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Section 1: 8-K (ANWORTH MORTGAGE ASSET CORPORATION 8-K)



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549


FORM 8‑K

CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934


February 25, 2020
Date of Report (Date of earliest event reported)


ANWORTH MORTGAGE ASSET CORPORATION.
(Exact Name of Registrant as Specified in its Charter)


Maryland
(State or Other Jurisdiction of Incorporation)

001-13709
52-2059785
(Commission File Number)
(IRS Employer Identification No.)


1299 Ocean Avenue, 2nd Floor, Santa Monica, California
90401
(Address of Principal Executive Offices)
(Zip Code)


(310) 255-4493
(Registrant's Telephone Number, Including Area Code)



Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933, as amended, or Rule 12b-2 of the Exchange Act.
 
Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐





Item 2.02.
Results of Operation and Financial Condition.


On February 25, 2020, Anworth Mortgage Asset Corporation (“Anworth”) issued a press release announcing its financial results for the fourth quarter ended December 31, 2019. A copy of that release is furnished as Exhibit 99.1 to this Current Report on Form 8-K.

The information in this Current Report on Form 8-K (including Exhibit 99.1) is being furnished pursuant to Item 2.02 and Item 9.01 of Form 8-K and shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that Section. The information in this Current Report on Form 8-K shall not be incorporated by reference into any registration statement or other document filed pursuant to the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

As discussed therein, the press release furnished as Exhibit 99.1 to this Current Report on Form 8-K contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act and, as such, may involve known and unknown risks, uncertainties and assumptions. These forward-looking statements relate to Anworth’s current expectations and are subject to the limitations and qualifications set forth in the press release as well as in Anworth’s other documents filed with the U.S. Securities and Exchange Commission, including, without limitation, that actual events and/or results may differ materially from those projected in such forward-looking statements.


Item 9.01.
Financial Statements and Exhibits.


(a)
Not Applicable.
   
(b)
Not Applicable.
   
(c)
Not Applicable.
   
(d)
Exhibits.
   
 
Exhibit 99.1
   
 
Press Release dated February 25, 2020 announcing Anworth’s financial and operating results for the fourth quarter ended December 31, 2019.



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.


 
ANWORTH MORTGAGE ASSET CORPORATION
     
Date: February 25, 2020
By:
/s/ Charles J. Siegel
   
Title:  Chief Financial Officer



EXHIBIT INDEX



Exhibit #
 
Description
     
 

(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit 99.1


Anworth Reports Fourth Quarter 2019 Financial Results

 

SANTA MONICA, Calif.--(BUSINESS WIRE)--February 25, 2020--Anworth Mortgage Asset Corporation (NYSE: ANH) (the “Company” or “Anworth”) today reported its financial results for the fourth quarter ended December 31, 2019.

Earnings

The following table summarizes the Company’s core earnings, GAAP net income to common stockholders, and comprehensive income for the three months ended December 31, 2019:

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

December 31, 2019

 

 

(unaudited)

 

 

 

 

Per

 

 

 

 

Weighted

 

 

Earnings

 

Share

 

 

(in thousands)

 

 

 

Core earnings

 

$

6,781

 

$

0.07

GAAP net income to common stockholders

 

$

27,445

 

$

0.28

Comprehensive income

 

$

28,921

 

$

0.29

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 our consolidated statements of comprehensive income, which is included in this earnings release. Comprehensive income consists of net income to all stockholders (including the amounts paid to preferred stockholders) and the change in other comprehensive income.


Portfolio

At December 31, 2019 and September 30, 2019, the composition of our portfolio at fair value was as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019

 

September 30, 2019

 

 

Dollar Amount

 

Percentage

 

Dollar Amount

 

Percentage

 

 

(in thousands)

 

 

(unaudited)

Agency MBS:

 

 

 

 

 

 

 

 

 

 

ARMS and hybrid ARMs

 

$

789,468

 

15.7

%

 

$

1,009,254

 

20.7

%

Fixed-rate Agency MBS

 

 

2,720,583

 

54.1

 

 

 

2,096,384

 

43.0

 

TBA Agency MBS

 

 

253,516

 

5.0

 

 

 

456,387

 

9.4

 

Total Agency MBS

 

$

3,763,567

 

74.8

%

 

$

3,562,025

 

73.1

%

Non-Agency MBS

 

 

643,610

 

12.8

 

 

 

686,029

 

14.1

 

Residential mortgage loans(1)

 

 

458,348

 

9.1

 

 

 

483,648

 

9.9

 

Residential mortgage loans held-for-securitization

 

 

152,922

 

3.0

 

 

 

129,014

 

2.6

 

Residential real estate

 

 

13,499

 

0.3

 

 

 

13,618

 

0.3

 

Total Portfolio

 

$

5,031,946

 

100.0

%

 

$

4,874,334

 

100.0

%

Total Assets(2)

 

$

5,191,616

 

 

 

$

5,038,148

 

 

______________________

(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 December 31, 2019, the allocation of our agency mortgage-backed securities (“Agency MBS”) was approximately 21% adjustable-rate and hybrid adjustable-rate Agency MBS, 72% fixed-rate Agency MBS, and 7% fixed-rate TBA Agency MBS. At September 30, 2019, the allocation of our agency mortgage-backed securities was approximately 28% adjustable-rate and hybrid adjustable-rate Agency MBS, 59% fixed-rate Agency MBS, and 13% fixed-rate TBA Agency MBS, both periods of which are detailed in the table below:

 

 

 

 


 

 

 

 

December 31,

 

September 30,

 

 

2019

 

2019

 

 

(dollar amounts in thousands)

 

 

(unaudited)

Fair value of Agency MBS and TBA Agency MBS

 

$

3,763,567

 


$

3,562,025

 

Adjustable-rate Agency MBS coupon reset (less than 1 year)

 

 

13

%


 

17

%

Hybrid adjustable-rate Agency MBS coupon reset (1-3 years)

 

 

2

 


 

2

 

Hybrid adjustable-rate Agency MBS coupon reset (3-5 years)

 

 

3

 


 

6

 

Hybrid adjustable-rate Agency MBS coupon reset (greater than 5 years)

 

 

3

 


 

3

 

Total adjustable-rate Agency MBS

 

 

21

%


 

28

%

15-year fixed-rate Agency MBS

 

 

1

 


 

1

 

20-year fixed-rate Agency MBS

 

 

5

 


 

6

 

30-year fixed-rate Agency MBS

 

 

66

 


 

52

 

15-year fixed-rate TBA Agency MBS

 

 

 


 

 

30-year fixed-rate TBA Agency MBS

 

 

7

 


 

13

 

Total MBS

 

 

100

%


 

100

%


At December 31, 2019 and September 30, 2019, the summary statistics of our Agency MBS and TBA Agency MBS were as follows:

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019

 

 

Weighted Average

 

 

 

 

 

 

 

Fair Market

 

 

Coupon

 

Cost

 

 

Price

 

 

(unaudited)

Agency MBS:

 

 

 

 

 

 

 

 

Adjustable-rate Agency MBS

 

 

3.95

%

 

102.04

%

 

$

104.24

Hybrid adjustable-rate Agency MBS

 

 

2.78

 

 

102.11

 

 

 

101.67

15-year fixed-rate Agency MBS

 

 

3.50

 

 

101.81

 

 

 

103.92

20-year fixed-rate Agency MBS

 

 

3.56

 

 

103.96

 

 

 

104.65

30-year fixed-rate Agency MBS

 

 

3.56

 

 

102.33

 

 

$

103.75

Total Agency MBS:

 

 

3.54

%

 

102.35

%

 

 

 

Average asset yield (weighted average coupon divided by average amortized cost)

 

 

3.46

%

 

 

 

 

 

Unamortized premium

 

$

79.4 million

 

 

 

 

 

Unamortized premium as a percentage of par value

 

 

2.35

%

 

 

 

 

 

Premium amortization expense on Agency MBS for the respective quarter

 

$

7.0 million

 

 

 

 

 

TBA Agency MBS:

 

 

 

 

 

 

 

 

30-year fixed-rate TBA Agency MBS

 

 

3.00

%

 

101.19

%

 

$

101.41

 

 

 

 

 

 

 

 

 



 

 

September 30, 2019

 

 

Weighted Average

 

 

 

 

 

 

 

Fair Market

 

 

Coupon

 

Cost

 

 

Price

 

 

(unaudited)

Agency MBS:

 

 

 

 

 

 

 

 

Adjustable-rate Agency MBS

 

 

3.96

%

 

102.29

%

 

$

103.79

Hybrid adjustable-rate Agency MBS

 

 

2.71

 

 

102.25

 

 

 

101.66

15-year fixed-rate Agency MBS

 

 

3.50

 

 

101.82

 

 

 

103.67

20-year fixed-rate Agency MBS

 

 

3.56

 

 

104.09

 

 

 

104.91

30-year fixed-rate Agency MBS

 

 

3.85

 

 

102.39

 

 

$

104.40

Total Agency MBS:

 

 

3.69

%

 

102.46

%

 

 

 

Average asset yield (weighted average coupon divided by average amortized cost)

 

 

3.60

%

 

 

 

 

 

Unamortized premium

 

$

73.0 million

 

 

 

 

 

Unamortized premium as a percentage of par value

 

 

2.46

%

 

 

 

 

 

Premium amortization expense on Agency MBS for the respective quarter

 

$

6.4 million

 

 

 

 

 

TBA Agency MBS:

 

 

 

 

 

 

 

 

30-year fixed-rate TBA Agency MBS

 

 

3.00

%

 

101.42

%

 

$

101.53


At December 31, 2019 and September 30, 2019, the constant prepayment rate (“CPR”) and weighted average term to next interest rate reset of our Agency MBS were as follows:

 

 

 


 

 

 

December 31,

 

September 30,

 

 

2019

 

2019

 

 

(unaudited)

Constant prepayment rate (CPR) of Agency MBS

 

25

%


21

%

Constant prepayment rate (CPR) of adjustable-rate and hybrid adjustable-rate Agency MBS

 

32

%


28

%

Weighted average term to next interest rate reset on Agency MBS

 

24 months


25 months

The following tables summarize our fixed-rate Agency MBS at December 31, 2019 and September 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

 

Weighted

 

Remaining

 

 

Market

 

 

 

Fair Market

 

Average

 

Term

 

 

Value

 

Cost

 

Price

 

Coupon

 

(Years)

 

 

(in thousands)

 

 

 

 

 

 

 

 

(unaudited)

30-Year Fixed-Rate Agency MBS:

 

 

 

 

 

 

 

 

 

 

3.00%

 

$

872,360

 

$

101.61

 

$

101.73

 

3.00

%

 

29.9

3.50%

 

 

599,568

 

 

103.09

 

 

103.72

 

3.50

 

 

29.1

4.00%

 

 

869,749

 

 

102.42

 

 

105.43

 

4.00

 

 

28.7

≥4.5%

 

 

136,103

 

 

103.12

 

 

106.55

 

4.71

 

 

27.1

 

 

$

2,477,780

 

$

102.33

 

$

103.75

 

3.56

%

 

29.1

15-Year to 20-Year Fixed-Rate Agency MBS

 

 

242,803

 

 

103.53

 

 

104.50

 

3.55

 

 

16.5

Total Fixed-Rate Agency MBS

 

$

2,720,583

 

$

102.43

 

$

103.81

 

3.56

%

 

28.0

 

 

 

 

 

 

 

 

 

 

 



 

 

 

September 30, 2019

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

 

Weighted

 

Remaining

 

 

Market

 

 

 

Fair Market

 

Average

 

Term

 

 

Value

 

Cost

 

Price

 

Coupon

 

(Years)

 

 

(in thousands)

 

 

 

 

 

 

 

 

(unaudited)

30-Year Fixed-Rate Agency MBS:

 

 

 

 

 

 

 

 

 

 

3.00%

 

$

190,663

 

$

101.12

 

$

101.74

 

3.00

%

 

30.0

3.50%

 

 

365,477

 

 

102.75

 

 

103.44

 

3.50

 

 

28.8

4.00%

 

 

1,130,687

 

 

102.41

 

 

102.41

 

4.00

 

 

28.9

≥4.5%

 

 

153,332

 

 

103.03

 

 

106.92

 

4.70

 

 

27.4

 

 

$

1,840,159

 

$

102.39

 

$

104.40

 

3.85

%

 

28.9

15-Year to 20-Year Fixed-Rate Agency MBS

 

 

256,225

 

 

103.63

 

 

104.66

 

3.56

 

 

16.7

Total Fixed-Rate Agency MBS

 

$

2,096,384

 

$

102.54

 

$

104.43

 

3.81

%

 

27.4


Non-Agency MBS

The following tables summarize our Non-Agency MBS at December 31, 2019 and September 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average

 

 

 

Fair

 

Amortized

 

Current

 

Amortized

 

 

 

 

 

Fair Market

 

Portfolio Type

 

Value

 

Cost

 

Principal

 

Cost

 

Coupon

 

Yield

 

Price

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(unaudited)

 

Legacy Non-Agency MBS (pre-2008)

 

$

497,408

 

$

477,786

 

$

655,447

 

72.89

%

5.52

%

5.49

%

75.89

%

Non-performing

 

 

11,052

 

 

10,938

 

 

11,000

 

99.43

 

5.50

 

6.05

 

100.47

 

Credit Risk Transfer

 

 

135,150

 

 

124,852

 

 

135,489

 

92.15

 

4.20

 

5.80

 

99.75

 

Total Non-Agency MBS

 

$

643,610

 

$

613,576

 

$

801,936

 

76.51

%

5.30

%

5.56

%

80.26

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average

 

 

 

Fair

 

Amortized

 

Current

 

Amortized

 

 

 

 

 

Fair Market

 

Portfolio Type

 

Value

 

Cost

 

Principal

 

Cost

 

Coupon

 

Yield

 

Price

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(unaudited)

 

Legacy Non-Agency MBS (pre-2008)

 

$

518,812

 

$

495,165

 

$

674,394

 

73.42

%

5.59

%

5.54

%

76.93

%

Non-performing

 

 

26,430

 

 

26,199

 

 

26,360

 

99.39

 

5.33

 

5.94

 

100.27

 

Credit Risk Transfer

 

 

140,787

 

 

130,833

 

 

141,839

 

92.24

 

4.25

 

5.77

 

99.26

 

Total Non-Agency MBS

 

$

686,029

 

$

652,197

 

$

842,593

 

77.40

%

5.36

%

5.61

%

81.42

%

Residential Mortgage Loans Held-for-Investment

The following table summarizes our residential mortgage loans held-for-investment at December 31, 2019 and September 30, 2019:

 

 

 

 

 

 

 

 

 

December 31,

 

September 30,

 

 

2019

 

2019

 

 

(in thousands)

 

 

(unaudited)

Residential mortgage loans held-for-investment

 

$

458,348

 

$

483,648

Asset-backed securities issued by securitization trusts

 

 

448,987

 

 

474,285

Retained interest in loans held in securitization trusts

 

$

9,361

 

$

9,363

Residential Mortgage Loans Held-for-Securitization

The following table summarizes our residential mortgage loans held-for-securitization at December 31, 2019 and September 30, 2019:

 

 

 

 

 

 

 

 

 

December 31,

 

September 30,

 

 

2019

 

2019

 

 

(in thousands)

 

 

(unaudited)

Residential mortgage loans held-for-securitization

 

$

152,922

 

$

129,014

Amount outstanding on warehouse line of credit

 

$

133,811

 

$

112,252

Payable for purchased loans

 

$

5,545

 

$


Residential Properties Portfolio

At December 31, 2019 and September 30, 2019, Anworth Properties Inc. owned 85 and 86 single-family residential rental properties, respectively, located in Southeastern Florida that were carried at a total cost, net of accumulated depreciation, of $13.5 million and $13.6 million, respectively.

MBS Portfolio Financing

 

 

 

 


 

 


 

 

 

 

December 31, 2019

 

 

Agency


Non-Agency


Total

 

 

MBS


MBS


MBS

 

 

(dollar amounts in thousands)

 

 

(unaudited)

Repurchase Agreements:

 

 

 


 

 


 

 

Outstanding repurchase agreement balance

 

$

3,230,000

 


$

427,873

 


$

3,657,873

 

Average interest rate

 

 

1.97

%


 

2.80

%


 

2.07

%

Average maturity

 

 

30 days


 

11 days


 

28 days

Average interest rate after adjusting for interest rate swaps

 

 

 


 

 


 

2.13

%

Average maturity after adjusting for interest rate swaps

 

 

 


 

 


 

978 days

 

 

 

 


 

 


 

 

 

 

September 30, 2019

 

 

Agency


Non-Agency


Total

 

 

MBS


MBS


MBS

 

 

(dollar amounts in thousands)

 

 

(unaudited)

Repurchase Agreements:

 

 

 


 

 


 

 

Outstanding repurchase agreement balance

 

$

2,780,000

 


$

475,102

 


$

3,255,102

 

Average interest rate

 

 

2.29

%


 

3.12

%


 

2.41

%

Average maturity

 

 

33 days


 

18 days


 

31 days

Average interest rate after adjusting for interest rate swaps

 

 

 


 

 


 

2.34

%

Average maturity after adjusting for interest rate swaps

 

 

 


 

 


 

940 days

Portfolio Leverage

At December 31, 2019, our leverage multiple was 6.2x. 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 6.64x at December 31, 2019. At September 30, 2019, our leverage multiple was 5.69x and the effective leverage was 6.46x.


Interest Rate Swaps

At December 31, 2019 and September 30, 2019, our interest rate swap agreements (“Swaps”) had the following notional amounts, weighted average fixed rates, and remaining terms:

 

 

 

 

 

 

 


 

 

 

 

 

December 31, 2019

 

 

 

 

 

Weighted

 


 

 

 

 

 

 

 

 

Average

 


Remaining

 

Remaining

 

 

Notional

 

Fixed

 


Term in

 

Term in

Maturity

 

Amount

 

Rate

 


Months

 

Years

 

 

(in thousands)

 

 

 


 

 

 

 

 

(unaudited)

Less than 12 months

 

$

541,000

 

1.70

%


7

 

0.6

1 year to 2 years

 

 

190,000

 

1.63

 


21

 

1.8

2 years to 3 years

 

 

335,000

 

1.65

 


34

 

2.8

3 years to 4 years

 

 

295,000

 

1.71

 


45

 

3.8

4 years to 5 years

 

 

550,000

 

2.18

 


61

 

4.7

5 years to 7 years

 

 

390,000

 

2.51

 


85

 

7.1

7 years to 10 years

 

 

200,000

 

2.94

 


103

 

8.6

 

 

$

2,501,000

 

2.02

%


48

 

4.0

 

 

 

 

 

 

 


 

 

 

 

 

September 30, 2019

 

 

 

 

 

Weighted

 


 

 

 

 

 

 

 

 

Average

 


Remaining

 

Remaining

 

 

Notional

 

Fixed

 


Term in

 

Term in

Maturity

 

Amount

 

Rate

 


Months

 

Years

 

 

(in thousands)

 

 

 


 

 

 

 

 

(unaudited)

Less than 12 months

 

$

541,000

 

1.65

%


6

 

0.5

1 year to 2 years

 

 

275,000

 

1.61

 


16

 

1.3

2 years to 3 years

 

 

155,000

 

1.71

 


34

 

2.8

3 years to 4 years

 

 

205,000

 

1.78

 


47

 

3.9

4 years to 5 years

 

 

225,000

 

2.12

 


57

 

4.7

5 years to 7 years

 

 

425,000

 

2.41

 


74

 

6.2

7 years to 10 years

 

 

365,000

 

2.96

 


100

 

8.3

 

 

$

2,191,000

 

2.08

%


47

 

3.9

Effective Net Interest Rate Spread

 

 

 


 

 

 

December 31,


September 30,

 

 

2019


2019

 

 

(unaudited)

Average asset yield, including TBA dollar roll income

 

3.46

%


3.62

%

Effective cost of funds

 

2.57

 


2.71

 

Effective net interest rate spread

 

0.89

%


0.91

%

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 December 17, 2019, we declared a quarterly common stock dividend of $0.09 per share for the fourth quarter ended December 31, 2019. Based upon the closing price of $3.52 on December 31, 2019, the annualized dividend yield on our common stock at December 31, 2019 was 10.2%.


Book Value per Common Share

At December 31, 2019, our book value was $4.60 per share of common stock, which was an increase of $0.18 from $4.42 at September 30, 2019.

The $0.09 quarterly dividend, plus the $0.18 increase in book value per common share from the prior quarter, resulted in a return on book value per common share of 6.1% for the three months ended December 31, 2019 and 7.2% for the year ended December 31, 2019.

Subsequent Events

On January 1, 2020, the conversion rate of our Series B Preferred Stock increased from 5.5379 to 5.5992 shares of our common stock, based upon the common stock dividend of $0.09 per share that was declared on December 17, 2019.

Conference Call

The Company will host a conference call on Wednesday, February 26, 2020 at 1:00 PM Eastern Time, 10:00 AM Pacific Time, to discuss our fourth 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 February 26, 2020. 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 10136439. 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)

 

 

 

 

 

 

 

 

 

December 31,

 

December 31,

 

 

2019

 

2018

 

 

 

 

 

 

(audited)

ASSETS

 

 

 

 

 

 

Agency MBS at fair value (including 3,419,375 and $3,433,252 pledged to counterparties at December 31, 2019 and December 31, 2018, respectively)

 

$

3,510,051

 

 

$

3,548,719

 

Non-Agency MBS at fair value (including $535,315 and $726,428 pledged to counterparties at December 31, 2019 and December 31, 2018, respectively)

 

 

643,610

 

 

 

795,203

 

Residential mortgage loans held-for-securitization

 

 

152,922

 

 

 

11,660

 

Residential mortgage loans held-for-investment through consolidated securitization trusts(1)

 

 

458,348

 

 

 

549,016

 

Residential real estate

 

 

13,499

 

 

 

13,782

 

Cash and cash equivalents

 

 

8,236

 

 

 

3,165

 

Reverse repurchase agreements

 

 

15,000

 

 

 

20,000

 

Restricted cash

 

 

104,699

 

 

 

30,296

 

Interest receivable

 

 

16,398

 

 

 

16,872

 

Derivative instruments at fair value

 

 

5,833

 

 

 

46,207

 

Right to use asset-operating lease

 

 

1,256

 

 

 

1,794

 

Prepaid expenses and other assets

 

 

8,779

 

 

 

2,986

 

Total Assets

 

$

4,938,631

 

 

$

5,039,700

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

Accrued interest payable

 

$

16,757

 

 

$

24,828

 

Repurchase agreements

 

 

3,657,873

 

 

 

3,811,627

 

Warehouse line of credit

 

 

133,811

 

 

 

 

Asset-backed securities issued by securitization trusts(1)

 

 

448,987

 

 

 

539,651

 

Junior subordinated notes

 

 

37,380

 

 

 

37,380

 

Derivative instruments at fair value

 

 

52,197

 

 

 

15,901

 

Derivative counterparty margin

 

 

367

 

 

 

 

Dividends payable on preferred stock

 

 

2,297

 

 

 

2,297

 

Dividends payable on common stock

 

 

8,897

 

 

 

12,803

 

Payable for purchased loans

 


5,545

 

 

 

11,660

 

Accrued expenses and other liabilities

 

 

1,312

 

 

 

654

 

Long-term lease obligation

 

 

1,256

 

 

 

1,794

 

Total Liabilities

 

$

4,366,679

 

 

$

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 December 31, 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 December 31, 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 December 31, 2019 and December 31, 2018, respectively)

 

 

48,626

 

 

 

48,944

 

Common Stock: par value $0.01 per share; authorized 200,000 shares, 98,849 and 98,483 shares issued and outstanding at December 31, 2019 and December 31, 2018, respectively)

 

 

988

 

 

 

985

 

Additional paid-in capital

 

 

983,401

 

 

 

981,964

 

Accumulated other comprehensive (loss) income consisting of unrealized gains and losses

 

 

65,984

 

 

 

(30,792

)

Accumulated deficit

 

 

(593,039

)

 

 

(485,988

)

Total Stockholders' Equity

 

$

552,497

 

 

$

561,650

 

Total Liabilities and Stockholders' Equity

 

$

4,938,631

 

 

$

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 December 31, 2019 and December 31, 2018, total assets of the consolidated VIEs were $460 million and $551 million (including accrued interest receivable of $1.5 million and $1.8 million), respectively (which is recorded above in the line item “Interest receivable”), and total liabilities were $450 million and $541 million (including accrued interest payable of $1.4 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

 

 

 

 

Three

 

 

 

 

 

Months

 

Year

 

Months

 

Year

 

 

Ended

 

Ended

 

Ended

 

Ended

 

 

December 31, 2019

 

December 31, 2018

 

 

(unaudited)

 

 

 

 

(unaudited)

 

 

 

Interest and other income:

 

 

 

 

 

 

 

 

 

 

 

 

Interest-Agency MBS

 

$

19,990

 

 

$

90,173

 

 

$

23,208

 

 

$

95,656

 

Interest-Non-Agency MBS

 

 

8,614

 

 

 

38,038

 

 

 

10,445

 

 

 

40,733

 

Interest-securitized residential mortgage loans

 

 

4,767

 

 

 

20,443

 

 

 

5,519

 

 

 

23,463

 

Interest-residential mortgage loans held-for-securitization

 

 

1,618

 

 

 

4,314

 

 

 

 

 

 

 

Other interest income

 

 

253

 

 

 

1,427

 

 

 

29

 

 

 

120

 

 

 

 

35,242

 

 

 

154,395

 

 

 

39,201

 

 

 

159,972

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense on repurchase agreements

 

 

18,489

 

 

 

92,737

 

 

 

25,362

 

 

 

90,511

 

Interest expense on asset-backed securities

 

 

4,600

 

 

 

19,771

 

 

 

5,351

 

 

 

22,800

 

Interest expense on warehouse line of credit

 

 

1,477

 

 

 

4,148

 

 

 

 

 

 

 

Interest expense on junior subordinated notes

 

 

492

 

 

 

2,100

 

 

 

526

 

 

 

1,996

 

 

 

 

25,058

 

 

 

118,756

 

 

 

31,239

 

 

 

115,307

 

Net interest income

 

 

10,184

 

 

 

35,639

 

 

 

7,962

 

 

 

44,665

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Management fee to related party

 

 

(1,614

)

 

 

(6,699

)

 

 

(2,060

)

 

 

(7,098

)

Rental properties depreciation and expenses

 

 

(372

)

 

 

(1,517

)

 

 

(367

)

 

 

(1,525

)

General and administrative expenses

 

 

(1,277

)

 

 

(5,090

)

 

 

(1,248

)

 

 

(4,880

)

Total operating expenses

 

 

(3,263

)

 

 

(13,306

)

 

 

(3,675

)

 

 

(13,503

)

Other income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Income-rental properties

 

 

441

 

 

 

1,800

 

 

 

428

 

 

 

1,761

 

Realized net gain (loss) on sales of available-for-sale MBS

 

 

1,338

 

 

 

(3,983

)

 

 

(999

)

 

 

(12,186

)

Realized net gain (loss) on sales of Agency MBS held as trading investments

 

 

1,342

 

 

 

(5,787

)

 

 

(3,871

)

 

 

(11,429

)

Impairment charge on Non-Agency MBS

 

 

(357

)

 

 

(2,108

)

 

 

(971

)

 

 

(2,869

)

Unrealized gain (loss) on Agency MBS held as trading investments

 

 

(798

)

 

 

17,036

 

 

 

9,674

 

 

 

(4,911

)

Gain on sale of residential properties

 

 

31

 

 

 

31

 

 

 

23

 

 

 

54

 

(Loss) gain on derivatives, net

 

 

20,824

 

 

 

(84,741

)

 

 

(44,504

)

 

 

(8,071

)

Recovery on Non-Agency MBS

 

 

 

 

 

 

 

 

 

 

 

1

 

Total other income (loss)

 

 

22,821

 

 

 

(77,752

)

 

 

(40,220

)

 

 

(37,650

)

Net income (loss)

 

$

29,742

 

 

$

(55,419

)

 

$

(35,933

)

 

$

(6,488

)

Dividends on preferred stock

 

 

(2,297

)

 

 

(9,189

)

 

 

(2,297

)

 

 

(9,189

)

Net income (loss) to common stockholders

 

$

27,445

 

 

$

(64,608

)

 

$

(38,230

)

 

$

(15,677

)

Basic income (loss) per common share

 

$

0.28

 

 

$

(0.65

)

 

$

(0.39

)

 

$

(0.16

)

Diluted income (loss) per common share

 

$

0.27

 

 

$

(0.65

)

 

$

(0.39

)

 

$

(0.16

)

Basic weighted average number of shares outstanding

 

 

98,823

 

 

 

98,739

 

 

 

98,444

 

 

 

98,314

 

Diluted weighted average number of shares outstanding

 

 

103,141

 

 

 

98,739

 

 

 

98,444

 

 

 

98,314

 


ANWORTH MORTGAGE ASSET CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands, except for per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three

 

 

 

 

Three

 

 

 

 

 

Months

 

Year

 

Months

 

Year

 

 

Ended

 

Ended

 

Ended

 

Ended

 

 

December 31, 2019

 

December 31, 2018

Net income (loss)

 

$

29,742

 

 

$

(55,419

)

 

$

(35,933

)

 

$

(6,488

)

Available-for-sale Agency MBS, fair value adjustment

 

 

3,160

 

 

 

68,355

 

 

 

22,071

 

 

 

(43,348

)

Reclassification adjustment for (gain) loss on sales of Agency MBS included in net income (loss)

 

 

(1,054

)

 

 

4,059

 

 

 

999

 

 

 

12,361

 

Available-for-sale Non-Agency MBS, fair value adjustment

 

 

(3,548

)

 

 

20,547

 

 

 

(13,784

)

 

 

(20,463

)

Reclassification adjustment for (gain) on sales of Non-Agency MBS included in net income (loss)

 

 

(285

)

 

 

(76

)

 

 

 

 

 

(175

)

Amortization of unrealized gains on interest rate swaps remaining in other comprehensive income

 

 

906

 

 

 

3,891

 

 

 

1,019

 

 

 

4,025

 

Reclassification adjustment for interest (income) on interest rate swaps included in net income (loss)

 

 

 

 

 

 

 

 

 

 

 

(212

)

Other comprehensive income (loss)

 

 

(821

)

 

 

96,776

 

 

 

10,305

 

 

 

(47,812

)

Comprehensive income (loss)

 

$

28,921

 

 

$

41,357

 

 

$

(25,628

)

 

$

(54,300

)


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 income to common stockholders” for the three months ended December 31, 2019 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 our total interest and other income for the three months ended December 31, 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 December 31, 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

 

 

December 31, 2019

 

 

Amount

 

Per Share

 

 

(in thousands)

 

 

 

 

 

(unaudited)

Net income to common stockholders

 

$

27,445

 

 

$

0.28

 

Adjustments to derive core earnings:

 

 

 

 

 

 

(Gain) on sales of MBS

 

 

(2,680

)

 

 

(0.03

)

Impairment charge on Non-Agency MBS(1)

 

 

357

 

 

 

 

Unrealized loss on Agency MBS held as trading investments

 

 

798

 

 

 

0.01

 

Unrealized (gain) on interest rate swaps, net

 

 

(21,240

)

 

 

(0.21

)

Loss on derivatives-TBA Agency MBS, net

 

 

416

 

 

 

0.01

 

(Gain) on sales of residential properties

 

 

(31

)

 

 

 

Net settlement on interest rate swaps after de-designation(2)

 

 

109

 

 

 

 

Dollar roll income on TBA Agency MBS(3)

 

 

1,035

 

 

 

0.01

 

Premium amortization on MBS

 

 

7,033

 

 

 

0.07

 

Paydown expense(4)

 

 

(6,581

)

 

 

(0.07

)

Depreciation expense on residential rental properties(5)

 

 

120

 

 

 

 

Core earnings

 

$

6,781

 

 

$

0.07

 

Basic weighted average number of shares outstanding

 

 

98,823

 

 

 

 

(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

 

 

December 31, 2019

 

 

 

 

Annualized

 

 

Amount

 

Percentage

 

 

(in thousands)

 

 

 

 

(unaudited)

Average Asset Yield, Including TBA Dollar Roll Income:

 

 

 

 

 

Total interest income

 

$

35,242

 

 

3.31

%

Income-rental properties

 

 

441

 

 

0.04

 

Dollar roll income on TBA Agency MBS(1)

 

 

1,035

 

 

0.10

 

Premium amortization on Agency MBS

 

 

7,033

 

 

0.66

 

Paydown expense on Agency MBS(2)

 

 

(6,581

)

 

(0.62

)

Less: Other income

 

 

(253

)

 

(0.03

)

Total interest and other income and average asset yield, including TBA dollar roll income

 

$

36,917

 

 

3.46

%

Effective Cost of Funds:

 

 

 

 

 

Total interest expense

 

$

25,058

 

 

2.58

%

Net settlement on interest rate Swaps after de-designation(3)

 

 

(109

)

 

(0.01

)

Effective total interest expense and effective cost of funds

 

$

24,949

 

 

2.57

%

Effective net interest rate spread

 

 

 

 

0.89

%

Average earning assets

 

$

4,264,155

 

 

 

Average borrowings

 

$

3,890,679

 

 

 

______________________

(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.”

 

Contacts

Anworth Mortgage Asset Corporation
John T. Hillman
1299 Ocean Avenue, 2nd Floor
Santa Monica, CA 90401
(310) 255-4438 or (310) 255-4493
Email: [email protected]
Web site: http://www.anworth.com

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