UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (date of earliest event
reported): October 27, 2014
ARLINGTON ASSET INVESTMENT CORP.
(Exact name of Registrant as specified in
its charter)
Virginia |
|
54-1873198 |
|
001-34374 |
(State or Other Jurisdiction
of Incorporation or Organization)
|
|
(I.R.S. Employer Identification No.) |
|
(Commission File Number) |
1001 Nineteenth Street North
Arlington, VA 22209
(Address of principal executive offices)
(Zip code)
(703) 373-0200
(Registrant’s telephone number including
area code)
N/A
(Former name or former address, if changed
from last report)
Check the appropriate box below if the Form 8-K filing is intended
to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨ |
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ |
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ |
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ |
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.02. Results of Operations
and Financial Condition.
Arlington Asset Investment
Corp. (the “Company”) issued a press release on October 27, 2014 announcing its financial results for the quarter ended
September 30, 2014. A copy of the press release is attached hereto as Exhibit 99.1.
The information in Item
2.02 of this Current Report on Form 8-K, including Exhibit 99.1 furnished pursuant to Item 9.01, shall not be deemed “filed”
for the purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities under that Section.
Furthermore, the information in Item 2.02 of this Current Report on Form 8-K, including Exhibit 99.1 furnished pursuant to Item
9.01, shall not be deemed to be incorporated by reference into the filings of the Company under the Securities Act of 1933.
Forward-Looking Statements Disclaimer
This Current Report
on Form 8-K contains “forward-looking statements” made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, including those relating to forward settling transactions, forward yield, and the effect of actions
of the U.S. government, including the Federal Reserve, on our results. Forward-looking statements typically are identified by use
of the terms such as “believe,” “expect,” “anticipate,” “estimate,” “plan,”
“continue,” “intend,” “should,” “may” or similar expressions. Forward-looking statements
are based on the Company's beliefs, assumptions and expectations of the Company's future performance, taking into account all information
currently available to the Company. The Company cannot assure you that actual results will not vary from the expectations contained
in the forward-looking statements. All of the forward-looking statements are subject to numerous possible events, factors and conditions,
many of which are beyond the control of the Company and not all of which are known to the Company, including, without limitation,
market conditions and those described in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2013 and
other documents which have been filed with the Securities and Exchange Commission. 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 us. 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.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits.
99.1 |
Arlington Asset Investment Corp. Press Release dated October 27, 2014. |
SIGNATURE
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned hereunto duly authorized.
|
ARLINGTON ASSET INVESTMENT CORP. |
|
|
Date: October 27, 2014 |
By: |
/s/ Kurt R. Harrington |
Name: |
Kurt R. Harrington |
Title: |
Executive Vice President, Chief Financial Officer and Treasurer |
EXHIBIT INDEX
Exhibit
No. |
Description |
99.1 |
Arlington Asset Investment Corp. Press Release dated October 27, 2014. |
|
|
Exhibit 99.1
Contacts:
Media: 703.373.0200 or ir@arlingtonasset.com
Investors: Kurt Harrington at 703.373.0200 or ir@arlingtonasset.com
Arlington Asset
Investment Corp. Reports Third Quarter 2014 Financial Results
Non-GAAP core operating
income of $1.36 per share (diluted) for the third quarter 2014(1)
Dividend of $0.875
per share for the third quarter 2014, payable on October 31, 2014
Annualized dividend
yield of 13%(2), 17%(3) on a tax adjusted basis
Book value per share
at September 30, 2014 was $30.43
ARLINGTON, VA, October 27, 2014
– Arlington Asset Investment Corp. (NYSE: AI) (the “Company”) today reported non-GAAP core operating income
of $28.7 million for the quarter ended September 30, 2014, or $1.36 per share (diluted). A reconciliation of non-GAAP core operating
income to GAAP net income appears at the end of this press release. On a GAAP basis, the Company reported net income of $12.8
million for the quarter ended September 30, 2014, or $0.61 per share (diluted), compared to net income of $18.8 million for the
quarter ended June 30, 2014, or $0.94 per share (diluted), and net income of $3.1 million, or $0.18 per share (diluted), for the
quarter ended September 30, 2013.
“Our results reflect the positive
financial dynamic taking place in the Company through the redeployment of appreciated capital in the private-label MBS portfolio
to higher return opportunities, paired with a reduction in the ratio of cash expenses to investable capital,” said J. Rock
Tonkel, Jr., the Company's President and Chief Executive Officer. “While these factors drove higher core earnings
and returns during the quarter, we also continue to be encouraged by the ongoing expansion of our funding capacity and the resilience
of our MBS portfolio structure through market movements. We continue to maintain a hedged portfolio structure and a highly liquid
balance sheet.”
Third Quarter Highlights
Net interest income for the third quarter
was $30.3 million, including non-cash accretion on private-label MBS of $1.3 million required under GAAP. The three-month constant
prepayment rate (“CPR”) for the Company’s agency-backed MBS as of September 30, 2014 was 7.04%. The Company’s
debt to equity ratio at September 30, 2014 was approximately 4 to 1.
As of September
30, 2014, the Company’s agency-backed MBS portfolio consisted of $3.0 billion in face value with a cost basis and a
fair value of $3.2 billion. As of September 30, 2014, all of the Company’s agency-backed MBS were fixed-rate 30-year
MBS specifically selected for their prepayment protections with a weighted average coupon of 4.04%, a weighted average cost
of 106.10, a weighted average market price of 105.87, and had a weighted average cost of repo funding of 32 basis points. On
a mark-to-market basis, the Company had an average of $2.1 billion in Eurodollar futures associated with the Company’s
agency-backed MBS portfolio starting in March 2015 and ending in June 2019 with a rate of 2.17% and an equivalent funding
cost through September 2019 of approximately 2.05%. The Company also had $1.1 billion in notional 10-year interest rate swap
futures with a marked rate of approximately 2.65%, resulting in a combined hedged notional amount of approximately $3.2
billion.
As of September 30,
2014, the Company’s private-label MBS portfolio consisted of $389.4 million in face value with an amortized cost basis of
$237.9 million and a fair value of $292.8 million. The following table presents certain statistics of the Company’s private-label
MBS portfolio as of or for the quarter ended September 30, 2014 (dollars in millions):
| |
Total Private-Label
MBS | |
| |
| |
Fair market value | |
$ | 292.8 | |
Fair market value (as a % of face value) | |
| 75.2 | % |
Quarterly cash yield (as a % of average fair market
value, excluding GAAP non-cash accretion) | |
| 7.0 | % |
| |
| | |
Quarterly unlevered yield (GAAP, as a % of amortized
cost) | |
| 10.6 | % |
Quarterly unlevered cash yield (as a % of average amortized
cost excluding GAAP non-cash accretion) | |
| 8.6 | % |
Average cost (as a % of face value) | |
| 53.5 | % |
Weighted average coupon | |
| 3.0 | % |
| |
| | |
Face value | |
$ | 389.4 | |
Amortized cost | |
$ | 237.9 | |
Purchase discount | |
$ | 151.5 | |
| |
| | |
60+ days delinquent | |
| 15.2 | % |
Credit enhancement | |
| 0.3 | % |
Severity (3-month) | |
| 41.5 | % |
Constant prepayment rate (3-month) | |
| 12.2 | % |
Dividend
The Company’s Board of Directors
approved a $0.875 dividend for the third quarter of 2014. The dividend will be paid on October 31, 2014 to shareholders of record
as of September 29, 2014. This represented a 13% annualized dividend yield based on the Class A common stock closing price on
the New York Stock Exchange (NYSE) of $27.03 on October 24, 2014.
| (1) | Non-GAAP Financial Measures |
In addition to the financial
results reported in accordance with generally accepted accounting principles as consistently applied in the United States (GAAP),
the Company calculated non-GAAP core operating income for the three months ended September 30, 2014. The Company’s non-GAAP
core operating income for the three months ended September 30, 2014 was $28.7 million. In determining core operating income, the
Company excluded certain legacy litigation expenses and the following non-cash expenses: (1) compensation costs associated with
stock-based awards, (2) accretion of MBS purchase discounts adjusted for contractual interest and principal repayments in excess
of proportionate invested capital, (3) other-than-temporary impairment charges recognized, (4) non-cash income tax provisions,
and (5) benefit from the reversal of previously accrued federal and state tax liability and accrued interest related to uncertain
tax positions. Additionally, starting in 2014, the Company has excluded both realized and unrealized gains and losses on the agency-backed
MBS and all related hedge instruments, and has presented prior periods on a consistent basis. These adjustments are only for the
purpose of calculating the Company’s non-GAAP core operating income; therefore, they do not change the Company’s GAAP
book value as reported.
The Company’s
portfolio strategy on the Company’s agency-backed MBS portfolio is to generate a net interest margin on the leveraged assets
and hedge the market value of the assets, expecting that the fluctuations in the market value of the agency-backed MBS and related
hedges should largely offset each other over time. As a result, the Company excludes both the realized and unrealized fluctuations
in the gains and losses in the assets and hedges on its hedged, agency-backed MBS portfolio when assessing the underlying core
operating income of the Company. However, the Company’s portfolio strategy on the Company’s private-label MBS portfolio
is to generate a total cash return comprised of both interest income and the cash return realized when the private-label MBS are
sold that equals the difference between the sale price and the discount to par paid at acquisition. Therefore, the Company excludes
non-cash accretion of private-label MBS purchase discounts from non-GAAP core operating income, but includes realized cash gains
or losses on its private-label MBS portfolio in core operating income to reflect the total cash return on those securities over
their holding period.
This non-GAAP core operating
income measurement is used by management to analyze and assess the Company’s operating results on its portfolio and assist
with the determination of the appropriate level of dividends. The Company believes that this non-GAAP measurement assists investors
in understanding the impact of these non-core items and non-cash expenses on our performance and provides additional clarity around
our earnings capacity and trends. A limitation of utilizing this non-GAAP measure is that the GAAP accounting effects of these
events do in fact reflect the underlying financial results of our business and these effects should not be ignored in evaluating
and analyzing our financial results. Therefore, the Company believes net income on a GAAP basis and core operating income on a
non-GAAP basis should be considered together.
The following is a reconciliation
of GAAP net income to non-GAAP core operating income for the three months ended September 30, 2014 and 2013 (dollars in thousands):
| |
Three Months
Ended September 30, | |
| |
2014 | | |
2013
Revised | | |
2013
As Previously Reported | |
GAAP net income | |
$ | 12,847 | | |
$ | 3,093 | | |
$ | 3,093 | |
Adjustments | |
| | | |
| | | |
| | |
Legacy
litigation expenses (a) | |
| — | | |
| (24 | ) | |
| (24 | ) |
Non-cash income
tax provisions | |
| 5,114 | | |
| 2,170 | | |
| 2,170 | |
Stock compensation | |
| 1,524 | | |
| 729 | | |
| 729 | |
Non-cash
interest income related to purchase discount accretion (b) | |
| (1,256 | ) | |
| (1,915 | ) | |
| (1,915 | ) |
Net realized and unrealized loss on
trading MBS and hedge instruments | |
| 10,374 | | |
| 15,549 | | |
| 12,898 | |
Other-than-temporary
impairment charges | |
| 71 | | |
| 380 | | |
| 380 | |
Non-GAAP core
operating income | |
$ | 28,674 | | |
$ | 19,982 | | |
$ | 17,331 | |
| (a) | Legacy litigation expenses relate to legal matters pertaining
to events related to business activities the Company completed or exited in or prior
to 2009 — primarily debt extinguishment, sub-prime mortgage origination
and securitization and broker/dealer operations. |
| (b) | Non-cash interest income related to purchase discount accretion
represents interest income recognized in excess of cash receipts related to contractual
interest income and principal repayments in excess of proportionate invested capital. |
| (2) | Based on the annualized third quarter 2014 dividend and the Class
A common stock closing price on the NYSE of $27.03 on October 24, 2014. |
| (3) | The Company's dividends are eligible for the 23.8% federal
income tax rate on qualified dividend income, whereas dividends paid by a REIT are generally
subject to the higher 43.4% tax rate on ordinary income. To provide the same return
after payment of federal income tax as the Company, a REIT would be required to pay dividends
providing a 17% yield. |
About the Company
Arlington Asset Investment Corp. (NYSE:
AI) is a principal investment firm that currently invests primarily in mortgage-related and other assets. The Company is headquartered
in the Washington, D.C. metropolitan area. For more information, please visit www.arlingtonasset.com.
Statements concerning future performance,
the Company’s portfolio, funding capacity, liquidity, portfolio hedging, migrating capital from the private-label MBS portfolio
to the agency-backed MBS portfolio, market conditions, cash returns and earnings, dividends, book value, changes in the Company’s
expense to capital ratio, and any other guidance on present or future periods, constitute forward-looking statements that are
subject to a number of factors, risks and uncertainties that might cause actual results to differ materially from stated expectations
or current circumstances. These factors include, but are not limited to, changes in interest rates, increased costs of borrowing,
decreased interest spreads, changes in political and monetary policies, changes in default rates, changes in the CPR for the Company’s
MBS, changes in the Company’s operating efficiency, changes in the Company’s returns, changes in the use of the Company’s
tax benefits, maintenance of the Company’s low leverage posture, changes in the agency-backed MBS asset yield, changes in
the Company’s monetization of net operating loss carry-forwards, changes in the Company’s ability to generate cash
earnings and dividends, preservation and utilization of our net operating loss and net capital loss carry-forwards, impacts of
changes to Fannie Mae and Freddie Mac, actions taken by the U.S. Federal Reserve 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, changes in and the effects on the Company of mortgage
prepayment speeds, ability to realize book value growth through reflation of private-label MBS, and general economic, political,
regulatory and market conditions. These and other material risks are described in the Company's Annual Report on Form 10-K for
the year ended December 31, 2013 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.
Financial data follow
ARLINGTON ASSET INVESTMENT CORP. | |
| | |
| | |
| | |
| |
CONSOLIDATED STATEMENTS OF OPERATIONS | |
| | |
| | |
| | |
| |
(Dollars in thousands, except per share data) | |
Three Months Ended | | |
Nine Months Ended | |
(Unaudited) | |
September 30, | | |
September 30, | |
| |
2014 | | |
2013 | | |
2014 | | |
2013 | |
INTEREST INCOME | |
$ | 33,301 | | |
$ | 22,995 | | |
$ | 87,231 | | |
$ | 64,468 | |
| |
| | | |
| | | |
| | | |
| | |
INTEREST EXPENSE | |
| | | |
| | | |
| | | |
| | |
Interest on short-term debt | |
| 2,422 | | |
| 1,758 | | |
| 6,280 | | |
| 5,061 | |
Interest on long-term debt | |
| 554 | | |
| 556 | | |
| 1,657 | | |
| 1,077 | |
Total interest expense | |
| 2,976 | | |
| 2,314 | | |
| 7,937 | | |
| 6,138 | |
Net interest income | |
| 30,325 | | |
| 20,681 | | |
| 79,294 | | |
| 58,330 | |
| |
| | | |
| | | |
| | | |
| | |
OTHER LOSS, NET | |
| | | |
| | | |
| | | |
| | |
Investment loss, net | |
| (6,978 | ) | |
| (11,100 | ) | |
| (4,979 | ) | |
| (35,882 | ) |
Other loss | |
| (4 | ) | |
| (3 | ) | |
| (11 | ) | |
| (11 | ) |
Total other loss, net | |
| (6,982 | ) | |
| (11,103 | ) | |
| (4,990 | ) | |
| (35,893 | ) |
Operating income before other expenses | |
| 23,343 | | |
| 9,578 | | |
| 74,304 | | |
| 22,437 | |
| |
| | | |
| | | |
| | | |
| | |
OTHER EXPENSES | |
| | | |
| | | |
| | | |
| | |
Compensation and benefits | |
| 3,995 | | |
| 3,042 | | |
| 10,141 | | |
| 8,034 | |
Professional services | |
| 290 | | |
| 297 | | |
| 1,201 | | |
| 1,973 | |
Business development | |
| 45 | | |
| 45 | | |
| 132 | | |
| 107 | |
Occupancy and equipment | |
| 107 | | |
| 96 | | |
| 326 | | |
| 328 | |
Communications | |
| 47 | | |
| 49 | | |
| 146 | | |
| 142 | |
Other operating expenses | |
| 570 | | |
| 501 | | |
| 1,643 | | |
| 1,142 | |
Total other expenses | |
| 5,054 | | |
| 4,030 | | |
| 13,589 | | |
| 11,726 | |
| |
| | | |
| | | |
| | | |
| | |
Income before income taxes | |
| 18,289 | | |
| 5,548 | | |
| 60,715 | | |
| 10,711 | |
| |
| | | |
| | | |
| | | |
| | |
Income tax provision | |
| 5,442 | | |
| 2,455 | | |
| 21,996 | | |
| 1,247 | |
| |
| | | |
| | | |
| | | |
| | |
Net income | |
$ | 12,847 | | |
$ | 3,093 | | |
$ | 38,719 | | |
$ | 9,464 | |
| |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
Basic earnings per share | |
$ | 0.62 | | |
$ | 0.19 | | |
$ | 2.03 | | |
$ | 0.60 | |
| |
| | | |
| | | |
| | | |
| | |
Diluted earnings per share | |
$ | 0.61 | | |
$ | 0.18 | | |
$ | 1.99 | | |
$ | 0.59 | |
| |
| | | |
| | | |
| | | |
| | |
Weighted average shares outstanding - basic (in thousands) | |
| 20,577 | | |
| 16,669 | | |
| 19,056 | | |
| 15,761 | |
Weighted average shares outstanding - diluted (in thousands) | |
| 21,055 | | |
| 16,845 | | |
| 19,413 | | |
| 15,934 | |
ARLINGTON ASSET INVESTMENT CORP. | |
| | |
| |
CONSOLIDATED BALANCE SHEETS | |
| | |
| |
(Dollars in thousands, except per share amounts) | |
| | |
| |
(Unaudited) | |
| | |
| |
| |
| | |
| |
| |
| | |
| |
ASSETS | |
September
30, 2014 | | |
December
31, 2013 | |
| |
| | |
| |
Cash and cash equivalents | |
$ | 31,093 | | |
$ | 48,628 | |
Receivables | |
| | | |
| | |
Interest | |
| 9,259 | | |
| 5,173 | |
Other | |
| 222 | | |
| 212 | |
Mortgage-backed securities, at fair value | |
| | | |
| | |
Available-for-sale | |
| 292,849 | | |
| 341,346 | |
Trading | |
| 3,176,135 | | |
| 1,576,452 | |
Other investments | |
| 1,891 | | |
| 2,065 | |
Derivative assets, at fair value | |
| 8,966 | | |
| 8,424 | |
Deferred tax assets, net | |
| 147,686 | | |
| 165,851 | |
Deposits | |
| 95,216 | | |
| 45,504 | |
Prepaid expenses and other assets | |
| 1,379 | | |
| 1,311 | |
Total assets | |
$ | 3,764,696 | | |
$ | 2,194,966 | |
| |
| | | |
| | |
| |
| | | |
| | |
LIABILITIES AND EQUITY | |
| | | |
| | |
| |
| | | |
| | |
Liabilities: | |
| | | |
| | |
Repurchase agreements | |
$ | 2,668,566 | | |
$ | 1,547,630 | |
Interest payable | |
| 901 | | |
| 774 | |
Accrued compensation and benefits | |
| 4,367 | | |
| 5,584 | |
Dividend payable | |
| 20,199 | | |
| 14,630 | |
Derivative liabilities, at fair value | |
| 67,410 | | |
| 33,129 | |
Purchased securities payable | |
| 263,425 | | |
| - | |
Accounts payable, accrued expenses and other liabilities | |
| 851 | | |
| 1,391 | |
Long-term debt | |
| 40,000 | | |
| 40,000 | |
Total liabilities | |
| 3,065,719 | | |
| 1,643,138 | |
| |
| | | |
| | |
| |
| | | |
| | |
Equity: | |
| | | |
| | |
Common stock | |
| 229 | | |
| 166 | |
Additional paid-in capital | |
| 1,896,195 | | |
| 1,727,398 | |
Accumulated other comprehensive income, net of taxes | |
| 47,611 | | |
| 53,190 | |
Accumulated deficit | |
| (1,245,058 | ) | |
| (1,228,926 | ) |
Total equity | |
| 698,977 | | |
| 551,828 | |
| |
| | | |
| | |
Total liabilities
and equity | |
$ | 3,764,696 | | |
$ | 2,194,966 | |
| |
| | | |
| | |
| |
| | | |
| | |
Book Value per Share | |
$ | 30.43 | | |
$ | 33.10 | |
| |
| | | |
| | |
Shares Outstanding (in thousands) | |
| 22,973 | | |
| 16,671 | |
C3 AI (NYSE:AI)
Historical Stock Chart
From Jun 2024 to Jul 2024
C3 AI (NYSE:AI)
Historical Stock Chart
From Jul 2023 to Jul 2024