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Anworth Reports Fourth Quarter 2020 Financial Results

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Anworth Mortgage Asset Corporation (NYSE:ANH) (the "Company" or "Anworth") today reported its financial results for the fourth quarter ended December 31, 2020.

Earnings

The following table summarizes the Company's core earnings, GAAP net income to common stockholders, and comprehensive income for the three months ended December 31, 2020:

 

 

Three Months Ended

 

 

December 31, 2020

 

 

(unaudited)

 

 

 

 

Per

 

 

 

 

Weighted

 

 

Earnings

 

Share

 

 

(in thousands)

 

 

 

Core earnings

 

$

4,655

 

$

0.05

GAAP net income to common stockholders

 

$

21,122

 

$

0.21

Comprehensive income

 

$

16,195

 

$

0.16

Core earnings is a non-GAAP financial measure, which is explained and reconciled to GAAP net income to common stockholders in the section entitled "Non-GAAP Financial Measures Related to Operating Results" near the end of this earnings release. Comprehensive income is shown on our consolidated statements of comprehensive income, which is included in this earnings release. Comprehensive income consists of net income to all stockholders (including the amounts paid to preferred stockholders) and the change in other comprehensive income.

Portfolio

At December 31, 2020 and September 30, 2020, the composition of our portfolio at fair value was as follows:

 

 

December 31, 2020

 

 

September 30, 2020

 

 

 

Dollar Amount

 

Percentage

 

 

Dollar Amount

 

Percentage

 

 

 

(in thousands)

 

 

 

 

(in thousands)

 

 

 

 

 

(unaudited)

 

Agency MBS:

 

 

 

 

 

 

 

 

 

 

 

 

ARMS and hybrid ARMs

 

$

511,628

 

17.3

%

 

$

575,163

 

19.2

%

Fixed-rate Agency MBS

 

 

1,112,726

 

37.7

 

 

 

1,034,598

 

34.6

 

TBA Agency MBS

 

 

730,617

 

24.8

 

 

 

727,472

 

24.3

 

Total Agency MBS

 

$

2,354,971

 

79.8

%

 

$

2,337,233

 

78.1

%

Non-Agency MBS

 

$

206,933

 

7.0

%

 

$

198,586

 

6.7

%

Residential mortgage loans held-for-investment through consolidated securitization trusts(1)

 

 

267,107

 

9.1

 

 

 

317,887

 

10.6

 

Residential mortgage loans held-for-securitization

 

 

109,312

 

3.7

 

 

 

123,247

 

4.2

 

Residential real estate

 

 

12,750

 

0.4

 

 

 

12,827

 

0.4

 

Total Portfolio

 

$

2,951,073

 

100.0

%

 

$

2,989,780

 

100.0

%

Total Assets(2)

 

$

3,108,318

 

 

 

 

$

3,164,635

 

 

 

________________________________

(1)

Residential mortgage loans owned by consolidated variable interest entities ("VIEs") can only be used to settle obligations and liabilities of the VIEs, for which creditors do not have recourse to the Company.

(2)

Includes TBA Agency MBS.

Agency MBS

At December 31, 2020, the allocation of our agency mortgage-backed securities ("Agency MBS") was approximately 22% adjustable-rate and hybrid adjustable-rate Agency MBS, 47% fixed-rate Agency MBS, and 31% fixed-rate TBA Agency MBS. At September 30, 2020, the allocation of our Agency MBS was approximately 25% adjustable-rate and hybrid adjustable-rate Agency MBS, 44% fixed-rate Agency MBS, and 31% fixed-rate TBA Agency MBS, both periods of which are detailed in the table below:

 

 

December 31,

 

 

September 30,

 

 

 

2020

 

 

2020

 

 

 

(dollar amounts in thousands)

 

 

 

(unaudited)

 

Fair value of Agency MBS and TBA Agency MBS

 

$

2,354,971

 

 

$

2,337,233

 

Adjustable-rate Agency MBS coupon reset (less than 1 year)

 

 

14

%

 

 

16

%

Hybrid adjustable-rate Agency MBS coupon reset (1-3 years)

 

 

5

 

 

 

6

 

Hybrid adjustable-rate Agency MBS coupon reset (3-5 years)

 

 

 

 

 

 

Hybrid adjustable-rate Agency MBS coupon reset (greater than 5 years)

 

 

3

 

 

 

3

 

Total adjustable-rate Agency MBS

 

 

22

%

 

 

25

%

15-year fixed-rate Agency MBS

 

 

1

 

 

 

2

 

20-year fixed-rate Agency MBS

 

 

7

 

 

 

7

 

30-year fixed-rate Agency MBS

 

 

39

 

 

 

35

 

30-year fixed-rate TBA Agency MBS

 

 

31

 

 

 

31

 

Total MBS

 

 

100

%

 

 

100

%

At December 31, 2020 and September 30, 2020, the summary statistics of our Agency MBS and TBA Agency MBS were as follows:

 

 

December 31, 2020

 

 

Weighted Average

 

 

 

 

 

 

 

 

 

Fair Market

 

 

Coupon

 

 

Cost

 

 

Price

 

 

(unaudited)

Agency MBS:

 

 

 

 

 

 

 

 

 

 

Adjustable-rate Agency MBS

 

 

2.80

%

 

$

101.99

 

$

103.76

Hybrid adjustable-rate Agency MBS

 

 

2.73

 

 

 

101.30

 

 

104.03

15-year fixed-rate Agency MBS

 

 

3.50

 

 

 

101.50

 

 

106.75

20-year fixed-rate Agency MBS

 

 

3.56

 

 

 

103.28

 

 

108.95

30-year fixed-rate Agency MBS

 

 

3.61

 

 

 

102.81

 

 

107.45

Total Agency MBS:

 

 

3.34

%

 

$

102.49

 

$

106.43

Average asset yield (weighted average coupon divided by average amortized cost)

 

 

3.26

%

 

 

 

 

 

 

Unamortized premium

 

$

37.8

million

 

 

 

 

 

 

Unamortized premium as a percentage of par value

 

 

2.49

%

 

 

 

 

 

 

Premium amortization expense on Agency MBS for the respective quarter

 

$

4.6

million

 

 

 

 

 

 

TBA Agency MBS:

 

 

 

 

 

 

 

 

 

 

30-year fixed-rate TBA Agency MBS

 

 

2.14

%

 

$

103.40

 

$

104.37

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2020

 

 

Weighted Average

 

 

 

 

 

 

 

 

 

Fair Market

 

 

Coupon

 

 

 

Cost

 

 

Price

 

 

(unaudited)

Agency MBS:

 

 

 

 

 

 

 

 

 

 

Adjustable-rate Agency MBS

 

 

3.16

%

 

$

102.02

 

$

104.06

Hybrid adjustable-rate Agency MBS

 

 

2.74

 

 

 

101.51

 

 

104.19

15-year fixed-rate Agency MBS

 

 

3.50

 

 

 

101.51

 

 

106.10

20-year fixed-rate Agency MBS

 

 

3.56

 

 

 

103.35

 

 

108.84

30-year fixed-rate Agency MBS

 

 

4.00

 

 

 

102.23

 

 

108.02

Total Agency MBS:

 

 

3.58

%

 

$

102.18

 

$

106.98

Average asset yield (weighted average coupon divided by average amortized cost)

 

 

3.51

%

 

 

 

 

 

 

Unamortized premium

 

$

32.8

million

 

 

 

 

 

 

Unamortized premium as a percentage of par value

 

 

2.18

%

 

 

 

 

 

 

Premium amortization expense on Agency MBS for the respective quarter

 

$

9.1

million

 

 

 

 

 

 

TBA Agency MBS:

 

 

 

 

 

 

 

 

 

 

30-year fixed-rate TBA Agency MBS

 

 

2.18

%

 

$

103.69

 

$

103.92

At December 31, 2020 and September 30, 2020, the constant prepayment rate ("CPR") and weighted average term to next interest rate reset of our Agency MBS were as follows:

 

 

December 31,

 

September 30,

 

 

 

2020

 

2020

 

 

 

(unaudited)

 

Constant prepayment rate (CPR) of Agency MBS

 

40

%

39

%

Constant prepayment rate (CPR) of adjustable-rate and hybrid adjustable-rate Agency MBS

 

35

%

37

%

Weighted average term to next interest rate reset on Agency MBS

 

19

months

21

months

The following tables summarize our fixed-rate Agency MBS at December 31, 2020 and September 30, 2020:

 

 

 

December 31, 2020

 

 

 

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

Remaining

 

 

 

Market

 

 

 

 

 

Fair Market

 

Average

 

 

Term

 

 

 

Value

 

 

Cost

 

 

Price

 

Coupon

 

 

(Years)

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

30-Year Fixed-Rate Agency MBS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2.00%

 

$

51,966

 

$

103.32

 

$

103.93

 

2.00

%

 

30.0

2.50%

 

 

167,049

 

 

104.95

 

 

105.49

 

2.50

 

 

29.9

3.50%

 

 

110,235

 

 

102.61

 

 

107.99

 

3.50

 

 

26.2

4.00%

 

 

519,435

 

 

102.16

 

 

107.92

 

4.00

 

 

27.6

≥4.5%

 

 

72,917

 

 

102.36

 

 

110.65

 

4.85

 

 

25.2

 

 

$

921,602

 

$

102.81

 

$

107.45

 

3.61

%

 

27.8

15-Year to 20-Year Fixed-Rate Agency MBS

 

 

191,124

 

 

102.95

 

 

108.55

 

3.55

 

 

15.5

Total Fixed-Rate Agency MBS

 

$

1,112,726

 

$

102.84

 

$

107.64

 

3.60

%

 

25.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2020

 

 

 

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

Remaining

 

 

 

Market

 

 

 

 

 

Fair Market

 

Average

 

 

Term

 

 

 

Value

 

 

Cost

 

 

Price

 

Coupon

 

 

(Years)

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

30-Year Fixed-Rate Agency MBS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3.50%

 

$

127,722

 

$

102.59

 

$

107.92

 

3.50

%

 

26.5

4.00%

 

 

616,741

 

 

102.13

 

 

107.75

 

4.00

 

 

27.9

≥4.5%

 

 

82,968

 

 

102.41

 

 

110.27

 

4.82

 

 

25.7

 

 

$

827,431

 

$

102.23

 

$

108.02

 

4.00

%

 

27.5

15-Year to 20-Year Fixed-Rate Agency MBS

 

 

207,167

 

 

103.00

 

 

108.33

 

3.55

 

 

15.8

Total Fixed-Rate Agency MBS

 

$

1,034,598

 

$

102.38

 

$

108.08

 

3.91

%

 

25.1

Non-Agency MBS

At March 31, 2020, our Non-Agency MBS were designated as trading securities and are carried at fair value.

The following tables summarize our Non-Agency MBS at December 31, 2020 and September 30, 2020:

 

 

December 31, 2020

 

 

 

(unaudited)

 

 

 

 

 

 

 

 

 

Weighted Average

 

 

 

Fair

 

 

Current

 

 

 

 

 

Fair Market

 

Portfolio Type

 

Value

 

 

Principal

 

Coupon

 

 

 

Price

 

 

 

(in thousands)

 

 

 

 

 

 

 

Legacy Non-Agency MBS (pre-2008)

 

$

101,149

 

$

161,648

 

5.21

%

 

$

62.57

 

Non-performing

 

 

9,860

 

 

10,000

 

6.35

 

 

 

98.60

 

Credit Risk Transfer

 

 

95,924

 

 

94,782

 

4.12

 

 

 

101.20

 

Total Non-Agency MBS

 

$

206,933

 

$

266,430

 

4.86

%

 

$

77.67

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2020

 

 

 

(unaudited)

 

 

 

 

 

 

 

 

 

Weighted Average

 

 

 

Fair

 

Current

 

 

 

 

Fair Market

 

Portfolio Type

 

Value

 

Principal

 

Coupon

 

 

Price

 

 

 

(in thousands)

 

 

 

 

 

 

 

Legacy Non-Agency MBS (pre-2008)

 

$

104,180

 

$

165,885

 

5.23

%

 

$

62.80

 

Non-performing

 

 

1,000

 

 

1,000

 

5.00

 

 

 

100.00

 

Credit Risk Transfer

 

 

93,406

 

 

96,236

 

4.11

 

 

 

97.06

 

Total Non-Agency MBS

 

$

198,586

 

$

263,121

 

4.82

%

 

$

75.47

 

Residential Mortgage Loans Held-for-Investment

The following table summarizes our residential mortgage loans held-for-investment at December 31, 2020 and September 30, 2020:

 

 

 

 

 

 

 

 

 

December 31,

 

September 30,

 

 

2020

 

2020

 

 

(in thousands)

 

 

(unaudited)

Residential mortgage loans held-for-investment through consolidated securitization trusts

 

$

267,107

 

$

317,887

Asset-backed securities issued by securitization trusts

 

 

258,414

 

 

309,173

Retained interest in loans held in securitization trusts

 

$

8,693

 

$

8,714

Residential Mortgage Loans Held-for-Securitization

The following table summarizes our residential mortgage loans held-for-securitization at December 31, 2020 and September 30, 2020:

 

 

 

 

 

 

 

 

 

December 31,

 

September 30,

 

 

2020

 

2020

 

 

(in thousands)

 

 

(unaudited)

Residential mortgage loans held-for-securitization

 

$

109,312

 

$

123,247

Amount outstanding on warehouse line of credit

 

$

90,185

 

$

101,722

At December 31, 2020 and September 30, 2020, our estimated fair value (in thousands) of the residential mortgage loans held-for-securitization was $110,112 and $121,639, respectively.

At December 31, 2020, approximately $1.9 million of the unpaid principal balance ("UPB") on this loan portfolio was 30-days delinquent; approximately $2.0 million of the UPB was 60-days delinquent; and approximately $3.8 million of the UPB was 90-days+ delinquent. Of these amounts, the percentages that are COVID-19 related are as follows: 30-days delinquent: 58%; 60-days delinquent: 100%; and 90-days+ delinquent: 77%. At September 30, 2020, approximately $1.5 million of the UPB on this loan portfolio was 30-days delinquent; approximately $6.4 million of the UPB was 60-days delinquent; and approximately $8.6 million of the UPB was 90-days+ delinquent. Of these amounts, the percentages that are COVID-19 related are as follows: 30-day delinquent: 84%; 60-day delinquent: 72%; and 90-days+ delinquent: 93%.

Residential Properties Portfolio

At December 31, 2020 and September 30, 2020, Anworth Properties Inc. owned 82 and 82 single-family residential rental properties, respectively, located in Southeastern Florida, that were carried at a total cost, net of accumulated depreciation, of $12.7 million and $12.8 million, respectively.

MBS Portfolio Financing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2020

 

 

 

Agency

 

 

Non-Agency

 

 

Total

 

 

 

MBS

 

 

MBS

 

 

MBS

 

 

 

(dollar amounts in thousands)

 

 

 

(unaudited)

 

Repurchase Agreements:

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding repurchase agreement balance

 

$

1,365,000

 

 

$

105,620

 

 

$

1,470,620

 

Average interest rate

 

 

0.21

%

 

 

1.92

%

 

 

0.33

%

Average maturity

 

 

29

days

 

 

49

days

 

 

30

days

Average interest rate after adjusting for interest rate swaps

 

 

 

 

 

 

 

 

 

 

1.38

%

Average maturity after adjusting for interest rate swaps

 

 

 

 

 

 

 

 

 

 

1,047

days

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2020

 

 

 

Agency

 

 

Non-Agency

 

 

Total

 

 

 

MBS

 

 

MBS

 

 

MBS

 

 

 

(dollar amounts in thousands)

 

 

 

(unaudited)

 

Repurchase Agreements:

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding repurchase agreement balance

 

$

1,365,000

 

 

$

99,593

 

 

$

1,464,593

 

Average interest rate

 

 

0.22

%

 

 

2.10

%

 

 

0.35

%

Average maturity

 

 

25

days

 

 

43

days

 

 

26

days

Average interest rate after adjusting for interest rate swaps

 

 

 

 

 

 

 

 

 

 

1.44

%

Average maturity after adjusting for interest rate swaps

 

 

 

 

 

 

 

 

 

 

1,091

days

Portfolio Leverage

At December 31, 2020, our leverage multiple was 3.4x. The leverage multiple is calculated by dividing our repurchase agreements and warehouse line of credit outstanding by the aggregate of common stockholders' equity plus preferred stock and junior subordinated notes. The effective leverage, which includes the effect of TBA dollar roll financing, was 4.9x at December 31, 2020. At September 30, 2020, our leverage multiple was 3.4x and the effective leverage was 5.0x.

Interest Rate Swaps

At December 31, 2020 and September 30, 2020, our interest rate swap agreements ("swaps") had the following notional amounts, weighted average fixed rates, and remaining terms:

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2020

 

 

(unaudited)

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

Average

 

Remaining

 

Remaining

 

 

Notional

 

Fixed

 

Term in

 

Term in

Maturity

 

Amount(1)

 

Rate

 

Months

 

Years

 

 

(in thousands)

 

 

 

 

 

 

Less than 12 months

 

$

 

%

 

1 year to 2 years

 

 

 

 

 

2 years to 3 years

 

 

50,000

 

1.55

 

34

 

2.8

3 years to 4 years

 

 

100,000

 

1.63

 

47

 

3.9

4 years to 5 years

 

 

190,000

 

2.21

 

65

 

5.4

5 years to 7 years

 

 

375,000

 

2.77

 

86

 

7.2

7 years to 10 years

 

 

 

 

 

 

 

$

715,000

 

2.38

%

71

 

5.9

________________________________

(1)

This table does not include $162.5 million in notional amount of OIS interest rate swaps that were received as part of the transition from LIBOR to OIS rates.

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2020

 

 

(unaudited)

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

Average

 

Remaining

 

Remaining

 

 

Notional

 

Fixed

 

Term in

 

Term in

Maturity

 

Amount

 

Rate

 

Months

 

Years

 

 

(in thousands)

 

 

 

 

 

 

Less than 12 months

 

$

50,000

 

1.86

%

1

 

0.1

1 year to 2 years

 

 

 

 

 

2 years to 3 years

 

 

 

 

 

3 years to 4 years

 

 

50,000

 

1.55

 

37

 

3.1

4 years to 5 years

 

 

250,000

 

1.84

 

60

 

5.0

5 years to 7 years

 

 

365,000

 

2.75

 

86

 

7.2

7 years to 10 years

 

 

50,000

 

3.22

 

99

 

8.3

 

 

$

765,000

 

2.34

%

70

 

5.8

Effective Net Interest Rate Spread

 

 

December 31,

 

 

September 30,

 

 

 

2020

 

 

2020

 

 

 

(unaudited)

 

Average asset yield, including TBA dollar roll income

 

3.67

%

 

3.33

%

Effective cost of funds

 

2.05

 

 

2.04

 

Effective net interest rate spread

 

1.62

%

 

1.29

%

Certain components of our effective net interest rate spread are non-GAAP financial measures, which are explained and reconciled to the nearest comparable GAAP financial measures in the section entitled "Non-GAAP Financial Measures Related to Operating Results" at the end of this earnings release.

Book Value per Common Share

At December 31, 2020, our book value was $3.13 per share of common stock, which was an increase of $0.09 from $3.04 at September 30, 2020. The common stock dividend of $0.05 per share declared for the fourth quarter ended December 31, 2020, plus the $0.09 increase in book value, resulted in a return on book value per common share of 4.6% for the three months ended December 31, 2020 and a negative (27.2)% for the year ended December 31, 2020.

Dividend

On December 16, 2020, we declared a quarterly common stock dividend of $0.05 per share for the fourth quarter ended December 31, 2020. Based upon the closing price of $2.71 on December 31, 2020, the annualized dividend yield on our common stock at December 31, 2020 was 7.4%.

Proposed Merger

On December 6, 2020, Anworth entered into an Agreement and Plan of Merger (the "Merger Agreement") with Ready Capital Corporation, a Maryland corporation ("Ready Capital"), and RC Merger Subsidiary, LLC, a Delaware limited liability company and a wholly owned subsidiary of Ready Capital ("Merger Sub"), pursuant to which, subject to the terms and conditions therein, Anworth will be merged with and into Merger Sub, with Merger Sub continuing as the surviving company (such transaction, the "Merger").

Completion of the proposed Merger is subject to the satisfaction of certain customary conditions, and is subject to the approval of the stockholders of both Anworth and Ready Capital at respective special meetings of stockholders to be held on March 17, 2021. We cannot provide any assurance that the proposed Merger will close in a timely manner or at all.

Conference Call

The Company will host a conference call on Wednesday, February 24, 2021 at 1:00 PM Eastern Time, 10:00 AM Pacific Time, to discuss our fourth quarter 2020 results. The dial-in number for the conference call is (877) 504-2731 for U.S. callers; international callers should dial (412) 902-6640; and Canadian callers should dial (855) 669-9657. Replays of the call will be available for a 7-day period commencing at 4:00 PM Eastern Time on February 24, 2021. The dial-in number for the replay is (877) 344-7529 for U.S. callers; international callers should dial (412) 317-0088; Canadian callers should dial (855) 669-9658; and the conference number is 10152335. The conference call will also be webcast live over the Internet, which can be accessed on our website at http://www.anworth.com through the corresponding link located at the top of the home page.

Important Additional Information about the Proposed Merger and Where to Find It

In connection with the proposed Merger, Ready Capital has filed with the U.S. Securities and Exchange Commission (the "SEC") a registration statement on Form S-4 (File No. 333-251863), which was declared effective by the SEC on February 9, 2021. The registration statement includes a prospectus of Ready Capital and a joint proxy statement of Anworth and Ready Capital. Stockholders of Anworth and Ready Capital are advised to read the registration statement and the joint proxy statement/prospectus (including all other relevant documents that are filed or will be filed with the SEC, as well as any amendments and supplements to these documents) carefully and in their entirety because they contain important information about Anworth, Ready Capital, the proposed Merger, and related matters. Stockholders of Anworth and Ready Capital may obtain free copies of the registration statement, the joint proxy statement/prospectus, and all other documents filed or that will be filed with the SEC by Anworth or Ready Capital at the SEC's website at http://www.sec.gov. Copies of documents filed with the SEC by Anworth are available free of charge on Anworth's website at http://www.anworth.com. Copies of documents filed with the SEC by Ready Capital are available free of charge on Ready Capital's website at http://www.readycapital.com.

This news release shall not constitute an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to the registration or qualification under the securities laws of any such jurisdiction. No offering of securities shall be made, except by means of a prospectus meeting the requirements of Section 10 of the Securities Act, or an exemption therefrom.

Participants in the Solicitation Relating to the Merger

Anworth, its directors and executive officers, and certain other affiliates of Anworth may be deemed to be "participants" in the solicitation of proxies from the stockholders of Anworth in connection with the proposed Merger. Information regarding Anworth, its directors and executive officers and their respective ownership of common stock of Anworth, and the respective interests of such participants in the Merger can be found in the joint proxy statement/prospectus for Anworth's special meeting of stockholders, filed by Anworth with the SEC on February 9, 2021. A free copy of the joint proxy statement/prospectus may be obtained from the sources described above.

Ready Capital and its directors and executive officers may also be deemed to be participants in the solicitation of proxies from the stockholders of Anworth in connection with the proposed Merger. A list of the names of such directors and executive officers and information regarding their interests in the proposed Merger are included in the joint proxy statement/prospectus for the proposed Merger.

About Anworth Mortgage Asset Corporation

We are an externally-managed mortgage real estate investment trust ("REIT"). We invest primarily in mortgage-backed securities that are either rated "investment grade" or are guaranteed by federally sponsored enterprises, such as Fannie Mae or Freddie Mac. We seek to generate income for distribution to our shareholders primarily based on the difference between the yield on our mortgage assets and the cost of our borrowings. We are managed by Anworth Management LLC (our "Manager"), pursuant to a management agreement. Our Manager is subject to the supervision and direction of our Board and is responsible for (i) the selection, purchase, and sale of our investment portfolio; (ii) our financing and hedging activities; and (iii) providing us with portfolio management, administrative, and other services relating to our assets and operations as may be appropriate. Our common stock is traded on the New York Stock Exchange under the symbol "ANH." Anworth Mortgage Asset Corporation is a component of the Russell 2000® Index.

About Ready Capital Corporation

Ready Capital Corporation (NYSE:RC) is a multi-strategy real estate finance company that originates, acquires, finances and services small- to medium-sized balance commercial loans. Ready Capital specializes in loans backed by commercial real estate, including agency multifamily, investor and bridge as well as SBA 7(a) business loans. Headquartered in New York, New York, Ready Capital employs over 400 lending professionals nationwide. Ready Capital is externally managed and advised by Waterfall Asset Management, LLC.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

This news release may contain forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based upon our current expectations and speak only as of the date hereof. Forward-looking statements, which are based on various assumptions (some of which are beyond our control) may be identified by reference to a future period or periods or by the use of forward-looking terminology, such as "may, " "will, " "believe, " "expect, " "anticipate, " "assume," "estimate," "intend," "continue, " or other similar terms or variations on those terms or the negative of those terms. Our actual results may differ materially and adversely from those expressed in any forward-looking statements as a result of various factors and uncertainties, including, but not limited to, changes in interest rates; changes in the market value of our mortgage-backed securities; changes in the yield curve; the availability of mortgage-backed securities for purchase; increases in the prepayment rates on the mortgage loans securing our mortgage-backed securities; our ability to use borrowings to finance our assets and, if available, the terms of any financing; risks associated with investing in mortgage-related assets; the scope and duration of the COVID-19 (coronavirus) pandemic, including actions taken by governmental authorities to contain the spread of the virus, and the impact on our business and the general economy; changes in business conditions and the general economy; implementation of or changes in government regulations affecting our business; our ability to maintain our qualification as a real estate investment trust for federal income tax purposes; our ability to maintain an exemption from the Investment Company Act of 1940, as amended; risks associated with our home rental business; the risk that the proposed Merger will not be consummated within the expected time period or at all; the occurrence of any event, change or other circumstances that could give rise to the termination of the Merger Agreement; the inability to obtain stockholder approvals relating to the Merger and issuance of shares in connection therewith or the failure to satisfy the other conditions to completion of the Merger; risks related to disruption of management attention from our ongoing business operations due to the proposed Merger; the effect of the announcement of the proposed Merger on our operating results and business generally; and the outcome of any legal proceedings relating to the Merger. Our Annual Report on Form 10-K, the joint proxy statement/prospectus, and other SEC filings discuss the most significant risk factors that may affect our business, results of operations and financial condition and the proposed Merger, copies of which are available on the SEC's website at www.sec.gov. We undertake no obligation to revise or update publicly any forward-looking statements for any reason.

ANWORTH MORTGAGE ASSET CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

 

 

December 31,

 

December 31,

 

 

2020

 

2019

 

 

 

 

 

(audited)

ASSETS

 

 

 

 

 

 

Available-for-sale Agency MBS at fair value (including $1,354,149 and $2,764,330 pledged to counterparties at December 31, 2020 and December 31, 2019, respectively); amortized cost of $1,455,422 and $2,799,448 at December 31, 2020 and December 31, 2019, respectively, net of allowance for credit losses of $0 and $0 at December 31, 2020 and December 31, 2019, respectively

 

$

1,519,652

 

 

$

2,853,131

 

Trading Agency MBS at fair value (including $83,416 and $655,045 pledged to counterparties at December 31, 2020 and December 31, 2019, respectively

 

 

104,702

 

 

 

656,920

 

Available-for-sale Non-Agency MBS at fair value (including $0 and $535,135 pledged to counterparties at December 31, 2020 and December 31, 2019, respectively); amortized cost of $0 and $613,576 at December 31, 2020 and December 31, 2019, respectively, net of allowance for credit losses of $0 and $0 at December 30, 2020 and December 31, 2019, respectively

 

 

 

 

 

643,610

 

Trading Non-Agency MBS at fair value (including $166,140 and $0 pledged to counterparties at December 31, 2020 and December 31, 2019, respectively

 

 

206,933

 

 

 

 

Residential mortgage loans held-for-securitization, net of allowance for credit losses of $56 and $0 at December 30, 2020 and December 31, 2019, respectively

 

 

109,312

 

 

 

152,922

 

Residential mortgage loans held-for-investment through consolidated securitization trusts, net of allowances for credit losses of $197 and $175 at December 31, 2020 and December 31, 2019, respectively(1)

 

 

267,107

 

 

 

458,348

 

Residential real estate

 

 

12,750

 

 

 

13,499

 

Cash and cash equivalents

 

 

34,050

 

 

 

8,236

 

Reverse repurchase agreements

 

 

 

 

 

15,000

 

Restricted cash

 

 

111,069

 

 

 

104,699

 

Interest receivable

 

 

6,554

 

 

 

16,398

 

Derivative instruments at fair value

 

 

6,974

 

 

 

5,833

 

Right to use asset-operating lease

 

 

718

 

 

 

1,256

 

Prepaid expenses and other assets

 

 

4,669

 

 

 

8,779

 

Total Assets

 

$

2,384,490

 

 

$

4,938,631

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

Accrued interest payable

 

$

4,130

 

 

$

16,757

 

Repurchase agreements

 

 

1,470,620

 

 

 

3,657,873

 

Warehouse line of credit

 

 

90,185

 

 

 

133,811

 

Asset-backed securities issued by securitization trusts(1)

 

 

258,414

 

 

 

448,987

 

Junior subordinated notes

 

 

37,380

 

 

 

37,380

 

Derivative instruments at fair value

 

 

80,380

 

 

 

52,197

 

Derivative counterparty margin

 

 

5,257

 

 

 

367

 

Dividends payable on preferred stock

 

 

2,297

 

 

 

2,297

 

Dividends payable on common stock

 

 

4,962

 

 

 

8,897

 

Payable for purchased loans

 

 

 

 

 

5,545

 

Accrued expenses and other liabilities

 

 

1,653

 

 

 

1,312

 

Long-term lease obligation

 

 

718

 

 

 

1,256

 

Total Liabilities

 

$

1,955,996

 

 

$

4,366,679

 

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 March 31, 2020 and December 31, 2019, 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, 2020 and December 31, 2019, 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 $50,257, respectively); 2,010 and 2,010 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively)

 

 

48,626

 

 

 

48,626

 

Common Stock: par value $0.01 per share; authorized 200,000 shares, 99,242 and 98,849 shares issued and outstanding at December 31, 2020 and December 31, 2019, respectively)

 

 

992

 

 

 

988

 

Additional paid-in capital

 

 

984,174

 

 

 

983,401

 

Accumulated other comprehensive income consisting of unrealized gains and losses

 

 

54,480

 

 

 

65,984

 

Accumulated deficit

 

 

(725,770

)

 

 

(593,039

)

Total Stockholders' Equity

 

$

409,039

 

 

$

552,497

 

Total Liabilities and Stockholders' Equity

 

$

2,384,490

 

 

$

4,938,631

 

________________________________

(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 December 31, 2020 and December 31, 2019, total assets of the consolidated VIEs were $268 million and $460 million (including accrued interest receivable of $0.9 million and $1.5 million), respectively (which are recorded above in the line item, "Interest receivable"), and total liabilities were $259 million and $450 million (including accrued interest payable of $0.9 million and $1.4 million), respectively (which are recorded above in the line item, "Accrued interest payable").

ANWORTH MORTGAGE ASSET CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except for per share amounts)

 

 

Three Months

 

 

Year

 

Three Months

 

Year

 

 

Ended

 

 

Ended

 

Ended

 

Ended

 

 

December 31, 2020

 

December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

(audited)

Interest and other income:

 

 

 

 

 

 

 

 

 

 

 

 

Interest-Agency MBS

 

$

7,698

 

 

$

46,520

 

 

$

19,990

 

 

$

90,173

 

Interest-Non-Agency MBS

 

 

2,440

 

 

 

15,673

 

 

 

8,614

 

 

 

38,038

 

Interest-securitized residential mortgage loans

 

 

2,918

 

 

 

14,665

 

 

 

4,767

 

 

 

20,443

 

Interest-residential mortgage loans held-for-securitization

 

 

1,193

 

 

 

6,034

 

 

 

1,618

 

 

 

4,314

 

Other interest income

 

 

9

 

 

 

193

 

 

 

253

 

 

 

1,427

 

 

 

 

14,258

 

 

 

83,085

 

 

 

35,242

 

 

 

154,395

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense on repurchase agreements

 

 

1,245

 

 

 

24,879

 

 

 

18,489

 

 

 

92,737

 

Interest expense on asset-backed securities

 

 

2,761

 

 

 

14,025

 

 

 

4,600

 

 

 

19,771

 

Interest expense on warehouse line of credit

 

 

1,027

 

 

 

4,457

 

 

 

1,477

 

 

 

4,148

 

Interest expense on junior subordinated notes

 

 

316

 

 

 

1,529

 

 

 

492

 

 

 

2,100

 

 

 

 

5,349

 

 

 

44,890

 

 

 

25,058

 

 

 

118,756

 

Net interest income

 

 

8,909

 

 

 

38,195

 

 

 

10,184

 

 

 

35,639

 

Provision for credit losses on loans

 

 

(50

)

 

 

(670

)

 

 

 

 

 

 

Net interest income after provision for credit losses

 

 

8,859

 

 

 

37,525

 

 

 

10,184

 

 

 

35,639

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Management fee to related party

 

 

(1,337

)

 

 

(5,591

)

 

 

(1,614

)

 

 

(6,699

)

Rental properties depreciation and expenses

 

 

(783

)

 

 

(1,987

)

 

 

(372

)

 

 

(1,517

)

General and administrative expenses

 

 

(2,493

)

 

 

(5,934

)

 

 

(1,277

)

 

 

(5,090

)

Total operating expenses

 

 

(4,613

)

 

 

(13,512

)

 

 

(3,263

)

 

 

(13,306

)

Other income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Income-rental properties

 

 

452

 

 

 

1,707

 

 

 

441

 

 

 

1,800

 

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

 

 

 

 

 

15,805

 

 

 

1,338

 

 

 

(4,059

)

Net gain on Agency MBS held as trading investments

 

 

789

 

 

 

3,629

 

 

 

544

 

 

 

11,249

 

Impairment charge on available-for-sale Non-Agency MBS

 

 

 

 

 

 

 

 

(357

)

 

 

(2,108

)

Net gain (loss) on Non-Agency MBS held as trading investments

 

 

5,080

 

 

 

(15,537

)

 

 

 

 

 

 

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

 

 

 

 

 

(55,390

)

 

 

 

 

 

76

 

Gain on sale of residential properties

 

 

 

 

 

201

 

 

 

31

 

 

 

31

 

Gain (loss) on derivatives, net

 

 

12,852

 

 

 

(78,121

)

 

 

20,824

 

 

 

(84,741

)

Total other income (loss)

 

 

19,173

 

 

 

(127,706

)

 

 

22,821

 

 

 

(77,752

)

Net income (loss)

 

$

23,419

 

 

$

(103,693

)

 

$

29,742

 

 

$

(55,419

)

Dividends on preferred stock

 

 

(2,297

)

 

 

(9,189

)

 

 

(2,297

)

 

 

(9,189

)

Net income (loss) to common stockholders

 

$

21,122

 

 

$

(112,882

)

 

$

27,445

 

 

$

(64,608

)

Basic income (loss) per common share

 

$

0.21

 

 

$

(1.14

)

 

$

0.28

 

 

$

(0.65

)

Diluted income (loss) per common share

 

$

0.21

 

 

$

(1.14

)

 

$

0.27

 

 

$

(0.65

)

Basic weighted average number of shares outstanding

 

 

99,208

 

 

 

99,048

 

 

 

98,823

 

 

 

98,684

 

Diluted weighted average number of shares outstanding

 

 

104,033

 

 

 

99,048

 

 

 

103,141

 

 

 

98,684

 

ANWORTH MORTGAGE ASSET CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands, except for per share amounts)

(unaudited)

 

 

Three Months

 

Year

 

Three Months

 

Year

 

 

Ended

 

Ended

 

Ended

 

Ended

 

 

December 31, 2020

 

December 31, 2019

Net income (loss)

 

$

23,419

 

 

$

(103,693

)

 

$

29,742

 

 

$

(55,419

)

Available-for-sale Agency MBS, fair value adjustment

 

 

(7,841

)

 

 

31,005

 

 

 

3,160

 

 

 

68,355

 

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

 

 

 

 

 

(15,805

)

 

 

(1,054

)

 

 

4,059

 

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

 

 

 

 

 

 

 

 

(3,548

)

 

 

20,547

 

Reclassification adjustment due to transfer from available-for-sale to trading for Non-Agency MBS

 

 

 

 

 

(85,424

)

 

 

 

 

 

 

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

 

 

 

 

 

55,390

 

 

 

(285

)

 

 

(76

)

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

 

 

617

 

 

 

3,330

 

 

 

906

 

 

 

3,891

 

Other comprehensive (loss) income

 

 

(7,224

)

 

 

(11,504

)

 

 

(821

)

 

 

96,776

 

Comprehensive income (loss)

 

$

16,195

 

 

$

(115,197

)

 

$

28,921

 

 

$

41,357

Non-GAAP Financial Measures Related to Operating Results

In addition to our operating results presented in accordance with GAAP, the following tables include the following non-GAAP financial measures: core earnings (including per common share), total interest income, and average asset yield, including TBA dollar roll income, paydown expense on Agency MBS, and effective total interest expense and effective cost of funds. The first table below reconciles our "Net income to common stockholders" for the three months ended December 31, 2020 to core earnings for the same period. Core earnings represents "Net income to common stockholders" (which is the nearest comparable GAAP measure), adjusted for the items shown in the table below. The second table below reconciles our total interest and other income for the three months ended December 31, 2020 (which is the nearest comparable GAAP measure) to our total interest income and average asset yield, including TBA dollar roll income, and shows the annualized amounts as a percentage of our average earning assets, and also reconciles our total interest expense (which is the nearest comparable GAAP measure) to our effective total interest expense and effective cost of funds and shows the annualized amounts as a percentage of our average borrowings.

The Company's management believes that:

  • these non-GAAP financial measures are useful because they provide investors with greater transparency to the information that we use in our financial and operational decision-making processes;
  • the inclusion of paydown expense on Agency MBS is more indicative of the current earnings potential of our investment portfolio, as it reflects the actual principal paydowns which occurred during the period. Paydown expense on Agency MBS is not dependent upon future assumptions on prepayments, or the cumulative effect from prior periods of any current changes to those assumptions, as is the case with the GAAP measure, "Premium amortization on Agency MBS";
  • expenses related to the Merger Agreement are added back, as they are not indicative of our earnings potential; and
  • the presentation of these measures, when analyzed in conjunction with our GAAP operating results, allows investors to more effectively evaluate our performance to that of our peers, particularly those that have discontinued hedge accounting and those that have used similar portfolio and derivative strategies.

These non-GAAP financial measures should not be used as a substitute for our operating results for the three months ended December 31, 2020. An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP.

Core Earnings

 

 

Three Months Ended

 

 

December 31, 2020

 

 

(unaudited)

 

 

Amount

 

Per Share

 

 

(in thousands)

 

 

 

Net income to common stockholders

 

$

21,122

 

 

$

0.21

 

Adjustments to derive core earnings:

 

 

 

 

 

 

Net (gain) on Agency MBS held as trading investments

 

 

(789

)

 

 

(0.01

)

Net (gain) on Non-Agency MBS held as trading securities

 

 

(5,080

)

 

 

(0.05

)

(Gain) on interest rate swaps, net

 

 

(4,014

)

 

 

(0.04

)

(Gain) on derivatives-TBA Agency MBS, net

 

 

(8,838

)

 

 

(0.09

)

Net settlement on interest rate swaps after de-designation(1)

 

 

(3,908

)

 

 

(0.04

)

Dollar roll income on TBA Agency MBS(2)

 

 

5,076

 

 

 

0.05

 

Premium amortization on MBS

 

 

4,643

 

 

 

0.05

 

Paydown expense(3)

 

 

(5,459

)

 

 

(0.06

)

Depreciation expense and non-recurring expenses on residential rental properties

 

 

533

 

 

 

0.01

 

Expenses related to the Merger Agreement(4)

 

 

1,369

 

 

 

0.02

 

Core earnings

 

$

4,655

 

 

$

0.05

 

Basic weighted average number of shares outstanding

 

 

99,208

 

 

 

 

________________________________

(1)

Net settlement on interest rate swaps after de-designation includes all subsequent net payments made on interest rate swaps, which were de-designated as hedges in August 2014, and are recorded in "(Gain) on interest rate swaps, net."

(2)

Dollar roll income on TBA Agency MBS is the income resulting from the price discount typically obtained by extending the settlement of TBA Agency MBS to a later date. This is a component of "Gain (loss) on derivatives, net" that is shown on the Company's consolidated financial statements.

(3)

Paydown expense on Agency MBS represents the proportional expense of Agency MBS purchase premiums relative to the Agency MBS principal payments and prepayments which occurred during the three-month period.

(4)

Expenses related to the Merger Agreement are added back, as they are not indicative of our earnings potential.

Effective Net Interest Rate Spread

 

 

Three Months Ended

 

 

December 31, 2020

 

 

(unaudited)

 

 

 

 

Annualized

 

 

Amount

 

Percentage

 

 

(in thousands)

 

 

Average Asset Yield, Including TBA Dollar Roll Income:

 

 

 

 

 

Total interest income

 

$

14,258

 

 

2.76

%

Income-rental properties

 

 

452

 

 

0.09

 

Dollar roll income on TBA Agency MBS(1)

 

 

5,076

 

 

0.98

 

Premium amortization on Agency MBS

 

 

4,643

 

 

0.90

 

Paydown expense on Agency MBS(2)

 

 

(5,459

)

 

(1.06

)

Total interest and other income and average asset yield, including TBA dollar roll income

 

$

18,970

 

 

3.67

%

Effective Cost of Funds:

 

 

 

 

 

Total interest expense

 

$

5,349

 

 

1.19

%

Net settlement on interest rate Swaps after de-designation(3)

 

 

3,908

 

 

0.86

 

Effective total interest expense and effective cost of funds

 

$

9,257

 

 

2.05

%

Effective net interest rate spread

 

 

 

 

1.62

%

Average earning assets

 

$

2,067,406

 

 

 

Average borrowings

 

$

1,803,127

 

 

 

________________________________
(1)

Dollar roll income on TBA Agency MBS is the income resulting from the price discount typically obtained by extending the settlement of TBA Agency MBS to a later date. This is a component of the "Gain (loss) on derivatives, net" that is shown on our consolidated statements of operations.

(2)

Paydown expense on Agency MBS represents the proportional expense of Agency MBS purchase premiums relative to the Agency MBS principal payments and prepayments which occurred during the three-month period.

(3)

Net settlement on interest rate swaps after de-designation include all subsequent net payments made or received on interest rate swaps (which were de-designated as hedges in August 2014) and also on any new interest rate swaps entered into after that date. These amounts are included in "Gain (loss) on derivatives, net" that is shown on the Company's consolidated statements of operations.

 

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