Anworth Reports Third Quarter 2017 Financial Results

Anworth Mortgage Asset Corporation (NYSE: ANH) (the “Company”) today reported its financial results for the third quarter ended September 30, 2017.

Earnings

The following table summarizes the Company’s Core Earnings, GAAP net income to common stockholders, and comprehensive income for the three months ended September 30, 2017 (dollar amounts in thousands):

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 the consolidated statements of comprehensive income included in this earnings release.

Portfolio

At September 30, 2017, the composition of the Company’s portfolio at fair value was as follows (dollar amounts in thousands):

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Agency MBS

At September 30, 2017, the allocation of the Company’s agency mortgage-backed securities, or Agency MBS, was approximately 46% adjustable-rate and hybrid adjustable-rate Agency MBS, 39% fixed-rate Agency MBS, and 15% fixed-rate TBA Agency MBS as detailed below (dollar amounts in thousands):

At September 30, 2017, the key metrics of the Company’s Agency MBS portfolio were as follows:

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 September 30, 2017 (dollar amounts in thousands):

Residential Mortgage Loans

The following table summarizes the Company’s residential mortgage loans held-for-investment at September 30, 2017 (in thousands):

Residential Real Estate

At September 30, 2017, 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 $14.2 million.

At September 30, 2017, the Company’s leverage multiple was 5.89x. 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 6.92x at September 30, 2017.

Interest Rate Swaps and Eurodollar Futures Contracts

At September 30, 2017, the Company’s interest rate swap agreements (“Swaps”) had the following notional amounts (in thousands), weighted average fixed rates, and remaining terms:

At September 30, 2017, the Company did not have any Eurodollar Futures Contracts.

Effective Net Interest Rate Spread

Certain 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 September 15, 2017, the Company declared a quarterly common stock dividend of $0.15 per share for the third quarter ended September 30, 2017. Based upon the closing price of $6.01 on September 30, 2017, the annualized dividend yield on the Company’s common stock at September 30, 2017 was 9.98%.

Book Value per Common Share

At September 30, 2017, the Company’s book value was $6.04 per share of common stock, which was unchanged from the prior quarter.

The $0.15 quarterly dividend plus the no change in book value per common share from the prior quarter resulted in a return on equity to common stockholders of 2.48% for the quarter ended September 30, 2017.

Stock Transactions

During the quarter ended September 30, 2017, the Company issued an aggregate of 22,700 shares of its Series B Preferred Stock under its At Market Issuance Sales Agreement, which provided net proceeds to the Company of approximately $669 thousand. During the quarter ended September 30, 2017, the Company issued an aggregate of 223,632 shares of its Series C Preferred Stock under its At Market Issuance Sales Agreement, which provided net proceeds to the Company of approximately $5.6 million.

Subsequent Events

From October 2, 2017 through November 1, 2017, the Company issued an aggregate of 154,300 shares of its Series B Preferred Stock at a weighted average price of $29.75 per share, resulting in net proceeds to the Company of approximately $4.54 million. From October 2, 2017 through November 1, 2017, the Company issued an aggregate of 148,665 shares of its Series C Preferred Stock at a weighted average price of $25.09 per share, resulting in net proceeds to the Company of approximately $3.69 million.

From October 2, 2017 through November 1, 2017, there were three transactions to convert an aggregate of 20,387 shares of Series B Preferred Stock into an aggregate of 100,249 shares of common stock at the then-current conversion rate of 4.9174.

Conference Call

The Company will host a conference call on Friday, November 3, 2017 at 1:00 PM Eastern Time, 10:00 AM Pacific Time, to discuss its third quarter 2017 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 November 3, 2017. 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 10113945. The conference call will also be webcast live over the Internet, which can be accessed on the Company’s website at http://www.anworth.com through the corresponding link located at the top of the home page.

Investors interested in participating in the Company’s Dividend Reinvestment and Stock Purchase Plan (the “DRP Plan”) or receiving a copy of the DRP Plan’s prospectus may do so by contacting the Plan Administrator, American Stock Transfer & Trust Company, at 877-248-6410. For more information about the Plan, interested investors may also visit the Plan Administrator’s website at http://www.amstock.com/investpower/new_dp.asp or the Company’s website at http://www.anworth.com.

About Anworth Mortgage Asset Corporation

Anworth is an externally-managed mortgage real estate investment trust. We invest primarily in mortgage-backed securities that are either rated “investment grade” or are guaranteed by federally sponsored enterprises, such as Fannie Mae or Freddie Mac. We seek to generate income for distribution to our shareholders primarily based on the difference between the yield on our mortgage assets and the cost of our borrowings. We are managed by Anworth Management LLC, or the Manager, pursuant a management agreement. The Manager is subject to the supervision and direction of our Board of Directors and is responsible for (i) the selection, purchase and sale of our investment portfolio; (ii) our financing and hedging activities; and (iii) providing us with management services and other services and activities relating to our assets and operations as may be appropriate. Our common stock is traded on the New York Stock Exchange under the symbol “ANH.” Anworth is a component of the Russell 2000® Index.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

This news release may contain forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based upon our current expectations and speak only as of the date hereof. Forward-looking statements, which are based on various assumptions (some of which are beyond our control) may be identified by reference to a future period or periods or by the use of forward-looking terminology, such as “may,” “will,” “believe,” “expect,” “anticipate,” “assume,” “estimate,” “intend,” “continue,” or other similar terms or variations on those terms or the negative of those terms. Our actual results may differ materially and adversely from those expressed in any forward-looking statements as a result of various factors and uncertainties, including but not limited to, changes in interest rates; changes in the market value of our mortgage-backed securities; changes in the yield curve; the availability of mortgage-backed securities for purchase; increases in the prepayment rates on the mortgage loans securing our mortgage-backed securities; our ability to use borrowings to finance our assets and, if available, the terms of any financing; risks associated with investing in mortgage-related assets; changes in business conditions and the general economy, 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.

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Non-GAAP Financial Measures Related to Operating Results

In addition to the Company’s operating results presented in accordance with GAAP, the following tables include the following non-GAAP financial measures: Core Earnings (including per common share), total interest income and average asset yield, including TBA dollar roll income, paydown expense on Agency MBS and effective total interest expense and effective cost of funds. The first table below reconciles the Company’s “net income to common stockholders” for the quarter ended September 30, 2017 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 for the quarter ended September 30, 2017 (which is the nearest comparable GAAP measure) to the total interest income and average asset yield, including TBA dollar roll income, and shows the annualized amounts as a percentage of the Company’s average earning assets and also reconciles the Company’s total interest expense (which is the nearest comparable GAAP measure) to the effective total interest expense and effective cost of funds and shows the annualized amounts as a percentage of the Company’s average borrowings.

The Company’s management believes that:

• these non-GAAP financial measures are useful because they provide investors with greater transparency to the information that the Company uses in its financial and operational decision-making process;
• the inclusion of paydown expense on Agency MBS is more indicative of the current earnings potential of the Company’s investment portfolio, as it reflects the actual principal paydowns which occurred during the period. Paydown expense on Agency MBS is not dependent on future assumptions on prepayments or the cumulative effect from prior periods of any current changes to those assumptions, as is the case with the GAAP measure, “Premium amortization on Agency MBS”;
• the adjustment for an impairment charge on Non-Agency MBS is more reflective of current Core Earnings, as this charge represents future loss expectations;
• the adjustment for depreciation expense on residential rental properties, as this is a non-cash item and is added back by other companies to derive funds from operations; and
• the presentation of these measures, when analyzed in conjunction with the Company’s GAAP operating results, allows investors to more effectively evaluate the Company’s performance to that of its peers, particularly those that have discontinued hedge accounting and those that have used similar portfolio and derivative strategies.

These non-GAAP financial measures should not be used as a substitute for the Company’s operating results for the quarter ended September 30, 2017. An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP.

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