Anworth Mortgage Asset Corporation (NYSE: ANH) (the “Company” or
“Anworth”) today reported its financial results for the second
quarter ended June 30, 2019.
Earnings
The following table summarizes the Company’s core earnings, GAAP
net loss to common stockholders, and comprehensive loss for the
three months ended June 30, 2019:
Three Months Ended
June 30, 2019
(unaudited)
Per
Weighted
Earnings
Share
(in thousands)
Core earnings
$
9,918
$
0.10
GAAP net loss to common stockholders
$
(49,997)
$
(0.51)
Comprehensive loss
$
(8,740)
$
(0.09)
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 our 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 June 30, 2019 and March 31, 2019, the composition of our
portfolio at fair value was as follows:
June 30, 2019
March 31, 2019
Dollar Amount
Percentage
Dollar Amount
Percentage
(in thousands)
(unaudited)
Agency MBS:
ARMS and hybrid ARMs
$
1,161,124
22.9
%
$
1,424,495
24.2
%
Fixed-rate Agency MBS
1,785,197
35.3
2,320,596
39.3
TBA Agency MBS
746,955
14.8
721,391
12.0
Total Agency MBS
$
3,693,276
73.0
%
$
4,466,482
75.5
%
Non-Agency MBS
718,109
14.2
768,597
13.0
Residential mortgage loans(1)
514,749
10.1
535,077
9.1
Residential mortgage loans
held-for-securitization
121,715
2.4
129,583
2.2
Residential real estate
13,658
0.3
13,752
0.2
Total Portfolio
$
5,061,507
100.0
%
$
5,913,491
100.0
%
Total Assets(2)
$
5,227,638
$
6,063,120
____________________
(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 us.
(2)
Includes TBA Agency MBS.
Agency MBS
At June 30, 2019, the allocation of our agency mortgage-backed
securities (“Agency MBS”) was approximately 31% adjustable-rate and
hybrid adjustable-rate Agency MBS, 49% fixed-rate Agency MBS, and
20% fixed-rate TBA Agency MBS. At March 31, 2019, the allocation of
our Agency MBS was approximately 32% adjustable-rate and hybrid
adjustable-rate Agency MBS, 52% fixed-rate Agency MBS, and 16%
fixed-rate TBA Agency MBS, both periods of which are detailed
below:
June 30,
March 31,
2019
2019
(dollar amounts in
thousands)
(unaudited)
Fair value of Agency MBS and TBA Agency
MBS
$
3,693,276
$
4,466,482
Adjustable-rate Agency MBS coupon reset
(less than 1 year)
18
%
20
%
Hybrid adjustable-rate Agency MBS coupon
reset (1-3 years)
3
3
Hybrid adjustable-rate Agency MBS coupon
reset (3-5 years)
7
6
Hybrid adjustable-rate Agency MBS coupon
reset (greater than 5 years)
3
3
Total adjustable-rate Agency MBS
31
%
32
%
15-year fixed-rate Agency MBS
2
8
15-year fixed-rate TBA Agency MBS
1
—
20-year fixed-rate Agency MBS
6
8
30-year fixed-rate Agency MBS
41
36
30-year fixed-rate TBA Agency MBS
19
16
Total MBS
100
%
100
%
At June 30, 2019 and March 31, 2019, the summary statistics of
our Agency MBS portfolio were as follows:
June 30,
March 31,
2019
2019
(unaudited)
Weighted Average Agency MBS Coupon:
Adjustable-rate Agency MBS
4.20
%
4.34
%
Hybrid adjustable-rate Agency MBS
2.53
2.52
15-year fixed-rate Agency MBS
3.50
3.13
15-year fixed-rate TBA Agency MBS
3.50
—
20-year fixed-rate Agency MBS
3.56
3.70
30-year fixed-rate Agency MBS
4.02
4.05
30-year fixed-rate TBA Agency MBS
3.64
4.32
Total Agency MBS:
3.71
%
3.84
%
Average Amortized Cost:
Adjustable-rate Agency MBS
102.38
%
102.67
%
Hybrid adjustable-rate Agency MBS
102.40
102.53
15-year fixed-rate Agency MBS
101.88
102.06
15-year fixed-rate TBA Agency MBS
103.06
—
20-year fixed-rate Agency MBS
104.21
104.02
30-year fixed-rate Agency MBS
102.64
102.73
30-year fixed-rate TBA Agency MBS
102.29
103.06
Total Agency MBS:
102.57
%
102.79
%
Average asset yield (weighted average
coupon divided by average amortized cost)
3.62
%
3.74
%
Unamortized premium
$
74.6
million
$
99.7
million
Unamortized premium as a percentage of par
value
2.57
%
2.79
%
Premium amortization expense on Agency MBS
for the respective quarter
$
7.5
million
$
5.9
million
At June 30, 2019 and March 31, 2019, the constant prepayment
rate (“CPR”) and weighted average term to next interest rate reset
of our Agency MBS were as follows:
June 30,
March 31,
2019
2019
(unaudited)
Constant prepayment rate (CPR) of Agency
MBS
18
%
13
%
Constant prepayment rate (CPR) of
adjustable-rate and hybrid adjustable-rate Agency MBS
24
%
19
%
Weighted average term to next interest
rate reset on Agency MBS
26
months
24
months
Non-Agency MBS
The following tables summarize our Non-Agency MBS at June 30,
2019 and March 31, 2019:
June 30, 2019
Weighted Average
Fair
Amortized
Current
Amortized
Portfolio Type
Value
Cost
Principal
Cost
Coupon
Yield
(in thousands)
(unaudited)
Legacy Non-Agency MBS (pre-2008)
$
538,028
$
518,519
$
698,138
74.27
%
5.59
%
5.45
%
Non-performing
41,967
41,771
41,960
99.55
5.37
5.81
Credit Risk Transfer
138,114
130,520
141,839
92.02
4.29
5.78
Total Non-Agency MBS
$
718,109
$
690,810
$
881,937
78.40
%
5.37
%
5.53
%
March 31, 2019
Weighted Average
Fair
Amortized
Current
Amortized
Portfolio Type
Value
Cost
Principal
Cost
Coupon
Yield
(in thousands)
(unaudited)
Legacy Non-Agency MBS (pre-2008)
$
551,428
$
537,652
$
719,254
74.75
%
5.59
%
5.56
%
Non-performing
82,884
83,007
83,260
99.70
5.19
5.49
Credit Risk Transfer
134,285
130,210
141,839
91.80
4.30
5.81
Total Non-Agency MBS
$
768,597
$
750,869
$
944,353
79.51
%
5.35
%
5.60
%
Residential Mortgage Loans Held-for-Investment
The following table summarizes our residential mortgage loans
held-for-investment at June 30, 2019 and March 31, 2019:
June 30,
March 31,
2019
2019
(in thousands)
(unaudited)
Residential mortgage loans
held-for-investment
$
514,749
$
535,077
Asset-backed securities issued by
securitization trusts
505,385
525,712
Retained interest in loans held in
securitization trusts
$
9,364
$
9,365
Residential Mortgage Loans Held-for-Securitization
The following table summarizes our residential mortgage loans
held-for-securitization at June 30, 2019 and March 31, 2019:
June 30,
March 31,
2019
2019
(in thousands)
(unaudited)
Residential mortgage loans
held-for-securitization
$
121,715
$
129,583
Amount outstanding on warehouse line of
credit
$
92,511
$
15,442
Payable for purchased loans
$
16,098
$
112,316
Residential Properties Portfolio
At June 30, 2019 and March 31, 2019, Anworth Properties Inc.
owned 86 and 86 single-family residential rental properties,
respectively, located in Southeastern Florida that were carried at
a total cost, net of accumulated depreciation, of $13.7 million and
$13.8 million, respectively.
MBS Portfolio Financing
June 30, 2019
Agency
Non-Agency
Total
MBS
MBS
MBS
(dollar amounts in
thousands)
(unaudited)
Repurchase Agreements:
Outstanding repurchase agreement
balance
$
2,645,000
$
510,843
$
3,155,843
Average interest rate
2.61
%
3.50
%
2.76
%
Average maturity
27
days
18
days
26
days
Average interest rate after adjusting for
interest rate swaps
2.38
%
Average maturity after adjusting for
interest rate swaps
1,198
days
March 31, 2019
Agency
Non-Agency
Total
MBS
MBS
MBS
(dollar amounts in
thousands)
(unaudited)
Repurchase Agreements:
Outstanding repurchase agreement
balance
$
3,215,000
$
545,634
$
3,760,634
Average interest rate
2.68
%
3.60
%
2.81
%
Average maturity
33
days
18
days
31
days
Average interest rate after adjusting for
interest rate swaps
2.32
%
Average maturity after adjusting for
interest rate swaps
1,222
days
Portfolio Leverage
At June 30, 2019, our leverage multiple was 5.39x. The leverage
multiple is calculated by dividing our repurchase agreements and
credit line outstanding by the aggregate of common stockholders’
equity plus preferred stock and junior subordinated notes. The
effective leverage, which includes the effect of TBA dollar roll
financing, was 6.63x at June 30, 2019. At March 31, 2019, our
leverage multiple was 6.05x and the effective leverage was
7.18x.
Interest Rate Swaps
At June 30, 2019 and March 31, 2019, our interest rate swap
agreements (“Swaps”) had the following notional amounts, weighted
average fixed rates, and remaining terms:
June 30, 2019
Weighted
Average
Remaining
Remaining
Notional
Fixed
Term in
Term in
Maturity
Amount
Rate
Months
Years
(in thousands)
(unaudited)
Less than 12 months
$
766,000
1.62
%
4
0.3
1 year to 2 years
450,000
1.67
16
1.3
2 years to 3 years
275,000
1.85
27
2.2
3 years to 4 years
170,000
1.83
39
3.3
4 years to 5 years
330,000
2.38
53
4.4
5 years to 7 years
400,000
2.47
72
6.0
7 years to 10 years
565,000
2.84
101
8.4
$
2,956,000
2.09
%
43
3.6
March 31, 2019
Weighted
Average
Remaining
Remaining
Notional
Fixed
Term in
Term in
Maturity
Amount
Rate
Months
Years
(in thousands)
(unaudited)
Less than 12 months
$
650,000
1.61
%
6
0.5
1 year to 2 years
666,000
1.76
18
1.5
2 years to 3 years
300,000
1.87
30
2.5
3 years to 4 years
270,000
2.09
44
3.7
4 years to 5 years
355,000
2.39
57
4.7
5 years to 7 years
525,000
2.48
75
6.3
7 years to 10 years
590,000
2.82
104
8.7
$
3,356,000
2.13
%
47
3.9
Effective Net Interest Rate Spread
June 30,
March 31,
2019
2019
(unaudited)
Average asset yield, including TBA dollar
roll income
3.66
%
3.66
%
Effective cost of funds
2.70
2.52
Effective net interest rate spread
0.96
%
1.14
%
Certain components of our effective net interest rate spread are
non-GAAP financial measures, which are explained and reconciled to
the nearest comparable GAAP financial measures in the section
entitled “Non-GAAP Financial Measures Related to Operating Results”
at the end of this earnings release.
Dividend
On June 13, 2019, we declared a quarterly common stock dividend
of $0.11 per share for the second quarter ended June 30, 2019.
Based upon the closing price of $3.79 on June 28, 2019, the
annualized dividend yield on our common stock at June 30, 2019 was
11.6%.
Book Value per Common Share
At June 30, 2019, our book value was $4.53 per share of common
stock, which was a decrease of $0.23 from $4.76 in the prior
quarter.
The $0.11 quarterly dividend, less the $0.23 decrease in book
value per common share from the prior quarter, resulted in a
negative return on book value per common share of (2.5)% for the
three months ended June 30, 2019. The return on book value per
common share for the six months ended June 30, 2019 was 1.2%.
Subsequent Events
On July 1, 2019, the conversion rate of our Series B Preferred
Stock increased from 5.3539 to 5.4397 shares of our common stock
based upon the common stock dividend of $0.11 per share that was
declared on June 13, 2019.
Conference Call
The Company will host a conference call on Monday, August 5,
2019 at 1:00 PM Eastern Time, 10:00 AM Pacific Time, to discuss our
second quarter 2019 results. The dial-in number for the conference
call is 877-504-2731 for U.S. callers (international callers should
dial 412-902-6640 and Canadian callers should dial 855-669-9657).
When dialing in, participants should ask to be connected to the
Anworth Mortgage earnings call. Replays of the call will be
available for a 7-day period commencing at 3:00 PM Eastern Time on
August 5, 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 10133736. The conference call will also be webcast live
over the Internet, which can be accessed on our website at
http://www.anworth.com through the corresponding link located at
the top of the home page.
Investors interested in participating in our Dividend
Reinvestment and Stock Purchase Plan (our “DRP Plan”), or receiving
a copy of the DRP Plan’s prospectus, may do so by contacting our
Plan Administrator, American Stock Transfer & Trust Company, at
877-248-6410. For more information about our Plan, interested
investors may also visit our Plan Administrator’s website at
http://www.amstock.com/investpower/new_dp.asp or our website at
http://www.anworth.com.
About Anworth Mortgage Asset Corporation
We are an externally-managed mortgage real estate investment
trust (“REIT”). We invest primarily in mortgage-backed securities
that are either rated “investment grade” or are guaranteed by
federally sponsored enterprises, such as Fannie Mae or Freddie Mac.
We seek to generate income for distribution to our shareholders
primarily based on the difference between the yield on our mortgage
assets and the cost of our borrowings. We are managed by Anworth
Management LLC (our “Manager”), pursuant to a management agreement.
Our Manager is subject to the supervision and direction of our
Board and is responsible for (i) the selection, purchase, and sale
of our investment portfolio; (ii) our financing and hedging
activities; and (iii) providing us with portfolio management,
administrative, and other services relating to our assets and
operations as may be appropriate. Our common stock is traded on the
New York Stock Exchange under the symbol “ANH.” Anworth Mortgage
Asset Corporation is a component of the Russell 2000® Index.
Safe Harbor Statement under the Private Securities Litigation
Reform Act of 1995
This news release may contain forward-looking statements within
the meaning of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. Forward-looking
statements are based upon our current expectations and speak only
as of the date hereof. Forward-looking statements, which are based
on various assumptions (some of which are beyond our control) may
be identified by reference to a future period or periods or by the
use of forward-looking terminology, such as “may, ” “will, ”
“believe, ” “expect, ” “anticipate, ” “assume,” “estimate,”
“intend,” “continue, ” or other similar terms or variations on
those terms or the negative of those terms. Our actual results may
differ materially and adversely from those expressed in any
forward-looking statements as a result of various factors and
uncertainties, including but not limited to, changes in interest
rates; changes in the market value of our mortgage-backed
securities; changes in the yield curve; the availability of
mortgage-backed securities for purchase; increases in the
prepayment rates on the mortgage loans securing our mortgage-backed
securities; our ability to use borrowings to finance our assets
and, if available, the terms of any financing; risks associated
with investing in mortgage-related assets; changes in business
conditions and the general economy; implementation of or changes in
government regulations affecting our business; our ability to
maintain our qualification as a real estate investment trust for
federal income tax purposes; our ability to maintain an exemption
from the Investment Company Act of 1940, as amended; risks
associated with our home rental business; and the Manager’s ability
to manage our growth. Our Annual Report on Form 10-K and other SEC
filings discuss the most significant risk factors that may affect
our business, results of operations, and financial condition. We
undertake no obligation to revise or update publicly any
forward-looking statements for any reason.
ANWORTH MORTGAGE ASSET
CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE
SHEETS
(in thousands, except per
share amounts)
June 30,
December 31,
2019
2018
(audited)
ASSETS
Agency MBS at fair value (including
$2,809,288 and $3,433,252 pledged to counterparties at June 30,
2019 and December 31, 2018, respectively)
$
2,946,321
$
3,548,719
Non-Agency MBS at fair value (including
$643,686 and $726,428 pledged to counterparties at June 30, 2019
and December 31, 2018, respectively)
718,109
795,203
Residential mortgage loans
held-for-securitization
121,715
11,660
Residential mortgage loans
held-for-investment through consolidated securitization
trusts(1)
514,749
549,016
Residential real estate
13,658
13,782
Cash and cash equivalents
17,028
3,165
Reverse repurchase agreements
—
20,000
Restricted cash
122,403
30,296
Interest and dividends receivable
17,330
16,872
Derivative instruments at fair value
5,003
46,207
Right to use asset-operating lease
1,525
1,794
Prepaid expenses and other assets
2,842
2,986
Total Assets
$
4,480,683
$
5,039,700
LIABILITIES AND STOCKHOLDERS'
EQUITY
Liabilities:
Accrued interest payable
$
21,246
$
24,828
Repurchase agreements
3,155,843
3,811,627
Warehouse line of credit
92,511
—
Asset-backed securities issued by
securitization trusts(1)
505,385
539,651
Junior subordinated notes
37,380
37,380
Derivative instruments at fair value
68,695
15,901
Derivative counterparty margin
604
—
Dividends payable on preferred stock
2,297
2,297
Dividends payable on common stock
10,855
12,803
Payable for purchased loans
16,098
11,660
Accrued expenses and other liabilities
3,177
654
Long-term lease obligation
1,525
1,794
Total Liabilities
$
3,915,616
$
4,458,595
Series B Cumulative Convertible Preferred
Stock: par value $0.01 per share; liquidating preference $25.00 per
share ($19,494 and $19,494, respectively); 780 and 780 shares
issued and outstanding at June 30, 2019 and December 31, 2018,
respectively)
$
19,455
$
19,455
Stockholders' Equity:
Series A Cumulative Preferred Stock: par
value $0.01 per share; liquidating preference $25.00 per share
($47,984 and $47,984, respectively); 1,919 and 1,919 shares issued
and outstanding at June 30, 2019 and December 31, 2018,
respectively)
$
46,537
$
46,537
Series C Cumulative Preferred Stock: par
value $0.01 per share; liquidating preference $25.00 per share
($50,257 and $50,257, respectively); 2,010 and 2,010 shares issued
and outstanding at June 30, 2019 and December 31, 2018,
respectively)
48,626
48,944
Common Stock: par value $0.01 per share;
authorized 200,000 shares, 98,683 and 98,483 shares issued and
outstanding at June 30, 2019 and December 31, 2018,
respectively)
987
985
Additional paid-in capital
982,770
981,964
Accumulated other comprehensive (loss)
income consisting of unrealized gains and losses
48,614
(30,792
)
Accumulated deficit
(581,922
)
(485,988
)
Total Stockholders' Equity
$
545,612
$
561,650
Total Liabilities and Stockholders'
Equity
$
4,480,683
$
5,039,700
____________________
(1)
The consolidated balance sheets
include assets of consolidated variable interest entities (“VIEs”)
that can only be used to settle obligations and liabilities of the
VIEs for which creditors do not have recourse to the Company. At
June 30, 2019 and December 31, 2018, total assets of the
consolidated VIEs were $516 million and $551 million (including
accrued interest receivable of $1.7 million and $1.8 million),
respectively (which is recorded above in the line item “Interest
receivable”), and total liabilities were $507 million and $541
million (including accrued interest payable of $1.7 million and
$1.7 million), respectively (which is recorded above in the line
item “Accrued interest payable”).
ANWORTH MORTGAGE ASSET CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
OPERATIONS
(in thousands, except for per
share amounts)
Three Months Ended
Six Months Ended
June 30,
June 30,
2019
2018
2019
2018
(unaudited)
Interest and other income:
Interest-Agency MBS
$
24,137
$
24,814
$
49,848
$
48,871
Interest-Non-Agency MBS
9,659
9,902
20,125
19,910
Interest-residential securitized mortgage
loans
5,259
5,955
10,627
12,194
Interest-residential mortgage loans
held-for-securitization
1,036
—
1,122
—
Other interest income
20
44
39
72
40,111
40,715
81,761
81,047
Interest expense:
Interest expense on repurchase
agreements
25,979
22,028
53,116
41,122
Interest expense on asset-backed
securities
5,091
5,797
10,291
11,867
Interest expense on warehouse line of
credit
1,057
—
1,290
—
Interest expense on junior subordinated
notes
542
504
1,088
951
32,669
28,329
65,785
53,940
Net interest income
7,442
12,386
15,976
27,107
Operating expenses:
Management fee to related party
(1,713
)
(1,666
)
(3,438
)
(3,403
)
Rental properties depreciation and
expenses
(367
)
(405
)
(723
)
(792
)
General and administrative expenses
(1,033
)
(1,324
)
(2,001
)
(2,434
)
Total operating expenses
(3,113
)
(3,395
)
(6,162
)
(6,629
)
Other income (loss):
Income-rental properties
453
445
890
897
Realized net gain (loss) on sales of
available-for-sale MBS
444
—
(5,703
)
(11,987
)
Realized gain (loss) on sales of Agency
MBS held as trading investments
234
—
(7,128
)
(7,327
)
Impairment charge on Non-Agency MBS
(606
)
(1,757
)
(606
)
(1,757
)
Unrealized gain (loss) on Agency MBS held
as trading investments
989
(2,677
)
15,895
(11,567
)
(Loss) gain on derivatives, net
(53,543
)
9,930
(80,832
)
23,342
Recovery on Non-Agency MBS
—
1
—
1
Total other income (loss)
(52,029
)
5,942
(77,484
)
(8,398
)
Net (loss) income
$
(47,700
)
$
14,933
$
(67,670
)
$
12,080
Dividends on preferred stock
(2,297
)
(2,297
)
(4,595
)
(4,595
)
Net (loss) income to common
stockholders
$
(49,997
)
$
12,636
$
(72,265
)
$
7,485
Basic (loss) income per common share
$
(0.51
)
$
0.13
$
(0.73
)
$
0.08
Diluted (loss) income per common share
$
(0.51
)
$
0.13
$
(0.73
)
$
0.08
Basic weighted average number of shares
outstanding
98,635
98,271
98,586
98,228
Diluted weighted average number of shares
outstanding
98,635
102,205
98,586
102,132
ANWORTH MORTGAGE ASSET CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
(in thousands, except for per
share amounts)
Three Months Ended
Six Months Ended
June 30,
June 30,
2019
2018
2019
2018
(unaudited)
Net (loss) income
$
(47,700
)
$
14,933
$
(67,670
)
$
12,080
Available-for-sale Agency MBS, fair value
adjustment
28,822
(13,847
)
53,953
(49,328
)
Reclassification adjustment for loss on
sales of Agency MBS included in net (loss) income
(444
)
—
5,703
11,945
Available-for-sale Non-Agency MBS, fair
value adjustment
9,571
(1,558
)
17,758
(891
)
Reclassification adjustment for (gain)
loss on sales of Non-Agency MBS included in net (loss) income
—
—
(22
)
42
Amortization of unrealized gains on
interest rate swaps remaining in other comprehensive (loss)
income
1,011
1,023
2,014
1,963
Reclassification adjustment for interest
(income) on interest rate swaps included in net (loss) income
—
(18
)
—
(212
)
Other comprehensive income (loss)
38,960
(14,400
)
79,406
(36,481
)
Comprehensive (loss) income
$
(8,740
)
$
533
$
11,736
$
(24,401
)
Non-GAAP Financial Measures Related to Operating
Results
In addition to our operating results presented in accordance
with GAAP, the following tables include the following non-GAAP
financial measures: core earnings (including per common share),
total interest income and average asset yield, including TBA dollar
roll income, paydown expense on Agency MBS, and effective total
interest expense and effective cost of funds. The first table below
reconciles our “Net loss to common stockholders” for the three
months ended June 30, 2019 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 our
total interest and other income for the three months ended June 30,
2019 (which is the nearest comparable GAAP measure) to our total
interest income and average asset yield, including TBA dollar roll
income, and shows the annualized amounts as a percentage of our
average earning assets and also reconciles our total interest
expense (which is the nearest comparable GAAP measure) to our
effective total interest expense and effective cost of funds and
shows the annualized amounts as a percentage of our average
borrowings.
The Company’s management believes that:
- these non-GAAP financial measures are useful because they
provide investors with greater transparency to the information that
we use in our financial and operational decision-making
process;
- the inclusion of paydown expense on Agency MBS is more
indicative of the current earnings potential of our investment
portfolio, as it reflects the actual principal paydowns which
occurred during the period. Paydown expense on Agency MBS is not
dependent on future assumptions on prepayments, or the cumulative
effect from prior periods of any current changes to those
assumptions, as is the case with the GAAP measure, “Premium
amortization on Agency MBS”;
- the adjustment for depreciation expense on residential rental
properties, as this is a non-cash item and is added back by other
companies to derive funds from operations; and
- the presentation of these measures, when analyzed in
conjunction with our GAAP operating results, allows investors to
more effectively evaluate our performance to that of our peers,
particularly those that have discontinued hedge accounting and
those that have used similar portfolio and derivative
strategies.
These non-GAAP financial measures should not be used as a
substitute for our operating results for the three months ended
June 30, 2019. An analysis of any non-GAAP financial measure should
be used in conjunction with results presented in accordance with
GAAP.
Core Earnings
Three Months Ended
June 30, 2019
Amount
Per Share
(in thousands)
(unaudited)
Net (loss) to common stockholders
$
(49,997
)
$
(0.51
)
Adjustments to derive core earnings:
(Gain) on sales of MBS
(678
)
(0.01
)
Impairment charge on Non-Agency MBS(1)
606
0.01
Unrealized (gain) on Agency MBS held as
trading investments
(989
)
(0.01
)
Unrealized loss on interest rate swaps,
net
57,709
0.59
(Gain) on derivatives-TBA Agency MBS,
net
(4,166
)
(0.04
)
Net settlement on interest rate swaps
after de-designation(2)
4,395
0.04
Dollar roll income on TBA Agency
MBS(3)
1,311
0.01
Premium amortization on MBS
7,548
0.08
Paydown expense(4)
(5,940
)
(0.06
)
Depreciation expense on residential rental
properties(5)
119
—
Core earnings
$
9,918
$
0.10
Basic weighted average number of shares
outstanding
98,635
____________________
(1)
Impairment charge on Non-Agency
MBS represents the amount applied against current GAAP earnings
when future loss expectations exceed previously existing
expectations. When future loss expectations become less than
previously existing loss expectations, the difference would be
amortized into earnings over the life of the security.
(2)
Net settlement on interest rate
swaps after de-designation includes all subsequent net payments
made on interest rate swaps which were de-designated as hedges in
August 2014 and also on any new interest rate swaps entered into
after that date. These amounts are recorded in “Unrealized loss on
interest rate swaps, net.”
(3)
Dollar roll income on TBA Agency
MBS is the income resulting from the price discount typically
obtained by extending the settlement of TBA Agency MBS to a later
date. This is a component of the “Loss on derivatives, net” that is
included in our consolidated statements of operations.
(4)
Paydown expense on Agency MBS
represents the proportional expense of Agency MBS purchase premiums
relative to the Agency MBS principal payments and prepayments which
occurred during the quarter.
(5)
Depreciation expense is added
back in the core earnings calculation, as it is a non-cash item,
and it is similarly added back in other companies’ calculation of
core earnings or funds from operations.
Effective Net Interest Rate Spread
Three Months Ended
June 30, 2019
Annualized
Amount
Percentage
(in thousands)
(unaudited)
Average Asset Yield, Including TBA Dollar
Roll Income:
Total interest income
$
40,111
3.37
%
Income-rental properties
453
0.04
Dollar roll income on TBA Agency
MBS(1)
1,311
0.11
Premium amortization on Agency MBS
7,548
0.64
Paydown expense on Agency MBS(2)
(5,940
)
(0.50
)
Total interest and other income and
average asset yield, including TBA dollar roll income
$
43,483
3.66
%
Effective Cost of Funds:
Total interest expense
$
32,669
3.12
%
Net settlement on interest rate Swaps
after de-designation(3)
(4,395
)
(0.42
)
Effective total interest expense and
effective cost of funds
$
28,274
2.70
%
Effective net interest rate spread
0.96
%
Average earning assets
$
4,753,894
Average borrowings
$
4,182,731
____________________
(1)
Dollar roll income on TBA Agency
MBS is the income resulting from the price discount typically
obtained by extending the settlement of TBA Agency MBS to a later
date. This is a component of the “(Loss) gain on derivatives, net”
that is shown on our consolidated statements of operations.
(2)
Paydown expense on Agency MBS
represents the proportional expense of Agency MBS purchase premiums
relative to the Agency MBS principal payments and prepayments which
occurred during the three-month period.
(3)
Net settlement on interest rate
swaps after de-designation include all subsequent net payments made
or received on interest rate swaps which were de-designated as
hedges in August 2014 and also on any new interest rate swaps
entered into after that date. These amounts are recorded in
“Unrealized loss on interest rate swaps, net.”
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190802005447/en/
Anworth Mortgage Asset Corporation John T. Hillman 1299 Ocean
Avenue, 2nd Floor Santa Monica, CA 90401 (310) 255-4438 or (310)
255-4493 Email: jhillman@anworth.com Web site:
http://www.anworth.com
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