Quarterly Report (10-q)

Date : 11/08/2019 @ 5:46PM
Source : Edgar (US Regulatory)
Stock : Arlington Asset Investment Corp (AI)
Quote : 5.92  0.08 (1.37%) @ 10:12PM
After Hours
Last Trade
Last $ 5.92 ◊ 0.00 (0.00%)

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 September 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.)

 

6862 Elm Street, Suite 320

McLean, VA

 

22101

(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 October 31, 2019:

 

Title

 

Outstanding

Class A Common Stock

 

36,755,387 shares

 

 


 

ARLINGTON ASSET INVESTMENT CORP.

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 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

 

5

 

 

 

 

Notes to Consolidated Financial Statements

 

6

 

 

Item 2.

 

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

 

24

 

 

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

 

43

 

 

Item 4.

 

Controls and Procedures

 

47

PART II — OTHER INFORMATION

 

 

 

 

Item 1.

 

Legal Proceedings

 

48

 

 

Item 1A.

 

Risk Factors

 

48

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

48

 

 

Item 3.

 

Defaults Upon Senior Securities

 

48

 

 

Item 4.

 

Mine Safety Disclosures

 

48

 

 

Item 5.

 

Other Information

 

48

 

 

Item 6.

 

Exhibits

 

48

 

 

 

 

Signatures

 

51

 

 

 

i


 

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

ARLINGTON ASSET INVESTMENT CORP.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

(Unaudited)

 

 

 

September 30, 2019

 

 

December 31, 2018

 

ASSETS

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

12,129

 

 

$

26,713

 

Interest receivable

 

 

11,684

 

 

 

13,349

 

Mortgage-backed securities, at fair value

 

 

 

 

 

 

 

 

Agency

 

 

4,013,161

 

 

 

3,982,106

 

Private-label

 

 

25

 

 

 

24

 

Derivative assets, at fair value

 

 

675

 

 

 

438

 

Deposits

 

 

43,298

 

 

 

61,052

 

Other assets

 

 

18,566

 

 

 

15,768

 

Total assets

 

$

4,099,538

 

 

$

4,099,450

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Repurchase agreements

 

$

3,697,906

 

 

$

3,721,629

 

Interest payable

 

 

3,356

 

 

 

4,646

 

Accrued compensation and benefits

 

 

3,502

 

 

 

3,732

 

Dividend payable

 

 

8,397

 

 

 

11,736

 

Derivative liabilities, at fair value

 

 

724

 

 

 

6,959

 

Other liabilities

 

 

3,204

 

 

 

2,200

 

Long-term unsecured debt

 

 

74,272

 

 

 

74,104

 

Total liabilities

 

 

3,791,361

 

 

 

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)

 

 

8,283

 

 

 

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, 36,755,387

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

 

 

368

 

 

 

305

 

Additional paid-in capital

 

 

2,048,423

 

 

 

1,997,876

 

Accumulated deficit

 

 

(1,777,841

)

 

 

(1,731,982

)

Total stockholders’ equity

 

 

308,177

 

 

 

274,444

 

Total liabilities and stockholders’ equity

 

$

4,099,538

 

 

$

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 September 30,

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Interest income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agency mortgage-backed securities

 

$

28,455

 

 

$

32,679

 

 

$

94,300

 

 

$

93,344

 

Private-label mortgage-backed securities

 

 

4

 

 

 

2

 

 

 

19

 

 

 

16

 

Other

 

 

215

 

 

 

183

 

 

 

904

 

 

 

419

 

Total interest income

 

 

28,674

 

 

 

32,864

 

 

 

95,223

 

 

 

93,779

 

Interest expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term secured debt

 

 

22,721

 

 

 

21,265

 

 

 

72,230

 

 

 

54,526

 

Long-term unsecured debt

 

 

1,261

 

 

 

1,261

 

 

 

3,802

 

 

 

3,749

 

Total interest expense

 

 

23,982

 

 

 

22,526

 

 

 

76,032

 

 

 

58,275

 

Net interest income

 

 

4,692

 

 

 

10,338

 

 

 

19,191

 

 

 

35,504

 

Investment advisory fee income

 

 

 

 

 

 

 

 

250

 

 

 

 

Investment loss, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain (loss) on trading investments, net

 

 

16,890

 

 

 

(37,878

)

 

 

128,297

 

 

 

(147,113

)

(Loss) gain from derivative instruments, net

 

 

(25,353

)

 

 

35,620

 

 

 

(149,630

)

 

 

91,826

 

Other, net

 

 

232

 

 

 

1

 

 

 

222

 

 

 

375

 

Total investment loss, net

 

 

(8,231

)

 

 

(2,257

)

 

 

(21,111

)

 

 

(54,912

)

General and administrative expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

 

2,833

 

 

 

2,833

 

 

 

8,182

 

 

 

7,934

 

Other general and administrative expenses

 

 

1,365

 

 

 

1,121

 

 

 

3,816

 

 

 

3,778

 

Total general and administrative expenses

 

 

4,198

 

 

 

3,954

 

 

 

11,998

 

 

 

11,712

 

(Loss) income before income taxes

 

 

(7,737

)

 

 

4,127

 

 

 

(13,668

)

 

 

(31,120

)

Income tax provision

 

 

 

 

 

9,628

 

 

 

 

 

 

34,372

 

Net loss

 

 

(7,737

)

 

 

(5,501

)

 

 

(13,668

)

 

 

(65,492

)

Dividend on preferred stock

 

 

(774

)

 

 

(151

)

 

 

(1,826

)

 

 

(437

)

Net loss attributable to common stock

 

$

(8,511

)

 

$

(5,652

)

 

$

(15,494

)

 

$

(65,929

)

Basic loss per common share

 

$

(0.23

)

 

$

(0.19

)

 

$

(0.44

)

 

$

(2.31

)

Diluted loss per common share

 

$

(0.23

)

 

$

(0.19

)

 

$

(0.44

)

 

$

(2.31

)

Weighted-average common shares outstanding

  (in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

36,572

 

 

 

29,382

 

 

 

35,399

 

 

 

28,601

 

Diluted

 

 

36,572

 

 

 

29,382

 

 

 

35,399

 

 

 

28,601

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,311

)

 

 

(10,311

)

Balances, June 30, 2018

 

 

340,752

 

 

$

8,007

 

 

 

 

 

$

 

 

 

28,201,699

 

 

$

282

 

 

$

1,976,309

 

 

$

(1,678,131

)

 

$

306,467

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,501

)

 

 

(5,501

)

Issuance of Class A common

  stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,007,216

 

 

 

20

 

 

 

20,357

 

 

 

 

 

 

20,377

 

Issuance of Class A common

  stock under stock-based

  compensation plans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

164,585

 

 

 

1

 

 

 

123

 

 

 

 

 

 

124

 

Issuance of preferred stock

 

 

5,404

 

 

 

131

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

131

 

Repurchase of Class A common

  stock under stock-based

  compensation plans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(27,854

)

 

 

 

 

 

(260

)

 

 

 

 

 

(260

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

752

 

 

 

 

 

 

752

 

Dividends declared

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(11,400

)

 

 

(11,400

)

Balances, September 30, 2018

 

 

346,156

 

 

$

8,138

 

 

 

 

 

$

 

 

 

30,345,646

 

 

$

303

 

 

$

1,997,281

 

 

$

(1,695,032

)

 

$

310,690

 

 

See notes to consolidated financial statements.

3


 

ARLINGTON ASSET INVESTMENT CORP.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY - (continued)

(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, 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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(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

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,737

)

 

 

(7,737

)

Issuance of Class A common

  stock