MCLEAN, Va., Nov. 9, 2021 /PRNewswire/ -- Arlington Asset
Investment Corp. (NYSE: AAIC) (the "Company" or "Arlington") today reported a net loss
attributable to common shareholders of $1.0
million, or $0.03 per diluted
common share, and non-GAAP core operating income of $1.9 million, or $0.06 per diluted common share, for the quarter
ended September 30, 2021. A
reconciliation of non-GAAP core operating income to GAAP net income
appears at the end of this press release.
Third Quarter 2021 Financial Highlights
- $0.03 per diluted common share of
GAAP net loss
- $0.06 per diluted common share of
non-GAAP core operating income
- $5.97 per common share of book
value
- $0.07 per common share of book
value accretion from the repurchase of 1.1 million shares of common
stock
-
- Total program share repurchases inception to date of 15.5% of
shares outstanding, including 3.3% during the third quarter
- 1.8 to 1 "at risk" leverage ratio
- Successful launch and initial investments in high return
single-family residential ("SFR") property rental sector
-
- Supported by $150 million
five-year financing facility at attractive fixed cost of funds with
major financial institution
- 36% capital allocation to mortgage servicing right ("MSR")
related assets with total annualized returns year to date of
34%
- Completed a public offering of $37.8
million of 6.00% senior notes due 2026 and redeemed its
outstanding 6.625% senior notes due 2023 with an outstanding
principal balance of $23.8
million
"This is an exciting time for Arlington as we continue to build a unique
portfolio of differentiated high return asset classes with
compelling growth opportunities in large scale markets.
During the third quarter, the Company made substantial progress
towards its long-term goal of establishing multiple investment
channels which complement its historical agency mortgage portfolio
and diversify risk while improving the Company's level and
reliability of returns over time," said J. Rock Tonkel, Jr., the
Company's President and Chief Executive Officer. "The Company
successfully launched its new strategy of acquiring, leasing and
operating SFR properties during the third quarter. We expect
to invest up to $50 million of
capital to acquire approximately $200
million of properties that offer attractive current cash
returns plus the opportunity to experience additional returns over
time through potential home price appreciation. In addition,
the Company expanded upon its strategic relationship for investing
in MSR related assets and realized an annualized total return of
31% for the third quarter. We believe these strategies offer
Arlington compelling high-return
growth opportunities that should result in the intrinsic value of
the Arlington platform exceeding
its book value over time. In support of this view, the
Company continues to make accretive repurchases of shares of its
common stock, including repurchases of 3.3% of its outstanding
common stock during the third quarter. As the Company
continues to execute on its differentiated investment strategies,
it expects higher returns from these investments to provide
increased earnings power over time which can form the potential
pathway for returning additional capital to shareholders."
Third Quarter Investment Portfolio
As of September 30, 2021, the
Company's investment portfolio totaled $854
million at fair value, which includes $17 million of business purpose residential
mortgage loans of a consolidated variable interest entity
("VIE"). Assuming the Company's investment in the VIE was not
consolidated, the Company's investment portfolio totaled
$850 million at fair value as of
September 30, 2021 consisting of the
following:
- $660 million of agency
mortgage-backed securities ("MBS")
- $113 million of MSR related
assets
- $68 million of mortgage credit
investments
- $9 million of SFR real estate
assets
Based on investable capital, the Company has allocated 44%, 36%,
15% and 5% of its capital to its agency MBS, MSR related, mortgage
credit and SFR investment strategies, respectively, as of
September 30, 2021.
Agency MBS
The Company's agency MBS consist of residential mortgage
pass-through certificates for which the principal and interest
payments are guaranteed by a U.S. government sponsored enterprise
("GSE"), such as the Federal National Mortgage Association ("Fannie
Mae") or the Federal Home Loan Mortgage Corporation ("Freddie
Mac").
As of September 30, 2021, the
Company's agency MBS investment portfolio totaled $660 million at fair value comprised of
$638 million of specified agency MBS
and $22 million of net long
to-be-announced ("TBA") agency MBS. As of September 30, 2021, the Company's $660 million agency MBS investment portfolio was
comprised of the following:
- $586 million of 2.0% coupon
30-year agency MBS
- $74 million of 2.5% coupon
30-year agency MBS
As of September 30, 2021, the
Company's $638 million specified
agency MBS portfolio had a weighted average amortized cost basis of
$103.36 and a weighted average market
price of $101.66. The Company's
specified 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 one-half of a
percentage point as of September 30,
2021. During the third quarter of 2021, the Company
sold agency MBS for gross sale proceeds of $64 million for a net realized loss of
$0.7 million. The Company did
not purchase any specified agency MBS during the third quarter of
2021.
The Company's weighted average yield on its agency MBS was 1.52%
for the third quarter of 2021 compared to 1.62% for the second
quarter of 2021, and the actual weighted-average constant
prepayment rate ("CPR") for the Company's agency MBS was 8.62% for
the third quarter of 2021 compared to 6.34% for the second quarter
of 2021.
As of September 30, 2021, the
Company had $533 million of
repurchase agreements outstanding with a weighted average rate of
0.12% and remaining weighted average maturity of 14 days secured by
an aggregate of $559 million of
agency MBS at fair value. The Company's weighted average
cost of repurchase agreement funding secured by agency MBS was
0.11% during the third quarter of 2021 unchanged from the prior
quarter of 2021.
The Company enters into various hedging transactions to mitigate
the interest rate sensitivity of its cost borrowing and the value
of its fixed-rate agency MBS. Under the terms of the
Company's interest rate swap agreements, the Company pays
semiannual interest payments based on a fixed rate and receives
variable interest payments based upon either the prevailing
three-month London Interbank Offered Rate ("LIBOR") or Secured
Overnight Financing Rate ("SOFR"). As of September 30, 2021, the Company had $215 million in notional amount of interest rate
swap agreements with a weighted average pay fixed rate of 0.64% and
a remaining weighted average maturity of 6.0 years. The
Company's weighted average net pay rate of its interest rate swap
agreements was 0.51% during the third quarter of 2021 compared to
0.73% during the second quarter of 2021. 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.
MSR Related Investments
The Company is party to agreements with a licensed, GSE
approved residential mortgage loan servicer that enable the Company
to garner the economic return of an investment in an MSR purchased
by the mortgage servicing counterparty. The arrangement
allows the Company to participate in the economic benefits of
investing in an MSR without holding the requisite licenses to
purchase or hold MSRs directly. Under the terms of the
arrangement, the Company provides capital to the mortgage servicing
counterparty to purchase MSRs directly, and the Company in turn
receives all the economic benefits of the MSRs less a fee payable
to the counterparty. At the Company's option, the mortgage
servicing counterparty could utilize leverage on the MSRs that are
subject to the Company's MSR financing receivable to finance the
purchase of additional MSRs to increase potential returns to the
Company. The transactions are accounted for as a financing
receivable on the Company's consolidated financial
statements.
As of September 30, 2021, the
Company had $113 million of MSR
financing receivable investments at fair value. During the
third quarter of 2021, the Company purchased $36 million of MSR financing receivables.
As of September 30, 2021, the
mortgage servicing counterparty has drawn $12 million of financing under its credit
facility collateralized by the MSRs that reference the Company's
MSR financing receivable resulting in a leverage ratio of 0.1 to 1
as of September 30, 2021. The
weighted average yield on the Company's MSR financing receivables
was 8.85% for the third quarter of 2021 compared to 10.68% for the
second quarter of 2021.
Mortgage Credit
Investments
The Company's mortgage credit investments generally include
mortgage loans secured by residential or commercial real property
or MBS collateralized by residential or commercial mortgage loans
("non-agency MBS"). As of September
30, 2021, the Company's $68
million mortgage credit investment portfolio at fair value
was comprised of the following:
- $30 million of commercial
mortgage loans
- $23 million of non-agency MBS
collateralized by business purpose residential mortgage loans
-
- Includes a $12 million net
investment in a consolidated VIE
- $7 million of non-agency MBS
collateralized by residential mortgage loans
- $4 million of non-agency MBS
collateralized by small balance commercial mortgage loans
- $4 million of asset backed
securities collateralized by loans secured by residential solar
panels
During the third quarter of 2021, the Company sold or received
repayment of mortgage credit investments for gross proceeds of
$63 million for a net realized gain
of $0.1 million. The Company
did not purchase any mortgage credit investments during the third
quarter of 2021.
As of September 30, 2021, the
Company had a $21 million repurchase
agreement outstanding with a rate of 2.59% and remaining maturity
of 329 days secured by a $30 million
commercial mortgage loan at fair value. As of September 30, 2021, the Company did not have any
repurchase agreements outstanding secured by non-agency
MBS.
Single-family Residential
Investments
During the third quarter of 2021, the Company launched its SFR
investment strategy of acquiring, leasing and operating
single-family residential homes as rental properties. As of
September 30, 2021, the Company had
acquired 33 SFR properties for a
total cost of $9 million and had
commitments to acquire an additional 75
SFR properties for an aggregate purchase price of
$20 million.
In addition, the Company entered into a loan agreement during
the third quarter of 2021 to fund purchases of SFR
properties. Under the terms of the loan agreement, advances
may be drawn up to 74% of the fair value of eligible SFR properties
up to a maximum of $150
million. Advances may be generally drawn for a period
of 18 months with the outstanding loan balance due in five
years. Advances under the loan agreement bear interest at a
fixed rate of 2.76%. As of September
30, 2021, there were no advances outstanding under the loan
agreement.
Other Third Quarter 2021 Financial Highlights
The Company's "at risk" leverage ratio was 1.8 to 1 as of
September 30, 2021 compared to 2.2 to
1 as of June 30, 2021. The
Company's "at risk" leverage ratio is calculated as the sum of the
Company's repurchase agreement financing, net payable or receivable
for unsettled securities, net contractual price of TBA commitments
and financing embedded in its MSR financing receivables less cash
and cash equivalents compared to the Company's investable capital
measured as the sum of the Company's shareholders' equity and
long-term unsecured debt.
During the third quarter of 2021, the Company completed a public
offering of $37.8 million of 6.00%
senior notes due 2026 and redeemed all of its outstanding senior
notes due 2023 with an outstanding principal balance of
$23.8 million.
During the third quarter of 2021, the Company repurchased 1.1
million shares of its common stock at an average price of
$3.84 per share for a total purchase
cost of $4.1 million, representing
3.3% of common stock outstanding as of June
30, 2021. Subsequent to September 30, 2021, the Company purchased an
additional 0.1 million shares of its common stock at an average
price of $3.73 per share for a total
purchase cost of $0.5 million,
representing 0.4% of common stock outstanding as of September 30, 2021. Currently, the Company
had remaining authorization from its Board of Directors to
repurchase up to 14.0 million shares of its common stock.
Distributions to Shareholders
The Company's Board of Directors approved distributions to its
Series B and Series C preferred shareholders of $0.4375 per share and $0.515625 per share, respectively, for the third
quarter of 2021. The distributions were paid on September 30, 2021 to shareholders of record as
of September 16, 2021. The
Company's Board of Directors determined not to declare a dividend
on its common stock for the third quarter of 2021. The
Company's Board of Directors will continue to evaluate the payment
of quarterly dividends based on multiple factors including current
financial results, overall market conditions, return opportunities
on investments, liquidity needs, opportunities to return capital to
shareholders through accretive stock repurchases and REIT
distribution requirements. No definitive determination has
been made at this time regarding the declaration of future
dividends.
The Company is organized and operated in a manner that will
allow it to qualify as a REIT for U.S. federal income tax purposes
and currently intends to continue to be organized and operated in
such a manner. As a REIT, distributions to shareholders will
generally be taxable as ordinary income that are not eligible to be
taxed as qualified dividends. However, a portion of such
distributions may be designated as long-term capital gain dividends
to the extent that such portion is attributable to the Company's
sale of capital assets held for more than one year.
Non-corporate taxpayers may deduct up to 20% of dividends received
from a REIT that are not designated as capital gain dividends or
qualified dividend income, subject to certain limitations.
Distributions in excess of the Company's current and accumulated
earnings and profits will be treated as a tax-free return of
capital to the extent of each shareholder's tax basis in the
Company's stock and as capital gain thereafter.
Conference Call
The Company will hold a conference call for investors
at 10:00 A.M. Eastern Time on Wednesday, November
10, 2021 to discuss the Company's third quarter 2021 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: AAIC) currently invests
primarily in mortgage-related and other assets and has elected to
be taxed as a REIT. 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), use of equity raise
proceeds 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,
the uncertainty and economic impact of the ongoing coronavirus
(COVID-19) pandemic and the measures taken by the government to
address it, including the impact on our business, financial
condition, liquidity and results of operations due to a significant
decrease in economic activity and disruptions in our financing
operations, among other factors, changes in interest rates,
increased costs of borrowing, decreased interest spreads, credit
risks underlying the Company's assets, especially related to the
Company's mortgage credit investments, 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, the
Company's ability to qualify and maintain qualification as a REIT,
changes in the agency MBS asset yield, changes in the Company's
monetization of net operating loss carryforwards, changes in the
Company's investment strategy, 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,
2021
|
|
|
June 30,
2021
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
21,166
|
|
|
$
|
2,349
|
|
Restricted
cash
|
|
|
217
|
|
|
|
—
|
|
Restricted cash of
consolidated VIE
|
|
|
3,267
|
|
|
|
4,456
|
|
Sold securities
receivable
|
|
|
—
|
|
|
|
34,456
|
|
Agency mortgage-backed
securities, at fair value
|
|
|
637,718
|
|
|
|
725,709
|
|
MSR financing
receivables, at fair value
|
|
|
112,834
|
|
|
|
74,652
|
|
Mortgage credit
investments, at fair value
|
|
|
55,277
|
|
|
|
117,902
|
|
Mortgage loans of
consolidated VIE, at fair value
|
|
|
16,516
|
|
|
|
35,778
|
|
Interest receivable of
consolidated VIE
|
|
|
67
|
|
|
|
179
|
|
Single-family
residential real estate
|
|
|
9,407
|
|
|
|
—
|
|
Derivative assets, at
fair value
|
|
|
2,004
|
|
|
|
881
|
|
Deposits
|
|
|
6,114
|
|
|
|
16,554
|
|
Other
assets
|
|
|
15,022
|
|
|
|
17,181
|
|
Total
assets
|
|
$
|
879,609
|
|
|
$
|
1,030,097
|
|
LIABILITIES AND
EQUITY
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Repurchase
agreements
|
|
$
|
553,983
|
|
|
$
|
694,586
|
|
Secured debt of
consolidated VIE, at fair value
|
|
|
7,350
|
|
|
|
28,465
|
|
Interest payable of
consolidated VIE
|
|
|
52
|
|
|
|
99
|
|
Derivative
liabilities, at fair value
|
|
|
3,020
|
|
|
|
2,327
|
|
Other
liabilities
|
|
|
4,626
|
|
|
|
2,739
|
|
Long-term unsecured
debt
|
|
|
85,901
|
|
|
|
73,129
|
|
Total
liabilities
|
|
|
654,932
|
|
|
|
801,345
|
|
Equity:
|
|
|
|
|
|
|
|
|
Preferred stock
(liquidation preference of $36,901 and $36,333,
respectively)
|
|
|
35,849
|
|
|
|
35,289
|
|
Common
stock
|
|
|
316
|
|
|
|
327
|
|
Additional paid-in
capital
|
|
|
2,034,310
|
|
|
|
2,037,953
|
|
Accumulated
deficit
|
|
|
(1,845,798)
|
|
|
|
(1,844,817)
|
|
Total
equity
|
|
|
224,677
|
|
|
|
228,752
|
|
Total liabilities
and equity
|
|
$
|
879,609
|
|
|
$
|
1,030,097
|
|
Book value per
common share (1)
|
|
$
|
5.97
|
|
|
$
|
5.94
|
|
Common shares
outstanding (in thousands) (2)
|
|
|
31,464
|
|
|
|
32,411
|
|
|
|
|
|
|
|
|
|
|
(1) Book value per
common share is calculated as total equity less the preferred stock
liquidation preference divided by common shares
outstanding.
|
|
(2) Represents common
shares outstanding plus vested restricted stock units convertible
into common stock less unvested restricted common stock.
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2021
|
|
|
June 30,
2021
|
|
Assets and
liabilities of consolidated VIE:
|
|
|
|
|
|
|
|
|
Restricted
cash
|
|
$
|
3,267
|
|
|
$
|
4,456
|
|
Mortgage loans, at
fair value
|
|
|
16,516
|
|
|
|
35,778
|
|
Interest
receivable
|
|
|
67
|
|
|
|
179
|
|
Secured debt, at fair
value
|
|
|
(7,350)
|
|
|
|
(28,465)
|
|
Interest
payable
|
|
|
(52)
|
|
|
|
(99)
|
|
Net investment in
consolidated VIE
|
|
$
|
12,448
|
|
|
$
|
11,849
|
|
ARLINGTON ASSET
INVESTMENT CORP.
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
(Dollars in
thousands, except per share data)
|
(Unaudited)
|
|
|
|
Three Months
Ended
|
|
|
|
September
30,
2021
|
|
|
June
30,
2021
|
|
|
March
31,
2021
|
|
|
December
31,
2020
|
|
Interest
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency mortgage-backed
securities
|
|
$
|
2,660
|
|
|
$
|
2,984
|
|
|
$
|
2,784
|
|
|
$
|
3,015
|
|
Mortgage credit
investments
|
|
|
1,247
|
|
|
|
1,770
|
|
|
|
1,269
|
|
|
|
1,863
|
|
Mortgage loans of
consolidated VIE
|
|
|
301
|
|
|
|
776
|
|
|
|
1,687
|
|
|
|
4,305
|
|
MSR financing
receivables
|
|
|
1,945
|
|
|
|
1,390
|
|
|
|
358
|
|
|
|
—
|
|
Interest and other
income
|
|
|
193
|
|
|
|
125
|
|
|
|
161
|
|
|
|
314
|
|
Total interest
income
|
|
|
6,346
|
|
|
|
7,045
|
|
|
|
6,259
|
|
|
|
9,497
|
|
Interest
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term secured
debt
|
|
|
306
|
|
|
|
403
|
|
|
|
488
|
|
|
|
526
|
|
Long-term unsecured
debt
|
|
|
1,435
|
|
|
|
1,150
|
|
|
|
1,151
|
|
|
|
1,154
|
|
Secured debt of
consolidated VIE
|
|
|
173
|
|
|
|
405
|
|
|
|
862
|
|
|
|
1,403
|
|
Total interest
expense
|
|
|
1,914
|
|
|
|
1,958
|
|
|
|
2,501
|
|
|
|
3,083
|
|
Net interest
income
|
|
|
4,432
|
|
|
|
5,087
|
|
|
|
3,758
|
|
|
|
6,414
|
|
Single-family
property operating expenses
|
|
|
36
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Investment (loss)
gain, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on
mortgage investments, net
|
|
|
2,551
|
|
|
|
5,334
|
|
|
|
(21,665)
|
|
|
|
2,161
|
|
(Loss) gain from
derivative instruments, net
|
|
|
(3,327)
|
|
|
|
(14,983)
|
|
|
|
14,545
|
|
|
|
1,223
|
|
Other, net
|
|
|
(537)
|
|
|
|
617
|
|
|
|
357
|
|
|
|
4,736
|
|
Total investment
(loss) gain, net
|
|
|
(1,313)
|
|
|
|
(9,032)
|
|
|
|
(6,763)
|
|
|
|
8,120
|
|
General and
administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and
benefits
|
|
|
1,888
|
|
|
|
1,841
|
|
|
|
1,395
|
|
|
|
1,712
|
|
Other general and
administrative expenses
|
|
|
1,009
|
|
|
|
1,349
|
|
|
|
1,242
|
|
|
|
1,361
|
|
Total general and
administrative expenses
|
|
|
2,897
|
|
|
|
3,190
|
|
|
|
2,637
|
|
|
|
3,073
|
|
Income (loss)
before income taxes
|
|
|
186
|
|
|
|
(7,135)
|
|
|
|
(5,642)
|
|
|
|
11,461
|
|
Income tax
provision (benefit)
|
|
|
436
|
|
|
|
(76)
|
|
|
|
398
|
|
|
|
—
|
|
Net (loss)
income
|
|
|
(250)
|
|
|
|
(7,059)
|
|
|
|
(6,040)
|
|
|
|
11,461
|
|
Dividend on preferred
stock
|
|
|
(731)
|
|
|
|
(723)
|
|
|
|
(723)
|
|
|
|
(733)
|
|
Net (loss) income
(attributable) available to
common stock
|
|
$
|
(981)
|
|
|
$
|
(7,782)
|
|
|
$
|
(6,763)
|
|
|
$
|
10,728
|
|
Basic (loss) earnings
per common share
|
|
$
|
(0.03)
|
|
|
$
|
(0.24)
|
|
|
$
|
(0.20)
|
|
|
$
|
0.32
|
|
Diluted (loss)
earnings per common share
|
|
$
|
(0.03)
|
|
|
$
|
(0.24)
|
|
|
$
|
(0.20)
|
|
|
$
|
0.32
|
|
Weighted average
common shares outstanding (in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
31,927
|
|
|
|
33,066
|
|
|
|
33,181
|
|
|
|
33,415
|
|
Diluted
|
|
|
31,927
|
|
|
|
33,066
|
|
|
|
33,181
|
|
|
|
33,554
|
|
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" and "single-family residential
property operating profit" less "core general and administrative
expenses," preferred stock dividends and an "income tax provision
for taxable REIT subsidiary ("TRS") core operating income."
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 the 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 earned 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.
Single-family Residential Property Profit
Single-family residential property profit represents the
operating profit of the Company's single-family residential
properties determined in accordance with GAAP plus the depreciation
and amortization of the single-family residential properties.
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.
Income Tax Provision for TRS Core Operating Income
Our TRSs are subject to U.S. federal and state corporate income
taxes. Our computation of core operating income includes a
provision for income taxes on the core operating income of our
TRSs. The core operating income of our TRSs is comprised of
net interest income generated by our TRSs net of our TRSs' general
and administrative expenses. In our consolidated statements
of comprehensive income prepared in accordance with GAAP, the
"income tax provision (benefit)" includes (i) the income tax
provision for TRS core operating income and (ii) an income tax
provision for (or benefit from) periodic increases (or decreases)
in the fair value of the investments of our TRSs, which are
recognized in net income as a component of "investment gain (loss)
net."
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,
2021
|
|
|
June
30,
2021
|
|
|
March
31,
2021
|
|
|
December
31,
2020
|
|
GAAP net interest
income
|
|
$
|
4,432
|
|
|
$
|
5,087
|
|
|
$
|
3,758
|
|
|
$
|
6,414
|
|
TBA dollar roll
income
|
|
|
1,064
|
|
|
|
1,778
|
|
|
|
836
|
|
|
|
1,156
|
|
Interest rate swap
net interest expense
|
|
|
(379)
|
|
|
|
(1,187)
|
|
|
|
(710)
|
|
|
|
(62)
|
|
Economic net interest
income
|
|
|
5,117
|
|
|
|
5,678
|
|
|
|
3,884
|
|
|
|
7,508
|
|
Single-family
residential property profit (loss)
|
|
|
(24)
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Core general and
administrative expenses
|
|
|
(2,377)
|
|
|
|
(2,653)
|
|
|
|
(2,134)
|
|
|
|
(2,668)
|
|
Preferred stock
dividend
|
|
|
(731)
|
|
|
|
(723)
|
|
|
|
(723)
|
|
|
|
(733)
|
|
Income tax provision
for TRS core operating income
|
|
|
(85)
|
|
|
|
(61)
|
|
|
|
(11)
|
|
|
|
—
|
|
Non-GAAP core
operating income
|
|
$
|
1,900
|
|
|
$
|
2,241
|
|
|
$
|
1,016
|
|
|
$
|
4,107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP core
operating income per
diluted
common share
|
|
$
|
0.06
|
|
|
$
|
0.07
|
|
|
$
|
0.03
|
|
|
$
|
0.12
|
|
Weighted average
diluted common
shares
outstanding
|
|
|
32,243
|
|
|
|
33,424
|
|
|
|
33,444
|
|
|
|
33,554
|
|
The following table provides a reconciliation of GAAP net income
(loss) to non-GAAP core operating income for the last four fiscal
quarters (unaudited, amounts in thousands):
|
|
Three Months
Ended
|
|
|
|
September
30,
2021
|
|
|
June
30,
2021
|
|
|
March
31,
2021
|
|
|
December
31,
2020
|
|
GAAP net (loss)
income
|
|
$
|
(250)
|
|
|
$
|
(7,059)
|
|
|
$
|
(6,040)
|
|
|
$
|
11,461
|
|
Add
(less):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment loss
(gain), net
|
|
|
1,313
|
|
|
|
9,032
|
|
|
|
6,763
|
|
|
|
(8,120)
|
|
Stock-based
compensation expense
|
|
|
520
|
|
|
|
537
|
|
|
|
503
|
|
|
|
405
|
|
Income tax provision
(benefit) for TRS investment
gain (loss)
|
|
|
351
|
|
|
|
(137)
|
|
|
|
387
|
|
|
|
—
|
|
Depreciation of
single-family residential properties
|
|
|
12
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Preferred stock
dividend
|
|
|
(731)
|
|
|
|
(723)
|
|
|
|
(723)
|
|
|
|
(733)
|
|
Add
back:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TBA dollar roll
income
|
|
|
1,064
|
|
|
|
1,778
|
|
|
|
836
|
|
|
|
1,156
|
|
Interest rate swap net
interest expense
|
|
|
(379)
|
|
|
|
(1,187)
|
|
|
|
(710)
|
|
|
|
(62)
|
|
Non-GAAP core
operating income
|
|
$
|
1,900
|
|
|
$
|
2,241
|
|
|
$
|
1,016
|
|
|
$
|
4,107
|
|
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 determined in accordance with GAAP should be considered in
conjunction with non-GAAP core operating income. Furthermore,
there may be differences between non-GAAP core operating income and
taxable income determined in accordance with the Internal Revenue
Code. As a REIT, the Company will be required to distribute
at least 90% of its REIT taxable income (subject to certain
adjustments) to qualify as a REIT and all of its taxable income in
order to not be subject to any U.S. Federal or state corporate
income taxes. Accordingly, non-GAAP core operating income may
not equal the Company's distribution requirements as a REIT.
The following tables present information on the Company's
investment and hedge portfolio as of September 30, 2021 (unaudited, dollars in
thousands):
Investments:
|
|
Assets
|
|
|
Capital
Allocation
(1)
|
|
|
Capital
Allocation
(%)
|
|
|
Leverage
(2)
|
|
Agency MBS and net
long TBA commitments
|
|
$
|
659,968
|
|
|
$
|
134,932
|
|
|
|
44
|
%
|
|
|
4.1
|
|
MSR financing
receivables
|
|
|
112,834
|
|
|
|
112,834
|
|
|
|
36
|
%
|
|
|
0.1
|
|
Mortgage credit
investments (3)
|
|
|
67,725
|
|
|
|
46,865
|
|
|
|
15
|
%
|
|
|
0.4
|
|
Single-family
residential properties
|
|
|
9,419
|
|
|
|
15,947
|
|
|
|
5
|
%
|
|
|
—
|
|
Total
|
|
$
|
849,946
|
|
|
$
|
310,578
|
|
|
|
100
|
%
|
|
|
1.8
|
|
|
|
(1)
|
Our investable
capital is calculated as the sum of our shareholders' equity
capital and long-term unsecured debt.
|
(2)
|
Our leverage is
measured as the ratio of our repurchase agreement financing, net
payable or receivable for unsettled securities, net contractual
forward purchase price of our TBA commitments and financing
embedded in its MSR financing receivables less our cash and cash
equivalents compared to our investable capital.
|
(3)
|
Includes our net
investment of $12,448 in a variable interest entity with gross
assets and liabilities of $19,850 and $7,402, respectively, that is
consolidated for GAAP financial reporting purposes.
|
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
|
|
30-year fixed
rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.0%
|
|
$
|
456,519
|
|
$
|
12,290
|
|
$
|
468,809
|
|
$
|
(8,634)
|
|
$
|
460,175
|
|
$
|
100.80
|
|
|
2.00
|
%
|
|
|
7.3
|
|
2.5%
|
|
|
170,776
|
|
|
8,761
|
|
|
179,537
|
|
|
(2,003)
|
|
|
177,534
|
|
|
103.96
|
|
|
2.50
|
%
|
|
|
5.3
|
|
5.5%
|
|
|
8
|
|
|
—
|
|
|
8
|
|
|
1
|
|
|
9
|
|
|
115.87
|
|
|
5.50
|
%
|
|
|
4.9
|
|
Total/weighted-average
|
|
$
|
627,303
|
|
$
|
21,051
|
|
$
|
648,354
|
|
$
|
(10,636)
|
|
$
|
637,718
|
|
$
|
101.66
|
|
|
2.14
|
%
|
|
|
6.7
|
|
Net Long Agency TBA Commitments:
|
|
Notional
Amount:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Long (Short)
Position
|
|
|
Implied
Cost
Basis
|
|
|
Implied
Fair
Value
|
|
|
Net
Carrying
Amount
|
|
1.5% 30-year MBS
purchase commitments
|
|
$
|
175,000
|
|
|
$
|
171,443
|
|
|
$
|
169,967
|
|
|
$
|
(1,476)
|
|
1.5% 30-year MBS sale
commitments
|
|
|
(175,000)
|
|
|
|
(170,865)
|
|
|
|
(169,967)
|
|
|
|
898
|
|
2.0% 30-year MBS
purchase commitments
|
|
|
250,000
|
|
|
|
251,545
|
|
|
|
250,938
|
|
|
|
(607)
|
|
2.0% 30-year MBS sale
commitments
|
|
|
(125,000)
|
|
|
|
(126,086)
|
|
|
|
(125,469)
|
|
|
|
617
|
|
2.5% 30-year MBS sale
commitments
|
|
|
(100,000)
|
|
|
|
(102,906)
|
|
|
|
(103,219)
|
|
|
|
(313)
|
|
Total TBA commitments,
net
|
|
$
|
25,000
|
|
|
$
|
23,131
|
|
|
$
|
22,250
|
|
|
$
|
(881)
|
|
MSR Financing Receivables:
Amortized Cost
Basis (1)
|
|
|
Unrealized
Gain
|
|
|
Fair
Value
|
|
$
|
104,446
|
|
|
$
|
8,388
|
|
|
$
|
112,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents capital
investments plus accretion of interest income net of cash
distributions.
|
MSR Financing
Receivable Underlying Reference Amounts:
|
|
MSRs
|
|
|
Financing
|
|
|
Counterparty
Incentive Fee Accrual
|
|
|
Cash and Other Net
Receivables
|
|
|
MSR Financing
Receivables
|
|
|
Implicit
Leverage
|
|
$
|
120,589
|
|
|
$
|
(11,548)
|
|
|
$
|
(1,413)
|
|
|
$
|
5,206
|
|
|
$
|
112,834
|
|
|
|
0.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underlying
Reference MSRs:
|
|
Holder of
Loans
|
|
Unpaid Principal
Balance
|
|
|
Weighted-Average
Note Rate
|
|
|
Weighted-Average
Servicing Fee
|
|
|
Weighted-Average
Loan Age
|
|
Price
|
|
|
Multiple
(1)
|
|
|
Fair
Value
|
|
Fannie Mae
|
|
$
|
11,311,790
|
|
|
|
2.92
|
%
|
|
|
0.25
|
%
|
|
8 months
|
|
|
1.07
|
%
|
|
|
4.20
|
|
|
$
|
120,572
|
|
Freddie
Mac
|
|
|
1,636
|
|
|
|
3.22
|
%
|
|
|
0.25
|
%
|
|
4 months
|
|
|
1.07
|
%
|
|
|
4.27
|
|
|
|
17
|
|
Total/weighted-average
|
|
$
|
11,313,426
|
|
|
|
2.92
|
%
|
|
|
0.25
|
%
|
|
8 months
|
|
|
1.07
|
%
|
|
|
4.20
|
|
|
$
|
120,589
|
|
|
|
(1)
|
Calculated as the
underlying MSR price divided by the weighted-average servicing
fee.
|
Interest Rate Swap Agreements:
|
|
|
|
|
|
Weighted-average:
|
|
|
|
Notional Amount
|
|
|
Fixed
Pay Rate
|
|
|
Variable Receive
Rate
|
|
|
Net Receive (Pay)
Rate
|
|
|
Remaining
Life (Years)
|
|
Years to
maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 3
years
|
|
$
|
100,000
|
|
|
|
0.11
|
%
|
|
|
0.04
|
%
|
|
|
(0.07)
|
%
|
|
|
2.1
|
|
3 to less than 10
years
|
|
|
115,000
|
|
|
|
1.09
|
%
|
|
|
0.10
|
%
|
|
|
(0.99)
|
%
|
|
|
9.3
|
|
Total/weighted-average
|
|
$
|
215,000
|
|
|
|
0.64
|
%
|
|
|
0.07
|
%
|
|
|
(0.57)
|
%
|
|
|
6.0
|
|
Mortgage Credit Investments:
|
|
Unpaid Principal
Balance
|
|
|
Net Unamortized
Premiums (Discounts)
|
|
|
Amortized Original
Cost Basis
|
|
|
Net Unrealized
Gain (Loss)
|
|
|
Fair Value
(1)
|
|
|
Market
Price
|
|
|
Leverage
|
|
|
Total Return on
Capital (2)
|
|
Commercial mortgage
loan
|
|
$
|
29,800
|
|
|
$
|
—
|
|
|
$
|
29,800
|
|
|
$
|
—
|
|
|
$
|
29,800
|
|
|
$
|
100.00
|
|
|
|
2.3
|
|
|
|
9.83
|
%
|
Business purpose
residential MBS (3)
|
|
|
24,649
|
|
|
|
1,805
|
|
|
|
26,454
|
|
|
|
(3,289)
|
|
|
|
23,165
|
|
|
|
93.71
|
|
|
|
—
|
|
|
|
9.84
|
%
|
Residential
MBS
|
|
|
6,934
|
|
|
|
5
|
|
|
|
6,939
|
|
|
|
21
|
|
|
|
6,960
|
|
|
|
100.04
|
|
|
|
—
|
|
|
|
5.29
|
%
|
Commercial
MBS
|
|
|
6,000
|
|
|
|
(766)
|
|
|
|
5,234
|
|
|
|
(859)
|
|
|
|
4,375
|
|
|
|
72.38
|
|
|
|
—
|
|
|
|
(2.01)
|
%
|
Other
|
|
|
5,061
|
|
|
|
(1,547)
|
|
|
|
3,514
|
|
|
|
(89)
|
|
|
|
3,425
|
|
|
|
67.70
|
|
|
|
—
|
|
|
|
0.20
|
%
|
Total/weighted-average
|
|
$
|
72,444
|
|
|
$
|
(503)
|
|
|
$
|
71,941
|
|
|
$
|
(4,216)
|
|
|
$
|
67,725
|
|
|
$
|
93.32
|
|
|
|
0.4
|
|
|
|
7.43
|
%
|
|
|
(1)
|
For mortgage credit
investments in securities, includes contractual accrued interest
receivable.
|
(2)
|
Calculated as an
annualized internal rate of return based upon our initial
investment, cash received from the investment, cash paid for
secured financing costs (if any) and assumes liquidation at
quarter-end at an amount equal to estimated fair value plus accrued
interest and the payoff of any secured financing and accrued
interest thereon (if any).
|
(3)
|
Includes our net
investment in a VIE of $12,448 at fair value that is consolidated
for GAAP financial reporting purposes.
|
Single-Family Residential Properties:
Market
|
|
Number
of
Properties
|
|
|
Gross
Book
Value
|
|
|
Average
Gross
Book
Value
|
|
|
Average
Square
Feet
|
|
|
Average
Year
Built
|
|
Tulsa, OK
|
|
|
12
|
|
|
$
|
3,024
|
|
|
$
|
252
|
|
|
|
1,683
|
|
|
|
2005
|
|
Atlanta,
GA
|
|
|
5
|
|
|
|
1,624
|
|
|
|
325
|
|
|
|
1,808
|
|
|
|
2012
|
|
Charlotte,
NC
|
|
|
5
|
|
|
|
1,546
|
|
|
|
309
|
|
|
|
2,754
|
|
|
|
2011
|
|
Dallas, TX
|
|
|
4
|
|
|
|
1,269
|
|
|
|
317
|
|
|
|
1,968
|
|
|
|
2008
|
|
Kansas City,
MO
|
|
|
4
|
|
|
|
1,088
|
|
|
|
272
|
|
|
|
2,384
|
|
|
|
2004
|
|
Memphis,
TN
|
|
|
3
|
|
|
|
868
|
|
|
|
289
|
|
|
|
1,875
|
|
|
|
2004
|
|
Total/weighted
average
|
|
|
33
|
|
|
$
|
9,419
|
|
|
$
|
285
|
|
|
|
2,001
|
|
|
|
2007
|
|
View original
content:https://www.prnewswire.com/news-releases/arlington-asset-investment-corp-reports-third-quarter-2021-financial-results-301420415.html
SOURCE Arlington Asset Investment Corp.