Anworth Mortgage Asset Corporation (NYSE: ANH) (the “Company” or
“Anworth”) today reported its financial results for the fourth
quarter ended December 31, 2018.
Earnings
The following table summarizes the Company’s core earnings, GAAP
net loss to common stockholders, and comprehensive loss for the
three months ended December 31, 2018:
Three Months Ended
December 31, 2018
(unaudited) Earnings Per
Weighted
Share
Core Earnings $ 10,704 $ 0.11 GAAP net loss to common stockholders
$ (38,230 ) $ (0.39 ) Comprehensive loss $ (25,628 ) $ (0.27 )
Core earnings is a non-GAAP financial measure, which is
explained and reconciled to GAAP net loss to common stockholders in
the section entitled “Non-GAAP Financial Measures Related to
Operating Results” near the end of this earnings release.
Comprehensive loss is shown on the consolidated statements of
comprehensive income, which is included in this earnings release.
Comprehensive loss consists of the net loss to all stockholders
(including the amounts paid to preferred stockholders) and the
change in other comprehensive income.
Portfolio
At December 31, 2018 and September 30, 2018, the composition of
the Company’s portfolio at fair value was as follows:
December 31, 2018 September 30, 2018
Dollar Amount Percentage Dollar Amount
Percentage (unaudited) Agency MBS: ARMS and
hybrid ARMs $ 1,547,405 26.6 % $ 1,676,433 28.2 % Fixed-rate Agency
MBS 2,001,314 34.3 % 2,148,536 36.2 % TBA Agency MBS 906,016
15.6 % 756,470 12.7 % Total Agency MBS $ 4,454,735 76.5 % $
4,581,439 77.1 % Non-Agency MBS 795,203 13.7 % 783,902 13.2 %
Residential mortgage loans(1) 549,016 9.4 % 562,484 9.5 %
Residential mortgage loans held-for-securitization 11,660 0.2 %
-
-
Residential real estate 13,782 0.2 % 13,905 0.2 %
Total Portfolio $ 5,824,396 100.0 % $ 5,941,730 100.0 % Total
Assets(2) $ 5,937,906 $ 6,050,034 ____________________ (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, 2018, the allocation of the Company’s agency
mortgage-backed securities (“Agency MBS”) was approximately 35%
adjustable-rate and hybrid adjustable-rate Agency MBS, 45%
fixed-rate Agency MBS, and 20% fixed-rate TBA Agency MBS. At
September 30, 2018, the allocation of the Company’s 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,
both periods of which are detailed below (dollar amounts in
thousands):
December 31, September 30, 2018
2018 (unaudited) Fair value of Agency MBS and TBA
Agency MBS $ 4,454,735 $ 4,581,439 Adjustable-rate Agency MBS
coupon reset (less than 1 year) 20 % 21 % Hybrid adjustable-rate
Agency MBS coupon reset (1-2 years) 4 5 Hybrid adjustable-rate
Agency MBS coupon reset (2-3 years) 1 1 Hybrid adjustable-rate
Agency MBS coupon reset (3-4 years) 3 1 Hybrid adjustable-rate
Agency MBS coupon reset (4-5 years) 4 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 35 % 37 % 15-year
fixed-rate TBA Agency MBS 10 16 15-year fixed-rate Agency MBS 20 23
20-year and 30-year fixed-rate Agency MBS 25 24 30-year fixed-rate
TBA Agency MBS 10 - Total MBS 100 % 100
%
At December 31, 2018 and September 30, 2018, the summary
statistics of the Company’s Agency MBS portfolio were as
follows:
December 31, September 30, 2018
2018 (unaudited) Weighted Average Agency MBS Coupon:
Adjustable-rate Agency MBS 4.09 % 3.88 % Hybrid adjustable-rate
Agency MBS 2.52 2.47 15-year fixed-rate Agency MBS 2.90 2.91
15-year fixed-rate TBA Agency MBS 3.57 3.57 20-year and 30-year
fixed-rate Agency MBS 3.93 3.90 30-year fixed-rate TBA Agency MBS
4.35 - Total Agency MBS: 3.54 % 3.39 % Average Amortized Cost:
Adjustable-rate Agency MBS 102.65 % 102.73 % Hybrid adjustable-rate
Agency MBS 102.49 102.59 15-year fixed-rate Agency MBS 102.28
102.24 15-year fixed-rate TBA Agency MBS 100.47 100.86 20-year and
30-year fixed-rate Agency MBS 103.29 103.37 30-year fixed-rate TBA
Agency MBS 102.49 - Total Agency MBS: 102.47 % 102.44 % Average
asset yield (weighted average coupon divided by average amortized
cost) 3.45 % 3.31 % Unamortized premium $95.2 million $104.0
million Unamortized premium as a percentage of par value 2.47 %
2.44 % Premium amortization expense on Agency MBS for the
respective quarter $7.4 million $7.5 million
At December 31, 2018 and September 30, 2018, the constant
prepayment rate (“CPR”) and weighted average term to next interest
rate reset of our Agency MBS were as follows:
December 31,
2018
September 30,
2018
(unaudited) Constant prepayment rate (CPR) of Agency MBS 14%
16% Constant prepayment rate (CPR) of adjustable-rate and hybrid
adjustable-rate Agency MBS 21% 23% Weighted average term to next
interest rate reset on Agency MBS 24 months 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 December
31, 2018 and September 30, 2018:
December 31, 2018 Weighted
Average Portfolio Type Fair
Value
Amortized
Cost
Current
Principal
Amortized
Cost
Coupon Yield (in thousands)
(unaudited) Legacy Non-Agency MBS $ 561,940 $ 553,292 $
738,210 74.95 % 5.56 % 5.57 % Non-performing 101,744 102,450
102,760 99.70 5.14 5.42 Credit Risk Transfer 131,519
129,898 141,839 91.58 4.30 5.72 Total Non-Agency MBS $
795,203 $ 785,640 $ 982,809 79.94 % 5.34 % 5.58 %
September 30, 2018 Weighted Average
Portfolio Type Fair
Value
Amortized
Cost
Current
Principal
Amortized
Cost
Coupon Yield (in thousands)
(unaudited)
Legacy Non-Agency MBS $ 593,255 $ 571,212 $ 759,960 75.16 % 5.61 %
5.50 % Non-performing 116,651 116,737 116,995 99.78 5.17 5.38
Credit Risk Transfer 73,996 72,606 79,882
90.89 4.20 5.62 Total Non-Agency MBS $ 783,902 $ 760,555 $ 956,837
79.49 % 5.44 % 5.49 %
Residential Mortgage Loans
The following table summarizes the Company’s residential
mortgage loans held-for-investment at December 31, 2018 and
September 30, 2018:
December 31, September 30, 2018
2018 (unaudited) Residential mortgage loans
held-for-investment $ 549,016 $ 562,484 Asset-backed securities
issued by securitization trusts 539,651 553,118
Retained interest in loans held in
securitization trusts
$ 9,365 $ 9,366
Residential Properties Portfolio
At December 31, 2018 and September 30, 2018, Anworth Properties
Inc. owned 86 and 87 single-family residential rental properties,
respectively, located in Southeastern Florida that were carried at
a total cost, net of accumulated depreciation, of $13.8 million and
$13.9 million, respectively.
MBS Portfolio Financing
December 31, 2018 Agency
MBS
Non-Agency
MBS
Total
MBS
(dollar amounts in thousands)
(unaudited)
Repurchase Agreements: Outstanding repurchase agreement balance $
3,235,000 $ 576,627 $ 3,811,627 Average interest rate 2.52 % 3.55 %
2.67 % Average maturity 35 days 13 days 32 days Average interest
rate after adjusting for interest rate swaps 2.23 % Average
maturity after adjusting for interest rate swaps 1,217 days
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
Portfolio Leverage
At December 31, 2018, the Company’s leverage multiple was 6.16x.
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 7.63x at December 31, 2018. At
September 30, 2018, the Company’s leverage multiple was 6.09x and
the effective leverage was 7.24x.
Interest Rate Swaps
At December 31, 2018 and September 30, 2018, the Company’s
interest rate swap agreements (“Swaps”) had the following notional
amounts, weighted average fixed rates, and remaining terms:
December 31, 2018 Maturity Notional
Amount
Weighted
Average
Fixed
Rate
Remaining
Term in
Months
Remaining
Term in
Years
(unaudited) Less than 12 months $ 725,000 1.60 % 7 0.6 1
year to 2 years 591,000 1.70 19 1.6 2 years to 3 years 400,000 1.96
30 2.5 3 years to 4 years 220,000 1.92 43 3.6 4 years to 5 years
205,000 2.27 57 4.8 5 years to 7 years 475,000 2.41 73 6.1 7 years
to 10 years 690,000 2.83 104 8.7 $ 3,306,000 2.10 % 47 3.9
September 30, 2018
Maturity 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 1
year to 2 years 591,000 4.65 18 1.5 2 years to 3 years 550,000 1.83
30 2.5 3 years to 4 years 150,000 1.95 42 3.5 4 years to 5 years
325,000 2.11 56 4.7 5 years to 7 years 450,000 2.43 75 6.3 7 years
to 10 years 640,000 2.76 104 8.7 $ 3,331,000 2.04 % 47 3.9
Effective Net Interest Rate Spread
December 31,
2018
September 30,
2018
(unaudited) Average asset yield, including TBA dollar roll
income 3.56 % 3.40 % Effective cost of funds 2.52 2.34 Effective
net interest rate spread 1.04 % 1.06 %
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 14, 2018, the Company declared a quarterly common
stock dividend of $0.13 per share for the fourth quarter ended
December 31, 2018. Based upon the closing price of $4.04 on
December 31, 2018, the annualized dividend yield on the Company’s
common stock at December 31, 2018 was 12.9%.
Book Value per Common Share
At December 31, 2018, the Company’s book value was $4.71 per
share of common stock, which was a decrease of $0.41 from $5.12 in
the prior quarter.
The $0.13 quarterly dividend less the $0.41 decrease in book
value per common share from the prior quarter resulted in a
negative return on book value per common share of (5.5%) for the
quarter ended December 31, 2018 and a negative (12.1%) for the year
ended December 31, 2018.
Subsequent Events
On January 2, 2019, the conversion rate of our
Series B Preferred Stock increased from 5.1740 to 5.2588
shares of our common stock based upon the common stock dividend of
$0.13 per share that was declared on December 14, 2018.
On January 18, 2019, we settled in the amount of $11.7 million
on the loans we acquired in the fourth quarter of 2018.
Approximately $10.1 million was taken down on the credit line
facility to fund this transaction.
On February 12, 2019, we acquired an aggregate of approximately
$90 million of Non-QM residential mortgage loans that are scheduled
to close on March 15, 2019.
Conference Call
The Company will host a conference call on Friday, February 15,
2019 at 1:00 PM Eastern Time, 10:00 AM Pacific Time, to discuss its
fourth quarter 2018 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, 2019. 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 10128726. 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 to 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, 2018
2017 ASSETS (unaudited)
Agency MBS pledged to counterparties at fair value (including
$3,433,252 and $4,073,852
pledged to counterparties at December 31,
2018 and December 31, 2017, respectively
$ 3,548,719 $ 4,278,797 Non-Agency MBS at fair value (including
$726,428 and $661,445 pledged to counterparties
at December 31, 2018 and December 31,
2017, respectively)
795,203 760,825 Residential mortgage loans held-for-securitization
11,660 - Residential mortgage loans held-for-investment(1) 549,016
639,351 Residential real estate 13,782 14,143 Cash and cash
equivalents 3,165 12,273 Reverse repurchase agreements 20,000 -
Restricted cash 30,296 11,157 Interest and dividends receivable
16,872 18,091 Derivative instruments at fair value 46,207 27,793
Prepaid expenses and other 2,986 3,111
Total Assets $ 5,037,906 $ 5,765,541
LIABILITIES
AND STOCKHOLDERS' EQUITY Liabilities: Accrued interest payable
$ 24,828 $ 15,835 Repurchase agreements 3,811,627 4,365,695
Asset-backed securities issued by securitization trusts(1) 539,651
629,984 Junior subordinated notes 37,380 37,380 Derivative
instruments at fair value 15,901 1,335 Dividends payable on
preferred stock 2,297 2,272 Dividends payable on common stock
12,803 14,721 Payable for purchased loans 11,660 - Accrued expenses
and other 654 897 Total Liabilities $
4,456,801 $ 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 December
31, 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 December
31, 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 December
31, 2018 and December 31, 2017,
respectively
48,944 48,420 Common Stock: par value $0.01 per share; authorized
200,000 shares, 98,483 shares
and 98,137 shares issued and outstanding
at December 31, 2018 and
December 31, 2017, respectively
985 981 Additional paid-in capital 981,964 980,243 Accumulated
other comprehensive income consisting of unrealized gains and
losses (30,792 ) 17,021 Accumulated deficit (485,988 )
(415,235 ) Total Stockholders' Equity: $ 561,650 $
677,967 Total Liabilities and Stockholders' Equity $
5,037,906 $ 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 December
31, 2018 and December 31, 2017, total assets of the consolidated
VIEs were $551 million and $641 million (including accrued interest
receivable of $1.8 million and $2.1 million), respectively (which
is recorded above in the line item “Interest and dividends
receivable”), and total liabilities were $541 million and $632
million (including accrued interest payable of $1.7 million and
$2.0 million), respectively (which is recorded above in the line
item “Accrued interest payable”). Please refer to Note 5, “Variable
Interest Entities,” for further discussion.
ANWORTH MORTGAGE ASSET CORPORATION AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
OPERATIONS
(in thousands, except for per share
amounts)
Three
Months
Ended
Year
Ended
Three
Months
Ended
Year
Ended
December 31, 2018 December 31, 2017
(unaudited) (unaudited) Interest and other income:
Interest-Agency MBS $ 23,208 $ 95,656 $ 23,891 $ 76,657
Interest-Non-Agency MBS 10,445 40,733 9,607 38,266
Interest-residential mortgage loans 5,519 23,463 6,515 27,720 Other
interest income 29 120 22
105 39,201 159,972
40,035 142,748 Interest Expense: Interest
expense on repurchase agreements 25,362 90,511 16,881 53,954
Interest expense on asset-backed securities 5,351 22,800 6,346
26,939 Interest expense on junior subordinated notes 526
1,996 423 1,626
31,239 115,307 23,650
82,519 Net interest income 7,962
44,665 16,385 60,229 Operating
expenses: Management fee to related party (2,060 ) (7,098 ) (1,871
) (7,503 ) Rental properties depreciation and expense (367 ) (1,525
) - (1,372 ) General and administrative expenses (1,248 )
(4,880 ) (1,565 ) (4,430 ) Total operating
expenses (3,675 ) (13,503 ) (3,436 )
(13,305 ) Other income: Income-rental properties 428 1,761 413
1,710 Realized net (loss) on sales of available-for-sale MBS (999 )
(12,186 ) - (2,168 ) Realized (loss) on Agency MBS held as trading
investments (3,871 ) (11,429 ) - - Impairment charge on Non-Agency
MBS (971 ) (2,869 ) (7,279 ) (2,399 ) Unrealized gain (loss) on
Agency MBS held as trading investments 9,674 (4,911 ) - 2,793 Gain
on sales of residential mortgage loans held-for-investment - - -
378 Gain on sales of residential properties 23 54 - - (Loss) gain
on derivatives, net (44,504 ) (8,071 ) 10,121 7,132 Recovery on
Non-Agency MBS - 1 -
2 Total other income (40,220 ) (37,650
) 3,255 7,448 Net (loss) income $
(35,933 ) $ (6,488 ) $ 16,204 $ 54,372 Dividend on
preferred stock (2,297 ) (9,189 ) (2,278 )
(8,173 ) Net (loss) income to common stockholders $ (38,230
) $ (15,677 ) $ 13,926 $ 46,199 Basic (loss) earnings
per common share $ (0.39 ) $ (0.16 ) $ 0.14 $ 0.48 Diluted (loss)
earnings per common share $ (0.39 ) $ (0.16 ) $ 0.14 $ 0.47 Basic
weighted average number of shares outstanding 98,444 98,314 98,074
96,764 Diluted weighted average number of shares outstanding 98,444
98,314 101,909 100,479
ANWORTH MORTGAGE ASSET CORPORATION AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
(in thousands, except for per share
amounts)
Three
Months
Ended
Year
Ended
Three
Months
Ended
Year
Ended
December 31, 2018 December 31, 2017
(unaudited) (unaudited) Net (loss) income $ (35,933 )
$ (6,488 ) $ 16,204 $ 54,372 Available-for-sale
Agency MBS, fair value adjustment 22,071 (43,348 ) (16,177 )
(24,939 ) Reclassification adjustment for loss on sales of Agency
MBS included
in net (loss) income
999 12,361 - 2,233 Available-for-sale Non-Agency MBS, fair value
adjustment (13,784 ) (20,463 ) 3,283 28,730 Reclassification
adjustment for (gain) loss on sales of Non-Agency MBS
included in net (loss) income
- (175 ) - (65 ) Amortization of unrealized gain on derivatives
remaining in other
comprehensive income
1,019 4,025 949 2,334 Reclassification adjustment for interest
expense on swap agreements
included in net (loss) income
- (212 ) (292 ) 79 Other
comprehensive (loss) income 10,305 (47,812 )
(12,237 ) 8,372 Comprehensive (loss) income $
(25,628 ) $ (54,300 ) $ 3,967 $ 62,744
Non-GAAP Financial Measures Related to Operating
Results
In addition to the Company’s operating results presented in
accordance with GAAP, the following tables include the following
non-GAAP financial measures: Core Earnings (including per common
share), total interest income and average asset yield, including
TBA dollar roll income, paydown expense on Agency MBS and effective
total interest expense and effective cost of funds. The first table
below reconciles the Company’s “net loss to common stockholders”
for the three months ended December 31, 2018 to “Core Earnings” for
the same period. Core Earnings represents “net loss to common
stockholders” (which is the nearest comparable GAAP measure),
adjusted for the items shown in the table below. The second table
below reconciles the Company’s total interest and other income for
the three months ended December 31, 2018 (which is the nearest
comparable GAAP measure) to the total interest income and average
asset yield, including TBA dollar roll income, and shows the
annualized amounts as a percentage of the Company’s average earning
assets and also reconciles the Company’s total interest expense
(which is the nearest comparable GAAP measure) to the effective
total interest expense and effective cost of funds and shows the
annualized amounts as a percentage of the Company’s average
borrowings.
The Company’s management believes that:
- these non-GAAP financial measures are
useful because they provide investors with greater transparency to
the information that the Company uses in its financial and
operational decision-making process;
- the inclusion of paydown expense on
Agency MBS is more indicative of the current earnings potential of
the Company’s investment portfolio, as it reflects the actual
principal paydowns which occurred during the period. Paydown
expense on Agency MBS is not dependent on future assumptions on
prepayments or the cumulative effect from prior periods of any
current changes to those assumptions, as is the case with the GAAP
measure, “Premium amortization on Agency MBS”;
- the adjustment for 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 three months
ended December 31, 2018. An analysis of any non-GAAP financial
measure should be used in conjunction with results presented in
accordance with GAAP.
Core Earnings
Three Months Ended
December 31, 2018
Amount Per Share (in thousands)
(unaudited) Net income to common stockholders $ (38,230 ) $
(0.39 ) Adjustments to derive core earnings: Loss on sales of MBS
4,870 0.05 Impairment charge on Non-Agency MBS(1) 971 0.01
Unrealized (gain) loss on Agency MBS held as trading investments
(9,674 ) (0.10 ) Unrealized (loss) gain on interest rate swaps, net
54,575 0.55 (Gain) loss on derivatives-TBA Agency MBS, net (10,071
) (0.10 ) Net settlement on interest rate swaps after
de-designation(2) 3,134 0.03 Dollar roll income on TBA Agency
MBS(3) 2,960 0.03 Premium amortization on MBS 7,356 0.08 Paydown
expense(4) (5,283 ) (0.05 ) Gain on sale of residential rental
properties (23 ) - Depreciation expense on residential rental
properties(5) 119 - Core earnings $
10,704 $ 0.11 Basic weighted average number of shares
outstanding 98,444 ____________________ (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 settlement 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 “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) gain 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, 2018
Amount
Annualized
Percentage
(in thousands) (unaudited) Average Asset Yield,
Including TBA Dollar Roll Income: Total interest income $ 39,201
3.12 % Income-rental properties 428 0.03 % Dollar roll income on
TBA Agency MBS(1) 2,960 0.24 % Premium amortization on Agency MBS
7,356 0.59 % Paydown expense on Agency MBS(2) (5,283 ) -0.42
% Total interest and other income and average asset yield,
including TBA dollar roll income $ 44,662 3.56 % Effective
Cost of Funds: Total interest expense $ 31,239 2.80 %
Net settlement on interest rate Swaps
after de-designation(3)
(3,134 ) -0.28 % Effective total interest expense and
effective cost of funds $ 28,105 2.52 % Effective net
interest rate spread 1.04 % Average earning assets $ 5,017,025
Average borrowings $ 4,467,256 ____________________
(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 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)
Net settlement 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 “Loss on interest rate swaps, net.”
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version on businesswire.com: https://www.businesswire.com/news/home/20190214005874/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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