Quarterly Report (10-q)

Date : 08/09/2019 @ 5:54PM
Source : Edgar (US Regulatory)
Stock : Arlington Asset Investment Corp (AI)
Quote : 5.89  0.0 (0.00%) @ 11:59AM

Quarterly Report (10-q)

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

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: 001-34374

 

ARLINGTON ASSET INVESTMENT CORP.

(Exact name of Registrant as specified in its charter)

 

 

Virginia

 

54-1873198

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

1001 Nineteenth Street North

Arlington, VA

 

22209

(Address of Principal Executive Offices)

 

(Zip Code)

 

(703) 373-0200

(Registrant’s Telephone Number, Including Area Code)

 

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 (Sec. 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, smaller reporting company, or an emerging growth company. See 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

 

  

  

Small 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 Exchange Act):Yes  No 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Class A Common Stock

 

AI

 

NYSE

7.00% Series B Cumulative Perpetual Redeemable Preferred Stock

 

AI PrB

 

NYSE

8.250% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock

 

AI PrC

 

NYSE

 

Number of shares outstanding of each of the registrant’s classes of common stock, as of July 31, 2019:

 

Title

 

Outstanding

Class A Common Stock

 

36,659,233 shares

 

 


 

ARLINGTON ASSET INVESTMENT CORP.

FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2019

INDEX

 

 

 

 

 

 

 

Page

PART I — FINANCIAL INFORMATION

 

 

 

 

Item 1.

 

Consolidated Financial Statements and Notes  — (unaudited)

 

1

 

 

 

 

Consolidated Balance Sheets

 

1

 

 

 

 

Consolidated Statements of Comprehensive Income

 

2

 

 

 

 

Consolidated Statements of Changes in Equity

 

3

 

 

 

 

Consolidated Statements of Cash Flows

 

4

 

 

 

 

Notes to Consolidated Financial Statements

 

5

 

 

Item 2.

 

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

 

23

 

 

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

 

40

 

 

Item 4.

 

Controls and Procedures

 

44

PART II — OTHER INFORMATION

 

 

 

 

Item 1.

 

Legal Proceedings

 

45

 

 

Item 1A.

 

Risk Factors

 

45

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

45

 

 

Item 3.

 

Defaults Upon Senior Securities

 

45

 

 

Item 4.

 

Mine Safety Disclosures

 

45

 

 

Item 5.

 

Other Information

 

45

 

 

Item 6.

 

Exhibits

 

45

 

 

 

 

Signatures

 

48

 

 

 

i


 

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

ARLINGTON ASSET INVESTMENT CORP.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

(Unaudited)

 

 

 

June 30, 2019

 

 

December 31, 2018

 

ASSETS

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

34,684

 

 

$

26,713

 

Interest receivable

 

 

12,471

 

 

 

13,349

 

Sold securities receivable

 

 

546,106

 

 

 

 

Mortgage-backed securities, at fair value

 

 

 

 

 

 

 

 

Agency

 

 

3,414,580

 

 

 

3,982,106

 

Private-label

 

 

26

 

 

 

24

 

Derivative assets, at fair value

 

 

6,243

 

 

 

438

 

Deposits

 

 

31,247

 

 

 

61,052

 

Other assets

 

 

18,535

 

 

 

15,768

 

Total assets

 

$

4,063,892

 

 

$

4,099,450

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Repurchase agreements

 

$

3,531,539

 

 

$

3,721,629

 

Interest payable

 

 

3,336

 

 

 

4,646

 

Accrued compensation and benefits

 

 

2,436

 

 

 

3,732

 

Dividend payable

 

 

8,392

 

 

 

11,736

 

Derivative liabilities, at fair value

 

 

3,131

 

 

 

6,959

 

Purchased securities payable

 

 

113,019

 

 

 

 

Other liabilities

 

 

3,534

 

 

 

2,200

 

Long-term unsecured debt

 

 

74,216

 

 

 

74,104

 

Total liabilities

 

 

3,739,603

 

 

 

3,825,006

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders’ Equity:

 

 

 

 

 

 

 

 

Series B Preferred stock, $0.01 par value, 354,039 and 350,595 shares issued and

   outstanding, respectively (liquidation preference of $8,851 and $8,765,

   respectively)

 

 

8,296

 

 

 

8,245

 

Series C Preferred stock, $0.01 par value, 1,200,000 and -0- shares issued and

   outstanding, respectively (liquidation preference of $30,000 and $-0-,

   respectively)

 

 

28,944

 

 

 

 

Class A common stock, $0.01 par value, 450,000,000 shares authorized, 36,572,617

   and 30,497,998 shares issued and outstanding, respectively

 

 

366

 

 

 

305

 

Additional paid-in capital

 

 

2,047,616

 

 

 

1,997,876

 

Accumulated deficit

 

 

(1,760,933

)

 

 

(1,731,982

)

Total stockholders’ equity

 

 

324,289

 

 

 

274,444

 

Total liabilities and stockholders’ equity

 

$

4,063,892

 

 

$

4,099,450

 

 

See notes to consolidated financial statements.

 

 

1


 

ARLINGTON ASSET INVESTMENT CORP.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in thousands, except per share data)

(Unaudited)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Interest income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agency mortgage-backed securities

 

$

32,275

 

 

$

29,940

 

 

$

65,845

 

 

$

60,665

 

Private-label mortgage-backed securities

 

 

14

 

 

 

10

 

 

 

15

 

 

 

14

 

Other

 

 

428

 

 

 

105

 

 

 

689

 

 

 

236

 

Total interest income

 

 

32,717

 

 

 

30,055

 

 

 

66,549

 

 

 

60,915

 

Interest expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term secured debt

 

 

24,866

 

 

 

17,936

 

 

 

49,509

 

 

 

33,261

 

Long-term unsecured debt

 

 

1,269

 

 

 

1,257

 

 

 

2,541

 

 

 

2,488

 

Total interest expense

 

 

26,135

 

 

 

19,193

 

 

 

52,050

 

 

 

35,749

 

Net interest income

 

 

6,582

 

 

 

10,862

 

 

 

14,499

 

 

 

25,166

 

Investment advisory fee income

 

 

 

 

 

 

 

 

250

 

 

 

 

Investment loss, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain (loss) on trading investments, net

 

 

42,239

 

 

 

(20,892

)

 

 

111,407

 

 

 

(109,235

)

(Loss) gain from derivative instruments, net

 

 

(69,072

)

 

 

16,052

 

 

 

(124,277

)

 

 

56,206

 

Other, net

 

 

150

 

 

 

324

 

 

 

(10

)

 

 

374

 

Total investment loss, net

 

 

(26,683

)

 

 

(4,516

)

 

 

(12,880

)

 

 

(52,655

)

General and administrative expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

 

2,233

 

 

 

2,061

 

 

 

5,349

 

 

 

5,101

 

Other general and administrative expenses

 

 

1,191

 

 

 

1,400

 

 

 

2,451

 

 

 

2,657

 

Total general and administrative expenses

 

 

3,424

 

 

 

3,461

 

 

 

7,800

 

 

 

7,758

 

(Loss) income before income taxes

 

 

(23,525

)

 

 

2,885

 

 

 

(5,931

)

 

 

(35,247

)

Income tax provision

 

 

 

 

 

6,493

 

 

 

 

 

 

24,744

 

Net loss

 

 

(23,525

)

 

 

(3,608

)

 

 

(5,931

)

 

 

(59,991

)

Dividend on preferred stock

 

 

(774

)

 

 

(149

)

 

 

(1,052

)

 

 

(286

)

Net loss attributable to common stock

 

$

(24,299

)

 

$

(3,757

)

 

$

(6,983

)

 

$

(60,277

)

Basic loss per common share

 

$

(0.67

)

 

$

(0.13

)

 

$

(0.20

)

 

$

(2.14

)

Diluted loss per common share

 

$

(0.67

)

 

$

(0.13

)

 

$

(0.20

)

 

$

(2.14

)

Weighted-average common shares outstanding

  (in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

36,533

 

 

 

28,210

 

 

 

34,803

 

 

 

28,204

 

Diluted

 

 

36,533

 

 

 

28,210

 

 

 

34,803

 

 

 

28,204

 

 

See notes to consolidated financial statements.

2


 

ARLINGTON ASSET INVESTMENT CORP.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Dollars in thousands)

(Unaudited)

 

 

 

Series B

Preferred

Stock

(#)

 

 

Series B

Preferred

Amount

($)

 

 

Series C

Preferred

Stock

(#)

 

 

Series C

Preferred

Amount

($)

 

 

Class A

Common

Stock

(#)

 

 

Class A

Amount

($)

 

 

Additional

Paid-In

Capital

 

 

Accumulated

Deficit

 

 

Total

 

Balances, December 31, 2017

 

 

303,291

 

 

$

7,108

 

 

 

 

 

$

 

 

 

28,140,721

 

 

$

281

 

 

$

1,974,941

 

 

$

(1,596,013

)

 

$

386,317

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(56,383

)

 

 

(56,383

)

Issuance of Class A common

  stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(23

)

 

 

 

 

 

(23

)

Issuance of preferred stock

 

 

19,431

 

 

 

459

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

459

 

Cumulative-effect of accounting

  change (see Note 7)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,059

 

 

 

4,059

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

451

 

 

 

 

 

 

451

 

Dividends declared (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(15,875

)

 

 

(15,875

)

Balances, March 31, 2018

 

 

322,722

 

 

$

7,567

 

 

 

 

 

$

 

 

 

28,140,721

 

 

$

281

 

 

$

1,975,369

 

 

$

(1,664,212

)

 

$

319,005

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,608

)

 

 

(3,608

)

Issuance of Class A common

  stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

66,989

 

 

 

1

 

 

 

710

 

 

 

 

 

 

711

 

Issuance of preferred stock

 

 

18,030

 

 

 

440

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

440

 

Repurchase of Class A common

  stock under stock-based

  compensation plans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,011

)

 

 

 

 

 

(67

)

 

 

 

 

 

(67

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

297

 

 

 

 

 

 

297

 

Dividends declared (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,311

)

 

 

(10,311

)

Balances, June 30, 2018

 

 

340,752

 

 

$

8,007

 

 

 

 

 

$

 

 

 

28,201,699

 

 

$

282

 

 

$

1,976,309

 

 

$

(1,678,131

)

 

$

306,467

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, December 31, 2018

 

 

350,595

 

 

$

8,245

 

 

 

 

 

$

 

 

 

30,497,998

 

 

$

305

 

 

$

1,997,876

 

 

$

(1,731,982

)

 

$

274,444

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17,594

 

 

 

17,594

 

Issuance of Class A common

  stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,000,000

 

 

 

60

 

 

 

48,750

 

 

 

 

 

 

48,810

 

Issuance of Class A common

  stock under stock-based

  compensation plans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

74,619

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

Issuance of preferred stock

 

 

2,035

 

 

 

45

 

 

 

1,200,000

 

 

 

28,880

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

28,925

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

773

 

 

 

 

 

 

773

 

Dividends declared (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(14,135

)

 

 

(14,135

)

Balances, March 31, 2019

 

 

352,630

 

 

$

8,290

 

 

 

1,200,000

 

 

$

28,880

 

 

 

36,572,617

 

 

$

366

 

 

$

2,047,398

 

 

$

(1,728,523

)

 

$

356,411

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(23,525

)

 

 

(23,525

)

Issuance of Class A common

  stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

1

 

Issuance of preferred stock

 

 

1,409

 

 

 

6

 

 

 

 

 

 

64

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

70

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

217

 

 

 

 

 

 

217

 

Dividends declared (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,885

)

 

 

(8,885

)

Balances, June 30, 2019

 

 

354,039

 

 

$

8,296

 

 

 

1,200,000

 

 

$

28,944

 

 

 

36,572,617

 

 

$

366

 

 

$

2,047,616

 

 

$

(1,760,933

)

 

$

324,289

 

 

 

(1)

The Board of Directors approved and the Company declared and paid dividends of $0.375 and $0.225 per common share for the three months ended March 31, 2019 and June 30, 2019, respectively, and $0.55 and $0.375 per common share for the three months ended March 31, 2018 and June 30, 2018, respectively. The Board of Directors approved and the Company declared and paid dividends of $0.4375 per Series B preferred share for the three months ended March 31, 2019, June 30, 2019, March 31, 2018 and June 30, 2018. The Board of Directors approved and the Company declared and paid dividends of $0.61875 per Series C preferred share for the three months ended June 30, 2019. For the three months ended March 31, 2019, includes a dividend accrual of $0.103125 per Series C preferred share that had not been declared.

 

See notes to consolidated financial statements.

 

 

3


 

ARLINGTON ASSET INVESTMENT CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

 

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(5,931

)

 

$

(59,991

)

Adjustments to reconcile net loss to net cash provided by operating activities

 

 

 

 

 

 

 

 

Investment loss, net

 

 

12,880

 

 

 

52,655

 

Net premium amortization on mortgage-backed securities

 

 

13,142

 

 

 

16,199

 

Deferred tax provision

 

 

 

 

 

24,744

 

Other

 

 

1,112

 

 

 

799

 

Changes in operating assets

 

 

 

 

 

 

 

 

Interest receivable

 

 

878

 

 

 

(822

)

Other assets

 

 

(273

)

 

 

(255

)

Changes in operating liabilities

 

 

 

 

 

 

 

 

Interest payable and other liabilities

 

 

(1,808

)

 

 

(909

)

Accrued compensation and benefits

 

 

(1,296

)

 

 

(2,603

)

Net cash provided by operating activities

 

 

18,704

 

 

 

29,817

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of agency mortgage-backed securities

 

 

(1,527,755

)

 

 

(1,858,387

)

Proceeds from sales of agency mortgage-backed securities

 

 

1,539,475

 

 

 

1,496,422

 

Receipt of principal payments on agency mortgage-backed securities

 

 

220,982

 

 

 

233,577

 

(Payments for) proceeds from derivatives and deposits, net

 

 

(104,830

)

 

 

40,002

 

Other

 

 

45

 

 

 

(15

)

Net cash provided by (used in) investing activities

 

 

127,917

 

 

 

(88,401

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

(Repayments of) proceeds from repurchase agreements, net

 

 

(190,090

)

 

 

85,401

 

Proceeds from issuance of common stock

 

 

48,811

 

 

 

688

 

Proceeds from issuance of preferred stock

 

 

28,995

 

 

 

899

 

Dividends paid

 

 

(26,366

)

 

 

(31,322

)

Net cash (used in) provided by financing activities

 

 

(138,650

)

 

 

55,666

 

Net increase (decrease) in cash and cash equivalents

 

 

7,971

 

 

 

(2,918

)

Cash and cash equivalents, beginning of period

 

 

26,713

 

 

 

21,614

 

Cash and cash equivalents, end of period

 

$

34,684

 

 

$

18,696

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Cash payments for interest

 

$

53,248

 

 

$

36,327

 

Cash payments for taxes

 

$

 

 

$

 

 

See notes to consolidated financial statements.

 

 

 

4


 

ARLINGTON ASSET INVESTMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

(Unaudited)