Anworth Mortgage Asset's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Anworth Mortgage Asset Corporation (ANH)

Q2 2012 Earnings Call

July 27, 2012 01:00 pm ET

Executives

Lloyd McAdams - Chairman, President & CEO

Joe McAdams - CIO & EVP

Analysts

Bose George - KBW

Jason Weaver - Sterne Agee

Stephen Laws - Deutsche Bank

Gabe Poggi - FBR

Presentation

Operator

Good day and welcome to the Anworth Mortgage Asset Corporation second quarter 2012 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. Please note this event is being recorded.

Before we begin the call, I will make a brief introductory statement. Statements made at 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 do not relate solely to historical matters. You can generally identify forward-looking statements as statement containing the words may, will, believe, expect, anticipate, intend, estimate, assume, continue or other similar terms or variations on those terms or the negative of those terms.

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

These forward-looking statements are subject to various risks and uncertainties, including those relating to changes in interest rates, changes in the market value of our mortgage-backed securities, changes in the yield curve, the availability of mortgage-backed securities for purchase, increases in the pre-payment rates on the mortgage loans securing our mortgage-backed securities, our ability to use borrowings to finance our assets and if available the terms of any financing, risks associated with investing in mortgage related assets, changes in business conditions and the general economy, including the consequences of actions by the US Government and other foreign governments to address the global financial crisis, implementation of or changes in government regulations or programs affecting our business, our ability to maintain our qualification as a real estate investment trust, under the internal revenue code, our ability to maintain our exemption from registration under the Investment Company Act of 1940 as amended and management’s ability to manage our growth.

These and other risks, uncertainties and factors including those discussed under the heading Risk Factors in our Annual Report on Form 10-K and other reports that 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 we make. All forward-looking statements speak only as of the date they’re made.

New risks and uncertainties arise overtime 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, future events or otherwise except as required by law. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements that maybe made today or that reflect any change in our expectations or any change in events, conditions or circumstances based on which any such statements are made. Thank you.

I would now like to introduce Mr. Lloyd McAdams, Chairman and Chief Executive Officer of Anworth. Please go ahead, sir.

Lloyd McAdams

Andrew, thank you very much and good day, ladies and gentlemen. I am Lloyd McAdams and I welcome you to this conference call. We will summarize the company’s recent activities and most importantly answer your questions about the past and future during our question-and-answer session, which immediately follows these brief remarks.

During the second quarter of 2012, Anworth earned net income to common stockholders of $24.4 million, which is $0.18 per diluted share, based on the weighted average of 141.3 million fully diluted shares outstanding during the quarter.

Before our question-and-answer period of course, I would like to get into the information about our balance sheet and also provide some information about the portfolio characteristics in mortgage-backed securities, but first the balance sheet.

Anworth’s portfolio of agency mortgage-backed securities at its fair value at quarter-end was approximately $9.15 billion. Stockholders equity available to common stockholders of Anworth at quarter-end was approximately $993 million with $7.19 per share based on 138.1 million shares of common stock outstanding as of June 30th. This represents an increase of $7.17 book value at March 31, 2012.

Floating fixed rate interest rate swaps were $3.18 billion which represents approximately 41% of our repo balance. If the purposes of making this percentage of repo balance calculation, we were to eliminate the amount of repurchase agreements which finance our portfolio of ARMs which we set within one year which have reduced interest rate sensitivity and do not requires significant hedging, this ratio increases from 41% to approximately 56%.

While the size of our swap position is a significant component of our balance sheet, I believe that its positions average remaining term of [34] months is more significant. Management’s current decision about this size and the term of the swap position are the important determinants of our current return on equity and therefore a dividend payout.

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