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Summary

  • Anworth reports EPS of 7 cents per share, total earnings of $8,618 to common shareholders.
  • This earnings report confirmed our initial opinion about earnings power.
  • The EPS of 7 cents per share came in slightly below our estimate.

Anworth's (NYSE:ANH) reported income statement is similar to what we projected. Net Income was lower than projected primarily because of a spike in "other expenses" and an increase in amortization expense. We projected $11,000 in amortization expense; they reported $11,700. We also stated that we believed $11,000 projected expense would be understating the actual expense.

Anworth's 7 cents of earnings is insufficient to match the 14 cent dividend paid for the quarter. The predictable result is an increase in "accumulated deficit" from ($269,789) to ($278,503). As long as Anworth's dividends exceed their earnings power, they will be unsustainable. The Weighted Average Coupon remained constant from Q1 2014 at 2.65%. The composition of the portfolio remained fairly consistent except for the addition of 15-year-fixed-rate TBA Agency securities which now account for 3% of the portfolio. The 3% came from reduction in other 15 year-fixed-rate securities and hybrid adjustable-rate securities.

The notional amount of hedges decreased slightly, but the decrease in hedges was offset by a decrease in assets. The weighted average rate on the hedges decreased from 1.79% to 1.78%. Because the weighted average rate has remained similar and the hedges represent a similar percentage of the total portfolio value, we are not projecting a significant improvement for third quarter. However, management should be strongly commended for the repurchase of shares. Book value per share increased from $6.12 to $6.28 due to management aggressively repurchasing shares that were (and still are) trading a steep discount to book value. If management had refused to repurchase shares, book value per share would have declined. Management's share repurchase has helped shareholders in two ways. It has directly increased book value per share, and it has decreased management fees. Shareholders should be grateful for the proxy challenge that got Anworth into action. The increase in book value per share could cause a slight bump in the share price, despite EPS missing estimates.

Our book value per share calculations:

Q1

Q2

Assets

$8,642,946

$8,554,788

Preferred B

$23,924

$23,924

Preferred A

$46,537

$46,537

Liabilities

$7,755,045

$7,706,626

Real Equity

$817,440

$777,701

Common Shares

133,492

123,798

BV per common share

$6.12

$6.28

Our initial article can be seen here.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Information in this article represents the opinion of the analyst. All statements are represented as opinions, rather than facts, and should not be construed as advice to buy or sell a security. Ratings of “outperform” and “underperform” reflect the analyst’s estimation of a divergence between the market value for a security and the price that would be appropriate given the potential for risks and returns relative to other securities. The analyst does not know your particular objectives for returns or constraints upon investing. All investors are encouraged to do their own research before making any investment decision. Information is based on form 8-K on file with the SEC.