Anworth Mortgage Asset Corporation (NYSE: ANH) (the “Company”)
today reported its financial results for the fourth quarter ended
December 31, 2017.
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, 2017:
Three Months Ended December 31, 2017
Earnings Earnings Per
Weighted
Share
(in thousands) (unaudited) Core earnings $ 13,967 $
0.14 GAAP net income to common stockholders $ 13,926 $ 0.14
Comprehensive income $ 3,967 $ 0.04
Core earnings is a non-GAAP financial measure, which is
explained and reconciled to GAAP net income to common stockholders
in the section entitled “Non-GAAP Financial Measures Related to
Operating Results” near the end of this earnings release.
Comprehensive income is shown on the consolidated statements of
comprehensive income, which is included in this earnings release.
Comprehensive income consists of the net income to all stockholders
(including the amounts paid to preferred stockholders) and the
change in other comprehensive income.
Portfolio
At December 31, 2017 and September 30, 2017, the composition of
the Company’s portfolio at fair value was as follows:
December 31, 2017 September 30,
2017 Dollar Amount Percentage Dollar
Amount Percentage (in thousands) (in
thousands) (unaudited) (unaudited) Agency MBS:
ARMS and hybrid ARMs $ 2,136,543 33.1 % $ 2,291,063 35.5 %
Fixed-rate Agency MBS 2,142,254 33.3 % 1,989,471 30.8 % TBA Agency
MBS 756,701 11.7 % 761,333 11.8 % Total Agency MBS $
5,035,498 78.1 % $ 5,041,867 78.1 % Non-Agency MBS 760,825 11.8 %
728,075 11.3 % Residential mortgage loans(1) 639,351 9.9 % 667,880
10.4 % Residential real estate 14,143 0.2 % 14,185
0.2 % Total Portfolio $ 6,449,817 100.0 % $ 6,452,007 100.0 % Total
Assets(2) $ 6,522,242 $ 6,545,120
____________________
(1) Residential mortgage loans owned by consolidated
variable interest entities (“VIEs”) can only be used to settle
obligations and liabilities of the VIEs for which creditors do not
have recourse to the Company. (2) Includes TBA Agency MBS.
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. At
September 30, 2017, the allocation of the Company’s Agency MBS was
approximately 46% adjustable-rate and hybrid adjustable-rate Agency
MBS, 39% fixed-rate Agency MBS, and 15% fixed-rate TBA Agency MBS,
both periods of which are detailed below (dollar amounts in
thousands):
December 31,
2017
September 30,
2017
(unaudited) Fair value of Agency MBS and TBA Agency MBS $
5,035,498 $ 5,041,867 Adjustable-rate Agency MBS
coupon reset less than 1 year 24
%
26
%
Hybrid adjustable-rate Agency MBS coupon reset 1-2 years 3
2
Hybrid adjustable-rate Agency MBS coupon reset 2-3 years 4
6
Hybrid adjustable-rate Agency MBS coupon reset 3-4 years 1
1
Hybrid adjustable-rate Agency MBS coupon reset 4-5 years 3
2
Hybrid adjustable-rate Agency MBS coupon reset 5-7 years 4
6
Hybrid adjustable-rate Agency MBS coupon reset greater than 7 years
3
3
Total adjustable-rate Agency MBS 42
%
46
%
15-year fixed-rate TBA Agency MBS 15
15
15-year fixed-rate Agency MBS 25
26
20-year and 30-year fixed-rate Agency MBS 18
13
Total fair value of Agency MBS and TBA Agency MBS 100
%
100
%
At December 31, 2017 and September 30, 2017, the summary
statistics of the Company’s Agency MBS portfolio were as
follows:
December 31,
2017
September 30,
2017
(unaudited) Weighted Average Agency MBS Coupon:
Adjustable-rate Agency MBS 3.45 % 3.40 % Hybrid
adjustable-rate Agency MBS 2.44 2.45 15-year fixed-rate Agency MBS
2.79 2.79 15-year fixed-rate TBA Agency MBS 2.75 2.75 20-year and
30-year fixed-rate Agency MBS 3.53 3.54
Total Agency MBS:
3.02 % 2.99 % Average Amortized Cost: Adjustable-rate Agency MBS
102.81 % 102.89 % Hybrid adjustable-rate Agency MBS 102.67 102.70
15-year fixed-rate Agency MBS 102.40 102.44 15-year fixed-rate TBA
Agency MBS 101.06 101.86 20-year and 30-year fixed-rate Agency MBS
103.62 103.70 Total Agency MBS: 102.56 % 102.69 % Average asset
yield (weighted average coupon divided by average amortized cost)
2.94 % 2.91 % Unamortized premium $117.5 million $117.2 million
Unamortized premium as a percentage of par value 2.56 % 2.69 %
Premium amortization expense on Agency MBS for the respective
quarter $8.0 million $8.9 million
At December 31, 2017 and September 30, 2017, the constant
prepayment rate (“CPR”) and weighted average term to next interest
rate reset of our Agency MBS were as follows:
December 31,
2017
September 30,
2017
(unaudited) Constant prepayment rate (CPR) of Agency MBS 15
% 20 %
Constant prepayment rate (CPR) of
adjustable-rate and hybrid adjustable-rate Agency MBS
18 % 20 % Weighted average term to next interest rate reset on
Agency MBS 27 months 26 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 December
31, 2017 and September 30, 2017:
December 31, 2017 Weighted
Average Mortgage Loan Type Fair
Value
Amortized
Cost
Contractual
Principal
Amortized
Cost
Coupon Yield (in thousands)
(unaudited) 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 %
September 30, 2017 Weighted
Average Mortgage Loan Type Fair
Value
Amortized
Cost
Contractual
Principal
Amortized
Cost
Coupon Yield (in thousands) (unaudited)
Prime $ 44,566 $ 42,944 $ 52,816 81.31 % 4.81 % 5.79 % Alt-A
565,927 544,729 712,949 76.41 % 5.56 % 5.40 % Subprime 21,842
19,864 22,066 90.02 % 3.90 % 5.47 % Non-performing 75,026 74,415
75,197 98.96 % 4.92 % 5.72 % Agency Risk Transfer 20,714
19,205 23,750 80.86 % 3.88 % 6.19 % Total Non-Agency
MBS $ 728,075 $ 701,157 $ 886,778 79.07 % 5.38 % 5.48 %
Residential Mortgage Loans
The following table summarizes the Company’s residential
mortgage loans held-for-investment at December 31, 2017 and
September 30, 2017:
December 31,
2017
September 30,
2017
(in thousands) (unaudited) Residential mortgage loans
held-for-investment $ 639,351 $ 667,880 Asset-backed securities
issued by securitization trusts 629,984 658,513
Retained net interest in loans held in securitization trust $ 9,367
$ 9,367
Residential Real Estate
At December 31, 2017 and September 30, 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 $14.2 million,
respectively.
MBS Portfolio Financing
December 31, 2017 Agency
MBS
Non-Agency
MBS
Total
MBS
(dollar amounts in thousands) (unaudited) 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
September 30, 2017 Agency
MBS
Non-Agency
MBS
Total
MBS
(dollar amounts in thousands) (unaudited) Repurchase
Agreements: Outstanding repurchase agreement balance $ 3,865,000 $
477,848 $ 4,342,848 Average interest rate 1.32 % 2.68 % 1.47 %
Average maturity 31 days 13 days 29 days Average interest rate
after adjusting for interest rate swaps 1.57 % Average maturity
after adjusting for interest rate swaps 603 days
Portfolio Leverage
At December 31, 2017, the Company’s leverage multiple was 5.94x.
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 6.97x at December 31, 2017. At
September 30, 2017, the Company’s leverage multiple was 5.89x and
the effective leverage was 6.92x.
Interest Rate Swaps
At December 31, 2017 and September 30, 2017, the Company’s
interest rate swap agreements (“Swaps”) had the following notional
amounts, weighted average fixed rates, and remaining terms:
December 31, 2017 September 30, 2017
Maturity Notional
Amount
Weighted
Average
Fixed
Rate
Remaining
Term in
Months
Remaining
Term in
Years
Notional
Amount
Weighted
Average
Fixed
Rate
Remaining
Term in
Months
Remaining
Term in
Years
(in thousands) (in thousands) (unaudited)
(unaudited) Less than 12 months $ 410,000 0.96 % 4 0.3 $
435,000 0.90 % 4 0.3 1 year to 2 years 725,000 1.60 19 1.6 475,000
1.46 21 1.7 2 years to 3 years 516,000 1.62 33 2.8 466,000 1.54 31
2.6 3 years to 4 years 350,000 1.90 43 3.6 350,000 1.64 43 3.6 4
years to 5 years 220,000 1.92 56 4.7 75,000 1.72 56 4.7 5 years to
7 years 260,000 1.98 74 6.2 305,000 1.90 73 6.0 7 years to 10 years
200,000 2.08 101 8.4 175,000 2.07 105 8.8 $ 2,681,000
1.65 % 37 3.1 $ 2,281,000 1.51 % 38 3.1
Effective Net Interest Rate Spread
December 31,
2017
September 30,
2017
(unaudited) Average asset yield, including TBA dollar roll
income 3.16 % 3.10 % Effective cost of funds 1.92 1.96 Effective
net interest rate spread 1.24 % 1.14 %
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 December 15, 2017, the Company declared a quarterly common
stock dividend of $0.15 per share for the fourth quarter ended
December 31, 2017. Based upon the closing price of $5.44 on
December 31, 2017, the annualized dividend yield on the Company’s
common stock at December 31, 2017 was 11.03%.
Book Value per Common Share
At December 31, 2017, the Company’s book value was $5.91 per
share of common stock, which was a decrease of $0.13 from $6.04 in
the prior quarter.
The $0.15 quarterly dividend less the $0.13 decrease in book
value per common share from the prior quarter resulted in a return
on book value per common share of 0.3% for the quarter ended
December 31, 2017 and 9.4% for the year ended December 31,
2017.
Stock Transactions
During the quarter ended December 31, 2017, the Company issued
an aggregate of 185,345 shares of its Series C Preferred Stock
under its At Market Issuance Sales Agreement, which provided net
proceeds to the Company of approximately $4.6 million.
Subsequent Events
From January 2, 2018 through February 13, 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.
Conference Call
The Company will host a conference call on Thursday, February
15, 2018 at 1:00 PM Eastern Time, 10:00 AM Pacific Time, to discuss
its fourth quarter 2017 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 15, 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 11016799. 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, or the Manager, pursuant a management agreement.
The Manager is subject to the supervision and direction of our
Board of Directors and is responsible for (i) the selection,
purchase and sale of our investment portfolio; (ii) our financing
and hedging activities; and (iii) providing us with management
services and other services and activities relating to our assets
and operations as may be appropriate. Our common stock is traded on
the New York Stock Exchange under the symbol “ANH.” Anworth is a
component of the Russell 2000® Index.
Safe Harbor Statement under the Private Securities Litigation
Reform Act of 1995
This news release may contain forward-looking statements within
the meaning of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. Forward-looking
statements are based upon our current expectations and speak only
as of the date hereof. Forward-looking statements, which are based
on various assumptions (some of which are beyond our control) may
be identified by reference to a future period or periods or by the
use of forward-looking terminology, such as “may,” “will,”
“believe,” “expect,” “anticipate,” “assume,” “estimate,” “intend,”
“continue,” or other similar terms or variations on those terms or
the negative of those terms. Our actual results may differ
materially and adversely from those expressed in any
forward-looking statements as a result of various factors and
uncertainties, including but not limited to, changes in interest
rates; changes in the market value of our mortgage-backed
securities; changes in the yield curve; the availability of
mortgage-backed securities for purchase; increases in the
prepayment rates on the mortgage loans securing our mortgage-backed
securities; our ability to use borrowings to finance our assets
and, if available, the terms of any financing; risks associated
with investing in mortgage-related assets; changes in business
conditions and the general economy; implementation of or changes in
government regulations affecting our business; our ability to
maintain our qualification as a real estate investment trust for
federal income tax purposes; our ability to maintain an exemption
from the Investment Company Act of 1940, as amended; risks
associated with our home rental business; and the Manager’s ability
to manage our growth. Our Annual Report on Form 10-K and other SEC
filings discuss the most significant risk factors that may affect
our business, results of operations and financial condition. We
undertake no obligation to revise or update publicly any
forward-looking statements for any reason.
ANWORTH MORTGAGE ASSET CORPORATION AND
SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
(in thousands, except per share
amounts)
December 31,
December 31, 2017 2016 (unaudited)
ASSETS
Agency MBS at fair value (including
$4,073,852 and $3,707,062 pledged to counterparties at December 31,
2017 and December 31, 2016, respectively).
$ 4,278,797 $ 3,925,193
Non-Agency MBS at fair value (including
$661,445 and $525,169 pledged to counterparties at December 31,
2017 and December 31, 2016, respectively).
760,825 641,246 Residential mortgage loans held-for-investment(1)
639,351 744,462 Residential real estate 14,143 14,262 Cash and cash
equivalents 12,273 31,031 Restricted cash 11,157 12,390 Interest
and dividends receivable 18,091 16,203 Derivative instruments at
fair value 27,793 8,192 Prepaid expenses and other 3,111
2,797 Total Assets $ 5,765,541 $ 5,395,776
LIABILITIES
AND STOCKHOLDERS’ EQUITY Liabilities: Accrued interest payable
$ 15,835 $ 11,850 Repurchase agreements 4,365,695 3,911,015
Asset-backed securities issued by securitization trusts(1) 629,984
728,683 Junior subordinated notes 37,380 37,380 Derivative
instruments at fair value 1,335 34,302 Dividends payable on
preferred stock 2,272 1,660 Dividends payable on common stock
14,721 14,358 Accrued expenses and other 897 1,506
Total Liabilities $ 5,068,119 $ 4,740,754
Series B Cumulative Convertible Preferred
Stock: par value $0.01 per share; liquidating preference $25.00 per
share ($19,494 and $25,241, respectively); 780 and 1,010 shares
issued and outstanding at December 31, 2017 and December 31, 2016,
respectively
$ 19,455 $ 23,924 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, 2017 and December 31, 2016,
respectively
$ 46,537 $ 46,537
Series C Cumulative Preferred Stock: par
value $0.01 per share; liquidating preference $25.00 per share
($49,725 and $12,146, respectively); 1,989 and 486 shares issued
and outstanding at December 31, 2017 and December 31, 2016,
respectively
48,420 11,321
Common Stock: par value $0.01 per share;
authorized 200,000 shares, 98,137 shares issued and outstanding at
December 31, 2017 and 95,718 shares issued and outstanding at
December 31, 2016, respectively
981 957 Additional paid-in capital 980,243 966,714 Accumulated
other comprehensive income consisting of unrealized gains and
losses 17,021 8,648 Accumulated deficit (415,235)
(403,079) Total Stockholders’ Equity $ 677,967 $ 631,098
Total Liabilities and Stockholders’
Equity
$ 5,765,541 $ 5,395,776
____________________
(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, 2017
and December 31, 2016, total assets of the consolidated VIEs were
$641 million and $747 million, respectively (including accrued
interest receivable of $2.1 million and $2.5 million,
respectively), and total liabilities were $632 million and $731
million, respectively (including accrued interest payable of $2.0
million and $2.4 million, respectively).
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, 2017 December 31,
2016 (unaudited) (unaudited) Interest and other
income: Interest-Agency MBS $ 23,891 $ 76,657 $ 19,964 $ 69,912
Interest-Non-Agency MBS 9,607 38,266 8,667 35,852
Interest-residential mortgage loans 6,515 27,720 7,854 34,637 Other
interest income 22 105 17
51 40,035 142,748
36,502 140,452 Interest Expense: Interest
expense on repurchase agreements 16,881 53,954 9,532 36,505
Interest expense on asset-backed securities 6,346 26,939 7,548
32,480 Interest expense on junior subordinated notes 423
1,626 375
1,435
23,650 82,519 17,455
70,420 Net interest income 16,385
60,229 19,047 70,032
Operating Expenses: Management fee to related party (1,871 )
(7,503 ) (1,927 ) (7,883 ) General and administrative expenses
(1,565 ) (5,802 ) (1,584 ) (6,336 )
Total operating expenses (3,436 ) (13,305 )
(3,511 ) (14,219 ) Other income (loss): Income-rental
properties 413 1,710 425 1,688 (Loss) on sales of MBS - (2,168 )
(14,827 ) (1,935 ) Impairment charge on Non-Agency MBS - (2,399 )
(1,548 ) (1,548 ) Unrealized (loss) gain on Agency MBS held as
trading investments (7,279 ) 2,793 - (13,777 ) Gain on sales of
residential mortgage loans held-for-investment - 378 - 749 Gain
(loss) on derivatives, net 10,121 7,132 16,226 (18,509 ) Recovery
on Non-Agency MBS - 2 9
12 Total other income (loss) 3,255
7,448 285 (33,320 ) Net income
(loss) $ 16,204 $ 54,372 $ 15,821 $ 22,493
Dividends on preferred stock (2,278 ) (8,173 )
(1,660 ) (6,583 ) Net income (loss) to common
stockholders $ 13,926 $ 46,199 $ 14,161 $
15,910 Basic earnings (loss) per common share $ 0.14 $ 0.48
$ 0.15 $ 0.17 Diluted earnings (loss) per common share $ 0.14 $
0.47 $ 0.14 $ 0.17 Basic weighted average number of shares
outstanding 98,074 96,764 95,706 96,408 Diluted weighted average
number of shares outstanding 101,909 100,479 100,485 101,068
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,
2017 December 31, 2016 (unaudited)
(unaudited) Net income (loss) $ 16,204 $ 54,372
$ 15,821 $ 22,493 Available-for-sale Agency
MBS, fair value adjustment (16,177 ) (24,939 ) (33,857 ) (346 )
Reclassification adjustment for loss on
sales of Agency MBS included in net income
- 2,233 39 2,072 Available-for-sale Non-Agency MBS, fair value
adjustment 3,283 28,730 4,466 (690 )
Reclassification adjustment for (gain) on
sales of Non-Agency MBS included in net income
- (65 ) (137 ) (137 ) Unrealized gains on swap agreements 949 2,334
610 6,328
Reclassification adjustment for interest
expense on swap agreements included in net income
(292 ) 79 77 472
Other comprehensive income (12,237 ) 8,372
(28,802 ) 7,699 Comprehensive income $ 3,967
$ 62,744 $ (12,981 ) $ 30,192
Non-GAAP Financial Measures Related to Operating
Results
In addition to the Company’s operating results presented in
accordance with GAAP, the following tables include the following
non-GAAP financial measures: Core Earnings (including per common
share), total interest income and average asset yield, including
TBA dollar roll income, paydown expense on Agency MBS and effective
total interest expense and effective cost of funds. The first table
below reconciles the Company’s “net income to common stockholders”
for the quarter ended December 31, 2017 to “Core Earnings” for the
same period. Core Earnings represents “net income to common
stockholders” (which is the nearest comparable GAAP measure),
adjusted for the items shown in the table below. The second table
below reconciles the Company’s total interest and other income for
the quarter ended December 31, 2017 (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 an impairment charge
on Non-Agency MBS is more reflective of current Core Earnings, as
this charge represents future loss expectations;
- 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 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 quarter
ended December 31, 2017. 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, 2017
Amount Per Share (in thousands)
(unaudited) Net income to common stockholders $ 13,926 $
0.14 Adjustments to derive core earnings: Unrealized loss on Agency
MBS held as trading investments 7,279 0.07 Gain on derivatives -
interest rate swaps, net (12,267 ) (0.13 ) Loss on derivatives-TBA
Agency MBS, net 2,146 0.02 Amortization of other comprehensive
income on de-designated swaps(1) (291 ) — Periodic net settlement
on interest rate Swaps after de-designation(2) (1,150 ) (0.01 )
Dollar roll income on TBA Agency MBS(3) 2,616 0.03 Premium
amortization on Agency MBS 7,968 0.08 Paydown expense(4) (6,377 )
(0.06 ) Depreciation expense on residential rental properties(5)
117 — Core earnings $ 13,967 $
0.14 Basic weighted average number of shares outstanding
98,074
____________________
(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) Periodic 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 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 (loss) on derivatives, net” that is
included in 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 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, 2017
Amount
Annualized
Percentage
(in thousands) (unaudited) Average Asset Yield,
Including TBA Dollar Roll Income: Total interest income $ 40,035
2.83 % Income-rental properties 413 0.03 Dollar roll income on TBA
Agency MBS(1) 2,616 0.19 Premium amortization on Agency MBS 7,968
0.56 Paydown expense on Agency MBS(2) (6,377 ) (0.45 ) Total
interest and other income and average asset yield, including TBA
dollar roll income $ 44,655 3.16 % Effective Cost of
Funds: Total interest expense $ 23,650 1.86 % Periodic net
settlement on interest rate Swaps after de-designation(3) 1,150
0.09 Amortization of other comprehensive income on de-designated
Swaps(4) (291 ) (0.03 ) Effective total interest expense and
effective cost of funds $ 24,509 0.02 % Effective net
interest rate spread 1.24 % Average earning assets $
5,657,184 Average borrowings $ 5,098,816
____________________
(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 (loss) 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 quarter. (3) Periodic 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 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 in August 2014 and is recorded in its
statements of operations as a portion of interest expense in
accordance with GAAP.
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version on businesswire.com: http://www.businesswire.com/news/home/20180214005980/en/
Anworth Mortgage Asset CorporationJohn T. Hillman1299 Ocean
Avenue, Second FloorSanta Monica, CA 90401(310) 255-4438 or (310)
255-4493Email: jhillman@anworth.comWeb site:
http://www.anworth.com
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