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EX-32.2 - EX-32.2 - ANWORTH MORTGAGE ASSET CORPanh-ex322_8.htm
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EX-31.2 - EX-31.2 - ANWORTH MORTGAGE ASSET CORPanh-ex312_9.htm
EX-31.1 - EX-31.1 - ANWORTH MORTGAGE ASSET CORPanh-ex311_6.htm

 

  

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

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

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 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      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      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

 

 

 

 

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  

At November 4, 2016, the registrant had 95,713,108 shares of common stock issued and 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, 2016 (unaudited) and December 31, 2015

1

 

 

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

2

 

 

Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2016 and 2015 (unaudited)

3

 

 

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

4

 

 

Consolidated Statements of Cash Flows for the three and nine months ended September 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)

 

 

 

September 30,

 

 

December 31,

 

 

 

2016

 

 

2015

 

 

 

 

 

 

 

(audited)

 

ASSETS

 

 

 

 

 

 

 

 

Agency MBS:

 

 

 

 

 

 

 

 

Agency MBS pledged to counterparties at fair value

 

$

3,836,791

 

 

$

4,694,731

 

Agency MBS at fair value

 

 

191,982

 

 

 

173,344

 

Paydowns receivable

 

 

29,841

 

 

 

24,707

 

 

 

$

4,058,614

 

 

$

4,892,782

 

Non-Agency MBS at fair value (including $521,364 and $596,831 pledged to counterparties at

     September 30, 2016 and December 31, 2015, respectively)

 

 

644,216

 

 

 

682,061

 

Residential mortgage loans held-for-investment(1)

 

 

795,527

 

 

 

969,172

 

Residential real estate

 

 

14,289

 

 

 

14,363

 

Cash and cash equivalents

 

 

17,097

 

 

 

5,754

 

Restricted cash

 

 

19,426

 

 

 

39,230

 

Interest and dividends receivable

 

 

16,616

 

 

 

17,525

 

Derivative instruments at fair value

 

 

2,023

 

 

 

12,470

 

Accounts receivable for sold Agency MBS

 

 

88,387

 

 

-

 

Prepaid expenses and other

 

 

2,972

 

 

 

2,983

 

Total Assets:

 

$

5,659,167

 

 

$

6,636,340

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Accrued interest payable

 

$

10,355

 

 

$

13,443

 

Repurchase agreements

 

 

3,940,800

 

 

 

4,915,528

 

Asset-backed securities issued by securitization trusts(1)

 

 

779,761

 

 

 

915,486

 

Junior subordinated notes

 

 

37,380

 

 

 

37,380

 

Derivative instruments at fair value

 

 

48,224

 

 

 

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

 

 

216

 

 

 

207

 

Dividends payable on common stock

 

 

14,366

 

 

 

14,861

 

Payables for purchased Agency MBS

 

 

141,376

 

 

 

-

 

Accrued expenses and other

 

 

1,676

 

 

 

1,308

 

Total Liabilities:

 

$

4,975,583

 

 

$

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 September 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 September 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 ($11,690 and $10,848, respectively); 468 and 434 shares

               issued and outstanding at September 30, 2016 and December 31, 2015, respectively

 

 

10,872

 

 

 

10,039

 

          Common Stock: par value $0.01 per share; authorized 200,000 shares, 95,772 shares

               issued and 95,742 shares outstanding at September 30, 2016 and 99,078 shares issued

               and 98,944 shares outstanding at December 31, 2015, respectively

 

 

958

 

 

 

991

 

Additional paid-in capital

 

 

966,720

 

 

 

981,034

 

Accumulated other comprehensive income consisting of unrealized gains and losses

 

 

37,449

 

 

 

949

 

Accumulated deficit

 

 

(402,876

)

 

 

(361,323

)

Total Stockholders' Equity:

 

$

659,660

 

 

$

678,227

 

Total Liabilities and Stockholders' Equity:

 

$

5,659,167

 

 

$

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 September 30, 2016 and December 31, 2015, total assets of the consolidated VIEs were $798 million and $972 million, respectively, and total liabilities were $782 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

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Interest and other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-Agency MBS

 

$

18,494

 

 

$

24,572

 

 

$

49,948

 

 

$

82,624

 

Interest-Non-Agency MBS

 

 

8,766

 

 

 

8,078

 

 

 

27,185

 

 

 

18,110

 

Interest-residential mortgage loans

 

 

8,359

 

 

 

4,120

 

 

 

26,783

 

 

 

5,308

 

Income-rental properties

 

 

424

 

 

 

399

 

 

 

1,263

 

 

 

1,178

 

Other interest income

 

 

11

 

 

 

11

 

 

 

35

 

 

 

31

 

 

 

 

36,054

 

 

 

37,180

 

 

 

105,214

 

 

 

107,251

 

Interest Expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense on repurchase agreements

 

 

8,615

 

 

 

8,167

 

 

 

26,973

 

 

 

22,256

 

Interest expense on asset-backed securities

 

 

7,918

 

 

 

3,729

 

 

 

24,932

 

 

 

4,804

 

Interest expense on junior subordinated notes

 

 

360

 

 

 

323

 

 

 

1,060

 

 

 

957

 

 

 

 

16,893

 

 

 

12,219

 

 

 

52,965

 

 

 

28,017

 

Net operating income

 

 

19,161

 

 

 

24,961

 

 

 

52,249

 

 

 

79,234

 

Provision for loan losses

 

 

-

 

 

 

70

 

 

 

-

 

 

 

140

 

Net operating income after provision for loan losses

 

 

19,161

 

 

 

24,891

 

 

 

52,249

 

 

 

79,094

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Management fee to related party

 

 

(1,943

)

 

 

(2,167

)

 

 

(5,956

)

 

 

(6,684

)

General and administrative expenses

 

 

(1,493

)

 

 

(1,356

)

 

 

(4,751

)

 

 

(3,869

)

Total operating expenses

 

 

(3,436

)

 

 

(3,523

)

 

 

(10,707

)

 

 

(10,553

)

Other income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain on sales of Agency MBS

 

 

1,206

 

 

 

-

 

 

 

(2,032

)

 

 

-

 

Unrealized gain on Agency MBS held as trading investments

 

 

1,148

 

 

 

-

 

 

 

1,148

 

 

 

-

 

Loss on sales of Non-Agency MBS

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(76

)

Gain on sales of residential mortgage loans held-for-investment

 

 

716

 

 

 

-

 

 

 

749

 

 

 

-

 

Gain (loss) on interest rate swaps, net

 

 

8,141

 

 

 

(50,965

)

 

 

(58,167

)

 

 

(92,378

)

Gain on derivatives-TBA Agency MBS, net

 

 

3,412

 

 

 

10,345

 

 

 

26,826

 

 

 

12,297

 

Loss on derivatives-Eurodollar Futures Contracts

 

 

(2,060

)

 

 

(2,569

)

 

 

(3,396

)

 

 

(6,639

)

Recovery on Non-Agency MBS

 

 

1

 

 

 

7

 

 

 

3

 

 

 

13

 

Total other income (loss)

 

 

12,564

 

 

 

(43,182

)

 

 

(34,869

)

 

 

(86,783

)

Net income (loss)

 

$

28,289

 

 

$

(21,814

)

 

$

6,673

 

 

$

(18,242

)

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

 

 

(222

)

 

 

(203

)

 

 

(636

)

 

 

(514

)

Net income (loss) to common stockholders

 

$

26,638

 

 

$

(23,446

)

 

$

1,750

 

 

$

(23,043

)

Basic earnings (loss) per common share

 

$

0.28

 

 

$

(0.23

)

 

$

0.02

 

 

$

(0.22

)

Diluted earnings (loss) per common share

 

$

0.27

 

 

$

(0.23

)

 

$

0.02

 

 

$

(0.22

)

Basic weighted average number of shares outstanding

 

 

95,881

 

 

 

102,431

 

 

 

96,644

 

 

 

104,611

 

Diluted weighted average number of shares outstanding

 

 

100,590

 

 

 

102,431

 

 

 

96,644

 

 

 

104,611

 

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

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

28,289

 

 

$

(21,814

)

 

$

6,673

 

 

$

(18,242

)

Available-for-sale Agency MBS, fair value adjustment

 

 

(3,955

)

 

 

9,213

 

 

 

33,511

 

 

 

15,237

 

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

 

 

(1,206

)

 

 

-

 

 

 

2,032

 

 

 

-

 

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

 

 

10,225

 

 

 

(792

)

 

 

(5,156

)

 

 

4,089

 

Reclassification adjustment for loss on sales of Non-Agency MBS

     included in net income (loss)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

76

 

Unrealized gains on derivatives

 

 

784

 

 

 

4,540

 

 

 

5,718

 

 

 

15,929

 

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

 

 

87

 

 

 

535

 

 

 

395

 

 

 

1,589

 

Other comprehensive income

 

 

5,935

 

 

 

13,496

 

 

 

36,500

 

 

 

36,920

 

Comprehensive income (loss)

 

$

34,224

 

 

$

(8,318

)

 

$

43,173

 

 

$

18,678

 

 

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

 

Issuance of Series C Preferred Stock

 

 

 

 

 

 

34

 

 

 

 

 

 

 

 

 

 

 

833