Anworth Mortgage Asset Corporation (NYSE: ANH) (the “Company”)
today reported its financial results for the third quarter ended
September 30, 2018.
Earnings
The following table summarizes the Company’s core earnings, GAAP
net income to common stockholders, and comprehensive income (loss)
for the three months ended September 30, 2018:
Three Months Ended September 30, 2018
(unaudited)
Earnings
Per
Weighted
Share
(in thousands) Core earnings $ 11,639 $ 0.12 GAAP net income
to common stockholders $ 15,068 $ 0.15 Comprehensive income (loss)
$ (4,271 ) $ (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 (loss) is shown on the consolidated statements
of comprehensive income, which is included in this earnings
release. Comprehensive income (loss) consists of the net income to
all stockholders (including the amounts paid to preferred
stockholders) and the change in other comprehensive income.
Portfolio
At September 30, 2018 and June 30, 2018, the composition of the
Company’s portfolio at fair value was as follows (dollar amounts in
thousands):
September 30, 2018 June 30, 2018
Dollar Amount Percentage Dollar Amount
Percentage (unaudited) (unaudited)
Agency MBS: ARMS and hybrid ARMs $ 1,676,433 28.2% $ 1,840,218
30.8% Fixed-rate Agency MBS 2,148,536 36.2% 1,994,126 33.4% TBA
Agency MBS 756,470 12.7% 762,330 12.7% Total Agency
MBS $ 4,581,439 77.1% $ 4,596,674 76.9% Non-Agency MBS 783,902
13.2% 779,995 13.1% Residential mortgage loans(1) 562,484 9.5%
585,020 9.8% Residential real estate 13,905 0.2%
13,987 0.2% Total Portfolio $ 5,941,730 100.0% $ 5,975,676 100.0%
Total Assets(2) $ 6,050,034 $ 6,079,377 ____________________ (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 September 30, 2018, the allocation of the Company’s agency
mortgage-backed securities (“Agency MBS”) was approximately 37%
adjustable-rate and hybrid adjustable-rate Agency MBS, 47%
fixed-rate Agency MBS, and 16% fixed-rate TBA Agency MBS. At June
30, 2018, the allocation of the Company’s 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,
both periods of which are detailed below (dollar amounts in
thousands):
September 30,
2018
June 30,
2018
(unaudited) (unaudited) Fair value of Agency MBS and
TBA Agency MBS $ 4,581,439 $ 4,596,674
Adjustable-rate Agency MBS coupon reset (less than 1 year) 21 % 23
% Hybrid adjustable-rate Agency MBS coupon reset (1-2 years) 5 4
Hybrid adjustable-rate Agency MBS coupon reset (2-3 years) 1 3
Hybrid adjustable-rate Agency MBS coupon reset (3-4 years) 1 -
Hybrid adjustable-rate Agency MBS coupon reset (4-5 years) 6 6
Hybrid adjustable-rate Agency MBS coupon reset (5-7 years) - -
Hybrid adjustable-rate Agency MBS coupon reset (greater than 7
years) 3 3 Total adjustable-rate Agency
MBS 37 % 39 % 15-year fixed-rate TBA Agency MBS 16 17
15-year fixed-rate Agency MBS 23 25 20-year and 30-year fixed-rate
Agency MBS 24 19 Total fair value of
Agency MBS and TBA Agency MBS 100 % 100 %
At September 30, 2018 and June 30, 2018, the summary statistics
of the Company’s Agency MBS portfolio were as follows:
September 30,
2018
June 30,
2018
(unaudited) (unaudited) Weighted Average Agency MBS
Coupon: Adjustable-rate Agency MBS 3.88 % 3.71 % Hybrid
adjustable-rate Agency MBS 2.47 2.46 15-year fixed-rate Agency MBS
2.91 2.91 15-year fixed-rate TBA Agency MBS 3.57 3.67 20-year and
30-year fixed-rate Agency MBS 3.90 3.81 Total Agency
MBS: 3.39 % 3.26 % Average Amortized Cost: Adjustable-rate Agency
MBS 102.73 % 102.80 % Hybrid adjustable-rate Agency MBS 102.59
102.65 15-year fixed-rate Agency MBS 102.24 102.27 15-year
fixed-rate TBA Agency MBS 100.86 101.39 20-year and 30-year
fixed-rate Agency MBS 103.37 103.56 Total Agency MBS:
102.44 % 102.55 % Average asset yield (weighted average coupon
divided by average amortized cost) 3.31 % 3.18 % Unamortized
premium
$104.0 million
$104.9 million
Unamortized premium as a percentage of par value 2.44 % 2.55 %
Premium amortization expense on Agency MBS for the respective
quarter
$7.5 million
$6.3 million
At September 30, 2018, the constant prepayment rate (“CPR”) and
weighted average term to next interest rate reset of our Agency MBS
were as follows:
September 30,
2018
(unaudited) Constant prepayment rate (CPR) of Agency MBS 16%
Constant prepayment rate (CPR) of adjustable-rate and hybrid
adjustable-rate Agency MBS 23% Weighted average term to next
interest rate reset on Agency MBS 25 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
September 30, 2018 and June 30, 2018 (dollar amounts in
thousands):
September 30, 2018 (unaudited)
Weighted Average Mortgage Loan Type
Fair
Value
Amortized
Cost
Contractual
Principal
Amortized
Cost
Coupon Yield Prime $ 37,939 $ 36,332 $
45,662 79.57% 5.15% 6.27% Alt-A 535,671 516,129 693,717 74.40%
5.68% 5.44% Subprime 19,645 18,751 20,581 91.11% 4.30% 5.76%
Non-performing 116,651 116,737 116,995 99.78% 5.17% 5.38% Agency
Risk Transfer - RPL 57,439 56,196 62,050 90.57% 4.28% 5.61% Agency
Risk Transfer - New originations 16,557 16,410
17,832 92.03% 3.90% 5.64% Total Non-Agency MBS $ 783,902 $ 760,555
$ 956,837 79.49% 5.44% 5.49%
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%
Residential Mortgage Loans
The following table summarizes the Company’s residential
mortgage loans held-for-investment at September 30, 2018 and June
30, 2018 (in thousands):
September 30,
2018
June 30,
2018
(unaudited) Residential mortgage loans held-for-investment $
562,484 $ 585,020 Asset-backed securities issued by securitization
trusts 553,118 575,653 Retained interest in loans
held in securitization trust $ 9,366 $ 9,367
Residential Real Estate
At September 30, 2018 and June 30, 2018, Anworth Properties Inc.
owned 87 and 88, respectively, single-family residential rental
properties located in Southeastern Florida that were carried at a
total cost, net of accumulated depreciation, of $13.9 million and
$14.0 million, respectively. During the three months ended
September 30, 2018, we sold one of our residential properties for a
gain of approximately $30 thousand.
MBS Portfolio Financing
September 30, 2018
Agency
MBS
Non-Agency
MBS
Total
MBS
(dollar amounts in thousands) (unaudited) Repurchase
Agreements: Outstanding repurchase agreement balance $ 3,465,000 $
548,820 $ 4,013,820 Average interest rate 2.22 % 3.38 % 2.38 %
Average maturity
33 days
16 days
31 days
Average interest rate after adjusting for interest rate swaps 2.14
% Average maturity after adjusting for interest rate swaps
1,167 days
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
Portfolio Leverage
At September 30, 2018, the Company’s leverage multiple was
6.09x. 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 7.24x at
September 30, 2018. At June 30, 2018, the Company’s leverage
multiple was 5.92x and the effective leverage was 7.04x.
Interest Rate Swaps
At September 30, 2018 and June 30, 2018, the Company’s interest
rate swap agreements (“Swaps”) had the following notional amounts,
weighted average fixed rates, and remaining terms (dollar amounts
in thousands):
September 30, 2018 June 30, 2018
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 $ 625,000 1.57 % 7 0.6 $
250,000 1.55 % 5 0.4 1 year to 2 years 591,000 4.65 18 1.5 766,000
1.62 16 1.4 2 years to 3 years 550,000 1.83 30 2.5 550,000 1.78 28
2.4 3 years to 4 years 150,000 1.95 42 3.5 300,000 1.87 39 3.3 4
years to 5 years 325,000 2.11 56 4.7 170,000 1.83 52 4.3 5 years to
7 years 450,000 2.43 75 6.3 485,000 2.32 73 6.1 7 years to 10 years
640,000 2.76 104 8.7 625,000 2.63 105 8.8 $ 3,331,000
2.04 % 47 3.9 $ 3,146,000 1.99 % 48 4.0
Effective Net Interest Rate Spread
September 30,
2018
June 30,
2018
(unaudited) (unaudited) Average asset yield,
including TBA dollar roll income 3.48 % 3.31 % Effective cost of
funds 2.34 2.19 Effective net interest rate spread
1.14 % 1.12 %
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 September 14, 2018, the Company declared a quarterly common
stock dividend of $0.14 per share for the third quarter ended
September 30, 2018. Based upon the closing price of $4.63 on
September 28, 2018, the annualized dividend yield on the Company’s
common stock at September 30, 2018 was 12.1%.
Book Value per Common Share
At September 30, 2018, the Company’s book value was $5.12 per
share of common stock, which was a decrease of $0.21 from the book
value of $5.33 for the prior quarter.
The $0.14 quarterly dividend, less the decrease in book value of
$0.21, resulted in a negative return on book value per common share
of (1.3)% for the three months ended September 30, 2018.
Subsequent Events
Effective October 1, 2018, the conversion rate of our Series B
Preferred Stock increased from 5.1021 shares of our common stock to
5.1740 shares of our common stock, based upon the common stock
dividend of $0.14 that was declared on September 14, 2018.
On October 29, 2018, we acquired an aggregate of approximately
$13 million of Non-QM residential mortgage loans that are scheduled
to close on November 30, 2018.
Conference Call
The Company will host a conference call on Monday, November 5,
2018 at 1:00 PM Eastern Time, 10:00 AM Pacific Time, to discuss its
third 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 November 5, 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 10125962. 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)
September 30, December 31,
2018 2017
(unaudited) ASSETS
Agency MBS at fair value (including
$3,662,490 and $4,073,852 pledged to counterparties at September
30, 2018 and December 31, 2017, respectively)
$ 3,824,969 $ 4,278,797
Non-Agency MBS at fair value (including
$695,540 and $661,445 pledged to counterparties at September 30,
2018 and December 31, 2017, respectively)
783,902 760,825 Residential mortgage loans held-for-investment(1)
562,484 639,351 Residential real estate 13,905 14,143 Cash and cash
equivalents 6,896 12,273 Restricted cash — 11,157 Interest and
dividends receivable 17,530 18,091 Derivative instruments at fair
value 81,030 27,793 Prepaid expenses and other 2,848
3,111 Total Assets $ 5,293,564 $ 5,765,541
LIABILITIES AND STOCKHOLDERS’ EQUITY Liabilities:
Accrued interest payable $ 16,267 $ 15,835 Repurchase agreements
4,013,820 4,365,695 Asset-backed securities issued by
securitization trusts(1) 553,118 629,984 Junior subordinated notes
37,380 37,380 Derivative instruments at fair value 1,558 1,335
Dividends payable on preferred stock 2,292 2,272 Dividends payable
on common stock 13,773 14,721 Derivative counterparty margin 28,865
— Accrued expenses and other 5,118 897
Total Liabilities $ 4,672,191 $ 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 September 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 September 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 September 30, 2018 and December 31, 2017,
respectively)
48,944 48,420
Common Stock: par value $0.01 per share;
authorized 200,000 shares, 98,381 shares issued and outstanding at
September 30, 2018 and 98,137 shares issued and outstanding at
December 31, 2017, respectively)
984 981 Additional paid-in capital 981,499 980,243 Accumulated
other comprehensive income consisting of unrealized gains and
losses (41,096 ) 17,021 Accumulated deficit (434,950 )
(415,235 ) Total Stockholders’ Equity $ 601,918 $
677,967 Total Liabilities and Stockholders’ Equity $
5,293,564 $ 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 September 30, 2018 and December
31, 2017, total assets of the consolidated VIEs were $564 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 $555 million and $632
million, respectively (including accrued interest payable of $1.8
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 Nine Months
Ended September 30, September 30,
2018 2017
2018 2017 Interest and
other income: Interest-Agency MBS $ 23,578 $ 19,892 $ 72,449 $
52,765 Interest-Non-Agency MBS 10,377 9,352 30,287 28,659
Interest-residential mortgage loans 5,750 6,795 17,944 21,205 Other
interest income 20 25 92
83 39,725 36,064
120,772 102,712 Interest expense: Interest
expense on repurchase agreements 24,027 15,242 65,149 37,073
Interest expense on asset-backed securities 5,581 6,626 17,449
20,593 Interest expense on junior subordinated notes 519
417 1,470 1,203
30,127 22,285 84,068
58,869 Net interest income 9,598
13,779 36,704 43,843 Operating
expenses: Management fee to related party (1,636 ) (1,936 ) (5,039
) (5,634 ) Rental properties depreciation and expenses (366 ) (340
) (1,158 ) (1,013 ) General and administrative expenses
(1,197 ) (1,098 ) (3,631 ) (3,221 ) Total
operating expenses (3,199 ) (3,374 ) (9,828 )
(9,868 ) Other income: Income-rental properties 436 397
1,333 1,297 Realized net gain (loss) on sales of available-for-sale
MBS 799 (2,276 ) (11,188 ) (2,168 ) Realized loss on sales of
Agency MBS held as trading investments (231 ) - (7,558 ) -
Impairment charge on Non-Agency MBS (141 ) (762 ) (1,898 ) (2,399 )
Unrealized (loss) gain on Agency MBS held as trading investments
(3,017 ) 5,849 (14,584 ) 10,071 Gain on sales of residential
mortgage loans held-for-investment - - - 378 Gain on sale of
residential properties 30 - 30 - Gain (loss) on derivatives, net
13,090 (945 ) 36,433 (2,989 ) Recovery on Non-Agency MBS -
1 1 2 Total other
income 10,966 2,264 2,569
4,192 Net income $ 17,365 $ 12,669 $
29,445 $ 38,167 Dividends on preferred stock
(2,297 ) (2,115 ) (6,892 ) (5,895 ) Net income
to common stockholders $ 15,068 $ 10,554 $ 22,553
$ 32,272 Basic earnings per common share $ 0.15 $
0.11 $ 0.23 $ 0.34 Diluted earnings per common share $ 0.15 $ 0.11
$ 0.23 $ 0.33 Basic weighted average number of shares outstanding
98,353 97,547 98,270 96,323 Diluted weighted average number of
shares outstanding 102,331 100,702 102,199 99,998
ANWORTH
MORTGAGE ASSET CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands, except for per share
amounts)
(unaudited)
Three Months Ended Nine Months
Ended September 30, September 30,
2018 2017
2018 2017 Net income $
17,365 $ 12,669 $ 29,445 $ 38,167
Available-for-sale Agency MBS, fair value adjustment (16,091 )
(6,352 ) (65,419 ) (8,763 )
Reclassification adjustment for (gain)
loss on sales of Agency MBS included in net income
(583 ) 2,341 11,362 2,233 Available-for-sale Non-Agency MBS, fair
value adjustment (5,788 ) 7,114 (6,679 ) 25,447
Reclassification adjustment for gain on
sales of Non-Agency MBS included in net income
(217 ) (65 ) (175 ) (65 )
Amortization of unrealized gains on
interest rate swaps remaining in other comprehensive income
1,043 395 3,006 1,385
Reclassification adjustment for interest
(income) expense on interest rate swaps included in net income
- 183 (212 ) 371
Other comprehensive (loss) income (21,636 ) 3,616
(58,117 ) 20,608 Comprehensive (loss)
income $ (4,271 ) $ 16,285 $ (28,672 ) $ 58,775
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 September 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 September 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 September 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 September 30, 2018
Amount Per Share (in thousands)
(unaudited) Net income to common stockholders $
15,068 $ 0.15 Adjustments to derive core earnings: Gain on sales of
MBS (568 ) - Unrealized loss on Agency MBS held as trading
investments 3,017 0.03 Impairment charge on Non-Agency MBS(1) 141 -
Gain on interest rate swaps, net (15,910 ) (0.16 ) Loss on
derivatives-TBA Agency MBS, net 2,820 0.03 Net settlement on
interest rate swaps after de-designation(2) 3,055 0.03 Dollar roll
income on TBA Agency MBS(3) 2,436 0.02 Premium amortization on
Agency MBS 7,489 0.08 Paydown expense(4) (5,998 ) (0.06 ) Gain on
sale of residential rental properties (30 ) - Depreciation expense
on residential rental properties(5) 119 -
Core earnings $ 11,639 $ 0.12 Basic weighted
average number of shares outstanding 98,353 ____________________
(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) 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.” (3) Dollar roll income on TBA Agency
MBS is the income resulting from the price discount typically
obtained by extending the settlement of TBA Agency MBS to a later
date. This is a component of the “Gain on derivatives, net” that is
shown on the Company’s statements of operations. (4) Paydown
expense on Agency MBS represents the proportional expense of Agency
MBS purchase premiums relative to the Agency MBS principal payments
and prepayments which occurred during the three-month period. (5)
Depreciation expense is added back in the core earnings
calculation, as it is a non-cash item, and it is similarly added
back in other companies’ calculation of core earnings or funds from
operations.
Effective Net Interest Rate Spread
Three Months Ended September 30, 2018
(unaudited)
Amount
Annualized
Percentage
(in thousands) Average Asset Yield, Including
TBA Dollar Roll Income: Total interest income $ 39,725 3.14%
Income-rental properties 436 0.03% Dollar roll income on TBA Agency
MBS(1) 2,436 0.19% Premium amortization on Agency MBS 7,489 0.59%
Paydown expense on Agency MBS(2) (5,998 ) -0.47% Total
interest and other income and average asset yield, including TBA
dollar roll income $ 44,088 3.48% Effective Cost of Funds:
Total interest expense $ 30,127 2.60% Periodic net settlement on
interest rate Swaps after de-designation(3) (3,055 ) -0.26%
Effective total interest expense and effective cost of funds $
27,072 2.34% Effective net interest rate spread 1.14%
Average earning assets $ 5,062,438 Average borrowings $
4,641,228 ____________________ (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.”
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version on businesswire.com: https://www.businesswire.com/news/home/20181102005523/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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