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Anworth Reports Second Quarter Financial Results

SANTA MONICA, Calif.--(BUSINESS WIRE)--

Anworth Mortgage Asset Corporation (ANH) (the “Company” or “Anworth”) today reported its financial results for the second quarter ended June 30, 2019.

Earnings

The following table summarizes the Company’s core earnings, GAAP net loss to common stockholders, and comprehensive loss for the three months ended June 30, 2019:

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

June 30, 2019

 

 

(unaudited)

 

 

 

 

Per

 

 

 

 

Weighted

 

 

Earnings

 

Share

 

 

(in thousands)

 

 

 

Core earnings

 

$

9,918

 

$

0.10

GAAP net loss to common stockholders

 

$

(49,997)

 

$

(0.51)

Comprehensive loss

 

$

(8,740)

 

$

(0.09)

Core earnings is a non-GAAP financial measure, which is explained and reconciled to GAAP net loss to common stockholders in the section entitled “Non-GAAP Financial Measures Related to Operating Results” near the end of this earnings release. Comprehensive loss is shown on our consolidated statements of comprehensive income, which is included in this earnings release. Comprehensive loss consists of the net loss to all stockholders (including the amounts paid to preferred stockholders) and the change in other comprehensive income.

Portfolio

At June 30, 2019 and March 31, 2019, the composition of our portfolio at fair value was as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2019

 

 

March 31, 2019

 

 

 

Dollar Amount

 

Percentage

 

 

Dollar Amount

 

Percentage

 

 

 

(in thousands)

 

 

 

(unaudited)

 

Agency MBS:

 

 

 

 

 

 

 

 

 

 

 

 

ARMS and hybrid ARMs

 

$

1,161,124

 

22.9

%

 

$

1,424,495

 

24.2

%

Fixed-rate Agency MBS

 

 

1,785,197

 

35.3

 

 

 

2,320,596

 

39.3

 

TBA Agency MBS

 

 

746,955

 

14.8

 

 

 

721,391

 

12.0

 

Total Agency MBS

 

$

3,693,276

 

73.0

%

 

$

4,466,482

 

75.5

%

Non-Agency MBS

 

 

718,109

 

14.2

 

 

 

768,597

 

13.0

 

Residential mortgage loans(1)

 

 

514,749

 

10.1

 

 

 

535,077

 

9.1

 

Residential mortgage loans held-for-securitization

 

 

121,715

 

2.4

 

 

 

129,583

 

2.2

 

Residential real estate

 

 

13,658

 

0.3

 

 

 

13,752

 

0.2

 

Total Portfolio

 

$

5,061,507

 

100.0

%

 

$

5,913,491

 

100.0

%

Total Assets(2)

 

$

5,227,638

 

 

 

 

$

6,063,120

 

 

 

____________________

(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 us.

(2)

Includes TBA Agency MBS.

Agency MBS

At June 30, 2019, the allocation of our agency mortgage-backed securities (“Agency MBS”) was approximately 31% adjustable-rate and hybrid adjustable-rate Agency MBS, 49% fixed-rate Agency MBS, and 20% fixed-rate TBA Agency MBS. At March 31, 2019, the allocation of our Agency MBS was approximately 32% adjustable-rate and hybrid adjustable-rate Agency MBS, 52% fixed-rate Agency MBS, and 16% fixed-rate TBA Agency MBS, both periods of which are detailed below:

 

 

 

 

 

 

 

 

 

 

June 30,

March 31,

 

 

2019

2019

 

 

(dollar amounts in thousands)

 

 

(unaudited)

Fair value of Agency MBS and TBA Agency MBS

 

$

3,693,276

 

$

4,466,482

 

Adjustable-rate Agency MBS coupon reset (less than 1 year)

 

 

18

%

 

20

%

Hybrid adjustable-rate Agency MBS coupon reset (1-3 years)

 

 

3

 

 

3

 

Hybrid adjustable-rate Agency MBS coupon reset (3-5 years)

 

 

7

 

 

6

 

Hybrid adjustable-rate Agency MBS coupon reset (greater than 5 years)

 

 

3

 

 

3

 

Total adjustable-rate Agency MBS

 

 

31

%

 

32

%

15-year fixed-rate Agency MBS

 

 

2

 

 

8

 

15-year fixed-rate TBA Agency MBS

 

 

1

 

 

 

20-year fixed-rate Agency MBS

 

 

6

 

 

8

 

30-year fixed-rate Agency MBS

 

 

41

 

 

36

 

30-year fixed-rate TBA Agency MBS

 

 

19

 

 

16

 

Total MBS

 

 

100

%

 

100

%

At June 30, 2019 and March 31, 2019, the summary statistics of our Agency MBS portfolio were as follows:

 

 

 

 

 

 

 

 

 

 

June 30,

March 31,

 

 

2019

2019

 

 

(unaudited)

Weighted Average Agency MBS Coupon:

 

 

 

 

 

 

 

Adjustable-rate Agency MBS

 

 

4.20

%

 

4.34

%

Hybrid adjustable-rate Agency MBS

 

 

2.53

 

 

2.52

 

15-year fixed-rate Agency MBS

 

 

3.50

 

 

3.13

 

15-year fixed-rate TBA Agency MBS

 

 

3.50

 

 

 

20-year fixed-rate Agency MBS

 

 

3.56

 

 

3.70

 

30-year fixed-rate Agency MBS

 

 

4.02

 

 

4.05

 

30-year fixed-rate TBA Agency MBS

 

 

3.64

 

 

4.32

 

Total Agency MBS:

 

 

3.71

%

 

3.84

%

Average Amortized Cost:

 

 

 

 

 

 

 

Adjustable-rate Agency MBS

 

 

102.38

%

 

102.67

%

Hybrid adjustable-rate Agency MBS

 

 

102.40

 

 

102.53

 

15-year fixed-rate Agency MBS

 

 

101.88

 

 

102.06

 

15-year fixed-rate TBA Agency MBS

 

 

103.06

 

 

 

20-year fixed-rate Agency MBS

 

 

104.21

 

 

104.02

 

30-year fixed-rate Agency MBS

 

 

102.64

 

 

102.73

 

30-year fixed-rate TBA Agency MBS

 

 

102.29

 

 

103.06

 

Total Agency MBS:

 

 

102.57

%

 

102.79

%

Average asset yield (weighted average coupon divided by average amortized cost)

 

 

3.62

%

 

3.74

%

Unamortized premium

 

$

74.6

million

$

99.7

million

Unamortized premium as a percentage of par value

 

 

2.57

%

 

2.79

%

Premium amortization expense on Agency MBS for the respective quarter

 

$

7.5

million

$

5.9

million

At June 30, 2019 and March 31, 2019, the constant prepayment rate (“CPR”) and weighted average term to next interest rate reset of our Agency MBS were as follows:

 

 

 

 

 

 

 

 

June 30,

 

March 31,

 

 

 

2019

 

2019

 

 

 

(unaudited)

 

Constant prepayment rate (CPR) of Agency MBS

 

18

%

13

%

Constant prepayment rate (CPR) of adjustable-rate and hybrid adjustable-rate Agency MBS

 

24

%

19

%

Weighted average term to next interest rate reset on Agency MBS

 

26

months

24

months

Non-Agency MBS

The following tables summarize our Non-Agency MBS at June 30, 2019 and March 31, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average

 

 

 

Fair

 

Amortized

 

Current

 

Amortized

 

 

 

 

 

Portfolio Type

 

Value

 

Cost

 

Principal

 

Cost

 

Coupon

 

Yield

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

(unaudited)

 

Legacy Non-Agency MBS (pre-2008)

 

$

538,028

 

$

518,519

 

$

698,138

 

74.27

%

5.59

%

5.45

%

Non-performing

 

 

41,967

 

 

41,771

 

 

41,960

 

99.55

 

5.37

 

5.81

 

Credit Risk Transfer

 

 

138,114

 

 

130,520

 

 

141,839

 

92.02

 

4.29

 

5.78

 

Total Non-Agency MBS

 

$

718,109

 

$

690,810

 

$

881,937

 

78.40

%

5.37

%

5.53

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average

 

 

 

Fair

 

Amortized

 

Current

 

Amortized

 

 

 

 

 

Portfolio Type

 

Value

 

Cost

 

Principal

 

Cost

 

Coupon

 

Yield

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

(unaudited)

 

Legacy Non-Agency MBS (pre-2008)

 

$

551,428

 

$

537,652

 

$

719,254

 

74.75

%

5.59

%

5.56

%

Non-performing

 

 

82,884

 

 

83,007

 

 

83,260

 

99.70

 

5.19

 

5.49

 

Credit Risk Transfer

 

 

134,285

 

 

130,210

 

 

141,839

 

91.80

 

4.30

 

5.81

 

Total Non-Agency MBS

 

$

768,597

 

$

750,869

 

$

944,353

 

79.51

%

5.35

%

5.60

%

Residential Mortgage Loans Held-for-Investment

The following table summarizes our residential mortgage loans held-for-investment at June 30, 2019 and March 31, 2019:

 

 

 

 

 

 

 

 

 

June 30,

 

March 31,

 

 

2019

 

2019

 

 

(in thousands)

 

 

(unaudited)

Residential mortgage loans held-for-investment

 

$

514,749

 

$

535,077

Asset-backed securities issued by securitization trusts

 

 

505,385

 

 

525,712

Retained interest in loans held in securitization trusts

 

$

9,364

 

$

9,365

Residential Mortgage Loans Held-for-Securitization

The following table summarizes our residential mortgage loans held-for-securitization at June 30, 2019 and March 31, 2019:

 

 

 

 

 

 

 

 

 

June 30,

 

March 31,

 

 

2019

 

2019

 

 

(in thousands)

 

 

(unaudited)

Residential mortgage loans held-for-securitization

 

$

121,715

 

$

129,583

Amount outstanding on warehouse line of credit

 

$

92,511

 

$

15,442

Payable for purchased loans

 

$

16,098

 

$

112,316

Residential Properties Portfolio

At June 30, 2019 and March 31, 2019, Anworth Properties Inc. owned 86 and 86 single-family residential rental properties, respectively, located in Southeastern Florida that were carried at a total cost, net of accumulated depreciation, of $13.7 million and $13.8 million, respectively.

MBS Portfolio Financing

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2019

 

 

 

Agency

 

Non-Agency

 

Total

 

 

 

MBS

 

MBS

 

MBS

 

 

 

(dollar amounts in thousands)

 

 

 

(unaudited)

 

Repurchase Agreements:

 

 

 

 

 

 

 

 

 

 

Outstanding repurchase agreement balance

 

$

2,645,000

 

$

510,843

 

$

3,155,843

 

Average interest rate

 

 

2.61

%

 

3.50

%

 

2.76

%

Average maturity

 

 

27

days

 

18

days

 

26

days

Average interest rate after adjusting for interest rate swaps

 

 

 

 

 

 

 

 

2.38

%

Average maturity after adjusting for interest rate swaps

 

 

 

 

 

 

 

 

1,198

days

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2019

 

 

 

Agency

 

Non-Agency

 

Total

 

 

 

MBS

 

MBS

 

MBS

 

 

 

(dollar amounts in thousands)

 

 

 

(unaudited)

 

Repurchase Agreements:

 

 

 

 

 

 

 

 

 

 

Outstanding repurchase agreement balance

 

$

3,215,000

 

$

545,634

 

$

3,760,634

 

Average interest rate

 

 

2.68

%

 

3.60

%

 

2.81

%

Average maturity

 

 

33

days

 

18

days

 

31

days

Average interest rate after adjusting for interest rate swaps

 

 

 

 

 

 

 

 

2.32

%

Average maturity after adjusting for interest rate swaps

 

 

 

 

 

 

 

 

1,222

days

Portfolio Leverage

At June 30, 2019, our leverage multiple was 5.39x. The leverage multiple is calculated by dividing our repurchase agreements and credit line outstanding by the aggregate of common stockholders’ equity plus preferred stock and junior subordinated notes. The effective leverage, which includes the effect of TBA dollar roll financing, was 6.63x at June 30, 2019. At March 31, 2019, our leverage multiple was 6.05x and the effective leverage was 7.18x.

Interest Rate Swaps

At June 30, 2019 and March 31, 2019, our interest rate swap agreements (“Swaps”) had the following notional amounts, weighted average fixed rates, and remaining terms:

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2019

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

Average

 

Remaining

 

Remaining

 

 

Notional

 

Fixed

 

Term in

 

Term in

Maturity

 

Amount

 

Rate

 

Months

 

Years

 

 

(in thousands)

 

 

 

 

 

 

 

 

(unaudited)

Less than 12 months

 

$

766,000

 

1.62

%

4

 

0.3

1 year to 2 years

 

 

450,000

 

1.67

 

16

 

1.3

2 years to 3 years

 

 

275,000

 

1.85

 

27

 

2.2

3 years to 4 years

 

 

170,000

 

1.83

 

39

 

3.3

4 years to 5 years

 

 

330,000

 

2.38

 

53

 

4.4

5 years to 7 years

 

 

400,000

 

2.47

 

72

 

6.0

7 years to 10 years

 

 

565,000

 

2.84

 

101

 

8.4

 

 

$

2,956,000

 

2.09

%

43

 

3.6

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2019

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

Average

 

Remaining

 

Remaining

 

 

Notional

 

Fixed

 

Term in

 

Term in

Maturity

 

Amount

 

Rate

 

Months

 

Years

 

 

(in thousands)

 

 

 

 

 

 

 

 

(unaudited)

Less than 12 months

 

$

650,000

 

1.61

%

6

 

0.5

1 year to 2 years

 

 

666,000

 

1.76

 

18

 

1.5

2 years to 3 years

 

 

300,000

 

1.87

 

30

 

2.5

3 years to 4 years

 

 

270,000

 

2.09

 

44

 

3.7

4 years to 5 years

 

 

355,000

 

2.39

 

57

 

4.7

5 years to 7 years

 

 

525,000

 

2.48

 

75

 

6.3

7 years to 10 years

 

 

590,000

 

2.82

 

104

 

8.7

 

 

$

3,356,000

 

2.13

%

47

 

3.9

Effective Net Interest Rate Spread

 

 

 

 

 

 

 

 

June 30,

March 31,

 

 

2019

2019

 

 

(unaudited)

Average asset yield, including TBA dollar roll income

 

3.66

%

3.66

%

Effective cost of funds

 

2.70

 

2.52

 

Effective net interest rate spread

 

0.96

%

1.14

%

Certain components of our 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 June 13, 2019, we declared a quarterly common stock dividend of $0.11 per share for the second quarter ended June 30, 2019. Based upon the closing price of $3.79 on June 28, 2019, the annualized dividend yield on our common stock at June 30, 2019 was 11.6%.

Book Value per Common Share

At June 30, 2019, our book value was $4.53 per share of common stock, which was a decrease of $0.23 from $4.76 in the prior quarter.

The $0.11 quarterly dividend, less the $0.23 decrease in book value per common share from the prior quarter, resulted in a negative return on book value per common share of (2.5)% for the three months ended June 30, 2019. The return on book value per common share for the six months ended June 30, 2019 was 1.2%.

Subsequent Events

On July 1, 2019, the conversion rate of our Series B Preferred Stock increased from 5.3539 to 5.4397 shares of our common stock based upon the common stock dividend of $0.11 per share that was declared on June 13, 2019.

Conference Call

The Company will host a conference call on Monday, August 5, 2019 at 1:00 PM Eastern Time, 10:00 AM Pacific Time, to discuss our second quarter 2019 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 August 5, 2019. 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 10133736. The conference call will also be webcast live over the Internet, which can be accessed on our website at http://www.anworth.com through the corresponding link located at the top of the home page.

Investors interested in participating in our Dividend Reinvestment and Stock Purchase Plan (our “DRP Plan”), or receiving a copy of the DRP Plan’s prospectus, may do so by contacting our Plan Administrator, American Stock Transfer & Trust Company, at 877-248-6410. For more information about our Plan, interested investors may also visit our Plan Administrator’s website at http://www.amstock.com/investpower/new_dp.asp or our website at http://www.anworth.com.

About Anworth Mortgage Asset Corporation

We are an externally-managed mortgage real estate investment trust (“REIT”). 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 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 portfolio management, administrative, and other services 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 Mortgage Asset Corporation 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)

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

 

2019

 

2018

 

 

 

 

 

(audited)

ASSETS

 

 

 

 

 

 

Agency MBS at fair value (including $2,809,288 and $3,433,252 pledged to counterparties at June 30, 2019 and December 31, 2018, respectively)

 

$

 

2,946,321

 

 

$

 

3,548,719

 

Non-Agency MBS at fair value (including $643,686 and $726,428 pledged to counterparties at June 30, 2019 and December 31, 2018, respectively)

 

 

718,109

 

 

 

795,203

 

Residential mortgage loans held-for-securitization

 

 

121,715

 

 

 

11,660

 

Residential mortgage loans held-for-investment through consolidated securitization trusts(1)

 

 

514,749

 

 

 

549,016

 

Residential real estate

 

 

13,658

 

 

 

13,782

 

Cash and cash equivalents

 

 

17,028

 

 

 

3,165

 

Reverse repurchase agreements

 

 

 

 

20,000

 

Restricted cash

 

 

122,403

 

 

 

30,296

 

Interest and dividends receivable

 

 

17,330

 

 

 

16,872

 

Derivative instruments at fair value

 

 

5,003

 

 

 

46,207

 

Right to use asset-operating lease

 

 

1,525

 

 

 

1,794

 

Prepaid expenses and other assets

 

 

2,842

 

 

 

2,986

 

Total Assets

 

$

 

4,480,683

 

 

$

 

5,039,700

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

Accrued interest payable

 

$

 

21,246

 

 

$

 

24,828

 

Repurchase agreements

 

 

3,155,843

 

 

 

3,811,627

 

Warehouse line of credit

 

 

92,511

 

 

 

Asset-backed securities issued by securitization trusts(1)

 

 

505,385

 

 

 

539,651

 

Junior subordinated notes

 

 

37,380

 

 

 

37,380

 

Derivative instruments at fair value

 

 

68,695

 

 

 

15,901

 

Derivative counterparty margin

 

 

604

 

 

 

Dividends payable on preferred stock

 

 

2,297

 

 

 

2,297

 

Dividends payable on common stock

 

 

10,855

 

 

 

12,803

 

Payable for purchased loans

 

 

16,098

 

 

 

11,660

 

Accrued expenses and other liabilities

 

 

3,177

 

 

 

654

 

Long-term lease obligation

 

 

1,525

 

 

 

1,794

 

Total Liabilities

 

$

 

3,915,616

 

 

$

 

4,458,595

 

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 June 30, 2019 and December 31, 2018, 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 June 30, 2019 and December 31, 2018, 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 $50,257, respectively); 2,010 and 2,010 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively)

 

 

48,626

 

 

 

48,944

 

Common Stock: par value $0.01 per share; authorized 200,000 shares, 98,683 and 98,483 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively)

 

 

987

 

 

 

985

 

Additional paid-in capital

 

 

982,770

 

 

 

981,964

 

Accumulated other comprehensive (loss) income consisting of unrealized gains and losses

 

 

48,614

 

 

 

(30,792

)

Accumulated deficit

 

 

(581,922

)

 

 

(485,988

)

Total Stockholders' Equity

 

$

 

545,612

 

 

$

 

561,650

 

Total Liabilities and Stockholders' Equity

 

$

 

4,480,683

 

 

$

 

5,039,700

 

____________________

(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 June 30, 2019 and December 31, 2018, total assets of the consolidated VIEs were $516 million and $551 million (including accrued interest receivable of $1.7 million and $1.8 million), respectively (which is recorded above in the line item “Interest receivable”), and total liabilities were $507 million and $541 million (including accrued interest payable of $1.7 million and $1.7 million), respectively (which is recorded above in the line item “Accrued interest payable”).

ANWORTH MORTGAGE ASSET CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except for per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30,

 

June 30,

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

(unaudited)

Interest and other income:

 

 

 

 

 

 

 

 

 

 

 

 

Interest-Agency MBS

 

$

 

24,137

 

 

$

 

24,814

 

 

$

 

49,848

 

 

$

 

48,871

 

Interest-Non-Agency MBS

 

 

9,659

 

 

 

9,902

 

 

 

20,125

 

 

 

19,910

 

Interest-residential securitized mortgage loans

 

 

5,259

 

 

 

5,955

 

 

 

10,627

 

 

 

12,194

 

Interest-residential mortgage loans held-for-securitization

 

 

1,036

 

 

 

 

 

1,122

 

 

 

Other interest income

 

 

20

 

 

 

44

 

 

 

39

 

 

 

72

 

 

 

 

40,111

 

 

 

40,715

 

 

 

81,761

 

 

 

81,047

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense on repurchase agreements

 

 

25,979

 

 

 

22,028

 

 

 

53,116

 

 

 

41,122

 

Interest expense on asset-backed securities

 

 

5,091

 

 

 

5,797

 

 

 

10,291

 

 

 

11,867

 

Interest expense on warehouse line of credit

 

 

1,057

 

 

 

 

 

1,290

 

 

 

Interest expense on junior subordinated notes

 

 

542

 

 

 

504

 

 

 

1,088

 

 

 

951

 

 

 

 

32,669

 

 

 

28,329

 

 

 

65,785

 

 

 

53,940

 

Net interest income

 

 

7,442

 

 

 

12,386

 

 

 

15,976

 

 

 

27,107

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Management fee to related party

 

 

(1,713

)

 

 

(1,666

)

 

 

(3,438

)

 

 

(3,403

)

Rental properties depreciation and expenses

 

 

(367

)

 

 

(405

)

 

 

(723

)

 

 

(792

)

General and administrative expenses

 

 

(1,033

)

 

 

(1,324

)

 

 

(2,001

)

 

 

(2,434

)

Total operating expenses

 

 

(3,113

)

 

 

(3,395

)

 

 

(6,162

)

 

 

(6,629

)

Other income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Income-rental properties

 

 

453

 

 

 

445

 

 

 

890

 

 

 

897

 

Realized net gain (loss) on sales of available-for-sale MBS

 

 

444

 

 

 

 

 

(5,703

)

 

 

(11,987

)

Realized gain (loss) on sales of Agency MBS held as trading investments

 

 

234

 

 

 

 

 

(7,128

)

 

 

(7,327

)

Impairment charge on Non-Agency MBS

 

 

(606

)

 

 

(1,757

)

 

 

(606

)

 

 

(1,757

)

Unrealized gain (loss) on Agency MBS held as trading investments

 

 

989

 

 

 

(2,677

)

 

 

15,895

 

 

 

(11,567

)

(Loss) gain on derivatives, net

 

 

(53,543

)

 

 

9,930

 

 

 

(80,832

)

 

 

23,342

 

Recovery on Non-Agency MBS

 

 

 

 

1

 

 

 

 

 

1

 

Total other income (loss)

 

 

(52,029

)

 

 

5,942

 

 

 

(77,484

)

 

 

(8,398

)

Net (loss) income

 

$

 

(47,700

)

 

$

 

14,933

 

 

$

 

(67,670

)

 

$

 

12,080

 

Dividends on preferred stock

 

 

(2,297

)

 

 

(2,297

)

 

 

(4,595

)

 

 

(4,595

)

Net (loss) income to common stockholders

 

$

 

(49,997

)

 

$

 

12,636

 

 

$

 

(72,265

)

 

$

 

7,485

 

Basic (loss) income per common share

 

$

 

(0.51

)

 

$

 

0.13

 

 

$

 

(0.73

)

 

$

 

0.08

 

Diluted (loss) income per common share

 

$

 

(0.51

)

 

$

 

0.13

 

 

$

 

(0.73

)

 

$

 

0.08

 

Basic weighted average number of shares outstanding

 

 

98,635

 

 

 

98,271

 

 

 

98,586

 

 

 

98,228

 

Diluted weighted average number of shares outstanding

 

 

98,635

 

 

 

102,205

 

 

 

98,586

 

 

 

102,132

 

ANWORTH MORTGAGE ASSET CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands, except for per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30,

 

June 30,

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

(unaudited)

Net (loss) income

 

$

 

(47,700

)

 

$

 

14,933

 

 

$

 

(67,670

)

 

$

 

12,080

 

Available-for-sale Agency MBS, fair value adjustment

 

 

28,822

 

 

 

(13,847

)

 

 

53,953

 

 

 

(49,328

)

Reclassification adjustment for loss on sales of Agency MBS included in net (loss) income

 

 

(444

)

 

 

 

 

5,703

 

 

 

11,945

 

Available-for-sale Non-Agency MBS, fair value adjustment

 

 

9,571

 

 

 

(1,558

)

 

 

17,758

 

 

 

(891

)

Reclassification adjustment for (gain) loss on sales of Non-Agency MBS included in net (loss) income

 

 

 

 

 

 

(22

)

 

 

42

 

Amortization of unrealized gains on interest rate swaps remaining in other comprehensive (loss) income

 

 

1,011

 

 

 

1,023

 

 

 

2,014

 

 

 

1,963

 

Reclassification adjustment for interest (income) on interest rate swaps included in net (loss) income

 

 

 

 

(18

)

 

 

 

 

(212

)

Other comprehensive income (loss)

 

 

38,960

 

 

 

(14,400

)

 

 

79,406

 

 

 

(36,481

)

Comprehensive (loss) income

 

$

 

(8,740

)

 

$

 

533

 

 

$

 

11,736

 

 

$

 

(24,401

)

Non-GAAP Financial Measures Related to Operating Results

In addition to our 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 our “Net loss to common stockholders” for the three months ended June 30, 2019 to core earnings for the same period. Core earnings represents “Net loss to common stockholders” (which is the nearest comparable GAAP measure), adjusted for the items shown in the table below. The second table below reconciles our total interest and other income for the three months ended June 30, 2019 (which is the nearest comparable GAAP measure) to our total interest income and average asset yield, including TBA dollar roll income, and shows the annualized amounts as a percentage of our average earning assets and also reconciles our total interest expense (which is the nearest comparable GAAP measure) to our effective total interest expense and effective cost of funds and shows the annualized amounts as a percentage of our average borrowings.

The Company’s management believes that:

  • these non-GAAP financial measures are useful because they provide investors with greater transparency to the information that we use in our financial and operational decision-making process;
  • the inclusion of paydown expense on Agency MBS is more indicative of the current earnings potential of our investment portfolio, as it reflects the actual principal paydowns which occurred during the period. Paydown expense on Agency MBS is not dependent on future assumptions on prepayments, or the cumulative effect from prior periods of any current changes to those assumptions, as is the case with the GAAP measure, “Premium amortization on Agency MBS”;
  • the adjustment for depreciation expense on residential rental properties, as this is a non-cash item and is added back by other companies to derive funds from operations; and
  • the presentation of these measures, when analyzed in conjunction with our GAAP operating results, allows investors to more effectively evaluate our performance to that of our peers, particularly those that have discontinued hedge accounting and those that have used similar portfolio and derivative strategies.

These non-GAAP financial measures should not be used as a substitute for our operating results for the three months ended June 30, 2019. 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

 

 

June 30, 2019

 

 

Amount

 

Per Share

 

 

(in thousands)

 

 

 

 

 

(unaudited)

Net (loss) to common stockholders

 

$

 

(49,997

)

 

$

 

(0.51

)

Adjustments to derive core earnings:

 

 

 

 

 

 

(Gain) on sales of MBS

 

 

(678

)

 

 

(0.01

)

Impairment charge on Non-Agency MBS(1)

 

 

606

 

 

 

0.01

 

Unrealized (gain) on Agency MBS held as trading investments

 

 

(989

)

 

 

(0.01

)

Unrealized loss on interest rate swaps, net

 

 

57,709

 

 

 

0.59

 

(Gain) on derivatives-TBA Agency MBS, net

 

 

(4,166

)

 

 

(0.04

)

Net settlement on interest rate swaps after de-designation(2)

 

 

4,395

 

 

 

0.04

 

Dollar roll income on TBA Agency MBS(3)

 

 

1,311

 

 

 

0.01

 

Premium amortization on MBS

 

 

7,548

 

 

 

0.08

 

Paydown expense(4)

 

 

(5,940

)

 

 

(0.06

)

Depreciation expense on residential rental properties(5)

 

 

119

 

 

 

Core earnings

 

$

 

9,918

 

 

$

 

0.10

 

Basic weighted average number of shares outstanding

 

 

98,635

 

 

 

 

____________________

(1)

Impairment charge on Non-Agency MBS represents the amount applied against current GAAP earnings when future loss expectations exceed previously existing 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 settlement on interest rate swaps after de-designation includes all subsequent net payments made 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 “Unrealized loss 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 “Loss on derivatives, net” that is included in our consolidated 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 quarter.

(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

 

 

June 30, 2019

 

 

 

 

Annualized

 

 

Amount

 

Percentage

 

 

(in thousands)

 

 

 

 

(unaudited)

Average Asset Yield, Including TBA Dollar Roll Income:

 

 

 

 

 

Total interest income

 

$

 

40,111

 

 

3.37

%

Income-rental properties

 

 

453

 

 

0.04

 

Dollar roll income on TBA Agency MBS(1)

 

 

1,311

 

 

0.11

 

Premium amortization on Agency MBS

 

 

7,548

 

 

0.64

 

Paydown expense on Agency MBS(2)

 

 

(5,940

)

 

(0.50

)

Total interest and other income and average asset yield, including TBA dollar roll income

 

$

 

43,483

 

 

3.66

%

Effective Cost of Funds:

 

 

 

 

 

Total interest expense

 

$

 

32,669

 

 

3.12

%

Net settlement on interest rate Swaps after de-designation(3)

 

 

(4,395

)

 

(0.42

)

Effective total interest expense and effective cost of funds

 

$

 

28,274

 

 

2.70

%

Effective net interest rate spread

 

 

 

 

0.96

%

Average earning assets

 

$

 

4,753,894

 

 

 

Average borrowings

 

$

 

4,182,731

 

 

 

____________________

(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 “(Loss) gain on derivatives, net” that is shown on our consolidated 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 settlement 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 “Unrealized loss on interest rate swaps, net.”

 

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