First Quarter 2014 Results Announced by Anworth

  First Quarter 2014 Results Announced by Anworth

Business Wire

SANTA MONICA, Calif. -- April 29, 2014

Anworth Mortgage Asset Corporation (NYSE: ANH) today reported core earnings
available to common stockholders of $11.9 million, or $0.09 per diluted share,
for the first quarter ended March 31, 2014. Core earnings consisted of
approximately $13.4 million of net income less $1.4 million of dividends paid
to our preferred stockholders. This compares to core earnings of $9.7 million,
or $0.07 per diluted share, for the fourth quarter ended December 31, 2013.

“Core earnings” represents a non-GAAP financial measure, which we define as
GAAP net income excluding impairment losses on mortgage-backed securities, or
MBS. For the three months ended March 31, 2014, there were no impairment
losses on MBS.

On March 20, 2014, we declared a quarterly common stock dividend of $0.14 per
share, which is payable on April 29, 2014 to holders of our common stock as of
the close of business on March 31, 2014. During the quarter, the Company
elected to discontinue hedge accounting for certain of its interest rate
swaps. In determining the current quarterly common stock dividend, the Company
decided to declare a dividend relative to its current earnings excluding the
cost of these discontinued hedges and intends to continue to do so in the
future. The net payments accrued on discontinued hedges were approximately
$8.0 million, or $0.06 per share, for the quarter ended March 31, 2014.

Lloyd McAdams, the Company’s Chief Executive Officer, commented, “Despite a
volatile interest rate environment, we continue to execute our strategy and,
during the first quarter 2014, we took significant steps to generate long-term
value and increase stockholder returns. During the first quarter, we increased
Anworth’s on-going share repurchase program by 10,000,000 shares and increased
the quarterly cash dividend on Anworth’s common stock to $0.14 per share,
constituting an annualized dividend yield of 10.2%. We also announced an
expanded investment strategy to position Anworth for future growth. We also
formed an independent Strategic Review Committee to assist with the execution
of our investment strategy and  explore long-term value enhancement
opportunities. Moving forward, we remain committed to creating long-term value
and generating significant stockholder returns.”

PORTFOLIO

At March 31, 2014 and December 31, 2013, our total assets, the fair value of
our Agency MBS portfolio and its allocation were approximately as follows:

                                                March 31,      December 31,
                                                  2014          2013      
                                                                 
Total Assets                                     $ 8,642,946    $ 8,619,491 
Fair value of Agency MBS                         $ 8,584,670    $ 8,556,446 
Adjustable-rate Agency MBS (less than 1 year       20        %     19        %
reset)
Hybrid adjustable-rate Agency MBS (1-2 year        10        %     9         %
reset)
Hybrid adjustable-rate Agency MBS (2-3 year        14        %     15        %
reset)
Hybrid adjustable-rate Agency MBS (3-4 year        6         %     10        %
reset)
Hybrid adjustable-rate Agency MBS (4-5 year        4         %     3         %
reset)
Hybrid adjustable-rate Agency MBS (5-7 year        16        %     15        %
reset)
Hybrid adjustable-rate Agency MBS (>7 year         8         %     8         %
reset)
15-year fixed-rate Agency MBS                      20        %     20        %
20-year and 30-year fixed-rate Agency MBS         2         %    1         %
                                                  100       %    100       %


                                          March 31,         December 31,
                                           2014               2013
Weighted Average Coupon:
Adjustable-rate Agency MBS                 2.57           %   2.52           %
Hybrid adjustable-rate Agency MBS          2.59               2.62
15-year fixed-rate Agency MBS              2.68               2.66
20-year and 30-year fixed-rate Agency      5.04              5.71           
MBS
Total Agency MBS:                          2.65           %   2.65           %
Average Amortized Cost:
Adjustable-rate Agency MBS                 102.56         %   102.46         %
Hybrid adjustable-rate Agency MBS          103.55             103.45
15-year fixed-rate Agency MBS              103.10             103.39
20-year and 30-year fixed-rate Agency      102.91            101.31         
MBS
Total Agency MBS:                          103.24         %   103.23         %
Current yield (weighted average coupon     2.57           %   2.57           %
divided by average amortized cost)
Unamortized premium                        $270.2 million     $268.1 million
Unamortized premium as a percentage of     3.24           %   3.23           %
par value
Premium amortization expense on Agency     $9.9 million       $11.6 million
MBS


                                                     March 31,  December 31,
                                                      2014        2013
                                                                  
Constant prepayment rate (CPR) of Agency MBS          12%         15%
Constant prepayment rate (CPR) of adjustable-rate     13%         17%
and hybrid adjustable-rate Agency MBS
Weighted average term to next interest rate reset     41 months   42 months
on Agency MBS


                                           March 31,        December 31,
                                            2014              2013
Repurchase Agreements:
Outstanding repurchase agreement balance    $7.51 billion     $7.58 billion
Average interest rate                       0.35          %   0.39           %
Average maturity                            37 days           38 days
Average interest rate after adjusting for   1.05          %   1.50           %
interest rate swap hedges
Average maturity after adjusting for        892 days          1,010 days
interest rate swap hedges
Average interest rate after adjusting for   1.48          %   1.50           %
all interest rate swaps
Average maturity after adjusting for all    1,008 days        1,010 days
interest rate swaps
Fair value of Agency MBS pledged to         $7.98 billion     $8.06 billion
counterparties
Interest Rate Swap Agreements:
Notional amount                             $5.44 billion     $5.375 billion
Percentage of outstanding repurchase        72            %   71             %
agreement balance

During the quarter, the Company elected to discontinue hedge accounting for
certain of its interest rate swaps after it determined that these swaps were
no longer effective components of the Company’s asset/liability management
strategy. In particular, the assets which these swaps were intended to hedge
now have substantially lower principal balances and lessened sensitivity to
unexpected rises in short-term interest rates. These interest rate swaps
remain in effect and have not been terminated. The interest rate swaps for
which hedge accounting has been discontinued carry a notional balance of
approximately $1.7 billion, an average fixed rate of 2.13% and an average
maturity of September 2015. At March 31, 2014, these swaps had a negative fair
value of approximately $40 million, which was reflected in the Company’s book
value.

At March 31, 2014 and December 31, 2013, our swaps (including both hedges and
discontinued hedges) had the following notional amounts (in thousands),
weighted average fixed rates and remaining terms (in months):

        March 31,                           December 31,
         2014                                 2013
                      Weighted                           Weighted 
                       Average    Remaining                 Average    Remaining
         Notional      Fixed      Term in     Notional      Fixed      Term in
         Amount        Rate       Months      Amount        Rate       Months
                                                                       
Less
than     $ 410,000     2.00  %    5           $ 410,000     2.07  %    4
12
months
1 year
to 2       730,000     2.06       18            680,000     2.07       18
years
2
years      1,145,000   1.66       28            1,145,000   1.82       29
to 3
years
3
years      1,655,000   1.21       47            1,715,000   1.18       48
to 5
years
5
years      1,000,000   2.12       73            925,000     2.11       76
to 7
years
7
years     500,000     2.84      104          500,000     2.84      107
to 10
years
         $ 5,440,000   1.79  %    46          $ 5,375,000   1.81  %    48

The following table shows the notional amount (in thousands), weighted average
fixed rate and remaining term (in months) of our swaps that are accounted for
as hedges at March 31, 2014:

March 31,
2014
             Weighted 
              Average    Remaining
Notional      Fixed      Term in
Amount        Rate       Months
                         
$ 3,755,000   1.64  %    59

At March 31, 2014, our leverage multiple was 8.1x, which remained the same
from our leverage multiple at December 31, 2013. The leverage multiple is
calculated by dividing our repurchase agreements outstanding by the aggregate
of common stockholders’ equity plus preferred stock and junior subordinated
notes.

                                                     March 31,  December 31,
                                                      2014        2013
Relative to Average Earning Assets During the
Quarter:
Interest income earned                                2.57   %    2.57    %
Amortization of premium                               0.47        0.52
Average cost of funds on repurchase agreements and    1.48       1.48    
derivative instruments
Net interest rate spread                              0.62   %    0.57    %

At March 31, 2014, our book value was $6.10 per share versus $5.98 per share
at December 31, 2013. During the first quarter, the change in AOCI was a
positive $20.5 million. This change was due primarily to an increase in the
value of our MBS of approximately $29.7 million and a decrease in the value of
our interest rate swaps of approximately $9.2 million.

SHARE REPURCHASE PROGRAM

On December 13, 2013, we announced that our board of directors, or our Board,
had authorized the Company to acquire up to an additional 5,000,000 shares of
our common stock through our share repurchase program. On March 14, 2014, we
announced that our Board had authorized the Company to acquire up to an
additional 10,000,000 shares of our common stock. Since our common stock has
been trading below its book value, the objective of the share repurchase
program is to increase the book value per share and the income per share.
During the quarter ended March 31, 2014, we repurchased an aggregate of
5,634,414 shares of common stock at a weighted average price of $5.01 per
share under our share repurchase program.

During the current quarter through April 28, 2014, we repurchased an aggregate
of 4,783,990 shares at a weighted average price of $5.24 per share under our
share repurchase program.

RESIDENTIAL REAL ESTATE

In February of 2014, we incorporated Anworth Properties, Inc., a Qualified
REIT Subsidiary (“QRS”) that is wholly-owned by the Company. As of March 31,
2014 and April 24, 2014, our QRS had acquired and committed to acquire 9 and
58 single-family (up to 4 units) residential properties, respectively,
primarily through the foreclosure auction process, that will be held for lease
to quality tenants. These properties will be held in our residential real
estate portfolio to generate rental income and have the potential for price
appreciation. These properties are either currently rented, are in the rental
process or are being renovated to enhance potential rental income.

In March of 2014, we incorporated Anworth Property Services, Inc., a Taxable
REIT Subsidiary (“TRS”) through which we may participate in various real
estate-related activities that would earn profits that the Internal Revenue
Service considers to be taxable income. Examples of these other activities
include: the securitization of mortgage loans; mortgage origination; leasing
and managing rental properties; and owning properties acquired through the
foreclosure process.

CONFERENCE CALL

We will host a conference call on Wednesday, April 30, 2014 at 1:00 PM Eastern
Time, 10:00 AM Pacific Time, to discuss first quarter 2014 results. The
dial-in number for the conference call is 888-317-6016 for U.S. callers
(international callers should dial 412-317-6016 and Canadian callers should
dial 855-669-9657). When dialing in, participants should ask to be connected
to the Anworth Mortgage earnings call. Replays of the call will be available
for a 7-day period commencing at 3:00 PM Eastern Time on April 30, 2014. The
dial-in number for the replay is 877-344-7529 for U.S. callers (Canadian
callers should dial 855-669-9658 and international callers should dial
412-317-0088) and the conference number is 10045204. 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 on the home
page.

Investors interested in participating in our Dividend Reinvestment and Stock
Purchase Plan, or the Plan, or receiving a copy of the Plan’s prospectus, may
do so by contacting the Plan Administrator, American Stock Transfer & Trust
Company, at 877-248-6410. For more information about the Plan, interested
investors may also visit the Plan Administrator’s website at
http://www.investpower.com or our website at http://www.anworth.com.

About Anworth Mortgage Asset Corporation

Anworth is an externally-managed mortgage real estate investment trust. Our
principal business is to invest primarily in securities guaranteed by the U.S.
Government, such as Ginnie Mae, or 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, or the Manager, pursuant a management agreement. The
Manager is subject to the supervision and direction of our Board of Directors
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 management services and other services and activities 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 is a component of the
Russell 2000® Index.

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; changes in business conditions and the general
economy, including the consequences of actions by the U.S. government and
other foreign governments to address the global financial crisis;
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; and the Manager’s ability to manage our growth. Our Annual
Report on Form 10-K and other SEC filings discuss the most significant risk
factors that may affect our business, results of operations and financial
condition. 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)

                                                March 31,      December 31,
                                                  2014          2013      
                                                 (unaudited)
ASSETS
Agency MBS:
Agency MBS pledged to counterparties at fair     $ 7,976,934     $ 8,060,567
value
Agency MBS at fair value                           587,335         462,478
Paydowns receivable                               20,401        33,401    
                                                 $ 8,584,670     $ 8,556,446
Residential properties                             694             -
Cash and cash equivalents                          2,274           7,368
Interest and dividends receivable                  23,086          23,310
Derivative instruments at fair value               17,253          22,551
Prepaid expenses and other                        14,969        9,816     
Total Assets:                                    $ 8,642,946    $ 8,619,491 
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accrued interest payable                         $ 25,738        $ 30,117
Repurchase agreements                              7,510,000       7,580,000
Junior subordinated notes                          37,380          37,380
Derivative instruments at fair value               18,894          55,914
Interest rate swaps at fair value                  40,048          -
Dividends payable on Series A Preferred Stock      1,035           1,035
Dividends payable on Series B Preferred Stock      394             394
Dividends payable on common stock                  18,689          11,097
Payable for securities purchased                   100,064         -
Accrued expenses and other                        2,803         1,368     
Total Liabilities:                               $ 7,755,045    $ 7,717,305 
Series B Cumulative Convertible Preferred
Stock: par value $0.01 per share; liquidating
preference $25.00 per share ($25,241 and         $ 23,924       $ 23,924    
$25,241, respectively); 1,066 and 1,066 shares
issued and outstanding at March 31, 2014 and
December 31, 2013, respectively
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);   $ 46,537        $ 46,537
1,919 and 1,919 shares issued and outstanding
at March 31, 2014 and December 31, 2013,
respectively
Common Stock: par value $0.01 per share;
authorized 200,000 shares, 133,492 and 138,717     1,335           1,387
issued and outstanding at March 31, 2014 and
December 31, 2013, respectively
Additional paid-in capital                         1,157,380       1,185,369
Accumulated other comprehensive (loss)             (71,486   )     (92,008   )
consisting of unrealized gains and losses
Accumulated deficit                               (269,789  )    (263,023  )
Total Stockholders' Equity:                      $ 863,977      $ 878,262   
Total Liabilities and Stockholders' Equity:      $ 8,642,946    $ 8,619,491 


ANWORTH MORTGAGE ASSET CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except for per share amounts)
(unaudited)

                                                    Three Months Ended
                                                     March 31,
                                                      2014       2013    
Interest income:
Interest on Agency MBS                               $ 44,395      $ 43,450
Other income                                          11          17      
                                                      44,406      43,467  
Interest expense:
Interest expense on repurchase agreements              27,406        20,902
Interest expense on junior subordinated notes         314         320     
                                                      27,720      21,222  
Net interest income                                   16,686      22,245  
Gain on sales of Agency MBS                            -             5,170
Gain on interest rate swaps, net                       628           -
Recovery on Non-Agency MBS                             37            129
Expenses:
Management fee to related party                        (2,916  )     (2,998  )
Other expenses                                        (1,064  )    (922    )
Total expenses                                        (3,980  )    (3,920  )
Net income                                           $ 13,371     $ 23,624  
Dividend on Series A Cumulative Preferred Stock        (1,035  )     (1,034  )
Dividend on Series B Cumulative Convertible           (394    )    (412    )
Preferred Stock
Net income to common stockholders                    $ 11,942     $ 22,178  
Basic earnings per common share                      $ 0.09        $ 0.16
Diluted earnings per common share                    $ 0.09        $ 0.15
Basic weighted average number of shares                136,848       142,903
outstanding
Diluted weighted average number of shares              140,875       146,945
outstanding

Contact:

Anworth Mortgage Asset Corporation
John T. Hillman
310-255-4438 or 310-255-4493
jhillman@anworth.com
http://www.anworth.com
 
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