MCLEAN,
Va., Aug. 9, 2022 /PRNewswire/
-- Arlington Asset Investment Corp. (NYSE: AAIC) (the
"Company" or "Arlington") today
reported financial results for the quarter ended June 30, 2022.
Second Quarter 2022 Financial Highlights
- $6.30 per common share of book
value
-
- 1.8% increase from March 31,
2022
- $0.01 per diluted common share of
GAAP net loss attributable to common shareholders
- $0.05 per diluted common share of
non-GAAP earnings available for distribution (formerly referred to
as core operating income)
- $0.09 per common share of book
value accretion from the repurchase of 3.2% of the outstanding
shares of common stock
-
- Purchased an additional 1.1% of the outstanding shares of
common stock through August 8,
2022
- 10.7 million share remaining authorization as of August 8, 2022
- 1.6 to 1 "at risk" leverage ratio
"Arlington's successful
transition from a primarily levered agency MBS strategy to one
focused on multiple high return, non-commodity investment channels
in mortgage servicing rights ("MSRs"), single-family residential
("SFR") rental properties and select credit investments continued
to produce positive results during the second quarter, including a
positive economic return for the fourth consecutive
quarter.
"The execution of this strategy has enabled the Company to
consistently grow book value per share during periods of volatile
market conditions while traditional mortgage REITs experienced
losses. Over the last twelve months, the Company delivered a 6.1%
economic return while its mortgage REIT peers have experienced a
negative 10.5% economic return," said J. Rock Tonkel, Jr., the
Company's President and Chief Executive Officer.
"The Company's differentiated investment strategy has performed
well during both positive and negative market conditions and is
positioned to continue to do so. With our largest investment
capital allocation in our MSR strategy, the Company's financial
results benefited from another strong quarterly performance in our
MSR investment portfolio that generated a total annualized return
of 41% during the second quarter.
"Within the Company's credit investment strategy, widening of
credit spreads has created compelling new investment opportunities
in high quality assets. Late in the second quarter, the Company
made several investments in highly rated senior commercial mortgage
bonds that offer double digit levered returns and is actively
evaluating similar investment opportunities.
"As of today, the Company has essentially reached its stated
goal of $200 million of SFR rental
properties with a total committed investment of $197 million and a strong expected net unlevered
rental yield of 4.8%. The Company previously announced that it had
entered into an agreement to sell a portion of its SFR portfolio
with an expected closing date later this month at a significant
gain that would be expected to add approximately $0.50 per share to our second quarter book value
if consummated. Assuming the sale is completed, we have the ability
to grow our SFR investment portfolio back to approximately
$200 million, subject to market
conditions, to fully realize the benefit of our below market fixed
rate five-year financing facility. However, we will take a
disciplined approach in purchasing new homes in the near term as
the residential housing market evolves in the current
environment.
"We continue to believe there is greater value in Arlington's business than the public markets
recognize. Since reinstituting our current common stock repurchase
program in 2020, the Company has aggressively returned capital to
shareholders by purchasing 25% of its outstanding shares,
delivering $0.75 per share of
accretion to shareholders.
"Having successfully positioned Arlington to preserve capital and grow book
value per share, the Company now has the opportunity to capitalize
on substantially wider investment spreads with superior risk
adjusted returns in the low to mid-teens in high grade residential
and commercial mortgage securitized products. We expect that the
redeployment of capital into these higher return investments will
drive greater earnings potential which can be used to increase our
equity capital, return capital to shareholders through accretive
stock repurchases or reinstate a dividend to common
shareholders."
Second Quarter Investment Portfolio
As of June 30, 2022, the Company's
investment portfolio capital allocation was as follows (dollars in
thousands):
|
|
June 30,
2022
|
|
|
|
Assets
|
|
|
Invested Capital
Allocation (1)
|
|
|
Invested Capital
Allocation (%)
|
|
|
Leverage
(2)
|
|
MSR financing
receivables
|
|
$
|
120,260
|
|
|
$
|
120,260
|
|
|
|
41
|
%
|
|
|
0.5
|
|
Single-family
residential properties
|
|
|
182,783
|
|
|
|
64,605
|
|
|
|
22
|
%
|
|
|
1.9
|
|
Credit investments
(3)
|
|
|
168,432
|
|
|
|
63,058
|
|
|
|
21
|
%
|
|
|
1.7
|
|
Agency MBS
(4)
|
|
|
235,781
|
|
|
|
48,102
|
|
|
|
16
|
%
|
|
|
4.0
|
|
Total invested
capital
|
|
$
|
707,256
|
|
|
|
296,025
|
|
|
|
100
|
%
|
|
|
|
Cash and other
corporate capital
|
|
|
|
|
|
5,486
|
|
|
|
|
|
|
|
Total investable
capital
|
|
|
|
|
$
|
301,511
|
|
|
|
|
|
1.6
|
|
(1)
|
Our investable capital
is calculated as the sum of our shareholders' equity capital plus
accumulated depreciation of our single-family residential
properties and long-term unsecured debt.
|
(2)
|
Our leverage is
measured as the ratio of the sum of our repurchase agreement
financing, long-term debt secured by single-family residential
properties, net payable or receivable for unsettled securities, net
contractual forward purchase (sale) price of our TBA commitments
and leverage within our MSR financing receivables less our cash and
cash equivalents compared to our investable capital.
|
(3)
|
Includes our net
investment of $25,529 in two variable interest entities with gross
assets and liabilities of $231,301 and $205,772, respectively, that
are consolidated for GAAP financial reporting purposes.
|
(4)
|
Agency MBS assets
include the fair value of the agency MBS which underlie the
Company's to-be-announced ("TBA") forward purchase and sale
commitments. In accordance with GAAP, the Company's TBA
forward commitments are reflected on the consolidated balance
sheets as derivative assets and liabilities at fair value in the
financial statement line items "other assets" and "other
liabilities." As of June 30, 2022, the fair value of the
agency MBS that underlie the Company's net short position in TBA
commitments had a fair value of $(146,576) and a net carrying value
of $337.
|
MSR Related Investments
The Company is party to agreements with a licensed, U.S.
government sponsored enterprise ("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 request, the mortgage servicing counterparty may utilize
leverage on the MSRs to which the Company's MSR financing
receivables are referenced to finance the purchase of additional
MSRs to increase potential returns to the Company. These
transactions are accounted for as financing receivables on the
Company's consolidated financial statements.
The Company's MSR financing receivable investments as of
June 30, 2022 are summarized in the
tables below (dollars in thousands):
Amortized Cost Basis
(1)
|
|
|
Unrealized
Gain
|
|
|
Fair
Value
|
|
$
|
74,866
|
|
|
$
|
45,394
|
|
|
$
|
120,260
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents capital
investments plus accretion of interest income net of cash
distributions.
|
MSR Financing
Receivable Underlying Reference Amounts:
|
|
|
|
|
|
|
|
MSRs
|
|
|
Financing
|
|
|
Advances
Receivable
|
|
|
Cash and Other
Net Receivables
|
|
|
Counterparty
Incentive Fee
Accrual
|
|
|
MSR Financing
Receivables
|
|
|
Implicit
Leverage
|
|
$
|
176,408
|
|
|
$
|
(60,868)
|
|
|
$
|
2,348
|
|
|
$
|
13,883
|
|
|
$
|
(11,511)
|
|
|
$
|
120,260
|
|
|
|
0.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
12,057,248
|
|
|
|
3.04
|
%
|
|
|
0.25
|
%
|
|
18 months
|
|
|
1.35
|
%
|
|
|
5.38
|
|
|
$
|
162,449
|
|
Freddie Mac
|
|
|
1,015,899
|
|
|
|
3.66
|
%
|
|
|
0.25
|
%
|
|
17 months
|
|
|
1.37
|
%
|
|
|
5.50
|
|
|
|
13,959
|
|
Total/weighted-average
|
|
$
|
13,073,147
|
|
|
|
3.09
|
%
|
|
|
0.25
|
%
|
|
18 months
|
|
|
1.35
|
%
|
|
|
5.39
|
|
|
$
|
176,408
|
|
(1)
|
Calculated as the
underlying MSR price divided by the weighted-average servicing
fee.
|
As of June 30, 2022, the mortgage
servicing counterparty had drawn $60.9
million of financing under its credit facility
collateralized by the MSRs to which the Company's MSR financing
receivables are referenced, resulting in an implicit leverage ratio
of 0.51 to 1. The weighted average yield on the Company's MSR
financing receivables was 15.28% for the second quarter of 2022
compared to 12.49% for the first quarter of 2022, and the actual
weighted-average constant prepayment rate ("CPR") for the MSRs
underlying the Company's MSR financing receivables was 8.10% for
the second quarter of 2022 compared to 8.71% for the first quarter
of 2022.
Single-family Residential Investments
As of June 30, 2022, the Company
had acquired 586 single family residential ("SFR") properties for a
total cost of $182.8 million and had
commitments to acquire an additional 25
SFR properties for an aggregate purchase price of
$9.0 million. The timing of the
earnings benefit to the Company from investing in SFR rental
properties is dictated by the pace of home purchases, the level of
any property level refurbishments required after purchase and the
length of the lease marketing period. The Company expects the
time period between the date of settlement of the home purchase to
the date the house is occupied by a tenant to average between 30 to
60 days. During the period prior to a lease commencement, the
Company is incurring costs to hold the property including real
estate taxes, insurance, homeowner association fees and interest
costs.
On May 10, 2022, the Company
entered into a purchase and sale agreement to sell 378 SFR properties for $132.8 million with an original closing date no
later than June 23, 2022.
Pursuant to the purchase and sale agreement, the buyer made a
$2.655 million initial deposit with
an escrow agent. On May 27,
2022, the Company entered into an amendment to the purchase
and sale agreement to remove two properties from the sale
transaction reducing the total properties to be sold to
376 SFR properties for $131.9 million. On June 20, 2022, the Company entered into an
additional amendment to the purchase and sale agreement that
required the buyer to fund an additional $2.655 million deposit with the escrow agent for
a total deposit of $5.31 million to
extend the closing date to no later than August 19, 2022. During the second quarter
of 2022, the Company classified the 376
SFR properties as held-for-sale.
As of June 30, 2022, the Company's
SFR portfolio is summarized in the tables below (dollars in
thousands):
|
|
Single-family
Residential
Real Estate
|
|
|
Single-family
Residential
Real Estate Held-for-
Sale
|
|
|
Total
|
|
Land
|
|
$
|
11,423
|
|
|
$
|
18,913
|
|
|
$
|
30,336
|
|
Buildings and
improvements
|
|
|
57,093
|
|
|
|
95,354
|
|
|
|
152,447
|
|
Investments in
single-family residential real estate, at cost
|
|
|
68,516
|
|
|
|
114,267
|
|
|
|
182,783
|
|
Less: accumulated
depreciation
|
|
|
(326)
|
|
|
|
(1,288)
|
|
|
|
(1,614)
|
|
Investments in
single-family residential real estate, net
|
|
$
|
68,190
|
|
|
$
|
112,979
|
|
|
$
|
181,169
|
|
Market
|
|
Number of
Properties
|
|
|
Gross Book
Value
|
|
|
Average Gross
Book Value
|
|
|
Average
Square Feet
|
|
|
Average
Year Built
|
|
Atlanta, GA
|
|
|
102
|
|
|
$
|
34,458
|
|
|
$
|
338
|
|
|
|
2,209
|
|
|
|
2008
|
|
Dallas, TX
|
|
|
88
|
|
|
|
30,920
|
|
|
|
351
|
|
|
|
1,915
|
|
|
|
2014
|
|
Huntsville,
AL
|
|
|
86
|
|
|
|
28,510
|
|
|
|
332
|
|
|
|
2,306
|
|
|
|
2015
|
|
Tulsa, OK
|
|
|
103
|
|
|
|
27,130
|
|
|
|
263
|
|
|
|
1,762
|
|
|
|
2016
|
|
Birmingham,
AL
|
|
|
69
|
|
|
|
18,606
|
|
|
|
270
|
|
|
|
1,690
|
|
|
|
2017
|
|
Kansas City,
MO
|
|
|
52
|
|
|
|
15,510
|
|
|
|
298
|
|
|
|
1,944
|
|
|
|
2008
|
|
Memphis, TN
|
|
|
49
|
|
|
|
14,421
|
|
|
|
294
|
|
|
|
1,890
|
|
|
|
2006
|
|
Charlotte,
NC
|
|
|
37
|
|
|
|
13,228
|
|
|
|
358
|
|
|
|
1,920
|
|
|
|
2010
|
|
Total/weighted
average
|
|
|
586
|
|
|
$
|
182,783
|
|
|
$
|
312
|
|
|
|
1,971
|
|
|
|
2012
|
|
Status of
Property
|
|
Number of
Properties
|
|
|
Gross Book
Value
|
|
In
rehabilitation
|
|
|
38
|
|
|
$
|
12,693
|
|
In marketing
|
|
|
97
|
|
|
|
31,455
|
|
Leased not yet
occupied
|
|
|
1
|
|
|
|
247
|
|
Leased and
occupied
|
|
|
450
|
|
|
|
138,388
|
|
Total
|
|
|
586
|
|
|
$
|
182,783
|
|
As of June 30, 2022, the Company
had drawn $123.0 million under its
$150 million credit facility.
Advances may be drawn up to 74% of the fair value of eligible SFR
properties with an advance period that expires in March 2023 with outstanding principal balance due
in October 2026. Advances under the facility bear interest at
a fixed rate of 2.76%.
Credit Investments
The Company's credit investments generally include mortgage
loans secured by residential or commercial real property or MBS
collateralized by residential or commercial mortgage loans or
residential solar panel loans ("non-agency" MBS or ABS). As
of June 30, 2022, the Company's
credit investment portfolio at fair value was comprised of the
following (dollars in thousands):
|
Fair Value
(1)
|
|
|
Market
Price
|
|
|
Leverage
|
|
Commercial
MBS
|
$
|
99,901
|
|
|
$
|
99.90
|
|
|
|
5.6
|
|
Commercial mortgage
loan
|
|
29,484
|
|
|
|
100.00
|
|
|
|
2.3
|
|
Residential MBS -
interest-only (2)
|
|
19,255
|
|
|
|
8.12
|
|
|
|
—
|
|
Residential MBS
(2)
|
|
1,082
|
|
|
|
67.11
|
|
|
|
—
|
|
Business purpose
residential MBS (3)
|
|
15,683
|
|
|
|
93.51
|
|
|
|
—
|
|
Residential solar panel
loan ABS
|
|
3,027
|
|
|
|
59.81
|
|
|
|
—
|
|
Total/weighted-average
|
$
|
168,432
|
|
|
|
|
|
|
1.7
|
|
(1)
|
For credit investments
in securities, includes contractual accrued interest
receivable.
|
(2)
|
Residential MBS -
interest-only and residential MBS, in combination, reflect our net
investment at fair value of $20,337 in a VIE that is consolidated
for GAAP financial reporting purposes.
|
(3)
|
Includes our net
investment at fair value of $5,192 in a VIE that is consolidated
for GAAP financial reporting purposes.
|
As of June 30, 2022, the Company
had $84.8 million in repurchase
agreements outstanding with a weighted average rate of 2.81% and
remaining weighted average maturity of 17 days secured by
$99.9 million of non-agency MBS at
fair value. As of June 30,
2022, the Company had a $20.6
million repurchase agreement outstanding with a rate of
3.77% and remaining maturity of 260 days secured by a $29.5 million commercial mortgage loan at fair
value.
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 GSE, such as the Federal National
Mortgage Association ("Fannie Mae") or the Federal Home Loan
Mortgage Corporation ("Freddie Mac"). As of June 30, 2022, the Company's agency MBS
investment portfolio totaled $235.8
million at fair value comprised of $382.4 million of specified agency MBS and
$(146.6) million of net short
to-be-announced ("TBA") agency MBS. As of June 30, 2022, the Company's specified agency MBS
investment portfolio was comprised of the following (dollars in
thousands):
|
|
Unpaid
Principal
Balance
|
|
|
Net
Unamortized
Purchase
Premiums
(Discounts)
|
|
|
Amortized
Cost Basis
|
|
|
Net
Unrealized
Gain
(Loss)
|
|
|
Fair
Value
|
|
|
Market
Price
|
|
|
Coupon
|
|
|
Weighted
Average
Expected
Remaining
Life
|
|
30-year fixed
rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.5 %
|
|
$
|
68,634
|
|
|
$
|
(844)
|
|
|
$
|
67,790
|
|
|
$
|
(1,440)
|
|
|
$
|
66,350
|
|
|
$
|
96.67
|
|
|
|
3.50
|
%
|
|
|
9.2
|
|
4.0 %
|
|
|
202,817
|
|
|
|
1,253
|
|
|
|
204,070
|
|
|
|
(3,191)
|
|
|
|
200,879
|
|
|
|
99.04
|
|
|
|
4.00
|
%
|
|
|
9.0
|
|
4.5 %
|
|
|
114,419
|
|
|
|
(9)
|
|
|
|
114,410
|
|
|
|
710
|
|
|
|
115,120
|
|
|
|
100.61
|
|
|
|
4.50
|
%
|
|
|
8.1
|
|
5.5 %
|
|
|
8
|
|
|
|
—
|
|
|
|
8
|
|
|
|
—
|
|
|
|
8
|
|
|
|
107.89
|
|
|
|
5.50
|
%
|
|
|
5.7
|
|
Total/weighted-average
|
|
$
|
385,878
|
|
|
$
|
400
|
|
|
$
|
386,278
|
|
|
$
|
(3,921)
|
|
|
$
|
382,357
|
|
|
$
|
99.09
|
|
|
|
4.06
|
%
|
|
|
8.8
|
|
The Company's weighted average yield on its specified agency MBS
was 2.95% for the second quarter of 2022 compared to 1.52% for the
first quarter of 2022, and the actual weighted-average CPR for the
Company's specified agency MBS was 8.40% for the second quarter of
2022 compared to 9.01% for the first quarter of 2022.
As of June 30, 2022, the Company's
net short TBA agency MBS investment portfolio was comprised of the
following (dollars in thousands):
|
|
Notional Amount:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Long (Short)
|
|
|
Implied
|
|
|
Implied
|
|
|
Net
Carrying
|
|
|
|
Position
(1)
|
|
|
Cost Basis
(2)
|
|
|
Fair Value
(3)
|
|
|
Amount
(4)
|
|
2.5% 30-year MBS sale
commitments
|
|
$
|
(25,000)
|
|
|
$
|
(22,649)
|
|
|
$
|
(22,472)
|
|
|
$
|
177
|
|
3.0% 30-year MBS sale
commitments
|
|
|
(30,000)
|
|
|
|
(27,970)
|
|
|
|
(27,932)
|
|
|
|
38
|
|
3.5% 30-year MBS sale
commitments
|
|
|
(100,000)
|
|
|
|
(95,486)
|
|
|
|
(96,172)
|
|
|
|
(686)
|
|
4.5% 30-year MBS
purchase commitments
|
|
|
50,000
|
|
|
|
50,121
|
|
|
|
50,195
|
|
|
|
74
|
|
4.5% 30-year MBS sale
commitments
|
|
|
(50,000)
|
|
|
|
(50,929)
|
|
|
|
(50,195)
|
|
|
|
734
|
|
Total net long (short)
agency TBA positions
|
|
$
|
(155,000)
|
|
|
$
|
(146,913)
|
|
|
$
|
(146,576)
|
|
|
$
|
337
|
|
(1)
|
Notional amount
represents the unpaid principal balance of the underlying agency
MBS.
|
(2)
|
Implied cost basis
represents the contractual forward price for the underlying agency
MBS.
|
(3)
|
Implied fair value
represents the current fair value of the underlying agency
MBS.
|
(4)
|
Net carrying amount
represents the difference between the implied cost basis and the
implied fair value of the underlying agency MBS. This amount
is reflected on the Company's consolidated balance sheets as a
component of "other assets" and "other liabilities."
|
As of June 30, 2022, the Company
had $224.6 million of repurchase
agreements outstanding with a weighted average rate of 1.48% and
remaining weighted average maturity of 14 days secured by an
aggregate of $237.4 million of agency
MBS at fair value. The Company's weighted average cost of
repurchase agreement funding secured by agency MBS was 0.80% during
the second quarter of 2022 compared to 0.17% during the first
quarter of 2022.
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 June 30, 2022, the Company's interest swap
agreements were comprised of the following (dollars in
thousands):
|
|
|
|
|
Weighted-average:
|
|
|
|
Notional Amount
|
|
|
Fixed Pay
Rate
|
|
|
Variable Receive
Rate
|
|
|
Net Receive
(Pay) Rate
|
|
|
Remaining
Life (Years)
|
|
Years to
maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 3
years
|
|
$
|
130,000
|
|
|
|
1.32
|
%
|
|
|
1.22
|
%
|
|
|
(0.10)
|
%
|
|
|
1.5
|
|
3 to less than 10
years
|
|
|
100,000
|
|
|
|
1.68
|
%
|
|
|
1.30
|
%
|
|
|
(0.38)
|
%
|
|
|
5.4
|
|
Total /
weighted-average
|
|
$
|
230,000
|
|
|
|
1.48
|
%
|
|
|
1.25
|
%
|
|
|
(0.23)
|
%
|
|
|
3.2
|
|
The Company's weighted average net pay rate of its interest rate
swap agreements was 0.53% during the second quarter of 2022
compared to 0.68% during the first quarter of 2022. 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 to line
item "investment and derivative gains (losses), net" in the
Company's financial statements.
Other Second Quarter 2022 Financial Highlights
The Company's book value was $6.30
per common share as of June 30, 2022
compared to $6.19 per common share as
of March 31, 2022. Book value
per common share is calculated as total equity plus accumulated
depreciation of SFR properties less the preferred stock liquidation
preference divided by common shares outstanding plus vested
restricted stock units convertible into common stock less unvested
restricted common stock.
The Company's "at risk" leverage ratio was 1.6 to 1 as of
June 30, 2022 compared to 1.3 to 1 as
of March 31, 2022. The
Company's "at risk" leverage ratio is calculated as the sum of the
Company's repurchase agreement financing, long-term debt secured by
single-family properties, net payable or receivable for unsettled
securities, net contractual price of TBA purchase and sale
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 second quarter of 2022, the Company repurchased 0.9
million shares of its common stock at an average price of
$3.40 per share for a total purchase
cost of $3.2 million, representing
3.2% of common stock outstanding as of March
31, 2022. Subsequent to June
30, 2022, the Company repurchased an additional 0.3 million
shares of its common stock at an average price of $3.18 per share for a total purchase cost of
$1.0 million, representing 1.1% of
common stock outstanding as of June
30, 2022. Currently, the Company has remaining
authorization from its Board of Directors to repurchase up to 10.7
million shares of its common stock. In addition, during the
second quarter of 2022, the Company repurchased 0.1 million shares
of Series C Preferred Stock at an average price of $24.17 per share for a total purchase cost of
$1.7 million.
Conference Call
The Company will hold a conference call for investors at
10:00 A.M. Eastern Time on Wednesday,
August 10, 2022 to discuss the Company's second quarter 2022
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 residential real estate 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, our ability to close on the
sale of single-family residential homes described herein, and to
realize the expected benefits from such sale, 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)
|
|
|
|
June 30,
2022
|
|
|
March 31,
2022
|
|
ASSETS
|
|
|
|
|
|
|
Cash and cash
equivalents (includes $247 and $73, respectively,
from consolidated VIEs)
|
|
$
|
9,575
|
|
|
$
|
21,715
|
|
Restricted
cash
|
|
|
1,270
|
|
|
|
851
|
|
Restricted cash of
consolidated VIEs
|
|
|
4,649
|
|
|
|
9,292
|
|
Agency mortgage-backed
securities, at fair value
|
|
|
382,357
|
|
|
|
292,318
|
|
MSR financing
receivables, at fair value
|
|
|
120,260
|
|
|
|
139,225
|
|
Credit investments, at
fair value
|
|
|
142,903
|
|
|
|
54,952
|
|
Mortgage loans of
consolidated VIEs, at fair value
|
|
|
225,004
|
|
|
|
261,976
|
|
Single-family
residential real estate (net of $326 and $1,010, respectively,
of
accumulated depreciation)
|
|
|
68,190
|
|
|
|
120,952
|
|
Single-family
residential real estate held-for-sale (net of $1,288 and $-0-,
respectively, of accumulated depreciation)
|
|
|
112,979
|
|
|
|
—
|
|
Deposits
|
|
|
4,623
|
|
|
|
4,607
|
|
Other assets (includes
$1,401 and $1,461, respectively, from consolidated VIEs)
|
|
|
12,945
|
|
|
|
14,995
|
|
Total
assets
|
|
$
|
1,084,755
|
|
|
$
|
920,883
|
|
LIABILITIES AND
EQUITY
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
Repurchase
agreements
|
|
$
|
329,994
|
|
|
$
|
284,862
|
|
Purchased securities
payable
|
|
|
114,410
|
|
|
|
—
|
|
Secured debt of
consolidated VIEs, at fair value
|
|
|
205,497
|
|
|
|
244,365
|
|
Long-term unsecured
debt
|
|
|
86,199
|
|
|
|
86,096
|
|
Long-term debt secured
by single-family properties
|
|
|
122,770
|
|
|
|
77,824
|
|
Other liabilities
(includes $275 and $293, respectively, from consolidated
VIEs)
|
|
|
12,187
|
|
|
|
9,639
|
|
Total
liabilities
|
|
|
871,057
|
|
|
|
702,786
|
|
Equity:
|
|
|
|
|
|
|
Preferred stock
(liquidation preference of $35,609 and $37,418,
respectively)
|
|
|
34,608
|
|
|
|
36,357
|
|
Common stock
|
|
|
291
|
|
|
|
301
|
|
Additional paid-in
capital
|
|
|
2,025,345
|
|
|
|
2,027,585
|
|
Accumulated
deficit
|
|
|
(1,846,546)
|
|
|
|
(1,846,146)
|
|
Total
equity
|
|
|
213,698
|
|
|
|
218,097
|
|
Total liabilities
and equity
|
|
$
|
1,084,755
|
|
|
$
|
920,883
|
|
Book value per
common share (1)
|
|
$
|
6.30
|
|
|
$
|
6.19
|
|
Common shares
outstanding (in thousands) (2)
|
|
|
28,529
|
|
|
|
29,345
|
|
|
|
|
|
|
|
|
(1) Book value per
common share is calculated as total equity plus accumulated
depreciation of single-family residential real estate 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.
|
|
|
|
|
|
|
|
|
|
|
June 30,
2022
|
|
|
March 31,
2022
|
|
Assets and
liabilities of consolidated VIEs:
|
|
|
|
|
|
|
Cash and restricted
cash
|
|
$
|
4,896
|
|
|
$
|
9,365
|
|
Mortgage loans, at fair
value
|
|
|
225,004
|
|
|
|
261,976
|
|
Other assets
|
|
|
1,401
|
|
|
|
1,461
|
|
Secured debt, at fair
value
|
|
|
(205,497)
|
|
|
|
(244,365)
|
|
Other
liabilities
|
|
|
(275)
|
|
|
|
(293)
|
|
Net investment in
consolidated VIEs
|
|
$
|
25,529
|
|
|
$
|
28,144
|
|
ARLINGTON ASSET
INVESTMENT CORP.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Dollars in thousands,
except per share data)
(Unaudited)
|
|
|
|
Three Months
Ended
|
|
|
|
June 30,
2022
|
|
|
March 31,
2022
|
|
|
December 31,
2021
|
|
|
September 30,
2021
|
|
Interest
income
|
|
|
|
|
|
|
|
|
|
|
|
|
MSR financing
receivables
|
|
$
|
3,983
|
|
|
$
|
3,382
|
|
|
$
|
2,589
|
|
|
$
|
1,945
|
|
Agency mortgage-backed
securities
|
|
|
2,065
|
|
|
|
1,492
|
|
|
|
2,206
|
|
|
|
2,660
|
|
Credit securities and
loans
|
|
|
991
|
|
|
|
853
|
|
|
|
772
|
|
|
|
1,247
|
|
Mortgage loans of
consolidated VIEs
|
|
|
1,611
|
|
|
|
1,354
|
|
|
|
144
|
|
|
|
301
|
|
Other
|
|
|
113
|
|
|
|
325
|
|
|
|
169
|
|
|
|
193
|
|
Total interest and
other income
|
|
|
8,763
|
|
|
|
7,406
|
|
|
|
5,880
|
|
|
|
6,346
|
|
Rent revenues from
single-family properties
|
|
|
2,137
|
|
|
|
1,064
|
|
|
|
259
|
|
|
|
—
|
|
Interest
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase
agreements
|
|
|
763
|
|
|
|
276
|
|
|
|
286
|
|
|
|
306
|
|
Long-term debt secured
by single-family properties
|
|
|
718
|
|
|
|
408
|
|
|
|
151
|
|
|
|
—
|
|
Long-term unsecured
debt
|
|
|
1,400
|
|
|
|
1,370
|
|
|
|
1,376
|
|
|
|
1,435
|
|
Secured debt of
consolidated VIEs
|
|
|
1,578
|
|
|
|
1,188
|
|
|
|
20
|
|
|
|
173
|
|
Total interest
expense
|
|
|
4,459
|
|
|
|
3,242
|
|
|
|
1,833
|
|
|
|
1,914
|
|
Single-family
property operating expenses
|
|
|
1,915
|
|
|
|
1,531
|
|
|
|
593
|
|
|
|
36
|
|
Net operating
income
|
|
|
4,526
|
|
|
|
3,697
|
|
|
|
3,713
|
|
|
|
4,396
|
|
Investment and
derivative gain (loss), net
|
|
|
370
|
|
|
|
(827)
|
|
|
|
3,909
|
|
|
|
(1,313)
|
|
General and
administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and
benefits
|
|
|
2,324
|
|
|
|
2,065
|
|
|
|
1,855
|
|
|
|
1,888
|
|
Other general and
administrative expenses
|
|
|
1,463
|
|
|
|
1,219
|
|
|
|
1,125
|
|
|
|
1,009
|
|
Total general and
administrative expenses
|
|
|
3,787
|
|
|
|
3,284
|
|
|
|
2,980
|
|
|
|
2,897
|
|
Income (loss) before
income taxes
|
|
|
1,109
|
|
|
|
(414)
|
|
|
|
4,642
|
|
|
|
186
|
|
Income tax
provision
|
|
|
802
|
|
|
|
2,287
|
|
|
|
808
|
|
|
|
436
|
|
Net income
(loss)
|
|
|
307
|
|
|
|
(2,701)
|
|
|
|
3,834
|
|
|
|
(250)
|
|
Dividend on preferred
stock
|
|
|
(707)
|
|
|
|
(742)
|
|
|
|
(739)
|
|
|
|
(731)
|
|
Net (loss) income
(attributable) available to
common stock
|
|
$
|
(400)
|
|
|
$
|
(3,443)
|
|
|
$
|
3,095
|
|
|
$
|
(981)
|
|
Basic (loss) earnings
per common share
|
|
$
|
(0.01)
|
|
|
$
|
(0.12)
|
|
|
$
|
0.10
|
|
|
$
|
(0.03)
|
|
Diluted (loss) earnings
per common share
|
|
$
|
(0.01)
|
|
|
$
|
(0.12)
|
|
|
$
|
0.10
|
|
|
$
|
(0.03)
|
|
Weighted average
common shares outstanding (in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
28,766
|
|
|
|
29,832
|
|
|
|
31,100
|
|
|
|
31,927
|
|
Diluted
|
|
|
28,766
|
|
|
|
29,832
|
|
|
|
31,421
|
|
|
|
31,927
|
|
Non-GAAP Earnings Available for Distribution
In addition to the results of operations determined in
accordance with GAAP, we also report a non-GAAP financial measure
"earnings available for distribution" (formerly core operating
income). We define earnings available for distribution as net
income available to common stock determined in accordance with GAAP
adjusted for the following items:
- Plus (less) realized and unrealized losses (gains) on
investments and derivatives;
- Plus (less) income tax provision (benefit) for TRS realized and
unrealized gains and losses on investments and derivatives
- Plus TBA dollar roll income
- Plus (less) interest rate swap net interest income
(expense)
- Plus depreciation of single-family residential properties
- Plus stock-based compensation
Realized and unrealized gains and losses recognized with respect
to our mortgage related investments and economic hedging
instruments, which are reported in line item "investment and
derivative gain (loss), net" of our consolidated statements of
comprehensive income, other than TBA dollar roll income and
interest rate swap net interest income or expense, are excluded
from the computation of earnings available for distribution as such
gains on losses are not reflective of the economic interest income
earned or interest expense incurred from our interest-bearing
financial assets and liabilities during the indicated reporting
period. Because our long-term-focused investment strategy for
our mortgage related investment portfolio is to generate a net
spread on the leveraged assets while prudently hedging periodic
changes in the fair value of those assets attributable to changes
in benchmark interest rates, we generally expect the fluctuations
in the fair value of our mortgage related investments and economic
hedging instruments to largely offset one another over time.
In addition, certain of our investments are held by our TRS which
is subject to U.S. federal and state corporate income taxes.
In calculating earnings available for distribution, any income tax
provision or benefit associated with gains or losses on our
mortgage related investments and economic hedging instruments are
also excluded from earnings available for distribution.
TBA dollar roll income represents the economic equivalent of net
interest income (implied interest income net of financing costs)
generated from our investments in non-specified fixed-rate agency
MBS, executed through sequential series of forward-settling
purchase and sale transactions that are settled on a net basis
(known as "dollar roll" transactions). Dollar roll income is
generated as a result of delaying, or "rolling," the settlement of
a forward-settling purchase of a TBA agency MBS by entering into an
offsetting "spot" sale with the same counterparty prior to the
settlement date, net settling the "paired-off" positions in cash,
and contemporaneously entering another forward-settling purchase
with the same counterparty of a TBA agency MBS of the same
essential characteristics for a later settlement date at a price
discount relative to the spot sale. The price discount of the
forward-settling purchase relative to the contemporaneously
executed spot sale reflects compensation for the interest income
(inclusive of expected prepayments) that, at the time of sale, is
expected to be foregone as a result of relinquishing beneficial
ownership of the MBS from the settlement date of the spot sale
until the settlement date of the forward purchase, net of implied
repurchase financing costs. We calculate dollar roll income as the
excess of the spot sale price over the forward-settling purchase
price and recognize this amount ratably over the period beginning
on the settlement date of the sale and ending on the settlement
date of the forward purchase. In our consolidated statements of
comprehensive income prepared in accordance with GAAP, TBA agency
MBS dollar roll income is reported as a component of the overall
periodic change in the fair value of TBA forward commitments within
the line item "investment and derivative gain (loss), net."
We utilize interest rate swap agreements to economically hedge a
portion of our exposure to variability in future interest cash
flows, attributable to changes in benchmark interest rates,
associated with future roll-overs of our short-term repurchase
agreement financing arrangements. Accordingly, the net interest
income earned or expense incurred (commonly referred to as "net
interest carry") from our interest rate swap agreements in
combination with repurchase agreement interest expense recognized
in accordance with GAAP represents our effective "economic interest
expense." In our consolidated statements of comprehensive income
prepared in accordance with GAAP, the net interest income earned or
expense incurred from interest rate swap agreements is reported as
a component of the overall periodic change in the fair value of
derivative instruments within the line item "investment and
derivative gain (loss), net."
The following table provides a reconciliation of GAAP net income
(loss) available (attributable) to common stock for the last four
fiscal quarters (unaudited, dollars in thousands):
|
|
Three Months
Ended
|
|
|
|
June 30,
2022
|
|
|
March 31,
2022
|
|
|
December 31,
2021
|
|
|
September 30,
2021
|
|
Net (loss) income
(attributable) available to common stock
|
|
$
|
(400)
|
|
|
$
|
(3,443)
|
|
|
$
|
3,095
|
|
|
$
|
(981)
|
|
Add
(less):
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment and
derivative (gain) loss, net
|
|
|
(370)
|
|
|
|
827
|
|
|
|
(3,909)
|
|
|
|
1,313
|
|
Income tax provision
for TRS investment gain
|
|
|
496
|
|
|
|
2,058
|
|
|
|
679
|
|
|
|
351
|
|
Depreciation of
single-family residential properties
|
|
|
604
|
|
|
|
715
|
|
|
|
287
|
|
|
|
12
|
|
Stock-based
compensation expense
|
|
|
992
|
|
|
|
761
|
|
|
|
523
|
|
|
|
520
|
|
Add
back:
|
|
|
|
|
|
|
|
|
|
|
|
|
TBA dollar roll
income
|
|
|
280
|
|
|
|
823
|
|
|
|
465
|
|
|
|
1,064
|
|
Interest rate swap net
interest expense
|
|
|
(282)
|
|
|
|
(291)
|
|
|
|
(653)
|
|
|
|
(379)
|
|
Non-GAAP earnings
available for distribution
|
|
$
|
1,320
|
|
|
$
|
1,450
|
|
|
$
|
487
|
|
|
$
|
1,900
|
|
Non-GAAP earnings
available for distribution per
diluted common share
|
|
$
|
0.05
|
|
|
$
|
0.05
|
|
|
$
|
0.02
|
|
|
$
|
0.06
|
|
Weighted average
diluted common shares outstanding
|
|
|
29,300
|
|
|
|
30,315
|
|
|
|
31,421
|
|
|
|
32,243
|
|
Earnings available for distribution is used by management to
evaluate the financial performance of our long-term-focused, net
interest spread-based 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. In addition, we believe that earnings
available for distribution assists investors in understanding and
evaluating the financial performance of our long-term-focused, net
interest spread-based 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 all 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. In addition, our
calculation of earnings available for distribution may not be
comparable to other similarly titled measures of other
companies. Therefore, we believe that earnings available for
distribution should be considered as a supplement to, and in
conjunction with, net income and comprehensive income determined in
accordance with GAAP. Furthermore, there may be differences between
earnings available for distribution and taxable income determined
in accordance with the Internal Revenue Code. As a REIT, we
are required to distribute at least 90% of our REIT taxable income
(subject to certain adjustments) to qualify as a REIT and all of
our taxable income in order to not be subject to any U.S. federal
or state corporate income taxes. Accordingly, earnings available
for distribution may not equal our distribution requirements as a
REIT.
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SOURCE Arlington Asset Investment Corp.