MCLEAN, Va., May 12, 2022 /PRNewswire/ -- Arlington Asset
Investment Corp. (NYSE: AAIC) (the "Company" or "Arlington") today reported financial results
for the quarter ended March 31,
2022.
First Quarter 2022 Financial Highlights
- $6.19 per common share of book
value
-
- 0.5% increase from December 31,
2021
- $0.12 per diluted common share of
GAAP net loss
- $0.05 per diluted common share of
non-GAAP core operating income[1]
-
- $0.03 per diluted common share
increase from fourth quarter of 2021
- $0.09 per common share of book
value accretion from the repurchase of 3.3% of the outstanding
shares of common stock
-
- Purchased an additional 2.0% of the outstanding shares of
common stock through May 11,
2022
- 11.4 million share remaining authorization as of May 11, 2022
- 1.3 to 1 "at risk" leverage ratio
"Over the last 24 months, we have thoroughly repositioned
Arlington from a primarily levered
agency MBS strategy to one focused on establishing multiple high
return, non-commodity investment channels in mortgage servicing
rights ("MSRs"), single-family residential ("SFR") rental
properties and select credit investments.
"The execution of this strategy has enabled the Company to
produce outsized recent returns relative to other residential
mortgage REITs, evidenced by the Company generating an economic
return that was among the top 10% of its peers over the last six
months," said J. Rock Tonkel, Jr., the Company's President and
Chief Executive Officer.
"The actions taken by the Company allowed us to grow book value
during a time when traditional mortgage REITs have been battling an
exceptionally volatile market environment. Today, the Company
has a flexible investment platform across multiple residential
asset classes that has created high returns while operating with
low leverage and high liquidity.
"As you see from our recent results, the Company's
differentiated strategy is well suited to perform in various market
conditions. Having grown to 50% of investment capital, our
MSR portfolio produced strong results again during the first
quarter and has generated a 53% annualized return since its initial
formation in late 2020. Our SFR portfolio has reached
$177 million as of today with a
strong net unlevered yield of 4.9% and anticipated total returns in
the double digits.
"Today we also announced the signing of an agreement to sell a
portion of our SFR portfolio at an expected significant gain driven
primarily by a bulk premium for a portfolio of leased homes in
attractive markets. Once consummated, we expect the sale to
add approximately $0.45 per share or
7% to our first quarter ended book value. Following the
expected completion of that sale near the end of the second
quarter, we expect to continue the growth of our SFR platform to
its fully ramped scale of approximately $200
million of homes, subject to market conditions, utilizing
our attractive five-year fixed cost financing facility alongside
our $55 million capital
allocation. Looking forward, we are encouraged by the
potential upside to future earnings from the full ramp of our SFR
portfolio.
"We continue to believe there is greater value in Arlington's business than the public markets
recognize. Until we believe the stock price more accurately
reflects the intrinsic value of Arlington's business, the Company and its
insiders expect to continue to purchase shares of the Company's
stock. Since reinstituting our current common stock
repurchase program in 2020, the Company has aggressively returned
capital to shareholders by purchasing over 23% of its outstanding
shares, delivering $0.68 per share of
accretion to shareholders.
"We remain optimistic that our strategy can continue to drive
economic returns which we believe the market will reward
shareholders over time."
|
|
|
|
|
|
|
1
|
A reconciliation of
non-GAAP core operating income to GAAP net income appears at the
end of this press release.
|
First Quarter Investment Portfolio
As of March 31, 2022, the
Company's investment portfolio capital allocation was as
follows:
|
|
Assets
|
|
|
Invested
Capital
Allocation
(1)
|
|
|
Invested
Capital
Allocation
(%)
|
|
|
Leverage
(2)
|
|
MSR financing
receivables
|
|
$
|
139,225
|
|
|
$
|
139,225
|
|
|
|
50
|
%
|
|
|
0.3
|
|
Credit investments
(3)
|
|
|
83,096
|
|
|
|
62,485
|
|
|
|
22
|
%
|
|
|
0.3
|
|
Single-family
residential properties
|
|
|
121,962
|
|
|
|
48,036
|
|
|
|
17
|
%
|
|
|
1.6
|
|
Agency MBS
|
|
|
292,318
|
|
|
|
31,900
|
|
|
|
11
|
%
|
|
|
8.3
|
|
Total invested capital
|
|
$
|
636,601
|
|
|
|
281,646
|
|
|
|
100
|
%
|
|
|
|
|
Cash and other
corporate capital
|
|
|
|
|
|
|
23,557
|
|
|
|
|
|
|
|
|
|
Total investable
capital
|
|
|
|
|
|
$
|
305,203
|
|
|
|
|
|
|
1.3
|
|
|
|
|
|
|
|
|
(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 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 $28,144 in two variable interest entities with gross
assets and liabilities of $272,802 and $244,658, respectively, that
are consolidated for GAAP financial reporting purposes.
|
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 option, the mortgage servicing counterparty could 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. The
transactions are accounted for as a financing receivable on the
Company's consolidated financial statements.
The Company's MSR financing receivable investments as of
March 31, 2022 are summarized
below:
Amortized Cost Basis
(1)
|
|
|
Unrealized
Gain
|
|
|
Fair
Value
|
|
$
|
102,284
|
|
|
$
|
36,941
|
|
|
$
|
139,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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
|
|
$
|
179,987
|
|
|
$
|
(43,948)
|
|
|
$
|
2,587
|
|
|
$
|
9,822
|
|
|
$
|
(9,223)
|
|
|
$
|
139,225
|
|
|
|
0.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
13,450,698
|
|
|
|
2.94
|
%
|
|
|
0.25
|
%
|
|
13 months
|
|
|
1.31
|
%
|
|
|
5.21
|
|
|
$
|
176,026
|
|
Freddie Mac
|
|
|
298,226
|
|
|
|
3.06
|
%
|
|
|
0.25
|
%
|
|
9 months
|
|
|
1.33
|
%
|
|
|
5.31
|
|
|
|
3,961
|
|
Total/weighted-average
|
|
$
|
13,748,924
|
|
|
|
2.94
|
%
|
|
|
0.25
|
%
|
|
13 months
|
|
|
1.31
|
%
|
|
|
5.21
|
|
|
$
|
179,987
|
|
|
|
(1)
|
Calculated as the
underlying MSR price divided by the weighted-average servicing
fee.
|
As of March 31, 2022, the mortgage
servicing counterparty has drawn $43.9
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 0.32 to 1. The weighted average yield on the Company's MSR
financing receivables was 12.49% for the first quarter of 2022
compared to 9.63% for the fourth quarter of 2021.
Single-family Residential Investments
As of March 31, 2022, the Company
had acquired 405 single family residential ("SFR") properties for a
total cost of $122 million and had
commitments to acquire an additional 49
SFR properties for an aggregate purchase price of
$15 million. The timing of the
earnings benefit to the Company from investing in SFR rental
properties will be 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.
As of March 31, 2022, the
Company's SFR portfolio is summarized below:
Market
|
|
Number
of Properties
|
|
|
Gross
Book
Value
|
|
|
Average
Gross Book
Value
|
|
|
Average Square Feet
|
|
|
Average Year Built
|
|
Tulsa, OK
|
|
|
78
|
|
|
$
|
19,780
|
|
|
$
|
254
|
|
|
|
1,735
|
|
|
|
2016
|
|
Dallas, TX
|
|
|
57
|
|
|
|
19,592
|
|
|
|
344
|
|
|
|
1,969
|
|
|
|
2014
|
|
Atlanta, GA
|
|
|
61
|
|
|
|
19,449
|
|
|
|
319
|
|
|
|
2,284
|
|
|
|
2010
|
|
Huntsville,
AL
|
|
|
47
|
|
|
|
15,105
|
|
|
|
321
|
|
|
|
2,356
|
|
|
|
2013
|
|
Memphis, TN
|
|
|
45
|
|
|
|
13,209
|
|
|
|
294
|
|
|
|
1,910
|
|
|
|
2007
|
|
Charlotte,
NC
|
|
|
34
|
|
|
|
11,905
|
|
|
|
350
|
|
|
|
1,921
|
|
|
|
2011
|
|
Kansas City,
MO
|
|
|
40
|
|
|
|
11,738
|
|
|
|
293
|
|
|
|
1,947
|
|
|
|
2006
|
|
Birmingham,
AL
|
|
|
43
|
|
|
|
11,184
|
|
|
|
260
|
|
|
|
1,691
|
|
|
|
2018
|
|
Total/weighted average
|
|
|
405
|
|
|
$
|
121,962
|
|
|
$
|
301
|
|
|
|
1,974
|
|
|
|
2012
|
|
Status of
Property
|
|
Number
of Properties
|
|
|
Gross
Book Value
|
|
In
rehabilitation
|
|
|
47
|
|
|
$
|
14,517
|
|
In marketing
|
|
|
69
|
|
|
|
21,124
|
|
Leased not yet
occupied
|
|
|
20
|
|
|
|
6,291
|
|
Leased and
occupied
|
|
|
269
|
|
|
|
80,030
|
|
Total
|
|
|
405
|
|
|
$
|
121,962
|
|
As of March 31, 2022, the Company
has drawn $78.1 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 March 31, 2022, the Company's
$83.1 million credit investment
portfolio at fair value was comprised of the following:
|
Fair Value
(1)
|
|
|
Market
Price
|
|
|
Leverage
|
|
|
Cumulative
Total Return on
Capital (2)
|
|
Commercial mortgage
loan
|
$
|
29,592
|
|
|
$
|
100.00
|
|
|
|
2.3
|
|
|
|
11.15
|
%
|
Residential MBS -
interest-only (3)
|
|
20,910
|
|
|
|
8.20
|
|
|
|
—
|
|
|
|
124.14
|
%
|
Residential MBS
(3)
|
|
1,281
|
|
|
|
79.13
|
|
|
|
—
|
|
|
|
(54.26)
|
%
|
Business purpose
residential MBS (4)
|
|
17,002
|
|
|
|
94.42
|
|
|
|
—
|
|
|
|
9.27
|
%
|
Residential solar panel
loan ABS
|
|
14,311
|
|
|
|
78.19
|
|
|
|
—
|
|
|
|
(4.55)
|
%
|
Total/weighted-average
|
$
|
83,096
|
|
|
|
|
|
|
|
0.3
|
|
|
|
11.53
|
%
|
|
|
|
|
|
|
|
(1)
|
For credit
investments in securities, includes contractual accrued interest
receivable.
|
(2)
|
Calculated as an
annualized internal rate of return based upon our initial
investment, cash received from the investment, cash paid for
secured financing costs (if any) and assumes liquidation at
quarter-end at an amount equal to estimated fair value plus accrued
interest and the payoff of any secured financing (if any) and
accrued interest thereon.
|
(3)
|
Residential MBS –
interest-only and residential MBS, in combination, reflect our net
investment at fair value of $22,191 in a VIE that is consolidated
for GAAP financial reporting purposes.
|
(4)
|
Includes our net
investment at fair value of $5,953 in a VIE that is consolidated
for GAAP financial reporting purposes.
|
As of March 31, 2022, the Company
had a $20.7 million repurchase
agreement outstanding with a rate of 2.86% and remaining maturity
of 351 days secured by a $29.6
million commercial mortgage loan at fair value. As of
March 31, 2022, the Company did not
have any repurchase agreements outstanding secured by non-agency
MBS or ABS.
During the first quarter of 2022, the Company purchased the
first loss piece and excess interest only strip in a recently
issued securitization of performing non-qualified residential
mortgage loans for $20.6
million. As a result of an option to purchase
delinquent loans from the trust, the Company consolidates for
financial reporting purposes the underlying mortgage loan
collateral and term notes issued by the trust. The term notes
issued by the trust have recourse solely to the assets of the trust
with no recourse to the Company.
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 U.S. government sponsored enterprise
("GSE"), such as the Federal National Mortgage Association ("Fannie
Mae") or the Federal Home Loan Mortgage Corporation ("Freddie
Mac"). As of March 31, 2022,
the Company's agency MBS investment portfolio totaled $292 million at fair value consisting entirely of
specified agency MBS comprised of the following:
|
|
|
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%
|
|
$
|
98,035
|
|
|
$
|
2,264
|
|
|
$
|
100,299
|
|
|
$
|
(8,867)
|
|
|
$
|
91,432
|
|
|
$
|
93.26
|
|
|
|
2.00
|
%
|
|
|
9.0
|
|
|
2.5%
|
|
|
129,057
|
|
|
|
6,750
|
|
|
|
135,807
|
|
|
|
(11,896)
|
|
|
|
123,911
|
|
|
|
96.01
|
|
|
|
2.50
|
%
|
|
|
7.9
|
|
|
3.0%
|
|
|
45,092
|
|
|
|
450
|
|
|
|
45,542
|
|
|
|
(1,183)
|
|
|
|
44,359
|
|
|
|
98.37
|
|
|
|
3.00
|
%
|
|
|
8.2
|
|
|
3.5%
|
|
|
32,474
|
|
|
|
855
|
|
|
|
33,329
|
|
|
|
(721)
|
|
|
|
32,608
|
|
|
|
100.41
|
|
|
|
3.50
|
%
|
|
|
7.8
|
|
|
5.5%
|
|
|
8
|
|
|
|
—
|
|
|
|
8
|
|
|
|
—
|
|
|
|
8
|
|
|
|
109.57
|
|
|
|
5.50
|
%
|
|
|
5.4
|
|
Total/weighted-average
|
|
$
|
304,666
|
|
|
$
|
10,319
|
|
|
$
|
314,985
|
|
|
$
|
(22,667)
|
|
|
$
|
292,318
|
|
|
$
|
95.95
|
|
|
|
2.52
|
%
|
|
|
8.3
|
|
The Company's weighted average yield on its agency MBS was 1.52%
for the first quarter of 2022 compared to 1.53% for the fourth
quarter of 2021, and the actual weighted-average constant
prepayment rate ("CPR") for the Company's agency MBS was 9.01% for
the first quarter of 2022 compared to 7.43% for the fourth quarter
of 2021.
As of March 31, 2022, the Company
had $264.1 million of repurchase
agreements outstanding with a weighted average rate of 0.36% and
remaining weighted average maturity of 13 days secured by an
aggregate of $279.9 million of agency
MBS at fair value. The Company's weighted average cost
of repurchase agreement funding secured by agency MBS was 0.17%
during the first quarter of 2022 compared to 0.12% during the
fourth quarter of 2021.
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 March 31, 2022, the Company's interest swap
agreements were comprised of the following:
|
|
|
|
|
|
Weighted-average:
|
|
|
|
Notional Amount
|
|
|
Fixed
Pay Rate
|
|
|
Variable
Receive
Rate
|
|
|
Net Receive
(Pay) Rate
|
|
|
Remaining
Life (Years)
|
|
Years to
maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 3 years
|
|
$
|
100,000
|
|
|
|
0.90
|
%
|
|
|
0.27
|
%
|
|
|
(0.63)
|
%
|
|
|
1.7
|
|
3
to less than 10 years
|
|
|
75,000
|
|
|
|
1.33
|
%
|
|
|
0.45
|
%
|
|
|
(0.88)
|
%
|
|
|
5.8
|
|
Total/weighted-average
|
|
$
|
175,000
|
|
|
|
1.08
|
%
|
|
|
0.35
|
%
|
|
|
(0.73)
|
%
|
|
|
3.5
|
|
The Company's weighted average net pay rate of its interest rate
swap agreements was 0.68% during the first quarter of 2022 compared
to 0.69% during the fourth quarter of 2021. 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.
Other First Quarter 2022 Financial Highlights
The Company's book value was $6.19
per common share as of March 31, 2022
compared to $6.16 per common share as
of December 31, 2021. 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 1.3 to 1 as of
March 31, 2022 compared to 1.5 to 1
as of December 31, 2021. 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 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 first quarter of 2022, the Company repurchased 1.0
million shares of its common stock at an average price of
$3.44 per share for a total purchase
cost of $3.5 million, representing
3.3% of common stock outstanding as of December 31, 2021. Subsequent to
March 31, 2022, the Company
repurchased an additional 0.6 million shares of its common stock at
an average price of $3.39 per share
for a total purchase cost of $2.0
million, representing 2.0% of common stock outstanding as of
March 31, 2022. Currently, the
Company has remaining authorization from its Board of Directors to
repurchase up to 11.4 million shares of its common stock.
Pending Partial Sale of Single-Family Residential
Properties
On May 10, 2022, the Company
entered into a purchase and sale agreement to sell 378 SFR properties for $132.75 million, excluding any transaction costs
and fees. The 378 properties have an estimated all-in-cost of
$115 million, which includes the
purchase price of the properties, closing costs and initial
rehabilitation costs. Pursuant to the agreement, the buyer
may, for any reason or no reason at all, and in its sole and
absolute discretion, terminate the agreement during a due diligence
period that ends May 30, 2022.
Prior to settlement, the buyer can remove up to 5% of the SFR
properties from the sale transaction. If ultimately
consummated, the sale is expected to settle late in the second
quarter.
Conference Call
The Company will hold a conference call for investors
at 10:00 A.M. Eastern Time on Thursday, May 13, 2022
to discuss the Company's first 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)
|
|
|
|
|
|
March 31,
2022
|
|
|
December 31,
2021
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents (includes $73 and $2,118, respectively,
from consolidated VIEs)
|
|
$
|
21,715
|
|
|
$
|
20,543
|
|
Restricted
cash
|
|
|
851
|
|
|
|
1,132
|
|
Restricted cash
of consolidated VIEs
|
|
|
9,292
|
|
|
|
111
|
|
Sold securities
receivable
|
|
|
—
|
|
|
|
28,219
|
|
Agency
mortgage-backed securities, at fair value
|
|
|
292,318
|
|
|
|
483,927
|
|
MSR financing
receivables, at fair value
|
|
|
139,225
|
|
|
|
125,018
|
|
Credit
investments, at fair value
|
|
|
54,952
|
|
|
|
55,919
|
|
Mortgage loans
of consolidated VIEs, at fair value
|
|
|
261,976
|
|
|
|
7,442
|
|
Single-family
residential real estate (net of $1,010 and $299, respectively,
of accumulated
depreciation)
|
|
|
120,952
|
|
|
|
60,889
|
|
Deposits
|
|
|
4,607
|
|
|
|
4,549
|
|
Other assets
(includes $1,461 and $547, respectively, from consolidated
VIEs)
|
|
|
14,995
|
|
|
|
15,287
|
|
Total assets
|
|
$
|
920,883
|
|
|
$
|
803,036
|
|
LIABILITIES AND
EQUITY
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Repurchase
agreements
|
|
$
|
284,862
|
|
|
$
|
446,624
|
|
Secured debt of
consolidated VIEs, at fair value
|
|
|
244,365
|
|
|
|
508
|
|
Long-term
unsecured debt
|
|
|
86,096
|
|
|
|
85,994
|
|
Long-term debt
secured by single-family properties
|
|
|
77,824
|
|
|
|
39,178
|
|
Other
liabilities (includes $293 and $2, respectively, from consolidated
VIEs)
|
|
|
9,639
|
|
|
|
6,605
|
|
Total liabilities
|
|
|
702,786
|
|
|
|
578,909
|
|
Equity:
|
|
|
|
|
|
|
|
|
Preferred stock
(liquidation preference of $37,418 and $37,266,
respectively)
|
|
|
36,357
|
|
|
|
36,208
|
|
Common
stock
|
|
|
301
|
|
|
|
307
|
|
Additional
paid-in capital
|
|
|
2,027,585
|
|
|
|
2,030,315
|
|
Accumulated
deficit
|
|
|
(1,846,146)
|
|
|
|
(1,842,703)
|
|
Total equity
|
|
|
218,097
|
|
|
|
224,127
|
|
Total liabilities
and equity
|
|
$
|
920,883
|
|
|
$
|
803,036
|
|
Book value per
common share (1)
|
|
$
|
6.19
|
|
|
$
|
6.16
|
|
Common shares
outstanding (in thousands) (2)
|
|
|
29,345
|
|
|
|
30,334
|
|
|
|
|
|
|
|
|
|
|
(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.
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2022
|
|
|
December 31,
2021
|
|
Assets and
liabilities of consolidated VIEs:
|
|
|
|
|
|
|
|
|
Cash and
restricted cash
|
|
$
|
9,365
|
|
|
$
|
2,229
|
|
Mortgage loans,
at fair value
|
|
|
261,976
|
|
|
|
7,442
|
|
Other
assets
|
|
|
1,461
|
|
|
|
547
|
|
Secured debt, at
fair value
|
|
|
(244,365)
|
|
|
|
(508)
|
|
Other
liabilities
|
|
|
(293)
|
|
|
|
(2)
|
|
Net investment in consolidated VIEs
|
|
$
|
28,144
|
|
|
$
|
9,708
|
|
ARLINGTON ASSET
INVESTMENT CORP.
|
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
(Dollars in
thousands, except per share data)
|
|
(Unaudited)
|
|
|
|
|
|
Three Months
Ended
|
|
|
|
March
31,
2022
|
|
|
December
31,
2021
|
|
|
September
30,
2021
|
|
|
June
30,
2021
|
|
Interest
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MSR financing
receivables
|
|
$
|
3,382
|
|
|
$
|
2,589
|
|
|
$
|
1,945
|
|
|
$
|
1,390
|
|
Agency
mortgage-backed securities
|
|
|
1,492
|
|
|
|
2,206
|
|
|
|
2,660
|
|
|
|
2,984
|
|
Credit
securities and loans
|
|
|
853
|
|
|
|
772
|
|
|
|
1,247
|
|
|
|
1,770
|
|
Mortgage loans
of consolidated VIEs
|
|
|
1,354
|
|
|
|
144
|
|
|
|
301
|
|
|
|
776
|
|
Other
|
|
|
325
|
|
|
|
169
|
|
|
|
193
|
|
|
|
125
|
|
Total interest and other income
|
|
|
7,406
|
|
|
|
5,880
|
|
|
|
6,346
|
|
|
|
7,045
|
|
Rent revenues from
single-family properties
|
|
|
1,064
|
|
|
|
259
|
|
|
|
—
|
|
|
|
—
|
|
Interest
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase
agreements
|
|
|
276
|
|
|
|
286
|
|
|
|
306
|
|
|
|
403
|
|
Long-term debt
secured by single-family properties
|
|
|
408
|
|
|
|
151
|
|
|
|
—
|
|
|
|
—
|
|
Long-term
unsecured debt
|
|
|
1,370
|
|
|
|
1,376
|
|
|
|
1,435
|
|
|
|
1,150
|
|
Secured debt of
consolidated VIEs
|
|
|
1,188
|
|
|
|
20
|
|
|
|
173
|
|
|
|
405
|
|
Total interest expense
|
|
|
3,242
|
|
|
|
1,833
|
|
|
|
1,914
|
|
|
|
1,958
|
|
Single-family
property operating expenses
|
|
|
1,531
|
|
|
|
593
|
|
|
|
36
|
|
|
|
—
|
|
Net operating
income
|
|
|
3,697
|
|
|
|
3,713
|
|
|
|
4,396
|
|
|
|
5,087
|
|
Investment and
derivative (loss) gain, net
|
|
|
(827)
|
|
|
|
3,909
|
|
|
|
(1,313)
|
|
|
|
(9,032)
|
|
General and
administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and
benefits
|
|
|
2,065
|
|
|
|
1,855
|
|
|
|
1,888
|
|
|
|
1,841
|
|
Other general
and administrative expenses
|
|
|
1,219
|
|
|
|
1,125
|
|
|
|
1,009
|
|
|
|
1,349
|
|
Total general and administrative expenses
|
|
|
3,284
|
|
|
|
2,980
|
|
|
|
2,897
|
|
|
|
3,190
|
|
(Loss) income before
income taxes
|
|
|
(414)
|
|
|
|
4,642
|
|
|
|
186
|
|
|
|
(7,135)
|
|
Income tax provision
(benefit)
|
|
|
2,287
|
|
|
|
808
|
|
|
|
436
|
|
|
|
(76)
|
|
Net (loss)
income
|
|
|
(2,701)
|
|
|
|
3,834
|
|
|
|
(250)
|
|
|
|
(7,059)
|
|
Dividend on preferred
stock
|
|
|
(742)
|
|
|
|
(739)
|
|
|
|
(731)
|
|
|
|
(723)
|
|
Net (loss) income
(attributable) available to common stock
|
|
$
|
(3,443)
|
|
|
$
|
3,095
|
|
|
$
|
(981)
|
|
|
$
|
(7,782)
|
|
Basic (loss) earnings
per common share
|
|
$
|
(0.12)
|
|
|
$
|
0.10
|
|
|
$
|
(0.03)
|
|
|
$
|
(0.24)
|
|
Diluted (loss) earnings
per common share
|
|
$
|
(0.12)
|
|
|
$
|
0.10
|
|
|
$
|
(0.03)
|
|
|
$
|
(0.24)
|
|
Weighted average
common shares outstanding (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
29,832
|
|
|
|
31,100
|
|
|
|
31,927
|
|
|
|
33,066
|
|
Diluted
|
|
|
29,832
|
|
|
|
31,421
|
|
|
|
31,927
|
|
|
|
33,066
|
|
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 from financial assets" and "net
operating income from SFR properties, excluding depreciation," less
"core general and administrative expenses," long-term unsecured
debt interest expense, preferred stock dividends and an "income tax
provision for taxable REIT subsidiary ("TRS") core operating
income."
Economic Net Interest Income from Financial Assets
Economic net interest income from financial assets, a non-GAAP
financial measure, is comprised of the following:
- total interest and other income from our investments in
interest-bearing securities, loans and other financial assets;
- TBA dollar roll income, which represents the implied net
interest income earned from the agency MBS which underlie, and are
implicitly financed through, our TBA dollar roll transactions. TBA
dollar income 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; net of
- interest expense incurred from repurchase agreements or other
financing arrangements secured by our investments in
interest-bearing financial assets; 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 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 "investment and derivative gain (loss), net." We believe that
economic net interest income from financial assets 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 and the costs of corporate
financing.
Net Operating Income (Loss) from SFR Properties, Excluding
Depreciation
Net operating income (loss) from SFR properties, excluding
depreciation, represents the operating income (loss) of the
Company's SFR properties determined in accordance with GAAP plus
the depreciation and amortization of the SFR properties. Net
operating income (loss) from SFR properties, excluding depreciation
is comprised of the following:
- rent revenues from single-family properties; net of
- single-family property operating expenses; and
- interest expense incurred from long-term debt secured by
single-family properties.
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.
Income Tax Provision for TRS Core Operating Income
Our TRSs are subject to U.S. federal and state corporate income
taxes. Our computation of core operating income includes a
provision for income taxes on the core operating income of our
TRSs. The core operating income of our TRSs is comprised of
net interest income generated by our TRSs net of our TRSs' general
and administrative expenses. In our consolidated statements
of comprehensive income prepared in accordance with GAAP, the
"income tax provision (benefit)" includes (i) the income tax
provision for TRS core operating income and (ii) an income tax
provision for (or benefit from) periodic increases (or decreases)
in the fair value of the investments of our TRSs, which are
recognized in net income as a component of "investment and
derivative gain (loss) net."
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
|
|
|
|
March
31,
2022
|
|
|
December
31,
2021
|
|
|
September
30,
2021
|
|
|
June
30,
2021
|
|
Investments in
financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and
other income
|
|
$
|
7,406
|
|
|
$
|
5,880
|
|
|
$
|
6,346
|
|
|
$
|
7,045
|
|
TBA dollar roll
income
|
|
|
823
|
|
|
|
465
|
|
|
|
1,064
|
|
|
|
1,778
|
|
Interest
expense
|
|
|
(1,464)
|
|
|
|
(306)
|
|
|
|
(479)
|
|
|
|
(808)
|
|
Interest rate
swap net interest expense
|
|
|
(291)
|
|
|
|
(653)
|
|
|
|
(379)
|
|
|
|
(1,187)
|
|
Economic net interest income from financial assets
|
|
|
6,474
|
|
|
|
5,386
|
|
|
|
6,552
|
|
|
|
6,828
|
|
Investments in SFR
properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rent
revenues
|
|
|
1,064
|
|
|
|
259
|
|
|
|
—
|
|
|
|
—
|
|
Property
operating expenses, excluding depreciation
|
|
|
(816)
|
|
|
|
(306)
|
|
|
|
(24)
|
|
|
|
—
|
|
Interest
expense
|
|
|
(408)
|
|
|
|
(151)
|
|
|
|
—
|
|
|
|
—
|
|
Net
operating loss from SFR properties, excluding depreciation
|
|
|
(160)
|
|
|
|
(198)
|
|
|
|
(24)
|
|
|
|
—
|
|
Core general and
administrative expenses
|
|
|
(2,523)
|
|
|
|
(2,457)
|
|
|
|
(2,377)
|
|
|
|
(2,653)
|
|
Long-term unsecured
debt interest expense
|
|
|
(1,370)
|
|
|
|
(1,376)
|
|
|
|
(1,435)
|
|
|
|
(1,150)
|
|
Preferred stock
dividend
|
|
|
(742)
|
|
|
|
(739)
|
|
|
|
(731)
|
|
|
|
(723)
|
|
Income tax provision
for TRS core operating income
|
|
|
(229)
|
|
|
|
(129)
|
|
|
|
(85)
|
|
|
|
(61)
|
|
Non-GAAP core operating
income
|
|
$
|
1,450
|
|
|
$
|
487
|
|
|
$
|
1,900
|
|
|
$
|
2,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP core operating
income per diluted common
share
|
|
$
|
0.05
|
|
|
$
|
0.02
|
|
|
$
|
0.06
|
|
|
$
|
0.07
|
|
Weighted average
diluted common shares
outstanding
|
|
|
30,315
|
|
|
|
31,421
|
|
|
|
32,243
|
|
|
|
33,424
|
|
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
|
|
|
|
March
31,
2022
|
|
|
December
31,
2021
|
|
|
September
30,
2021
|
|
|
June
30,
2021
|
|
Net (loss) income
(attributable) available to common stock
|
|
$
|
(3,443)
|
|
|
$
|
3,095
|
|
|
$
|
(981)
|
|
|
$
|
(7,782)
|
|
Add
(less):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment and
derivative loss (gain), net
|
|
|
827
|
|
|
|
(3,909)
|
|
|
|
1,313
|
|
|
|
9,032
|
|
Stock-based
compensation expense
|
|
|
761
|
|
|
|
523
|
|
|
|
520
|
|
|
|
537
|
|
Income tax
provision (benefit) for TRS investment gain (loss)
|
|
|
2,058
|
|
|
|
679
|
|
|
|
351
|
|
|
|
(137)
|
|
Depreciation of
single-family residential properties
|
|
|
715
|
|
|
|
287
|
|
|
|
12
|
|
|
|
—
|
|
Add
back:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TBA dollar roll
income
|
|
|
823
|
|
|
|
465
|
|
|
|
1,064
|
|
|
|
1,778
|
|
Interest rate
swap net interest expense
|
|
|
(291)
|
|
|
|
(653)
|
|
|
|
(379)
|
|
|
|
(1,187)
|
|
Non-GAAP core operating
income
|
|
$
|
1,450
|
|
|
$
|
487
|
|
|
$
|
1,900
|
|
|
$
|
2,241
|
|
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.
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.
View original
content:https://www.prnewswire.com/news-releases/arlington-asset-investment-corp-reports-first-quarter-2022-financial-results-301546680.html
SOURCE Arlington Asset Investment Corp.