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Anworth Reports Third Quarter Financial Results

·10 min read

Anworth Mortgage Asset Corporation (NYSE: ANH) (the "Company" or "Anworth") today reported its financial results for the third quarter ended September 30, 2020.

Earnings

The following table summarizes the Company’s core earnings, GAAP net income to common stockholders, and comprehensive income for the three months ended September 30, 2020:

Three Months Ended

September 30, 2020

(unaudited)

Per

Weighted

Earnings

Share

(in thousands)

Core earnings

$

3,606

$

0.04

GAAP net income to common stockholders

$

19,572

$

0.20

Comprehensive income

$

26,221

$

0.26

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 is shown on our unaudited consolidated statements of comprehensive income, which is included in this earnings release. Comprehensive income consists of net income to all stockholders (including the amounts paid to preferred stockholders) and the change in other comprehensive income.

Portfolio

At September 30, 2020 and June 30, 2020, the composition of our portfolio at fair value was as follows:

September 30, 2020

June 30, 2020

Dollar Amount

Percentage

Dollar Amount

Percentage

(in thousands)

(unaudited)

Agency MBS:

ARMS and hybrid ARMs

$

575,163

19.2

%

$

652,321

23.4

%

Fixed-rate Agency MBS

1,034,598

34.6

1,175,456

42.1

TBA Agency MBS

727,472

24.3

259,502

9.3

Total Agency MBS

$

2,337,233

78.1

%

$

2,087,279

74.8

%

Non-Agency MBS

$

198,586

6.7

%

$

192,032

6.9

%

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

317,887

10.6

367,539

13.2

Residential mortgage loans held-for-securitization

123,247

4.2

131,110

4.7

Residential real estate

12,827

0.4

13,051

0.4

Total Portfolio

$

2,989,780

100.0

%

$

2,791,011

100.0

%

Total Assets(2)

$

3,164,635

$

2,972,790

______________________

(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 September 30, 2020, the allocation of our agency mortgage-backed securities ("Agency MBS") was approximately 25% adjustable-rate and hybrid adjustable-rate Agency MBS, 44% fixed-rate Agency MBS, and 31% fixed-rate TBA Agency MBS. At June 30, 2020, the allocation of our Agency MBS was approximately 31% adjustable-rate and hybrid adjustable-rate Agency MBS, 57% fixed-rate Agency MBS, and 12% fixed-rate TBA Agency MBS, both periods of which are detailed in the table below:

September 30,

June 30,

2020

2020

(dollar amounts in thousands)

(unaudited)

Fair value of Agency MBS and TBA Agency MBS

$

2,337,233

$

2,087,279

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

16

%

20

%

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

6

6

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

1

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

3

4

Total adjustable-rate Agency MBS

25

%

31

%

15-year fixed-rate Agency MBS

2

2

20-year fixed-rate Agency MBS

7

9

30-year fixed-rate Agency MBS

35

46

30-year fixed-rate TBA Agency MBS

31

12

Total MBS

100

%

100

%

At September 30, 2020 and June 30, 2020, the summary statistics of our Agency MBS and TBA Agency MBS were as follows:

September 30, 2020

Weighted Average

Fair Market

Coupon

Cost

Price

(unaudited)

Agency MBS:

Adjustable-rate Agency MBS

3.16

%

$

102.02

$

104.06

Hybrid adjustable-rate Agency MBS

2.74

101.51

104.19

15-year fixed-rate Agency MBS

3.50

101.51

106.10

20-year fixed-rate Agency MBS

3.56

103.35

108.84

30-year fixed-rate Agency MBS

4.00

102.23

108.02

Total Agency MBS:

3.58

%

$

102.18

$

106.98

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

3.51

%

Unamortized premium

$

32.8

million

Unamortized premium as a percentage of par value

2.18

%

Premium amortization expense on Agency MBS for the respective quarter

$

9.1

million

TBA Agency MBS:

30-year fixed-rate TBA Agency MBS

2.18

%

$

103.69

$

103.92

June 30, 2020

Weighted Average

Fair Market

Coupon

Cost

Price

(unaudited)

Agency MBS:

Adjustable-rate Agency MBS

3.47

%

$

102.16

$

103.91

Hybrid adjustable-rate Agency MBS

2.76

101.84

103.92

15-year fixed-rate Agency MBS

3.50

101.72

105.33

20-year fixed-rate Agency MBS

3.56

103.76

107.46

30-year fixed-rate Agency MBS

4.00

102.51

107.50

Total Agency MBS:

3.66

%

$

102.44

$

106.58

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

3.57

%

Unamortized premium

$

41.9

million

Unamortized premium as a percentage of par value

2.44

%

Premium amortization expense on Agency MBS for the respective quarter

$

4.4

million

TBA Agency MBS:

30-year fixed-rate TBA Agency MBS

2.40

%

$

102.92

$

103.80

At September 30, 2020 and June 30, 2020, the constant prepayment rate ("CPR") and weighted average term to next interest rate reset of our Agency MBS were as follows:

September 30,

June 30,

2020

2020

(unaudited)

Constant prepayment rate (CPR) of Agency MBS

39

%

33

%

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

37

%

28

%

Weighted average term to next interest rate reset on Agency MBS

21

months

23

months

The following tables summarize our fixed-rate Agency MBS at September 30, 2020 and June 30, 2020:

September 30, 2020

(unaudited)

Weighted

Average

Weighted

Remaining

Market

Fair Market

Average

Term

Value

Cost

Price

Coupon

(Years)

(in thousands)

30-Year Fixed-Rate Agency MBS:

3.50%

$

127,722

$

102.59

$

107.92

3.50

%

26.5

4.00%

616,741

102.13

107.75

4.00

27.9

≥4.5%

82,968

102.41

110.27

4.82

25.7

$

827,431

$

102.23

$

108.02

4.00

%

27.5

15-Year to 20-Year Fixed-Rate Agency MBS

207,167

103.00

108.33

3.55

15.8

Total Fixed-Rate Agency MBS

$

1,034,598

$

102.38

$

108.08

3.91

%

25.1

June 30, 2020

(unaudited)

Weighted

Average

Weighted

Remaining

Market

Fair Market

Average

Term

Value

Cost

Price

Coupon

(Years)

(in thousands)

30-Year Fixed-Rate Agency MBS:

3.50%

$

143,539

$

103.00

$

107.68

3.50

%

26.8

4.00%

717,424

102.38

107.19

4.00

28.1

≥4.5%

92,576

102.74

109.70

4.80

26.0

$

953,539

$

102.51

$

107.50

4.00

%

27.8

15-Year to 20-Year Fixed-Rate Agency MBS

221,917

103.36

107.05

3.55

16.0

Total Fixed-Rate Agency MBS

$

1,175,456

$

102.67

$

107.41

3.91

%

25.5

Non-Agency MBS

At March 31, 2020, our Non-Agency MBS were designated as trading securities and are carried at fair value.

The following tables summarize our Non-Agency MBS at September 30, 2020 and June 30, 2020:

September 30, 2020

(dollar amounts in thousands)

(unaudited)

Weighted Average

Fair

Current

Fair Market

Portfolio Type

Value

Principal

Coupon

Price

Legacy Non-Agency MBS (pre-2008)

$

104,180

$

165,885

5.23

%

$

62.80

Non-performing

1,000

1,000

5.00

100.00

Credit Risk Transfer

93,406

96,236

4.11

97.06

Total Non-Agency MBS

$

198,586

$

263,121

4.82

%

$

75.47

June 30, 2020

(dollar amounts in thousands

(unaudited)

Weighted Average

Fair

Current

Fair Market

Portfolio Type

Value

Principal

Coupon

Price

Legacy Non-Agency MBS (pre-2008)

$

105,796

$

171,373

5.25

%

$

61.73

Non-performing

2,305

3,000

5.62

76.84

Credit Risk Transfer

83,931

96,625

4.11

86.86

Total Non-Agency MBS

$

192,032

$

270,998

4.85

%

$

70.86

Residential Mortgage Loans Held-for-Investment

The following table summarizes our residential mortgage loans held-for-investment at September 30, 2020 and June 30, 2020:

September 30,

June 30,

2020

2020

(in thousands)

(unaudited)

Residential mortgage loans held-for-investment through consolidated securitization trusts

$

317,887

$

367,539

Asset-backed securities issued by securitization trusts

309,173

358,884

Retained interest in loans held in securitization trusts

$

8,714

$

8,655

Residential Mortgage Loans Held-for-Securitization

The following table summarizes our residential mortgage loans held-for-securitization at September 30, 2020 and June 30, 2020:

September 30,

June 30,

2020

2020

(in thousands)

(unaudited)

Residential mortgage loans held-for-securitization

$

123,247

$

131,110

Amount outstanding on warehouse line of credit

$

101,722

$

104,620

At September 30, 2020 and June 30, 2020, our estimated fair value (in thousands) of the residential mortgage loans held-for-securitization was $121,639 and $122,364, respectively.

At September 30, 2020, approximately $1.5 million of the unpaid principal balance ("UPB") on this loan portfolio was 30-days delinquent; approximately $6.4 million of the UPB was 60 days delinquent; and approximately $8.6 million of the UPB was 90 days+ delinquent. Of these amounts, the percentages that are COVID-19 related are as follows: 30-day delinquent: 84%; 60-day delinquent: 72%; and 90 days+ delinquent: 93%. At June 30, 2020, approximately $1.5 million of the unpaid principal balance ("UPB") on this loan portfolio was 30-days delinquent; approximately $13.3 million of the UPB was 60 days delinquent; and approximately $13.0 million of the UPB was 90 days+ delinquent. Of these amounts, the percentages that are COVID-19 related are as follows: 30-day delinquent: 65%; 60-day delinquent: 96%; and 90 days+ delinquent: 96%.

Residential Properties Portfolio

At September 30, 2020 and June 30, 2020, Anworth Properties Inc. owned 82 and 83 single-family residential rental properties, respectively, located in Southeastern Florida that were carried at a total cost, net of accumulated depreciation, of $12.8 million and $13.1 million, respectively. During the three months ended September 30, 2020, we sold one property for a gain of approximately $78 thousand.

MBS Portfolio Financing

September 30, 2020

Agency

Non-Agency

Total

MBS

MBS

MBS

(dollar amounts in thousands)

(unaudited)

Repurchase Agreements:

Outstanding repurchase agreement balance

$

1,365,000

$

99,593

$

1,464,593

Average interest rate

0.22

%

2.10

%

0.35

%

Average maturity

25

days

43

days

26

days

Average interest rate after adjusting for interest rate swaps

1.44

%

Average maturity after adjusting for interest rate swaps

1,091

days

June 30, 2020

Agency

Non-Agency

Total

MBS

MBS

MBS

(dollar amounts in thousands)

(unaudited)

Repurchase Agreements:

Outstanding repurchase agreement balance

$

1,595,000

$

102,181

$

1,697,181

Average interest rate

0.24

%

2.78

%

0.39

%

Average maturity

23

days

26

days

23

days

Average interest rate after adjusting for interest rate swaps

1.24

%

Average maturity after adjusting for interest rate swaps

983

days

Portfolio Leverage

At September 30, 2020, our leverage multiple was 3.4x. 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 5.0x at September 30, 2020. At June 30, 2020, our leverage multiple was 4.1x and the effective leverage was 4.7x.

Interest Rate Swaps

At September 30, 2020 and June 30, 2020, our interest rate swap agreements ("swaps") had the following notional amounts, weighted average fixed rates, and remaining terms:

September 30, 2020

(unaudited)

Weighted

Average

Remaining

Remaining

Notional

Fixed

Term in

Term in

Maturity

Amount

Rate

Months

Years

(in thousands)

Less than 12 months

$

50,000

1.86

%

1

0.1

1 year to 2 years

2 years to 3 years

3 years to 4 years

50,000

1.55

37

3.1

4 years to 5 years

250,000

1.84

60

5.0

5 years to 7 years

365,000

2.75

86

7.2

7 years to 10 years

50,000

3....22

99

8.3

$

765,000

2.34

%

70

5.8

June 30, 2020

(unaudited)

Weighted

Average

Remaining

Remaining

Notional

Fixed

Term in

Term in

Maturity

Amount

Rate

Months

Years

(in thousands)

Less than 12 months

$

200,000

1.72

%

2

0.2

1 year to 2 years

2 years to 3 years

3 years to 4 years

50,000

1.55

40

3.3

4 years to 5 years

175,000

1.73

58

4.8

5 years to 7 years

440,000

2.63

87

7.3

7 years to 10 years

50,000

3.22

102

8.5

$

915,000

2.23

%

61

5.1

Effective Net Interest Rate Spread

September 30,

June 30,

2020

2020

(unaudited)

Average asset yield, including TBA dollar roll income

3.33

%

3.05

%

Effective cost of funds

2.04

2.09

Effective net interest rate spread

1.29

%

0.96

%

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.

Book Value per Common Share

At September 30, 2020, our book value was $3.04 per share of common stock, which was an increase of $0.19 from $2.85 at June 30, 2020. The common stock dividend of $0.05 per share for the third quarter ended September 30, 2020, plus the $0.19 increase in book value, resulted in a return on book value per common share of 8.4% for the three months ended September 30, 2020. The return on book value per common share for the nine months ended September 30, 2020 was a negative (30.4)%.

Dividend

On September 16, 2020, we declared a quarterly common stock dividend of $0.05 per share for the third quarter ended September 30, 2020. Based upon the closing price of $1.64 on September 30, 2020, the annualized dividend yield on our common stock at September 30, 2020 was 12.2%.

Conference Call

The Company will host a conference call on Wednesday, November 4, 2020 at 1:00 PM Eastern Time, 10:00 AM Pacific Time, to discuss our third quarter results. The dial-in number for the conference call is (833) 312-1359 for U.S. callers and international callers should dial (236) 712-2459. Replays of the call will be available for a 7-day period commencing at 4:00 PM Eastern Time on November 4, 2020. The dial-in number for the replay is (800) 585-8367 for U.S. callers; international callers should dial (416) 621-4642; and the conference number is 2199412. 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; the scope and duration of the COVID-19 (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; 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 our 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,

2020

2019

(audited)

ASSETS

Available-for-sale Agency MBS at fair value (including $1,440,188 and $2,764,330 pledged to counterparties at September 30, 2020 and December 31, 2019, respectively); amortized cost of $1,537,549 and $2,799,448 at September 30, 2020 and December 31, 2019, respectively, net of allowance for credit losses of $0 and $0 at September 30, 2020 and December 31, 2019, respectively

$

1,609,761

$

2,853,131

Trading Agency MBS at fair value (including $0 and $655,045 pledged to counterparties at September 30, 2020 and December 31, 2019, respectively

656,920

Available-for-sale Non-Agency MBS at fair value (including $0 and $535,135 pledged to counterparties at September 30, 2020 and December 31, 2019, respectively); amortized cost of $0 and $613,576 at September 30, 2020 and December 31, 2019, respectively, net of allowance for credit losses of $0 and $0 at September 30, 2020 and December 31, 2019, respectively

643,610

Trading Non-Agency MBS at fair value (including $161,184 and $0 pledged to counterparties at September 30, 2020 and December 31, 2019, respectively

198,586

Residential mortgage loans held-for-securitization, net of allowance for credit losses of $56 and $0 at September 30, 2020 and December 31, 2019, respectively

123,247

152,922

Residential mortgage loans held-for-investment through consolidated securitization trusts, net of allowances for credit losses of $147 and $175 at September 30, 2020 and December 31, 2019, respectively(1)

317,887

458,348

Residential real estate

12,827

13,499

Cash and cash equivalents

37,730

8,236

Reverse repurchase agreements

15,000

Restricted cash

123,991

104,699

Interest receivable

6,995

16,398

Derivative instruments at fair value

1,609

5,833

Right to use asset-operating lease

852

1,256

Prepaid expenses and other assets

5,287

8,779

Total Assets

$

2,438,772

$

4,938,631

LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:

Accrued interest payable

$

5,227

$

16,757

Repurchase agreements

1,464,593

3,657,873

Warehouse line of credit

101,722

133,811

Asset-backed securities issued by securitization trusts(1)

309,173

448,987

Junior subordinated notes

37,380

37,380

Derivative instruments at fair value

88,723

52,197

Derivative counterparty margin

1,330

367

Dividends payable on preferred stock

2,297

2,297

Dividends payable on common stock

4,957

8,897

Payable for purchased loans

5,545

Accrued expenses and other liabilities

3,129

1,312

Long-term lease obligation

852

1,256

Total Liabilities

$

2,019,383

$

4,366,679

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 March 31, 2020 and December 31, 2019, 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, 2020 and December 31, 2019, 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 September 30, 2020 and December 31, 2019, respectively)

48,626

48,626

Common Stock: par value $0.01 per share; authorized 200,000 shares, 99,140 and 98,849 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively)

991

988

Additional paid-in capital

984,006

983,401

Accumulated other comprehensive income consisting of unrealized gains and losses

61,704

65,984

Accumulated deficit

(741,930

)

(593,039

)

Total Stockholders' Equity

$

399,934

$

552,497

Total Liabilities and Stockholders' Equity

$

2,438,772

$

4,938,631

______________________________

(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, 2020 and December 31, 2019, total assets of the consolidated VIEs were $319 million and $460 million (including accrued interest receivable of $1.1 million and $1.5 million), respectively (which are recorded above in the line item, "Interest receivable"), and total liabilities were $310 million and $450 million (including accrued interest payable of $1.0 million and $1.4 million), respectively (which are 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)

(unaudited)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2020

2019

2020

2019

(unaudited)

Interest and other income:

Interest-Agency MBS

$

5,099

$

20,335

$

38,822

$

70,183

Interest-Non-Agency MBS

2,518

9,299

13,233

29,423

Interest-securitized residential mortgage loans

3,408

5,049

11,747

15,676

Interest-residential mortgage loans held-for-securitization

1,617

1,574

4,840

2,695

Other interest income

10

679

183

1,343

12,652

36,936

68,825

119,320

Interest expense:

Interest expense on repurchase agreements

1,478

21,132

23,633

74,248

Interest expense on asset-backed securities

3,258

4,880

11,265

15,172

Interest expense on warehouse line of credit

1,039

1,381

3,430

2,671

Interest expense on junior subordinated notes

332

520

1,213

1,608

6,107

27,913

39,541

93,699

Net interest income

6,545

9,023

29,284

25,621

Provision for credit losses on loans

(620

)

Net interest income after provision for credit losses

6,545

9,023

28,664

25,621

Operating expenses:

Management fee to related party

(1,356

)

(1,647

)

(4,254

)

(5,085

)

Rental properties depreciation and expenses

(381

)

(423

)

(1,204

)

(1,146

)

General and administrative expenses

(1,098

)

(1,188

)

(3,441

)

(3,813

)

Total operating expenses

(2,835

)

(3,258

)

(8,899

)

(10,044

)

Other income (loss):

Income-rental properties

416

469

1,256

1,359

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

214

15,805

(5,488

)

Net gain on Agency MBS held as trading investments

1,939

2,840

10,706

Impairment charge on available-for-sale Non-Agency MBS

(1,145

)

(1,751

)

Net gain (loss) on Non-Agency MBS held as trading investments

13,679

(20,617

)

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

(55,390

)

Gain on sale of residential properties

78

201

Gain (loss) on derivatives, net

3,986

(24,734

)

(90,972

)

(105,565

)

Total other income (loss)

18,159

(23,257

)

(146,877

)

(100,739

)

Net income (loss)

$

21,869

$

(17,492

)

$

(127,112

)

$

(85,162

)

Dividends on preferred stock

(2,297

)

(2,297

)

(6,892

)

(6,892

)

Net income (loss) to common stockholders

$

19,572

$

(19,789

)

$

(134,004

)

$

(92,054

)

Basic income (loss) per common share

$

0.20

$

(0.20

)

$

(1.35

)

$

(0.93

)

Diluted income (loss) per common share

$

0.19

$

(0.20

)

$

(1.35

)

$

(0.93

)

Basic weighted average number of shares outstanding

99,108

98,739

98,995

98,638

Diluted weighted average number of shares outstanding

103,788

98,739

98,995

98,638

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,

2020

2019

2020

2019

Net income (loss)

$

21,869

$

(17,492

)

$

(127,112

)

$

(85,162

)

Available-for-sale Agency MBS, fair value adjustment

3,492

11,242

38,846

65,195

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

(445

)

(15,805

)

5,258

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

6,337

24,095

Reclassification adjustment due to transfer from available-for-sale to trading for Non-Agency MBS

(85,424

)

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

231

55,390

209

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

860

971

2,713

2,985

Other comprehensive income (loss)

4,352

18,336

(4,280

)

97,742

Comprehensive income (loss)

$

26,221

$

844

$

(131,392

)

$

12,580

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 income to common stockholders" for the three months ended September 30, 2020 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 our total interest and other income for the three months ended September 30, 2020 (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 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 September 30, 2020. 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, 2020

(unaudited)

Amount

Per Share

(in thousands)

Net income to common stockholders

$

19,572

$

0.20

Adjustments to derive core earnings:

Net (gain) on Non-Agency MBS held as trading securities(1)

(13,679

)

(0.14

)

Loss on interest rate swaps, net

341

(Gain) on derivatives-TBA Agency MBS, net

(4,327

)

(0.04

)

(Gain) on sales of residential properties

(78

)

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

(4,076

)

(0.04

)

Dollar roll income on TBA Agency MBS(3)

2,586

0.03

Premium amortization on MBS

9,075

0.09

Paydown expense(4)

(5,926

)

(0.06

)

Depreciation expense on residential rental properties(5)

118

Core earnings

$

3,606

$

0.04

Basic weighted average number of shares outstanding

99,108

___________________________

(1)

At March 31, 2020, we designated our Non-Agency MBS as trading securities. The unrealized gain, instead of being recorded in AOCI, as had been previously done, is now recognized through earnings.

(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 "Gain 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

September 30, 2020

(unaudited)

Annualized

Amount

Percentage

(in thousands)

Average Asset Yield, Including TBA Dollar Roll Income:

Total interest income

$

12,652

2.24

%

Income-rental properties

416

0.07

Dollar roll income on TBA Agency MBS(1)

2,586

0.46

Premium amortization on Agency MBS

9,075

1.61

Paydown expense on Agency MBS(2)

(5,926

)

(1.05

)

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

$

18,803

3.33

%

Effective Cost of Funds:

Total interest expense

$

6,107

1.22

%

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

4,076

0.82

Effective total interest expense and effective cost of funds

$

10,183

2.04

%

Effective net interest rate spread

1.29

%

Average earning assets

$

2,260,253

Average borrowings

$

2,001,591

_____________________________

(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 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 included in "Gain on derivatives, net" on our consolidated statements of operations.

View source version on businesswire.com: https://www.businesswire.com/news/home/20201103005651/en/

Contacts

Anworth Mortgage Asset Corporation
John T. Hillman
1299 Ocean Avenue, 2nd Floor
Santa Monica, CA 90401
(310) 255-4438 or (310) 255-4493
Email: jhillman@anworth.com
Web site: http://www.anworth.com