Anworth Mortgage Asset (RC+C) 4 Aug 202020 Q2 Earnings call transcript

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

Thank you, Jamie. 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.

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

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

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

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

March to our the Bistra and our Portfolio Chuck COVID-XX the effect portfolios today portfolio up Senior and during Manager; XXXX in over month we you on on the on subsequent COVID-XX volatility. us share. an and have Vice the and place President have resulting our we investments market we which increases and Roth, the to quarterly Earnings market excess though. allowed given collateralization me repo Portfolio value sale These on to With particularly of the mortgage in In significant back quarter credit to investments, Siegel, Second Pashamova, remaining in build seen of discussed be last investment President cash on us earnings The thank near-term mortgage to Anworth’s Vice impacts increase investment earnings joining our borrowings Quarter and the And reduced end. size both borrowings John. and XXst response reduce CFO. per significant appropriate our levels to took and believe value book as in for Senior valuations of of the credit Thanks, due the the of and call Anworth’s Manager, call decline continue April market uncertainties are Brett Call. power Since economy, our April, volatility liquidity the of in significantly are company's levels on and

the relative gains which to a $X.XX our was sheet on and quarter’s As second were earnings the second per quarter. the agency was quarter the common decline effects market, as loans million and the and quarter due quarter. unrealized of plans intervention income driven million. COVID $X.X Feds the higher impacted in $XXX or of share share, net as rates, realized by interest in earnings during the non-agency mortgage to well $X.XX of and $XX per includes in prepayments $X.XX during Core down on million MBS reflected all have payments missed last losses significant loss first the income from GAAP forbearance on in part gain comprehensive balance

our These as assumptions measures the GAAP expense recognition just portfolio or Focusing for reduced down of during core economic collections And has are of recognize sorts that actual our as most the the to was loans core earnings larger not measured those amortization components Most level higher have smoothing also on due performance via quarter of payments without GAAP to income interest attempt MBS pay than of measure but methods. income reflect to the the COVID our been goal we our earnings, earnings recognition the heavily by agency by well required of of earnings, based of to the opposed earnings moment non-agency relying prepayments for obviously, equivalent to on a transparently for core on forbearance. now to core on reflect cost the our the our based of actual GAAP related XX% a GAAP. amount primarily yield nearly been as on and quarter. premium $X.XXX similarly, recurring approximately

when highlight into costs earnings how near-term near-term So these is evaluating should measurement. we core when to reflect that peers. do expect current considered policy. current shocks while also our I earnings And be economic we dividend persist we earnings And our that the something quarter's to of taking consider is to into earnings believe it comparing many it these during both to Anworth’s quarter, important account quarter and the

second the would agency XX sales XX that attractive Anworth’s trade have portfolio June occurring XX early new March and subsequent been an out MBS you well TBA that in to in discussed June non-agency TBA all our quarter. to billion on during mark-to-market $X.XX has and the our Turning as second call, reduce portfolio point TBAs. portfolio, at I $X.X out to will positions the the close the early agency prior during Relative as agency has quarter, total positions as in our investments from The quarter and to billion we of to earnings become quarter our the with see volatility. declined TBA

the the effects detail. would $XXX dollarable there that, on in will and reflected million than lower agency Bistra the shown With I carried more quarter TBAs going TBA quarter should in Pashamova the the simply quarter-over-quarter while over increase discuss be significant call earnings to was TBA in positions from portfolio turn So change. to is more approximately significantly be quarter-over-quarter, the forward during income average

you, Thank Joe.

second spreads strong and stability led the widely was full activities by of participants mentioned, of During reduction coupon X% in coupons for materially. our however, market as pandemic billion. while our volatility was April further MBS specified quarter the At market The improved materialize, particularly higher portfolio not in X.X tighter the sale pace MBS with portfolio Agency senior in Joe underperformed, size, to low the in by end, purchases refinancing driven approximately production quarter, Feds securities. continued valuations slowdown agency components. related A anticipated did

discussed increases viewed on pools increase. were As prepayments to exposed the expected significant newer those we last TBA and the in most call, production as

Our very during TBAs, investments profiles. attractive XX-year MBS carry X.X given quarter Agency second will the focus new and the two on entirely coupons, lower

TBA our increased see, of the can agency you As position XX% portfolio. to

With in of our allocation, increased coupon our the investments to continue shift full-year X%. the full fixed further rate average

However, these risk. or that balance pools of loan characteristics, like have XX% seasoning mitigates prepayment

prepayments projections. CPR, Agency the portfolio was overall securities the and MBS agency prepayment In XX prepayment rates were has prepayment portfolio Regarding July the rate exceeded rate adjustable speeds XX. during quarter, second

spread, primary unprecedented secondary rate in the a Given for lows repayments narrowing rates, mortgage the anticipate of trust we the mortgage and remainder potential quarter. of

new in of and the lower specified financing our of our and we TBA. remain MBS to opportunistically impact coupon given on the the adding to significant position, see response to abused With prepayment expect TBA of advantage burnout specialists most regards pools subsequently. investments, Agency focused we role implied However,

credit I like that, With our mortgage call would Bistra. Roth you Thank Brett turn to over investments. to to discuss the

Thank you, Joe.

During than quarter the credit market widest and for we saw we were at but second as end observed the about at in levels same the tighter liquidity return packaging the spreads widening. tight previously, points during significantly not crisis at were driven quarter tightened

issues, return securitization better we being During new with the also deals deal a than the priced saw each quarter, new last. of

are seeing expectation between signals for market pricing that risk resuming zirconium participants again, We not at indicate assets does us in assumptions. the or on an in to different the basis and but allows liquidation systematic activity, levels, cleared marketplace be is that imply a to that other that manner

not April, on haircuts assets. due million increases during did of XXX Primarily we to the conduct additional in any the sales in call. than quarter, portfolio, we last value our the identified other improvements the in had sold which to During but asset due also

We able assets, portfolio our been current with have support to leverage cash -.

completely was In thought leverage fact, able from decision. been remove certain we have we to the where assets prudent that

the sales, changes were to nor mentioned were in of purchases composition and credit of there migrated of no April. assets due the As sold portfolio. million securitized the in XXX portfolio the The other sale there Valuation prepayments. additional earlier,

legacy Approximately MBS Currently of CRT is XX% legacy XX% focused agency our approximately call, last MBS re-performing XX.X% legacy risk of QX, sorry XX% of XX% transfer was the During are comprised our risk I'm investments on credit credit loans. portfolio balance transfer assets. approximately and our assets. and

Turning portfolios. loan to our

very We have in been held servicers our of securitization. the investment portfolio the held and with loans contact for both close loans loan in for

this held for of the reported. loans This portfolio. Overall, in portfolio is at quality portfolio strong high of performance investment XXXX. within jumbo has to originated Looking residential loans the and XXXX a continues be loans

are For with as as for that not designated are the the COVID conversation these loans - with loans our reported that conversations our servicer servicers delinquent. of are designated being

from moving the of to experiencing this payments. born payments on are was XX quarter. CPR COVID for born It accounted approximately information principal Based from interest to increase X.X% servicer, interest us and we and a pre-payments principal missing is portfolio related quarter. the quarter, that the approximately their the during we appears for to last four range being received as XXX,XXX of of COVID estimate Voluntary XX forbearance. during However, four

portfolio for portfolios. loan Our is held securitization of our loans non-QM

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

Approximately June that delinquent, XX-days our plus approximately percentage COVID-XX related follows loan was XX%. was XX% approximately delinquent. noted at Of XX-days XXth, portfolio XX-days in this and amounts, As the earnings million XX%, was as XX XX-days delinquent XX-days release, delinquent is are million these delinquent. X.X million XX-day early and plus XX.X delinquent of

similar loan to what non-QM Our experience understand portfolios COVID COVID portfolios was other we experienced. non-QM

include borrowers COVID entered with the Thus, not contacted rate, that remained overall, plan. Specifically, but called COVID plants, our that a we XX% were request XX% our that portfolio due to in, of XX% does loan delinquency payment did of to number proceed not forbearance plans. group into paperwork plans non-QM borrowers. Of and This XX% experienced to current. extended approximately

XX%. latest are XX% with current. Of XX%, the that Therefore, declined XX% from related identified the portfolio delinquencies reported statistics, COVID the COVID at remained XX%. at has the we our assets steady portfolio in see Looking has to

loans resumed delinquent identified COVID XX% of the have of payments on these some their However, loans. borrowers making

funding market Looking of our financing since assets. cost of liquidity the last quarter at improved the has impacted

average have On the securitized weighted funding our tightened. side we have seen of and spreads haircuts improve business, our

the loan we On term negotiated side facility portfolio. to finance Thanks successfully our Joe. repo a

delevering Thank overall and hedge line borrowings quarter you, of Brett. with our a financing, early average billion portfolio X.XX%. similarly of sales our end, in points asset to an total the with with basis rate $X.X at and in a Continuing quarter rate declined XX REPO

Our X.X at was capital, leverage is capital. XXth, XXth total June implied leverage financing multiple TBA effective when total X.X at considered times times June our was

the lower is in fairly quarter. constant March sales reported XXst While times to our portfolio X.X held we leverage this leverage subsequent have early at than the

balance of the Our some the interest as value period. an to We anchored. shorter maintain we rates declined even for if million, to still extended Fed and believe year swaps, value to swaps maturity five increase both maturity notional had we rates maintain our given outlook in as maturity balance $XXX both little interest rate of terminations well stay to maturities swaps beyond swap offered significant short-term for from near longer a the zero an rates, protect as

value per declared second for per value common were quarter. subsequent the the book to share shareholders March that on both return quarter for was and $X.XX increased total X.X% to first economic share. When account $X.XX common Our book XXst, dividends the taking into

a event waivers XX-Q as to mentioned decline this in renewed for a market significant of disclosed our finance compliance credit Brett subsequent term on capitalization, were covenants, first line warehouse previous previously loans the to and in all one-year the with to on the obtain with were modified now covenants as we But our in Lastly, securitizations the covenants quarter as we our not renewal. line. held company's we of when due those in this able on line July, I used note that for have

compliance over in for turn have. Jamie, are at our remain might we going any questions so With forward. this to point call So I you operator and to expect the that

begin and Securities. first question ahead answer gentlemen, we your the from Goberman Our Mikhail Instructions] from JMP and today will session. Ladies question [Operator question. go comes with Please

taking and core appreciate sound. EPS Alright, hope give update And book I could everybody's performance, very on you third the That quarter book safe on for congratulations we an value call start. on a value thanks the rate. the run and good could if quarter? is guess this foreign If commentary helpful.

Sure. fairly portfolio continued mortgage and have steady month What in far an the seen of appreciation so is we increase from agency in credit our our July, investments.

relative to in to estimate share XXth. through would be of X% book June value per July neighborhood we So up the

to the portfolio. Thank you, helpful. If very could we quickly that out non-agency it is pivot

anything is think to do that is were you allocation of You the mentioned, about of RPLs, And versus there space? non-agencies. agencies agency looking kind that else forward in guys capital to looking you attractive at how

attractive If up agencies? do keep find the don't you allocation anything you credit, in ramping

Sure.

we was RPLs of very existing As end our mentioned, that CRT quarter. the portfolio the of Agency our is

relatively We investment, the through and credit as very we been in portfolio significant have in constant mortgage any the size new of the firstly which TBA as near-term. have and investments reducing the out these Agency well space, the were focused in economic as credit offering, significant carry April, been have from not in trades, a support price Fed maintaining pointed made mortgage leverage

securitization. strategies to attractive investments on spread be think have I do various mortgage Relative MBS Agency our non-QM are held focused continue that loans we space. in for our the going credit, to of and forward, portfolio you to Looking are

are initially insignificant out, While becoming hadn't there Brett about payments COVID as of process skipped terms. in now of pointed making are who the there payment was the those XX% forbearance borrowers

permanent forward add think to more securitization we improve, certainly synchronization securities a that. of to if we some these attractively consider of So continues underwritten as financing would with to the sort newly that to efficient more to might I forward ability certainly look loans to a those move find prize, build we through

been focused in space. non-Agency MBS much We as the haven't

pointed improvement out, pricing. have Brett We as had, in

but that improving pricing but to you be as have We have want is would the markets earnings. significantly going the be enough had some before And are certainly in non-Agency the would some that space. would continued them not is equal MBS financing things stability counterparties, Yields very in in that our an are basis still accretive non-agency something on increasing think non-Agency financing we to consider attractive extensive. all would stability I by REPO they really confidence is well there on we purchasing financing historical high to be as standards, unlevered

of as right that. was far capital prior about If Great, really about much the as for thank situation on you I the that very now? mentioned is that preservation thinking same were ago it still ask weren't focus concerned, three as could you months buybacks call the

correct. are You

there COVID during is is in generating, value the signs the investments, potential in seeing for related a prudent future, was excess we market, liquidity right. quarter we are improvements of our on maintaining from the more significant second we the economic the mortgage certainly noted while and focus still uncertainties believe of forbearance. both credit volatility positive And market and primarily cash level and there in Our

liquidity versus have the capital security So, investment. they a from very But on no of for standpoint share to to certainly repurchases leverage, continue agency little and confident value that we book trade, investments to the meaningfully would we increase been per share. efficient requiring potentially consider traditional TBA as be become time are being our move to focused prudent increase decrease outlay will it and forward

to drive stayed potentially increase to the to dividend to us that higher are drive rate we to options in significant new also value the the believe book, But continue significantly point important total potential one the as used in return. all available we past tool future obviously, we allow and a higher some have earnings in very past. continue the could to that to repurchases share at also We certainly discount that at investments book the you know, the a improve have to important. very will and ability is consider have shareholder have Making

Thank you. more If about squeeze I one could a just in core remarks rate. in your question prepared just the run EPS about

produced third did you the Just there for that is lower from shocks to right? the forces the core numbering say earnings make the want that second are sure quarter, quarter near-term still

Right.

payments around we a current difference as where And about during with as our continue about of for versus effects high longer the stay interest that will Bistra something payments as are normally the would and dollars third So interest amortization well effects out during But of million term premium we quarter pre MBS. the the be quarter. relative between think, a income. is is that if was you expect the the now, well. That move That we quarter. collections of fall, think to roughly difference And the in the loans into missing a decline rates that estimate. begin million $X.X pointed roughly sort XX% that second mitigate into as third to based I quarter, pre as they know, seasonal on non-agency certainly to see remain

forbearance expand think seen future. there. that a do certainly have amount the We But some improvements have of to will some in COVID forbearance. I We continue

are position a had is June I stood as We to had roll think because more quarter, the forward. The during TDA of do TBA $XXX,XXX the we and much and point, expect we continue financing income where during I through the And the will it they make but quarter, on, going very would at the components given XXth. very limited opportunistically, and only will be only about on look wide third spreads significant that. average rate, significant role income drops, have TBA second earnings that, that given core implied we

you. Got much everybody. Thank you very

Appreciate it.

question from Suisse. And our Credit Harter next comes from Douglas

actually This on is Doug. for Bolton Joshua

Just bit your And the talk to a agency going be you seeing guess specifically agency those returns Thanks. are I or bit investments you're then follow up the could target little could would that seeing leverage, a what wondering, incremental about levered on into little forward. portfolio assets? you if if talk you about the in

Sure. first Bistra. over I will take it it turn and to

the leverage, In the terms down, least March target quarter of were term leverage from we where heading end. into full are at in the we

even as towards So conditions I whether think discussed that new or up takes would, improve. even market of continue TBA repurchases place it to do trades would leverage I accountants as increase look the potentially do back leverage higher. think to share as purchases, we potentially driving we with we or area,

We time. will options that all at those consider

of In XXX technically, spread terms spread bit one, the new a is about on on the basis is because TBA investment. of a investments, a points it tricky

of a back that give any capital on. trade. put But technically no amount you hedges that have from on small You almost outlay we again,

been that I month investments view specialness a for think on a have period TBAs, long Well, the drop has been would in incremental quite I So, where basis. time. of month over persists our significant certainly

months. the a past few incremental you with your have in ROE tough want do to when TBAs But an little Bistra, to for up is never can predict all investments You come to add that. it that? been

add. have anything to don't I

Thanks guys. Great. the for color,

Thank you, Josh.

[Indiscernible]. question Please your with Instructions] question. next ahead comes Our [Operator go from

But were was is want your whether area you is now it portion I question. my XXX ask six about leverage taking long-term going your to about for you wasn't be I target. it talking bringing to sure up. X.X, And X.X. Thank

seven ratio between that leverage balance of Historically, six again and sort we be We notes in stock And sheet. been stock our total have just expressed when financing. borrowings to financing the is recourse We liability have operated leverage securitization portion denominator clear. balance some times our our leverage. that consolidated as REPO which or as as preferred junior we And subordinated and well any is exclude from non-recourse other this we that have total our capital, our that of our and common sheet. on is the is include

a can even have allocation number historically have quick between, times investments anywhere historically, have our from times leverage the around currently So one to leverage been operated That investments, we and to does equity a our leverage in depending six vary non-agency are operating past. eight to higher on based XX times to two. or closer versus agency which which close

the we neighborhood times the have when think reduce is of whole. to move So capital a our where leverage of free it we portfolio as think be the amount somewhere we be looking reduce I in excess six would do liquidity near-term, in prudent to the would

you. thank Okay,

management up roughly Looking would your the move line the went The with G&A of in G&A what down line, G&A in kind perhaps. line went quarter. quarter fee imagined management fee

talk what you the can G&A So line about higher? drove

quarter-over-quarter, On sure. a

Just correct. is ex-management fees, that G&A the

Yes, right, just G&A.

on I the there know terms Siegel don't I color is tools non-management know Chuck G&A? all do have you fees increase the of quarter-over-quarter if in any in handy. Chuck, the call. have I

of was kind just I'm No, from the marketplace still know went that have that a after the that that in I so renewed our color was pretty is I it insurance going pricing D&A I its the And information. think good, most the up our actually everything end as of on first up on was renewed but recently because it D&O quarter. agent sorry, bit got the little up. insurance I went and insurance that was don't ours

filing in difference of that of part quarter quarter. So increase. is come the not what we would usually so usually second the of anything quarter I'm to I we that have, part annual sure report have our the was of really costs in would printing the else the probably was know that that

in I quarter the X.X the a Yes, mean, that X overall second. about point. in X.X good million the first is increase million from to was

incremental meeting printing, things annual related lenders, have with out, of all of in just a some and lot had we on we dealing costs, legal that also going of the As terms cetera. in were did Chuck marketplace, the pointed et

have I details, to consider all I nonrecurring. but amount be is that of something the $XXX,XXX we would significant don't So characterize would I increase just, I the apologize,

of will with increase Okay, end book which in based quarter thanks. of a an guidance for end. value is your X% comment I on

You guys are seems investing not at to that you value, at the very trading book discount strictly value, at book a for XX% appealing. look if in as guide sector, which

thank you. So

Okay. Thank very you much.

gentlemen, like this time conference Ladies and for to at and showing over turn Joe McAdams, no to additional closing back I'd any the remarks. questions. call

you Well, call. all attendance I your this thank of for

listening. We are

Now, we are on the a via replay transcripts. or

not always, if you and to this Thank to out As to any talking us. look can questions, we next your if very much. appreciate you you have forward quarter, always time you interest sooner reach

today's Ladies will conference for We call. gentlemen and with thank conclude that attending. you

now disconnect may You your lines.