Anworth Reports First Quarter 2015 Financial Results

Anworth Mortgage Asset Corporation (NYSE: ANH) (the “Company”) today reported its financial results for the first quarter ended March 31, 2015.

Earnings

The following table summarizes the Company’s Core Earnings, GAAP net income and comprehensive income for the quarter ended March 31, 2015 (dollar amounts in thousands):

“Core Earnings” is a non-GAAP financial measure which is explained and reconciled to net income in the section entitled “Non-GAAP Financial Measures” at the end of this earnings release. Comprehensive income is shown on the Consolidated Statements of Comprehensive Income included in this earnings release.

Portfolio

At March 31, 2015, the composition of the Company’s portfolio at fair value was as follows (dollar amounts in thousands):

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(1) Includes TBA Agency MBS of $716,664.

Agency MBS

At March 31, 2015, the fair value of the Company’s agency mortgage-backed securities, or Agency MBS, and its allocation were approximately as follows (dollar amounts in thousands):

At March 31, 2015, the key metrics of the Company’s Agency MBS portfolio were as follows (dollar amounts in thousands):

Non-Agency MBS

The following table summarizes the Company’s Non-Agency MBS at March 31, 2015 (dollar amounts in thousands):

Residential Real Estate

At March 31, 2015, Anworth Properties, Inc. owned 87 single-family residential rental properties located in Southeastern Florida that are carried at a total cost, net of accumulated depreciation, of $14.3 million.

Portfolio Financing and Leverage

At March 31, 2015, the Company’s leverage multiple was 7.8x. 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 8.7x at March 31, 2015.

Interest Rate Swaps and Eurodollar Futures Contracts

At March 31, 2015, the Company’s interest rate swap agreements (“Swaps”) had the following notional amounts (in thousands), weighted average fixed rates and remaining terms:

At March 31, 2015, the Company’s short position in Eurodollar Futures Contracts had the following notional amounts (in thousands) and weighted average purchase prices:

Effective Net Interest Rate Spread

The components of the effective net interest rate spread are non-GAAP financial measures and are explained and reconciled to the nearest comparable GAAP financial measures in the section entitled “Non-GAAP Financial Measures” at the end of this earnings release.

Dividend

On March 19, 2015, the Company declared a quarterly common stock dividend of $0.15 per share for the quarter ended March 31, 2015. Based upon the closing price of $5.09 on March 31, 2015, the annualized dividend yield on the Company’s common stock for the quarter ended March 31, 2015 was 11.8%.

Book Value Per Common Share

At March 31, 2015, the Company’s book value was $6.52 per share of common stock, which was an increase of $0.04 from the prior quarter. The $0.15 quarterly dividend and the $0.04 increase in book value per share resulted in a return on equity to common stockholders of 2.9% for the quarter ended March 31, 2015.

Share Repurchases

During the quarter ended March 31, 2015, the Company repurchased an aggregate of 4,160,908 shares of its common stock at a weighted average price of $5.17 per share. Based upon the book value per share of common stock of $6.48 at December 31, 2014, the economic benefit to common stockholders from these repurchases is approximately $5.45 million or approximately $0.05 per share. The economic benefit from increases in book value per share as a result of share repurchases is not included in GAAP net income available to common stockholders.

Series C Preferred Stock

On January 27, 2015, the Company completed a public offering of 300,000 shares of 7.625% Series C Cumulative Redeemable Preferred Stock (or “Series C Preferred Stock”) at a public offering price of $24.50 per share and received net proceeds of approximately $7 million. On March 2, 2015, we announced that Anworth Management, LLC (the “Manager”) and the Company entered into an At Market Issuance Sales Agreement with MLV & Co. LLC pursuant to which the Company may offer and sell from time to time the Company’s common stock, 6.25% Series B Cumulative Convertible Preferred Stock and 7.625% Series C Preferred Stock.

During the quarter ended March 31, 2015, the Company issued an aggregate of 53,119 shares of its Series C Preferred Stock under the Sales Agreement at a weighted average price of $24.45 per share, which provided net proceeds to the Company of approximately $1.3 million, net of sales commissions.

Subsequent Events

From April 1, 2015 through April 28, 2015, the Company repurchased an aggregate of 116,157 shares of its common stock at a weighted average price of $5.24 per share under its share repurchase program.

From April 1, 2015 through April 28, 2015, the Company issued an aggregate of 56,470 shares of its Series C Preferred Stock under the MLV Sales Agreement at a weighted average price of $24.45 per share, which provided net proceeds to the Company of approximately $1.37 million, net of sales commissions.

Conference Call

The Company will host a conference call on Thursday, April 30, 2015 at 1:00 PM Eastern Time, 10:00 AM Pacific Time, to discuss first quarter 2015 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 April 30, 2015. 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 10064707. 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, or the Plan, or receiving a copy of the 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

We are an externally-managed mortgage real estate investment trust (“REIT”). Our principal business is to invest primarily in mortgage-backed securities on a leveraged basis. Income generated for distribution to our shareholders is based primarily on the difference between the yield on our mortgage assets and the cost of our borrowings. We qualify as a REIT for federal income tax purposes and are not subject to federal corporate income taxes on distributions to our stockholders. We are managed by Anworth Management, LLC, or the Manager, pursuant 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 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, including the consequences of actions by the U.S. government and other foreign governments to address the global financial crisis; 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.

Non-GAAP Financial Measures

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 and effective total interest expense and effective cost of funds. The first table below reconciles the Company’s “net income to common stockholders” for the quarter ended March 31, 2015 to “Core Earnings” for the same period. Core Earnings represents “net income to common stockholders” (which is the nearest comparable GAAP measure), adjusted for the items shown in the table below. The second table below reconciles the Company’s total interest and other income (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. Management also believes the presentation of these measures, when analyzed in conjunction with the Company’s GAAP operating results, allows investors to more effectively evaluate and compare 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 quarter ended March 31, 2015. An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP.

Core Earnings

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(1) This amount represents the amortization of the balance remaining in “accumulated other comprehensive income” as a result of the Company’s discontinuation of hedge accounting and is recorded in its income statement as a portion of interest expense in accordance with GAAP.

(2) Periodic net settlements 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. Net payments on the interest rate swaps made prior to de-designation are recognized in GAAP net income available to common stockholders.

(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 both the “(loss) gain on derivatives-TBA Agency MBS” and “derivative income-TBA Agency MBS” that are shown on the Company’s income statement.

Effective Net Interest Rate Spread

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(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 both the “(loss) gain on derivatives-TBA Agency MBS” and “derivative income-TBA Agency MBS” that are shown on the Company’s income statement.

(2) Periodic net settlements 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. Net payments on the interest rate swaps made prior to de-designation are recognized in GAAP net income available to common stockholders.

(3) This amount represents the amortization of the balance remaining in “accumulated other comprehensive income” as a result of the Company’s discontinuation of hedge accounting and is recorded in its income statement as a portion of interest expense in accordance with GAAP.