ARLINGTON, Va., July 24, 2017 /PRNewswire/ -- Arlington
Asset Investment Corp. (NYSE: AI) (the "Company" or "Arlington") today reported a net loss
attributable to common shareholders of $18.0
million, or $0.74 per diluted
common share, and non-GAAP core operating income of $14.2 million, or $0.58 per diluted common share, for the quarter
ended June 30, 2017. A
reconciliation of non-GAAP core operating income to GAAP net income
(loss) before income taxes appears at the end of this press
release.
Second Quarter 2017 Financial Highlights
- $0.74 per diluted common share of
GAAP net loss
- $0.58 per diluted common share of
non-GAAP core operating income
- $13.48 per common share of book
value
- $12.55 per common share of
tangible book value
- $0.55 per common share
dividend
"The Company generated solid net interest income and non-GAAP
core operating income during the second quarter," said J. Rock Tonkel, Jr., the Company's President and
Chief Executive Officer. "Despite three interest rate hikes
in a six-month period by the Federal Reserve, the Company has
continued to produce resilient spread earnings to support an
attractive dividend to our common shareholders illustrating the
importance of hedged funding costs on fixed rate portfolios.
Agency MBS pricing moderately underperformed interest rate swap
hedges during the quarter leading to a decline in the Company's
tangible book value. However, the Company delivered a
positive total economic return for the quarter measured as the
change in tangible book value plus the $0.55 per common share dividend."
Other Second Quarter Highlights
As of June 30, 2017, the Company's
agency MBS investment portfolio totaled $5,340 million in fair value, consisting of
$4,183 million of specified agency
mortgage-backed securities ("MBS") and $1,157 million of net long to-be-announced
("TBA") agency MBS. As of June 30,
2017, the Company's $5,340
million agency MBS investment portfolio was comprised of the
following:
- $1,808 million of 3.5% coupon
30-year agency MBS
- $3,388 million of 4.0% coupon
30-year agency MBS
- $144 million of 4.5% coupon
30-year agency MBS
As of June 30, 2017, the Company's
$4,183 million specified agency MBS
portfolio had a weighted average amortized cost basis of
$105.52 and a weighted average market
price of $104.99. 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 one-half a
percentage point as of June 30, 2017,
relatively unchanged from March 31,
2017.
As of June 30, 2017, the Company's
net long TBA agency MBS investment portfolio had a purchase price
of $1,161 million and market value of
$1,157 million, resulting in a net
GAAP carrying fair value of $(4)
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 June 30, 2017, the Company
had $3,914 million of repurchase
agreements outstanding with a weighted average rate of 1.33% and
remaining weighted average maturity of 13 days secured by an
aggregate of $4,102 million of agency
MBS at fair value.
Interest income less interest expense on short-term financing on
the Company's agency MBS portfolio was $20.1
million for the second quarter of 2017 compared to
$21.4 million for the first quarter
of 2017, including the amortization of the Company's net premium on
its agency MBS of $8.5 million for
the second quarter of 2017 compared to $7.4
million for the first quarter of 2017. The Company's
weighted average yield on its agency MBS was 2.85% for the second
quarter of 2017, unchanged from the first quarter of 2017, and the
actual weighted-average constant prepayment rate ("CPR") for the
Company's agency MBS was 9.03% for the second quarter of 2017
compared to 8.17% for the first quarter of 2017.
The Company reported TBA dollar roll income of $4.3 million for the second quarter of 2017
compared to $3.4 million for the
first quarter of 2017. The implied weighted-average net
interest spread of the Company's TBA dollar rolls was 2.42% for the
second quarter of 2017 compared to 2.45% for the first quarter of
2017. 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.
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, and put and call options on
10-year U.S. Treasury note futures.
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. As of June 30,
2017, the Company had $975
million in notional amount of interest rate swap agreements
maturing in less than 3 years with a weighted average pay fixed
rate of 1.18% and a remaining weighted average maturity of 1.7
years, $500 million in notional
amount of interest rate swap agreements maturing between 3 to 7
years with a weighted average pay fixed rate of 1.91% and weighted
average maturity of 4.0 years, and $2,000
million in notional amount of interest rate swap agreements
maturing between 7 to 10 years with a weighted average pay fixed
rate of 2.01% and a remaining weighted average maturity of 8.9
years. In addition, the Company had $375 million in notional amount of forward
starting two-year interest rate swap agreements that become
effective in September and October of 2017 with a weighted average
pay fixed rate of 1.13%.
In addition to interest rate swap agreements, the Company held
$350 million in equivalent notional
amount of short positions in 10-year U.S. Treasury note futures
that were purchased during the second quarter of 2017 when the
10-year U.S. Treasury rate was 2.26%. To limit exposure of
its overall interest rate hedge portfolio in a significantly
falling interest rate environment, the Company also purchased
contracts that provide it with the option to call 10-year U.S.
Treasury note futures from a counterparty with an equivalent
notional amount of $700 million that
were struck at a weighted average strike price per contract that
equates to a 10-year U.S. Treasury rate of approximately 1.81%.
Excluding TBA dollar roll income and interest rate swap net
interest expense included in non-GAAP core operating income, the
Company had net investment gains on its investment portfolio of
$15.9 million and net investment
losses on its related interest rate derivative hedging instruments
of $30.8 million for a net investment
loss on its hedged investment portfolio of $14.9 million, or $0.58 per common share.
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 June 30, 2017,
the Company estimated its net operating loss ("NOL") carry-forward
at $75.4 million that begins to
expire in 2027, its net capital loss ("NCL") carry-forward at
$324.4 million that begins to expire
in 2019, and its alternative minimum tax ("AMT") credit
carry-forward at $8.8 million that do
not expire. The Company's estimated loss and tax credit
carry-forwards as of June 30, 2017
are subject to potential adjustments up to the time of filing the
Company's income tax returns. For GAAP purposes, the Company
had a net deferred tax asset of $24.2
million, or $0.93 per common
share, as of June 30, 2017.
Capital Issuances
During the second quarter of 2017, the Company issued 2,331,489
shares of Class A common stock at a weighted average public
offering price of $14.51 per common
share for proceeds of $33.4 million,
net of underwriting discounts and commissions, under its equity
distribution agreements. On May 12,
2017, the Company completed a public offering in which it
issued 135,000 shares of 7.00% Series B Cumulative Perpetual
Redeemable Preferred Stock ("Series B Preferred Stock") at a public
offering price of $24.00 per share
for proceeds of $3.1 million, net of
underwriting discounts and commissions. During the second
quarter of 2017, the Company issued an additional 21,310 shares of
Series B Preferred Stock at a weighted average public offering
price of $24.41 per share for
proceeds of $0.5 million, net of
underwriting and commissions, under its equity distribution
agreement.
Distributions to Shareholders
The Company's Board of Directors approved a distribution to
common shareholders of $0.55 per
share for the second quarter of 2017. The distribution will
be paid on July 31, 2017 to
shareholders of record as of June 30,
2017. The Company's Board of Directors also approved an
initial distribution to its Series B preferred shareholders of
$0.238 per share for the second
quarter of 2017. The distribution was paid to shareholders on
June 30, 2017 to shareholders of
record as of June 19, 2017.
The tax characterization of the Company's distributions to
shareholders is determined annually and reported to shareholders on
Form 1099-DIV after the end of the calendar year. As a
C-corporation, distributions to common and preferred 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 shareholders by a REIT of current
or accumulated earnings and profits are nonqualified dividends
subject to the higher 43.4% maximum federal tax rate, 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 Tuesday, July 25,
2017 to discuss the Company's second quarter 2017 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 carry-forwards 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, 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
carry-forwards, 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 carry-forwards,
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 Annual Report on Form 10-K for the year
ended December 31, 2016 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.
Financial data to follow
ARLINGTON ASSET
INVESTMENT CORP.
|
CONSOLIDATED
BALANCE SHEETS
|
(Dollars in
thousands, except per share amounts)
|
(Unaudited)
|
|
|
|
June 30,
2017
|
|
|
March 31, 2017
(4)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
73,308
|
|
|
$
|
15,775
|
|
Interest
receivable
|
|
|
12,785
|
|
|
|
13,723
|
|
Sold securities
receivable
|
|
|
—
|
|
|
|
160,431
|
|
Mortgage-backed
securities, at fair value
|
|
|
|
|
|
|
|
|
Agency
|
|
|
4,182,529
|
|
|
|
4,391,274
|
|
Private-label
|
|
|
74
|
|
|
|
1,292
|
|
Derivative assets, at
fair value
|
|
|
7,965
|
|
|
|
5,546
|
|
Deferred tax assets,
net
|
|
|
24,162
|
|
|
|
40,546
|
|
Deposits,
net
|
|
|
65,339
|
|
|
|
63,782
|
|
Other
assets
|
|
|
2,729
|
|
|
|
3,520
|
|
Total
assets
|
|
$
|
4,368,891
|
|
|
$
|
4,695,889
|
|
LIABILITIES AND
EQUITY
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Repurchase
agreements
|
|
$
|
3,913,699
|
|
|
$
|
4,241,855
|
|
Interest
payable
|
|
|
3,020
|
|
|
|
2,415
|
|
Accrued compensation
and benefits
|
|
|
2,958
|
|
|
|
1,589
|
|
Dividend
payable
|
|
|
15,548
|
|
|
|
15,964
|
|
Derivative
liabilities, at fair value
|
|
|
4,038
|
|
|
|
6,096
|
|
Other
liabilities
|
|
|
1,233
|
|
|
|
4,380
|
|
Long-term unsecured
debt
|
|
|
73,768
|
|
|
|
73,712
|
|
Total
liabilities
|
|
|
4,014,264
|
|
|
|
4,346,011
|
|
Equity:
|
|
|
|
|
|
|
|
|
Preferred stock
(liquidation preference of $3,908 and $-0-,
respectively)
|
|
|
3,500
|
|
|
|
—
|
|
Common
stock
|
|
|
260
|
|
|
|
236
|
|
Additional paid-in
capital
|
|
|
1,944,847
|
|
|
|
1,911,194
|
|
Accumulated
deficit
|
|
|
(1,593,980)
|
|
|
|
(1,561,552)
|
|
Total
equity
|
|
|
354,627
|
|
|
|
349,878
|
|
Total liabilities
and equity
|
|
$
|
4,368,891
|
|
|
$
|
4,695,889
|
|
Book value per
common share (1)
|
|
$
|
13.48
|
|
|
$
|
14.79
|
|
Tangible book
value per common share (2)
|
|
$
|
12.55
|
|
|
$
|
13.08
|
|
Common shares
outstanding (in thousands) (3)
|
|
|
26,026
|
|
|
|
23,652
|
|
|
|
|
|
|
|
|
|
|
(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 and net deferred tax assets
divided by common shares outstanding.
|
|
|
|
|
|
|
|
|
|
|
(3) Represents common
shares outstanding plus vested restricted stock units convertible
into common stock less unvested restricted common stock.
|
|
|
|
|
|
|
|
|
|
|
(4) During the second
quarter of 2017, the Company determined that it was appropriate to
revise the previously reported deferred tax asset, net and
accumulated deficit by decreasing the deferred tax asset, net and
increasing the accumulated deficit by $24,603.
|
|
ARLINGTON ASSET
INVESTMENT CORP.
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
(Dollars in
thousands, except per share data)
|
(Unaudited)
|
|
|
Three Months
Ended
|
|
|
|
June 30,
2017
|
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
|
September 30,
2016
|
|
Interest
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency mortgage-backed
securities
|
|
$
|
31,397
|
|
|
$
|
30,286
|
|
|
$
|
24,073
|
|
|
$
|
23,917
|
|
Private-label
mortgage-backed securities
|
|
|
43
|
|
|
|
37
|
|
|
|
473
|
|
|
|
1,655
|
|
Other
|
|
|
21
|
|
|
|
20
|
|
|
|
31
|
|
|
|
82
|
|
Total interest
income
|
|
|
31,461
|
|
|
|
30,343
|
|
|
|
24,577
|
|
|
|
25,654
|
|
Interest
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term secured
debt
|
|
|
11,314
|
|
|
|
8,859
|
|
|
|
7,231
|
|
|
|
6,193
|
|
Long-term unsecured
debt
|
|
|
1,214
|
|
|
|
1,207
|
|
|
|
1,205
|
|
|
|
1,197
|
|
Total interest
expense
|
|
|
12,528
|
|
|
|
10,066
|
|
|
|
8,436
|
|
|
|
7,390
|
|
Net interest
income
|
|
|
18,933
|
|
|
|
20,277
|
|
|
|
16,141
|
|
|
|
18,264
|
|
Investment (loss)
gain, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized gain on sale
of available-for-sale
investments,
net
|
|
|
—
|
|
|
|
—
|
|
|
|
2,931
|
|
|
|
2,439
|
|
Gain (loss) on trading
investments, net
|
|
|
15,855
|
|
|
|
(4,219)
|
|
|
|
(122,332)
|
|
|
|
2,468
|
|
(Loss) gain from
derivative instruments, net
|
|
|
(31,678)
|
|
|
|
2,305
|
|
|
|
88,285
|
|
|
|
15,196
|
|
Other, net
|
|
|
(147)
|
|
|
|
152
|
|
|
|
(87)
|
|
|
|
619
|
|
Total investment
(loss) gain, net
|
|
|
(15,970)
|
|
|
|
(1,762)
|
|
|
|
(31,203)
|
|
|
|
20,722
|
|
General and
administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and
benefits
|
|
|
2,804
|
|
|
|
3,445
|
|
|
|
2,776
|
|
|
|
3,430
|
|
Other general and
administrative expenses
|
|
|
1,350
|
|
|
|
1,480
|
|
|
|
1,343
|
|
|
|
1,200
|
|
Total general and
administrative expenses
|
|
|
4,154
|
|
|
|
4,925
|
|
|
|
4,119
|
|
|
|
4,630
|
|
(Loss) income
before income taxes
|
|
|
(1,191)
|
|
|
|
13,590
|
|
|
|
(19,181)
|
|
|
|
34,356
|
|
Income tax
provision
|
|
|
16,737
|
|
|
|
8,336
|
|
|
|
22,255
|
|
|
|
15,543
|
|
Net (loss)
income
|
|
|
(17,928)
|
|
|
|
5,254
|
|
|
|
(41,436)
|
|
|
|
18,813
|
|
Dividend on preferred
stock
|
|
|
(35)
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net (loss) income
(attributable) available to common stock
|
|
$
|
(17,963)
|
|
|
$
|
5,254
|
|
|
$
|
(41,436)
|
|
|
$
|
18,813
|
|
Basic (loss) earnings
per common share
|
|
$
|
(0.74)
|
|
|
$
|
0.22
|
|
|
$
|
(1.79)
|
|
|
$
|
0.82
|
|
Diluted (loss)
earnings per common share
|
|
$
|
(0.74)
|
|
|
$
|
0.22
|
|
|
$
|
(1.79)
|
|
|
$
|
0.81
|
|
Weighted average
common shares outstanding (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
24,319
|
|
|
|
23,652
|
|
|
|
23,167
|
|
|
|
23,038
|
|
Diluted
|
|
|
24,319
|
|
|
|
23,897
|
|
|
|
23,167
|
|
|
|
23,349
|
|
Other
comprehensive (loss) income, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized losses on
available-for-sale securities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(221)
|
|
Reclassification in
investment loss, net, related to sales of available-for-sale securities
|
|
|
—
|
|
|
|
—
|
|
|
|
(4,685)
|
|
|
|
(2,324)
|
|
Comprehensive
(loss) income
|
|
$
|
(17,928)
|
|
|
$
|
5,254
|
|
|
$
|
(46,121)
|
|
|
$
|
16,268
|
|
The following tables present information on the Company's
investment and hedge portfolio as of June
30, 2017 (unaudited, dollars in thousands):
Agency
MBS:
|
|
|
|
Fair
Value
|
|
Specified agency
MBS
|
|
$
|
4,182,529
|
|
Net long agency TBA
position
|
|
|
1,156,841
|
|
Total
|
|
$
|
5,339,370
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.5%
|
|
$
|
1,321,063
|
|
|
$
|
63,350
|
|
|
$
|
1,384,413
|
|
|
$
|
(23,260)
|
|
|
$
|
1,361,153
|
|
|
$
|
103.03
|
|
|
|
3.50
|
%
|
|
|
7.0
|
|
4.0%
|
|
|
2,529,999
|
|
|
|
145,582
|
|
|
|
2,675,581
|
|
|
|
2,410
|
|
|
|
2,677,991
|
|
|
|
105.85
|
|
|
|
4.00
|
%
|
|
|
6.3
|
|
4.5%
|
|
|
132,812
|
|
|
|
10,828
|
|
|
|
143,640
|
|
|
|
(277)
|
|
|
|
143,363
|
|
|
|
107.94
|
|
|
|
4.50
|
%
|
|
|
5.3
|
|
5.5%
|
|
|
20
|
|
|
|
—
|
|
|
|
20
|
|
|
|
2
|
|
|
|
22
|
|
|
|
111.66
|
|
|
|
5.50
|
%
|
|
|
5.6
|
|
Total/weighted-average
|
|
$
|
3,983,894
|
|
|
$
|
219,760
|
|
|
$
|
4,203,654
|
|
|
$
|
(21,125)
|
|
|
$
|
4,182,529
|
|
|
|
104.99
|
|
|
|
3.85
|
%
|
|
|
6.5
|
|
Net Long Agency
TBA Positions:
|
|
|
|
Notional
Amount:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Long
(Short)
Position
|
|
|
Implied
Cost
Basis
|
|
|
Implied
Fair
Value
|
|
|
Net
Carrying
Amount
|
|
30-year 3.5% coupon
purchase commitments
|
|
$
|
435,000
|
|
|
$
|
448,641
|
|
|
$
|
446,826
|
|
|
$
|
(1,815)
|
|
30-year 4.0% coupon
purchase commitments
|
|
|
700,000
|
|
|
|
738,535
|
|
|
|
736,312
|
|
|
|
(2,223)
|
|
30-year 4.0% coupon
sale commitments
|
|
|
(25,000)
|
|
|
|
(26,344)
|
|
|
|
(26,297)
|
|
|
|
47
|
|
Total TBA commitments,
net
|
|
$
|
1,110,000
|
|
|
$
|
1,160,832
|
|
|
$
|
1,156,841
|
|
|
$
|
(3,991)
|
|
Interest Rate
Swaps Currently Effective:
|
|
|
|
|
|
|
|
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
|
|
$
|
975,000
|
|
|
|
1.18
|
%
|
|
|
1.24
|
%
|
|
|
0.06
|
%
|
|
|
1.7
|
|
|
$
|
352
|
|
3 to less than 7
years
|
|
|
500,000
|
|
|
|
1.91
|
%
|
|
|
1.21
|
%
|
|
|
(0.70)
|
%
|
|
|
4.0
|
|
|
|
644
|
|
7 to 10
years
|
|
|
2,000,000
|
|
|
|
2.01
|
%
|
|
|
1.23
|
%
|
|
|
(0.78)
|
%
|
|
|
8.9
|
|
|
|
5,721
|
|
Total /
weighted-average
|
|
$
|
3,475,000
|
|
|
|
1.76
|
%
|
|
|
1.23
|
%
|
|
|
(0.53)
|
%
|
|
|
6.2
|
|
|
$
|
6,717
|
|
Forward-Starting
Interest Rate Swaps:
|
|
|
|
|
|
|
|
Weighted-average:
|
|
|
|
|
|
|
|
Notional Amount
|
|
|
Fixed
Pay Rate
|
|
|
Term After
Effective
Date (Years)
|
|
|
Fair Value
|
|
Effective in
September / October 2017
|
|
$
|
375,000
|
|
|
|
1.13
|
%
|
|
|
2.0
|
|
|
$
|
190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10-year U.S.
Treasury Note Futures:
|
|
Maturity
Date
|
|
Notional
Amount
|
|
|
Net Fair
Value
|
|
September
2017
|
|
$
|
350,000
|
|
|
$
|
984
|
|
|
|
|
|
|
|
|
|
|
Options on 10-year
U.S. Treasury Note Futures:
|
|
|
|
Notional
Amount
|
|
|
Weighted-
average Strike
Price
|
|
|
Implied
Strike
Rate
(1)
|
|
|
Net Fair
Value
|
|
Purchased call
options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 2017
expiration
|
|
$
|
700,000
|
|
|
|
129.9
|
|
|
|
1.81
|
%
|
|
$
|
27
|
|
|
(1) The implied strike rate
is estimated based upon the weighted average strike price per
option contract and the price of an equivalent U.S. Treasury note
futures contract.
|
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 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 core
operating income for the last four fiscal quarters (unaudited,
amounts in thousands, except per share amounts):
|
|
Three Months
Ended
|
|
|
|
June 30,
2017
|
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
|
September 30,
2016
|
|
GAAP net interest
income
|
|
$
|
18,933
|
|
|
$
|
20,277
|
|
|
$
|
16,141
|
|
|
$
|
18,264
|
|
TBA dollar roll
income
|
|
|
4,298
|
|
|
|
3,398
|
|
|
|
6,426
|
|
|
|
5,321
|
|
Interest rate swap
net interest expense
|
|
|
(5,293)
|
|
|
|
(5,409)
|
|
|
|
(4,326)
|
|
|
|
(5,126)
|
|
Economic net interest
income
|
|
|
17,938
|
|
|
|
18,266
|
|
|
|
18,241
|
|
|
|
18,459
|
|
Core and general
administrative expenses
|
|
|
(3,681)
|
|
|
|
(4,024)
|
|
|
|
(3,326)
|
|
|
|
(3,612)
|
|
Preferred stock
dividend
|
|
|
(35)
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Non-GAAP core
operating income
|
|
$
|
14,222
|
|
|
$
|
14,242
|
|
|
$
|
14,915
|
|
|
$
|
14,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP core
operating income per
diluted
common share
|
|
$
|
0.58
|
|
|
$
|
0.60
|
|
|
$
|
0.64
|
|
|
$
|
0.64
|
|
Weighted average
diluted common
shares
outstanding
|
|
|
24,552
|
|
|
|
23,897
|
|
|
|
23,343
|
|
|
|
23,349
|
|
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
|
|
|
|
June 30,
2017
|
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
|
September 30,
2016
|
|
GAAP (loss) income
before income taxes
|
|
$
|
(1,191)
|
|
|
$
|
13,590
|
|
|
$
|
(19,181)
|
|
|
$
|
34,356
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment loss
(gain), net
|
|
|
15,970
|
|
|
|
1,762
|
|
|
|
31,203
|
|
|
|
(20,722)
|
|
Stock-based
compensation expense
|
|
|
473
|
|
|
|
901
|
|
|
|
793
|
|
|
|
1,018
|
|
Preferred stock
dividend
|
|
|
(35)
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Add
back:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TBA dollar roll
income
|
|
|
4,298
|
|
|
|
3,398
|
|
|
|
6,426
|
|
|
|
5,321
|
|
Interest rate swap net
interest expense
|
|
|
(5,293)
|
|
|
|
(5,409)
|
|
|
|
(4,326)
|
|
|
|
(5,126)
|
|
Non-GAAP core
operating income
|
|
$
|
14,222
|
|
|
$
|
14,242
|
|
|
$
|
14,915
|
|
|
$
|
14,847
|
|
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.
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content:http://www.prnewswire.com/news-releases/arlington-asset-investment-corp-reports-second-quarter-2017-financial-results-300493297.html
SOURCE Arlington Asset Investment Corp.