ARLINGTON, Va., Oct. 23, 2018 /PRNewswire/ -- Arlington
Asset Investment Corp. (NYSE: AI) (the "Company" or "Arlington") today reported a net loss
attributable to common shareholders of $5.7
million, or $0.19 per diluted
common share, income before income taxes available to common
shareholders of $4.0 million, or
$0.14 per diluted common share, and
non-GAAP core operating income of $13.9
million, or $0.47 per diluted
common share, for the quarter ended September 30, 2018. A reconciliation of
non-GAAP core operating income to GAAP net income (loss) before
income taxes appears at the end of this press release.
Third Quarter 2018 Financial Highlights
- $0.19 per diluted common share of
GAAP net loss
-
- Includes a $0.33 per diluted
common share deferred income tax provision
- $0.14 per diluted common share of
GAAP pre-tax income
- $0.47 per diluted common share of
non-GAAP core operating income
- $9.95 per common share of book
value
- $11.06 per common share of
tangible book value
-
- Would represent book value per common share if the Company were
to elect to be taxed as a real estate investment trust
("REIT")
- $0.375 per common share
dividend
- $5,180 million investment
portfolio of agency mortgage-backed securities ("MBS")
- $4,175 million notional amount
interest rate hedge position
- Increased interest rate hedge duration leading to a net
duration gap of negative 0.2 years
"Despite heightened volatility during the quarter, Arlington produced an annualized economic
return of 2.3% in the third quarter measured as the change in
tangible book value per common share plus the $0.375 per common share dividend," said J. Rock
Tonkel, Jr., the Company's President and Chief Executive
Officer. "Arlington
continued to generate net spread earnings in excess of its
quarterly dividend enabling it to deliver a strong dividend to its
shareholders despite reduced overall investment volumes during the
quarter. With an expectation that the Company will fully
utilize its net operating loss carryforward during 2019, the
Company is currently evaluating possible long-term tax structures,
including potentially electing to be taxed as a REIT as early as
January 1, 2019. If the Company
were to elect REIT status, it does not anticipate significant
modifications to its investment portfolio or operations to qualify
as a REIT, and its presentation of book value would be equivalent
to its tangible book value, which was $11.06 per common share as of September 30, 2018."
Other Third Quarter Highlights
As of September 30, 2018, the
Company's agency MBS investment portfolio totaled $5,180 million in fair value, consisting of
$4,399 million of specified agency
MBS and $781 million of net long
to-be-announced ("TBA") agency MBS. As of September 30, 2018, the Company's $5,180 million agency MBS investment portfolio
was comprised of the following:
- $96 million of 3.5% coupon
15-year agency MBS
- $59 million of 4.0% coupon
20-year agency MBS
- $342 million of 3.5% coupon
30-year agency MBS
- $2,384 million of 4.0% coupon
30-year agency MBS
- $1,671 million of 4.5% coupon
30-year agency MBS
- $628 million of 5.0% coupon
30-year agency MBS
As of September 30, 2018, the
Company's $4,399 million specified
agency MBS portfolio had a weighted average amortized cost basis of
$104.75 and a weighted average market
price of $102.17. The Company's
fixed-rate agency MBS are comprised of securities backed by
specified pools of mortgage loans selected for their lower
propensity for prepayment. Weighted average pay-up premiums
on the Company's agency MBS portfolio, which represent the
estimated price premium of agency MBS backed by specified pools
over a generic TBA agency MBS, were approximately two-fifths of a
percentage point as of September 30,
2018, compared to half of a percentage point as of
June 30, 2018.
As of September 30, 2018, the
Company's net long TBA agency MBS investment portfolio had a
purchase price of $783 million and
market value of $781 million,
resulting in a net GAAP carrying fair value of $(2) million. Under GAAP, the gross fair
value of the agency MBS underlying the Company's TBA commitments is
not recognized on the balance sheet as the Company accounts for its
TBA commitments as derivative instruments.
As of September 30, 2018, the
Company had $4,092 million of
repurchase agreements outstanding with a weighted average rate of
2.30% and remaining weighted average maturity of 15 days secured by
an aggregate of $4,304 million of
agency MBS at fair value.
GAAP net interest income was $10.3
million for the third quarter of 2018 compared to
$10.9 million for the second quarter
of 2018, including the amortization of the Company's net premium on
its agency MBS of $8.4 million for
the third quarter of 2018 compared to $8.3
million for the second quarter of 2018. The Company's
weighted average yield on its agency MBS was 3.11% for the third
quarter of 2018 compared to 3.00% for the second quarter of 2018,
and the actual weighted-average constant prepayment rate ("CPR")
for the Company's agency MBS was 10.66% for the third quarter of
2018 compared to 10.31% for the second quarter of 2018. The
Company's weighted average cost of repurchase agreement funding was
2.17% during the third quarter of 2018 compared to 1.96% during the
second quarter of 2018.
The Company enters into various hedging transactions to mitigate
the interest rate sensitivity of its cost of borrowing and the
value of its agency MBS portfolio including interest rate swap
agreements, U.S. Treasury note futures, put and call options on
10-year U.S. Treasury note futures, and options on agency
MBS. Under GAAP, the Company has not designated these
transactions as hedging instruments for financial reporting
purposes and therefore all gains and losses on its hedging
instruments are recorded as net investment gains and losses in the
Company's financial statements.
Under the terms of the Company's interest rate swap agreements,
the Company pays semiannual interest payments based on a fixed rate
and receives quarterly variable interest payments based upon the
prevailing three-month London Interbank Offered Rate ("LIBOR") on
the date of reset. During the third quarter of 2018, the
Company extended the duration of its interest rate swap portfolio
by replacing $600 million of notional
amount of interest rate swaps with a remaining weighted average
maturity of 8.1 years with $750
million of notional amount of interest rate swaps with an
average maturity of 12.7 years. As of September 30, 2018, the Company had $3,475 million in notional amount of interest
rate swap agreements with a weighted average pay fixed rate of
2.10% and a remaining weighted average maturity of 7.1 years.
The Company's weighted average net receive rate of its interest
rate swap agreements was 0.23% during the third quarter of 2018
compared to 0.32% during the second quarter of 2018.
In addition to interest rate swap agreements, the Company held
$700 million in equivalent notional
amount of short positions in 10-year U.S. Treasury note futures as
of September 30, 2018 that were
purchased during the third quarter of 2018 when the 10-year U.S.
Treasury rate was 2.92%. As of September 30, 2018, the total notional amount of
the Company's interest rate hedges consisting of interest rate
swaps and U.S. Treasury note futures was 86% of the Company's
outstanding repurchase agreement funding and TBA purchase
commitments with a net duration gap of negative 0.2 years.
The Company reported TBA dollar roll income of $4.6 million for the third quarter of 2018
compared to $6.7 million for the
second quarter of 2018. The implied weighted-average net
interest spread of the Company's TBA dollar rolls was 1.86% for the
third quarter of 2018 compared to 1.91% for the second quarter of
2018. TBA dollar roll income is considered the economic
equivalent of investing in agency MBS financed with a repurchase
agreement and is calculated as the price discount of a
forward-settling purchase of a TBA agency MBS relative to the
"spot" sale of the same security. Under GAAP, the
Company accounts for its TBA commitments as derivative instruments
and recognizes income from TBA dollar rolls as a component of net
investment gains and losses in the Company's financial
statements.
Economic net interest income was $17.2
million for the third quarter of 2018 compared to
$20.1 million for the second quarter
of 2018. Economic net interest income is comprised of net
interest income determined in accordance with GAAP, TBA dollar roll
income and net interest income or expense from interest rate
swaps. Economic net interest income is a non-GAAP financial
measure that is described later in this press release.
Excluding TBA dollar roll income, we had net investment losses
on our investment portfolio of $46.8
million. On our related interest rate hedging instruments,
we had net investment gains of $37.6
million, excluding interest rate swap net interest income.
This results in a net investment loss on our hedged investment
portfolio of $9.2 million, or
$0.31 per diluted common share, for
the third quarter of 2018.
Income Taxes
The Company is subject to taxation as a corporation under
Subchapter C of the Internal Revenue Code of 1986, as
amended. As of September 30,
2018, the Company estimated its net operating loss ("NOL")
carryforward at $28.0 million that
begins to expire in 2027, its net capital loss ("NCL") carryforward
at $390.9 million that begins to
expire in 2019, and its alternative minimum tax ("AMT") credit
carryforward at $9.1 million that
does not expire. The Company's estimated loss and tax credit
carryforwards as of September 30,
2018 are subject to potential adjustments up to the time of
filing the Company's income tax returns.
Under GAAP, a C-corporation records its deferred tax assets and
liabilities on its balance sheet while a REIT does not record them
on its balance sheet. The Company had a net deferred tax liability
of $33.6 million, or $1.11 per common share, and an AMT credit
carryforward within other assets on its consolidated balance sheet
of $9.1 million, or $0.30 per common share, as of September 30, 2018. The Company continues
to record a full valuation allowance against its deferred tax
assets that are capital in tax character and no valuation allowance
against its deferred tax assets that are ordinary in tax character.
The Company enters into various hedging transactions to mitigate
the interest rate sensitivity of its cost of borrowing and the
value of its agency MBS portfolio. For income tax purposes,
gains and losses from its agency MBS are capital in tax character
while gains and losses from its interest rate swap hedges are
ordinary in tax character. During the nine months ended
September 30, 2018, the Company had
net investment losses on its agency MBS for which no deferred
income tax benefit was recorded since the Company records a full
valuation allowance against its deferred tax assets that are
capital in nature. However, during the nine months ended
September 30, 2018, the Company had
net investments gains on its interest rate swap hedges for which a
deferred income tax provision was recorded resulting in the Company
now having a net deferred tax liability on its balance sheet as of
September 30, 2018. For
accounting purposes, the Company's interest rate swaps are a hedge
against future higher funding costs on the Company's repurchase
agreement financing. However, those future higher expected
funding costs are not currently reflected as a deferred tax asset
whereas the future benefits of the hedge against the higher
expected funding costs are currently reflected as a deferred tax
liability. As a result, the deferred tax liability related to
the net gain on the Company's interest rate hedges should be offset
in the future by tax deductions related to future higher funding
costs on the Company's repurchase agreement financing as they
materialize.
Distributions to Shareholders
The Company's Board of Directors approved a distribution to
common shareholders of $0.375 per
share for the third quarter of 2018. The distribution will be
paid on October 31, 2018 to
shareholders of record as of September
28, 2018. The Company's Board of Directors also
approved a distribution to its Series B preferred shareholders of
$0.4375 per share for the third
quarter of 2018. The distribution was paid on October 1, 2018 to shareholders of record as of
September 18, 2018.
The tax characterization of the Company's distributions to
shareholders is determined and reported to shareholders on Form
1099-DIV after the end of the calendar year. As a C corporation,
distributions to common and preferred individual shareholders of
current or accumulated earnings and profits are qualified dividends
eligible for the 23.8% maximum federal income tax rate whereas
similar distributions to individual shareholders by a REIT of
current or accumulated earnings and profits are nonqualified
dividends subject to the higher 33.4% maximum effective federal tax
rate (net of the 20% dividend deduction benefit), each inclusive of
the 3.8% Medicare tax rate, on ordinary income. Any
distributions in excess of current or accumulated earnings and
profits would be reported as returns of capital instead of
qualified dividends. Distributions that are classified as
returns of capital are nontaxable to the extent they do not exceed
a shareholder's adjusted tax basis in the Company's stock, or as a
capital gain to the extent that the amount of the distribution
exceeds a shareholder's adjusted tax basis in the Company's
stock.
Conference Call
The Company will hold a conference call for investors
at 9:00 A.M. Eastern Time on Wednesday, October 24,
2018 to discuss the Company's third quarter 2018 results.
Investors may listen to the earnings call via the internet at:
http://www.arlingtonasset.com/index.php?s=19.
Replays of the earnings call will be available for 60 days via
webcast at the Internet address provided above, beginning two hours
after the call ends.
Additional Information
The Company will make available additional quarterly information
for the benefit of its shareholders through a supplemental
presentation that will be available at the Company's website,
www.arlingtonasset.com. The presentation will be available on
the Webcasts and Presentations section located under the Updates
& Events tab of the Company's website.
About the Company
Arlington Asset Investment Corp. (NYSE: AI) is a principal
investment firm that currently invests primarily in
mortgage-related and other assets. The Company is
headquartered in the Washington,
D.C. metropolitan area. For more information, please
visit www.arlingtonasset.com.
Statements concerning interest rates, portfolio allocation,
financing costs, portfolio hedging, prepayments, dividends, book
value, utilization of loss carryforwards, any change in long-term
tax structures (including any REIT election) and any other guidance
on present or future periods constitute forward-looking statements
that are subject to a number of factors, risks and uncertainties
that might cause actual results to differ materially from stated
expectations or current circumstances. These factors include,
but are not limited to, changes in interest rates, increased costs
of borrowing, decreased interest spreads, changes in political and
monetary policies, changes in default rates, changes in prepayment
rates and other assumptions underlying our estimates related to our
projections of future core earnings, changes in the Company's
returns, changes in the use of the Company's tax benefits, changes
in the agency MBS asset yield, changes in the Company's
monetization of net operating loss carryforwards, changes in the
Company's ability to generate cash earnings and dividends,
preservation and utilization of the Company's net operating loss
and net capital loss carryforwards, impacts of changes to and
changes by Fannie Mae and Freddie Mac, actions taken by the U.S.
Federal Reserve, the Federal Housing Finance Agency and the U.S.
Treasury, availability of opportunities that meet or exceed the
Company's risk adjusted return expectations, ability and
willingness to make future dividends, ability to generate
sufficient cash through retained earnings to satisfy capital needs,
and general economic, political, regulatory and market
conditions. These and other material risks are described in
the Company's most recent Annual Report on Form 10-K and any other
documents filed by the Company with the SEC from time to time,
which are available from the Company and from the SEC, and you
should read and understand these risks when evaluating any
forward-looking statement. All forward-looking statements speak
only as of the date on which they are made. New risks and
uncertainties arise over time, and it is not possible to predict
those events or how they may affect the Company. Except as
required by law, the Company is not obligated to, and does not
intend to, update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise.
Financial data to follow
ARLINGTON ASSET
INVESTMENT CORP.
|
CONSOLIDATED
BALANCE SHEETS
|
(Dollars in
thousands, except per share amounts)
|
(Unaudited)
|
|
|
|
September 30,
2018
|
|
|
June 30,
2018
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
32,199
|
|
|
$
|
18,696
|
|
Interest
receivable
|
|
|
14,818
|
|
|
|
13,368
|
|
Sold securities
receivable
|
|
|
—
|
|
|
|
84,349
|
|
Mortgage-backed
securities, at fair value
|
|
|
|
|
|
|
|
|
Agency
|
|
|
4,399,466
|
|
|
|
4,050,458
|
|
Private-label
|
|
|
37
|
|
|
|
61
|
|
Derivative assets, at
fair value
|
|
|
91
|
|
|
|
9,921
|
|
Deposits,
net
|
|
|
73,966
|
|
|
|
61,550
|
|
Other
assets
|
|
|
15,835
|
|
|
|
15,973
|
|
Total
assets
|
|
$
|
4,536,412
|
|
|
$
|
4,254,376
|
|
LIABILITIES AND
EQUITY
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Repurchase
agreements
|
|
$
|
4,092,251
|
|
|
$
|
3,752,582
|
|
Interest
payable
|
|
|
4,241
|
|
|
|
3,728
|
|
Accrued compensation
and benefits
|
|
|
3,665
|
|
|
|
2,413
|
|
Dividend
payable
|
|
|
12,723
|
|
|
|
12,265
|
|
Derivative
liabilities, at fair value
|
|
|
3,431
|
|
|
|
234
|
|
Purchased securities
payable
|
|
|
—
|
|
|
|
77,419
|
|
Deferred tax
liabilities, net
|
|
|
33,639
|
|
|
|
24,011
|
|
Other
liabilities
|
|
|
1,724
|
|
|
|
1,265
|
|
Long-term unsecured
debt
|
|
|
74,048
|
|
|
|
73,992
|
|
Total
liabilities
|
|
|
4,225,722
|
|
|
|
3,947,909
|
|
Equity:
|
|
|
|
|
|
|
|
|
Preferred stock
(liquidation preference of $8,654 and $8,519,
respectively)
|
|
|
8,138
|
|
|
|
8,007
|
|
Common
stock
|
|
|
303
|
|
|
|
282
|
|
Additional paid-in
capital
|
|
|
1,997,281
|
|
|
|
1,976,309
|
|
Accumulated
deficit
|
|
|
(1,695,032)
|
|
|
|
(1,678,131)
|
|
Total
equity
|
|
|
310,690
|
|
|
|
306,467
|
|
Total liabilities
and equity
|
|
$
|
4,536,412
|
|
|
$
|
4,254,376
|
|
Book value per
common share (1)
|
|
$
|
9.95
|
|
|
$
|
10.52
|
|
Tangible book
value per common share (2)
|
|
$
|
11.06
|
|
|
$
|
11.37
|
|
Common shares
outstanding (in thousands) (3)
|
|
|
30,364
|
|
|
|
28,318
|
|
|
|
|
|
|
|
|
|
|
(1) Book value per
common share is calculated as total equity less the preferred stock
liquidation preference divided by common shares
outstanding.
|
|
|
|
|
|
|
|
|
|
|
(2) Tangible book
value per common share is calculated as total equity less the
preferred stock liquidation preference plus net deferred tax
liabilities divided by common shares outstanding.
|
|
|
|
|
|
|
|
|
|
|
(3) Represents common
shares outstanding plus vested restricted stock units convertible
into common stock less unvested restricted common stock.
|
|
ARLINGTON ASSET
INVESTMENT CORP.
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
(Dollars in
thousands, except per share data)
|
(Unaudited)
|
|
|
Three Months
Ended
|
|
|
September
30,
2018
|
|
|
June
30,
2018
|
|
|
March
31,
2018
|
|
|
December
31,
2017
|
|
Interest
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency mortgage-backed
securities
|
$
|
32,679
|
|
|
$
|
29,940
|
|
|
$
|
30,725
|
|
|
$
|
30,514
|
|
Private-label
mortgage-backed securities
|
|
2
|
|
|
|
10
|
|
|
|
4
|
|
|
|
19
|
|
Other
|
|
183
|
|
|
|
105
|
|
|
|
131
|
|
|
|
76
|
|
Total interest
income
|
|
32,864
|
|
|
|
30,055
|
|
|
|
30,860
|
|
|
|
30,609
|
|
Interest
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term secured
debt
|
|
21,265
|
|
|
|
17,936
|
|
|
|
15,325
|
|
|
|
13,727
|
|
Long-term unsecured
debt
|
|
1,261
|
|
|
|
1,257
|
|
|
|
1,231
|
|
|
|
1,225
|
|
Total interest
expense
|
|
22,526
|
|
|
|
19,193
|
|
|
|
16,556
|
|
|
|
14,952
|
|
Net interest
income
|
|
10,338
|
|
|
|
10,862
|
|
|
|
14,304
|
|
|
|
15,657
|
|
Investment (loss)
gain, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on trading
investments, net
|
|
(37,878)
|
|
|
|
(20,892)
|
|
|
|
(88,343)
|
|
|
|
(23,208)
|
|
Gain from derivative
instruments, net
|
|
35,620
|
|
|
|
16,052
|
|
|
|
40,154
|
|
|
|
33,169
|
|
Other, net
|
|
1
|
|
|
|
324
|
|
|
|
50
|
|
|
|
277
|
|
Total investment
(loss) gain, net
|
|
(2,257)
|
|
|
|
(4,516)
|
|
|
|
(48,139)
|
|
|
|
10,238
|
|
General and
administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and
benefits
|
|
2,833
|
|
|
|
2,061
|
|
|
|
3,040
|
|
|
|
3,505
|
|
Other general and
administrative expenses
|
|
1,121
|
|
|
|
1,400
|
|
|
|
1,257
|
|
|
|
1,442
|
|
Total general and
administrative expenses
|
|
3,954
|
|
|
|
3,461
|
|
|
|
4,297
|
|
|
|
4,947
|
|
Income (loss)
before income taxes
|
|
4,127
|
|
|
|
2,885
|
|
|
|
(38,132)
|
|
|
|
20,948
|
|
Income tax
provision
|
|
9,628
|
|
|
|
6,493
|
|
|
|
18,251
|
|
|
|
13,707
|
|
Net (loss)
income
|
|
(5,501)
|
|
|
|
(3,608)
|
|
|
|
(56,383)
|
|
|
|
7,241
|
|
Dividend on preferred
stock
|
|
(151)
|
|
|
|
(149)
|
|
|
|
(137)
|
|
|
|
(133)
|
|
Net (loss) income
(attributable) available to
common stock
|
$
|
(5,652)
|
|
|
$
|
(3,757)
|
|
|
$
|
(56,520)
|
|
|
$
|
7,108
|
|
Basic (loss) earnings
per common share
|
$
|
(0.19)
|
|
|
$
|
(0.13)
|
|
|
$
|
(2.00)
|
|
|
$
|
0.25
|
|
Diluted (loss)
earnings per common share
|
$
|
(0.19)
|
|
|
$
|
(0.13)
|
|
|
$
|
(2.00)
|
|
|
$
|
0.25
|
|
Weighted average
common shares outstanding (in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
29,382
|
|
|
|
28,210
|
|
|
|
28,197
|
|
|
|
28,192
|
|
Diluted
|
|
29,382
|
|
|
|
28,210
|
|
|
|
28,197
|
|
|
|
28,580
|
|
Non-GAAP Core Operating Income
In addition to the Company's results of operations determined in
accordance with generally accepted accounting principles as
consistently applied in the United
States ("GAAP"), the Company also reports "non-GAAP core
operating income." The Company defines core operating income
as "economic net interest income" less "core general and
administrative expenses."
Economic Net Interest Income
Economic net interest income, a non-GAAP financial measure,
represents the interest income earned net of interest expense
incurred from all of our interest bearing financial instruments as
well as agency MBS which underlie, and are implicitly financed
through, our TBA dollar roll transactions. Economic net
interest income is comprised of the following:
- net interest income determined in accordance with GAAP;
- TBA agency MBS dollar roll income, which is calculated as the
price discount of a forward-settling purchase of a TBA agency MBS
relative to the "spot" sale of the same security, earned ratably
over the period beginning on the settlement date of the sale and
ending on the settlement date of the forward-settling purchase;
and
- net interest income earned or expense incurred from interest
rate swap agreements.
In the Company's consolidated statements of comprehensive income
prepared in accordance with GAAP, TBA agency MBS dollar roll income
and the net interest income or expense incurred from interest rate
swap agreements are reported as a component of the overall periodic
change in the fair value of derivative instruments within the line
item "gain (loss) from derivative instruments, net" of the
"investment gain (loss), net" section. We believe that economic net
interest income assists investors in understanding and evaluating
the financial performance of the Company's long-term-focused, net
interest spread-based investment strategy, prior to the deduction
of core general and administrative expenses.
Core General and Administrative Expenses
Core general and administrative expenses are non-interest
expenses reported within the line item "total general and
administrative expenses" of the consolidated statements of
comprehensive income less stock-based compensation
expense.
Non-GAAP Core Operating Income Results
The following table presents the Company's computation of
economic net interest income and core operating income for the last
four fiscal quarters (unaudited, amounts in thousands, except per
share amounts):
|
Three Months
Ended
|
|
|
September
30,
2018
|
|
|
June
30,
2018
|
|
|
March
31,
2018
|
|
|
December
31,
2017
|
|
GAAP net interest
income
|
$
|
10,338
|
|
|
$
|
10,862
|
|
|
$
|
14,304
|
|
|
$
|
15,657
|
|
TBA dollar roll
income
|
|
4,604
|
|
|
|
6,742
|
|
|
|
6,643
|
|
|
|
7,171
|
|
Interest rate swap
net interest income (expense)
|
|
2,295
|
|
|
|
2,483
|
|
|
|
(816)
|
|
|
|
(2,434)
|
|
Economic net interest
income
|
|
17,237
|
|
|
|
20,087
|
|
|
|
20,131
|
|
|
|
20,394
|
|
Core general and
administrative expenses
|
|
(3,202)
|
|
|
|
(3,162)
|
|
|
|
(3,846)
|
|
|
|
(3,768)
|
|
Preferred stock
dividend
|
|
(151)
|
|
|
|
(149)
|
|
|
|
(137)
|
|
|
|
(133)
|
|
Non-GAAP core
operating income
|
$
|
13,884
|
|
|
$
|
16,776
|
|
|
$
|
16,148
|
|
|
$
|
16,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP core
operating income per
diluted
common share
|
$
|
0.47
|
|
|
$
|
0.59
|
|
|
$
|
0.57
|
|
|
$
|
0.58
|
|
Weighted average
diluted common
shares
outstanding
|
|
29,718
|
|
|
|
28,463
|
|
|
|
28,430
|
|
|
|
28,580
|
|
The following table provides a reconciliation of GAAP pre-tax
net income (loss) to non-GAAP core operating income for the last
four fiscal quarters (unaudited, amounts in thousands):
|
Three Months
Ended
|
|
|
September
30,
2018
|
|
|
June
30,
2018
|
|
|
March
31,
2018
|
|
|
December
31,
2017
|
|
GAAP income (loss)
before income taxes
|
$
|
4,127
|
|
|
$
|
2,885
|
|
|
$
|
(38,132)
|
|
|
$
|
20,948
|
|
Add back
(Less):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment loss
(gain), net
|
|
2,257
|
|
|
|
4,516
|
|
|
|
48,139
|
|
|
|
(10,238)
|
|
Stock-based
compensation expense
|
|
752
|
|
|
|
299
|
|
|
|
451
|
|
|
|
1,179
|
|
Preferred stock
dividend
|
|
(151)
|
|
|
|
(149)
|
|
|
|
(137)
|
|
|
|
(133)
|
|
Add
back:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TBA dollar roll
income
|
|
4,604
|
|
|
|
6,742
|
|
|
|
6,643
|
|
|
|
7,171
|
|
Interest rate swap net
interest income (expense)
|
|
2,295
|
|
|
|
2,483
|
|
|
|
(816)
|
|
|
|
(2,434)
|
|
Non-GAAP core
operating income
|
$
|
13,884
|
|
|
$
|
16,776
|
|
|
$
|
16,148
|
|
|
$
|
16,493
|
|
Non-GAAP core operating income is used by management to evaluate
the financial performance of the Company's long-term investment
strategy and core business activities over periods of time as well
as assist with the determination of the appropriate level of
periodic dividends to common stockholders. The Company
believes that non-GAAP core operating income assists investors in
understanding and evaluating the financial performance of the
Company's long-term investment strategy and core business
activities over periods of time as well as its earnings
capacity. A limitation of utilizing this non-GAAP financial
measure is that the effect of accounting for "non-core" events or
transactions in accordance with GAAP does, in fact, reflect the
financial results of our business and these effects should not be
ignored when evaluating and analyzing our financial results.
For example, the economic cost or benefit of hedging instruments
other than interest rate swap agreements, such as U.S. Treasury
note futures or options on U.S. Treasury note futures, do not
affect the computation of non-GAAP core operating income. In
addition, the Company's calculation of non-GAAP core operating
income may not be comparable to other similarly titled measures of
other companies. Therefore, the Company believes that net
income and comprehensive income determined in accordance with GAAP
should be considered in conjunction with non-GAAP core operating
income.
The following tables present information on the Company's
investment and hedge portfolio as of September 30, 2018 (unaudited, dollars in
thousands):
Agency MBS:
|
|
Fair
Value
|
|
Specified agency
MBS
|
|
$
|
4,399,466
|
|
Net long agency TBA
position
|
|
|
781,258
|
|
Total
|
|
$
|
5,180,724
|
|
Specified Agency MBS:
|
|
Unpaid
Principal
Balance
|
|
|
Net
Unamortized
Purchase
Premiums
|
|
|
Amortized
Cost Basis
|
|
|
Net
Unrealized
Gain (Loss)
|
|
|
Fair
Value
|
|
|
Market
Price
|
|
|
Coupon
|
|
|
Weighted
Average
Expected
Remaining
Life
|
|
15-year fixed
rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.5%
|
|
|
|
|
$
|
95,675
|
|
|
$
|
1,673
|
|
|
$
|
97,348
|
|
|
$
|
(746)
|
|
|
$
|
96,602
|
|
|
$
|
100.97
|
|
|
|
3.50
|
%
|
|
|
4.7
|
|
20-year fixed
rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.0%
|
|
|
|
|
|
57,977
|
|
|
|
1,956
|
|
|
|
59,933
|
|
|
|
(825)
|
|
|
|
59,108
|
|
|
|
101.95
|
|
|
|
4.00
|
%
|
|
|
6.9
|
|
30-year fixed
rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.5%
|
|
|
|
|
|
346,872
|
|
|
|
8,123
|
|
|
|
354,995
|
|
|
|
(12,715)
|
|
|
|
342,280
|
|
|
|
98.68
|
|
|
|
3.50
|
%
|
|
|
8.8
|
|
|
4.0%
|
|
|
|
|
|
2,346,617
|
|
|
|
113,716
|
|
|
|
2,460,333
|
|
|
|
(76,102)
|
|
|
|
2,384,231
|
|
|
|
101.60
|
|
|
|
4.00
|
%
|
|
|
8.1
|
|
|
4.5%
|
|
|
|
|
|
1,359,321
|
|
|
|
73,604
|
|
|
|
1,432,925
|
|
|
|
(20,314)
|
|
|
|
1,412,611
|
|
|
|
103.92
|
|
|
|
4.50
|
%
|
|
|
8.0
|
|
|
5.0%
|
|
|
|
|
|
99,526
|
|
|
|
5,400
|
|
|
|
104,926
|
|
|
|
(311)
|
|
|
|
104,615
|
|
|
|
105.11
|
|
|
|
5.00
|
%
|
|
|
5.5
|
|
|
5.5%
|
|
|
|
|
|
18
|
|
|
|
—
|
|
|
|
18
|
|
|
|
1
|
|
|
|
19
|
|
|
|
108.68
|
|
|
|
5.50
|
%
|
|
|
6.2
|
|
Total/weighted-
average 30-year
fixed rate
|
|
|
4,152,354
|
|
|
|
200,843
|
|
|
|
4,353,197
|
|
|
|
(109,441)
|
|
|
|
4,243,756
|
|
|
|
102.20
|
|
|
|
4.15
|
%
|
|
|
8.1
|
|
Total/weighted-average
|
|
$
|
4,306,006
|
|
|
$
|
204,472
|
|
|
$
|
4,510,478
|
|
|
$
|
(111,012)
|
|
|
$
|
4,399,466
|
|
|
$
|
102.17
|
|
|
|
4.13
|
%
|
|
|
8.0
|
|
Net Long Agency TBA Positions:
|
|
Notional
Amount:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Long
(Short)
Position
|
|
|
Implied
Cost
Basis
|
|
|
Implied
Fair
Value
|
|
|
Net
Carrying
Amount
|
|
4.5% 30-year MBS
purchase commitments
|
|
$
|
250,000
|
|
|
$
|
258,549
|
|
|
$
|
257,945
|
|
|
$
|
(604)
|
|
5.0% 30-year MBS
purchase commitments
|
|
|
500,000
|
|
|
|
524,797
|
|
|
|
523,313
|
|
|
|
(1,484)
|
|
Total TBA commitments,
net
|
|
$
|
750,000
|
|
|
$
|
783,346
|
|
|
$
|
781,258
|
|
|
$
|
(2,088)
|
|
Interest Rate Swap Agreements:
|
|
|
|
|
|
Weighted-average:
|
|
|
|
|
|
|
|
Notional Amount
|
|
|
Fixed
Pay Rate
|
|
|
Variable
Receive
Rate
|
|
|
Net Receive
(Pay) Rate
|
|
|
Remaining
Life (Years)
|
|
|
Fair Value
|
|
Years to
maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 3
years
|
|
$
|
1,050,000
|
|
|
|
1.53
|
%
|
|
|
2.33
|
%
|
|
|
0.80
|
%
|
|
|
1.8
|
|
|
$
|
(225)
|
|
3 to less than 7
years
|
|
|
225,000
|
|
|
|
1.95
|
%
|
|
|
2.35
|
%
|
|
|
0.40
|
%
|
|
|
3.5
|
|
|
|
(77)
|
|
7 to less than 10
years
|
|
|
2,050,000
|
|
|
|
2.34
|
%
|
|
|
2.33
|
%
|
|
|
(0.01)
|
%
|
|
|
8.6
|
|
|
|
(822)
|
|
10 or more
years
|
|
|
150,000
|
|
|
|
3.01
|
%
|
|
|
2.32
|
%
|
|
|
(0.69)
|
%
|
|
|
29.8
|
|
|
|
91
|
|
Total /
weighted-average
|
|
$
|
3,475,000
|
|
|
|
2.10
|
%
|
|
|
2.33
|
%
|
|
|
0.23
|
%
|
|
|
7.1
|
|
|
$
|
(1,033)
|
|
U.S. Treasury Note Futures:
|
|
Maturity
Date
|
|
Notional
Amount
|
|
|
Net Fair
Value
|
|
10-year U.S. Treasury
note futures
|
|
December
2018
|
|
$
|
700,000
|
|
|
$
|
(219)
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents information about the components of
the Company's net deferred tax assets (liabilities) as of
September 30, 2018 and June 30, 2018 (unaudited, dollars in
thousands):
|
|
As of September
30, 2018
|
|
|
As of June 30,
2018
|
|
|
|
Gross
Amount
|
|
|
Tax
Effected
|
|
|
Gross
Amount
|
|
|
Tax
Effected
|
|
Ordinary deferred tax
(liabilities) assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOL
carryforward
|
|
$
|
27,988
|
|
|
$
|
7,204
|
|
|
$
|
40,318
|
|
|
$
|
10,378
|
|
Deferred net gain on
designated hedges
|
|
|
(17,262)
|
|
|
|
(4,443)
|
|
|
|
(2,349)
|
|
|
|
(605)
|
|
Net unrealized gain on
designated hedges
|
|
|
(148,457)
|
|
|
|
(38,212)
|
|
|
|
(137,071)
|
|
|
|
(35,282)
|
|
Stock-based
compensation
|
|
|
6,707
|
|
|
|
1,726
|
|
|
|
7,134
|
|
|
|
1,836
|
|
Other, net
|
|
|
336
|
|
|
|
86
|
|
|
|
(563)
|
|
|
|
(338)
|
|
Total ordinary
deferred tax liabilities, net
|
|
|
(130,688)
|
|
|
|
(33,639)
|
|
|
|
(92,531)
|
|
|
|
(24,011)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital deferred tax
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NCL
carryforward
|
|
|
390,923
|
|
|
|
100,624
|
|
|
|
392,655
|
|
|
|
101,069
|
|
Net unrealized loss on
investments
|
|
|
170,934
|
|
|
|
43,998
|
|
|
|
138,253
|
|
|
|
35,587
|
|
Valuation
allowance
|
|
|
(561,857)
|
|
|
|
(144,622)
|
|
|
|
(530,908)
|
|
|
|
(136,656)
|
|
Total capital deferred
tax assets, net
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total deferred tax
liabilities, net
|
|
$
|
(130,688)
|
|
|
$
|
(33,639)
|
|
|
$
|
(92,531)
|
|
|
$
|
(24,011)
|
|
View original
content:http://www.prnewswire.com/news-releases/arlington-asset-investment-corp-reports-third-quarter-2018-financial-results-300736540.html
SOURCE Arlington Asset Investment Corp.