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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, 2017

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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth 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

 

 

 

 

 

 

Emerging Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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 3, 2017, the registrant had 98,110,603 shares of common stock issued and outstanding.

 

 

 


 

ANWORTH MORTGAGE ASSET CORPORATION AND SUBSIDIARIES

FORM 10‑Q

INDEX

 

 

 

 

 

 

 

 

Page

 

Part I. 

 

FINANCIAL INFORMATION

3

 

 

Item 1.

Consolidated Financial Statements

3

 

 

 

Consolidated Balance Sheets as of September 30, 2017 (unaudited) and December 31, 2016

3

 

 

 

Consolidated Statements of Operations for the three and nine months ended September 30, 2017 and 2016 (unaudited)

4

 

 

 

Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2017 and 2016 (unaudited)

5

 

 

 

Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2017, June 30, 2017, and September 30, 2017 (unaudited)

6

 

 

 

Consolidated Statements of Cash Flows for the three and nine months ended September 30, 2017 and 2016 (unaudited)

7

 

 

 

Notes to Unaudited Consolidated Financial Statements

8

 

 

Item 2.

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

39

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

59

 

 

Item 4.

Controls and Procedures

65

 

Part II. 

 

OTHER INFORMATION

66

 

 

Item 1.

Legal Proceedings

66

 

 

Item 1A.

Risk Factors

66

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

66

 

 

Item 3.

Defaults Upon Senior Securities

66

 

 

Item 4.

Mine Safety Disclosures

66

 

 

Item 5.

Other Information

66

 

 

Item 6.

Exhibits

67

 

 

 

Signatures

70

 

 

 

 

2


 

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, 

 

    

2017

    

2016

 

 

 

 

 

(audited)

ASSETS

 

 

  

 

 

 

Agency MBS at fair value (including $4,055,409 and $3,707,062 pledged to counterparties at September 30, 2017 and December 31, 2016, respectively)

 

$

4,280,534

 

$

3,925,193

Non-Agency MBS at fair value (including $618,259 and $525,169 pledged to counterparties at September 30, 2017 and December 31, 2016, respectively)

 

 

728,075

 

 

641,246

Residential mortgage loans held-for-investment(1)

 

 

667,880

 

 

744,462

Residential real estate

 

 

14,185

 

 

14,262

Cash and cash equivalents

 

 

6,756

 

 

31,031

Restricted cash

 

 

22,884

 

 

12,390

Interest and dividends receivable

 

 

18,007

 

 

16,203

Derivative instruments at fair value

 

 

13,377

 

 

8,192

Receivables for MBS sold

 

 

25,727

 

 

 —

Prepaid expenses and other

 

 

6,362

 

 

2,797

Total Assets

 

$

5,783,787

 

$

5,395,776

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

  

 

 

  

Liabilities:

 

 

  

 

 

  

Accrued interest payable

 

$

12,690

 

$

11,850

Repurchase agreements

 

 

4,342,848

 

 

3,911,015

Asset-backed securities issued by securitization trusts(1)

 

 

658,513

 

 

728,683

Junior subordinated notes

 

 

37,380

 

 

37,380

Derivative instruments at fair value

 

 

3,007

 

 

34,302

Dividends payable on preferred stock

 

 

2,115

 

 

1,660

Dividends payable on common stock

 

 

14,677

 

 

14,358

Payables for MBS purchased

 

 

9,124

 

 

 —

Accrued expenses and other

 

 

3,265

 

 

1,506

Total Liabilities

 

$

5,083,619

 

$

4,740,754

Series B Cumulative Convertible Preferred Stock: par value $0.01 per share; liquidating preference $25.00 per share ($16,163 and $25,241, respectively); 647 and 1,010 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively

 

$

15,440

 

$

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, 2017 and December 31, 2016, respectively

 

$

46,537

 

$

46,537

Series C Cumulative Preferred Stock: par value $0.01 per share; liquidating preference $25.00 per share ($45,091 and $12,146, respectively); 1,804 and 486 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively

 

 

43,815

 

 

11,321

Common Stock: par value $0.01 per share; authorized 200,000 shares, 97,844 shares issued and outstanding at September 30, 2017 and 95,718 shares issued and outstanding at December 31, 2016, respectively

 

 

978

 

 

957

Additional paid-in capital

 

 

978,588

 

 

966,714

Accumulated other comprehensive income consisting of unrealized gains and losses

 

 

29,256

 

 

8,648

Accumulated deficit

 

 

(414,446)

 

 

(403,079)

Total Stockholders’ Equity

 

$

684,728

 

$

631,098

Total Liabilities and Stockholders’ Equity

 

$

5,783,787

 

$

5,395,776


(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, 2017 and December 31, 2016, total assets of the consolidated VIEs were $670 million and $747 million (including accrued interest receivable of $2.2 million and $2.5 million), respectively, and total liabilities were $661 million and $731 million (including accrued interest payable of $2.2 million and $2.4 million), respectively. Please refer to Note 4, “Variable Interest Entities,” for further discussion.

See accompanying notes to unaudited consolidated financial statements.

3


 

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, 

 

 

    

2017

    

2016

    

2017

    

2016

    

Interest and other income:

 

 

  

 

 

  

 

 

  

 

 

  

 

Interest-Agency MBS

 

$

19,892

 

$

18,494

 

$

52,765

 

$

49,948

 

Interest-Non-Agency MBS

 

 

9,352

 

 

8,766

 

 

28,659

 

 

27,185

 

Interest-residential mortgage loans

 

 

6,795

 

 

8,359

 

 

21,205

 

 

26,783

 

Other interest income

 

 

25

 

 

11

 

 

83

 

 

35

 

 

 

 

36,064

 

 

35,630

 

 

102,712

 

 

103,951

 

Interest Expense:

 

 

  

 

 

  

 

 

  

 

 

  

 

Interest expense on repurchase agreements

 

 

15,242

 

 

8,615

 

 

37,073

 

 

26,973

 

Interest expense on asset-backed securities

 

 

6,626

 

 

7,918

 

 

20,593

 

 

24,932

 

Interest expense on junior subordinated notes

 

 

417

 

 

360

 

 

1,203

 

 

1,060

 

 

 

 

22,285

 

 

16,893

 

 

58,869

 

 

52,965

 

Net interest income

 

 

13,779

 

 

18,737

 

 

43,843

 

 

50,986

 

Operating Expenses:

 

 

 

 

 

  

 

 

  

 

 

  

 

Management fee to related party

 

 

(1,936)

 

 

(1,943)

 

 

(5,634)

 

 

(5,956)

 

General and administrative expenses

 

 

(1,438)

 

 

(1,493)

 

 

(4,234)

 

 

(4,751)

 

Total operating expenses

 

 

(3,374)

 

 

(3,436)

 

 

(9,868)

 

 

(10,707)

 

Other income (loss):

 

 

  

 

 

  

 

 

  

 

 

  

 

Income-rental properties

 

 

397

 

 

424

 

 

1,297

 

 

1,263

 

(Loss) gain on sales of MBS

 

 

(2,276)

 

 

1,206

 

 

(2,168)

 

 

(2,032)

 

Impairment charge on Non-Agency MBS

 

 

(762)

 

 

 —

 

 

(2,399)

 

 

 —

 

Unrealized gain on Agency MBS held as trading investments

 

 

5,849

 

 

1,148

 

 

10,071

 

 

1,148

 

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

 

 

 —

 

 

716

 

 

378

 

 

749

 

(Loss) gain on derivatives, net

 

 

(945)

 

 

9,493

 

 

(2,989)

 

 

(34,737)

 

Recovery on Non-Agency MBS

 

 

 1

 

 

 1

 

 

 2

 

 

 3

 

Total other income (loss)

 

 

2,264

 

 

12,988

 

 

4,192

 

 

(33,606)

 

Net income

 

$

12,669

 

$

28,289

 

$

38,167

 

$

6,673

 

Dividends on preferred stock

 

 

(2,115)

 

 

(1,651)

 

 

(5,895)

 

 

(4,923)

 

Net income to common stockholders

 

$

10,554

 

$

26,638

 

$

32,272

 

$

1,750

 

Basic earnings per common share

 

$

0.11

 

$

0.28

 

$

0.34

 

$

0.02

 

Diluted earnings per common share

 

$

0.11

 

$

0.27

 

$

0.33

 

$

0.02

 

Basic weighted average number of shares outstanding

 

 

97,547

 

 

95,881

 

 

96,323

 

 

96,644

 

Diluted weighted average number of shares outstanding

 

 

100,702

 

 

100,590

 

 

99,998

 

 

96,644

 

 

See accompanying notes to unaudited consolidated financial statements.

4


 

ANWORTH MORTGAGE ASSET CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30, 

 

September 30, 

 

 

    

2017

    

2016

    

2017

    

2016

    

Net income

 

$

12,669

 

$

28,289

 

$

38,167

 

$

6,673

 

Available-for-sale Agency MBS, fair value adjustment

 

 

(6,352)

 

 

(3,955)

 

 

(8,763)

 

 

33,511

 

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

 

 

2,341

 

 

(1,206)

 

 

2,233

 

 

2,032

 

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

 

 

7,114

 

 

10,225

 

 

25,447

 

 

(5,156)

 

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

 

 

(65)

 

 

 —

 

 

(65)

 

 

 —

 

Unrealized gains on swap agreements

 

 

395

 

 

784

 

 

1,385

 

 

5,718

 

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

 

 

183

 

 

87

 

 

371

 

 

395

 

Other comprehensive income

 

 

3,616

 

 

5,935

 

 

20,608

 

 

36,500

 

Comprehensive income

 

$

16,285

 

$

34,224

 

$

58,775

 

$

43,173

 

 

See accompanying notes to unaudited consolidated financial statements.

 

 

5


 

ANWORTH MORTGAGE ASSET CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except per share amounts)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accum.

 

Accum.

 

 

 

 

 

 

 

 

Series  A

 

Series C

 

 

 

Series A

 

Series C

 

Common

 

 

 

 

Accum. Other

 

Other Comp.

 

Other

 

 

 

 

 

 

 

 

Preferred

 

Preferred

 

Common

 

Preferred

 

Preferred

 

Stock

 

Additional

 

Comp. Income

 

Income Gain

 

Comp. Income-

 

 

 

 

 

 

 

 

Stock Shares

 

Stock Shares

 

Stock Shares

 

Stock

 

Stock

 

Par

 

Paid-In

 

Gain (Loss)

 

Non-Agency

 

Gain (Loss)

 

Accum.

 

 

 

 

 

Outstanding

 

Outstanding

 

Outstanding

 

Par Value

 

Par Value

 

Value

 

Capital

 

Agency MBS

 

MBS

 

Derivatives

 

(Deficit)

 

Total

Balance, December 31, 2016

 

1,919

 

486

 

95,718

 

$

46,537

 

$

11,321

 

$

957

 

$

966,714

 

$

24,869

 

 

1,536

 

$

(17,757)

 

$

(403,079)

 

$

631,098

Issuance of stock

 

  

 

197

 

61

 

 

  

 

 

4,854

 

 

 1

 

 

320

 

 

  

 

 

  

 

 

  

 

 

  

 

 

5,175

Cancellation of common stock

 

 

 

 

 

(197)

 

 

 

 

 

 

 

 

(2)

 

 

 2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 —

Other comprehensive income, fair value adjustments and reclassifications

 

  

 

  

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

2,403

 

 

9,514

 

 

614

 

 

  

 

 

12,531

Net income

 

  

 

  

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

15,401

 

 

15,401

Amortization of restricted stock

 

  

 

  

 

  

 

 

  

 

 

  

 

 

  

 

 

20

 

 

  

 

 

  

 

 

  

 

 

  

 

 

20

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

 

  

 

  

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

(253)

 

 

(253)

Dividend declared - $0.15 per common share

 

  

 

  

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

(14,337)

 

 

(14,337)

Balance, March 31, 2017

 

1,919

 

683

 

95,582

 

$

46,537

 

$

16,175

 

$

956

 

$

967,056

 

$

27,272

 

 

11,050

 

$

(17,143)

 

$

(403,697)

 

$

648,206

Issuance of  stock

 

  

 

897

 

53

 

 

  

 

 

22,065

 

 

 1

 

 

307

 

 

  

 

 

  

 

 

  

 

 

  

 

 

22,373

Conversions of Series B Preferred Stock

 

  

 

  

 

1,863

 

 

  

 

 

  

 

 

18

 

 

9,099

 

 

  

 

 

  

 

 

  

 

 

  

 

 

9,117

Other comprehensive income, fair value adjustments and reclassifications

 

  

 

  

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

(4,922)

 

 

8,819

 

 

564

 

 

  

 

 

4,461

Net income

 

  

 

  

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

10,097

 

 

10,097

Amortization of restricted stock

 

  

 

  

 

  

 

 

  

 

 

  

 

 

  

 

 

20

 

 

  

 

 

  

 

 

  

 

 

  

 

 

20

Dividend declared - $0.539063 per Series A preferred share

 

  

 

  

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

(1,035)

 

 

(1,035)

Dividend declared - $0.390625 per Series B preferred share

 

  

 

  

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

(244)

 

 

(244)

Dividend declared - $0.4765625 per Series C preferred share

 

  

 

  

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

(751)

 

 

(751)

Dividend declared - $0.15 per common share

 

  

 

  

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

(14,624)

 

 

(14,624)

Balance, June 30, 2017

 

1,919

 

1,580

 

97,498

 

$

46,537

 

$

38,240

 

$

975

 

$

976,482

 

$

22,350

 

 

19,869

 

$

(16,579)

 

$

(410,254)

 

$

677,620

Issuance of  stock

 

  

 

224

 

339

 

 

  

 

 

5,575

 

 

 3

 

 

2,051

 

 

  

 

 

  

 

 

  

 

 

  

 

 

7,629

Conversions of Series B Preferred Stock

 

  

 

  

 

 7

 

 

  

 

 

  

 

 

 

 

 

34

 

 

  

 

 

  

 

 

  

 

 

  

 

 

34

Other comprehensive income, fair value adjustments and reclassifications

 

  

 

  

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

(4,011)

 

 

7,049

 

 

578

 

 

  

 

 

3,616

Net income

 

  

 

  

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

12,669

 

 

12,669

Amortization of restricted stock

 

  

 

  

 

  

 

 

  

 

 

  

 

 

  

 

 

21

 

 

  

 

 

  

 

 

  

 

 

  

 

 

21

Dividend declared - $0.539063 per Series A preferred share

 

  

 

  

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

(1,035)

 

 

(1,035)

Dividend declared - $0.390625 per Series B preferred share

 

  

 

  

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

(244)

 

 

(244)

Dividend declared - $0.4765625 per Series C preferred share

 

  

 

  

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

(905)

 

 

(905)

Dividend declared - $0.15 per common share

 

  

 

  

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

(14,677)

 

 

(14,677)

Balance, September 30, 2017

 

1,919

 

1,804

 

97,844

 

$

46,537

 

$

43,815

 

$

978

 

$

978,588

 

$

18,339

 

 

26,918

 

$

(16,001)