Anworth Reports Fourth Quarter 2020 Financial Results
February 23, 2021 at 16:05 PM EST
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:
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.
At December 31, 2020 and September 30, 2020, the composition of our portfolio at fair value was as follows:
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:
At December 31, 2020 and September 30, 2020, the summary statistics of our Agency MBS and TBA Agency MBS were as follows:
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:
The following tables summarize our fixed-rate Agency MBS at December 31, 2020 and September 30, 2020:
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:
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:
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:
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
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:
Effective Net Interest Rate Spread
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.
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%.
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.
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.
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 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.
Effective Net Interest Rate Spread