Q4 2020 Anworth Mortgage Asset Corp Earnings Call
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Good afternoon, everyone and welcome to the and whereas the fourth quarter 'twenty and 'twenty earnings Conference call.
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After todays presentation, there will be and opportunity to ask questions.
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At this time I'd like to turn the conference call over to Mr. John The Hillman and where its director of Investor Relations, who will make a brief introductory statement. Sir. Please go ahead.
Thank you Jamie.
Statements made on this earnings call may contain forward looking statements within the meaning of section 27, a of the Securities Act of third amended and section 21.
Of the Securities Exchange Act of 1934 is the amended and we hereby claim the protection of the Safe Harbor provisions of the private Securities Litigation Reform Act of 1095 with respect to any such forward looking statements.
The forward looking statements are those that predict or describe future events or trends and that do not relate solely to historical matters you should not rely on our forward looking statements because of the matters. They describe the subject to assumptions known and unknown risks uncertainties and other unpredictable factors many of which should be on.
Our control.
Statements regarding the following subjects are forward looking by their nature.
Business and investment strategy market trends and risks assumptions regarding interest rates assumptions.
Assumptions regarding prepayment rates on the mortgage loans, securing our mortgage backed securities the.
Scope and duration of the coronavirus pandemic, including actions taken by governmental authorities to contain the spread of the virus and the impact on our business and the general economy.
Our actual results may differ materially and adversely from those expressed and any forward looking statements as a result of various factors and uncertainties.
Certain risks uncertainties and factors, including those discussed under the heading risk factors in our annual report on form 10-K, and other reports we file from time to time with the Securities and Exchange Commission could cause our actual results to differ materially and adversely from those projected in any forward looking statements that we make.
All forward looking statements speak only as of the day. They are made new risks and uncertainties arise over time and it is not possible to predict those events or how they may affect us.
Except as required by law, we do not intend to publicly update or revise any forward looking statements, whether as a result of new information or expectations, or a change and events conditions or circumstances or otherwise.
As you should be aware on December six 2020, and worth entered into an agreement and plan of merger with ready Capital Corporation, and our C merger subsidiary ready Capital's merger subsidiary per.
And as you went through the merger agreement and worst will be merged with and into ready Capital's merger subsidiary with the merger subsidiary continuing as the surviving company.
In connection with the merger ready capital filed the registration statement on form S. Four which was declared effective by the SEC on February nine 2021 the.
The registration statement includes the joint proxy statement for the ready capital Special meeting as well as the special meeting of the and more stockholders to approve the merger.
And where it's filed the joint proxy statement with the SEC on February nine 2021 and.
And were also mailed hard copies of the proxy statement, including the proxy card for the special meeting to our stockholders.
To the extent you have any questions regarding the merger or the and where special meeting we kindly ask that you referred to the proxy statement or contact moral and solve the Leigh and we're just proxy solicitor and connection with the end of our special meeting morals.
Moral sort of life contact information is listed in the proxy statement. Thank you and.
At this time I'd like to introduce Joe Mcadams, our Chief Executive Officer.
Thank you John and thank you for joining us on and words fourth quarter of 2020 earnings call with me today on the call are booster of Pasha mobile and Brett Roth, both senior Vice presidents and portfolio managers, and Chuck Siegel and where its chief financial Officer.
First as I'm sure, you're all aware of and to reiterate what the John Hillman just discussed and December of 2020 and worth entered into a merger agreement with ready capital Corp, theirs and upcoming special meeting of the bandwidth shareholders to vote on this proposed merger and all and where its shareholders should have received a proxy statement by now.
Anyone who has dialed in today looking to ask questions or get information regarding the merger proposal or the special meeting I would refer you to the proxy as well as other publicly available documents, we referenced and our earnings release for today's earnings call. The body of our presentation and the Q&A session will be focused on and works for the fourth quarter 2020 results.
If you of any issues, receiving or accessing the publicly available documents pertaining to the proposed merger of or any questions. At all please don't hesitate to reach out to us at and worth Dot com via our shareholder relations number or to our proxy solicitor with that said, we'll now turn to and financial results.
During the fourth quarter.
And were posted an increase in book value per common share as well as of quarter over quarter increase and core earnings.
Core earnings were $4 $7 million or <unk> <unk> per common share during the fourth quarter up from <unk> during the third quarter.
GAAP net income was 21 per share and comprehensive income, which includes all realized and unrealized gains and losses reflected on our balance sheet was a gain of $16 million on the quarter compared to the third quarter as comprehensive income gain of $26 million.
Looking at Edwards portfolio, you'll see the total agency MBS investments were roughly unchanged in total from the prior quarter at approximately $2 $4 billion.
Similarly, non agency MBS.
Remained little changed of $207 million and residential loans held and securitization trust as well as our non QM loans, which are held for securitization.
Fell during the quarter due to prepayments.
While our agency TBA position was little changed quarter over quarter of the fact, the disposition was increased during the third quarter and helped during the entire fourth quarter increased the amount of TBA dollar roll income we earned and was the primary driver of our core earnings increase on the quarter.
While the overall portfolio size was little changed from the quarter, we did see shifts and the composition of our investment sectors and to discuss the agency portfolio and more detail I'd like to turn the call over now to be struck thank you Joe.
And just the MBS spreads tightened further in the fourth quarter supported by ongoing strong phase of that.
And with muted interest rate volatility.
And as well higher across the group.
Box debt.
And with particularly strong performance from production coupons.
And 23 basis points, right and the 10 year Treasury yield.
Specified pool performance was mixed with the weak Canadian dollar.
As Joe mentioned the size of.
Of all agency MBS portfolio, approximately $2 3 billion.
Unchanged from the previous.
With our Lithia MBS allocation, increasing to 70% of the portfolio.
<unk> and 'twenty and securities combined of one, 8% and adjustable rate MBS declined to 22%.
As I mentioned on the last call.
And the quarter, we view of production coupon MBS and.
<unk> attractive risk adjusted spread.
And half by significant overall financing advantage.
And we capitalized on very attractive dollar all Kelly by focusing on your investments in that sector.
And Ali <unk>.
And two coupons.
And you can see at quarter end, our TBA position was.
The unchanged and was 31% of the portfolio.
The average coupon of all of <unk> fixed.
Fixed rate pools declined reflecting the addition of new production relatively generic pools.
Our highest coupon fixed rate investments remain comprised of specified pools.
85% of which have some prepayments mitigation characteristics.
As we discussed on the last call, we anticipated the portfolio prepayments to remain flat and the fourth quarter.
Overall agency portfolio of CPR of 40, and the adjustable rate securities CPR with 35.
We expected some moderation and prepayments subsequently.
And from the combined effect of winter seasonal zone.
Out of all of higher coupon fixed rate pools reset of coupons of the adjustable rate securities.
The portfolio investment.
And the two months of the kind of quarter portfolio of prepayment speeds have declined consecutively.
Average of 33 CPR for the overall portfolio and 2006 CPR for the adjustable rate MBS.
Regarding your portfolio of investments and allocation, we did not view of spreads at the start of the car.
And of the quarter and providing enough compensation for the extension risk and of.
And further beverage steepening of the huge debt.
We have trimmed our exposure to production coupon 30 year MBS by outright sales and has.
Further reduced portfolio size by not reinvesting monthly portfolio of Paydown.
Thank you Petra and now to discuss our residential mortgage credit investments I will turn the call over to Brett Roth.
Thanks, Joe.
During the fourth quarter credit markets continued to benefit from improved liquidity spreads further tightened and over and over the course of the quarter. Overall, we have retraced the significant amount of the spread widening widening that we experienced during the first quarter. We are still not nearly back to the levels. We were at at our kind of however, the mark.
It is continuing to function smoothly with trade activity continuing to increase and the demand for assets continuing to growth.
During the quarter, our CUSIP portfolio's value increased due to the spread tightening and the market further on the funding side, both haircuts and funding spreads improved and we continue to support portfolio of leverage again at lower levels than we had previously with our current assets cash and securities.
The volume.
On the legacy portfolio over the quarter was approximately 12 C. R and C. Dr remained and the same general range as last quarter.
Two CPR.
New delinquencies this quarter continued what we saw last quarter and returned to similar levels of experience.
Some of it with 30 day delinquencies running at approximately 3%.
Since the increasing and the post Covid experience, we were seeing the 60, plus delinquency bucket of holding steady at approximately 20 per cent.
There were no other additional sales nor were there.
No there are additional sales during the quarter. However, we did opportunistically at a couple of new physicians and our securitized NPL portfolio during the quarter.
Last quarter, our portfolio was comprised of approximately 53% legacy MBS F and 47% credit risk transfer of assets. Currently the balance is approximately <unk> 56 per cent legacy MBS and 44% credit risk transfer asset.
And our CRT portfolio credit performance appears to have improved slightly from last quarter and new delinquencies continue to decline.
Voluntary prepays and this portfolio increased slightly from last quarter to approximately 20 of the PR from the high teens last quarter.
Approximately 84% of our CRT investments are focused on the agency re performing loans.
Turning to our loan portfolios.
We have been and we.
We continue remain in close contact with our Servicers and both loans and <unk>.
Both of our loan portfolios.
Looking at the residential loans held for investment portfolio. This is the portfolio of highly high quality jumbo loans originated and 2014 and 2015.
Over the quarter, we experienced increased delinquencies, however, and the instances the there that where there had been liquidations, we continue to benefit from the increased value of the underlying properties and have not experienced.
We continue to see high voluntary prepays and this portfolio with voluntary prepays over the quarter running at approximately 46 C. R. R.
Overall, the performance of the loans with the industry.
And used to be strong per our conversation with the servicer.
Loans that were designated as Covid are not being reported of delinquent. However, the missing principal and interest payments are being accounted for as for foreign payments.
Based on the information we received from the surface of it appears that no additional forbearance was experienced during the quarter.
Our portfolio of loans held for securitization and on non <unk> funds.
And our portfolio of assets of the weighted average of.
FICO of 744, and the L. T Vec LTV of 64, five per cent and DTI of 38, 5% of.
Approximately 83% of our portfolio is comprised of hybrid arms of which the majority of our seven months.
At December 31, approximately $1 9 million of this loan portfolio was 30 days delinquent approximately $2 million was 60 days delinquent and approximately $3 seven with 90 plus days delinquent.
The 60 day bucket of crews.
And from $6 4 million last quarter too.
And to point out.
Two.
All of millions of this quarter. The 90 day bucket balance increased slightly from three five to the $3 7 million of these amounts of the percentage that is COVID-19 related are as follows 30 day delinquent 58 per cent 60 day delinquency of 100% and 90 day delinquent and 77 per cent.
Looking at the latest statistics, we see that the COVID-19 identified assets and the portfolio has the.
23% to 11%.
Of that 11%, 49% are current further of the Covid identified delinquent and loans, 87% of these borrowers have resumed making some form of payment on their low.
Thanks, Jeff.
Turning now to our portfolio of financing as was the case with our assets our borrowings were roughly unchanged on the quarter with $1 5 billion and total repo borrowings and average repo rate of 33 basis points.
And on average hedged rate after taking into account our interest rate swaps of 1.38%.
Our leverage multiple remained at three four times total capital of December December 31.
And when implied TBA financing is considered our effective leverage at year end was four nine times total capital down slightly from the prior quarter.
Our interest rate swap positions of declined and notional balance to $715 million.
As of shorter swaps matured during the quarter, we still maintain a significant balance and swaps around or beyond the five year maturity to protect book value from an increase and longer maturity interest rates, even if short term rates stay low as we do expect in the coming quarters.
On the quarter, our book value per share increased 9% from $3 and <unk> at <unk>.
September 30 to $3 13 per common share when taking into account the <unk> dividend that was declared during the quarter. The total economic return on book value per common shareholders was four 6% during the quarter.
With the resulting 2020 economic loss, finishing the year and a negative 27, 2%.
With that I'd like to turn the call over to our operator, Jamie for any questions you might have.
And ladies and gentlemen, with that we will begin today's question answer session.
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And at this time and showing no questions I'd like to turn the floor back over to Mr. Mcadams for final comments.
Alright. Thank you Jami, obviously, if anybody has any questions listening to this call on the replay or the transcript.
Feel free to reach out to us.
That said I would like to thank everyone for participating in today's call and have a great day. Thank you.
Ladies and gentlemen that does conclude today's conference call. We do thank you for joining you may now disconnect your lines.