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EX-32.2 - EX-32.2 - ANWORTH MORTGAGE ASSET CORPanh-20180930ex32238fd85.htm
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EX-31.2 - EX-31.2 - ANWORTH MORTGAGE ASSET CORPanh-20180930ex31226ce8f.htm
EX-31.1 - EX-31.1 - ANWORTH MORTGAGE ASSET CORPanh-20180930ex311e902c0.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, 2018

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, 2nd 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 every Interactive Data File required to be submitted 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 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.

 

 

Large Accelerated Filer 

Accelerated Filer 

Non-Accelerated Filer ☐    

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 Act).   Yes  ☐    No  ☒

As of November 5, 2018, the registrant had 98,464,427 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, 2018 (unaudited) and December 31, 2017

3

 

 

 

Consolidated Statements of Operations for the three and nine months ended September 30, 2018 and 2017 (unaudited)

4

 

 

 

Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2018  and 2017 (unaudited)

5

 

 

 

Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2018, June 30, 2018 and September 30, 2018 (unaudited)

6

 

 

 

Consolidated Statements of Cash Flows for the three and nine months ended September 30, 2018 and 2017 (unaudited)

7

 

 

 

Notes to Unaudited Consolidated Financial Statements

8

 

 

Item 2.

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

37

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

59

 

 

Item 4.

Controls and Procedures

63

 

Part II. 

 

OTHER INFORMATION

64

 

 

Item 1.

Legal Proceedings

64

 

 

Item 1A.

Risk Factors

64

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

64

 

 

Item 3.

Defaults Upon Senior Securities

64

 

 

Item 4.

Mine Safety Disclosures

64

 

 

Item 5.

Other Information

64

 

 

Item 6.

Exhibits

65

 

 

 

Signatures

68

 

 

 

 

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, 

 

    

2018

    

2017

 

 

 

 

(audited)

ASSETS

 

 

  

 

 

 

Agency MBS at fair value (including $3,662,490 and $4,073,852 pledged to counterparties at September 30, 2018 and December 31, 2017, respectively)

 

$

3,824,969

 

$

4,278,797

Non-Agency MBS at fair value (including $695,540 and $661,445 pledged to counterparties at September 30, 2018 and December 31, 2017, respectively)

 

 

783,902

 

 

760,825

Residential mortgage loans held-for-investment(1)

 

 

562,484

 

 

639,351

Residential real estate

 

 

13,905

 

 

14,143

Cash and cash equivalents

 

 

6,896

 

 

12,273

Restricted cash

 

 

 —

 

 

11,157

Interest and dividends receivable

 

 

17,530

 

 

18,091

Derivative instruments at fair value

 

 

81,030

 

 

27,793

Prepaid expenses and other

 

 

2,848

 

 

3,111

Total Assets

 

$

5,293,564

 

$

5,765,541

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

  

 

 

  

Liabilities:

 

 

  

 

 

  

Accrued interest payable

 

$

16,267

 

$

15,835

Repurchase agreements

 

 

4,013,820

 

 

4,365,695

Asset-backed securities issued by securitization trusts(1)

 

 

553,118

 

 

629,984

Junior subordinated notes

 

 

37,380

 

 

37,380

Derivative instruments at fair value

 

 

1,558

 

 

1,335

Dividends payable on preferred stock

 

 

2,292

 

 

2,272

Dividends payable on common stock

 

 

13,773

 

 

14,721

Derivative counterparty margin

 

 

28,865

 

 

 —

Accrued expenses and other

 

 

5,118

 

 

897

Total Liabilities

 

$

4,672,191

 

$

5,068,119

Series B Cumulative Convertible Preferred Stock: par value $0.01 per share; liquidating preference $25.00 per share ($19,494 and $19,494, respectively); 780 and 780 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively

 

$

19,455

 

$

19,455

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, 2018 and December 31, 2017, respectively

 

$

46,537

 

$

46,537

Series C Cumulative Preferred Stock: par value $0.01 per share; liquidating preference $25.00 per share ($50,257 and $49,725, respectively); 2,010 and 1,989 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively

 

 

48,944

 

 

48,420

Common Stock: par value $0.01 per share; authorized 200,000 shares, 98,381 and 98,137 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively

 

 

984

 

 

981

Additional paid-in capital

 

 

981,499

 

 

980,243

Accumulated other comprehensive income consisting of unrealized gains and losses

 

 

(41,096)

 

 

17,021

Accumulated deficit

 

 

(434,950)

 

 

(415,235)

Total Stockholders’ Equity

 

$

601,918

 

$

677,967

Total Liabilities and Stockholders’ Equity

 

$

5,293,564

 

$

5,765,541


(1)

The consolidated balance sheets include assets of consolidated variable interest entities, or 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, 2018 and December 31, 2017, total assets of the consolidated VIEs were $564 million and $641 million (including accrued interest receivable of $1.9 million and $2.1 million), respectively (which is recorded above in the line item entitled “Interest and dividends receivable”), and total liabilities were $555 million and $632 million (including accrued interest payable of $1.8 million and $2.0 million), respectively (which is recorded in the line item above entitled “Accrued interest payable”). 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, 

 

    

2018

    

2017

    

2018

    

2017

Interest and other income:

 

 

  

 

 

  

 

 

  

 

 

  

Interest-Agency MBS

 

$

23,578

 

$

19,892

 

$

72,449

 

$

52,765

Interest-Non-Agency MBS

 

 

10,377

 

 

9,352

 

 

30,287

 

 

28,659

Interest-residential mortgage loans

 

 

5,750

 

 

6,795

 

 

17,944

 

 

21,205

Other interest income

 

 

20

 

 

25

 

 

92

 

 

83

 

 

 

39,725

 

 

36,064

 

 

120,772

 

 

102,712

Interest expense:

 

 

  

 

 

  

 

 

  

 

 

  

Interest expense on repurchase agreements

 

 

24,027

 

 

15,242

 

 

65,149

 

 

37,073

Interest expense on asset-backed securities

 

 

5,581

 

 

6,626

 

 

17,449

 

 

20,593

Interest expense on junior subordinated notes

 

 

519

 

 

417

 

 

1,470

 

 

1,203

 

 

 

30,127

 

 

22,285

 

 

84,068

 

 

58,869

Net interest income

 

 

9,598

 

 

13,779

 

 

36,704

 

 

43,843

Operating expenses:

 

 

 

 

 

  

 

 

  

 

 

  

Management fee to related party

 

 

(1,636)

 

 

(1,936)

 

 

(5,039)

 

 

(5,634)

Rental properties depreciation and expenses

 

 

(366)

 

 

(340)

 

 

(1,158)

 

 

(1,013)

General and administrative expenses

 

 

(1,197)

 

 

(1,098)

 

 

(3,631)

 

 

(3,221)

Total operating expenses

 

 

(3,199)

 

 

(3,374)

 

 

(9,828)

 

 

(9,868)

Other income:

 

 

  

 

 

  

 

 

  

 

 

  

Income-rental properties

 

 

436

 

 

397

 

 

1,333

 

 

1,297

Realized net gain (loss) on sales of available-for-sale MBS

 

 

799

 

 

(2,276)

 

 

(11,188)

 

 

(2,168)

Realized loss on sales of Agency MBS held as trading investments

 

 

(231)

 

 

 —

 

 

(7,558)

 

 

 —

Impairment charge on Non-Agency MBS

 

 

(141)

 

 

(762)

 

 

(1,898)

 

 

(2,399)

Unrealized (loss) gain on Agency MBS held as trading investments

 

 

(3,017)

 

 

5,849

 

 

(14,584)

 

 

10,071

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

 

 

 —

 

 

 —

 

 

 —

 

 

378

Gain on sale of residential properties

 

 

30

 

 

 —

 

 

30

 

 

 —

Gain (loss) on derivatives, net

 

 

13,090

 

 

(945)

 

 

36,433

 

 

(2,989)

Recovery on Non-Agency MBS

 

 

 —

 

 

 1

 

 

 1

 

 

 2

Total other income

 

 

10,966

 

 

2,264

 

 

2,569

 

 

4,192

Net income

 

$

17,365

 

$

12,669

 

$

29,445

 

$

38,167

Dividends on preferred stock

 

 

(2,297)

 

 

(2,115)

 

 

(6,892)

 

 

(5,895)

Net income to common stockholders

 

$

15,068

 

$

10,554

 

$

22,553

 

$

32,272

Basic earnings per common share

 

$

0.15

 

$

0.11

 

$

0.23

 

$

0.34

Diluted earnings per common share

 

$

0.15

 

$

0.11

 

$

0.23

 

$

0.33

Basic weighted average number of shares outstanding

 

 

98,353

 

 

97,547

 

 

98,270

 

 

96,323

Diluted weighted average number of shares outstanding

 

 

102,331

 

 

100,702

 

 

102,199

 

 

99,998

 

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, 

 

    

2018

    

2017

    

2018

    

2017

Net income

 

$

17,365

 

$

12,669

 

$

29,445

 

$

38,167

Available-for-sale Agency MBS, fair value adjustment

 

 

(16,091)

 

 

(6,352)

 

 

(65,419)

 

 

(8,763)

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

 

 

(583)

 

 

2,341

 

 

11,362

 

 

2,233

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

 

 

(5,788)

 

 

7,114

 

 

(6,679)

 

 

25,447

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

 

 

(217)

 

 

(65)

 

 

(175)

 

 

(65)

Amortization of unrealized gains on interest rate swaps remaining in other comprehensive income

 

 

1,043

 

 

395

 

 

3,006

 

 

1,385

Reclassification adjustment for interest (income) expense on interest rate swaps included in net income

 

 

 —

 

 

183

 

 

(212)

 

 

371

Other comprehensive (loss) income

 

 

(21,636)

 

 

3,616

 

 

(58,117)

 

 

20,608

Comprehensive (loss) income

 

$

(4,271)

 

$

16,285

 

$

(28,672)

 

$

58,775

 

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.

    

 

    

 

 

    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Comp.

 

 

 

 

 

 

 

 

 

 

Series  A

 

Series C

 

 

 

Series A

 

Series C

 

Common

 

 

 

 

Accum. Other

 

Income

 

Accum. Other

 

 

 

 

 

 

 

 

Preferred

 

Preferred

 

Common

 

Preferred

 

Preferred

 

Stock

 

Additional

 

Comp. Income

 

Gain (Loss)

 

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, 2017

 

1,919

 

1,989

 

98,137

 

$

46,537

 

$

48,420

 

$

981

 

$

980,243

 

$

2,163

 

$

30,201

 

$

(15,344)

 

$

(415,235)

 

$

677,967

Issuance of Series C Preferred Stock

 

 

 

21

 

 

 

 

 

 

 

524

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

524

Issuance of common stock

 

 

 

 

 

75

 

 

  

 

 

 

 

 

 1

 

 

365

 

 

 

 

 

  

 

 

  

 

 

  

 

 

366

Other comprehensive income, fair value adjustments and reclassifications

 

  

 

  

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

(23,536)

 

 

709

 

 

746

 

 

  

 

 

(22,081)

Net loss

 

  

 

  

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

(2,853)

 

 

(2,853)

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

 

  

 

  

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

(305)

 

 

(305)

Dividend declared - $0.476525 per Series C preferred share

 

  

 

  

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

(958)

 

 

(958)

Dividend declared - $0.15 per common share

 

  

 

  

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

(14,732)

 

 

(14,732)

Balance, March 31, 2018

 

1,919

 

2,010

 

98,212

 

$

46,537

 

$

48,944

 

$

982

 

$

980,632

 

$

(21,373)

 

$

30,910

 

$

(14,598)

 

$

(435,118)

 

$

636,917

Issuance of common stock

 

  

 

 

 

92

 

 

  

 

 

 

 

 

 1

 

 

430

 

 

  

 

 

  

 

 

  

 

 

  

 

 

431

Other comprehensive income, fair value adjustments and reclassifications

 

  

 

  

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

(13,847)

 

 

(1,558)

 

 

1,005

 

 

  

 

 

(14,400)

Net income

 

  

 

  

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

14,933

 

 

14,933

Amortization of restricted stock

 

  

 

  

 

  

 

 

  

 

 

  

 

 

  

 

 

25

 

 

  

 

 

  

 

 

  

 

 

  

 

 

25

Dividend declared - $0.539063 per Series A preferred share

 

  

 

  

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

(1,035)

 

 

(1,035)

Dividend declared - $0.390625 per Series B preferred share

 

  

 

  

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

(305)

 

 

(305)

Dividend declared - $0.476525 per Series C preferred share

 

  

 

  

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

(957)

 

 

(957)

Dividend declared - $0.14 per common share

 

  

 

  

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

(13,763)

 

 

(13,763)

Balance, June 30, 2018

 

1,919

 

2,010

 

98,304

 

$

46,537

 

$

48,944

 

$

983

 

$

981,087

 

$

(35,220)

 

 

29,352

 

$

(13,593)

 

$

(436,245)

 

$

621,846

Issuance of common stock

 

  

 

 

 

77

 

 

  

 

 

 

 

 

 1

 

 

387

 

 

  

 

 

  

 

 

  

 

 

  

 

 

388

Other comprehensive income, fair value adjustments and reclassifications

 

  

 

  

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

(16,674)

 

 

(6,005)

 

 

1,043

 

 

  

 

 

(21,636)

Net income

 

  

 

  

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

17,365

 

 

17,365

Amortization of restricted stock

 

  

 

  

 

  

 

 

  

 

 

  

 

 

  

 

 

25

 

 

  

 

 

  

 

 

  

 

 

  

 

 

25

Dividend declared - $0.539063 per Series A preferred share

 

  

 

  

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

(1,035)

 

 

(1,035)

Dividend declared - $0.390625 per Series B preferred share

 

  

 

  

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

(305)

 

 

(305)

Dividend declared - $0.476525 per Series C preferred share

 

  

 

  

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

(958)

 

 

(958)

Dividend declared - $0.14 per common share

 

  

 

  

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

(13,772)

 

 

(13,772)

Balance, September 30, 2018

 

1,919

 

2,010

 

98,381

 

$

46,537

 

$

48,944

 

$

984

 

$

981,499

 

$

(51,894)

 

 

23,347

 

$

(12,550)

 

$

(434,950)

 

$

601,918

 

See accompanying notes to unaudited consolidated financial statements.

 

 

6


 

ANWORTH MORTGAGE ASSET CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30, 

 

 

September 30, 

 

    

2018

    

2017

 

2018

 

2017

Operating Activities: