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EX-32.2 - EX-32.2 - ANWORTH MORTGAGE ASSET CORPanh-ex322_7.htm
EX-32.1 - EX-32.1 - ANWORTH MORTGAGE ASSET CORPanh-ex321_6.htm
EX-31.2 - EX-31.2 - ANWORTH MORTGAGE ASSET CORPanh-ex312_9.htm
EX-31.1 - EX-31.1 - ANWORTH MORTGAGE ASSET CORPanh-ex311_8.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 June 30, 2016

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

¨

Accelerated Filer

x

 

 

 

 

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 August 2, 2016, the registrant had 95,999,418 shares of common stock issued and 95,939,202 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 June 30, 2016 (unaudited) and December 31, 2015

1

 

 

Consolidated Statements of Operations for the three and six months ended June 30, 2016 and 2015 (unaudited)

2

 

 

Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2016 and 2015 (unaudited)

3

 

 

Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2016 and June 30, 2016 (unaudited)

4

 

 

Consolidated Statements of Cash Flows for the three and six months ended June 30, 2016 and 2015 (unaudited)

5

 

 

Notes to Unaudited Consolidated Financial Statements

6

 

Item 2.

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

32

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

50

 

Item 4.

Controls and Procedures

54

Part II.

 

OTHER INFORMATION

55

 

Item 1.

Legal Proceedings

55

 

Item 1A.

Risk Factors

55

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

55

 

Item 3.

Defaults Upon Senior Securities

55

 

Item 4.

Mine Safety Disclosures

55

 

Item 5.

Other Information

55

 

Item 6.

Exhibits

56

 

 

Signatures

59

 

 

 


 

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)

 

 

 

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. 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

 

 

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

 

See accompanying notes to unaudited consolidated financial statements.

 

 

 

2


 

ANWORTH MORTGAGE ASSET CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)

 

 

 

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

 

 

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 Gain

Agency MBS

 

 

Accum. Other

Comp.

Income (Loss)

Non-Agency MBS

 

 

Accum. Other Comp. Gain (Loss) Derivatives

 

 

Accum. (Deficit)

 

 

Total

 

Balance, December 31, 2015

 

 

1,919

 

 

 

434

 

 

 

98,944

 

 

$

46,537

 

 

$

10,039

 

 

$

991

 

 

$

981,034

 

 

$

23,143

 

 

 

2,363

 

 

$

(24,557

)

 

$

(361,323

)

 

$

678,227

 

Issuance of common stock

 

 

 

 

 

 

 

 

 

 

59

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

253

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

254

 

Redemption of common stock

 

 

 

 

 

 

 

 

 

 

(2,074

)

 

 

 

 

 

 

 

 

 

 

(23

)

 

 

(8,991

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,014

)

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

27,624

 

 

 

(22,333

)

 

 

3,571

 

 

 

 

 

 

 

8,862

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(20,255

)

 

 

(20,255

)

Shares repurchased pending retirement

 

 

 

 

 

 

 

 

 

 

(93

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(438

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(438

)

Amortization of restricted stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

79

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

79

 

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 - $0.4765625 per Series C preferred share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(207

)

 

 

(207

)

Dividend declared - $0.15 per common share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(14,539

)

 

 

(14,539

)

Balance, March 31, 2016

 

 

1,919

 

 

 

434

 

 

 

96,836

 

 

$

46,537

 

 

$

10,039

 

 

$

969

 

 

$

971,937

 

 

$

50,767

 

 

 

(19,970

)

 

$

(20,986

)

 

$

(397,753

)

 

$

641,540

 

Issuance of common stock

 

 

 

 

 

 

 

 

 

 

58

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

273

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

274

 

Redemption of common stock

 

 

 

 

 

 

 

 

 

 

(873

)

 

 

 

 

 

 

 

 

 

 

(10

)

 

 

(4,308

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,318

)

Other comprehensive income, fair value adjustments and  reclassifications

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13,080

 

 

 

6,952

 

 

 

1,671

 

 

 

 

 

 

 

21,703

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,361

)

 

 

(1,361

)

Amortization of restricted stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

79

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

79

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(207

)

 

 

(207

)

Dividend declared - $0.15 per common share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(14,403

)

 

 

(14,403

)

Balance, June 30, 2016

 

 

1,919

 

 

 

434

 

 

 

96,021

 

 

$

46,537

 

 

$

10,039

 

 

$

960

 

 

$

967,981

 

 

$

63,847

 

 

 

(13,018

)

 

$

(19,315

)

 

$

(415,153

)

 

$

641,878

 

 

See accompanying notes to unaudited consolidated financial statements.

 

 

4


 

ANWORTH MORTGAGE ASSET CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands) (unaudited)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Operating Activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(1,361

)

 

$

19,878