MCLEAN, Va., Feb. 16, 2021 /PRNewswire/ -- Arlington Asset
Investment Corp. (NYSE: AAIC) (the "Company" or "Arlington") today reported net income
available to common shareholders of $10.7
million, or $0.32 per diluted
common share, and non-GAAP core operating income of $4.1 million, or $0.12 per diluted common share, for the quarter
ended December 31, 2020. A
reconciliation of non-GAAP core operating income to GAAP net income
appears at the end of this press release.
Fourth Quarter 2020 Financial Highlights
- $0.32 per diluted common share of
GAAP net income
- $0.12 per diluted common share of
non-GAAP core operating income
- $6.31 per common share of book
value
- 7% economic return
- 2.4 to 1 "at risk" leverage ratio
- 0.5 million shares of common stock repurchased, or 1.5% of
outstanding common stock, at an average price of $2.83 per share
- Established strategic relationship to invest in mortgage
servicing rights
Full Year 2020 Financial Highlights
- $2.00 per diluted common share of
GAAP net loss
- $0.33 per diluted common share of
non-GAAP core operating income
- 3.7 million shares of common stock repurchased, or 10.0% of
outstanding common stock, at an average price of $2.81 per share
- $2.4 million, or 16%, decline in
general and administrative expenses from prior year
"During the fourth quarter, the Company delivered a 7% economic
return to shareholders while maintaining a conservative risk
profile and low leverage," said J. Rock Tonkel, Jr., the Company's
President and Chief Executive Officer. "The Company continues
to operate with complete financial flexibility that enables it to
shift capital to take advantage of attractive return
opportunities that may arise across sectors as economic
conditions evolve. In the current market environment of low
rates and tight investment spreads, the Company continues to make
strong progress in establishing multiple channels of high return
investment opportunities that offer ongoing access to non-commodity
investments with potential platform upside. These
opportunities complement our agency mortgage investments, diversify
risk and should improve the level and reliability of returns to
shareholders. The Company took another strong step towards
its objective of creating sustainable investment partnerships in
the fourth quarter by successfully establishing a strategic
relationship that enables it to invest capital in mortgage
servicing rights which currently offer attractive double-digit
unlevered returns. Alongside these positive steps, the
Company repurchased a significant portion of its common shares
accretively during the year and made substantial progress towards
improving its cost structure, reducing its general and
administrative expenses by 16% with additional reductions expected
in 2021. Looking forward, we are optimistic about the ongoing
stream of high return opportunities we continue to evaluate while
also benefitting from a strong balance sheet and a large remaining
common stock repurchase program."
Other Fourth Quarter Highlights
As of December 31, 2020, the
Company's investment portfolio totaled $1,145 million at fair value, which includes
$93 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
investment portfolio totaled $1,063
million at fair value as of December
31, 2020 consisting of $971
million of agency mortgage-backed securities ("MBS"),
$83 million of mortgage credit
investments and $9 million of
mortgage servicing right ("MSR") related assets. Based on
investable capital, the Company has allocated 81%, 16%, and 3% of
its capital to its agency MBS, mortgage credit and MSR related
investment strategies, respectively, as of December 31, 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 or MBS collateralized by
residential or commercial mortgage loans ("non-agency MBS").
As of December 31, 2020, the
Company's $971 million agency MBS
investment portfolio at fair value was comprised entirely of
specified agency MBS as follows:
- $171 million of 1.5% coupon
30-year agency MBS
- $505 million of 2.0% coupon
30-year agency MBS
- $197 million of 2.5% coupon
30-year agency MBS
- $98 million of 3.0% coupon
30-year agency MBS
As of December 31, 2020, the
Company's $971 million agency MBS
portfolio had a weighted average amortized cost basis of
$103.67 and a weighted average market
price of $104.62. The Company's
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 0.94
percentage point as of December 31,
2020 as compared to 1.41 percentage points as of
September 30, 2020.
During the fourth quarter of 2020, the Company purchased agency
MBS totaling $548 million and sold
agency MBS for gross sale proceeds of $179
million for a net realized gain of $3.0 million.
As of December 31, 2020, the
Company's $83 million mortgage credit
investment portfolio at fair value was comprised primarily of the
following:
- $45 million commercial mortgage
loan
- $21 million of non-agency MBS
collateralized by business purpose residential mortgage loans
-
- Includes an $11 million net
investment in a consolidated VIE
- $15 million of non-agency MBS
collateralized by small balance commercial mortgage loans
During the fourth quarter of 2020, the Company purchased
mortgage credit investments totaling $2
million and sold or received full principal payments on its
mortgage credit investments for gross proceeds of $49 million for a net realized gain of
$1.6 million.
On December 31, 2020, the Company
entered into agreements with a licensed, GSE approved residential
mortgage loan servicer that enable the Company to garner the
economic return of an investment in an MSR purchased by the
mortgage servicing counterparty. The arrangement allows the
Company to participate in the economic benefits of investing in an
MSR without holding the requisite licenses to purchase or hold MSRs
directly. The transactions are accounted for as a financing
receivable on the Company's consolidated financial
statements. During the fourth quarter of 2020, the Company
made an initial investment of $9.3
million investment in an MSR financing receivable and has a
commitment to fund a minimum of $25
million of capital under this relationship. At its
option, the Company can also have its mortgage servicing
counterparty utilize leverage on the Company's invested capital to
increase potential returns.
As of December 31, 2020, the
Company had a total of $655 million
of repurchase agreements outstanding. As of December 31, 2020, the Company had $624 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 $656 million of agency MBS at fair
value. As of December 31,
2020, the Company had a $31
million repurchase agreement outstanding with a rate of
3.00% and remaining maturity of 315 days secured by a $45 million commercial mortgage loan at fair
value. As of December 31, 2020,
the Company did not have any repurchase agreements outstanding
secured by non-agency MBS.
The Company's "at risk" leverage ratio was 2.4 to 1 as of
December 31, 2020 compared to 1.5 to
1 as of September 30, 2020. The
Company's "at risk" leverage ratio is calculated as the sum of the
Company's repurchase agreement financing, net payable or receivable
for unsettled securities 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 $6.4
million for the fourth quarter of 2020 compared to
$3.8 million for the third quarter of
2020. GAAP net interest income for the fourth quarter of 2020
includes $2.9 million of net interest
income from the Company's investment in a consolidated trust of
business purpose residential mortgage loans. The Company
expects that this performing investment's contribution to net
interest income will be lower in the first two quarters of 2021 as
the short duration of this asset is expected to lead to accelerated
pay down of the investment in the first half of the year.
The Company's weighted average yield on its agency MBS was 1.80%
for the fourth quarter of 2020 compared to 2.08% for the third
quarter of 2020, and the actual weighted-average constant
prepayment rate ("CPR") for the Company's agency MBS was 7.29% for
the fourth quarter of 2020 compared to 8.49% for the third quarter
of 2020. The Company's weighted average cost of repurchase
agreement funding secured by agency MBS was 0.21% during the fourth
quarter of 2020 compared to 0.22% during the third 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 variable interest payments based upon either the
prevailing three-month London Interbank Offered Rate ("LIBOR") or
Secured Overnight Financing Rate ("SOFR"). As of December 31, 2020, the Company had $275 million in notional amount of interest rate
swap agreements with a weighted average pay fixed rate of 0.28% and
a remaining weighted average maturity of 4.7 years. The
Company's weighted average net pay rate of its interest rate swap
agreements was 0.21% during the fourth quarter of 2020 compared to
0.18% during the third quarter of 2020. As of December 31, 2020, the total notional amount of
the Company's interest rate swaps was 42% of the Company's
outstanding repurchase agreement funding and net TBA purchase
commitments with a net duration gap of 2.5 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.
The Company reported annual general and administrative expenses
of $12.6 million for 2020, a decrease
of 16% from the prior year.
Core operating income was $4.1
million, or $0.12 per diluted
common share for the fourth quarter of 2020 compared to
$1.0 million, or $0.03 per diluted common share for the third
quarter of 2020. Core operating income is a non-GAAP
financial measure that is described later in this press
release.
The Company had net investment gains of $7.0 million, or $0.21 per diluted common share, for the fourth
quarter of 2020 on its investment portfolio and related interest
rate hedging instruments, excluding TBA dollar roll income and
interest rate swap net interest expense.
During the fourth quarter of 2020, the Company repurchased 0.5
million shares of its common stock for a purchase cost of
$1.5 million representing 1.5% of
common stock outstanding as of September
30, 2020. For the year ended December 31, 2020, the Company repurchased 3.7
million shares of its common stock for a purchase price of
$10.4 million representing 10.0% of
common stock outstanding as of December
31, 2019. As of December 31,
2020, the Company had remaining authorization from its Board
of Directors to repurchase up to 16.2 million shares of its common
stock.
Distributions to Shareholders
The Company's Board of Directors approved distributions to its
Series B and Series C preferred shareholders of $0.4375 per share and $0.515625 per share, respectively, for the fourth
quarter of 2020. The distributions were paid on December 30, 2020 to shareholders of record as of
December 16, 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 fourth 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.
The Company has also announced the tax characteristics of the
distributions paid to its common and preferred shareholders in
calendar year 2020. The Company's distributions paid to common
shareholders in 2020 of $0.225 per share were all a
return of capital. The Company's distributions paid to its
Series B and Series C preferred shareholders in 2020
of $1.75 per share and $2.0625 per share,
respectively, 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.
Conference Call
The Company will hold a conference call for investors
at 10:00 A.M. Eastern Time on Tuesday, February 16,
2021 to discuss the Company's fourth 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. 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)
|
|
|
|
December 31,
2020
|
|
|
September 30,
2020
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
28,796
|
|
|
$
|
8,877
|
|
Restricted cash of
consolidated VIE
|
|
|
11,169
|
|
|
|
8,658
|
|
Interest
receivable
|
|
|
1,668
|
|
|
|
1,589
|
|
Interest receivable of
consolidated VIE
|
|
|
545
|
|
|
|
665
|
|
Sold securities
receivable
|
|
|
—
|
|
|
|
43,703
|
|
Agency mortgage-backed
securities, at fair value
|
|
|
970,880
|
|
|
|
617,170
|
|
Mortgage credit
investments, at fair value
|
|
|
71,660
|
|
|
|
116,352
|
|
Mortgage loans of
consolidated VIE, at fair value
|
|
|
93,283
|
|
|
|
123,680
|
|
MSR financing
receivable, at fair value
|
|
|
9,346
|
|
|
|
—
|
|
Derivative assets, at
fair value
|
|
|
258
|
|
|
|
1,181
|
|
Deposits
|
|
|
6,306
|
|
|
|
2,252
|
|
Other
assets
|
|
|
18,478
|
|
|
|
21,208
|
|
Total
assets
|
|
$
|
1,212,389
|
|
|
$
|
945,335
|
|
LIABILITIES AND
EQUITY
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Repurchase
agreements
|
|
$
|
655,212
|
|
|
$
|
508,739
|
|
Secured debt of
consolidated VIE, at fair value
|
|
|
93,627
|
|
|
|
121,894
|
|
Interest
payable
|
|
|
586
|
|
|
|
569
|
|
Interest payable of
consolidated VIE
|
|
|
321
|
|
|
|
416
|
|
Accrued compensation
and benefits
|
|
|
2,611
|
|
|
|
2,044
|
|
Derivative
liabilities, at fair value
|
|
|
221
|
|
|
|
852
|
|
Purchased securities
payable
|
|
|
139,013
|
|
|
|
—
|
|
Other
liabilities
|
|
|
1,501
|
|
|
|
820
|
|
Long-term unsecured
debt
|
|
|
73,027
|
|
|
|
73,115
|
|
Total
liabilities
|
|
|
966,119
|
|
|
|
708,449
|
|
Equity:
|
|
|
|
|
|
|
|
|
Preferred stock
(liquidation preference of $36,333 and $36,698,
respectively)
|
|
|
35,289
|
|
|
|
35,573
|
|
Common
stock
|
|
|
335
|
|
|
|
337
|
|
Additional paid-in
capital
|
|
|
2,040,918
|
|
|
|
2,041,986
|
|
Accumulated
deficit
|
|
|
(1,830,272)
|
|
|
|
(1,841,010)
|
|
Total
equity
|
|
|
246,270
|
|
|
|
236,886
|
|
Total
liabilities and equity
|
|
$
|
1,212,389
|
|
|
$
|
945,335
|
|
Book value per
common share (1)
|
|
$
|
6.31
|
|
|
$
|
5.92
|
|
Common shares
outstanding (in thousands) (2)
|
|
|
33,287
|
|
|
|
33,801
|
|
|
(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.
|
|
|
|
December 31,
2020
|
|
|
September 30,
2020
|
|
Assets and
liabilities of consolidated VIE:
|
|
|
|
|
|
|
|
|
Restricted
cash
|
|
$
|
11,169
|
|
|
$
|
8,658
|
|
Mortgage loans, at
fair value
|
|
|
93,283
|
|
|
|
123,680
|
|
Interest
receivable
|
|
|
545
|
|
|
|
665
|
|
Secured debt, at fair
value
|
|
|
(93,627)
|
|
|
|
(121,894)
|
|
Interest
payable
|
|
|
(321)
|
|
|
|
(416)
|
|
Net
investment in consolidated VIE
|
|
$
|
11,049
|
|
|
$
|
10,693
|
|
ARLINGTON ASSET
INVESTMENT CORP.
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
(Dollars in
thousands, except per share data)
|
(Unaudited)
|
|
|
|
Year
Ended
|
|
|
Three Months
Ended
|
|
|
|
December
31,
2020
|
|
|
December
31,
2020
|
|
|
September
30,
2020
|
|
|
June
30,
2020
|
|
|
March
31,
2020
|
|
Interest
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency mortgage-backed
securities
|
|
$
|
32,728
|
|
|
$
|
3,015
|
|
|
$
|
2,808
|
|
|
$
|
3,517
|
|
|
$
|
23,388
|
|
Mortgage credit
investments
|
|
|
7,605
|
|
|
|
1,863
|
|
|
|
2,217
|
|
|
|
2,083
|
|
|
|
1,442
|
|
Mortgage loans of
consolidated VIE
|
|
|
4,305
|
|
|
|
4,305
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Interest and other
income
|
|
|
1,376
|
|
|
|
314
|
|
|
|
385
|
|
|
|
534
|
|
|
|
143
|
|
Total interest
income
|
|
|
46,014
|
|
|
|
9,497
|
|
|
|
5,410
|
|
|
|
6,134
|
|
|
|
24,973
|
|
Interest
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term secured
debt
|
|
|
16,742
|
|
|
|
526
|
|
|
|
470
|
|
|
|
1,154
|
|
|
|
14,592
|
|
Long-term unsecured
debt
|
|
|
4,771
|
|
|
|
1,154
|
|
|
|
1,162
|
|
|
|
1,215
|
|
|
|
1,240
|
|
Secured debt of
consolidated VIE
|
|
|
1,403
|
|
|
|
1,403
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total interest
expense
|
|
|
22,916
|
|
|
|
3,083
|
|
|
|
1,632
|
|
|
|
2,369
|
|
|
|
15,832
|
|
Net interest
income
|
|
|
23,098
|
|
|
|
6,414
|
|
|
|
3,778
|
|
|
|
3,765
|
|
|
|
9,141
|
|
Investment (loss)
gain, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on mortgage
investments, net
|
|
|
15,576
|
|
|
|
2,161
|
|
|
|
2,696
|
|
|
|
7,625
|
|
|
|
3,094
|
|
(Loss) gain from
derivative instruments, net
|
|
|
(101,287)
|
|
|
|
1,223
|
|
|
|
487
|
|
|
|
(397)
|
|
|
|
(102,600)
|
|
Other, net
|
|
|
7,512
|
|
|
|
4,736
|
|
|
|
769
|
|
|
|
2,569
|
|
|
|
(562)
|
|
Total investment
(loss) gain, net
|
|
|
(78,199)
|
|
|
|
8,120
|
|
|
|
3,952
|
|
|
|
9,797
|
|
|
|
(100,068)
|
|
General and
administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and
benefits
|
|
|
7,241
|
|
|
|
1,712
|
|
|
|
1,774
|
|
|
|
1,897
|
|
|
|
1,858
|
|
Other general and
administrative expenses
|
|
|
5,374
|
|
|
|
1,361
|
|
|
|
1,197
|
|
|
|
1,431
|
|
|
|
1,385
|
|
Total general and
administrative expenses
|
|
|
12,615
|
|
|
|
3,073
|
|
|
|
2,971
|
|
|
|
3,328
|
|
|
|
3,243
|
|
Net (loss)
income
|
|
|
(67,716)
|
|
|
|
11,461
|
|
|
|
4,759
|
|
|
|
10,234
|
|
|
|
(94,170)
|
|
Dividend on preferred
stock
|
|
|
(2,991)
|
|
|
|
(733)
|
|
|
|
(726)
|
|
|
|
(758)
|
|
|
|
(774)
|
|
Net (loss) income
(attributable) available to
common stock
|
|
$
|
(70,707)
|
|
|
$
|
10,728
|
|
|
$
|
4,033
|
|
|
$
|
9,476
|
|
|
$
|
(94,944)
|
|
Basic (loss) earnings
per common share
|
|
$
|
(2.00)
|
|
|
$
|
0.32
|
|
|
$
|
0.12
|
|
|
$
|
0.26
|
|
|
$
|
(2.59)
|
|
Diluted (loss)
earnings per common share
|
|
$
|
(2.00)
|
|
|
$
|
0.32
|
|
|
$
|
0.12
|
|
|
$
|
0.26
|
|
|
$
|
(2.59)
|
|
Weighted average
common shares outstanding (in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
35,343
|
|
|
|
33,415
|
|
|
|
34,655
|
|
|
|
36,618
|
|
|
|
36,711
|
|
Diluted
|
|
|
35,343
|
|
|
|
33,554
|
|
|
|
34,697
|
|
|
|
36,666
|
|
|
|
36,711
|
|
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" 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.
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, 2020 (unaudited, amounts in
thousands, except per share amounts):
|
|
Year
Ended
|
|
|
Three Months
Ended
|
|
|
|
December
31,
2020
|
|
|
December
31,
2020
|
|
|
September
30,
2020
|
|
|
June
30,
2020
|
|
|
March
31,
2020
|
|
GAAP net interest
income
|
|
$
|
23,098
|
|
|
$
|
6,414
|
|
|
$
|
3,778
|
|
|
$
|
3,765
|
|
|
$
|
9,141
|
|
TBA dollar roll
income
|
|
|
1,750
|
|
|
|
1,156
|
|
|
|
319
|
|
|
|
170
|
|
|
|
105
|
|
Interest rate swap
net interest income (expense)
|
|
|
501
|
|
|
|
(62)
|
|
|
|
(23)
|
|
|
|
(6)
|
|
|
|
592
|
|
Economic net interest
income
|
|
|
25,349
|
|
|
|
7,508
|
|
|
|
4,074
|
|
|
|
3,929
|
|
|
|
9,838
|
|
Core general and
administrative expenses
|
|
|
(10,627)
|
|
|
|
(2,668)
|
|
|
|
(2,375)
|
|
|
|
(2,734)
|
|
|
|
(2,850)
|
|
Preferred stock
dividend
|
|
|
(2,991)
|
|
|
|
(733)
|
|
|
|
(726)
|
|
|
|
(758)
|
|
|
|
(774)
|
|
Non-GAAP core
operating income
|
|
$
|
11,731
|
|
|
$
|
4,107
|
|
|
$
|
973
|
|
|
$
|
437
|
|
|
$
|
6,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP core
operating income per
diluted
common share
|
|
$
|
0.33
|
|
|
$
|
0.12
|
|
|
$
|
0.03
|
|
|
$
|
0.01
|
|
|
$
|
0.17
|
|
Weighted average
diluted common
shares
outstanding
|
|
|
35,426
|
|
|
|
33,554
|
|
|
|
34,697
|
|
|
|
36,666
|
|
|
|
36,817
|
|
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):
|
|
Year
Ended
|
|
|
Three Months
Ended
|
|
|
|
December
31,
2020
|
|
|
December
31,
2020
|
|
|
September
30,
2020
|
|
|
June
30,
2020
|
|
|
March
31,
2020
|
|
GAAP net (loss)
income
|
|
$
|
(67,716)
|
|
|
$
|
11,461
|
|
|
$
|
4,759
|
|
|
$
|
10,234
|
|
|
$
|
(94,170)
|
|
Add
(less):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment loss
(gain), net
|
|
|
78,199
|
|
|
|
(8,120)
|
|
|
|
(3,952)
|
|
|
|
(9,797)
|
|
|
|
100,068
|
|
Stock-based
compensation expense
|
|
|
1,988
|
|
|
|
405
|
|
|
|
596
|
|
|
|
594
|
|
|
|
393
|
|
Preferred stock
dividend
|
|
|
(2,991)
|
|
|
|
(733)
|
|
|
|
(726)
|
|
|
|
(758)
|
|
|
|
(774)
|
|
Add
back:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TBA dollar roll
income
|
|
|
1,750
|
|
|
|
1,156
|
|
|
|
319
|
|
|
|
170
|
|
|
|
105
|
|
Interest rate swap net
interest income (expense)
|
|
|
501
|
|
|
|
(62)
|
|
|
|
(23)
|
|
|
|
(6)
|
|
|
|
592
|
|
Non-GAAP core
operating income
|
|
$
|
11,731
|
|
|
$
|
4,107
|
|
|
$
|
973
|
|
|
$
|
437
|
|
|
$
|
6,214
|
|
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 December 31, 2020 (unaudited, dollars in
thousands):
Mortgage Investments:
|
|
|
|
|
|
December 31,
2020
|
|
|
|
|
|
|
|
Assets
|
|
|
Capital
Allocation
(1)
|
|
|
Capital
Allocation
(%)
|
|
|
Leverage
(2)
|
|
Agency MBS
|
|
$
|
970,880
|
|
|
$
|
258,742
|
|
|
|
81
|
%
|
|
|
2.8
|
|
Mortgage credit
investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgage
loan
|
|
|
45,000
|
|
|
|
13,500
|
|
|
|
4
|
%
|
|
|
2.3
|
|
Business purpose loan
residential MBS (3)
|
|
|
21,129
|
|
|
|
21,129
|
|
|
|
7
|
%
|
|
|
—
|
|
Small balance
commercial MBS
|
|
|
14,730
|
|
|
|
14,730
|
|
|
|
5
|
%
|
|
|
—
|
|
Other
|
|
|
1,850
|
|
|
|
1,850
|
|
|
|
1
|
%
|
|
|
—
|
|
Total mortgage credit
investments
|
|
|
82,709
|
|
|
|
51,209
|
|
|
|
16
|
%
|
|
|
0.6
|
|
MSR financing
receivable
|
|
|
9,346
|
|
|
|
9,346
|
|
|
|
3
|
%
|
|
|
—
|
|
Total
|
|
$
|
1,062,935
|
|
|
$
|
319,297
|
|
|
|
100
|
%
|
|
|
2.4
|
|
|
|
(1)
|
Our investable
capital is calculated as the sum of our shareholders' equity
capital and long-term unsecured debt.
|
(2)
|
Our leverage is
measured as the ratio of our repurchase agreement financing, net
payable or receivable for unsettled securities, net contractual
forward purchase price of our TBA commitments less our cash and
cash equivalents compared to our investable capital.
|
(3)
|
Includes our net
investment of $11,049 in a variable interest entity with gross
assets and liabilities of $104,997 and $93,948, respectively, that
is consolidated for GAAP financial reporting purposes.
|
Specified Agency MBS:
|
|
Unpaid
Principal
Balance
|
|
|
Net
Unamortized
Purchase
Premiums
|
|
|
Amortized
Cost Basis
|
|
|
Net
Unrealized
Gain (Loss)
|
|
|
Fair
Value
|
|
|
Market
Price
|
|
|
Coupon
|
|
|
Weighted
Average
Expected
Remaining
Life
|
|
30-year fixed
rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.5%
|
|
$
|
168,853
|
|
|
$
|
1,462
|
|
|
$
|
170,315
|
|
|
$
|
433
|
|
|
$
|
170,748
|
|
|
$
|
101.12
|
|
|
|
1.50
|
%
|
|
|
6.5
|
|
2.0%
|
|
|
483,891
|
|
|
|
20,506
|
|
|
|
504,397
|
|
|
|
760
|
|
|
|
505,157
|
|
|
|
104.39
|
|
|
|
2.00
|
%
|
|
|
6.0
|
|
2.5%
|
|
|
184,557
|
|
|
|
10,012
|
|
|
|
194,569
|
|
|
|
2,235
|
|
|
|
196,804
|
|
|
|
106.64
|
|
|
|
2.50
|
%
|
|
|
4.4
|
|
3.0%
|
|
|
90,723
|
|
|
|
2,105
|
|
|
|
92,828
|
|
|
|
5,329
|
|
|
|
98,157
|
|
|
|
108.19
|
|
|
|
3.00
|
%
|
|
|
4.7
|
|
5.5%
|
|
|
12
|
|
|
|
—
|
|
|
|
12
|
|
|
|
2
|
|
|
|
14
|
|
|
|
117.72
|
|
|
|
5.50
|
%
|
|
|
4.6
|
|
Total/weighted-average
|
|
$
|
928,036
|
|
|
$
|
34,085
|
|
|
$
|
962,121
|
|
|
$
|
8,759
|
|
|
$
|
970,880
|
|
|
$
|
104.62
|
|
|
|
2.11
|
%
|
|
|
5.7
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgage
loan
|
|
$
|
45,000
|
|
|
$
|
—
|
|
|
$
|
45,000
|
|
|
$
|
—
|
|
|
$
|
45,000
|
|
|
$
|
100.00
|
|
Commercial
MBS
|
|
|
20,690
|
|
|
|
(1,659)
|
|
|
|
19,031
|
|
|
|
(4,301)
|
|
|
|
14,730
|
|
|
|
70.71
|
|
Business purpose
residential MBS (1)
|
|
|
24,577
|
|
|
|
721
|
|
|
|
25,298
|
|
|
|
(4,169)
|
|
|
|
21,129
|
|
|
|
85.53
|
|
Other
|
|
|
2,680
|
|
|
|
(796)
|
|
|
|
1,884
|
|
|
|
(34)
|
|
|
|
1,850
|
|
|
|
70.00
|
|
Total/weighted-average
|
|
$
|
92,947
|
|
|
$
|
(1,734)
|
|
|
$
|
91,213
|
|
|
$
|
(8,504)
|
|
|
$
|
82,709
|
|
|
$
|
88.79
|
|
|
|
(1)
|
Includes our net
investment in a VIE of $11,049 at fair value that is consolidated
for GAAP financial reporting purposes.
|
Interest Rate Swap Agreements:
|
|
|
|
|
|
Weighted-average:
|
|
|
|
Notional Amount
|
|
|
Fixed
Pay Rate
|
|
|
Variable
Receive Rate
|
|
|
Net Receive
(Pay) Rate
|
|
|
Remaining
Life (Years)
|
|
Years to
maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 3
years
|
|
$
|
200,000
|
|
|
|
0.10
|
%
|
|
|
0.06
|
%
|
|
|
(0.04)
|
%
|
|
|
2.9
|
|
3 to less than 10
years
|
|
|
75,000
|
|
|
|
0.74
|
%
|
|
|
0.22
|
%
|
|
|
(0.52)
|
%
|
|
|
9.5
|
|
Total /
weighted-average
|
|
$
|
275,000
|
|
|
|
0.28
|
%
|
|
|
0.10
|
%
|
|
|
(0.18)
|
%
|
|
|
4.7
|
|
View original
content:http://www.prnewswire.com/news-releases/arlington-asset-investment-corp-reports-fourth-quarter-and-full-year-2020-financial-results-301227901.html
SOURCE Arlington Asset Investment Corp.