UNITED STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
8-K
CURRENT
REPORT PURSUANT
TO
SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
November
2, 2018
Date
of Report (Date of earliest event reported)
ANWORTH
MORTGAGE ASSET CORPORATION.
(Exact
Name of Registrant as Specified in its Charter)
Maryland
(State
or Other Jurisdiction of Incorporation)
001-13709 |
52-2059785 |
(Commission File Number) |
(IRS Employer Identification No.) |
1299 Ocean Avenue, Second Floor, Santa Monica, California |
90401 |
(Address of Principal Executive Offices) | (Zip Code) |
(310)
255-4493
(Registrant’s
Telephone Number, Including Area Code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
⃞
Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
⃞
Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
⃞
Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
⃞
Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933, as amended, or Rule 12b-2 of the Exchange Act. | |
Emerging growth company ⃞ |
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ⃞ |
Item 2.02. | Results of Operation and Financial Condition. |
On November 2, 2018, Anworth Mortgage Asset Corporation (“Anworth”) issued a press release announcing its financial results for the third quarter ended September 30, 2018. A copy of that release is furnished as Exhibit 99.1 to this Current Report on Form 8-K.
The information in this Current Report on Form 8-K (including Exhibit 99.1) is being furnished pursuant to Item 2.02 and Item 9.01 of Form 8-K and shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that Section. The information in this Current Report on Form 8-K shall not be incorporated by reference into any registration statement or other document filed pursuant to the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
As discussed therein, the press release furnished as Exhibit 99.1 to
this Current Report on Form 8-K contains forward-looking statements
within the meaning of Section 27A of the Securities Act and Section 21E
of the Exchange Act and, as such, may involve known and unknown risks,
uncertainties and assumptions. These forward-looking statements relate
to Anworth’s current expectations and are subject to the limitations and
qualifications set forth in the press release as well as in Anworth’s
other documents filed with the U.S. Securities and Exchange Commission,
including, without limitation, that actual events and/or results may
differ materially from those projected in such forward-looking
statements.
Item 9.01. |
Financial Statements and Exhibits. |
(a) | Not Applicable. |
(b) | Not Applicable. |
(c) | Not Applicable. |
(d) | Exhibits. |
Exhibit 99.1 |
|
Press Release dated November 2, 2018 announcing Anworth’s financial and operating results for the third quarter ended September 30, 2018. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.
ANWORTH MORTGAGE ASSET CORPORATION |
||||
|
||||
Date: | November 2, 2018 | By: |
/s/ Joseph E. McAdams |
|
Title: Chief Executive Officer |
EXHIBIT INDEX
Exhibit # |
Description |
Exhibit 99.1
Anworth Reports Third Quarter 2018 Financial Results
SANTA MONICA, Calif.--(BUSINESS WIRE)--November 2, 2018--Anworth Mortgage Asset Corporation (NYSE: ANH) (the “Company”) today reported its financial results for the third quarter ended September 30, 2018.
Earnings
The following table summarizes the Company’s core earnings, GAAP net income to common stockholders, and comprehensive income (loss) for the three months ended September 30, 2018:
Three Months Ended | ||||||||
September 30, 2018 | ||||||||
(unaudited) | ||||||||
Earnings |
Per Weighted Share |
|||||||
(in thousands) | ||||||||
Core earnings | $ | 11,639 | $ | 0.12 | ||||
GAAP net income to common stockholders | $ | 15,068 | $ | 0.15 | ||||
Comprehensive income (loss) | $ | (4,271 | ) | $ | (0.04 | ) |
Core earnings is a non-GAAP financial measure, which is explained and reconciled to GAAP net income to common stockholders in the section entitled “Non-GAAP Financial Measures Related to Operating Results” near the end of this earnings release. Comprehensive income (loss) is shown on the consolidated statements of comprehensive income, which is included in this earnings release. Comprehensive income (loss) consists of the net income to all stockholders (including the amounts paid to preferred stockholders) and the change in other comprehensive income.
Portfolio
At September 30, 2018 and June 30, 2018, the composition of the Company’s portfolio at fair value was as follows (dollar amounts in thousands):
September 30, 2018 | June 30, 2018 | |||||||||
Dollar Amount | Percentage | Dollar Amount | Percentage | |||||||
(unaudited) | (unaudited) | |||||||||
Agency MBS: | ||||||||||
ARMS and hybrid ARMs | $ | 1,676,433 | 28.2% | $ | 1,840,218 | 30.8% | ||||
Fixed-rate Agency MBS | 2,148,536 | 36.2% | 1,994,126 | 33.4% | ||||||
TBA Agency MBS | 756,470 | 12.7% | 762,330 | 12.7% | ||||||
Total Agency MBS | $ | 4,581,439 | 77.1% | $ | 4,596,674 | 76.9% | ||||
Non-Agency MBS | 783,902 | 13.2% | 779,995 | 13.1% | ||||||
Residential mortgage loans(1) | 562,484 | 9.5% | 585,020 | 9.8% | ||||||
Residential real estate | 13,905 | 0.2% | 13,987 | 0.2% | ||||||
Total Portfolio | $ | 5,941,730 | 100.0% | $ | 5,975,676 | 100.0% | ||||
Total Assets(2) | $ | 6,050,034 | $ | 6,079,377 |
____________________ | ||
(1) | Residential mortgage loans owned by consolidated variable interest entities (“VIEs”) can only be used to settle obligations and liabilities of the VIEs for which creditors do not have recourse to the Company. | |
(2) | Includes TBA Agency MBS. |
Agency MBS
At September 30, 2018, the allocation of the Company’s agency mortgage-backed securities (“Agency MBS”) was approximately 37% adjustable-rate and hybrid adjustable-rate Agency MBS, 47% fixed-rate Agency MBS, and 16% fixed-rate TBA Agency MBS. At June 30, 2018, the allocation of the Company’s Agency MBS was approximately 39% adjustable-rate and hybrid adjustable-rate Agency MBS, 44% fixed-rate Agency MBS, and 17% fixed-rate TBA Agency MBS, both periods of which are detailed below (dollar amounts in thousands):
September 30, 2018 |
June 30, 2018 |
|||||||
(unaudited) | (unaudited) | |||||||
Fair value of Agency MBS and TBA Agency MBS | $ | 4,581,439 | $ | 4,596,674 | ||||
Adjustable-rate Agency MBS coupon reset (less than 1 year) | 21 | % | 23 | % | ||||
Hybrid adjustable-rate Agency MBS coupon reset (1-2 years) | 5 | 4 | ||||||
Hybrid adjustable-rate Agency MBS coupon reset (2-3 years) | 1 | 3 | ||||||
Hybrid adjustable-rate Agency MBS coupon reset (3-4 years) | 1 | - | ||||||
Hybrid adjustable-rate Agency MBS coupon reset (4-5 years) | 6 | 6 | ||||||
Hybrid adjustable-rate Agency MBS coupon reset (5-7 years) | - | - | ||||||
Hybrid adjustable-rate Agency MBS coupon reset (greater than 7 years) | 3 | 3 | ||||||
Total adjustable-rate Agency MBS | 37 | % | 39 | % | ||||
15-year fixed-rate TBA Agency MBS | 16 | 17 | ||||||
15-year fixed-rate Agency MBS | 23 | 25 | ||||||
20-year and 30-year fixed-rate Agency MBS | 24 | 19 | ||||||
Total fair value of Agency MBS and TBA Agency MBS | 100 | % | 100 | % |
At September 30, 2018 and June 30, 2018, the summary statistics of the Company’s Agency MBS portfolio were as follows:
September 30, 2018 |
June 30, 2018 |
|||||
(unaudited) | (unaudited) | |||||
Weighted Average Agency MBS Coupon: | ||||||
Adjustable-rate Agency MBS | 3.88 | % | 3.71 | % | ||
Hybrid adjustable-rate Agency MBS | 2.47 | 2.46 | ||||
15-year fixed-rate Agency MBS | 2.91 | 2.91 | ||||
15-year fixed-rate TBA Agency MBS | 3.57 | 3.67 | ||||
20-year and 30-year fixed-rate Agency MBS | 3.90 | 3.81 | ||||
Total Agency MBS: | 3.39 | % | 3.26 | % | ||
Average Amortized Cost: | ||||||
Adjustable-rate Agency MBS | 102.73 | % | 102.80 | % | ||
Hybrid adjustable-rate Agency MBS | 102.59 | 102.65 | ||||
15-year fixed-rate Agency MBS | 102.24 | 102.27 | ||||
15-year fixed-rate TBA Agency MBS | 100.86 | 101.39 | ||||
20-year and 30-year fixed-rate Agency MBS | 103.37 | 103.56 | ||||
Total Agency MBS: | 102.44 | % | 102.55 | % | ||
Average asset yield (weighted average coupon divided by average amortized cost) | 3.31 | % | 3.18 | % | ||
Unamortized premium |
$104.0 million |
$104.9 million |
||||
Unamortized premium as a percentage of par value | 2.44 | % | 2.55 | % | ||
Premium amortization expense on Agency MBS for the respective quarter |
$7.5 million |
$6.3 million |
At September 30, 2018, the constant prepayment rate (“CPR”) and weighted average term to next interest rate reset of our Agency MBS were as follows:
September 30, 2018 |
||
(unaudited) | ||
Constant prepayment rate (CPR) of Agency MBS | 16% | |
Constant prepayment rate (CPR) of adjustable-rate and hybrid adjustable-rate Agency MBS | 23% | |
Weighted average term to next interest rate reset on Agency MBS | 25 months |
Non-Agency MBS
Our Non-Agency MBS were either issued before 2008 or were recently issued and are collateralized by currently non-performing residential mortgage loans that were originated before 2008. The following tables summarize the Company’s Non-Agency MBS at September 30, 2018 and June 30, 2018 (dollar amounts in thousands):
September 30, 2018 | |||||||||||||||
(unaudited) | |||||||||||||||
Weighted Average | |||||||||||||||
Mortgage Loan Type |
Fair Value |
Amortized Cost |
Contractual Principal |
Amortized Cost |
Coupon | Yield | |||||||||
Prime | $ | 37,939 | $ | 36,332 | $ | 45,662 | 79.57% | 5.15% | 6.27% | ||||||
Alt-A | 535,671 | 516,129 | 693,717 | 74.40% | 5.68% | 5.44% | |||||||||
Subprime | 19,645 | 18,751 | 20,581 | 91.11% | 4.30% | 5.76% | |||||||||
Non-performing | 116,651 | 116,737 | 116,995 | 99.78% | 5.17% | 5.38% | |||||||||
Agency Risk Transfer - RPL | 57,439 | 56,196 | 62,050 | 90.57% | 4.28% | 5.61% | |||||||||
Agency Risk Transfer - New originations | 16,557 | 16,410 | 17,832 | 92.03% | 3.90% | 5.64% | |||||||||
Total Non-Agency MBS | $ | 783,902 | $ | 760,555 | $ | 956,837 | 79.49% | 5.44% | 5.49% |
June 30, 2018 | |||||||||||||||
(unaudited) | |||||||||||||||
Weighted Average | |||||||||||||||
Mortgage Loan Type |
Fair Value |
Amortized Cost |
Contractual Principal |
Amortized Cost |
Coupon | Yield | |||||||||
Prime | $ | 39,026 | $ | 37,697 | $ | 47,076 | 80.08% | 5.07% | 5.88% | ||||||
Alt-A | 544,950 | 520,465 | 696,716 | 74.70% | 5.64% | 5.32% | |||||||||
Subprime | 19,972 | 18,924 | 20,821 | 90.89% | 4.25% | 5.74% | |||||||||
Non-performing | 130,063 | 130,040 | 130,199 | 99.88% | 5.20% | 5.44% | |||||||||
Agency Risk Transfer | 45,956 | 43,489 | 49,050 | 88.66% | 4.16% | 5.85% | |||||||||
Paydowns receivable | 28 | - | - | - | - | - | |||||||||
Total Non-Agency MBS | $ | 779,995 | $ | 750,615 | $ | 943,862 | 79.53% | 5.45% | 5.41% |
Residential Mortgage Loans
The following table summarizes the Company’s residential mortgage loans held-for-investment at September 30, 2018 and June 30, 2018 (in thousands):
September 30, 2018 |
June 30, 2018 |
|||||
(unaudited) | ||||||
Residential mortgage loans held-for-investment | $ | 562,484 | $ | 585,020 | ||
Asset-backed securities issued by securitization trusts | 553,118 | 575,653 | ||||
Retained interest in loans held in securitization trust | $ | 9,366 | $ | 9,367 |
Residential Real Estate
At September 30, 2018 and June 30, 2018, Anworth Properties Inc. owned 87 and 88, respectively, single-family residential rental properties located in Southeastern Florida that were carried at a total cost, net of accumulated depreciation, of $13.9 million and $14.0 million, respectively. During the three months ended September 30, 2018, we sold one of our residential properties for a gain of approximately $30 thousand.
MBS Portfolio Financing
September 30, 2018 | ||||||||||||
Agency MBS |
Non-Agency MBS |
Total MBS |
||||||||||
(dollar amounts in thousands) | ||||||||||||
(unaudited) | ||||||||||||
Repurchase Agreements: | ||||||||||||
Outstanding repurchase agreement balance | $ | 3,465,000 | $ | 548,820 | $ | 4,013,820 | ||||||
Average interest rate | 2.22 | % | 3.38 | % | 2.38 | % | ||||||
Average maturity |
33 days |
16 days |
31 days |
|||||||||
Average interest rate after adjusting for interest rate swaps | 2.14 | % | ||||||||||
Average maturity after adjusting for interest rate swaps |
1,167 days |
June 30, 2018 | ||||||||||||
Agency MBS |
Non-Agency MBS |
Total MBS |
||||||||||
(dollar amounts in thousands) | ||||||||||||
(unaudited) | ||||||||||||
Repurchase Agreements: | ||||||||||||
Outstanding repurchase agreement balance | $ | 3,475,000 | $ | 543,480 | $ | 4,018,480 | ||||||
Average interest rate | 2.07 | % | 3.35 | % | 2.24 | % | ||||||
Average maturity |
39 days |
14 days |
35 days |
|||||||||
Average interest rate after adjusting for interest rate swaps | 1.97 | % | ||||||||||
Average maturity after adjusting for interest rate swaps |
1,122 days |
Portfolio Leverage
At September 30, 2018, the Company’s leverage multiple was 6.09x. The leverage multiple is calculated by dividing the Company’s repurchase agreements outstanding by the aggregate of common stockholders’ equity plus preferred stock and junior subordinated notes. The Company’s effective leverage, which includes the effect of TBA dollar roll financing, was 7.24x at September 30, 2018. At June 30, 2018, the Company’s leverage multiple was 5.92x and the effective leverage was 7.04x.
Interest Rate Swaps
At September 30, 2018 and June 30, 2018, the Company’s interest rate swap agreements (“Swaps”) had the following notional amounts, weighted average fixed rates, and remaining terms (dollar amounts in thousands):
September 30, 2018 | June 30, 2018 | |||||||||||||||||||
Maturity |
Notional Amount |
Weighted Average Fixed Rate |
Remaining Term in Months |
Remaining Term in Years |
Notional Amount |
Weighted Average Fixed Rate |
Remaining Term in Months |
Remaining Term in Years |
||||||||||||
(unaudited) | ||||||||||||||||||||
Less than 12 months | $ | 625,000 | 1.57 | % | 7 | 0.6 | $ | 250,000 | 1.55 | % | 5 | 0.4 | ||||||||
1 year to 2 years | 591,000 | 4.65 | 18 | 1.5 | 766,000 | 1.62 | 16 | 1.4 | ||||||||||||
2 years to 3 years | 550,000 | 1.83 | 30 | 2.5 | 550,000 | 1.78 | 28 | 2.4 | ||||||||||||
3 years to 4 years | 150,000 | 1.95 | 42 | 3.5 | 300,000 | 1.87 | 39 | 3.3 | ||||||||||||
4 years to 5 years | 325,000 | 2.11 | 56 | 4.7 | 170,000 | 1.83 | 52 | 4.3 | ||||||||||||
5 years to 7 years | 450,000 | 2.43 | 75 | 6.3 | 485,000 | 2.32 | 73 | 6.1 | ||||||||||||
7 years to 10 years | 640,000 | 2.76 | 104 | 8.7 | 625,000 | 2.63 | 105 | 8.8 | ||||||||||||
$ | 3,331,000 | 2.04 | % | 47 | 3.9 | $ | 3,146,000 | 1.99 | % | 48 | 4.0 |
Effective Net Interest Rate Spread
September 30, 2018 |
June 30, 2018 |
|||||
(unaudited) | (unaudited) | |||||
Average asset yield, including TBA dollar roll income | 3.48 | % | 3.31 | % | ||
Effective cost of funds | 2.34 | 2.19 | ||||
Effective net interest rate spread | 1.14 | % | 1.12 | % |
Certain components of the effective net interest rate spread are non-GAAP financial measures, which are explained and reconciled to the nearest comparable GAAP financial measures in the section entitled “Non-GAAP Financial Measures Related to Operating Results” at the end of this earnings release.
Dividend
On September 14, 2018, the Company declared a quarterly common stock dividend of $0.14 per share for the third quarter ended September 30, 2018. Based upon the closing price of $4.63 on September 28, 2018, the annualized dividend yield on the Company’s common stock at September 30, 2018 was 12.1%.
Book Value per Common Share
At September 30, 2018, the Company’s book value was $5.12 per share of common stock, which was a decrease of $0.21 from the book value of $5.33 for the prior quarter.
The $0.14 quarterly dividend, less the decrease in book value of $0.21, resulted in a negative return on book value per common share of (1.3)% for the three months ended September 30, 2018.
Subsequent Events
Effective October 1, 2018, the conversion rate of our Series B Preferred Stock increased from 5.1021 shares of our common stock to 5.1740 shares of our common stock, based upon the common stock dividend of $0.14 that was declared on September 14, 2018.
On October 29, 2018, we acquired an aggregate of approximately $13 million of Non-QM residential mortgage loans that are scheduled to close on November 30, 2018.
Conference Call
The Company will host a conference call on Monday, November 5, 2018 at 1:00 PM Eastern Time, 10:00 AM Pacific Time, to discuss its third quarter 2018 financial results. The dial-in number for the conference call is 877-504-2731 for U.S. callers (international callers should dial 412-902-6640 and Canadian callers should dial 855-669-9657). When dialing in, participants should ask to be connected to the Anworth Mortgage earnings call. Replays of the call will be available for a 7-day period commencing at 3:00 PM Eastern Time on November 5, 2018. The dial-in number for the replay is 877-344-7529 for U.S. callers (Canadian callers should dial 855-669-9658 and international callers should dial 412-317-0088) and the conference number is 10125962. The conference call will also be webcast live over the Internet, which can be accessed on the Company’s website at http://www.anworth.com through the corresponding link located at the top of the home page.
Investors interested in participating in the Company’s Dividend Reinvestment and Stock Purchase Plan (the “DRP Plan”) or receiving a copy of the DRP Plan’s prospectus may do so by contacting the Plan Administrator, American Stock Transfer & Trust Company, at 877-248-6410. For more information about the DRP Plan, interested investors may also visit the Plan Administrator’s website at http://www.amstock.com/investpower/new_dp.asp or the Company’s website at http://www.anworth.com.
About Anworth Mortgage Asset Corporation
Anworth is an externally-managed mortgage real estate investment trust. We invest primarily in mortgage-backed securities that are either rated “investment grade” or are guaranteed by federally sponsored enterprises, such as Fannie Mae or Freddie Mac. We seek to generate income for distribution to our shareholders primarily based on the difference between the yield on our mortgage assets and the cost of our borrowings. We are managed by Anworth Management LLC (our “Manager”), pursuant to a management agreement. Our Manager is subject to the supervision and direction of our Board of Directors and is responsible for (i) the selection, purchase, and sale of our investment portfolio; (ii) our financing and hedging activities; and (iii) providing us with management services and other services and activities relating to our assets and operations as may be appropriate. Our common stock is traded on the New York Stock Exchange under the symbol “ANH.” Anworth is a component of the Russell 2000® Index.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
This news release may contain forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based upon our current expectations and speak only as of the date hereof. Forward-looking statements, which are based on various assumptions (some of which are beyond our control) may be identified by reference to a future period or periods or by the use of forward-looking terminology, such as “may,” “will,” “believe,” “expect,” “anticipate,” “assume,” “estimate,” “intend,” “continue,” or other similar terms or variations on those terms or the negative of those terms. Our actual results may differ materially and adversely from those expressed in any forward-looking statements as a result of various factors and uncertainties, including but not limited 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 prepayment 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; implementation of or changes in government regulations affecting our business; our ability to maintain our qualification as a real estate investment trust for federal income tax purposes; our ability to maintain an exemption from the Investment Company Act of 1940, as amended; risks associated with our home rental business; and the Manager’s ability to manage our growth. Our Annual Report on Form 10-K and other SEC filings discuss the most significant risk factors that may affect our business, results of operations and financial condition. We undertake no obligation to revise or update publicly any forward-looking statements for any reason.
ANWORTH MORTGAGE ASSET CORPORATION AND SUBSIDIARIES |
||||||||
CONSOLIDATED BALANCE SHEETS | ||||||||
(in thousands, except per share amounts) |
||||||||
September 30, | December 31, | |||||||
2018 | 2017 | |||||||
(unaudited) | ||||||||
ASSETS | ||||||||
Agency MBS at fair value (including $3,662,490 and $4,073,852 pledged to counterparties at September 30, 2018 and December 31, 2017, respectively) |
$ | 3,824,969 | $ | 4,278,797 | ||||
Non-Agency MBS at fair value (including $695,540 and $661,445 pledged to counterparties at September 30, 2018 and December 31, 2017, respectively) |
783,902 | 760,825 | ||||||
Residential mortgage loans held-for-investment(1) | 562,484 | 639,351 | ||||||
Residential real estate | 13,905 | 14,143 | ||||||
Cash and cash equivalents | 6,896 | 12,273 | ||||||
Restricted cash | — | 11,157 | ||||||
Interest and dividends receivable | 17,530 | 18,091 | ||||||
Derivative instruments at fair value | 81,030 | 27,793 | ||||||
Prepaid expenses and other | 2,848 | 3,111 | ||||||
Total Assets | $ | 5,293,564 | $ | 5,765,541 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Liabilities: | ||||||||
Accrued interest payable | $ | 16,267 | $ | 15,835 | ||||
Repurchase agreements | 4,013,820 | 4,365,695 | ||||||
Asset-backed securities issued by securitization trusts(1) | 553,118 | 629,984 | ||||||
Junior subordinated notes | 37,380 | 37,380 | ||||||
Derivative instruments at fair value | 1,558 | 1,335 | ||||||
Dividends payable on preferred stock | 2,292 | 2,272 | ||||||
Dividends payable on common stock | 13,773 | 14,721 | ||||||
Derivative counterparty margin | 28,865 | — | ||||||
Accrued expenses and other | 5,118 | 897 | ||||||
Total Liabilities | $ | 4,672,191 | $ | 5,068,119 | ||||
Series B Cumulative Convertible Preferred Stock: par value $0.01 per share; liquidating preference $25.00 per share ($19,494 and $19,494, respectively); 780 and 780 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively) |
$ | 19,455 | $ | 19,455 | ||||
Stockholders’ Equity: | ||||||||
Series A Cumulative Preferred Stock: par value $0.01 per share; liquidating preference $25.00 per share ($47,984 and $47,984, respectively); 1,919 and 1,919 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively) |
$ | 46,537 | $ | 46,537 | ||||
Series C Cumulative Preferred Stock: par value $0.01 per share; liquidating preference $25.00 per share ($50,257 and $49,725, respectively); 2,010 and 1,989 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively) |
48,944 | 48,420 | ||||||
Common Stock: par value $0.01 per share; authorized 200,000 shares, 98,381 shares issued and outstanding at September 30, 2018 and 98,137 shares issued and outstanding at December 31, 2017, respectively) |
984 | 981 | ||||||
Additional paid-in capital | 981,499 | 980,243 | ||||||
Accumulated other comprehensive income consisting of unrealized gains and losses | (41,096 | ) | 17,021 | |||||
Accumulated deficit | (434,950 | ) | (415,235 | ) | ||||
Total Stockholders’ Equity | $ | 601,918 | $ | 677,967 | ||||
Total Liabilities and Stockholders’ Equity | $ | 5,293,564 | $ | 5,765,541 |
____________________ | ||
(1) | The consolidated balance sheets include assets of consolidated variable interest entities (“VIEs”) that can only be used to settle obligations and liabilities of the VIEs for which creditors do not have recourse to the Company. At September 30, 2018 and December 31, 2017, total assets of the consolidated VIEs were $564 million and $641 million, respectively (including accrued interest receivable of $1.9 million and $2.1 million, respectively) (which is recorded above in the line item entitled “Interest and dividends receivable”), and total liabilities were $555 million and $632 million, respectively (including accrued interest payable of $1.8 million and $2.0 million, respectively) (which is recorded above in the line item entitled “Accrued interest payable”). |
ANWORTH MORTGAGE ASSET CORPORATION AND SUBSIDIARIES | ||||||||||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||
(in thousands, except for per share amounts) |
||||||||||||||||
(unaudited) |
||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Interest and other income: | ||||||||||||||||
Interest-Agency MBS | $ | 23,578 | $ | 19,892 | $ | 72,449 | $ | 52,765 | ||||||||
Interest-Non-Agency MBS | 10,377 | 9,352 | 30,287 | 28,659 | ||||||||||||
Interest-residential mortgage loans | 5,750 | 6,795 | 17,944 | 21,205 | ||||||||||||
Other interest income | 20 | 25 | 92 | 83 | ||||||||||||
39,725 | 36,064 | 120,772 | 102,712 | |||||||||||||
Interest expense: | ||||||||||||||||
Interest expense on repurchase agreements | 24,027 | 15,242 | 65,149 | 37,073 | ||||||||||||
Interest expense on asset-backed securities | 5,581 | 6,626 | 17,449 | 20,593 | ||||||||||||
Interest expense on junior subordinated notes | 519 | 417 | 1,470 | 1,203 | ||||||||||||
30,127 | 22,285 | 84,068 | 58,869 | |||||||||||||
Net interest income | 9,598 | 13,779 | 36,704 | 43,843 | ||||||||||||
Operating expenses: | ||||||||||||||||
Management fee to related party | (1,636 | ) | (1,936 | ) | (5,039 | ) | (5,634 | ) | ||||||||
Rental properties depreciation and expenses | (366 | ) | (340 | ) | (1,158 | ) | (1,013 | ) | ||||||||
General and administrative expenses | (1,197 | ) | (1,098 | ) | (3,631 | ) | (3,221 | ) | ||||||||
Total operating expenses | (3,199 | ) | (3,374 | ) | (9,828 | ) | (9,868 | ) | ||||||||
Other income: | ||||||||||||||||
Income-rental properties | 436 | 397 | 1,333 | 1,297 | ||||||||||||
Realized net gain (loss) on sales of available-for-sale MBS | 799 | (2,276 | ) | (11,188 | ) | (2,168 | ) | |||||||||
Realized loss on sales of Agency MBS held as trading investments | (231 | ) | - | (7,558 | ) | - | ||||||||||
Impairment charge on Non-Agency MBS | (141 | ) | (762 | ) | (1,898 | ) | (2,399 | ) | ||||||||
Unrealized (loss) gain on Agency MBS held as trading investments | (3,017 | ) | 5,849 | (14,584 | ) | 10,071 | ||||||||||
Gain on sales of residential mortgage loans held-for-investment | - | - | - | 378 | ||||||||||||
Gain on sale of residential properties | 30 | - | 30 | - | ||||||||||||
Gain (loss) on derivatives, net | 13,090 | (945 | ) | 36,433 | (2,989 | ) | ||||||||||
Recovery on Non-Agency MBS | - | 1 | 1 | 2 | ||||||||||||
Total other income | 10,966 | 2,264 | 2,569 | 4,192 | ||||||||||||
Net income | $ | 17,365 | $ | 12,669 | $ | 29,445 | $ | 38,167 | ||||||||
Dividends on preferred stock | (2,297 | ) | (2,115 | ) | (6,892 | ) | (5,895 | ) | ||||||||
Net income to common stockholders | $ | 15,068 | $ | 10,554 | $ | 22,553 | $ | 32,272 | ||||||||
Basic earnings per common share | $ | 0.15 | $ | 0.11 | $ | 0.23 | $ | 0.34 | ||||||||
Diluted earnings per common share | $ | 0.15 | $ | 0.11 | $ | 0.23 | $ | 0.33 | ||||||||
Basic weighted average number of shares outstanding | 98,353 | 97,547 | 98,270 | 96,323 | ||||||||||||
Diluted weighted average number of shares outstanding | 102,331 | 100,702 | 102,199 | 99,998 |
ANWORTH MORTGAGE ASSET CORPORATION AND SUBSIDIARIES | ||||||||||||||||
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | ||||||||||||||||
(in thousands, except for per share amounts) |
||||||||||||||||
(unaudited) |
||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Net income | $ | 17,365 | $ | 12,669 | $ | 29,445 | $ | 38,167 | ||||||||
Available-for-sale Agency MBS, fair value adjustment | (16,091 | ) | (6,352 | ) | (65,419 | ) | (8,763 | ) | ||||||||
Reclassification adjustment for (gain) loss on sales of Agency MBS included in net income |
(583 | ) | 2,341 | 11,362 | 2,233 | |||||||||||
Available-for-sale Non-Agency MBS, fair value adjustment | (5,788 | ) | 7,114 | (6,679 | ) | 25,447 | ||||||||||
Reclassification adjustment for gain on sales of Non-Agency MBS included in net income |
(217 | ) | (65 | ) | (175 | ) | (65 | ) | ||||||||
Amortization of unrealized gains on interest rate swaps remaining in other comprehensive income |
1,043 | 395 | 3,006 | 1,385 | ||||||||||||
Reclassification adjustment for interest (income) expense on interest rate swaps included in net income |
- | 183 | (212 | ) | 371 | |||||||||||
Other comprehensive (loss) income | (21,636 | ) | 3,616 | (58,117 | ) | 20,608 | ||||||||||
Comprehensive (loss) income | $ | (4,271 | ) | $ | 16,285 | $ | (28,672 | ) | $ | 58,775 |
Non-GAAP Financial Measures Related to Operating Results
In addition to the Company’s operating results presented in accordance with GAAP, the following tables include the following non-GAAP financial measures: core earnings (including per common share), total interest income, and average asset yield, including TBA dollar roll income, paydown expense on Agency MBS, and effective total interest expense and effective cost of funds. The first table below reconciles the Company’s “net income to common stockholders” for the three months ended September 30, 2018 to “core earnings” for the same period. Core earnings represents “net income to common stockholders” (which is the nearest comparable GAAP measure), adjusted for the items shown in the table below. The second table below reconciles the Company’s total interest and other income for the three months ended September 30, 2018 (which is the nearest comparable GAAP measure) to the total interest income and average asset yield, including TBA dollar roll income and paydown expense on Agency MBS, and shows the annualized amounts as a percentage of the Company’s average earning assets and also reconciles the Company’s total interest expense (which is the nearest comparable GAAP measure) to the effective total interest expense and effective cost of funds and shows the annualized amounts as a percentage of the Company’s average borrowings.
The Company’s management believes that:
These non-GAAP financial measures should not be used as a substitute for the Company’s operating results for the three months ended September 30, 2018. An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP.
Core Earnings
Three Months Ended | ||||||||
September 30, 2018 | ||||||||
Amount | Per Share | |||||||
(in thousands) | ||||||||
(unaudited) | ||||||||
Net income to common stockholders | $ | 15,068 | $ | 0.15 | ||||
Adjustments to derive core earnings: | ||||||||
Gain on sales of MBS | (568 | ) | - | |||||
Unrealized loss on Agency MBS held as trading investments | 3,017 | 0.03 | ||||||
Impairment charge on Non-Agency MBS(1) | 141 | - | ||||||
Gain on interest rate swaps, net | (15,910 | ) | (0.16 | ) | ||||
Loss on derivatives-TBA Agency MBS, net | 2,820 | 0.03 | ||||||
Net settlement on interest rate swaps after de-designation(2) | 3,055 | 0.03 | ||||||
Dollar roll income on TBA Agency MBS(3) | 2,436 | 0.02 | ||||||
Premium amortization on Agency MBS | 7,489 | 0.08 | ||||||
Paydown expense(4) | (5,998 | ) | (0.06 | ) | ||||
Gain on sale of residential rental properties | (30 | ) | - | |||||
Depreciation expense on residential rental properties(5) | 119 | - | ||||||
Core earnings | $ | 11,639 | $ | 0.12 | ||||
Basic weighted average number of shares outstanding | 98,353 |
____________________ | ||
(1) | Impairment charge on Non-Agency MBS represents the amount applied against current GAAP earnings when future loss expectations exceed previously existing loss expectations. When future loss expectations become less than previously existing loss expectations, the difference would be amortized into earnings over the life of the security. | |
(2) | Net settlements on interest rate swaps after de-designation include all subsequent net payments made or received on interest rate swaps which were de-designated as hedges in August 2014 and also on any new interest rate swaps entered into after that date. These amounts are recorded in “Gain on interest rate swaps, net.” | |
(3) | Dollar roll income on TBA Agency MBS is the income resulting from the price discount typically obtained by extending the settlement of TBA Agency MBS to a later date. This is a component of the “Gain on derivatives, net” that is shown on the Company’s statements of operations. | |
(4) | Paydown expense on Agency MBS represents the proportional expense of Agency MBS purchase premiums relative to the Agency MBS principal payments and prepayments which occurred during the three-month period. | |
(5) | Depreciation expense is added back in the core earnings calculation, as it is a non-cash item, and it is similarly added back in other companies’ calculation of core earnings or funds from operations. |
Effective Net Interest Rate Spread
Three Months Ended | ||||||
September 30, 2018 | ||||||
(unaudited) | ||||||
Amount |
Annualized Percentage |
|||||
(in thousands) | ||||||
Average Asset Yield, Including TBA Dollar Roll Income: | ||||||
Total interest income | $ | 39,725 | 3.14% | |||
Income-rental properties | 436 | 0.03% | ||||
Dollar roll income on TBA Agency MBS(1) | 2,436 | 0.19% | ||||
Premium amortization on Agency MBS | 7,489 | 0.59% | ||||
Paydown expense on Agency MBS(2) | (5,998 | ) | -0.47% | |||
Total interest and other income and average asset yield, including TBA dollar roll income | $ | 44,088 | 3.48% | |||
Effective Cost of Funds: | ||||||
Total interest expense | $ | 30,127 | 2.60% | |||
Periodic net settlement on interest rate Swaps after de-designation(3) | (3,055 | ) | -0.26% | |||
Effective total interest expense and effective cost of funds | $ | 27,072 | 2.34% | |||
Effective net interest rate spread | 1.14% | |||||
Average earning assets | $ | 5,062,438 | ||||
Average borrowings | $ | 4,641,228 |
____________________ | ||
(1) | Dollar roll income on TBA Agency MBS is the income resulting from the price discount typically obtained by extending the settlement of TBA Agency MBS to a later date. This is a component of the “Gain on derivatives, net” that is shown on the Company’s statements of operations. | |
(2) | Paydown expense on Agency MBS represents the proportional expense of Agency MBS purchase premiums relative to the Agency MBS principal payments and prepayments which occurred during the three-month period. | |
(3) | Net settlements on interest rate swaps after de-designation include all subsequent net payments made or received on interest rate swaps which were de-designated as hedges in August 2014 and also on any new interest rate swaps entered into after that date. These amounts are recorded in “Gain on interest rate swaps, net.” |
CONTACT:
Anworth Mortgage Asset Corporation
John T. Hillman
1299
Ocean Avenue, Second Floor
Santa Monica, CA 90401
(310) 255-4438
or (310) 255-4493
Email: jhillman@anworth.com
Web site: http://www.anworth.com