Anworth Mortgage Asset Corporation (NYSE: ANH) (the “Company”)
today reported its financial results for the second quarter ended
June 30, 2018.
Earnings
The following table summarizes the Company’s core earnings, GAAP
net income to common stockholders, and comprehensive income for the
three months ended June 30, 2018:
Three Months Ended June 30, 2018
(unaudited) Earnings Per
Weighted
Share
(in thousands) Core earnings $ 12,289 $ 0.13 GAAP net income
to common stockholders $ 12,636 $ 0.13 Comprehensive income $ 533 $
0.01
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 June 30, 2018 and December 31, 2017, the composition of the
Company’s portfolio at fair value was as follows (dollar amounts in
thousands):
June 30, 2018 December 31, 2017
Dollar Amount Percentage Dollar Amount
Percentage (unaudited) Agency MBS: ARMS and
hybrid ARMs $ 1,840,218 30.8 % $ 2,136,543 33.1 % Fixed-rate Agency
MBS 1,994,126 33.4 % 2,142,254 33.3 % TBA Agency MBS 762,330
12.7 % 756,701 11.7 % Total Agency MBS $ 4,596,674 76.9 % $
5,035,498 78.1 % Non-Agency MBS 779,995 13.1 % 760,825 11.8 %
Residential mortgage loans(1) 585,020 9.8 % 639,351 9.9 %
Residential real estate 13,987 0.2 % 14,143 0.2 %
Total Portfolio $ 5,975,676 100.0 % $ 6,449,817 100.0 % Total
Assets(2) $ 6,079,377 $ 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 June 30, 2018, the allocation of the Company’s agency
mortgage-backed securities (“Agency MBS”) was approximately 39%
adjustable-rate and hybrid adjustable-rate Agency MBS, 44%
fixed-rate Agency MBS, and 17% fixed-rate TBA Agency MBS. At
December 31, 2017, the allocation of the Company’s 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):
June 30,
2018
December 31,
2017
(unaudited) Fair value of Agency MBS and TBA Agency MBS $
4,596,674 $ 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) 3 4 Hybrid adjustable-rate Agency MBS coupon
reset (3-4 years) - 1 Hybrid adjustable-rate Agency MBS coupon
reset (4-5 years) 6 3 Hybrid adjustable-rate Agency MBS coupon
reset (5-7 years) - 4 Hybrid adjustable-rate Agency MBS coupon
reset (greater than 7 years) 3 3 Total
adjustable-rate Agency MBS 39 % 42 % 15-year
fixed-rate TBA Agency MBS 17 15 15-year fixed-rate Agency MBS 25 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 June 30, 2018 and December 31, 2017, the summary statistics
of the Company’s Agency MBS portfolio were as follows:
June 30,
2018
December 31,
2017
(unaudited) Weighted Average Agency MBS Coupon:
Adjustable-rate Agency MBS 3.71 % 3.45 % Hybrid adjustable-rate
Agency MBS 2.46 2.44 15-year fixed-rate Agency MBS 2.91 2.79
15-year fixed-rate TBA Agency MBS 3.67 2.75 20-year and 30-year
fixed-rate Agency MBS 3.81 3.53 Total Agency MBS: 3.26 % 3.02 %
Average Amortized Cost: Adjustable-rate Agency MBS 102.80 % 102.81
% Hybrid adjustable-rate Agency MBS 102.65 102.67 15-year
fixed-rate Agency MBS 102.27 102.40 15-year fixed-rate TBA Agency
MBS 101.39 101.06 20-year and 30-year fixed-rate Agency MBS 103.56
103.62 Total Agency MBS: 102.55 % 102.56 % Average asset yield
(weighted average coupon divided by average amortized cost) 3.18 %
2.94 % Unamortized premium $104.9 million $117.5 million
Unamortized premium as a percentage of par value 2.55 % 2.56 %
Premium amortization expense on Agency MBS for the respective
quarter $6.3 million $8.0 million
At June 30, 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:
June 30,
2018
December 31,
2017
(unaudited) Constant prepayment rate (CPR) of Agency MBS 16%
15% Constant prepayment rate (CPR) of adjustable-rate and hybrid
adjustable-rate Agency MBS 21% 18% 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 June 30,
2018 and December 31, 2017 (dollar amounts in thousands):
June 30, 2018
(unaudited) Weighted Average Mortgage Loan
Type Fair
Value
Amortized
Cost
Contractual
Principal
Amortized
Cost
Coupon Yield Prime $ 39,026 $ 37,697 $ 47,076 80.08%
5.07% 5.88% Alt-A 544,950 520,465 696,716 74.70% 5.64% 5.32%
Subprime 19,972 18,924 20,821 90.89% 4.25% 5.74% Non-performing
130,063 130,040 130,199 99.88% 5.20% 5.44% Agency Risk Transfer
45,956 43,489 49,050 88.66% 4.16% 5.85% Paydowns receivable 28 - -
- - - Total Non-Agency MBS $ 779,995 $ 750,615 $ 943,862 79.53%
5.45% 5.41%
December 31, 2017
Weighted Average Mortgage Loan Type Fair
Value
Amortized
Cost
Contractual
Principal
Amortized
Cost
Coupon Yield 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 June 30, 2018 and December
31, 2017 (in thousands):
June 30,
2018
December 31,
2017
(unaudited) Residential mortgage loans held-for-investment $
585,020 $ 639,351 Asset-backed securities issued by securitization
trusts 575,653 629,984 Retained interest in loans
held in securitization trusts $ 9,367 $ 9,367
Residential Real Estate
At June 30, 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 $14.0 million and $14.1 million,
respectively.
MBS Portfolio Financing
June 30, 2018 Agency
MBS
Non-Agency
MBS
Total
MBS
(dollar amounts in thousands) (unaudited) Repurchase
Agreements: Outstanding repurchase agreement balance $ 3,475,000 $
543,480 $ 4,018,480 Average interest rate 2.07 % 3.35 % 2.24 %
Average maturity 39 days 14 days 35 days Average interest rate
after adjusting for interest rate swaps 1.97 % Average maturity
after adjusting for interest rate swaps 1,122 days
December 31, 2017 Agency
MBS
Non-Agency
MBS
Total
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 June 30, 2018, the Company’s leverage multiple was 5.92x. 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 7.04x at June 30, 2018. At
December 31, 2017, the Company’s leverage multiple was 5.94x and
the effective leverage was 6.97x.
Interest Rate Swaps
At June 30, 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 (dollar amounts
in thousands):
June 30, 2018 December 31, 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
(unaudited) Less than 12 months $ 250,000 1.55 % 5 0.4 $
410,000 0.96 % 4 0.3 1 year to 2 years 766,000 1.62 16 1.4 725,000
1.60 19 1.6 2 years to 3 years 550,000 1.78 28 2.4 516,000 1.62 33
2.8 3 years to 4 years 300,000 1.87 39 3.3 350,000 1.90 43 3.6 4
years to 5 years 170,000 1.83 52 4.3 220,000 1.92 56 4.7 5 years to
7 years 485,000 2.32 73 6.1 260,000 1.98 74 6.2 7 years to 10 years
625,000 2.63 105 8.8 200,000 2.08 101 8.4 $ 3,146,000
1.99 % 48 4.0 $ 2,681,000 1.65 % 37 3.1
Effective Net Interest Rate Spread
June 30,
2018
December 31,
2017
(unaudited) Average asset yield, including TBA dollar roll
income 3.31 % 3.16 % Effective cost of funds 2.19 1.92 Effective
net interest rate spread 1.12 % 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 June 15, 2018, the Company declared a quarterly common stock
dividend of $0.14 per share for the second quarter ended June 30,
2018. Based upon the closing price of $4.97 on June 29, 2018, the
annualized dividend yield on the Company’s common stock at June 30,
2018 was 11.3%.
Book Value per Common Share
At June 30, 2018, the Company’s book value was $5.33 per share
of common stock, which was a decrease of $0.15 from the book value
of $5.48 for the prior quarter.
The $0.14 quarterly dividend, less the decrease in book value of
$0.15, resulted in a negative return on book value per common share
of (0.18)% for the three months ended June 30, 2018.
Subsequent Events
Effective July 2, 2018, the conversion rate of our Series B
Preferred Stock increased from 5.0453 shares of our common stock to
5.1021 shares of our common stock, based upon the common stock
dividend of $0.14 that was declared on June 15, 2018.
From July 2, 2018 through August 2, 2018, no interest rate swaps
matured and we added two new interest rate swaps with an aggregate
notional amount of $50 million.
Conference Call
The Company will host a conference call on Friday, August 3,
2018 at 1:00 PM Eastern Time, 10:00 AM Pacific Time, to discuss its
second 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 August 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 10122821. 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 DRP 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® Index.
Safe Harbor Statement under the Private Securities Litigation
Reform Act of 1995
This news release may contain forward-looking statements within
the meaning of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. Forward-looking
statements are based upon our current expectations and speak only
as of the date hereof. Forward-looking statements, which are based
on various assumptions (some of which are beyond our control) may
be identified by reference to a future period or periods or by the
use of forward-looking terminology, such as “may, ” “will, ”
“believe, ” “expect, ” “anticipate, ” “assume,” “estimate,”
“intend,” “continue, ” or other similar terms or variations on
those terms or the negative of those terms. Our actual results may
differ materially and adversely from those expressed in any
forward-looking statements as a result of various factors and
uncertainties, including but not limited to, changes in interest
rates; changes in the market value of our mortgage-backed
securities; changes in the yield curve; the availability of
mortgage-backed securities for purchase; increases in the
prepayment rates on the mortgage loans securing our mortgage-backed
securities; our ability to use borrowings to finance our assets
and, if available, the terms of any financing; risks associated
with investing in mortgage-related assets; changes in business
conditions and the general economy; implementation of or changes in
government regulations affecting our business; our ability to
maintain our qualification as a real estate investment trust for
federal income tax purposes; our ability to maintain an exemption
from the Investment Company Act of 1940, as amended; risks
associated with our home rental business; and the Manager’s ability
to manage our growth. Our Annual Report on Form 10-K and other SEC
filings discuss the most significant risk factors that may affect
our business, results of operations and financial condition. We
undertake no obligation to revise or update publicly any
forward-looking statements for any reason.
ANWORTH MORTGAGE ASSET CORPORATION AND
SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share
amounts)
June 30, December 31, 2018 2017
(unaudited) ASSETS Agency MBS at fair value
(including $3,691,061 and $4,073,852 pledged to counterparties at
June 30, 2018
and December 31, 2017, respectively)
$ 3,834,344 $ 4,278,797 Non-Agency MBS at fair value (including
$686,962 and $661,445 pledged to counterparties at June 30, 2018
and December 31, 2017, respectively)
779,995 760,825 Residential mortgage loans held-for-investment(1)
585,020 639,351 Residential real estate 13,987 14,143 Cash and cash
equivalents 12,593 12,273 Restricted cash — 11,157 Interest and
dividends receivable 17,272 18,091 Derivative instruments at fair
value 69,639 27,793 Prepaid expenses and other 6,100
3,111 Total Assets $ 5,318,950 $ 5,765,541
LIABILITIES AND
STOCKHOLDERS’ EQUITY Liabilities: Accrued interest payable $
21,881 $ 15,835 Repurchase agreements 4,018,480 4,365,695
Asset-backed securities issued by securitization trusts(1) 575,653
629,984 Junior subordinated notes 37,380 37,380 Derivative
instruments at fair value 652 1,335 Dividends payable on preferred
stock 2,292 2,272 Dividends payable on common stock 13,763 14,721
Accrued expenses and other 7,548 897 Total
Liabilities $ 4,677,649 $ 5,068,119 Series B Cumulative Convertible
Preferred Stock: par value $0.01 per share; liquidating preference
$25.00
per share ($19,494 and $19,494,
respectively); 780 and 780 shares issued and outstanding at
June 30, 2018 and December 31, 2017,
respectively)
$ 19,455 $ 19,455 Stockholders’ Equity: Series A Cumulative
Preferred Stock: par value $0.01 per share; liquidating preference
$25.00 per share
($47,984 and $47,984, respectively); 1,919
and 1,919 shares issued and outstanding at June 30, 2018
and December 31, 2017, 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 $49,725, respectively); 2,010
and 1,989 shares issued and outstanding at June 30, 2018
and December 31, 2017, respectively)
48,944 48,420 Common Stock: par value $0.01 per share; authorized
200,000 shares, 98,304 shares issued and
outstanding at June 30, 2018 and 98,137
shares issued and outstanding at December 31, 2017,
respectively)
983 981 Additional paid-in capital 981,087 980,243 Accumulated
other comprehensive income consisting of unrealized gains and
losses (19,460) 17,021 Accumulated deficit (436,245)
(415,235) Total Stockholders’ Equity $ 621,846 $ 677,967 Total
Liabilities and Stockholders’ Equity $ 5,318,950 $ 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
June 30, 2018 and December 31, 2017, total assets of the
consolidated VIEs were $587 million and $641 million, respectively
(including accrued interest receivable of $1.9 million and $2.1
million, respectively) (which is recorded above in the line item
entitled “Interest and dividends receivable”), and total
liabilities were $578 million and $632 million, respectively
(including accrued interest payable of $1.9 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) (unaudited) Three Months Ended
Six Months Ended June 30, June 30,
2018 2017
2018 2017 Interest and
other income: Interest-Agency MBS $ 24,814 $ 15,771 $ 48,871 $
32,873 Interest-Non-Agency MBS 9,902 9,738 19,910 19,306
Interest-residential mortgage loans 5,955 7,060 12,194 14,411 Other
interest income 44 31 72
58 40,715 32,600
81,047 66,648 Interest expense: Interest
expense on repurchase agreements 22,028 11,421 41,122 21,832
Interest expense on asset-backed securities 5,797 6,892 11,867
13,966 Interest expense on junior subordinated notes 504
401 951 785
28,329 18,714 53,940
36,583 Net interest income 12,386
13,886 27,107 30,065 Operating
expenses: Management fee to related party (1,666 ) (1,876 ) (3,403
) (3,697 ) Rental properties depreciation and expenses (405 ) (347
) (792 ) (676 ) General and administrative expenses (1,324 )
(968 ) (2,434 ) (2,122 ) Total operating
expenses (3,395 ) (3,191 ) (6,629 )
(6,495 ) Other income (loss): Income-rental properties 445 451 897
900 Realized gain (loss) on sales of available-for-sale MBS - 176
(19,314 ) 108 Impairment charge on Non-Agency MBS (1,757 ) (905 )
(1,757 ) (1,637 ) Unrealized (loss) gain on Agency MBS held as
trading investments (2,677 ) 4,101 (11,567 ) 4,222 Gain on sales of
residential mortgage loans held-for-investment - - - 378 Gain
(loss) on derivatives, net 9,930 (4,422 ) 23,342 (2,044 ) Recovery
on Non-Agency MBS 1 1 1
1 Total other income (loss) 5,942
(598 ) (8,398 ) 1,928 Net income $
14,933 $ 10,097 $ 12,080 $ 25,498
Dividends on preferred stock (2,297 ) (2,025 )
(4,595 ) (3,780 ) Net income to common stockholders $ 12,636
$ 8,072 $ 7,485 $ 21,718 Basic earnings
per common share $ 0.13 $ 0.08 $ 0.08 $ 0.23 Diluted earnings per
common share $ 0.13 $ 0.08 $ 0.08 $ 0.22 Basic weighted average
number of shares outstanding 98,271 95,696 98,228 95,701 Diluted
weighted average number of shares outstanding 102,205 100,590
102,132 100,567
ANWORTH MORTGAGE ASSET
CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS
OF COMPREHENSIVE INCOME (in thousands, except for per share
amounts) (unaudited) Three Months Ended
Six Months Ended June 30, June 30,
2018 2017
2018 2017 Net income $
14,933 $ 10,097 $ 12,080 $ 25,498
Available-for-sale Agency MBS, fair value adjustment (13,847 )
(4,746 ) (49,328 ) (2,411 )
Reclassification adjustment for (gain)
loss on sales of Agency MBS included in net income
- (176 ) 11,945 (108 ) Available-for-sale Non-Agency MBS, fair
value adjustment (1,558 ) 8,819 (891 ) 18,333
Reclassification adjustment for loss on
sales of Non-Agency MBS included in net income
- - 42 -
Amortization of unrealized gains on
interst rate swaps remaining in other comprehensive income swaps
included in net income
1,023 450 1,963 990
Reclassification adjustment for interest
expense on interest rate swaps included in net income
(18 ) 114 (212 ) 188
Other comprehensive (loss) income (14,400 ) 4,461
(36,481 ) 16,992 Comprehensive income
(loss) $ 533 $ 14,558 $ (24,401 ) $ 42,490
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 three months ended June 30, 2018 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 three months ended June 30, 2018 (which is the
nearest comparable GAAP measure) to the total interest income and
average asset yield, including TBA dollar roll income and paydown
expense on Agency MBS, 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 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 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 June 30, 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 June 30, 2018 Amount
Per Share (in thousands)
(unaudited) Net income to common stockholders $ 12,636 $
0.13 Adjustments to derive core earnings: Unrealized loss on Agency
MBS held as trading investments 2,677 $ 0.03 Impairment charge on
Non-Agency MBS(1) 1,757 $ 0.02 Gain on interest rate swaps, net
(13,857 ) $ (0.14 ) Loss on derivatives-TBA Agency MBS, net 3,927 $
0.04 Amortization of other comprehensive income on de-designated
interest rate swaps(2) (19 ) $ - Periodic net settlement on
interest rate swaps after de-designation(3) 2,275 $ 0.02 Dollar
roll income on TBA Agency MBS(4) 3,009 $ 0.03 Premium amortization
on MBS 6,354 $ 0.07 Paydown expense(5) (6,588 ) $ (0.07 )
Depreciation expense on residential rental properties(6) 118
$ - Core earnings $ 12,289 $ 0.13 Basic
weighted average number of shares outstanding 98,271
____________________ (1) Impairment charge on Non-Agency MBS
represents the amount applied against current GAAP earnings when
future loss expectations exceed previously existing loss
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) 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. (3) Net settlements 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 “Gain
on interest rate swaps, net.” (4) 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. (5) 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. (6)
Depreciation expense is added back in the core earnings
calculation, as it is a non-cash item, and it is similarly added
back in other companies’ calculation of core earnings or funds from
operations.
Effective Net Interest Rate Spread
Three Months Ended June 30, 2018
(unaudited)
Amount
Annualized
Percentage
(in thousands) Average Asset Yield, Including
TBA Dollar Roll Income: Total interest income $ 40,715 3.07 %
Income-rental properties 445 0.03 % Dollar roll income on TBA
Agency MBS(1) 3,009 0.23 % Premium amortization on MBS 6,354 0.48 %
Paydown expense(2) (6,588 ) -0.50 % Total interest and other
income and average asset yield, including TBA dollar roll income $
43,935 3.31 % Effective Cost of Funds: Total interest
expense $ 28,329 2.38 % Periodic net settlement on interest rate
Swaps after de-designation(3) (2,275 ) -0.19 % Amortization of
other comprehensive income on de-designated Swaps(4) 19
- Effective total interest expense and effective cost
of funds $ 26,073 2.19 % Effective net interest rate spread
1.12 % Average earning assets $ 5,309,921 Average borrowings
$ 4,773,354 ____________________ (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
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 “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.
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version on businesswire.com: https://www.businesswire.com/news/home/20180802005769/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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