ARLINGTON, Va., Feb. 19, 2019 /PRNewswire/ -- Arlington
Asset Investment Corp. (NYSE: AI) (the "Company" or "Arlington") today reported a net loss
attributable to common shareholders of $26.5
million, or $0.87 per diluted
common share, loss before income taxes attributable to common
shareholders of $60.1 million, or
$1.98 per diluted common share, and
non-GAAP core operating income of $13.4
million, or $0.44 per diluted
common share, for the quarter ended December
31, 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.
Fourth Quarter 2018 Financial Highlights
- $0.87 per diluted common share of
GAAP net loss
-
- Includes a $1.11 per diluted
common share deferred income tax benefit
- $1.98 per diluted common share of
GAAP pre-tax loss
- $0.44 per diluted common share of
non-GAAP core operating income
- $8.71 per common share of book
value
-
- $9.22 per common share of book
value as of January 31, 2019
- $0.375 per common share
dividend
- Announced plan to elect to be taxed as a real estate investment
trust ("REIT") commencing with the taxable year ending December 31, 2019
Full Year 2018 Financial Highlights
- $3.18 per diluted common share of
GAAP net loss
-
- Includes a $0.03 per diluted
common share deferred income tax provision
- $3.15 per diluted common share of
GAAP pre-tax loss
- $2.06 per diluted common share of
non-GAAP core operating income
- $1.675 per common share
dividend
"Volatile market conditions driven by a strong risk off
sentiment in the fourth quarter caused significant widening of
spreads across fixed income products, including agency
mortgage-backed securities ("MBS")," said J. Rock Tonkel, Jr., the
Company's President and Chief Executive Officer. "These
conditions have given way to a meaningfully more favorable
environment in early 2019, marked by improved book value, a more
benign Federal Reserve outlook, new investments with solid
mid-teens returns and ample funding availability, all of which bode
well for future long-term returns and make us optimistic about
opportunities going forward."
Other Fourth Quarter Highlights
As of December 31, 2018, the
Company's agency MBS investment portfolio totaled $3,982 million in fair value, consisting solely
of specified agency MBS. As of December 31, 2018, the Company did not have any
net long to-be-announced ("TBA") agency MBS positions. As of
December 31, 2018, the Company's
$3,982 million agency MBS investment
portfolio was comprised of the following:
- $335 million of 3.5% coupon
30-year agency MBS
- $2,149 million of 4.0% coupon
30-year agency MBS
- $1,498 million of 4.5% coupon
30-year agency MBS
As of December 31, 2018, the
Company's $3,982 million specified
agency MBS portfolio had a weighted average amortized cost basis of
$104.70 and a weighted average market
price of $102.98. 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 three-fifths of a
percentage point as of December 31,
2018, compared to two-fifths of a percentage point as of
September 30, 2018. As of January 31,
2019, the Company's agency MBS portfolio totaled
$4,279 million in fair value,
consisting of $3,640 million of
specified agency MBS and $639 million
of net long TBA agency MBS.
As of December 31, 2018, the
Company had $3,722 million of
repurchase agreements outstanding with a weighted average rate of
2.72% and remaining weighted average maturity of 17 days secured by
an aggregate of $3,931 million of
agency MBS at fair value. As of
January 31, 2019, the weighted
average rate of the Company's repurchase agreements outstanding had
declined to 2.65%.
GAAP net interest income was $10.6
million for the fourth quarter of 2018 compared to
$10.3 million for the third quarter
of 2018, including the amortization of the Company's net premium on
its agency MBS of $7.2 million for
the fourth quarter of 2018 compared to $8.4
million for the third quarter of 2018. The Company's
weighted average yield on its agency MBS was 3.30% for the fourth
quarter of 2018 compared to 3.11% for the third quarter of 2018,
and the actual weighted-average constant prepayment rate ("CPR")
for the Company's agency MBS was 8.25% for the fourth quarter of
2018 compared to 10.66% for the third quarter of 2018. The
Company's weighted average cost of repurchase agreement funding was
2.43% during the fourth quarter of 2018 compared to 2.17% during
the third 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. As of December 31,
2018, the Company had $3,100
million in notional amount of interest rate swap agreements
with a weighted average pay fixed rate of 2.07% and a remaining
weighted average maturity of 6.6 years. The Company's
weighted average net receive rate of its interest rate swap
agreements was 0.33% during the fourth quarter of 2018 compared to
0.30% during the third quarter of 2018.
In addition to interest rate swap agreements, the Company held
$320 million in equivalent notional
amount of short positions in 10-year U.S. Treasury note futures as
of December 31, 2018 that were
purchased during the fourth quarter of 2018 when the 10-year U.S.
Treasury rate was 3.01%. As of December 31, 2018, the total notional amount of
the Company's interest rate hedges consisting of interest rate
swaps and U.S. Treasury note futures was 92% of the Company's
outstanding repurchase agreement funding and net TBA purchase
commitments with a net duration gap of negative 1.1 years.
The Company reported TBA dollar roll income of $2.9 million for the fourth quarter of 2018
compared to $4.6 million for the
third quarter of 2018. The implied weighted-average net
interest spread of the Company's TBA dollar rolls was 1.66% for the
fourth quarter of 2018 compared to 1.86% for the third 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 $15.9
million for the fourth quarter of 2018 compared to
$17.2 million for the third 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, the Company had net investment
gains on our investment portfolio of $29.3
million for the fourth quarter of 2018. On our related
interest rate hedging instruments, the Company had net investment
losses of $103.5 million, excluding
interest rate swap net interest income. This results in a net
investment loss on our hedged investment portfolio of $74.2 million, or $2.44 per diluted common share, for the fourth
quarter of 2018.
Total general and administrative expenses were $1.7 million for the fourth quarter of 2018
compared to $4.0 million for the
third quarter of 2018, a decline of 58%. Total general and
administrative expenses were $13.4
million for full year 2018 compared to $18.6 million for full year 2017, a decline of
28%. The decline in total general and administrative expenses
was driven primarily by lower compensation and benefits expenses
due to lower annual short-term cash incentive compensation and
lower long-term performance-based stock compensation.
Compensation and benefits expenses were $0.4 million for the fourth quarter of 2018
compared to $2.8 million for the
third quarter of 2018, a decline of 86%. Compensation and
benefits expenses were $8.3 million
for full year 2018 compared to $13.2
million for full year 2017, a decline of 37%. Other general and administrative expenses were
$5.0 million for full year 2018
compared to $5.4 million for full
year 2017, a decline of 7%.
Election to be Taxed as a REIT
On December 27, 2018, the
Company's Board of Directors approved a plan for the Company to
elect to be taxed and to operate in a manner that will allow the
Company to qualify as a REIT for U.S. federal income tax purposes
commencing with the Company's taxable year ending December 31, 2019. For taxable years ending
December 31, 2018 and prior, the
Company was subject to taxation as a corporation under Subchapter C
of the Internal Revenue Code of 1986, as amended. With the
expectation that the Company would utilize its net operating loss
("NOL") carryforwards as a C Corporation in 2019, the Board of
Directors believes that the Company's plan to elect to be taxed as
a REIT is the best long-term tax structure for both the Company and
its shareholders. As a result of its announcement that it
expects to be taxed as a REIT beginning January 1, 2019, the Company's deferred tax
assets and liabilities were eliminated as of December 31, 2018.
As a REIT, the Company can continue to utilize its NOL and net
capital loss ("NCL") carryforwards to reduce its taxable income and
therefore its REIT distribution requirements. As of
December 31, 2018, the Company
estimated its NOL carryforward at $14.5
million that expires in 2028 and its NCL carryforward at
$424.2 million that begins to expire
in 2019. In addition, the Company had an alternative minimum
tax ("AMT") credit carryforward of $9.1
million as of December 31,
2018 that does not expire. The AMT credit carryforward
can be realized as either a cash refund or as an offset to future
regular tax liabilities or a combination of both. The
Company's estimated loss and tax credit carryforwards as of
December 31, 2018 are subject to
potential adjustments up to the time of filing the Company's income
tax returns.
Distributions to Shareholders
The Company's Board of Directors approved a distribution to
common shareholders of $0.375 per
share for the fourth quarter of 2018. The distribution was
paid on January 31, 2019 to
shareholders of record as of December
31, 2018. The Company's Board of Directors also
approved a distribution to its Series B preferred shareholders of
$0.4375 per share for the fourth
quarter of 2018. The distribution was paid on December 31, 2018 to shareholders of record as of
December 12, 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. The Company has
also announced the tax characteristics of the distributions paid to
its common and preferred shareholders in calendar year 2018.
The Company's distributions paid to common shareholders in 2018 of
$1.85 per share were all a return of
capital. The Company's distributions paid to its Series B
preferred shareholders in 2018 of $1.75 per share were also all a return of
capital. Shareholders should receive a Form 1099-DIV
containing this information from their brokers, transfer agents or
other institutions. The fourth quarter 2018 distribution to
the Company's common shareholders paid in January 2019 will be reported as a 2019
distribution for federal income tax purposes.
Commencing with its taxable year ending December 31, 2019, the Company intends to elect
and operate in a manner that will allow it to qualify as a REIT for
U.S. federal income tax purposes. 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 9:00 A.M. Eastern Time on Tuesday, February 19,
2019 to discuss the Company's fourth 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 REIT 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, 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 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)
|
|
|
|
December 31,
2018
|
|
|
September 30,
2018
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
26,713
|
|
|
$
|
32,199
|
|
Interest
receivable
|
|
|
13,349
|
|
|
|
14,818
|
|
Mortgage-backed
securities, at fair value
|
|
|
|
|
|
|
|
|
Agency
|
|
|
3,982,106
|
|
|
|
4,399,466
|
|
Private-label
|
|
|
24
|
|
|
|
37
|
|
Derivative assets, at
fair value
|
|
|
438
|
|
|
|
91
|
|
Deposits,
net
|
|
|
61,052
|
|
|
|
73,966
|
|
Other
assets
|
|
|
15,768
|
|
|
|
15,835
|
|
Total
assets
|
|
$
|
4,099,450
|
|
|
$
|
4,536,412
|
|
LIABILITIES AND
EQUITY
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Repurchase
agreements
|
|
$
|
3,721,629
|
|
|
$
|
4,092,251
|
|
Interest
payable
|
|
|
4,646
|
|
|
|
4,241
|
|
Accrued compensation
and benefits
|
|
|
3,732
|
|
|
|
3,665
|
|
Dividend
payable
|
|
|
11,736
|
|
|
|
12,723
|
|
Derivative
liabilities, at fair value
|
|
|
6,959
|
|
|
|
3,431
|
|
Deferred tax
liabilities, net
|
|
|
ā
|
|
|
|
33,639
|
|
Other
liabilities
|
|
|
2,200
|
|
|
|
1,724
|
|
Long-term unsecured
debt
|
|
|
74,104
|
|
|
|
74,048
|
|
Total
liabilities
|
|
|
3,825,006
|
|
|
|
4,225,722
|
|
Equity:
|
|
|
|
|
|
|
|
|
Preferred stock
(liquidation preference of $8,765 and $8,654,
respectively)
|
|
|
8,245
|
|
|
|
8,138
|
|
Common
stock
|
|
|
305
|
|
|
|
303
|
|
Additional paid-in
capital
|
|
|
1,997,876
|
|
|
|
1,997,281
|
|
Accumulated
deficit
|
|
|
(1,731,982)
|
|
|
|
(1,695,032)
|
|
Total
equity
|
|
|
274,444
|
|
|
|
310,690
|
|
Total liabilities
and equity
|
|
$
|
4,099,450
|
|
|
$
|
4,536,412
|
|
Book value per
common share (1)
|
|
$
|
8.71
|
|
|
$
|
9.95
|
|
Tangible book
value per common share (2)
|
|
$
|
8.71
|
|
|
$
|
11.06
|
|
Common shares
outstanding (in thousands) (3)
|
|
|
30,516
|
|
|
|
30,364
|
|
|
|
|
|
|
|
|
|
|
(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 less net deferred tax assets
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)
|
|
|
|
Year
Ended
|
|
|
Three Months
Ended
|
|
|
|
December
31,
2018
|
|
|
December
31,
2018
|
|
|
September
30,
2018
|
|
|
June
30,
2018
|
|
|
March
31,
2018
|
|
Interest
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency mortgage-backed
securities
|
|
$
|
130,258
|
|
|
$
|
36,914
|
|
|
$
|
32,679
|
|
|
$
|
29,940
|
|
|
$
|
30,725
|
|
Private-label
mortgage-backed securities
|
|
|
20
|
|
|
|
4
|
|
|
|
2
|
|
|
|
10
|
|
|
|
4
|
|
Other
|
|
|
675
|
|
|
|
256
|
|
|
|
183
|
|
|
|
105
|
|
|
|
131
|
|
Total interest
income
|
|
|
130,953
|
|
|
|
37,174
|
|
|
|
32,864
|
|
|
|
30,055
|
|
|
|
30,860
|
|
Interest
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term secured
debt
|
|
|
79,812
|
|
|
|
25,286
|
|
|
|
21,265
|
|
|
|
17,936
|
|
|
|
15,325
|
|
Long-term unsecured
debt
|
|
|
5,013
|
|
|
|
1,264
|
|
|
|
1,261
|
|
|
|
1,257
|
|
|
|
1,231
|
|
Total interest
expense
|
|
|
84,825
|
|
|
|
26,550
|
|
|
|
22,526
|
|
|
|
19,193
|
|
|
|
16,556
|
|
Net interest
income
|
|
|
46,128
|
|
|
|
10,624
|
|
|
|
10,338
|
|
|
|
10,862
|
|
|
|
14,304
|
|
Investment loss,
net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) gain on trading
investments, net
|
|
|
(114,522)
|
|
|
|
32,591
|
|
|
|
(37,878)
|
|
|
|
(20,892)
|
|
|
|
(88,343)
|
|
(Loss) gain from
derivative instruments, net
|
|
|
(9,657)
|
|
|
|
(101,483)
|
|
|
|
35,620
|
|
|
|
16,052
|
|
|
|
40,154
|
|
Other, net
|
|
|
357
|
|
|
|
(18)
|
|
|
|
1
|
|
|
|
324
|
|
|
|
50
|
|
Total investment loss,
net
|
|
|
(123,822)
|
|
|
|
(68,910)
|
|
|
|
(2,257)
|
|
|
|
(4,516)
|
|
|
|
(48,139)
|
|
General and
administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and
benefits
|
|
|
8,329
|
|
|
|
395
|
|
|
|
2,833
|
|
|
|
2,061
|
|
|
|
3,040
|
|
Other general and
administrative expenses
|
|
|
5,041
|
|
|
|
1,263
|
|
|
|
1,121
|
|
|
|
1,400
|
|
|
|
1,257
|
|
Total general and
administrative expenses
|
|
|
13,370
|
|
|
|
1,658
|
|
|
|
3,954
|
|
|
|
3,461
|
|
|
|
4,297
|
|
(Loss) income
before income taxes
|
|
|
(91,064)
|
|
|
|
(59,944)
|
|
|
|
4,127
|
|
|
|
2,885
|
|
|
|
(38,132)
|
|
Income tax provision
(benefit)
|
|
|
733
|
|
|
|
(33,639)
|
|
|
|
9,628
|
|
|
|
6,493
|
|
|
|
18,251
|
|
Net
loss
|
|
|
(91,797)
|
|
|
|
(26,305)
|
|
|
|
(5,501)
|
|
|
|
(3,608)
|
|
|
|
(56,383)
|
|
Dividend on preferred
stock
|
|
|
(590)
|
|
|
|
(153)
|
|
|
|
(151)
|
|
|
|
(149)
|
|
|
|
(137)
|
|
Net loss
attributable to common stock
|
|
$
|
(92,387)
|
|
|
$
|
(26,458)
|
|
|
$
|
(5,652)
|
|
|
$
|
(3,757)
|
|
|
$
|
(56,520)
|
|
Basic loss per common
share
|
|
$
|
(3.18)
|
|
|
$
|
(0.87)
|
|
|
$
|
(0.19)
|
|
|
$
|
(0.13)
|
|
|
$
|
(2.00)
|
|
Diluted loss per
common share
|
|
$
|
(3.18)
|
|
|
$
|
(0.87)
|
|
|
$
|
(0.19)
|
|
|
$
|
(0.13)
|
|
|
$
|
(2.00)
|
|
Weighted average
common shares outstanding (in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
29,052
|
|
|
|
30,392
|
|
|
|
29,382
|
|
|
|
28,210
|
|
|
|
28,197
|
|
Diluted
|
|
|
29,052
|
|
|
|
30,392
|
|
|
|
29,382
|
|
|
|
28,210
|
|
|
|
28,197
|
|
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 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.
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 and for the year ended December 31, 2018 (unaudited, amounts in
thousands, except per share amounts):
|
|
Year
Ended
|
|
|
Three Months
Ended
|
|
|
|
December
31,
2018
|
|
|
December
31,
2018
|
|
|
September
30,
2018
|
|
|
June
30,
2018
|
|
|
March
31,
2018
|
|
GAAP net interest
income
|
|
$
|
46,128
|
|
|
$
|
10,624
|
|
|
$
|
10,338
|
|
|
$
|
10,862
|
|
|
$
|
14,304
|
|
TBA dollar roll
income
|
|
|
20,929
|
|
|
|
2,940
|
|
|
|
4,604
|
|
|
|
6,742
|
|
|
|
6,643
|
|
Interest rate swap
net interest income (expense)
|
|
|
6,266
|
|
|
|
2,304
|
|
|
|
2,295
|
|
|
|
2,483
|
|
|
|
(816)
|
|
Economic net interest
income
|
|
|
73,323
|
|
|
|
15,868
|
|
|
|
17,237
|
|
|
|
20,087
|
|
|
|
20,131
|
|
Core general and
administrative
expenses
|
|
|
(12,534)
|
|
|
|
(2,324)
|
|
|
|
(3,202)
|
|
|
|
(3,162)
|
|
|
|
(3,846)
|
|
Preferred stock
dividend
|
|
|
(590)
|
|
|
|
(153)
|
|
|
|
(151)
|
|
|
|
(149)
|
|
|
|
(137)
|
|
Non-GAAP core
operating income
|
|
$
|
60,199
|
|
|
$
|
13,391
|
|
|
$
|
13,884
|
|
|
$
|
16,776
|
|
|
$
|
16,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP core
operating income per
diluted
common share
|
|
$
|
2.06
|
|
|
$
|
0.44
|
|
|
$
|
0.47
|
|
|
$
|
0.59
|
|
|
$
|
0.57
|
|
Weighted average
diluted common
shares
outstanding
|
|
|
29,269
|
|
|
|
30,437
|
|
|
|
29,718
|
|
|
|
28,463
|
|
|
|
28,430
|
|
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 and for the year ended December 31, 2018 (unaudited, amounts in
thousands):
|
|
Year
Ended
|
|
|
Three Months
Ended
|
|
|
|
December
31,
2018
|
|
|
December
31,
2018
|
|
|
September
30,
2018
|
|
|
June
30,
2018
|
|
|
March
31,
2018
|
|
GAAP (loss) income
before income taxes
|
|
$
|
(91,064)
|
|
|
$
|
(59,944)
|
|
|
$
|
4,127
|
|
|
$
|
2,885
|
|
|
$
|
(38,132)
|
|
Add
(less):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment loss,
net
|
|
|
123,822
|
|
|
|
68,910
|
|
|
|
2,257
|
|
|
|
4,516
|
|
|
|
48,139
|
|
Stock-based
compensation expense
|
|
|
836
|
|
|
|
(666)
|
|
|
|
752
|
|
|
|
299
|
|
|
|
451
|
|
Preferred stock
dividend
|
|
|
(590)
|
|
|
|
(153)
|
|
|
|
(151)
|
|
|
|
(149)
|
|
|
|
(137)
|
|
Add
back:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TBA dollar roll
income
|
|
|
20,929
|
|
|
|
2,940
|
|
|
|
4,604
|
|
|
|
6,742
|
|
|
|
6,643
|
|
Interest rate swap net
interest income (expense)
|
|
|
6,266
|
|
|
|
2,304
|
|
|
|
2,295
|
|
|
|
2,483
|
|
|
|
(816)
|
|
Non-GAAP core
operating income
|
|
$
|
60,199
|
|
|
$
|
13,391
|
|
|
$
|
13,884
|
|
|
$
|
16,776
|
|
|
$
|
16,148
|
|
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 December 31, 2018 (unaudited, dollars in
thousands):
Agency MBS:
|
|
Fair
Value
|
|
Specified agency
MBS
|
|
$
|
3,982,106
|
|
Net long agency TBA
position
|
|
|
ā
|
|
Total
|
|
$
|
3,982,106
|
|
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%
|
|
$
|
334,614
|
|
|
$
|
6,396
|
|
|
$
|
341,010
|
|
|
$
|
(5,830)
|
|
|
$
|
335,180
|
|
|
$
|
100.17
|
|
|
|
3.50
|
%
|
|
|
8.0
|
|
4.0%
|
|
|
2,096,002
|
|
|
|
100,805
|
|
|
|
2,196,807
|
|
|
|
(48,257)
|
|
|
|
2,148,550
|
|
|
|
102.51
|
|
|
|
4.00
|
%
|
|
|
7.3
|
|
4.5%
|
|
|
1,436,241
|
|
|
|
74,566
|
|
|
|
1,510,807
|
|
|
|
(12,446)
|
|
|
|
1,498,361
|
|
|
|
104.33
|
|
|
|
4.50
|
%
|
|
|
6.5
|
|
5.5%
|
|
|
14
|
|
|
|
ā
|
|
|
|
14
|
|
|
|
1
|
|
|
|
15
|
|
|
|
107.59
|
|
|
|
5.50
|
%
|
|
|
5.7
|
|
Total/weighted-average
|
|
$
|
3,866,871
|
|
|
$
|
181,767
|
|
|
$
|
4,048,638
|
|
|
$
|
(66,532)
|
|
|
$
|
3,982,106
|
|
|
$
|
102.98
|
|
|
|
4.14
|
%
|
|
|
7.1
|
|
Net Long Agency TBA Positions:
|
|
Notional
Amount:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Long
(Short)
Position
|
|
|
Implied
Cost
Basis
|
|
|
Implied
Fair
Value
|
|
|
Net
Carrying
Amount
|
|
5.0% 30-year MBS
purchase commitments
|
|
$
|
100,000
|
|
|
$
|
103,750
|
|
|
$
|
104,047
|
|
|
$
|
297
|
|
5.0% 30-year MBS sale
commitments
|
|
|
(100,000)
|
|
|
|
(104,188)
|
|
|
|
(104,047)
|
|
|
|
141
|
|
Total TBA commitments,
net
|
|
$
|
ā
|
|
|
$
|
(438)
|
|
|
$
|
ā
|
|
|
$
|
438
|
|
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
|
%
|
|
|
2.60
|
%
|
|
|
1.07
|
%
|
|
|
1.5
|
|
|
$
|
(152)
|
|
3 to less than 7
years
|
|
|
325,000
|
|
|
|
2.00
|
%
|
|
|
2.73
|
%
|
|
|
0.73
|
%
|
|
|
4.4
|
|
|
|
(432)
|
|
7 to less than 10
years
|
|
|
1,600,000
|
|
|
|
2.35
|
%
|
|
|
2.70
|
%
|
|
|
0.35
|
%
|
|
|
8.5
|
|
|
|
(4,572)
|
|
10 or more
years
|
|
|
125,000
|
|
|
|
3.02
|
%
|
|
|
2.66
|
%
|
|
|
(0.36)
|
%
|
|
|
29.6
|
|
|
|
(553)
|
|
Total /
weighted-average
|
|
$
|
3,100,000
|
|
|
|
2.07
|
%
|
|
|
2.67
|
%
|
|
|
0.60
|
%
|
|
|
6.6
|
|
|
$
|
(5,709)
|
|
U.S. Treasury Note Futures:
|
|
Maturity
Date
|
|
Notional
Amount
|
|
|
Net Fair
Value
|
|
10-year U.S. Treasury
note futures
|
|
March 2019
|
|
$
|
320,000
|
|
|
$
|
(1,250)
|
|
|
|
|
|
|
|
|
|
|
|
|
View original
content:http://www.prnewswire.com/news-releases/arlington-asset-investment-corp-reports-fourth-quarter-and-full-year-2018-financial-results-300797567.html
SOURCE Arlington Asset Investment Corp.