Anworth Mortgage Asset Corporation (NYSE: ANH) (the “Company”) today reported its financial results for the second quarter ended June 30, 2016.
Earnings
The following table summarizes the Company’s Core Earnings, GAAP net loss to common stockholders and Comprehensive Income for the three months ended June 30, 2016 (dollar amounts in thousands):
| Three Months Ended June 30, 2016 | ||||||||
| (unaudited) | ||||||||
| Earnings | Earnings | Per Weighted Share | ||||||
| Core Earnings | $ | 14,415 | $ | 0.15 | ||||
| GAAP net loss to common stockholders | $ | (2,997 | ) | $ | (0.03 | ) | ||
| Comprehensive income | $ | 20,342 | $ | 0.21 | ||||
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” at the end of this earnings release. For the three months ended June 30, 2016, Core Earnings included an adjustment to reflect paydown expense on Agency MBS, which is the proportional expense of Agency MBS purchase premiums relative to the principal payments and prepayments which occurred during the quarter.
Comprehensive Income is shown on the consolidated statements of comprehensive income included in this earnings release.
Portfolio
At June 30, 2016, the composition of the Company’s portfolio at fair value was as follows (dollar amounts in thousands):
| June 30, 2016 | ||||||
| Dollar Amount | Percentage | |||||
| Agency MBS: | ||||||
| ARMS and hybrid ARMs | $ | 3,421,897 | 53.9 | % | ||
| Fixed-rate Agency MBS | 691,508 | 10.9 | % | |||
| TBA Agency MBS | 715,109 | 11.3 | % | |||
| Total Agency MBS | $ | 4,828,514 | 76.1 | % | ||
| Non-Agency MBS | 645,353 | 10.2 | % | |||
| Residential mortgage loans(1) | 855,746 | 13.5 | % | |||
| Residential real estate | 14,311 | 0.2 | % | |||
| Total Portfolio | $ | 6,343,924 | 100.0 | % | ||
| Total Assets | $ | 6,418,278 | ||||
_________
(1) Residential mortgage loans owned by 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.
Agency MBS
At June 30, 2016, the allocation of the Company’s agency mortgage-backed securities, or Agency MBS, was approximately 71% adjustable-rate and hybrid adjustable-rate Agency MBS, 14% fixed-rate Agency MBS and 15% fixed-rate TBA Agency MBS as detailed below (dollar amounts in thousands):
| June 30, 2016 | |||
| Fair value of Agency MBS and TBA Agency MBS | $ | 4,828,514 | |
| Adjustable-rate Agency MBS coupon reset (less than 1 year) | 43 | % | |
| Hybrid adjustable-rate Agency MBS coupon reset (1-2 years) | 1 | % | |
| Hybrid adjustable-rate Agency MBS coupon reset (2-3 years) | 3 | % | |
| Hybrid adjustable-rate Agency MBS coupon reset (3-4 years) | 8 | % | |
| Hybrid adjustable-rate Agency MBS coupon reset (4-5 years) | 5 | % | |
| Hybrid adjustable-rate Agency MBS coupon reset (5-7 years) | 10 | % | |
| Hybrid adjustable-rate Agency MBS coupon reset (7-10 years) | 1 | % | |
| Total adjustable-rate Agency MBS | 71 | % | |
| 15-year fixed-rate TBA Agency MBS | 15 | % | |
| 15-year fixed-rate Agency MBS | 11 | % | |
| 20-year and 30-year fixed-rate Agency MBS | 3 | % | |
| Total MBS | 100 | % | |
At June 30, 2016, the key metrics of the Company’s Agency MBS portfolio were as follows (dollar amounts in thousands):
| June 30, 2016 | ||
| Weighted Average Coupon: | ||
| Adjustable-rate Agency MBS | 2.66 | % |
| Hybrid adjustable-rate Agency MBS | 2.44 | |
| 15-year fixed-rate Agency MBS | 2.71 | |
| 15-year fixed-rate TBA Agency MBS | 2.57 | |
| 20-year and 30-year fixed-rate Agency MBS | 4.29 | |
| Total Agency MBS: | 2.65 | % |
| Average Amortized Cost: | ||
| Adjustable-rate Agency MBS | 102.92 | % |
| Hybrid adjustable-rate Agency MBS | 102.89 | |
| 15-year fixed-rate Agency MBS | 102.53 | |
| 15-year fixed-rate TBA Agency MBS | 103.13 | |
| 20-year and 30-year fixed-rate Agency MBS | 101.28 | |
| Total Agency MBS: | 102.91 | % |
| Current yield (weighted average coupon divided by average amortized cost) | 2.58 | % |
| Unamortized premium | $112.2 million | |
| Unamortized premium as a percentage of par value | 2.91 | % |
| Premium amortization expense on Agency MBS for the second quarter 2016 | $16.3 million |
| June 30, 2016 | |||
| Constant prepayment rate (CPR) of Agency MBS | 19 | % | |
| Constant prepayment rate (CPR) of adjustable-rate and hybrid adjustable-rate Agency MBS | 20 | % | |
| Weighted average term to next interest rate reset on Agency MBS | 26 months | ||
Non-Agency MBS
Our Non-Agency MBS were either issued before 2008 or were recently issued and collateralized by currently non-performing residential mortgage loans that were originated before 2008. The following table summarizes the Company’s Non-Agency MBS at June 30, 2016 (dollar amounts in thousands):
| Weighted Average | |||||||||||||||
| Mortgage Loan Type | Fair Value | Current Principal | Amortized Cost | Coupon | Yield | ||||||||||
| Prime | $ | 51,530 | $ | 64,269 | 81.50 | % | 4.55 | % | 5.87 | % | |||||
| Alt-A | 393,487 | 514,113 | 77.75 | % | 5.31 | % | 5.49 | % | |||||||
| Subprime | 50,092 | 53,687 | 95.24 | % | 4.42 | % | 5.47 | % | |||||||
| Non-performing | 150,157 | 157,093 | 98.71 | % | 4.65 | % | 5.59 | % | |||||||
| Paydowns receivable | 87 | - | - | - | - | ||||||||||
| Total Non-Agency MBS | $ | 645,353 | $ | 789,162 | 83.42 | % | 5.06 | % | 5.54 | % | |||||
Residential Mortgage Loans
The following table summarizes the Company’s residential mortgage loans held-for-investment at June 30, 2016 (in thousands):
| Residential mortgage loans held-for-investment | $ | 855,746 | |
| Asset-backed securities issued by securitization trusts | $ | 828,937 | |
| Retained interest in loans held in securitization trust | $ | 26,809 | |
Residential Real Estate
At June 30, 2016, Anworth Properties, Inc. owned 88 single-family residential rental properties located in Southeastern Florida that are carried at a total cost, net of accumulated depreciation, of $14.3 million.
MBS Portfolio Financing and Leverage
| June 30, 2016 | ||||||||||||
| Agency MBS | Non-Agency MBS | Total MBS | ||||||||||
| Repurchase Agreements: | (dollar amounts in thousands) | |||||||||||
| Outstanding repurchase agreement balance | $ | 3,650,000 | $ | 425,445 | $ | 4,075,445 | ||||||
| Average interest rate | 0.69 | % | 2.03 | % | 0.83 | % | ||||||
| Average maturity | 34 days | 15 days | 32 days | |||||||||
| Average interest rate after adjusting for interest rate swaps | 1.20 | % | ||||||||||
| Average maturity after adjusting for interest rate swaps | 547 days | |||||||||||
At June 30, 2016, the Company’s leverage multiple was 5.8x. 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 6.8x at June 30, 2016.
Interest Rate Swaps and Eurodollar Futures Contracts
At June 30, 2016, the Company’s interest rate swap agreements (“Swaps”) had the following notional amounts (in thousands), weighted average fixed rates and remaining terms:
| June 30, 2016 | |||||||||||||
| Maturity | Notional Amount | Weighted Average Fixed Rate | Remaining Term in Months | Remaining Term in Years | |||||||||
| Less than 12 months | $ | 975,000 | 0.67 | % | 5 | 0.4 | |||||||
| 1 year to 2 years | 535,000 | 0.91 | 18 | 1.5 | |||||||||
| 2 years to 3 years | 150,000 | 1.07 | 29 | 2.4 | |||||||||
| 3 years to 4 years | 216,000 | 1.31 | 40 | 3.3 | |||||||||
| 4 years to 5 years | 100,000 | 1.43 | 53 | 4.4 | |||||||||
| 5 years to 7 years | 320,000 | 2.54 | 72 | 6.0 | |||||||||
| 7 years to 10 years | 200,000 | 3.00 | 87 | 7.3 | |||||||||
| $ | 2,496,000 | 1.26 | % | 29 | 2.4 | ||||||||
At June 30, 2016, the notional amount of our Swaps was approximately $2.5 billion and the weighted average fixed rate was 1.26%.
At June 30, 2016, the Company’s short position in Eurodollar Futures Contracts had the following notional amount (in thousands) and weighted average purchase price:
| June 30, 2016 | |||||||
| Eurodollar Futures Contracts | |||||||
| Expiration | Notional Amount | Weighted Average Purchase Price | |||||
| Less than 12 months | $ | 3,350,000 | $ | 99.10 | |||
Effective Net Interest Rate Spread
| June 30, 2016 | |||
| Average asset yield, including TBA dollar roll income | 2.93 | % | |
| Effective cost of funds | 1.69 | ||
| Effective net interest rate spread | 1.24 | % | |
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 June 16, 2016, the Company declared a quarterly common stock dividend of $0.15 per share for the second quarter ended June 30, 2016. Based upon the closing price of $4.70 on June 30, 2016, the annualized dividend yield on the Company’s common stock at June 30, 2016 was 12.8%.
Book Value Per Common Share
At June 30, 2016, the Company’s book value was $6.06 per share of common stock, which was an increase of $0.06 from $6.00 in the prior quarter.
The $0.15 quarterly dividend and the $0.06 increase in book value per share resulted in a return on equity to common stockholders of 3.5% for the quarter ended June 30, 2016.
Share Repurchases
During the quarter ended June 30, 2016, the Company repurchased an aggregate of 873,019 shares of its common stock at a weighted average price of $4.67 per share. Based upon the book value per share of common stock of $6.00 at March 31, 2016, the economic benefit to common stockholders from these repurchases was approximately $1.16 million, or approximately $0.01 per share. The economic benefit from increases in book value per share as a result of share repurchases is not included in GAAP net loss to common stockholders.
Subsequent Events
From July 1, 2016 through August 2, 2016, the Company repurchased an aggregate of 133,166 shares of its common stock at a weighted average price of $4.74 per share under its share repurchase program.
Conference Call
The Company will host a conference call on Thursday, August 4, 2016 at 12:00 PM Eastern Time, 9:00 AM Pacific Time, to discuss its second quarter 2016 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 4, 2016. 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 10090623. 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
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.
| ANWORTH MORTGAGE ASSET CORPORATION AND SUBSIDIARIES | ||||||||
| CONSOLIDATED BALANCE SHEETS | ||||||||
(in thousands, except per share amounts) | ||||||||
| June 30, | December 31, | |||||||
| 2016 | 2015 | |||||||
| (audited) | ||||||||
| ASSETS | ||||||||
| Agency MBS: | ||||||||
| Agency MBS pledged to counterparties at fair value | $ | 3,906,844 | $ | 4,694,731 | ||||
| Agency MBS at fair value | 181,505 | 173,344 | ||||||
| Paydowns receivable | 25,056 | 24,707 | ||||||
| $ | 4,113,405 | $ | 4,892,782 | |||||
|
Non-Agency MBS at fair value (including $536,308 and $596,831
pledged to counterparties at
June 30, 2016 and December 31, 2015, respectively) | 645,353 | 682,061 | ||||||
| Residential mortgage loans held-for-investment(1) | 855,746 | 969,172 | ||||||
| Residential real estate | 14,311 | 14,363 | ||||||
| Cash and cash equivalents | 21,047 | 5,754 | ||||||
| Restricted cash | 28,220 | 39,230 | ||||||
| Interest and dividends receivable | 17,082 | 17,525 | ||||||
| Derivative instruments at fair value | 5,566 | 12,470 | ||||||
| Prepaid expenses and other | 3,089 | 2,983 | ||||||
| Total Assets: | $ | 5,703,819 | $ | 6,636,340 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Liabilities: | ||||||||
| Accrued interest payable | $ | 13,276 | $ | 13,443 | ||||
| Repurchase agreements | 4,075,445 | 4,915,528 | ||||||
| Asset-backed securities issued by securitization trusts(1) | 828,937 | 915,486 | ||||||
| Junior subordinated notes | 37,380 | 37,380 | ||||||
| Derivative instruments at fair value | 60,931 | 34,547 | ||||||
| Dividends payable on Series A Preferred Stock | 1,035 | 1,035 | ||||||
| Dividends payable on Series B Preferred Stock | 394 | 394 | ||||||
| Dividends payable on Series C Preferred Stock | 207 | 207 | ||||||
| Dividends payable on common stock | 14,403 | 14,861 | ||||||
| Accrued expenses and other | 6,009 | 1,308 | ||||||
| Total Liabilities: | $ | 5,038,017 | $ | 5,934,189 | ||||
|
Series B Cumulative Convertible Preferred Stock: par value $0.01 per
share; liquidating
preference $25.00 per share ($25,241 and $25,241, respectively); 1,010 and 1,010 shares issued and outstanding at June 30, 2016 and December 31, 2015, respectively | $ | 23,924 | $ | 23,924 | ||||
| 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, 2016 and December 31, 2015, respectively | $ | 46,537 | $ | 46,537 | ||||
|
Series C Cumulative Preferred Stock: par value $0.01 per share;
liquidating
preference $25.00 per share ($10,848 and $10,848, respectively); 434 and 434 shares issued and outstanding at June 30, 2016 and December 31, 2015, respectively | 10,039 | 10,039 | ||||||
|
Common Stock: par value $0.01 per share; authorized 200,000 shares,
96,021 shares
issued and outstanding at June 30, 2016 and 99,078 shares issued and 98,944 shares outstanding at December 31, 2015, respectively | 960 | 991 | ||||||
| Additional paid-in capital | 967,981 | 981,034 | ||||||
| Accumulated other comprehensive income consisting of unrealized gains and losses | 31,514 | 949 | ||||||
| Accumulated deficit | (415,153 | ) | (361,323 | ) | ||||
| Total Stockholders' Equity: | $ | 641,878 | $ | 678,227 | ||||
| Total Liabilities and Stockholders' Equity: | $ | 5,703,819 | $ | 6,636,340 | ||||
_____________
(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, 2016 and December 31,
2015, total assets of the consolidated VIEs were $859 million and $972
million, respectively, and total liabilities were $832 million and $918
million, respectively.
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, | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| Interest and other income: | ||||||||||||||||
| Interest-Agency MBS | $ | 10,690 | $ | 27,464 | $ | 31,455 | $ | 58,052 | ||||||||
| Interest-Non-Agency MBS | 9,137 | 6,385 | 18,418 | 10,032 | ||||||||||||
| Interest-residential mortgage loans | 9,111 | 1,188 | 18,424 | 1,188 | ||||||||||||
| Income-rental properties | 428 | 409 | 838 | 779 | ||||||||||||
| Other interest income | 12 | 10 | 24 | 20 | ||||||||||||
| 29,378 | 35,456 | 69,159 | 70,071 | |||||||||||||
| Interest Expense: | ||||||||||||||||
| Interest expense on repurchase agreements | 8,960 | 7,400 | 18,358 | 14,089 | ||||||||||||
| Interest expense on asset-backed securities | 8,414 | 1,075 | 17,013 | 1,075 | ||||||||||||
| Interest expense on junior subordinated notes | 354 | 319 | 700 | 634 | ||||||||||||
| 17,728 | 8,794 | 36,071 | 15,798 | |||||||||||||
| Net operating income | 11,650 | 26,662 | 33,088 | 54,273 | ||||||||||||
| Provision for loan losses | - | 70 | - | 70 | ||||||||||||
| Net operating income after provision for loan losses | 11,650 | 26,592 | 33,088 | 54,203 | ||||||||||||
| Operating Expenses: | ||||||||||||||||
| Management fee to related party | (1,970 | ) | (2,181 | ) | (4,014 | ) | (4,517 | ) | ||||||||
| General and administrative expenses | (1,690 | ) | (1,234 | ) | (3,259 | ) | (2,513 | ) | ||||||||
| Total operating expenses | (3,660 | ) | (3,415 | ) | (7,273 | ) | (7,030 | ) | ||||||||
| Other (Loss): | ||||||||||||||||
| (Loss) on sales of Agency MBS | - | - | (3,239 | ) | - | |||||||||||
| (Loss) on sales of Non-Agency MBS | - | (73 | ) | - | (76 | ) | ||||||||||
| Gain on sales of residential mortgage loans held-for-investment | 33 | - | 33 | - | ||||||||||||
| (Loss) gain on interest rate swaps, net | (16,089 | ) | 5,075 | (66,308 | ) | (41,413 | ) | |||||||||
| Gain (loss) on derivatives-TBA Agency MBS, net | 8,061 | (6,573 | ) | 23,415 | 1,952 | |||||||||||
| (Loss) on derivatives-Eurodollar Futures Contracts | (1,357 | ) | (1,732 | ) | (1,335 | ) | (4,070 | ) | ||||||||
| Recovery on Non-Agency MBS | 1 | 4 | 2 | 5 | ||||||||||||
| Total other (loss) | (9,351 | ) | (3,299 | ) | (47,432 | ) | (43,602 | ) | ||||||||
| Net (loss) income | $ | (1,361 | ) | $ | 19,878 | $ | (21,617 | ) | $ | 3,571 | ||||||
| Dividend on Series A Cumulative Preferred Stock | (1,035 | ) | (1,035 | ) | (2,070 | ) | (2,070 | ) | ||||||||
| Dividend on Series B Cumulative Convertible Preferred Stock | (394 | ) | (394 | ) | (788 | ) | (788 | ) | ||||||||
| Dividend on Series C Cumulative Redeemable Preferred Stock | (207 | ) | (200 | ) | (414 | ) | (311 | ) | ||||||||
| Net (loss) income to common stockholders | $ | (2,997 | ) | $ | 18,249 | $ | (24,889 | ) | $ | 402 | ||||||
| Basic (loss) earnings per common share | $ | (0.03 | ) | $ | 0.18 | $ | (0.26 | ) | $ | - | ||||||
| Diluted (loss) earnings per common share | $ | (0.03 | ) | $ | 0.17 | $ | (0.26 | ) | $ | - | ||||||
| Basic weighted average number of shares outstanding | 96,355 | 104,225 | 97,030 | 105,719 | ||||||||||||
| Diluted weighted average number of shares outstanding | 96,355 | 108,530 | 97,030 | 109,993 | ||||||||||||
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, | ||||||||||||||
| 2016 | 2015 | 2016 | 2015 | ||||||||||||
| Net (loss) income | $ | (1,361 | ) | $ | 19,878 | $ | (21,617 | ) | $ | 3,571 | |||||
| Available-for-sale Agency MBS, fair value adjustment | 13,080 | (17,779 | ) | 37,465 | 6,024 | ||||||||||
Reclassification adjustment for loss on sales of Agency MBS included in net (loss) income | - | - | 3,239 | - | |||||||||||
Available-for-sale Non-Agency MBS, fair value adjustment | 6,952 | 2,724 | (15,381 | ) | 4,881 | ||||||||||
Reclassification adjustment for loss on sales of Non-Agency MBS included in net (loss) income | - | 73 | - | 76 | |||||||||||
| Unrealized gains on derivatives | 1,565 | 5,281 | 4,934 | 11,389 | |||||||||||
Reclassification adjustment for interest expense on swap agreements included in net (loss) income | 106 | 530 | 308 | 1,054 | |||||||||||
| Other comprehensive income (loss) | 21,703 | (9,171 | ) | 30,565 | 23,424 | ||||||||||
| Comprehensive income | $ | 20,342 | $ | 10,707 | $ | 8,948 | $ | 26,995 | |||||||
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, 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 quarter ended June 30, 2016 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 quarter ended June 30, 2016 (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 believes 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.” 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 June 30, 2016. 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, 2016 | ||||||||
| Amount | Per Share | |||||||
| (in thousands) | ||||||||
| Net loss to common stockholders | $ | (2,997 | ) | $ | (0.03 | ) | ||
| Adjustments to derive core earnings: | ||||||||
| Gain on sales of residential mortgage loans held-for-investment | (33 | ) | - | |||||
| Loss on interest rate swaps | 16,089 | 0.17 | ||||||
| Gain on derivatives-TBA securities, net | (8,061 | ) | (0.09 | ) | ||||
| Loss on derivatives-Eurodollar Futures Contracts | 1,357 | 0.01 | ||||||
| Recovery on Non-Agency MBS | (1 | ) | - | |||||
| Amortization of other comprehensive income on de-designated swaps(1) | 106 | - | ||||||
| Periodic net settlement on interest rate swaps after de-designation(2) | (4,226 | ) | (0.04 | ) | ||||
| Dollar roll income on TBA securities(3) | 3,729 | 0.04 | ||||||
| Loss from expiration of Eurodollar Futures Contracts | (117 | ) | - | |||||
| Premium amortization on Agency MBS | 16,322 | 0.17 | ||||||
| Paydown expense on Agency MBS(4) | (7,753 | ) | (0.08 | ) | ||||
| Core earnings | $ | 14,415 | $ | 0.15 | ||||
| Basic weighted average number of shares outstanding | 96,355 | |||||||
__________
| (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 statements of operations 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 loss 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 “Gain on derivatives-TBA Agency MBS” and “Derivative income-TBA Agency MBS” that are shown on the Company’s statements of operations. | |
| (4) | Paydown expense on Agency MBS represents the proportional expense of Agency MBS purchase premiums relative to the Agency MBS principal payments and prepayments which occurred during the quarter. | |
Effective Net Interest Rate Spread
| Three Months Ended | |||||||
| June 30, 2016 | |||||||
Amount | Annualized Percentage | ||||||
| (in thousands) | |||||||
| Average Asset Yield, Including TBA Dollar Roll Income: | |||||||
| Total interest and other income | $ | 29,378 | 2.06 | % | |||
| Dollar roll income on TBA Agency MBS(1) | 3,729 | 0.26 | % | ||||
| Premium amortization on Agency MBS | 16,322 | 1.15 | % | ||||
| Paydown expense on Agency MBS(2) | (7,753 | ) | -0.54 | % | |||
| Total interest income and average asset yield, including TBA dollar roll income | $ | 41,676 | 2.93 | % | |||
| Effective Cost of Funds: | |||||||
| Total interest expense | $ | 17,728 | 1.37 | % | |||
| Periodic net settlement on interest rate Swaps after de-designation(3) | 4,226 | 0.32 | % | ||||
| Amortization of other comprehensive income on de-designated Swaps(4) | 106 | 0 | % | ||||
| Loss on expiration of Eurodollar Futures Contracts | (117 | ) | 0 | % | |||
| Effective total interest expense and effective cost of funds | $ | 21,943 | 1.69 | % | |||
| Effective net interest rate spread | 1.24 | % | |||||
| Average earning assets | $ | 5,694,809 | |||||
| Average borrowings | $ | 5,193,057 | |||||
__________
| (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 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) | 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 loss to common stockholders. | |
| (4) | 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 statements of operations as a portion of interest expense in accordance with GAAP. |
View source version on businesswire.com: http://www.businesswire.com/news/home/20160803006608/en/
Contacts:
John T. Hillman
1299 Ocean
Avenue, Second Floor
Santa Monica, CA 90401
(310) 255-4438 or
(310) 255-4493
Email: jhillman@anworth.com
Web
site: http://www.anworth.com
