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SECURITIES AND EXCHANGE COMMISSION

 

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004

 

Commission File Number: 001-13709

 

ANWORTH MORTGAGE ASSET

CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

 

MARYLAND   52-2059785
(State or other jurisdiction of Incorporation or organization)   (I.R.S. Employer Identification No.)
1299 Ocean Avenue, #250, Santa Monica, California   90401
(Address of principal executive offices)   (Zip Code)

 

Registrant’s telephone number, including area code: (310) 255-4493

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

 

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes x No ¨

 

As of May 7, 2004, the Registrant had 44,634,543 shares of Common Stock outstanding.

 

Table of Contents

ANWORTH MORTGAGE ASSET CORPORATION

FORM 10-Q

INDEX

 

               Page
Part I.         FINANCIAL INFORMATION    1
     Item 1.    Consolidated Financial Statements    1
          Balance Sheets as of March 31, 2004 and December 31, 2003    1
          Statements of Operations for the three months ended March 31, 2004 and 2003    2
          Statements of Stockholders’ Equity for the three months ended March 31, 2004    3
          Statements of Cash Flows for the three months ended March 31, 2004 and 2003    4
          Statements of Comprehensive Income for the three months ended March 31, 2004 and 2003    5
          Notes To Unaudited Financial Statements    6
     Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations    14
     Item 3.    Qualitative and Quantitative Disclosures About Market Risk    26
     Item 4.    Controls and Procedures    28
Part II.         OTHER INFORMATION    29
     Item 1.    Legal Proceedings    29
     Item 2.    Changes in Securities and Use of Proceeds    29
     Item 3.    Defaults Upon Senior Securities    29
     Item 4.    Submission of Matters to a Vote of Security Holders    29
     Item 5.    Other Information    29
     Item 6.    Exhibits and Reports on Form 8-K    29
     Signatures    31

 

 

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Table of Contents

Part I.    FINANCIAL INFORMATION

 

Item 1.    Consolidated Financial Statements

 

ANWORTH MORTGAGE ASSET CORPORATION

 

BALANCE SHEETS

(in thousands)

(unaudited)

 

     March 31,
2004
     December 31,
2003
  

ASSETS

                 

Agency mortgage-backed securities:

                 

Agency mortgage-backed securities pledged to counterparties at fair value

    $ 4,266,335     $ 3,954,019  

Agency mortgage-backed securities at fair value

      385,286       291,834  
    
 
     $ 4,651,621     $ 4,245,853  

Other mortgage-backed securities at fair value

      63,618       —    

Mortgage loans held for securitization

      201,978       —    

Cash and cash equivalents

      3,714       196  

Interest and dividends receivable

      19,414       17,007  

Prepaid expenses and other

      461       218  
    
 
     $ 4,940,806     $ 4,263,274  
    
 

LIABILITIES AND STOCKHOLDERS’ EQUITY

                 

Liabilities:

                 

Reverse repurchase agreements

    $ 4,123,442     $ 3,775,691  

Payable for purchase of mortgage-backed securities

      99,331       —    

Whole loan financing facilities

      188,511       —    

Accrued interest payable

      17,448       14,684  

Dividends payable

      —         14,093  

Accrued expenses and other

      1,648       1,409  

Derivative instruments at fair value

      (949 )     —    
    
 
     $ 4,429,431     $ 3,805,877  
    
 

Minority interest

      50       —    

Stockholders’ Equity:

                 

Preferred stock, par value $.01 per share; authorized 20,000 shares; no shares issued and outstanding

      —       —    

Common stock, par value $.01 per share; authorized 100,000 shares; 44,291 and 42,707 issued and outstanding

      443       427  

Additional paid-in capital

      510,033       488,909  

Accumulated other comprehensive (loss) income consisting of unrealized (losses) gains on available-for-sale securities

      (7,038 )     (21,933 )

Retained earnings (deficit)

      8,542       (9,331 )

Unearned restricted stock

      (655 )     (675 )
    
 
       511,325       457,397  
    
 
     $ 4,940,806     $ 4,263,274  
    
 

 

See accompanying notes to financial statements.

 

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ANWORTH MORTGAGE ASSET CORPORATION

 

STATEMENTS OF OPERATIONS

(in thousands, except for per share amounts)

(unaudited)

 

     Three months ended
March 31,
  
     2004
     2003
  

Interest income net of amortization of premium and discount

    $ 35,246     $ 23,327  

Interest expense

      (14,940 )     (10,210 )
    
 

Net interest income

      20,306       13,117  
    
 

Gain on sale of securities

      157       652  

Net loss derivative instruments

      (203 )     —    

Expenses:

                 

Compensation and benefits

      (396 )     (386 )

Incentive compensation

      (1,125 )     (1,218 )

Other expenses

      (866 )     (343 )
    
 

Total expenses

      (2,387 )     (1,947 )
    
 

Net income

    $ 17,873     $ 11,822  
    
 

Basic earnings per share

    $ 0.41     $ 0.46  
    
 

Average number of shares outstanding

      43,677       25,796  
    
 

Diluted earnings per share

    $ 0.41     $ 0.46  
    
 

Average number of diluted shares outstanding

      43,823       25,926  
    
 

 

See accompanying notes to financial statements.

 

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ANWORTH MORTGAGE ASSET CORPORATION

 

STATEMENT OF STOCKHOLDERS’ EQUITY

(in thousands)

(unaudited)

 

     Common
Stock
Shares
    Common
Stock
Par
Value
    Additional
Paid-in
Capital
    Accumulative
Other
Comprehensive
Income (Loss)
     Retained
Earnings
(deficit)
     Unearned
Restricted
Stock
     Comprehensive
Income
    Total

Balance, December 31, 2003

    42,707    $ 427    $ 488,909    $ (21,933 )   $ (9,331 )   $ (675 )   $ —      $ 457,397

Issuance of common stock

    1,584      16      21,124                                     21,140

Available-for-sale securities, fair value adjustment

                         14,895                       14,895      14,895

Net income

                                 17,873               17,873      17,873
                                               
      

Total comprehensive income

                                               $ 32,768       
                                               
      

Amortization of restricted stock

                                         20              20
    
  
  
  
 
 
        

Balance, March 31, 2004

    44,291    $ 443    $ 510,033    $ (7,038 )   $ 8,542     $ (655 )          $ 511,325

 

See accompanying notes to financial statements.

 

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ANWORTH MORTGAGE ASSET CORPORATION

 

STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

     For the three months ended
March 31,
  
     2004
     2003
  

Operating Activities:

                 

Net income

    $ 17,873     $ 11,822  

Adjustments to reconcile net income to net cash provided by operating activities:

                 

Amortization of premiums and discounts

      9,423       6,797  

Gain on sales of agency securities

      —         (652 )

Gain on sales of securities in securitization

      (157 )     —    

Loss on Eurodollar futures

      203       —    

Amortization of restricted stock

      20       20  

Increase in interest receivable

      (2,407 )     (799 )

Increase in prepaid expenses and other

      (243 )     (290 )

Increase (Decrease) in accrued interest payable

      2,764       (1,936 )

Increase in accrued expenses and other

      239       121  
    
 

Net cash provided by operating activities

      27,715       15,083  

Investing Activities:

                 

Available-for-sale agency securities:

                 

Purchases

      (633,887 )     (643,877 )

Proceeds from sales

      —         33,920  

Principal payments

      332,170       260,691  

Adjustable-rate mortgage loans held for securitization:

                 

Purchases

      (462,857 )     —    

Proceeds from securitization

      196,428       —    

Principal payments

      590       —    
    
 

Net cash used in investing activities

      (567,556 )     (349,266 )

Financing Activities:

                 

Net borrowings from reverse repurchase agreements

      347,751       331,544  

Net whole loan financing facilities borrowings

      188,511       —    

Proceeds from common stock issued, net

      21,140       14,635  

Minority investments

      50       —    

Dividends paid

      (14,093 )     (12,673 )
    
 

Net cash provided by financing activities

      543,359       333,506  
    
 

Net increase (decrease) in cash and cash equivalents

      3,518       (677 )

Cash and cash equivalents at beginning of period

      196       906  
    
 

Cash and cash equivalents at end of period

    $ 3,714     $ 229  
    
 

Supplemental Disclosure of Cash Flow Information:

                 

Cash paid for interest

    $ 12,176     $ 12,146  

Supplemental Disclosure of Investing and Financing Activities:

                 

Mortgage securities purchased, not yet settled

    $ 99,331     $ 40,945  

Certificates retained from securitization

    $ 64,451       —