Anworth Mortgage Asset Corporation (NYSE: ANH) (the “Company” or “Anworth”) today reported its financial results for the fourth quarter ended December 31, 2019.
Earnings
The following table summarizes the Company’s core earnings, GAAP net income to common stockholders, and comprehensive income for the three months ended December 31, 2019:
Three Months Ended | ||||||
December 31, 2019 | ||||||
(unaudited) | ||||||
Per | ||||||
Weighted | ||||||
Earnings | Share | |||||
(in thousands) | ||||||
Core earnings | $ | 6,781 | $ | 0.07 | ||
GAAP net income to common stockholders | $ | 27,445 | $ | 0.28 | ||
Comprehensive income | $ | 28,921 | $ | 0.29 | ||
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 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 December 31, 2019 and September 30, 2019, the composition of our portfolio at fair value was as follows:
December 31, 2019 | September 30, 2019 | |||||||||||
Dollar Amount | Percentage | Dollar Amount | Percentage | |||||||||
(in thousands) | ||||||||||||
(unaudited) | ||||||||||||
Agency MBS: | ||||||||||||
ARMS and hybrid ARMs | $ | 789,468 | 15.7 | % | $ | 1,009,254 | 20.7 | % | ||||
Fixed-rate Agency MBS | 2,720,583 | 54.1 | 2,096,384 | 43.0 | ||||||||
TBA Agency MBS | 253,516 | 5.0 | 456,387 | 9.4 | ||||||||
Total Agency MBS | $ | 3,763,567 | 74.8 | % | $ | 3,562,025 | 73.1 | % | ||||
Non-Agency MBS | 643,610 | 12.8 | 686,029 | 14.1 | ||||||||
Residential mortgage loans(1) | 458,348 | 9.1 | 483,648 | 9.9 | ||||||||
Residential mortgage loans held-for-securitization | 152,922 | 3.0 | 129,014 | 2.6 | ||||||||
Residential real estate | 13,499 | 0.3 | 13,618 | 0.3 | ||||||||
Total Portfolio | $ | 5,031,946 | 100.0 | % | $ | 4,874,334 | 100.0 | % | ||||
Total Assets(2) | $ | 5,191,616 | $ | 5,038,148 | ||||||||
| ______________________ | ||
(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 December 31, 2019, the allocation of our agency mortgage-backed securities (“Agency MBS”) was approximately 21% adjustable-rate and hybrid adjustable-rate Agency MBS, 72% fixed-rate Agency MBS, and 7% fixed-rate TBA Agency MBS. At September 30, 2019, the allocation of our agency mortgage-backed securities was approximately 28% adjustable-rate and hybrid adjustable-rate Agency MBS, 59% fixed-rate Agency MBS, and 13% fixed-rate TBA Agency MBS, both periods of which are detailed in the table below:
December 31, | September 30, | |||||||
2019 | 2019 | |||||||
(dollar amounts in thousands) | ||||||||
(unaudited) | ||||||||
Fair value of Agency MBS and TBA Agency MBS | $ | 3,763,567 | $ | 3,562,025 | ||||
Adjustable-rate Agency MBS coupon reset (less than 1 year) | 13 | % | 17 | % | ||||
Hybrid adjustable-rate Agency MBS coupon reset (1-3 years) | 2 | 2 | ||||||
Hybrid adjustable-rate Agency MBS coupon reset (3-5 years) | 3 | 6 | ||||||
Hybrid adjustable-rate Agency MBS coupon reset (greater than 5 years) | 3 | 3 | ||||||
Total adjustable-rate Agency MBS | 21 | % | 28 | % | ||||
15-year fixed-rate Agency MBS | 1 | 1 | ||||||
20-year fixed-rate Agency MBS | 5 | 6 | ||||||
30-year fixed-rate Agency MBS | 66 | 52 | ||||||
15-year fixed-rate TBA Agency MBS | — | — | ||||||
30-year fixed-rate TBA Agency MBS | 7 | 13 | ||||||
Total MBS | 100 | % | 100 | % | ||||
At December 31, 2019 and September 30, 2019, the summary statistics of our Agency MBS and TBA Agency MBS were as follows:
December 31, 2019 | ||||||||||
Weighted Average | ||||||||||
Fair Market | ||||||||||
Coupon | Cost | Price | ||||||||
(unaudited) | ||||||||||
Agency MBS: | ||||||||||
Adjustable-rate Agency MBS | 3.95 | % | 102.04 | % | $ | 104.24 | ||||
Hybrid adjustable-rate Agency MBS | 2.78 | 102.11 | 101.67 | |||||||
15-year fixed-rate Agency MBS | 3.50 | 101.81 | 103.92 | |||||||
20-year fixed-rate Agency MBS | 3.56 | 103.96 | 104.65 | |||||||
30-year fixed-rate Agency MBS | 3.56 | 102.33 | $ | 103.75 | ||||||
Total Agency MBS: | 3.54 | % | 102.35 | % | ||||||
Average asset yield (weighted average coupon divided by average amortized cost) | 3.46 | % | ||||||||
Unamortized premium | $ | 79.4 million | ||||||||
Unamortized premium as a percentage of par value | 2.35 | % | ||||||||
Premium amortization expense on Agency MBS for the respective quarter | $ | 7.0 million | ||||||||
TBA Agency MBS: | ||||||||||
30-year fixed-rate TBA Agency MBS | 3.00 | % | 101.19 | % | $ | 101.41 | ||||
September 30, 2019 | ||||||||||
Weighted Average | ||||||||||
Fair Market | ||||||||||
Coupon | Cost | Price | ||||||||
(unaudited) | ||||||||||
Agency MBS: | ||||||||||
Adjustable-rate Agency MBS | 3.96 | % | 102.29 | % | $ | 103.79 | ||||
Hybrid adjustable-rate Agency MBS | 2.71 | 102.25 | 101.66 | |||||||
15-year fixed-rate Agency MBS | 3.50 | 101.82 | 103.67 | |||||||
20-year fixed-rate Agency MBS | 3.56 | 104.09 | 104.91 | |||||||
30-year fixed-rate Agency MBS | 3.85 | 102.39 | $ | 104.40 | ||||||
Total Agency MBS: | 3.69 | % | 102.46 | % | ||||||
Average asset yield (weighted average coupon divided by average amortized cost) | 3.60 | % | ||||||||
Unamortized premium | $ | 73.0 million | ||||||||
Unamortized premium as a percentage of par value | 2.46 | % | ||||||||
Premium amortization expense on Agency MBS for the respective quarter | $ | 6.4 million | ||||||||
TBA Agency MBS: | ||||||||||
30-year fixed-rate TBA Agency MBS | 3.00 | % | 101.42 | % | $ | 101.53 | ||||
At December 31, 2019 and September 30, 2019, the constant prepayment rate (“CPR”) and weighted average term to next interest rate reset of our Agency MBS were as follows:
December 31, | September 30, | |||||
2019 | 2019 | |||||
(unaudited) | ||||||
Constant prepayment rate (CPR) of Agency MBS | 25 | % | 21 | % | ||
Constant prepayment rate (CPR) of adjustable-rate and hybrid adjustable-rate Agency MBS | 32 | % | 28 | % | ||
Weighted average term to next interest rate reset on Agency MBS | 24 months | 25 months | ||||
The following tables summarize our fixed-rate Agency MBS at December 31, 2019 and September 30, 2019:
December 31, 2019 | ||||||||||||||
Weighted | ||||||||||||||
Average | ||||||||||||||
Weighted | Remaining | |||||||||||||
Market | Fair Market | Average | Term | |||||||||||
Value | Cost | Price | Coupon | (Years) | ||||||||||
(in thousands) | ||||||||||||||
(unaudited) | ||||||||||||||
30-Year Fixed-Rate Agency MBS: | ||||||||||||||
3.00% | $ | 872,360 | $ | 101.61 | $ | 101.73 | 3.00 | % | 29.9 | |||||
3.50% | 599,568 | 103.09 | 103.72 | 3.50 | 29.1 | |||||||||
4.00% | 869,749 | 102.42 | 105.43 | 4.00 | 28.7 | |||||||||
≥4.5% | 136,103 | 103.12 | 106.55 | 4.71 | 27.1 | |||||||||
$ | 2,477,780 | $ | 102.33 | $ | 103.75 | 3.56 | % | 29.1 | ||||||
15-Year to 20-Year Fixed-Rate Agency MBS | 242,803 | 103.53 | 104.50 | 3.55 | 16.5 | |||||||||
Total Fixed-Rate Agency MBS | $ | 2,720,583 | $ | 102.43 | $ | 103.81 | 3.56 | % | 28.0 | |||||
September 30, 2019 | ||||||||||||||
Weighted | ||||||||||||||
Average | ||||||||||||||
Weighted | Remaining | |||||||||||||
Market | Fair Market | Average | Term | |||||||||||
Value | Cost | Price | Coupon | (Years) | ||||||||||
(in thousands) | ||||||||||||||
(unaudited) | ||||||||||||||
30-Year Fixed-Rate Agency MBS: | ||||||||||||||
3.00% | $ | 190,663 | $ | 101.12 | $ | 101.74 | 3.00 | % | 30.0 | |||||
3.50% | 365,477 | 102.75 | 103.44 | 3.50 | 28.8 | |||||||||
4.00% | 1,130,687 | 102.41 | 102.41 | 4.00 | 28.9 | |||||||||
≥4.5% | 153,332 | 103.03 | 106.92 | 4.70 | 27.4 | |||||||||
$ | 1,840,159 | $ | 102.39 | $ | 104.40 | 3.85 | % | 28.9 | ||||||
15-Year to 20-Year Fixed-Rate Agency MBS | 256,225 | 103.63 | 104.66 | 3.56 | 16.7 | |||||||||
Total Fixed-Rate Agency MBS | $ | 2,096,384 | $ | 102.54 | $ | 104.43 | 3.81 | % | 27.4 | |||||
Non-Agency MBS
The following tables summarize our Non-Agency MBS at December 31, 2019 and September 30, 2019:
December 31, 2019 | ||||||||||||||||||
Weighted Average | ||||||||||||||||||
Fair | Amortized | Current | Amortized | Fair Market | ||||||||||||||
Portfolio Type | Value | Cost | Principal | Cost | Coupon | Yield | Price | |||||||||||
(in thousands) | ||||||||||||||||||
(unaudited) | ||||||||||||||||||
Legacy Non-Agency MBS (pre-2008) | $ | 497,408 | $ | 477,786 | $ | 655,447 | 72.89 | % | 5.52 | % | 5.49 | % | 75.89 | % | ||||
Non-performing | 11,052 | 10,938 | 11,000 | 99.43 | 5.50 | 6.05 | 100.47 | |||||||||||
Credit Risk Transfer | 135,150 | 124,852 | 135,489 | 92.15 | 4.20 | 5.80 | 99.75 | |||||||||||
Total Non-Agency MBS | $ | 643,610 | $ | 613,576 | $ | 801,936 | 76.51 | % | 5.30 | % | 5.56 | % | 80.26 | % | ||||
September 30, 2019 | ||||||||||||||||||
Weighted Average | ||||||||||||||||||
Fair | Amortized | Current | Amortized | Fair Market | ||||||||||||||
Portfolio Type | Value | Cost | Principal | Cost | Coupon | Yield | Price | |||||||||||
(in thousands) | ||||||||||||||||||
(unaudited) | ||||||||||||||||||
Legacy Non-Agency MBS (pre-2008) | $ | 518,812 | $ | 495,165 | $ | 674,394 | 73.42 | % | 5.59 | % | 5.54 | % | 76.93 | % | ||||
Non-performing | 26,430 | 26,199 | 26,360 | 99.39 | 5.33 | 5.94 | 100.27 | |||||||||||
Credit Risk Transfer | 140,787 | 130,833 | 141,839 | 92.24 | 4.25 | 5.77 | 99.26 | |||||||||||
Total Non-Agency MBS | $ | 686,029 | $ | 652,197 | $ | 842,593 | 77.40 | % | 5.36 | % | 5.61 | % | 81.42 | % | ||||
Residential Mortgage Loans Held-for-Investment
The following table summarizes our residential mortgage loans held-for-investment at December 31, 2019 and September 30, 2019:
December 31, | September 30, | |||||
2019 | 2019 | |||||
(in thousands) | ||||||
(unaudited) | ||||||
Residential mortgage loans held-for-investment | $ | 458,348 | $ | 483,648 | ||
Asset-backed securities issued by securitization trusts | 448,987 | 474,285 | ||||
Retained interest in loans held in securitization trusts | $ | 9,361 | $ | 9,363 | ||
Residential Mortgage Loans Held-for-Securitization
The following table summarizes our residential mortgage loans held-for-securitization at December 31, 2019 and September 30, 2019:
December 31, | September 30, | |||||
2019 | 2019 | |||||
(in thousands) | ||||||
(unaudited) | ||||||
Residential mortgage loans held-for-securitization | $ | 152,922 | $ | 129,014 | ||
Amount outstanding on warehouse line of credit | $ | 133,811 | $ | 112,252 | ||
Payable for purchased loans | $ | 5,545 | $ | — | ||
Residential Properties Portfolio
At December 31, 2019 and September 30, 2019, Anworth Properties Inc. owned 85 and 86 single-family residential rental properties, respectively, located in Southeastern Florida that were carried at a total cost, net of accumulated depreciation, of $13.5 million and $13.6 million, respectively.
MBS Portfolio Financing
December 31, 2019 | ||||||||||||
Agency | Non-Agency | Total | ||||||||||
MBS | MBS | MBS | ||||||||||
(dollar amounts in thousands) | ||||||||||||
(unaudited) | ||||||||||||
Repurchase Agreements: | ||||||||||||
Outstanding repurchase agreement balance | $ | 3,230,000 | $ | 427,873 | $ | 3,657,873 | ||||||
Average interest rate | 1.97 | % | 2.80 | % | 2.07 | % | ||||||
Average maturity | 30 days | 11 days | 28 days | |||||||||
Average interest rate after adjusting for interest rate swaps | 2.13 | % | ||||||||||
Average maturity after adjusting for interest rate swaps | 978 days | |||||||||||
September 30, 2019 | ||||||||||||
Agency | Non-Agency | Total | ||||||||||
MBS | MBS | MBS | ||||||||||
(dollar amounts in thousands) | ||||||||||||
(unaudited) | ||||||||||||
Repurchase Agreements: | ||||||||||||
Outstanding repurchase agreement balance | $ | 2,780,000 | $ | 475,102 | $ | 3,255,102 | ||||||
Average interest rate | 2.29 | % | 3.12 | % | 2.41 | % | ||||||
Average maturity | 33 days | 18 days | 31 days | |||||||||
Average interest rate after adjusting for interest rate swaps | 2.34 | % | ||||||||||
Average maturity after adjusting for interest rate swaps | 940 days | |||||||||||
Portfolio Leverage
At December 31, 2019, our leverage multiple was 6.2x. The leverage multiple is calculated by dividing our repurchase agreements and credit line outstanding by the aggregate of common stockholders’ equity plus preferred stock and junior subordinated notes. The effective leverage, which includes the effect of TBA dollar roll financing, was 6.64x at December 31, 2019. At September 30, 2019, our leverage multiple was 5.69x and the effective leverage was 6.46x.
Interest Rate Swaps
At December 31, 2019 and September 30, 2019, our interest rate swap agreements (“Swaps”) had the following notional amounts, weighted average fixed rates, and remaining terms:
December 31, 2019 | ||||||||||
Weighted | ||||||||||
Average | Remaining | Remaining | ||||||||
Notional | Fixed | Term in | Term in | |||||||
Maturity | Amount | Rate | Months | Years | ||||||
(in thousands) | ||||||||||
(unaudited) | ||||||||||
Less than 12 months | $ | 541,000 | 1.70 | % | 7 | 0.6 | ||||
1 year to 2 years | 190,000 | 1.63 | 21 | 1.8 | ||||||
2 years to 3 years | 335,000 | 1.65 | 34 | 2.8 | ||||||
3 years to 4 years | 295,000 | 1.71 | 45 | 3.8 | ||||||
4 years to 5 years | 550,000 | 2.18 | 61 | 4.7 | ||||||
5 years to 7 years | 390,000 | 2.51 | 85 | 7.1 | ||||||
7 years to 10 years | 200,000 | 2.94 | 103 | 8.6 | ||||||
$ | 2,501,000 | 2.02 | % | 48 | 4.0 | |||||
September 30, 2019 | ||||||||||
Weighted | ||||||||||
Average | Remaining | Remaining | ||||||||
Notional | Fixed | Term in | Term in | |||||||
Maturity | Amount | Rate | Months | Years | ||||||
(in thousands) | ||||||||||
(unaudited) | ||||||||||
Less than 12 months | $ | 541,000 | 1.65 | % | 6 | 0.5 | ||||
1 year to 2 years | 275,000 | 1.61 | 16 | 1.3 | ||||||
2 years to 3 years | 155,000 | 1.71 | 34 | 2.8 | ||||||
3 years to 4 years | 205,000 | 1.78 | 47 | 3.9 | ||||||
4 years to 5 years | 225,000 | 2.12 | 57 | 4.7 | ||||||
5 years to 7 years | 425,000 | 2.41 | 74 | 6.2 | ||||||
7 years to 10 years | 365,000 | 2.96 | 100 | 8.3 | ||||||
$ | 2,191,000 | 2.08 | % | 47 | 3.9 | |||||
Effective Net Interest Rate Spread
December 31, | September 30, | |||||
2019 | 2019 | |||||
(unaudited) | ||||||
Average asset yield, including TBA dollar roll income | 3.46 | % | 3.62 | % | ||
Effective cost of funds | 2.57 | 2.71 | ||||
Effective net interest rate spread | 0.89 | % | 0.91 | % | ||
Certain components of our effective net interest rate spread are non-GAAP financial measures, which are explained and reconciled to the nearest comparable GAAP financial measures in the section entitled “Non-GAAP Financial Measures Related to Operating Results” at the end of this earnings release.
Dividend
On December 17, 2019, we declared a quarterly common stock dividend of $0.09 per share for the fourth quarter ended December 31, 2019. Based upon the closing price of $3.52 on December 31, 2019, the annualized dividend yield on our common stock at December 31, 2019 was 10.2%.
Book Value per Common Share
At December 31, 2019, our book value was $4.60 per share of common stock, which was an increase of $0.18 from $4.42 at September 30, 2019.
The $0.09 quarterly dividend, plus the $0.18 increase in book value per common share from the prior quarter, resulted in a return on book value per common share of 6.1% for the three months ended December 31, 2019 and 7.2% for the year ended December 31, 2019.
Subsequent Events
On January 1, 2020, the conversion rate of our Series B Preferred Stock increased from 5.5379 to 5.5992 shares of our common stock, based upon the common stock dividend of $0.09 per share that was declared on December 17, 2019.
Conference Call
The Company will host a conference call on Wednesday, February 26, 2020 at 1:00 PM Eastern Time, 10:00 AM Pacific Time, to discuss our fourth quarter 2019 results. The dial-in number for the conference call is 877-504-2731 for U.S. callers (international callers should dial 412-902-6640 and Canadian callers should dial 855-669-9657). When dialing in, participants should ask to be connected to the Anworth Mortgage earnings call. Replays of the call will be available for a 7-day period commencing at 3:00 PM Eastern Time on February 26, 2020. 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 10136439. The conference call will also be webcast live over the Internet, which can be accessed on our website at http://www.anworth.com through the corresponding link located at the top of the home page.
Investors interested in participating in our Dividend Reinvestment and Stock Purchase Plan (our “DRP Plan”), or receiving a copy of the DRP Plan’s prospectus, may do so by contacting our Plan Administrator, American Stock Transfer & Trust Company, at 877-248-6410. For more information about our Plan, interested investors may also visit our Plan Administrator’s website at http://www.amstock.com/investpower/new_dp.asp or our website at http://www.anworth.com.
About Anworth Mortgage Asset Corporation
We are an externally-managed mortgage real estate investment trust (“REIT”). We invest primarily in mortgage-backed securities that are either rated “investment grade” or are guaranteed by federally sponsored enterprises, such as Fannie Mae or Freddie Mac. We seek to generate income for distribution to our shareholders primarily based on the difference between the yield on our mortgage assets and the cost of our borrowings. We are managed by Anworth Management LLC (our “Manager”), pursuant to a management agreement. Our Manager is subject to the supervision and direction of our Board and is responsible for (i) the selection, purchase, and sale of our investment portfolio; (ii) our financing and hedging activities; and (iii) providing us with portfolio management, administrative, and other services relating to our assets and operations as may be appropriate. Our common stock is traded on the New York Stock Exchange under the symbol “ANH.” Anworth Mortgage Asset Corporation is a component of the Russell 2000® Index.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
This news release may contain forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based upon our current expectations and speak only as of the date hereof. Forward-looking statements, which are based on various assumptions (some of which are beyond our control) may be identified by reference to a future period or periods or by the use of forward-looking terminology, such as “may,” “will,” “believe,” “expect,” “anticipate,” “assume,” “estimate,” “intend,” “continue,” or other similar terms or variations on those terms or the negative of those terms. Our actual results may differ materially and adversely from those expressed in any forward-looking statements as a result of various factors and uncertainties, including but not limited to, changes in interest rates; changes in the market value of our mortgage-backed securities; changes in the yield curve; the availability of mortgage-backed securities for purchase; increases in the prepayment rates on the mortgage loans securing our mortgage-backed securities; our ability to use borrowings to finance our assets and, if available, the terms of any financing; risks associated with investing in mortgage-related assets; changes in business conditions and the general economy; implementation of or changes in government regulations affecting our business; our ability to maintain our qualification as a real estate investment trust for federal income tax purposes; our ability to maintain an exemption from the Investment Company Act of 1940, as amended; risks associated with our home rental business; and the Manager’s ability to manage our growth. Our Annual Report on Form 10-K and other SEC filings discuss the most significant risk factors that may affect our business, results of operations, and financial condition. We undertake no obligation to revise or update publicly any forward-looking statements for any reason.
ANWORTH MORTGAGE ASSET CORPORATION AND SUBSIDIARIES | ||||||||
CONSOLIDATED BALANCE SHEETS | ||||||||
(in thousands, except per share amounts) | ||||||||
December 31, | December 31, | |||||||
2019 | 2018 | |||||||
(audited) | ||||||||
ASSETS | ||||||||
Agency MBS at fair value (including 3,419,375 and $3,433,252 pledged to counterparties at December 31, 2019 and December 31, 2018, respectively) | $ | 3,510,051 | $ | 3,548,719 | ||||
Non-Agency MBS at fair value (including $535,315 and $726,428 pledged to counterparties at December 31, 2019 and December 31, 2018, respectively) | 643,610 | 795,203 | ||||||
Residential mortgage loans held-for-securitization | 152,922 | 11,660 | ||||||
Residential mortgage loans held-for-investment through consolidated securitization trusts(1) | 458,348 | 549,016 | ||||||
Residential real estate | 13,499 | 13,782 | ||||||
Cash and cash equivalents | 8,236 | 3,165 | ||||||
Reverse repurchase agreements | 15,000 | 20,000 | ||||||
Restricted cash | 104,699 | 30,296 | ||||||
Interest receivable | 16,398 | 16,872 | ||||||
Derivative instruments at fair value | 5,833 | 46,207 | ||||||
Right to use asset-operating lease | 1,256 | 1,794 | ||||||
Prepaid expenses and other assets | 8,779 | 2,986 | ||||||
Total Assets | $ | 4,938,631 | $ | 5,039,700 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Liabilities: | ||||||||
Accrued interest payable | $ | 16,757 | $ | 24,828 | ||||
Repurchase agreements | 3,657,873 | 3,811,627 | ||||||
Warehouse line of credit | 133,811 | — | ||||||
Asset-backed securities issued by securitization trusts(1) | 448,987 | 539,651 | ||||||
Junior subordinated notes | 37,380 | 37,380 | ||||||
Derivative instruments at fair value | 52,197 | 15,901 | ||||||
Derivative counterparty margin | 367 | — | ||||||
Dividends payable on preferred stock | 2,297 | 2,297 | ||||||
Dividends payable on common stock | 8,897 | 12,803 | ||||||
Payable for purchased loans | 5,545 | 11,660 | ||||||
Accrued expenses and other liabilities | 1,312 | 654 | ||||||
Long-term lease obligation | 1,256 | 1,794 | ||||||
Total Liabilities | $ | 4,366,679 | $ | 4,458,595 | ||||
Series B Cumulative Convertible Preferred Stock: par value $0.01 per share; liquidating preference $25.00 per share ($19,494 and $19,494, respectively); 780 and 780 shares issued and outstanding at December 31, 2019 and December 31, 2018, respectively) | $ | 19,455 | $ | 19,455 | ||||
Stockholders' Equity: | ||||||||
Series A Cumulative Preferred Stock: par value $0.01 per share; liquidating preference $25.00 per share ($47,984 and $47,984, respectively); 1,919 and 1,919 shares issued and outstanding at December 31, 2019 and December 31, 2018, respectively) | $ | 46,537 | $ | 46,537 | ||||
Series C Cumulative Preferred Stock: par value $0.01 per share; liquidating preference $25.00 per share ($50,257 and $50,257, respectively); 2,010 and 2,010 shares issued and outstanding at December 31, 2019 and December 31, 2018, respectively) | 48,626 | 48,944 | ||||||
Common Stock: par value $0.01 per share; authorized 200,000 shares, 98,849 and 98,483 shares issued and outstanding at December 31, 2019 and December 31, 2018, respectively) | 988 | 985 | ||||||
Additional paid-in capital | 983,401 | 981,964 | ||||||
Accumulated other comprehensive (loss) income consisting of unrealized gains and losses | 65,984 | (30,792 | ) | |||||
Accumulated deficit | (593,039 | ) | (485,988 | ) | ||||
Total Stockholders' Equity | $ | 552,497 | $ | 561,650 | ||||
Total Liabilities and Stockholders' Equity | $ | 4,938,631 | $ | 5,039,700 | ||||
| ______________________________ | ||
| (1) | The consolidated balance sheets include assets of consolidated variable interest entities (“VIEs”) that can only be used to settle obligations and liabilities of the VIEs for which creditors do not have recourse to the Company. At December 31, 2019 and December 31, 2018, total assets of the consolidated VIEs were $460 million and $551 million (including accrued interest receivable of $1.5 million and $1.8 million), respectively (which is recorded above in the line item “Interest receivable”), and total liabilities were $450 million and $541 million (including accrued interest payable of $1.4 million and $1.7 million), respectively (which is recorded above in the line item “Accrued interest payable”). | |
| ANWORTH MORTGAGE ASSET CORPORATION AND SUBSIDIARIES | ||||||||||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||
(in thousands, except for per share amounts) | ||||||||||||||||
Three | Three | |||||||||||||||
Months | Year | Months | Year | |||||||||||||
Ended | Ended | Ended | Ended | |||||||||||||
December 31, 2019 | December 31, 2018 | |||||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Interest and other income: | ||||||||||||||||
Interest-Agency MBS | $ | 19,990 | $ | 90,173 | $ | 23,208 | $ | 95,656 | ||||||||
Interest-Non-Agency MBS | 8,614 | 38,038 | 10,445 | 40,733 | ||||||||||||
Interest-securitized residential mortgage loans | 4,767 | 20,443 | 5,519 | 23,463 | ||||||||||||
Interest-residential mortgage loans held-for-securitization | 1,618 | 4,314 | — | — | ||||||||||||
Other interest income | 253 | 1,427 | 29 | 120 | ||||||||||||
35,242 | 154,395 | 39,201 | 159,972 | |||||||||||||
Interest expense: | ||||||||||||||||
Interest expense on repurchase agreements | 18,489 | 92,737 | 25,362 | 90,511 | ||||||||||||
Interest expense on asset-backed securities | 4,600 | 19,771 | 5,351 | 22,800 | ||||||||||||
Interest expense on warehouse line of credit | 1,477 | 4,148 | — | — | ||||||||||||
Interest expense on junior subordinated notes | 492 | 2,100 | 526 | 1,996 | ||||||||||||
25,058 | 118,756 | 31,239 | 115,307 | |||||||||||||
Net interest income | 10,184 | 35,639 | 7,962 | 44,665 | ||||||||||||
Operating expenses: | ||||||||||||||||
Management fee to related party | (1,614 | ) | (6,699 | ) | (2,060 | ) | (7,098 | ) | ||||||||
Rental properties depreciation and expenses | (372 | ) | (1,517 | ) | (367 | ) | (1,525 | ) | ||||||||
General and administrative expenses | (1,277 | ) | (5,090 | ) | (1,248 | ) | (4,880 | ) | ||||||||
Total operating expenses | (3,263 | ) | (13,306 | ) | (3,675 | ) | (13,503 | ) | ||||||||
Other income (loss): | ||||||||||||||||
Income-rental properties | 441 | 1,800 | 428 | 1,761 | ||||||||||||
Realized net gain (loss) on sales of available-for-sale MBS | 1,338 | (3,983 | ) | (999 | ) | (12,186 | ) | |||||||||
Realized net gain (loss) on sales of Agency MBS held as trading investments | 1,342 | (5,787 | ) | (3,871 | ) | (11,429 | ) | |||||||||
Impairment charge on Non-Agency MBS | (357 | ) | (2,108 | ) | (971 | ) | (2,869 | ) | ||||||||
Unrealized gain (loss) on Agency MBS held as trading investments | (798 | ) | 17,036 | 9,674 | (4,911 | ) | ||||||||||
Gain on sale of residential properties | 31 | 31 | 23 | 54 | ||||||||||||
(Loss) gain on derivatives, net | 20,824 | (84,741 | ) | (44,504 | ) | (8,071 | ) | |||||||||
Recovery on Non-Agency MBS | — | — | — | 1 | ||||||||||||
Total other income (loss) | 22,821 | (77,752 | ) | (40,220 | ) | (37,650 | ) | |||||||||
Net income (loss) | $ | 29,742 | $ | (55,419 | ) | $ | (35,933 | ) | $ | (6,488 | ) | |||||
Dividends on preferred stock | (2,297 | ) | (9,189 | ) | (2,297 | ) | (9,189 | ) | ||||||||
Net income (loss) to common stockholders | $ | 27,445 | $ | (64,608 | ) | $ | (38,230 | ) | $ | (15,677 | ) | |||||
Basic income (loss) per common share | $ | 0.28 | $ | (0.65 | ) | $ | (0.39 | ) | $ | (0.16 | ) | |||||
Diluted income (loss) per common share | $ | 0.27 | $ | (0.65 | ) | $ | (0.39 | ) | $ | (0.16 | ) | |||||
Basic weighted average number of shares outstanding | 98,823 | 98,739 | 98,444 | 98,314 | ||||||||||||
Diluted weighted average number of shares outstanding | 103,141 | 98,739 | 98,444 | 98,314 | ||||||||||||
| ANWORTH MORTGAGE ASSET CORPORATION AND SUBSIDIARIES | ||||||||||||||||
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | ||||||||||||||||
(in thousands, except for per share amounts) | ||||||||||||||||
Three | Three | |||||||||||||||
Months | Year | Months | Year | |||||||||||||
Ended | Ended | Ended | Ended | |||||||||||||
December 31, 2019 | December 31, 2018 | |||||||||||||||
Net income (loss) | $ | 29,742 | $ | (55,419 | ) | $ | (35,933 | ) | $ | (6,488 | ) | |||||
Available-for-sale Agency MBS, fair value adjustment | 3,160 | 68,355 | 22,071 | (43,348 | ) | |||||||||||
Reclassification adjustment for (gain) loss on sales of Agency MBS included in net income (loss) | (1,054 | ) | 4,059 | 999 | 12,361 | |||||||||||
Available-for-sale Non-Agency MBS, fair value adjustment | (3,548 | ) | 20,547 | (13,784 | ) | (20,463 | ) | |||||||||
Reclassification adjustment for (gain) on sales of Non-Agency MBS included in net income (loss) | (285 | ) | (76 | ) | — | (175 | ) | |||||||||
Amortization of unrealized gains on interest rate swaps remaining in other comprehensive income | 906 | 3,891 | 1,019 | 4,025 | ||||||||||||
Reclassification adjustment for interest (income) on interest rate swaps included in net income (loss) | — | — | — | (212 | ) | |||||||||||
Other comprehensive income (loss) | (821 | ) | 96,776 | 10,305 | (47,812 | ) | ||||||||||
Comprehensive income (loss) | $ | 28,921 | $ | 41,357 | $ | (25,628 | ) | $ | (54,300 | ) | ||||||
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 December 31, 2019 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 December 31, 2019 (which is the nearest comparable GAAP measure) to our total interest income and average asset yield, including TBA dollar roll income, and shows the annualized amounts as a percentage of our average earning assets, and also reconciles our total interest expense (which is the nearest comparable GAAP measure) to our effective total interest expense and effective cost of funds and shows the annualized amounts as a percentage of our average borrowings.
The Company’s management believes that:
- these non-GAAP financial measures are useful because they provide investors with greater transparency to the information that we use in our financial and operational decision-making process;
- the inclusion of paydown expense on Agency MBS is more indicative of the current earnings potential of our investment portfolio, as it reflects the actual principal paydowns which occurred during the period. Paydown expense on Agency MBS is not dependent on future assumptions on prepayments, or the cumulative effect from prior periods of any current changes to those assumptions, as is the case with the GAAP measure, “Premium amortization on Agency MBS”;
- the adjustment for depreciation expense on residential rental properties, as this is a non-cash item and is added back by other companies to derive funds from operations; and
- the presentation of these measures, when analyzed in conjunction with our GAAP operating results, allows investors to more effectively evaluate our performance to that of our peers, particularly those that have discontinued hedge accounting and those that have used similar portfolio and derivative strategies.
These non-GAAP financial measures should not be used as a substitute for our operating results for the three months ended December 31, 2019. An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP.
Core Earnings
Three Months Ended | ||||||||
December 31, 2019 | ||||||||
Amount | Per Share | |||||||
(in thousands) | ||||||||
(unaudited) | ||||||||
Net income to common stockholders | $ | 27,445 | $ | 0.28 | ||||
Adjustments to derive core earnings: | ||||||||
(Gain) on sales of MBS | (2,680 | ) | (0.03 | ) | ||||
Impairment charge on Non-Agency MBS(1) | 357 | — | ||||||
Unrealized loss on Agency MBS held as trading investments | 798 | 0.01 | ||||||
Unrealized (gain) on interest rate swaps, net | (21,240 | ) | (0.21 | ) | ||||
Loss on derivatives-TBA Agency MBS, net | 416 | 0.01 | ||||||
(Gain) on sales of residential properties | (31 | ) | — | |||||
Net settlement on interest rate swaps after de-designation(2) | 109 | — | ||||||
Dollar roll income on TBA Agency MBS(3) | 1,035 | 0.01 | ||||||
Premium amortization on MBS | 7,033 | 0.07 | ||||||
Paydown expense(4) | (6,581 | ) | (0.07 | ) | ||||
Depreciation expense on residential rental properties(5) | 120 | — | ||||||
Core earnings | $ | 6,781 | $ | 0.07 | ||||
Basic weighted average number of shares outstanding | 98,823 | |||||||
(1) | Impairment charge on Non-Agency MBS represents the amount applied against current GAAP earnings when future loss expectations exceed previously existing expectations. When future loss expectations become less than previously existing loss expectations, the difference would be amortized into earnings over the life of the security. | |
(2) | Net settlement on interest rate swaps after de-designation includes all subsequent net payments made on interest rate swaps which were de-designated as hedges in August 2014 and also on any new interest rate swaps entered into after that date. These amounts are recorded in “Unrealized loss on interest rate swaps, net.” | |
(3) | Dollar roll income on TBA Agency MBS is the income resulting from the price discount typically obtained by extending the settlement of TBA Agency MBS to a later date. This is a component of the “Loss on derivatives, net” that is included in our consolidated statements of operations. | |
(4) | Paydown expense on Agency MBS represents the proportional expense of Agency MBS purchase premiums relative to the Agency MBS principal payments and prepayments which occurred during the quarter. | |
(5) | Depreciation expense is added back in the core earnings calculation, as it is a non-cash item, and it is similarly added back in other companies’ calculation of core earnings or funds from operations. |
Effective Net Interest Rate Spread
Three Months Ended | |||||||
December 31, 2019 | |||||||
Annualized | |||||||
Amount | Percentage | ||||||
(in thousands) | |||||||
(unaudited) | |||||||
Average Asset Yield, Including TBA Dollar Roll Income: | |||||||
Total interest income | $ | 35,242 | 3.31 | % | |||
Income-rental properties | 441 | 0.04 | |||||
Dollar roll income on TBA Agency MBS(1) | 1,035 | 0.10 | |||||
Premium amortization on Agency MBS | 7,033 | 0.66 | |||||
Paydown expense on Agency MBS(2) | (6,581 | ) | (0.62 | ) | |||
Less: Other income | (253 | ) | (0.03 | ) | |||
Total interest and other income and average asset yield, including TBA dollar roll income | $ | 36,917 | 3.46 | % | |||
Effective Cost of Funds: | |||||||
Total interest expense | $ | 25,058 | 2.58 | % | |||
Net settlement on interest rate Swaps after de-designation(3) | (109 | ) | (0.01 | ) | |||
Effective total interest expense and effective cost of funds | $ | 24,949 | 2.57 | % | |||
Effective net interest rate spread | 0.89 | % | |||||
Average earning assets | $ | 4,264,155 | |||||
Average borrowings | $ | 3,890,679 | |||||
| ______________________ | |
(1) | Dollar roll income on TBA Agency MBS is the income resulting from the price discount typically obtained by extending the settlement of TBA Agency MBS to a later date. This is a component of the “(Loss) gain on derivatives, net” that is shown on our consolidated statements of operations. |
(2) | Paydown expense on Agency MBS represents the proportional expense of Agency MBS purchase premiums relative to the Agency MBS principal payments and prepayments which occurred during the three-month period. |
(3) | Net settlement on interest rate swaps after de-designation include all subsequent net payments made or received on interest rate swaps which were de-designated as hedges in August 2014 and also on any new interest rate swaps entered into after that date. These amounts are recorded in “Unrealized loss on interest rate swaps, net.” |
View source version on businesswire.com: https://www.businesswire.com/news/home/20200225005934/en/
Contacts:
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
