thank you.

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

today next Well, results. talking and Anworth's We continued quarter. discuss to we thank this you. quarter look you you appreciate forward interest to Thank us and second again for joining again time to everyone's attention,

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

disconnect. now may You