MCLEAN, Va., Nov. 3, 2020 /PRNewswire/
-- Arlington Asset Investment Corp. (NYSE: AAIC) (the
"Company" or "Arlington") today
reported net income available to common shareholders of
$4.0 million, or $0.12 per diluted common share, and non-GAAP core
operating income of $1.0 million, or
$0.03 per diluted common share, for
the quarter ended September 30,
2020. A reconciliation of non-GAAP core operating income to
GAAP net income appears at the end of this press release.
Third Quarter 2020 Financial Highlights
- $0.12 per diluted common share of
GAAP net income
- $0.03 per diluted common share of
non-GAAP core operating income
- $5.92 per common share of book
value
- 1.5 to 1 "at risk" short term recourse secured financing to
investable capital ratio
- 2.1 million shares of common stock repurchased at an average
price of $2.80 per share
"The Company is pleased with the performance of its investment
portfolio and resulting 5% economic return during the third quarter
against the backdrop of steady market conditions and lower
volatility amid ongoing Federal Reserve support," said J. Rock
Tonkel, Jr., the Company's President and Chief Executive
Officer. "The Company repurchased stock accretively during
the quarter while also making positive progress toward key
objectives for growing its investment portfolio and future
earnings, diversifying risk and establishing multiple sources of
income. Overall, the Company continues to operate with low
leverage and financial flexibility, which permits it to take
ongoing advantage of attractive asset return opportunities
available today across multiple mortgage related and other asset
classes that can offer compelling long term risk adjusted returns
and value creation to shareholders."
Other Third Quarter Highlights
As of September 30, 2020, the
Company's mortgage investment portfolio totaled $858 million at fair value, which includes
$124 million of mortgage loans of a
consolidated variable interest entity ("VIE"). Assuming the
Company's investment in the VIE is not consolidated, the Company's
mortgage investment portfolio totaled $744
million at fair value as of September
30, 2020 consisting of $617
million of agency mortgage-backed securities ("MBS") and
$127 million of mortgage credit
investments. Based on investable capital, the Company has
allocated 69% and 31% of its capital to its agency mortgage and
mortgage credit investment strategies, respectively, as of
September 30, 2020.
The Company's agency MBS consist of residential mortgage
pass-through certificates for which the principal and interest
payments are guaranteed by either a U.S. government sponsored
enterprise ("GSE"), such as the Federal National Mortgage
Association ("Fannie Mae") and the Federal Home Loan Mortgage
Corporation ("Freddie Mac"), or by a U.S. government agency, such
as the Government National Mortgage Association ("Ginnie Mae"). The Company's mortgage
credit investments generally include mortgage loans secured by
residential or commercial real property, MBS collateralized by
residential or commercial mortgage loans ("non-agency MBS"), and
securities or loans collateralized by mortgage servicing rights
("MSRs").
As of September 30, 2020, the
Company's $617 million agency MBS
investment portfolio at fair value was comprised entirely of
specified agency MBS as follows:
- $130 million of 2.0% coupon
30-year agency MBS
- $301 million of 2.5% coupon
30-year agency MBS
- $186 million of 3.0% coupon
30-year agency MBS
As of September 30, 2020, the
Company's $617 million specified
agency MBS portfolio had a weighted average amortized cost basis of
$104.46 and a weighted average market
price of $106.28. 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 to-be-announced ("TBA") agency MBS, were
approximately 1.41 percentage points as of September 30, 2020, relatively unchanged from
1.42 percentage points as of June 30,
2020.
During the third quarter of 2020, the Company purchased agency
MBS totaling $271 million and sold
agency MBS for gross sale proceeds of $142
million for a net realized gain of $3.7 million.
As of September 30, 2020, the
Company's $127 million mortgage
credit investment portfolio at fair value was comprised of the
following:
- $45 million commercial mortgage
loan
- $43 million of financing
collateralized by MSRs
- $21 million of non-agency MBS
collateralized by business purpose residential mortgage loans
-
- Includes an $11 million net
investment in a consolidated VIE
- $13 million of non-agency MBS
collateralized by commercial mortgage loans
- $5 million of non-agency MBS
collateralized by residential mortgage loans
During the third quarter of 2020, the Company purchased mortgage
credit investments totaling $32
million and sold mortgage credit investments for gross sale
proceeds of $55 million for a net
realized gain of $2.5 million.
As of September 30, 2020, the
Company had a total of $509 million
of repurchase agreements outstanding. As of September 30, 2020, the Company had $477 million of repurchase agreements outstanding
with a weighted average rate of 0.21% and remaining weighted
average maturity of 14 days secured by an aggregate of $502 million of agency MBS at fair value, which
includes $41 million at sale price of unsettled agency
MBS sale commitments included in the line item "sold securities
receivable" in the Company's financial statements. As of
September 30, 2020, the Company had a
$32 million repurchase agreement
outstanding with a rate of 3.00% and remaining maturity of 318 days
secured by a $45 million commercial
mortgage loan at fair value. As of September 30, 2020, the Company did not have any
repurchase agreements outstanding secured by non-agency MBS or
loans or securities collateralized by MSRs.
The Company's "at risk" recourse short-term secured financing to
investable capital ratio was 1.5 to 1 as of September 30, 2020 compared to 1.2 to 1 as of
June 30, 2020. The Company's
"at risk" recourse short-term secured financing to investable
capital is measured as the ratio of the sum of the Company's
repurchase agreement financing, net payable or receivable for
unsettled securities and net contractual price of TBA commitments
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.
GAAP net interest income was $3.8
million for the third quarter of 2020 compared to
$3.8 million for the second quarter
of 2020, including the amortization of the Company's net premium on
its agency MBS of $0.7 million for
the third quarter of 2020 compared to $2.0
million for the second quarter of 2020. The Company's
weighted average yield on its agency MBS was 2.08% for the third
quarter of 2020 compared to 2.11% for the second quarter of 2020,
and the actual weighted-average constant prepayment rate ("CPR")
for the Company's agency MBS was 8.49% for the third quarter of
2020 compared to 19.67% for the second quarter of 2020. The
Company's weighted average cost of repurchase agreement funding
secured by agency MBS was 0.22% during the third quarter of 2020
compared to 0.65% during the second quarter of 2020. The
Company's weighted average cost of repurchase agreement funding
secured by mortgage credit investments was 3.17% during the third
quarter of 2020 compared to 3.29% during the second quarter of
2020.
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 September 30,
2020, the Company had $50
million in notional amount of interest rate swap agreements
with a weighted average pay fixed rate of 0.64% and a remaining
weighted average maturity of 9.6 years. The Company's
weighted average net pay rate of its interest rate swap agreements
was 0.18% during the third quarter of 2020 compared to 0.02% during
the second quarter of 2020. As of September 30, 2020, the total notional amount of
the Company's interest rate swaps was 10% of the Company's
outstanding repurchase agreement funding and net TBA purchase
commitments with a net duration gap of 1.7 years. 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.
Economic net interest income was $4.1
million for the third quarter of 2020 compared to
$3.9 million for the second quarter
of 2020. Economic net interest income is comprised of net
interest and other 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 of $1.8 million on its agency
MBS investment portfolio and a net investment gain of $0.3 million on its related interest rate hedging
instruments, excluding interest rate swap net interest expense, for
a net investment gain of $2.1 million
for the third quarter of 2020. The Company had net investment
gains of $1.6 million on its mortgage
credit and other investment portfolio for the third quarter of
2020. This results in a net investment gain on the Company's total
investment and hedge portfolio of $3.7
million, or $0.11 per diluted
common share, for the third quarter of 2020.
During the third quarter of 2020, the Company repurchased 2.1
million shares of its common stock for a purchase cost of
$5.9 million representing 5.8% of
common stock outstanding as of June
30, 2020.
Distributions to Shareholders
The Company's Board of Directors approved distributions to its
Series B and Series C preferred shareholders of $0.4375 per share and $0.515625 per share, respectively, for the third
quarter of 2020. The distributions were paid on September 30, 2020 to shareholders of record as
of September 15, 2020.
Consistent with the Company's intent to retain capital and
strengthen its balance sheet, the Company's Board of Directors
determined not to declare a dividend on its common stock for the
third quarter of 2020. The Company's Board of Directors will
continue to evaluate the payment of quarterly dividends based on
multiple factors including overall market conditions, return
opportunities on investments, liquidity needs and REIT distribution
requirements and no definitive determination has been made at this
time regarding the declaration of future dividends.
The Company is organized and operated in a manner that will
allow it to qualify as a REIT for U.S. federal income tax purposes
and currently intends to continue to be organized and operated in
such a manner. As a REIT, distributions to shareholders will
generally be taxable as ordinary income that are not eligible to be
taxed as qualified dividends. However, a portion of such
distributions may be designated as long-term capital gain dividends
to the extent that such portion is attributable to the Company's
sale of capital assets held for more than one year.
Non-corporate taxpayers may deduct up to 20% of dividends received
from a REIT that are not designated as capital gain dividends or
qualified dividend income, subject to certain limitations.
Distributions in excess of the Company's current and accumulated
earnings and profits will be treated as a tax-free return of
capital to the extent of each shareholder's tax basis in the
Company's stock and as capital gain thereafter.
Change in NYSE Stock Ticker
As previously announced, the Company changed its ticker symbol
for its Class A common stock on the New York Stock Exchange (the
"NYSE") to "AAIC". The Company also changed the ticker
symbols for its 7.00% Series B Cumulative Perpetual Redeemable
Preferred Stock and 8.250% Series C Fixed-to-Floating Cumulative
Redeemable Preferred Stock on the NYSE to "AAIC PrB" and "AAIC
PrC", respectively. These securities began trading on the
NYSE under the new ticker symbols on October 26, 2020.
The Company's Senior Notes due 2023 and Senior Notes due 2025
that are also publicly traded on the NYSE remain unchanged under
the ticker symbols "AIW" and "AIC", respectively.
Conference Call
The Company will hold a conference call for investors
at 9:00 A.M. Eastern Time on Wednesday, November 4,
2020 to discuss the Company's third quarter 2020 results.
Investors may listen to the earnings call via the internet at:
http://www.arlingtonasset.com/index.php?s=19.
Replays of the earnings call will be available for 60 days via
webcast at the Internet address provided above, beginning two hours
after the call ends.
Additional Information
The Company will make available additional quarterly information
for the benefit of its shareholders through a supplemental
presentation that will be available at the Company's website,
www.arlingtonasset.com. The presentation will be
available on the Webcasts and Presentations section located under
the Updates & Events tab of the Company's website.
About the Company
Arlington Asset Investment Corp. (NYSE: AAIC) currently invests
primarily in mortgage-related and other assets and has elected to
be taxed as a REIT commencing with its taxable year ending
December 31, 2019. The Company
is headquartered in the Washington,
D.C. metropolitan area. For more information, please
visit www.arlingtonasset.com.
Statements concerning interest rates, portfolio allocation,
financing costs, portfolio hedging, prepayments, dividends, book
value, utilization of loss carryforwards, any change in long-term
tax structures (including any REIT election), use of equity raise
proceeds and any other guidance on present or future periods
constitute forward-looking statements that are subject to a number
of factors, risks and uncertainties that might cause actual results
to differ materially from stated expectations or current
circumstances. These factors include, but are not limited to,
the uncertainty and economic impact of the ongoing coronavirus
(COVID-19) pandemic and the measures taken by the government to
address it, including the impact on our business, financial
condition, liquidity and results of operations due to a significant
decrease in economic activity and disruptions in our financing
operations, among other factors, changes in interest rates,
increased costs of borrowing, decreased interest spreads, credit
risks underlying the Company's assets, especially related to the
Company's mortgage credit investments, changes in political and
monetary policies, changes in default rates, changes in prepayment
rates and other assumptions underlying our estimates related to our
projections of future core earnings, changes in the Company's
returns, changes in the use of the Company's tax benefits, the
Company's ability to qualify and maintain qualification as a REIT,
changes in the agency MBS asset yield, changes in the Company's
monetization of net operating loss carryforwards, changes in the
Company's investment strategy, changes in the Company's ability to
generate cash earnings and dividends, preservation and utilization
of the Company's net operating loss and net capital loss
carryforwards, impacts of changes to and changes by Fannie Mae and
Freddie Mac, actions taken by the U.S. Federal Reserve, the Federal
Housing Finance Agency and the U.S. Treasury, availability of
opportunities that meet or exceed the Company's risk adjusted
return expectations, ability and willingness to make future
dividends, ability to generate sufficient cash through retained
earnings to satisfy capital needs, and general economic, political,
regulatory and market conditions. These and other material
risks are described in the Company's most recent Annual Report on
Form 10-K and any other documents filed by the Company with the SEC
from time to time, which are available from the Company and from
the SEC, and you should read and understand these risks when
evaluating any forward-looking statement. All forward-looking
statements speak only as of the date on which they are made. New
risks and uncertainties arise over time, and it is not possible to
predict those events or how they may affect the Company.
Except as required by law, the Company is not obligated to, and
does not intend to, update or revise any forward-looking
statements, whether as a result of new information, future events
or otherwise.
Financial data to follow
ARLINGTON ASSET
INVESTMENT CORP.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
(Unaudited)
|
|
|
|
September 30,
2020
|
|
|
June 30,
2020
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
8,877
|
|
|
$
|
14,096
|
|
Restricted cash of
consolidated VIE
|
|
|
8,658
|
|
|
|
—
|
|
Interest
receivable
|
|
|
1,589
|
|
|
|
1,605
|
|
Sold securities
receivable
|
|
|
43,703
|
|
|
|
91,426
|
|
Agency mortgage-backed
securities, at fair value
|
|
|
617,170
|
|
|
|
501,582
|
|
Mortgage credit
investments, at fair value
|
|
|
116,352
|
|
|
|
149,446
|
|
Mortgage loans of
consolidated VIE, at fair value
|
|
|
124,345
|
|
|
|
—
|
|
Derivative assets, at
fair value
|
|
|
1,181
|
|
|
|
489
|
|
Deposits
|
|
|
2,252
|
|
|
|
2,473
|
|
Other
assets
|
|
|
21,208
|
|
|
|
24,683
|
|
Total
assets
|
|
$
|
945,335
|
|
|
$
|
785,800
|
|
LIABILITIES AND
EQUITY
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Repurchase
agreements
|
|
$
|
508,739
|
|
|
$
|
426,877
|
|
Debt of consolidated
VIE, at fair value
|
|
|
121,894
|
|
|
|
—
|
|
Interest
payable
|
|
|
569
|
|
|
|
611
|
|
Accrued compensation
and benefits
|
|
|
2,044
|
|
|
|
1,469
|
|
Derivative
liabilities, at fair value
|
|
|
852
|
|
|
|
207
|
|
Purchased securities
payable
|
|
|
—
|
|
|
|
42,662
|
|
Other
liabilities
|
|
|
820
|
|
|
|
967
|
|
Other liabilities of
consolidated VIE
|
|
|
416
|
|
|
|
—
|
|
Long-term unsecured
debt
|
|
|
73,115
|
|
|
|
74,022
|
|
Total
liabilities
|
|
|
708,449
|
|
|
|
546,815
|
|
Equity:
|
|
|
|
|
|
|
|
|
Preferred stock
(liquidation preference of $36,698 and $37,768,
respectively)
|
|
|
35,573
|
|
|
|
36,385
|
|
Common
stock
|
|
|
337
|
|
|
|
357
|
|
Additional paid-in
capital
|
|
|
2,041,986
|
|
|
|
2,047,286
|
|
Accumulated
deficit
|
|
|
(1,841,010)
|
|
|
|
(1,845,043)
|
|
Total
equity
|
|
|
236,886
|
|
|
|
238,985
|
|
Total liabilities
and equity
|
|
$
|
945,335
|
|
|
$
|
785,800
|
|
Book value per
common share (1)
|
|
$
|
5.92
|
|
|
$
|
5.63
|
|
Common shares
outstanding (in thousands) (2)
|
|
|
33,801
|
|
|
|
35,752
|
|
|
|
|
|
|
|
|
|
|
(1) Book value per
common share is calculated as total equity less the preferred stock
liquidation preference divided by common shares
outstanding.
|
|
|
|
|
|
|
|
|
|
|
(2) Represents common
shares outstanding plus vested restricted stock units convertible
into common stock less unvested restricted common stock.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2020
|
|
|
June 30,
2020
|
|
Assets and
liabilities of consolidated VIE:
|
|
|
|
|
|
|
|
|
Restricted
cash
|
|
$
|
8,658
|
|
|
$
|
—
|
|
Mortgage loans, at
fair value
|
|
|
124,345
|
|
|
|
—
|
|
Debt, at fair
value
|
|
|
(121,894)
|
|
|
|
—
|
|
Other
liabilities
|
|
|
(416)
|
|
|
|
—
|
|
Net
investment in consolidated VIE
|
|
$
|
10,693
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
ARLINGTON ASSET
INVESTMENT CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
(Unaudited)
|
|
|
|
Three Months
Ended
|
|
|
|
September
30,
2020
|
|
|
June
30,
2020
|
|
|
March
31,
2020
|
|
|
December
31,
2019
|
|
Interest
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency mortgage-backed
securities
|
|
$
|
2,808
|
|
|
$
|
3,517
|
|
|
$
|
23,388
|
|
|
$
|
27,927
|
|
Mortgage credit
investments
|
|
|
2,217
|
|
|
|
2,083
|
|
|
|
1,442
|
|
|
|
173
|
|
Interest and other
income
|
|
|
385
|
|
|
|
534
|
|
|
|
143
|
|
|
|
155
|
|
Total interest
income
|
|
|
5,410
|
|
|
|
6,134
|
|
|
|
24,973
|
|
|
|
28,255
|
|
Interest
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term secured
debt
|
|
|
470
|
|
|
|
1,154
|
|
|
|
14,592
|
|
|
|
19,970
|
|
Long-term unsecured
debt
|
|
|
1,162
|
|
|
|
1,215
|
|
|
|
1,240
|
|
|
|
1,248
|
|
Total interest
expense
|
|
|
1,632
|
|
|
|
2,369
|
|
|
|
15,832
|
|
|
|
21,218
|
|
Net interest
income
|
|
|
3,778
|
|
|
|
3,765
|
|
|
|
9,141
|
|
|
|
7,037
|
|
Investment
advisory fee income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
82
|
|
Investment gain
(loss), net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on
investments, net
|
|
|
2,696
|
|
|
|
7,625
|
|
|
|
3,094
|
|
|
|
(268)
|
|
Gain (loss) from
derivative instruments, net
|
|
|
487
|
|
|
|
(397)
|
|
|
|
(102,600)
|
|
|
|
23,440
|
|
Other, net
|
|
|
769
|
|
|
|
2,569
|
|
|
|
(562)
|
|
|
|
136
|
|
Total investment gain
(loss), net
|
|
|
3,952
|
|
|
|
9,797
|
|
|
|
(100,068)
|
|
|
|
23,308
|
|
General and
administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and
benefits
|
|
|
1,774
|
|
|
|
1,897
|
|
|
|
1,858
|
|
|
|
2,012
|
|
Other general and
administrative expenses
|
|
|
1,197
|
|
|
|
1,431
|
|
|
|
1,385
|
|
|
|
1,005
|
|
Total general and
administrative expenses
|
|
|
2,971
|
|
|
|
3,328
|
|
|
|
3,243
|
|
|
|
3,017
|
|
Net income
(loss)
|
|
|
4,759
|
|
|
|
10,234
|
|
|
|
(94,170)
|
|
|
|
27,410
|
|
Dividend on preferred
stock
|
|
|
(726)
|
|
|
|
(758)
|
|
|
|
(774)
|
|
|
|
(774)
|
|
Net income (loss)
available (attributable) to
common stock
|
|
$
|
4,033
|
|
|
$
|
9,476
|
|
|
$
|
(94,944)
|
|
|
$
|
26,636
|
|
Basic earnings (loss)
per common share
|
|
$
|
0.12
|
|
|
$
|
0.26
|
|
|
$
|
(2.59)
|
|
|
$
|
0.73
|
|
Diluted earnings
(loss) per common share
|
|
$
|
0.12
|
|
|
$
|
0.26
|
|
|
$
|
(2.59)
|
|
|
$
|
0.72
|
|
Weighted average
common shares outstanding (in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
34,655
|
|
|
|
36,618
|
|
|
|
36,711
|
|
|
|
36,628
|
|
Diluted
|
|
|
34,697
|
|
|
|
36,666
|
|
|
|
36,711
|
|
|
|
36,750
|
|
Non-GAAP Core Operating Income
In addition to the Company's results of operations determined in
accordance with generally accepted accounting principles as
consistently applied in the United
States ("GAAP"), the Company also reports "non-GAAP core
operating income." The Company defines core operating income
as "economic net interest income" and investment advisory fee
income less "core general and administrative expenses" and
preferred stock dividends.
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 and
non-recurring expense.
Non-GAAP Core Operating Income Results
The following table presents the Company's computation of
economic net interest income and core operating income for the last
four fiscal quarters (unaudited, amounts in thousands, except per
share amounts):
|
|
Three Months
Ended
|
|
|
|
September
30,
2020
|
|
|
June
30,
2020
|
|
|
March
31,
2020
|
|
|
December
31,
2019
|
|
GAAP net interest
income
|
|
$
|
3,778
|
|
|
$
|
3,765
|
|
|
$
|
9,141
|
|
|
$
|
7,037
|
|
TBA dollar roll
income
|
|
|
319
|
|
|
|
170
|
|
|
|
105
|
|
|
|
132
|
|
Interest rate swap
net interest (expense) income
|
|
|
(23)
|
|
|
|
(6)
|
|
|
|
592
|
|
|
|
2,126
|
|
Economic net interest
income
|
|
|
4,074
|
|
|
|
3,929
|
|
|
|
9,838
|
|
|
|
9,295
|
|
Investment advisory
fee income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
82
|
|
Core general and
administrative expenses
|
|
|
(2,375)
|
|
|
|
(2,734)
|
|
|
|
(2,850)
|
|
|
|
(2,140)
|
|
Preferred stock
dividend
|
|
|
(726)
|
|
|
|
(758)
|
|
|
|
(774)
|
|
|
|
(774)
|
|
Non-GAAP core
operating income
|
|
$
|
973
|
|
|
$
|
437
|
|
|
$
|
6,214
|
|
|
$
|
6,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP core
operating income per
diluted
common share
|
|
$
|
0.03
|
|
|
$
|
0.01
|
|
|
$
|
0.17
|
|
|
$
|
0.18
|
|
Weighted average
diluted common
shares
outstanding
|
|
|
34,697
|
|
|
|
36,666
|
|
|
|
36,817
|
|
|
|
36,750
|
|
The following table provides a reconciliation of GAAP net income
(loss) to non-GAAP core operating income for the last four fiscal
quarters (unaudited, amounts in thousands):
|
|
Three Months
Ended
|
|
|
|
September
30,
2020
|
|
|
June
30,
2020
|
|
|
March
31,
2020
|
|
|
December
31,
2019
|
|
GAAP net income
(loss)
|
|
$
|
4,759
|
|
|
$
|
10,234
|
|
|
$
|
(94,170)
|
|
|
$
|
27,410
|
|
Add
(less):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment
(gain) loss, net
|
|
|
(3,952)
|
|
|
|
(9,797)
|
|
|
|
100,068
|
|
|
|
(23,308)
|
|
Stock-based
compensation expense
|
|
|
596
|
|
|
|
594
|
|
|
|
393
|
|
|
|
877
|
|
Preferred stock
dividend
|
|
|
(726)
|
|
|
|
(758)
|
|
|
|
(774)
|
|
|
|
(774)
|
|
Add
back:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TBA dollar roll
income
|
|
|
319
|
|
|
|
170
|
|
|
|
105
|
|
|
|
132
|
|
Interest rate swap net
interest (expense) income
|
|
|
(23)
|
|
|
|
(6)
|
|
|
|
592
|
|
|
|
2,126
|
|
Non-GAAP core
operating income
|
|
$
|
973
|
|
|
$
|
437
|
|
|
$
|
6,214
|
|
|
$
|
6,463
|
|
Non-GAAP core operating income is used by management to evaluate
the financial performance of the Company's long-term investment
strategy and core business activities over periods of time as well
as assist with the determination of the appropriate level of
periodic dividends to common stockholders. The Company
believes that non-GAAP core operating income assists investors in
understanding and evaluating the financial performance of the
Company's long-term investment strategy and core business
activities over periods of time as well as its earnings
capacity. A limitation of utilizing this non-GAAP financial
measure is that the effect of accounting for "non-core" events or
transactions in accordance with GAAP does, in fact, reflect the
financial results of our business and these effects should not be
ignored when evaluating and analyzing our financial results.
For example, the economic cost or benefit of hedging instruments
other than interest rate swap agreements, such as U.S. Treasury
note futures or options on U.S. Treasury note futures, do not
affect the computation of non-GAAP core operating income. In
addition, the Company's calculation of non-GAAP core operating
income may not be comparable to other similarly titled measures of
other companies. Therefore, the Company believes that net
income determined in accordance with GAAP should be considered in
conjunction with non-GAAP core operating income. Furthermore,
there may be differences between non-GAAP core operating income and
taxable income determined in accordance with the Internal Revenue
Code. As a REIT, the Company will be required to distribute
at least 90% of its REIT taxable income (subject to certain
adjustments) to qualify as a REIT and all of its taxable income in
order to not be subject to any U.S. Federal or state corporate
income taxes. Accordingly, non-GAAP core operating income may
not equal the Company's distribution requirements as a REIT.
The following tables present information on the Company's
investment and hedge portfolio as of September 30, 2020 (unaudited, dollars in
thousands):
Mortgage Investments:
|
|
Fair
Value
|
|
Agency
MBS:
|
|
|
|
|
Specified agency
MBS
|
|
$
|
617,170
|
|
Net long agency TBA
position
|
|
|
—
|
|
Total agency
MBS
|
|
|
617,170
|
|
Mortgage credit
investments
|
|
|
127,045
|
|
Total mortgage
investments
|
|
$
|
744,215
|
|
Specified Agency MBS:
|
|
Unpaid
Principal
Balance
|
|
|
Net
Unamortized
Purchase
Premiums
|
|
|
Amortized
Cost Basis
|
|
|
Net
Unrealized
Gain (Loss)
|
|
|
Fair
Value
|
|
|
Market
Price
|
|
|
Coupon
|
|
|
Weighted
Average
Expected
Remaining
Life
|
|
30-year fixed
rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.0%
|
|
|
$
|
124,153
|
|
|
$
|
5,654
|
|
|
$
|
129,807
|
|
|
$
|
(35)
|
|
|
$
|
129,772
|
|
|
$
|
104.53
|
|
|
|
2.00
|
%
|
|
|
5.8
|
|
|
2.5%
|
|
|
|
283,151
|
|
|
|
15,318
|
|
|
|
298,469
|
|
|
|
2,574
|
|
|
|
301,043
|
|
|
|
106.32
|
|
|
|
2.50
|
%
|
|
|
4.5
|
|
|
3.0%
|
|
|
|
173,403
|
|
|
|
4,946
|
|
|
|
178,349
|
|
|
|
7,992
|
|
|
|
186,341
|
|
|
|
107.46
|
|
|
|
3.00
|
%
|
|
|
4.3
|
|
|
5.5%
|
|
|
|
12
|
|
|
|
—
|
|
|
|
12
|
|
|
|
2
|
|
|
|
14
|
|
|
|
117.69
|
|
|
|
5.50
|
%
|
|
|
4.7
|
|
Total/weighted-average
|
|
$
|
580,719
|
|
|
$
|
25,918
|
|
|
$
|
606,637
|
|
|
$
|
10,533
|
|
|
$
|
617,170
|
|
|
$
|
106.28
|
|
|
|
2.54
|
%
|
|
|
4.7
|
|
Mortgage Credit Investments:
|
|
Unpaid
Principal
Balance
|
|
|
Net
Unamortized
Original
Purchase
Premiums
(Discounts)
|
|
|
Amortized
Original Cost
Basis
|
|
|
Net
Unrealized
Gain (Loss)
|
|
|
Fair Value
(1)
|
|
|
Market
Price
|
|
Mortgage credit
investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage servicing
rights financing
|
|
$
|
43,600
|
|
|
$
|
13
|
|
|
$
|
43,613
|
|
|
$
|
68
|
|
|
$
|
43,681
|
|
|
$
|
100.15
|
|
Commercial mortgage
loan
|
|
|
45,000
|
|
|
|
—
|
|
|
|
45,000
|
|
|
|
—
|
|
|
|
45,000
|
|
|
|
100.00
|
|
Commercial
MBS
|
|
|
20,690
|
|
|
|
(1,686)
|
|
|
|
19,004
|
|
|
|
(6,129)
|
|
|
|
12,875
|
|
|
|
61.74
|
|
Residential
MBS
|
|
|
12,497
|
|
|
|
(8,110)
|
|
|
|
4,387
|
|
|
|
562
|
|
|
|
4,949
|
|
|
|
39.09
|
|
Interest-only
residential MBS
|
|
|
—
|
|
|
|
—
|
|
|
|
3
|
|
|
|
—
|
|
|
|
3
|
|
|
|
0.03
|
|
Business purpose
residential MBS (2)
|
|
|
24,577
|
|
|
|
(1,707)
|
|
|
|
22,870
|
|
|
|
(2,333)
|
|
|
|
20,537
|
|
|
|
83.31
|
|
Total/weighted-average
|
|
$
|
146,364
|
|
|
$
|
(11,490)
|
|
|
$
|
134,877
|
|
|
$
|
(7,832)
|
|
|
$
|
127,045
|
|
|
$
|
86.63
|
|
(1)
|
For mortgage credit
investments in securities, includes contractual accrued interest
receivable.
|
(2)
|
Includes our net
investment in a VIE of $10,693 at fair value that is consolidated
for GAAP financial reporting purposes.
|
Interest Rate Swap Agreement:
Notional Amount
|
|
|
Fixed
Pay Rate
|
|
|
Variable Receive
Rate
|
|
|
Net Receive (Pay)
Rate
|
|
|
Remaining
Life (Years)
|
|
|
50,000
|
|
|
|
0.64
|
%
|
|
|
0.27
|
%
|
|
|
(0.37)
|
%
|
|
|
9.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
View original
content:http://www.prnewswire.com/news-releases/arlington-asset-investment-corp-reports-third-quarter-2020-financial-results-301166018.html
SOURCE Arlington Asset Investment Corp.