Friday, May 04, 2018 3:12:53 PM
Anworth Reports First Quarter 2018 Financial Results
4:05 pm ET May 2, 2018 (BusinessWire) Print
Anworth Mortgage Asset Corporation (NYSE: ANH) (the "Company") today reported its financial results for the first quarter ended March 31, 2018.
Earnings
The following table summarizes the Company's core earnings, GAAP net loss to common stockholders, and comprehensive income for the three months ended March 31, 2018:
Three Months Ended
March 31, 2018
-----------------------------------------------------------------
(unaudited)
Earnings Earnings Per
Weighted
Share
------------------------------------ ----------- ---------------------------
Core earnings $ 13,732 $ 0.14
GAAP net loss to common stockholders $ (5,150 ) $ (0.05 )
Comprehensive loss $ (24,934 ) $ (0.25 )
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 the 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 loss.
Portfolio
At March 31, 2018 and December 31, 2017, the composition of the Company's portfolio at fair value was as follows:
March 31, 2018 December 31, 2017
--------------------------------------------------------------- ---------------------------------------------------------------
Dollar Amount Percentage Dollar Amount Percentage
------------------------------- ----------- ------------------------------- -----------
(unaudited)
Agency MBS:
ARMS and hybrid ARMs $ 1,996,042 32.0 % $ 2,136,543 33.1 %
Fixed-rate Agency MBS 2,078,037 33.4 % 2,142,254 33.3 %
TBA Agency MBS 752,028 12.1 % 756,701 11.7 %
-------------------- --------- ----- ---- -------------------- --------- ----- ----
Total Agency MBS $ 4,826,107 77.5 % $ 5,035,498 78.1 %
-------------------- --------- ----- ---- -------------------- --------- ----- ----
Non-Agency MBS 778,541 12.5 % 760,825 11.8 %
Residential mortgage loans(1) 611,006 9.8 % 639,351 9.9 %
Residential real estate 14,079 0.2 % 14,143 0.2 %
-------------------- --------- ----- ---- -------------------- --------- ----- ----
Total Portfolio $ 6,229,733 100.0 % $ 6,449,817 100.0 %
-------------------- --------- ----- ---- -------------------- --------- ----- ----
Total Assets(2) $ 6,333,475 $ 6,522,242
-------------------- --------- -------------------- ---------
____________________
(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 March 31, 2018, the allocation of the Company's agency mortgage-backed securities ("Agency MBS") was approximately 41% adjustable-rate and hybrid adjustable-rate Agency MBS, 43% fixed-rate Agency MBS, and 16% fixed-rate TBA Agency MBS. At December 31, 2017, the allocation of the Company's agency mortgage-backed securities ("Agency MBS") was approximately 42% adjustable-rate and hybrid adjustable-rate Agency MBS, 43% fixed-rate Agency MBS, and 15% fixed-rate TBA Agency MBS, both periods of which are detailed below (dollar amounts in thousands):
March 31, December 31,
2018 2017
----------------------------- -----------------------------
(unaudited)
Fair value of Agency MBS and TBA Agency MBS $ 4,826,107 $ 5,035,498
-------------------- --------- -------------------- ---------
Adjustable-rate Agency MBS coupon reset (less than 1 year) 23 % 24 %
Hybrid adjustable-rate Agency MBS coupon reset (1-2 years) 4 3
Hybrid adjustable-rate Agency MBS coupon reset (2-3 years) 4 4
Hybrid adjustable-rate Agency MBS coupon reset (3-4 years) 0 1
Hybrid adjustable-rate Agency MBS coupon reset (4-5 years) 5 3
Hybrid adjustable-rate Agency MBS coupon reset (5-7 years) 2 4
Hybrid adjustable-rate Agency MBS coupon reset (greater than 7 years) 3 3
-------------------- --------- -------------------- ---------
Total adjustable-rate Agency MBS 41 % 42 %
-------------------- --------- -------------------- ---------
15-year fixed-rate TBA Agency MBS 16 15
15-year fixed-rate Agency MBS 24 25
20-year and 30-year fixed-rate Agency MBS 19 18
-------------------- --------- -------------------- ---------
Total fair value of Agency MBS and TBA Agency MBS 100 % 100 %
==================== ========= ==================== =========
At March 31, 2018 and December 31, 2017, the summary statistics of the Company's Agency MBS portfolio were as follows:
March 31, December 31,
2018 2017
-------------- --------------
(unaudited)
Weighted Average Agency MBS Coupon:
Adjustable-rate Agency MBS 3.54 % 3.45 %
Hybrid adjustable-rate Agency MBS 2.45 2.44
15-year fixed-rate Agency MBS 2.91 2.79
15-year fixed-rate TBA Agency MBS 3.13 2.75
20-year and 30-year fixed-rate Agency MBS 3.81 3.53
-------------- --------------
Total Agency MBS: 3.19 % 3.02 %
============== ==============
Average Amortized Cost:
Adjustable-rate Agency MBS 102.75 % 102.81 %
Hybrid adjustable-rate Agency MBS 102.68 102.67
15-year fixed-rate Agency MBS 102.31 102.40
15-year fixed-rate TBA Agency MBS 100.27 101.06
20-year and 30-year fixed-rate Agency MBS 103.58 103.62
-------------- --------------
Total Agency MBS: 102.40 % 102.56 %
============== ==============
Average asset yield (weighted average coupon divided by average 3.12 % 2.94 %
amortized cost)
Unamortized premium $111.2 million $117.5 million
Unamortized premium as a percentage of par value 2.40 % 2.56 %
Premium amortization expense on Agency MBS for the respective quarter $7.6 million $8.0 million
At March 31, 2018 and December 31, 2017, the constant prepayment rate ("CPR") and weighted average term to next interest rate reset of our Agency MBS were as follows:
March 31, December 31,
2018 2017
-------- -------------------
(unaudited)
Constant prepayment rate (CPR) of Agency MBS 13 % 15 %
Constant prepayment rate (CPR) of adjustable-rate and hybrid 17 % 18 %
adjustable-rate Agency MBS
Weighted average term to next interest rate reset on Agency MBS 26 months 27 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 March 31, 2018 and December 31, 2017:
March 31, 2018
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
(unaudited)
Weighted Average
-----------------------------------------------------------------------------------
Mortgage Loan Type Fair Amortized Contractual Amortized Coupon Yield
Value Cost Principal Cost
---------------------- --------------------------- --------------------------- --------------------------- --------- ------- -------------------
Prime $ 41,153 $ 39,603 $ 49,014 80.80 % 4.99 % 5.64 %
Alt-A 561,404 536,088 712,670 75.22 % 5.61 % 5.42 %
Subprime 20,453 19,237 21,207 90.71 % 4.15 % 5.74 %
Non-performing 118,539 118,304 118,723 99.65 % 5.18 % 5.60 %
Agency Risk Transfer 36,992 34,399 39,550 86.98 % 4.10 % 5.95 %
-------------------- ------- -------------------- ------- -------------------- -------
Total Non-Agency MBS $ 778,541 $ 747,631 $ 941,164 79.44 % 5.42 % 5.49 %
==================== ======= ==================== ======= ==================== =======
December 31, 2017
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Weighted Average
-----------------------------------------------------------------------------------
Mortgage Loan Type Fair Amortized Contractual Amortized Coupon Yield
Value Cost Principal Cost
---------------------- --------------------------- --------------------------- --------------------------- --------- ------- -------------------
Prime $ 42,381 $ 41,378 $ 50,820 81.42 % 4.75 % 5.56 %
Alt-A 569,979 544,948 714,396 76.28 % 5.56 % 5.41 %
Subprime 20,998 19,610 21,654 90.56 % 4.03 % 5.39 %
Non-performing 94,245 93,715 94,228 99.46 % 5.20 % 5.71 %
Agency Risk Transfer 33,222 30,973 35,750 86.64 % 4.14 % 5.94 %
-------------------- ------- -------------------- ------- -------------------- -------
Total Non-Agency MBS $ 760,825 $ 730,624 $ 916,848 79.69 % 5.39 % 5.48 %
==================== ======= ==================== ======= ==================== =======
Residential Mortgage Loans
The following table summarizes the Company's residential mortgage loans held-for-investment at March 31, 2018 and December 31, 2017:
March, 31, December 31,
2018 2017
--------------------------- ----------------------------------------
(unaudited)
Residential mortgage loans held-for-investment $ 611,006 $ 639,351
Asset-backed securities issued by securitization trusts 601,639 629,984
-------------------- ------- -------------------- --------------------
Retained interest in loans held in securitization trust $ 9,367 $ 9,367
==================== ======= ==================== ====================
Residential Real Estate
At March 31, 2018 and December 31, 2017, Anworth Properties Inc. owned 88 single-family residential rental properties located in Southeastern Florida that were carried at a total cost, net of accumulated depreciation, of $14.1 million and $14.1 million, respectively.
MBS Portfolio Financing
March 31, 2018
--------------------------------------------------------------------------------------------------
Agency Non-Agency Total
MBS MBS MBS
------------ ------------ --------------------
(dollar amounts in thousands)
(unaudited)
Repurchase Agreements:
Outstanding repurchase agreement balance $ 3,705,000 $ 540,797 $ 4,245,797
Average interest rate 1.75 % 3.10 % 1.92 %
Average maturity 38 days 12 days 35 days
Average interest rate after adjusting for interest rate swaps 1.88 %
Average maturity after adjusting for interest rate swaps 972 days
December 31, 2017
--------------------------------------------------------------------------------------------------
Agency Non-Agency Total
MBS MBS MBS
------------ ------------ --------------------
(dollar amounts in thousands)
Repurchase Agreements:
Outstanding repurchase agreement balance $ 3,845,000 $ 520,695 $ 4,365,695
Average interest rate 1.47 % 2.87 % 1.64 %
Average maturity 33 days 14 days 31 days
Average interest rate after adjusting for interest rate swaps 1.77 %
Average maturity after adjusting for interest rate swaps 674 days
Portfolio Leverage
At March 31, 2018, the Company's leverage multiple was 6.12x. 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 7.20x at March 31, 2018. At December 31, 2017, the Company's leverage multiple was 5.94x and the effective leverage was 6.97x.
Interest Rate Swaps
At March 31, 2018 and December 31, 2017, the Company's interest rate swap agreements ("Swaps") had the following notional amounts, weighted average fixed rates, and remaining terms:
March 31, 2018 December 31, 2017
---------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------------------------
Maturity Notional Weighted Remaining Remaining Notional Weighted Remaining Remaining
Amount Average Term in Term in Amount Average Term in Term in
Fixed Months Years Fixed Months Years
Rate Rate
------------------- ----------------------------- -------- --------- --------- ----------------------------- -------- --------- --------------------
(unaudited)
Less than 12 months $ 385,000 1.34 % 5 0.5 $ 410,000 0.96 % 4 0.3
1 year to 2 years 650,000 1.61 18 1.5 725,000 1.60 19 1.6
2 years to 3 years 666,000 1.76 31 2.5 516,000 1.62 33 2.8
3 years to 4 years 250,000 1.79 42 3.5 350,000 1.90 43 3.6
4 years to 5 years 220,000 1.92 53 4.4 220,000 1.92 56 4.7
5 years to 7 years 435,000 2.27 75 6.2 260,000 1.98 74 6.2
7 years to 10 years 475,000 2.55 103 8.6 200,000 2.08 101 8.4
-------------------- --------- -------------------- ---------
$ 3,081,000 1.88 % 45 3.7 $ 2,681,000 1.65 % 37 3.1
==================== ========= ==================== =========
Effective Net Interest Rate Spread
March 31, December 31,
2018 2017
--------- ------------
(unaudited)
Average asset yield, including TBA dollar roll income 3.41 % 3.16 %
Effective cost of funds 2.09 1.92
--------- ------------
Effective net interest rate spread 1.32 % 1.24 %
========= ============
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 March 15, 2018, the Company declared a quarterly common stock dividend of $0.15 per share for the first quarter ended March 31, 2018. Based upon the closing price of $4.80 on March 30, 2018, the annualized dividend yield on the Company's common stock at March 31, 2018 was 12.5%.
Book Value per Common Share
At March 31, 2018, the Company's book value was $5.48 per share of common stock, which was a decrease of $0.43 from a book value of $5.91 for the prior quarter.
The $0.15 quarterly dividend less the $0.43 decrease in book value per common share from the prior quarter resulted in a negative return on book value per common share of (4.74)% for the three months ended March 31, 2018.
Stock Transactions
During the quarter ended March 31, 2018, the Company issued an aggregate of 21,295 shares of its Series C Preferred Stock under its At Market Issuance Sales Agreement, which provided net proceeds to the Company of approximately $530 thousand.
Subsequent Events
Effective April 2, 2018, the conversion rate of our Series B Preferred Stock increased from 4.9673 shares of our common stock to 5.0453 shares of our common stock based upon the common stock dividend of $0.15 that was declared on March 15, 2018.
From April 2, 2018 through May 2, 2018, two interest rate swaps with an aggregate notional amount of $115 million matured and we added three new interest rate swaps with an aggregate notional amount of $150 million.
Conference Call
The Company will host a conference call on Thursday, May 3, 2018 at 1:00 PM Eastern Time, 10:00 AM Pacific Time, to discuss its first 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 May 3, 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 10120060. 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 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(R) 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)
March 31, December 31,
2018 2017
--------------------------------------------------- ---------------------------------------------------
(unaudited)
ASSETS
Agency MBS at fair value (including $3,947,248 and $4,073,852 $ 4,074,079 $ 4,278,797
pledged to counterparties at March 31, 2018 and December 31, 2017,
respectively)
Non-Agency MBS at fair value (including $683,100 and $661,445 778,541 760,825
pledged to counterparties at March 31, 2018 and December 31, 2017,
respectively)
Residential mortgage loans held-for-investment(1) 611,006 639,351
Residential real estate 14,079 14,143
Cash and cash equivalents 15,420 12,273
Restricted cash 2,523 11,157
Interest and dividends receivable 17,887 18,091
Derivative instruments at fair value 59,057 27,793
Prepaid expenses and other 8,855 3,111
-------------------- --------- -------------------- -------------------- --------- --------------------
Total Assets $ 5,581,447 $ 5,765,541
==================== ========= ==================== ==================== ========= ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accrued interest payable $ 14,190 $ 15,835
Repurchase agreements 4,245,797 4,365,695
Asset-backed securities issued by securitization trusts(1) 601,639 629,984
Junior subordinated notes 37,380 37,380
Derivative instruments at fair value 7,863 1,335
Dividends payable on preferred stock 2,292 2,272
Dividends payable on common stock 14,732 14,721
Accrued expenses and other 1,182 897
-------------------- --------- -------------------- -------------------- --------- --------------------
$ 4,925,075 $ 5,068,119
Total Liabilities
-------------------- --------- -------------------- -------------------- --------- --------------------
Series B Cumulative Convertible Preferred Stock: par value $0.01 $ 19,455 $ 19,455
per share; liquidating preference $25.00 per share ($19,494 and
$19,494, respectively); 780 and 780 shares issued and outstanding
at March 31, 2018 and December 31, 2017, respectively)
Stockholders' Equity:
$ 46,537 $ 46,537
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
March 31, 2018 and December 31, 2017, respectively)
48,944 48,420
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
March 31, 2018 and December 31, 2017, respectively)
982 981
Common Stock: par value $0.01 per share; authorized 200,000
shares, 98,212 shares issued and outstanding at March 31, 2018 and
98,137 shares issued and outstanding at December 31, 2017,
respectively)
Additional paid-in capital 980,632 980,243
Accumulated other comprehensive income consisting of unrealized (5,060 ) 17,021
gains and losses
Accumulated deficit (435,118 ) (415,235 )
-------------------- --------- -------------------- -------------------- --------- --------------------
Total Stockholders' Equity $ 636,917 $ 677,967
-------------------- --------- -------------------- -------------------- --------- --------------------
Total Liabilities and Stockholders' Equity $ 5,581,447 $ 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 March 31, 2018 and
December 31, 2017, total assets of the consolidated VIEs were $613
million and $641 million, respectively (including accrued interest
receivable of $2.0 million and $2.1 million, respectively) (which
is recorded above in the line item entitled "Interest and
dividends receivable"), and total liabilities were $604 million
and $632 million, respectively (including accrued interest payable
of $2.0 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)
Three Months Ended
March 31,
-------------------------------------------------------------------------------------------------------------------------
2018 2017
------------------------------------------------- -------------------------------------------------
(unaudited)
Interest and other income:
Interest-Agency MBS $ 24,044 $ 17,103
Interest-Non-Agency MBS 10,021 9,568
Interest-residential mortgage loans 6,238 7,351
Other interest income 28 26
-------------------- ------- -------------------- -------------------- ------- --------------------
40,331 34,048
-------------------- ------- -------------------- -------------------- ------- --------------------
Interest Expense:
Interest expense on repurchase agreements 19,093 10,411
Interest expense on asset-backed securities 6,070 7,075
Interest expense on junior subordinated notes 447 384
-------------------- ------- -------------------- -------------------- ------- --------------------
25,610 17,870
-------------------- ------- -------------------- -------------------- ------- --------------------
Net interest income 14,721 16,178
-------------------- ------- -------------------- -------------------- ------- --------------------
Operating Expenses:
Management fee to related party (1,737 ) (1,821 )
Rental properties depreciation and expenses (386 ) (330 )
General and administrative expenses (1,110 ) (1,154 )
-------------------- ------- -------------------- -------------------- ------- --------------------
Total operating expenses (3,233 ) (3,305 )
-------------------- ------- -------------------- -------------------- ------- --------------------
Other (loss) income:
Income-rental properties 451 449
(Loss) on sales of MBS (19,314 ) (68 )
Impairment charge on Non-Agency MBS - (732 )
Unrealized (loss) gain on Agency MBS held as trading investments (8,890 ) 122
Gain on sales of residential mortgage loans held-for-investment - 378
Gain on derivatives, net 13,412 2,378
Recovery on Non-Agency MBS - 1
-------------------- ------- -------------------- -------------------- ------- --------------------
Total other (loss) income (14,341 ) 2,528
-------------------- ------- -------------------- -------------------- ------- --------------------
Net (loss) income $ (2,853 ) $ 15,401
-------------------- ------- -------------------- -------------------- ------- --------------------
Dividends on preferred stock (2,297 ) (1,755 )
-------------------- ------- -------------------- -------------------- ------- --------------------
Net (loss) income to common stockholders $ (5,150 ) $ 13,646
==================== ======= ==================== ==================== ======= ====================
Basic (loss) earnings per common share $ (0.05 ) $ 0.14
Diluted (loss) earnings per common share $ (0.05 ) $ 0.14
Basic weighted average number of shares outstanding 98,185 95,705
Diluted weighted average number of shares outstanding 98,185 100,544
ANWORTH MORTGAGE ASSET CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands, except for per share amounts)
March 31,
-----------------------------------------------------------------------------------------------------------------
2018 2017
------------------------------------------------- ------------------------------------------
(unaudited)
Net (loss) income $ (2,853 ) $ 15,401
-------------------- ------- -------------------- -------------------- --------------------
Available-for-sale Agency MBS, fair value adjustment (35,481 ) 2,335
11,945 68
Reclassification adjustment for loss on sales of Agency MBS
included in net (loss) income
Available-for-sale Non-Agency MBS, fair value adjustment 667 9,514
42 -
Reclassification adjustment for loss on sales of Non-Agency MBS
included in net (loss) income
Unrealized gains on interest rate swaps 940 540
(194 ) 74
Reclassification adjustment for interest expense on interest rate
swaps included in net (loss) income
-------------------- ------- -------------------- -------------------- --------------------
Other comprehensive (loss) income (22,081 ) 12,531
-------------------- ------- -------------------- -------------------- --------------------
Comprehensive (loss) income $ (24,934 ) $ 27,932
==================== ======= ==================== ==================== ====================
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 loss to common stockholders" for the three months ended March 31, 2018 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 the Company's total interest and other income for the three months ended March 31, 2018 (which is the nearest comparable GAAP measure) to the total interest income and average asset yield, including TBA dollar roll income, 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 are useful because they provide investors with greater transparency to the information that the Company uses in its financial and operational decision-making process;
-- the inclusion of paydown expense on Agency MBS is more indicative of the current earnings potential of the Company's 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 core earnings or funds from operations; and
-- the presentation of these measures, when analyzed in conjunction with the Company's GAAP operating results, allows investors to more effectively evaluate the Company's performance to that of its 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 the Company's operating results for the three months ended March 31, 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
March 31, 2018
------------------------------------------------------------------------------------------------------------------------
Amount Per Share
-------------------------------------------------- -------------------------------------------------
(in thousands)
---------------------------------------------------------------------- -------------------------------------------------
(unaudited)
Net loss to common stockholders $ (5,150 ) $ (0.05 )
Adjustments to derive core earnings:
Loss on sales of MBS 19,314 0.20
Unrealized loss (gain) on Agency MBS held as trading investments 8,890 0.09
(25,394 ) (0.26 )
Unrealized gain on interest rate swaps, net
Loss on derivatives-TBA Agency MBS, net 11,981 0.12
Amortization of other comprehensive income on de-designated interest (194 ) -
rate swaps(1)
Net settlement on interest rate swaps after de-designation(2) (402 ) (0.01 )
Dollar roll income on TBA Agency MBS(3) 2,596 0.03
Premium amortization on Agency MBS 7,601 0.08
Paydown expense(4) (5,628 ) (0.06 )
Depreciation expense on residential rental properties(5) 118 -
-------------------- ------- -------------------- -------------------- ------ --------------------
Core earnings $ 13,732 $ 0.14
==================== ======= ==================== ==================== ====== ====================
Basic weighted average number of shares outstanding 98,185
____________________
(1) This amount represents the amortization of the balance remaining in
"accumulated other comprehensive income" as a result of the
Company's discontinuation of hedge accounting in August 2014 and is
recorded in its statements of operations as a portion of interest
expense in accordance with GAAP.
(2) Net settlements on interest rate swaps after de-designation include
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 "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
March 31, 2018
----------------------------------------------------------------------------------------------
Amount Annualized
Percentage
---------------------------------------------------------------------- ------------------------------------------------- -------------------
(in thousands)
------------------------------------------------------------------------ ---------------------
(unaudited)
Average Asset Yield, Including TBA Dollar Roll Income:
Total interest income $ 40,331 3.04 %
Income-rental properties 451 0.01 %
Dollar roll income on TBA Agency MBS(1) 2,596 0.20 %
Premium amortization on Agency MBS 7,601 0.58 %
Paydown expense on Agency MBS(2) (5,628 ) -0.42 %
-------------------- --------- -------------------- ---------- ---------
Total interest and other income and average asset yield, including $ 45,351 3.41 %
TBA dollar roll income
==================== ========= ==================== ========== =========
Effective Cost of Funds:
Total interest expense $ 25,610 2.05 %
Net settlement on interest rate Swaps after de-designation(3) 402 0.03 %
Amortization of other comprehensive income on de-designated Swaps(4) 194 0.01 %
-------------------- --------- -------------------- ---------- ---------
Effective total interest expense and effective cost of funds $ 26,206 2.09 %
==================== ========= ==================== ========== =========
Effective net interest rate spread 1.32 %
========== =========
Average earning assets $ 5,312,243
-------------------- --------- --------------------
Average borrowings $ 5,004,488
-------------------- --------- --------------------
____________________
(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 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."
(4) This amount represents the amortization of the balance remaining in
"Accumulated other comprehensive income" as a result of the
Company's discontinuation of hedge accounting and is recorded in its
statements of operations as a portion of interest expense in
accordance with GAAP.
4:05 pm ET May 2, 2018 (BusinessWire) Print
Anworth Mortgage Asset Corporation (NYSE: ANH) (the "Company") today reported its financial results for the first quarter ended March 31, 2018.
Earnings
The following table summarizes the Company's core earnings, GAAP net loss to common stockholders, and comprehensive income for the three months ended March 31, 2018:
Three Months Ended
March 31, 2018
-----------------------------------------------------------------
(unaudited)
Earnings Earnings Per
Weighted
Share
------------------------------------ ----------- ---------------------------
Core earnings $ 13,732 $ 0.14
GAAP net loss to common stockholders $ (5,150 ) $ (0.05 )
Comprehensive loss $ (24,934 ) $ (0.25 )
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 the 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 loss.
Portfolio
At March 31, 2018 and December 31, 2017, the composition of the Company's portfolio at fair value was as follows:
March 31, 2018 December 31, 2017
--------------------------------------------------------------- ---------------------------------------------------------------
Dollar Amount Percentage Dollar Amount Percentage
------------------------------- ----------- ------------------------------- -----------
(unaudited)
Agency MBS:
ARMS and hybrid ARMs $ 1,996,042 32.0 % $ 2,136,543 33.1 %
Fixed-rate Agency MBS 2,078,037 33.4 % 2,142,254 33.3 %
TBA Agency MBS 752,028 12.1 % 756,701 11.7 %
-------------------- --------- ----- ---- -------------------- --------- ----- ----
Total Agency MBS $ 4,826,107 77.5 % $ 5,035,498 78.1 %
-------------------- --------- ----- ---- -------------------- --------- ----- ----
Non-Agency MBS 778,541 12.5 % 760,825 11.8 %
Residential mortgage loans(1) 611,006 9.8 % 639,351 9.9 %
Residential real estate 14,079 0.2 % 14,143 0.2 %
-------------------- --------- ----- ---- -------------------- --------- ----- ----
Total Portfolio $ 6,229,733 100.0 % $ 6,449,817 100.0 %
-------------------- --------- ----- ---- -------------------- --------- ----- ----
Total Assets(2) $ 6,333,475 $ 6,522,242
-------------------- --------- -------------------- ---------
____________________
(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 March 31, 2018, the allocation of the Company's agency mortgage-backed securities ("Agency MBS") was approximately 41% adjustable-rate and hybrid adjustable-rate Agency MBS, 43% fixed-rate Agency MBS, and 16% fixed-rate TBA Agency MBS. At December 31, 2017, the allocation of the Company's agency mortgage-backed securities ("Agency MBS") was approximately 42% adjustable-rate and hybrid adjustable-rate Agency MBS, 43% fixed-rate Agency MBS, and 15% fixed-rate TBA Agency MBS, both periods of which are detailed below (dollar amounts in thousands):
March 31, December 31,
2018 2017
----------------------------- -----------------------------
(unaudited)
Fair value of Agency MBS and TBA Agency MBS $ 4,826,107 $ 5,035,498
-------------------- --------- -------------------- ---------
Adjustable-rate Agency MBS coupon reset (less than 1 year) 23 % 24 %
Hybrid adjustable-rate Agency MBS coupon reset (1-2 years) 4 3
Hybrid adjustable-rate Agency MBS coupon reset (2-3 years) 4 4
Hybrid adjustable-rate Agency MBS coupon reset (3-4 years) 0 1
Hybrid adjustable-rate Agency MBS coupon reset (4-5 years) 5 3
Hybrid adjustable-rate Agency MBS coupon reset (5-7 years) 2 4
Hybrid adjustable-rate Agency MBS coupon reset (greater than 7 years) 3 3
-------------------- --------- -------------------- ---------
Total adjustable-rate Agency MBS 41 % 42 %
-------------------- --------- -------------------- ---------
15-year fixed-rate TBA Agency MBS 16 15
15-year fixed-rate Agency MBS 24 25
20-year and 30-year fixed-rate Agency MBS 19 18
-------------------- --------- -------------------- ---------
Total fair value of Agency MBS and TBA Agency MBS 100 % 100 %
==================== ========= ==================== =========
At March 31, 2018 and December 31, 2017, the summary statistics of the Company's Agency MBS portfolio were as follows:
March 31, December 31,
2018 2017
-------------- --------------
(unaudited)
Weighted Average Agency MBS Coupon:
Adjustable-rate Agency MBS 3.54 % 3.45 %
Hybrid adjustable-rate Agency MBS 2.45 2.44
15-year fixed-rate Agency MBS 2.91 2.79
15-year fixed-rate TBA Agency MBS 3.13 2.75
20-year and 30-year fixed-rate Agency MBS 3.81 3.53
-------------- --------------
Total Agency MBS: 3.19 % 3.02 %
============== ==============
Average Amortized Cost:
Adjustable-rate Agency MBS 102.75 % 102.81 %
Hybrid adjustable-rate Agency MBS 102.68 102.67
15-year fixed-rate Agency MBS 102.31 102.40
15-year fixed-rate TBA Agency MBS 100.27 101.06
20-year and 30-year fixed-rate Agency MBS 103.58 103.62
-------------- --------------
Total Agency MBS: 102.40 % 102.56 %
============== ==============
Average asset yield (weighted average coupon divided by average 3.12 % 2.94 %
amortized cost)
Unamortized premium $111.2 million $117.5 million
Unamortized premium as a percentage of par value 2.40 % 2.56 %
Premium amortization expense on Agency MBS for the respective quarter $7.6 million $8.0 million
At March 31, 2018 and December 31, 2017, the constant prepayment rate ("CPR") and weighted average term to next interest rate reset of our Agency MBS were as follows:
March 31, December 31,
2018 2017
-------- -------------------
(unaudited)
Constant prepayment rate (CPR) of Agency MBS 13 % 15 %
Constant prepayment rate (CPR) of adjustable-rate and hybrid 17 % 18 %
adjustable-rate Agency MBS
Weighted average term to next interest rate reset on Agency MBS 26 months 27 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 March 31, 2018 and December 31, 2017:
March 31, 2018
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
(unaudited)
Weighted Average
-----------------------------------------------------------------------------------
Mortgage Loan Type Fair Amortized Contractual Amortized Coupon Yield
Value Cost Principal Cost
---------------------- --------------------------- --------------------------- --------------------------- --------- ------- -------------------
Prime $ 41,153 $ 39,603 $ 49,014 80.80 % 4.99 % 5.64 %
Alt-A 561,404 536,088 712,670 75.22 % 5.61 % 5.42 %
Subprime 20,453 19,237 21,207 90.71 % 4.15 % 5.74 %
Non-performing 118,539 118,304 118,723 99.65 % 5.18 % 5.60 %
Agency Risk Transfer 36,992 34,399 39,550 86.98 % 4.10 % 5.95 %
-------------------- ------- -------------------- ------- -------------------- -------
Total Non-Agency MBS $ 778,541 $ 747,631 $ 941,164 79.44 % 5.42 % 5.49 %
==================== ======= ==================== ======= ==================== =======
December 31, 2017
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Weighted Average
-----------------------------------------------------------------------------------
Mortgage Loan Type Fair Amortized Contractual Amortized Coupon Yield
Value Cost Principal Cost
---------------------- --------------------------- --------------------------- --------------------------- --------- ------- -------------------
Prime $ 42,381 $ 41,378 $ 50,820 81.42 % 4.75 % 5.56 %
Alt-A 569,979 544,948 714,396 76.28 % 5.56 % 5.41 %
Subprime 20,998 19,610 21,654 90.56 % 4.03 % 5.39 %
Non-performing 94,245 93,715 94,228 99.46 % 5.20 % 5.71 %
Agency Risk Transfer 33,222 30,973 35,750 86.64 % 4.14 % 5.94 %
-------------------- ------- -------------------- ------- -------------------- -------
Total Non-Agency MBS $ 760,825 $ 730,624 $ 916,848 79.69 % 5.39 % 5.48 %
==================== ======= ==================== ======= ==================== =======
Residential Mortgage Loans
The following table summarizes the Company's residential mortgage loans held-for-investment at March 31, 2018 and December 31, 2017:
March, 31, December 31,
2018 2017
--------------------------- ----------------------------------------
(unaudited)
Residential mortgage loans held-for-investment $ 611,006 $ 639,351
Asset-backed securities issued by securitization trusts 601,639 629,984
-------------------- ------- -------------------- --------------------
Retained interest in loans held in securitization trust $ 9,367 $ 9,367
==================== ======= ==================== ====================
Residential Real Estate
At March 31, 2018 and December 31, 2017, Anworth Properties Inc. owned 88 single-family residential rental properties located in Southeastern Florida that were carried at a total cost, net of accumulated depreciation, of $14.1 million and $14.1 million, respectively.
MBS Portfolio Financing
March 31, 2018
--------------------------------------------------------------------------------------------------
Agency Non-Agency Total
MBS MBS MBS
------------ ------------ --------------------
(dollar amounts in thousands)
(unaudited)
Repurchase Agreements:
Outstanding repurchase agreement balance $ 3,705,000 $ 540,797 $ 4,245,797
Average interest rate 1.75 % 3.10 % 1.92 %
Average maturity 38 days 12 days 35 days
Average interest rate after adjusting for interest rate swaps 1.88 %
Average maturity after adjusting for interest rate swaps 972 days
December 31, 2017
--------------------------------------------------------------------------------------------------
Agency Non-Agency Total
MBS MBS MBS
------------ ------------ --------------------
(dollar amounts in thousands)
Repurchase Agreements:
Outstanding repurchase agreement balance $ 3,845,000 $ 520,695 $ 4,365,695
Average interest rate 1.47 % 2.87 % 1.64 %
Average maturity 33 days 14 days 31 days
Average interest rate after adjusting for interest rate swaps 1.77 %
Average maturity after adjusting for interest rate swaps 674 days
Portfolio Leverage
At March 31, 2018, the Company's leverage multiple was 6.12x. 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 7.20x at March 31, 2018. At December 31, 2017, the Company's leverage multiple was 5.94x and the effective leverage was 6.97x.
Interest Rate Swaps
At March 31, 2018 and December 31, 2017, the Company's interest rate swap agreements ("Swaps") had the following notional amounts, weighted average fixed rates, and remaining terms:
March 31, 2018 December 31, 2017
---------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------------------------
Maturity Notional Weighted Remaining Remaining Notional Weighted Remaining Remaining
Amount Average Term in Term in Amount Average Term in Term in
Fixed Months Years Fixed Months Years
Rate Rate
------------------- ----------------------------- -------- --------- --------- ----------------------------- -------- --------- --------------------
(unaudited)
Less than 12 months $ 385,000 1.34 % 5 0.5 $ 410,000 0.96 % 4 0.3
1 year to 2 years 650,000 1.61 18 1.5 725,000 1.60 19 1.6
2 years to 3 years 666,000 1.76 31 2.5 516,000 1.62 33 2.8
3 years to 4 years 250,000 1.79 42 3.5 350,000 1.90 43 3.6
4 years to 5 years 220,000 1.92 53 4.4 220,000 1.92 56 4.7
5 years to 7 years 435,000 2.27 75 6.2 260,000 1.98 74 6.2
7 years to 10 years 475,000 2.55 103 8.6 200,000 2.08 101 8.4
-------------------- --------- -------------------- ---------
$ 3,081,000 1.88 % 45 3.7 $ 2,681,000 1.65 % 37 3.1
==================== ========= ==================== =========
Effective Net Interest Rate Spread
March 31, December 31,
2018 2017
--------- ------------
(unaudited)
Average asset yield, including TBA dollar roll income 3.41 % 3.16 %
Effective cost of funds 2.09 1.92
--------- ------------
Effective net interest rate spread 1.32 % 1.24 %
========= ============
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 March 15, 2018, the Company declared a quarterly common stock dividend of $0.15 per share for the first quarter ended March 31, 2018. Based upon the closing price of $4.80 on March 30, 2018, the annualized dividend yield on the Company's common stock at March 31, 2018 was 12.5%.
Book Value per Common Share
At March 31, 2018, the Company's book value was $5.48 per share of common stock, which was a decrease of $0.43 from a book value of $5.91 for the prior quarter.
The $0.15 quarterly dividend less the $0.43 decrease in book value per common share from the prior quarter resulted in a negative return on book value per common share of (4.74)% for the three months ended March 31, 2018.
Stock Transactions
During the quarter ended March 31, 2018, the Company issued an aggregate of 21,295 shares of its Series C Preferred Stock under its At Market Issuance Sales Agreement, which provided net proceeds to the Company of approximately $530 thousand.
Subsequent Events
Effective April 2, 2018, the conversion rate of our Series B Preferred Stock increased from 4.9673 shares of our common stock to 5.0453 shares of our common stock based upon the common stock dividend of $0.15 that was declared on March 15, 2018.
From April 2, 2018 through May 2, 2018, two interest rate swaps with an aggregate notional amount of $115 million matured and we added three new interest rate swaps with an aggregate notional amount of $150 million.
Conference Call
The Company will host a conference call on Thursday, May 3, 2018 at 1:00 PM Eastern Time, 10:00 AM Pacific Time, to discuss its first 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 May 3, 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 10120060. 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 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(R) 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)
March 31, December 31,
2018 2017
--------------------------------------------------- ---------------------------------------------------
(unaudited)
ASSETS
Agency MBS at fair value (including $3,947,248 and $4,073,852 $ 4,074,079 $ 4,278,797
pledged to counterparties at March 31, 2018 and December 31, 2017,
respectively)
Non-Agency MBS at fair value (including $683,100 and $661,445 778,541 760,825
pledged to counterparties at March 31, 2018 and December 31, 2017,
respectively)
Residential mortgage loans held-for-investment(1) 611,006 639,351
Residential real estate 14,079 14,143
Cash and cash equivalents 15,420 12,273
Restricted cash 2,523 11,157
Interest and dividends receivable 17,887 18,091
Derivative instruments at fair value 59,057 27,793
Prepaid expenses and other 8,855 3,111
-------------------- --------- -------------------- -------------------- --------- --------------------
Total Assets $ 5,581,447 $ 5,765,541
==================== ========= ==================== ==================== ========= ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accrued interest payable $ 14,190 $ 15,835
Repurchase agreements 4,245,797 4,365,695
Asset-backed securities issued by securitization trusts(1) 601,639 629,984
Junior subordinated notes 37,380 37,380
Derivative instruments at fair value 7,863 1,335
Dividends payable on preferred stock 2,292 2,272
Dividends payable on common stock 14,732 14,721
Accrued expenses and other 1,182 897
-------------------- --------- -------------------- -------------------- --------- --------------------
$ 4,925,075 $ 5,068,119
Total Liabilities
-------------------- --------- -------------------- -------------------- --------- --------------------
Series B Cumulative Convertible Preferred Stock: par value $0.01 $ 19,455 $ 19,455
per share; liquidating preference $25.00 per share ($19,494 and
$19,494, respectively); 780 and 780 shares issued and outstanding
at March 31, 2018 and December 31, 2017, respectively)
Stockholders' Equity:
$ 46,537 $ 46,537
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
March 31, 2018 and December 31, 2017, respectively)
48,944 48,420
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
March 31, 2018 and December 31, 2017, respectively)
982 981
Common Stock: par value $0.01 per share; authorized 200,000
shares, 98,212 shares issued and outstanding at March 31, 2018 and
98,137 shares issued and outstanding at December 31, 2017,
respectively)
Additional paid-in capital 980,632 980,243
Accumulated other comprehensive income consisting of unrealized (5,060 ) 17,021
gains and losses
Accumulated deficit (435,118 ) (415,235 )
-------------------- --------- -------------------- -------------------- --------- --------------------
Total Stockholders' Equity $ 636,917 $ 677,967
-------------------- --------- -------------------- -------------------- --------- --------------------
Total Liabilities and Stockholders' Equity $ 5,581,447 $ 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 March 31, 2018 and
December 31, 2017, total assets of the consolidated VIEs were $613
million and $641 million, respectively (including accrued interest
receivable of $2.0 million and $2.1 million, respectively) (which
is recorded above in the line item entitled "Interest and
dividends receivable"), and total liabilities were $604 million
and $632 million, respectively (including accrued interest payable
of $2.0 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)
Three Months Ended
March 31,
-------------------------------------------------------------------------------------------------------------------------
2018 2017
------------------------------------------------- -------------------------------------------------
(unaudited)
Interest and other income:
Interest-Agency MBS $ 24,044 $ 17,103
Interest-Non-Agency MBS 10,021 9,568
Interest-residential mortgage loans 6,238 7,351
Other interest income 28 26
-------------------- ------- -------------------- -------------------- ------- --------------------
40,331 34,048
-------------------- ------- -------------------- -------------------- ------- --------------------
Interest Expense:
Interest expense on repurchase agreements 19,093 10,411
Interest expense on asset-backed securities 6,070 7,075
Interest expense on junior subordinated notes 447 384
-------------------- ------- -------------------- -------------------- ------- --------------------
25,610 17,870
-------------------- ------- -------------------- -------------------- ------- --------------------
Net interest income 14,721 16,178
-------------------- ------- -------------------- -------------------- ------- --------------------
Operating Expenses:
Management fee to related party (1,737 ) (1,821 )
Rental properties depreciation and expenses (386 ) (330 )
General and administrative expenses (1,110 ) (1,154 )
-------------------- ------- -------------------- -------------------- ------- --------------------
Total operating expenses (3,233 ) (3,305 )
-------------------- ------- -------------------- -------------------- ------- --------------------
Other (loss) income:
Income-rental properties 451 449
(Loss) on sales of MBS (19,314 ) (68 )
Impairment charge on Non-Agency MBS - (732 )
Unrealized (loss) gain on Agency MBS held as trading investments (8,890 ) 122
Gain on sales of residential mortgage loans held-for-investment - 378
Gain on derivatives, net 13,412 2,378
Recovery on Non-Agency MBS - 1
-------------------- ------- -------------------- -------------------- ------- --------------------
Total other (loss) income (14,341 ) 2,528
-------------------- ------- -------------------- -------------------- ------- --------------------
Net (loss) income $ (2,853 ) $ 15,401
-------------------- ------- -------------------- -------------------- ------- --------------------
Dividends on preferred stock (2,297 ) (1,755 )
-------------------- ------- -------------------- -------------------- ------- --------------------
Net (loss) income to common stockholders $ (5,150 ) $ 13,646
==================== ======= ==================== ==================== ======= ====================
Basic (loss) earnings per common share $ (0.05 ) $ 0.14
Diluted (loss) earnings per common share $ (0.05 ) $ 0.14
Basic weighted average number of shares outstanding 98,185 95,705
Diluted weighted average number of shares outstanding 98,185 100,544
ANWORTH MORTGAGE ASSET CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands, except for per share amounts)
March 31,
-----------------------------------------------------------------------------------------------------------------
2018 2017
------------------------------------------------- ------------------------------------------
(unaudited)
Net (loss) income $ (2,853 ) $ 15,401
-------------------- ------- -------------------- -------------------- --------------------
Available-for-sale Agency MBS, fair value adjustment (35,481 ) 2,335
11,945 68
Reclassification adjustment for loss on sales of Agency MBS
included in net (loss) income
Available-for-sale Non-Agency MBS, fair value adjustment 667 9,514
42 -
Reclassification adjustment for loss on sales of Non-Agency MBS
included in net (loss) income
Unrealized gains on interest rate swaps 940 540
(194 ) 74
Reclassification adjustment for interest expense on interest rate
swaps included in net (loss) income
-------------------- ------- -------------------- -------------------- --------------------
Other comprehensive (loss) income (22,081 ) 12,531
-------------------- ------- -------------------- -------------------- --------------------
Comprehensive (loss) income $ (24,934 ) $ 27,932
==================== ======= ==================== ==================== ====================
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 loss to common stockholders" for the three months ended March 31, 2018 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 the Company's total interest and other income for the three months ended March 31, 2018 (which is the nearest comparable GAAP measure) to the total interest income and average asset yield, including TBA dollar roll income, 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 are useful because they provide investors with greater transparency to the information that the Company uses in its financial and operational decision-making process;
-- the inclusion of paydown expense on Agency MBS is more indicative of the current earnings potential of the Company's 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 core earnings or funds from operations; and
-- the presentation of these measures, when analyzed in conjunction with the Company's GAAP operating results, allows investors to more effectively evaluate the Company's performance to that of its 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 the Company's operating results for the three months ended March 31, 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
March 31, 2018
------------------------------------------------------------------------------------------------------------------------
Amount Per Share
-------------------------------------------------- -------------------------------------------------
(in thousands)
---------------------------------------------------------------------- -------------------------------------------------
(unaudited)
Net loss to common stockholders $ (5,150 ) $ (0.05 )
Adjustments to derive core earnings:
Loss on sales of MBS 19,314 0.20
Unrealized loss (gain) on Agency MBS held as trading investments 8,890 0.09
(25,394 ) (0.26 )
Unrealized gain on interest rate swaps, net
Loss on derivatives-TBA Agency MBS, net 11,981 0.12
Amortization of other comprehensive income on de-designated interest (194 ) -
rate swaps(1)
Net settlement on interest rate swaps after de-designation(2) (402 ) (0.01 )
Dollar roll income on TBA Agency MBS(3) 2,596 0.03
Premium amortization on Agency MBS 7,601 0.08
Paydown expense(4) (5,628 ) (0.06 )
Depreciation expense on residential rental properties(5) 118 -
-------------------- ------- -------------------- -------------------- ------ --------------------
Core earnings $ 13,732 $ 0.14
==================== ======= ==================== ==================== ====== ====================
Basic weighted average number of shares outstanding 98,185
____________________
(1) This amount represents the amortization of the balance remaining in
"accumulated other comprehensive income" as a result of the
Company's discontinuation of hedge accounting in August 2014 and is
recorded in its statements of operations as a portion of interest
expense in accordance with GAAP.
(2) Net settlements on interest rate swaps after de-designation include
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 "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
March 31, 2018
----------------------------------------------------------------------------------------------
Amount Annualized
Percentage
---------------------------------------------------------------------- ------------------------------------------------- -------------------
(in thousands)
------------------------------------------------------------------------ ---------------------
(unaudited)
Average Asset Yield, Including TBA Dollar Roll Income:
Total interest income $ 40,331 3.04 %
Income-rental properties 451 0.01 %
Dollar roll income on TBA Agency MBS(1) 2,596 0.20 %
Premium amortization on Agency MBS 7,601 0.58 %
Paydown expense on Agency MBS(2) (5,628 ) -0.42 %
-------------------- --------- -------------------- ---------- ---------
Total interest and other income and average asset yield, including $ 45,351 3.41 %
TBA dollar roll income
==================== ========= ==================== ========== =========
Effective Cost of Funds:
Total interest expense $ 25,610 2.05 %
Net settlement on interest rate Swaps after de-designation(3) 402 0.03 %
Amortization of other comprehensive income on de-designated Swaps(4) 194 0.01 %
-------------------- --------- -------------------- ---------- ---------
Effective total interest expense and effective cost of funds $ 26,206 2.09 %
==================== ========= ==================== ========== =========
Effective net interest rate spread 1.32 %
========== =========
Average earning assets $ 5,312,243
-------------------- --------- --------------------
Average borrowings $ 5,004,488
-------------------- --------- --------------------
____________________
(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 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."
(4) This amount represents the amortization of the balance remaining in
"Accumulated other comprehensive income" as a result of the
Company's discontinuation of hedge accounting and is recorded in its
statements of operations as a portion of interest expense in
accordance with GAAP.
And so we are told this is the golden age
And gold is the reason for the wars we wage U2
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