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EX-31.1 - EX-31.1 - ANWORTH MORTGAGE ASSET CORPanh-ex311_8.htm
EX-31.2 - EX-31.2 - ANWORTH MORTGAGE ASSET CORPanh-ex312_7.htm
EX-32.2 - EX-32.2 - ANWORTH MORTGAGE ASSET CORPanh-ex322_9.htm
EX-32.1 - EX-32.1 - ANWORTH MORTGAGE ASSET CORPanh-ex321_6.htm

 

 

UNITED STATES

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 SEPTEMBER 30, 2015

OR

¨

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

For the transition period from              to             

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, Second Floor,
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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large Accelerated Filer

x

Accelerated Filer

¨

 

 

 

 

Non-Accelerated Filer

¨  (Do not check if a smaller reporting company)

Smaller Reporting Company

¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No   x

At November 3, 2015, the registrant had 100,355,287 shares of common stock issued and 100,105,195 shares outstanding.

 

 

 

 


ANWORTH MORTGAGE ASSET CORPORATION AND SUBSIDIARIES

FORM 10-Q

INDEX

 

 

 

 

Page

Part I.

 

FINANCIAL INFORMATION

1

 

Item 1.

Consolidated Financial Statements

1

 

 

Consolidated Balance Sheets as of September 30, 2015 (unaudited) and December 31, 2014

1

 

 

Consolidated Statements of Operations for the three and nine months ended September 30, 2015 and 2014 (unaudited)

2

 

 

Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2015 and 2014 (unaudited)

3

 

 

Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2015, June 30, 2015 and September 30, 2015 (unaudited)

4

 

 

Consolidated Statements of Cash Flows for the three and nine months ended September 30, 2015 and 2014 (unaudited)

5

 

 

Notes to Unaudited Consolidated Financial Statements

6

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

30

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

45

 

Item 4.

Controls and Procedures

49

Part II.

 

OTHER INFORMATION

51

 

Item 1.

Legal Proceedings

51

 

Item 1A.

Risk Factors

51

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

51

 

Item 3.

Defaults Upon Senior Securities

51

 

Item 4.

Mine Safety Disclosures

51

 

Item 5.

Other Information

51

 

Item 6.

Exhibits

52

 

 

Signatures

55

 

 

 


 

ANWORTH MORTGAGE ASSET CORPORATION AND SUBSIDIARIES

Part I. FINANCIAL INFORMATION

 

Item 1.

Consolidated Financial Statements

ANWORTH MORTGAGE ASSET CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

 

 

 

September 30,

 

 

December 31,

 

 

 

2015

 

 

2014

 

 

 

 

 

 

 

(audited)

 

ASSETS

 

 

 

 

 

 

 

 

Agency MBS:

 

 

 

 

 

 

 

 

Agency MBS pledged to counterparties at fair value

 

$

5,748,443

 

 

$

6,650,143

 

Agency MBS at fair value

 

 

150,122

 

 

 

343,734

 

Paydowns receivable

 

 

36,511

 

 

 

29,486

 

 

 

$

5,935,076

 

 

$

7,023,363

 

Non-Agency MBS at fair value (including $545,861 and $155,311 pledged to counterparties at

     September 30, 2015 and December 31, 2014, respectively)

 

 

650,922

 

 

 

199,710

 

Residential mortgage loans held-for-investment(1)

 

 

690,958

 

 

 

-

 

Residential real estate

 

 

14,366

 

 

 

12,871

 

Cash and cash equivalents

 

 

2,914

 

 

 

14,989

 

Restricted cash

 

 

36,991

 

 

 

16,099

 

Interest and dividends receivable

 

 

19,134

 

 

 

19,115

 

Derivative instruments at fair value

 

 

4,114

 

 

 

9,792

 

Prepaid expenses and other

 

 

2,739

 

 

 

2,396

 

Total Assets:

 

$

7,357,214

 

 

$

7,298,335

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Accrued interest payable

 

$

9,901

 

 

$

17,606

 

Repurchase agreements

 

 

5,831,045

 

 

 

6,370,740

 

Asset-backed securities issued by securitization trusts(1)

 

 

640,283

 

 

 

-

 

Junior subordinated notes

 

 

37,380

 

 

 

37,380

 

Derivative instruments at fair value

 

 

62,607

 

 

 

45,259

 

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

 

 

203

 

 

 

-

 

Dividends payable on common stock

 

 

15,294

 

 

 

15,396

 

Accrued expenses and other

 

 

40,353

 

 

 

29,084

 

Total Liabilities:

 

$

6,638,495

 

 

$

6,516,894

 

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 September 30, 2015 and December 31, 2014, 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 September 30, 2015 and December 31, 2014, respectively

 

$

46,537

 

 

$

46,537

 

          Series C Cumulative Preferred Stock: par value $0.01 per share; liquidating

              preference $25.00 per share ($10,820 and $0, respectively); 433 and 0 shares issued

              and outstanding at September 30, 2015 and December 31, 2014, respectively

 

 

10,012

 

 

 

-

 

          Common Stock: par value $0.01 per share; authorized 200,000 shares, 101,959 shares

               issued and 101,461 shares outstanding at September 30, 2015 and 109,972 shares issued

               and 109,234 shares outstanding at December 31, 2014, respectively

 

 

1,020

 

 

 

1,100

 

Additional paid-in capital

 

 

993,056

 

 

 

1,033,015

 

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

 

 

21,939

 

 

 

(14,981

)

Accumulated deficit

 

 

(377,769

)

 

 

(308,154

)

Total Stockholders' Equity:

 

$

694,795

 

 

$

757,517

 

Total Liabilities and Stockholders' Equity:

 

$

7,357,214

 

 

$

7,298,335

 

 

 

(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 September 30, 2015 and December 31, 2014, total assets of the consolidated VIEs were $693 million and $0, respectively, and total liabilities were $642 million and $0, respectively. Please refer to Note 4, “Variable Interest Entities,” for further discussion.  

 

See accompanying notes to unaudited consolidated financial statements.

 

1


 

ANWORTH MORTGAGE ASSET CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(unaudited)

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Interest and other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-Agency MBS

 

$

24,572

 

 

$

37,057

 

 

$

82,624

 

 

$

122,850

 

Interest-Non-Agency MBS

 

 

8,078

 

 

 

-

 

 

 

18,110

 

 

 

2

 

Interest-residential mortgage loans

 

 

4,120

 

 

 

-

 

 

 

5,308

 

 

 

-

 

Income-rental properties

 

 

399

 

 

 

197

 

 

 

1,178

 

 

 

268

 

Other interest income

 

 

11

 

 

 

10

 

 

 

31

 

 

 

31

 

 

 

 

37,180

 

 

 

37,264

 

 

 

107,251

 

 

 

123,151

 

Interest Expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense on repurchase agreements

 

 

8,167

 

 

 

19,024

 

 

 

22,256

 

 

 

72,238

 

Interest expense on asset-backed securities

 

 

3,729

 

 

 

-

 

 

 

4,804

 

 

 

-

 

Interest expense on junior subordinated notes

 

 

323

 

 

 

318

 

 

 

957

 

 

 

947

 

 

 

 

12,219

 

 

 

19,342

 

 

 

28,017

 

 

 

73,185

 

Net operating income

 

 

24,961

 

 

 

17,922

 

 

 

79,234

 

 

 

49,966

 

Provision for loan losses

 

 

70

 

 

 

-

 

 

 

140

 

 

 

-

 

Net operating income after provision for loan losses

 

 

24,891

 

 

 

17,922

 

 

 

79,094

 

 

 

49,966

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Management fee to related party

 

 

(2,167

)

 

 

(2,609

)

 

 

(6,684

)

 

 

(8,248

)

General and administrative expenses

 

 

(1,356

)

 

 

(888

)

 

 

(3,869

)

 

 

(5,739

)

Total operating expenses

 

 

(3,523

)

 

 

(3,497

)

 

 

(10,553

)

 

 

(13,987

)

Other (Loss) Income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) on sales of Agency MBS

 

 

-

 

 

 

(5,617

)

 

 

-

 

 

 

(4,022

)

(Loss) on sales of Non-Agency MBS

 

 

-

 

 

 

-

 

 

 

(76

)

 

 

-

 

(Loss) gain on interest rate swaps, net

 

 

(50,965

)

 

 

10,947

 

 

 

(92,378

)

 

 

9,568

 

Gain (loss) on derivatives-TBA Agency MBS, net

 

 

10,345

 

 

 

(413

)

 

 

12,297

 

 

 

1,164

 

(Loss) gain on derivatives-Eurodollar Futures Contracts

 

 

(2,569

)

 

 

111

 

 

 

(6,639

)

 

 

111

 

Recovery on Non-Agency MBS

 

 

7

 

 

 

37

 

 

 

13

 

 

 

108

 

Total other (loss) income

 

 

(43,182

)

 

 

5,065

 

 

 

(86,783

)

 

 

6,929

 

Net (loss) income

 

$

(21,814

)

 

$

19,490

 

 

$

(18,242

)

 

$

42,908

 

Dividend on Series A Cumulative Preferred Stock

 

 

(1,035

)

 

 

(1,035

)

 

 

(3,105

)

 

 

(3,105

)

Dividend on Series B Cumulative Convertible Preferred Stock

 

 

(394

)

 

 

(394

)

 

 

(1,182

)

 

 

(1,182

)

Dividend on Series C Cumulative Redeemable Preferred Stock

 

 

(203

)

 

 

-

 

 

 

(514

)

 

 

-

 

Net (loss) income to common stockholders

 

$

(23,446

)

 

$

18,061

 

 

$

(23,043

)

 

$

38,621

 

Basic (loss) earnings per common share

 

$

(0.23

)

 

$

0.15

 

 

$

(0.22

)

 

$

0.30

 

Diluted (loss) earnings per common share

 

$

(0.23

)

 

$

0.15

 

 

$

(0.22

)

 

$

0.30

 

Basic weighted average number of shares outstanding

 

 

102,431

 

 

 

121,061

 

 

 

104,611

 

 

 

128,174

 

Diluted weighted average number of shares outstanding

 

 

106,780

 

 

 

125,192

 

 

 

108,879

 

 

 

132,254

 

See accompanying notes to unaudited consolidated financial statements.

 

 

 

2


 

ANWORTH MORTGAGE ASSET CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(unaudited)

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(21,814

)

 

$

19,490

 

 

$

(18,242

)

 

$

42,908

 

Available-for-sale Agency MBS, fair value adjustment

 

 

9,213

 

 

 

(13,616

)

 

 

15,237

 

 

 

62,171

 

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

 

 

-

 

 

 

5,617

 

 

 

-

 

 

 

4,022

 

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

 

 

(792

)

 

 

(9

)

 

 

4,089

 

 

 

(67

)

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

 

 

-

 

 

 

-

 

 

 

76

 

 

 

-

 

Unrealized gains (losses) on derivatives

 

 

4,540

 

 

 

987

 

 

 

15,929

 

 

 

(73,959

)

Reclassification adjustment for interest expense on swap agreements included in net income

 

 

535

 

 

 

13,382

 

 

 

1,589

 

 

 

53,372

 

Other comprehensive income

 

 

13,496

 

 

 

6,361

 

 

 

36,920

 

 

 

45,539

 

Comprehensive (loss) income

 

$

(8,318

)

 

$

25,851

 

 

$

18,678

 

 

$

88,447

 

 

See accompanying notes to unaudited consolidated financial statements.

 

 

 

3


 

ANWORTH MORTGAGE ASSET CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except per share amounts)

(unaudited)

 

 

 

Series A

Preferred Stock Shares Outstanding

 

 

Series C

Preferred Stock Shares Outstanding

 

 

Common Stock Shares Outstanding

 

 

Series A

Preferred Stock

Par Value

 

 

Series C

Preferred Stock

Par Value

 

 

Common Stock Par Value

 

 

Additional

Paid-In

Capital

 

 

Accum. Other

Comp.

Income (Loss)

Agency MBS

 

 

Accum. Other

Comp.

Income (Loss)

Non-Agency MBS

 

 

Accum. Other Comp. (Loss) Derivatives

 

 

Accum. (Deficit)

 

 

Total

 

Balance, December 31, 2014

 

 

1,919

 

 

 

-

 

 

 

109,234

 

 

$

46,537

 

 

$

-

 

 

$

1,100

 

 

$

1,033,015

 

 

$

31,596

 

 

 

5

 

 

$

(46,582

)

 

$

(308,154

)

 

$

757,517

 

Issuance of Series C Preferred Stock

 

 

 

 

 

 

353

 

 

 

 

 

 

 

 

 

 

 

8,085

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,085

 

Issuance of common stock

 

 

 

 

 

 

 

 

 

 

83

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

424

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

425

 

Redemption of common stock

 

 

 

 

 

 

 

 

 

 

(3,798

)

 

 

 

 

 

 

 

 

 

 

(46

)

 

 

(19,609

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(19,655

)

Other comprehensive income, fair value

   adjustments and  reclassifications

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

23,803

 

 

 

2,160

 

 

 

6,632

 

 

 

 

 

 

 

32,595

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(16,307

)

 

 

(16,307

)

Shares repurchased pending retirement

 

 

 

 

 

 

 

 

 

 

(362

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,900

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,900

)

Amortization of restricted stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

24

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

24

 

Dividend declared - $0.539063 per Series A preferred share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,035

)

 

 

(1,035

)

Dividend declared - $0.396025 per Series B preferred share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(394

)

 

 

(394

)

Dividend declared - $0.338889 per Series C preferred share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(111

)

 

 

(111

)

Dividend declared - $0.15 per common  share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(15,828

)

 

 

(15,828

)

Balance, March 31, 2015

 

 

1,919

 

 

 

353

 

 

 

105,157

 

 

$

46,537

 

 

$

8,085

 

 

$

1,055

 

 

$

1,011,954

 

 

$

55,399

 

 

 

2,165

 

 

$

(39,950

)

 

$

(341,829

)

 

$

743,416

 

Issuance of Series C Preferred Stock

 

 

 

 

 

 

68

 

 

 

 

 

 

 

-

 

 

 

1,637

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,637

 

Issuance of common stock

 

 

 

 

 

 

 

 

 

 

50

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

225

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

226

 

Redemption of common stock

 

 

 

 

 

 

 

 

 

 

(2,213

)

 

 

 

 

 

 

 

 

 

 

(26

)

 

 

(11,420

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(11,446

)

Other comprehensive income (loss), fair value adjustments and  reclassifications

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(17,779

)

 

 

2,797

 

 

 

5,811

 

 

 

 

 

 

 

(9,171

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

19,878

 

 

 

19,878

 

Shares repurchased pending retirement

 

 

 

 

 

 

 

 

 

 

(50

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(249

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(249

)

Amortization of restricted stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

24

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

24

 

Dividend declared - $0.539063 per Series A preferred share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,035

)

 

 

(1,035

)

Dividend declared - $0.390625 per Series B preferred share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(394

)

 

 

(394

)

Dividend declared - $0.4765625 per Series C preferred share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(197

)

 

 

(197

)

Dividend declared - $0.15 per common  share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(15,449

)

 

 

(15,449

)

Balance, June 30, 2015

 

 

1,919