ARLINGTON, Va., Aug. 6, 2019 /PRNewswire/ -- Arlington Asset
Investment Corp. (NYSE: AI) (the "Company" or "Arlington") today reported net loss
attributable to common shareholders of $24.3
million, or $0.67 per diluted
common share, and non-GAAP core operating income of $8.4 million, or $0.23 per diluted common share, for the quarter
ended June 30, 2019. A
reconciliation of non-GAAP core operating income to GAAP net income
(loss) before income taxes appears at the end of this press
release.
Second Quarter 2019 Financial Highlights
- $0.67 per diluted common share of
GAAP net loss
- $0.23 per diluted common share of
non-GAAP core operating income
- $7.80 per common share of book
value
- $0.225 per common share
dividend
"During the second quarter, increased prepayment speed
expectations and a continued flat interest rate curve reduced
returns on levered agency mortgage-backed security ("MBS")
investments," said J. Rock Tonkel, Jr., the Company's President and
Chief Executive Officer. "Given that environment, the Company
improved its risk profile by lowering its recourse financing to
investable capital leverage to 9.1x as of June 30, 2019. The Company also shifted
more of its agency MBS investment portfolio exposure towards lower
coupon securities that carry lower premiums as well as reduced
prepayment risk, and the Company has continued that process in the
third quarter. In that context, the Company lowered its
quarterly dividend to approximate its core operating income per
common share. To the extent that current market expectations
of Federal Reserve interest rate cuts materialize, future
investment returns on levered agency MBS may improve, benefitting
the Company's earnings profile. Finally, while agency MBS
spreads have widened somewhat in early August, spread tightening
during July increased the Company's book value to approximately
$8.10 per common share as of
July 31, 2019."
Other Second Quarter Highlights
As of June 30, 2019, the Company's
agency MBS investment portfolio totaled $3,966 million in fair value, consisting of
$3,415 million of specified agency
MBS and $551 million of net long
to-be-announced ("TBA") agency MBS. As of June 30, 2019, the Company's $3,966 million agency MBS investment portfolio
was comprised of the following:
- $198 million of 2.5% coupon
30-year agency MBS
- $202 million of 3.0% coupon
30-year agency MBS
- $655 million of 3.5% coupon
30-year agency MBS
- $2,078 million of 4.0% coupon
30-year agency MBS
- $833 million of 4.5% coupon
30-year agency MBS
Subsequent to June 30, 2019, the
Company increased its investment allocation towards lower coupon
agency MBS while also decreasing its concentration in TBA agency
MBS. As of July 31, 2019, the
Company's agency MBS investment portfolio totaled $3,966 million in fair value, consisting of
$3,668 million of specified agency
MBS and $298 million of net long
to-be-announced ("TBA") agency MBS. As of July 31, 2019, the Company's $3,966 million agency MBS investment portfolio
was comprised of the following:
- $198 million of 2.5% coupon
30-year agency MBS
- $101 million of 3.0% coupon
30-year agency MBS
- $1,399 million of 3.5% coupon
30-year agency MBS
- $1,778 million of 4.0% coupon
30-year agency MBS
- $490 million of 4.5% coupon
30-year agency MBS
As of June 30, 2019, the Company's
$3,415 million specified agency MBS
portfolio had a weighted average amortized cost basis of
$104.28 and a weighted average market
price of $105.49. The Company's
fixed-rate agency MBS are comprised of securities backed by
specified pools of mortgage loans selected for their lower
propensity for prepayment. Weighted average pay-up premiums
on the Company's agency MBS portfolio, which represent the
estimated price premium of agency MBS backed by specified pools
over a generic TBA agency MBS, were approximately 2 percentage
points as of June 30, 2019, compared
to 1.2 percentage points as of March
31, 2019.
As of June 30, 2019, the Company
had $3,532 million of repurchase
agreements outstanding with a weighted average rate of 2.61% and
remaining weighted average maturity of 36 days secured by an
aggregate of $3,726 million of agency
MBS at fair value, which includes $511
million at sale price of unsettled agency MBS sale
commitments which is included in the line item "sold securities
receivable" in the Company's financial statements. The
Company's "at risk" short-term recourse financing to investable
capital ratio was 9.1 to 1 as of June 30,
2019 compared to 11.0 to 1 as of March 31, 2019. The Company's "at risk"
short-term recourse financing to investable capital is measured as
the ratio of the sum of the Company's repurchase agreement
financing, net payable or receivable for unsettled securities and
net contractual price of TBA commitments less cash and cash
equivalents compared to the Company's investable capital measured
as the sum of the Company's shareholders' equity and long-term
unsecured debt.
GAAP net interest income was $6.6
million for the second quarter of 2019 compared to
$7.9 million for the first quarter of
2019, including the amortization of the Company's net premium on
its agency MBS of $7.2 million for
the second quarter of 2019 compared to $5.9
million for the first quarter of 2019. The Company's
weighted average yield on its agency MBS was 3.21% for the second
quarter of 2019 compared to 3.36% for the first quarter of 2019,
and the actual weighted-average constant prepayment rate ("CPR")
for the Company's agency MBS was 10.16% for the second quarter of
2019 compared to 7.55% for the first quarter of 2019. The
Company's weighted average cost of repurchase agreement funding was
2.64% during the second quarter of 2019 compared to 2.68% during
the first quarter of 2019.
The Company enters into various hedging transactions to mitigate
the interest rate sensitivity of its cost of borrowing and the
value of its agency MBS portfolio including interest rate swap
agreements, U.S. Treasury note futures, put and call options on
10-year U.S. Treasury note futures, and options on agency
MBS. 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.
Under the terms of the Company's interest rate swap agreements,
the Company pays semiannual interest payments based on a fixed rate
and receives quarterly variable interest payments based upon the
prevailing three-month London Interbank Offered Rate ("LIBOR") on
the date of reset. As of June 30,
2019, the Company had $2,600
million in notional amount of interest rate swap agreements
with a weighted average pay fixed rate of 1.85% and a remaining
weighted average maturity of 3.9 years. The Company's
weighted average net receive rate of its interest rate swap
agreements was 0.50% during the second quarter of 2019 compared to
0.59% during the first quarter of 2019. As of July 31, 2019, the Company had $2,850 million in notional amount of interest
rate swap agreements with a weighted average pay fixed rate of
1.85% and a remaining weighted average maturity of 3.6 years.
In addition to interest rate swap agreements, the Company held
$155 million in equivalent notional
amount of short positions in 10-year U.S. Treasury note futures as
of June 30, 2019 that were purchased
during the second quarter of 2019 when the 10-year U.S. Treasury
rate was 2.01%. As of June 30,
2019, the total notional amount of the Company's interest
rate hedges consisting of interest rate swaps and U.S. Treasury
note futures was 68% of the Company's outstanding repurchase
agreement funding and net TBA purchase commitments with a net
duration gap of negative 0.2 years. As of July 31, 2019, the total notional amount of the
Company's interest rate hedges consisting of interest rate swaps
and U.S. Treasury note futures was 77% of the Company's outstanding
repurchase agreement funding and net TBA purchase commitments.
The Company reported TBA dollar roll income of $2.0 million for the second quarter of 2019
compared to $1.4 million for the
first quarter of 2019. The implied weighted-average net
interest spread of the Company's TBA dollar rolls was 0.84% for the
second quarter of 2019 compared to 1.05% for the first quarter of
2019. TBA dollar roll income is considered the economic
equivalent of investing in agency MBS financed with a repurchase
agreement and 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. Under GAAP, the Company
accounts for its TBA commitments as derivative instruments and
recognizes income from TBA dollar rolls as a component of net
investment gains and losses in the Company's financial
statements.
Economic net interest income was $12.3
million for the second quarter of 2019 compared to
$14.1 million for the first quarter
of 2019. Economic net interest income is comprised of net
interest income determined in accordance with GAAP, TBA dollar roll
income and net interest income or expense from interest rate
swaps. Economic net interest income is a non-GAAP financial
measure that is described later in this press release.
Excluding TBA dollar roll income, the Company had net investment
gains on its investment portfolio of $49.6
million for the second quarter of 2019. On its related
interest rate hedging instruments, the Company had net investment
losses of $82.1 million, excluding
interest rate swap net interest income. This results in a net
investment loss on the Company's hedged investment portfolio of
$32.5 million, or $0.89 per diluted common share, for the second
quarter of 2019.
Distributions to Shareholders
The Company's Board of Directors approved a distribution to
common shareholders of $0.225 per
share for the second quarter of 2019. The distribution was
paid on July 31, 2019 to shareholders
of record as of July 5, 2019.
The Company's Board of Directors also approved distributions to its
Series B and Series C preferred shareholders of $0.4375 per share and $0.61875 per share, respectively, for the second
quarter of 2019. The distributions were paid on July 1, 2019 to shareholders of record as of
May 31, 2019.
The tax characterization of the Company's distributions to
shareholders is determined and reported to shareholders on Form
1099-DIV after the end of the calendar year.
Commencing with its taxable year ending December 31, 2019, the Company intends to elect
and operate in a manner that will allow it to qualify as a REIT for
U.S. federal income tax purposes. 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.
Conference Call
The Company will hold a conference call for investors
at 9:00 A.M. Eastern Time on Wednesday, August 7,
2019 to discuss the Company's second quarter 2019 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: AI) currently invests
primarily in mortgage-related and other assets and intends to
qualify to be taxed as a REIT commencing with its taxable year
ending December 31, 2019. The
Company is headquartered in the Washington, D.C. metropolitan area. For
more information, please visit www.arlingtonasset.com.
Statements concerning interest rates, portfolio allocation,
financing costs, portfolio hedging, prepayments, dividends, book
value, utilization of loss carryforwards, any change in long-term
tax structures (including any REIT election), use of equity raise
proceeds and any other guidance on present or future periods
constitute forward-looking statements that are subject to a number
of factors, risks and uncertainties that might cause actual results
to differ materially from stated expectations or current
circumstances. These factors include, but are not limited to,
changes in interest rates, increased costs of borrowing, decreased
interest spreads, 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 ability to
generate cash earnings and dividends, preservation and utilization
of the Company's net operating loss and net capital loss
carryforwards, impacts of changes to and changes by Fannie Mae and
Freddie Mac, actions taken by the U.S. Federal Reserve, the Federal
Housing Finance Agency and the U.S. Treasury, availability of
opportunities that meet or exceed the Company's risk adjusted
return expectations, ability and willingness to make future
dividends, ability to generate sufficient cash through retained
earnings to satisfy capital needs, and general economic, political,
regulatory and market conditions. These and other material
risks are described in the Company's most recent Annual Report on
Form 10-K and any other documents filed by the Company with the SEC
from time to time, which are available from the Company and from
the SEC, and you should read and understand these risks when
evaluating any forward-looking statement. All forward-looking
statements speak only as of the date on which they are made. New
risks and uncertainties arise over time, and it is not possible to
predict those events or how they may affect the Company.
Except as required by law, the Company is not obligated to, and
does not intend to, update or revise any forward-looking
statements, whether as a result of new information, future events
or otherwise.
Financial data to follow
ARLINGTON ASSET
INVESTMENT CORP.
|
CONSOLIDATED
BALANCE SHEETS
|
(Dollars in
thousands, except per share amounts)
|
(Unaudited)
|
|
|
|
June 30,
2019
|
|
|
March 31,
2019
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
34,684
|
|
|
$
|
37,547
|
|
Interest
receivable
|
|
|
12,471
|
|
|
|
14,128
|
|
Sold securities
receivable
|
|
|
546,106
|
|
|
|
341,798
|
|
Mortgage-backed
securities, at fair value
|
|
|
|
|
|
|
|
|
Agency
|
|
|
3,414,580
|
|
|
|
4,192,327
|
|
Private-label
|
|
|
26
|
|
|
|
28
|
|
Derivative assets, at
fair value
|
|
|
6,243
|
|
|
|
15,248
|
|
Deposits
|
|
|
31,247
|
|
|
|
53,446
|
|
Other
assets
|
|
|
18,535
|
|
|
|
18,636
|
|
Total
assets
|
|
$
|
4,063,892
|
|
|
$
|
4,673,158
|
|
LIABILITIES AND
EQUITY
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Repurchase
agreements
|
|
$
|
3,531,539
|
|
|
$
|
3,964,127
|
|
Interest
payable
|
|
|
3,336
|
|
|
|
5,063
|
|
Accrued compensation
and benefits
|
|
|
2,436
|
|
|
|
1,420
|
|
Dividend
payable
|
|
|
8,392
|
|
|
|
14,190
|
|
Derivative
liabilities, at fair value
|
|
|
3,131
|
|
|
|
2,346
|
|
Purchased securities
payable
|
|
|
113,019
|
|
|
|
251,144
|
|
Other
liabilities
|
|
|
3,534
|
|
|
|
4,297
|
|
Long-term unsecured
debt
|
|
|
74,216
|
|
|
|
74,160
|
|
Total
liabilities
|
|
|
3,739,603
|
|
|
|
4,316,747
|
|
Equity:
|
|
|
|
|
|
|
|
|
Preferred stock
(liquidation preference of $38,851 and $38,816,
respectively)
|
|
|
37,240
|
|
|
|
37,170
|
|
Common
stock
|
|
|
366
|
|
|
|
366
|
|
Additional paid-in
capital
|
|
|
2,047,616
|
|
|
|
2,047,398
|
|
Accumulated
deficit
|
|
|
(1,760,933)
|
|
|
|
(1,728,523)
|
|
Total
equity
|
|
|
324,289
|
|
|
|
356,411
|
|
Total liabilities
and equity
|
|
$
|
4,063,892
|
|
|
$
|
4,673,158
|
|
Book value per
common share (1)
|
|
$
|
7.80
|
|
|
$
|
8.70
|
|
Common shares
outstanding (in thousands) (2)
|
|
|
36,578
|
|
|
|
36,520
|
|
|
|
|
|
|
|
|
|
|
(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.
|
|
|
|
|
|
|
|
|
|
|
|
|
ARLINGTON ASSET
INVESTMENT CORP.
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
(Dollars in
thousands, except per share data)
|
(Unaudited)
|
|
|
|
Three Months
Ended
|
|
|
|
June
30,
2019
|
|
|
March
31,
2019
|
|
|
December
31,
2018
|
|
|
September
30,
2018
|
|
Interest
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency mortgage-backed
securities
|
|
$
|
32,275
|
|
|
$
|
33,570
|
|
|
$
|
36,914
|
|
|
$
|
32,679
|
|
Private-label
mortgage-backed securities
|
|
|
14
|
|
|
|
1
|
|
|
|
4
|
|
|
|
2
|
|
Other
|
|
|
428
|
|
|
|
261
|
|
|
|
256
|
|
|
|
183
|
|
Total interest
income
|
|
|
32,717
|
|
|
|
33,832
|
|
|
|
37,174
|
|
|
|
32,864
|
|
Interest
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term secured
debt
|
|
|
24,866
|
|
|
|
24,643
|
|
|
|
25,286
|
|
|
|
21,265
|
|
Long-term unsecured
debt
|
|
|
1,269
|
|
|
|
1,272
|
|
|
|
1,264
|
|
|
|
1,261
|
|
Total interest
expense
|
|
|
26,135
|
|
|
|
25,915
|
|
|
|
26,550
|
|
|
|
22,526
|
|
Net interest
income
|
|
|
6,582
|
|
|
|
7,917
|
|
|
|
10,624
|
|
|
|
10,338
|
|
Investment
advisory fee income
|
|
|
—
|
|
|
|
250
|
|
|
|
—
|
|
|
|
—
|
|
Investment (loss)
gain, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on trading
investments, net
|
|
|
42,239
|
|
|
|
69,168
|
|
|
|
32,591
|
|
|
|
(37,878)
|
|
(Loss) gain from
derivative instruments, net
|
|
|
(69,072)
|
|
|
|
(55,205)
|
|
|
|
(101,483)
|
|
|
|
35,620
|
|
Other, net
|
|
|
150
|
|
|
|
(160)
|
|
|
|
(18)
|
|
|
|
1
|
|
Total investment
(loss) gain, net
|
|
|
(26,683)
|
|
|
|
13,803
|
|
|
|
(68,910)
|
|
|
|
(2,257)
|
|
General and
administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and
benefits
|
|
|
2,233
|
|
|
|
3,116
|
|
|
|
395
|
|
|
|
2,833
|
|
Other general and
administrative expenses
|
|
|
1,191
|
|
|
|
1,260
|
|
|
|
1,263
|
|
|
|
1,121
|
|
Total general and
administrative expenses
|
|
|
3,424
|
|
|
|
4,376
|
|
|
|
1,658
|
|
|
|
3,954
|
|
(Loss) income
before income taxes
|
|
|
(23,525)
|
|
|
|
17,594
|
|
|
|
(59,944)
|
|
|
|
4,127
|
|
Income tax (benefit)
provision
|
|
|
—
|
|
|
|
—
|
|
|
|
(33,639)
|
|
|
|
9,628
|
|
Net (loss)
income
|
|
|
(23,525)
|
|
|
|
17,594
|
|
|
|
(26,305)
|
|
|
|
(5,501)
|
|
Dividend on preferred
stock
|
|
|
(774)
|
|
|
|
(278)
|
|
|
|
(153)
|
|
|
|
(151)
|
|
Net (loss) income
(attributable) available to common stock
|
|
$
|
(24,299)
|
|
|
$
|
17,316
|
|
|
$
|
(26,458)
|
|
|
$
|
(5,652)
|
|
Basic (loss) earnings
per common share
|
|
$
|
(0.67)
|
|
|
$
|
0.52
|
|
|
$
|
(0.87)
|
|
|
$
|
(0.19)
|
|
Diluted (loss)
earnings per common share
|
|
$
|
(0.67)
|
|
|
$
|
0.52
|
|
|
$
|
(0.87)
|
|
|
$
|
(0.19)
|
|
Weighted average
common shares outstanding (in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
36,533
|
|
|
|
33,053
|
|
|
|
30,392
|
|
|
|
29,382
|
|
Diluted
|
|
|
36,533
|
|
|
|
33,139
|
|
|
|
30,392
|
|
|
|
29,382
|
|
Non-GAAP Core Operating Income
In addition to the Company's results of operations determined in
accordance with generally accepted accounting principles as
consistently applied in the United
States ("GAAP"), the Company also reports "non-GAAP core
operating income." The Company defines core operating income
as "economic net interest income" and investment advisory fee
income less "core general and administrative expenses" and
preferred stock dividends.
Economic Net Interest Income
Economic net interest income, a non-GAAP financial measure,
represents the interest income earned net of interest expense
incurred from all of our interest bearing financial instruments as
well as the agency MBS which underlie, and are implicitly financed
through, our TBA dollar roll transactions. Economic net
interest income is comprised of the following:
- net interest income determined in accordance with GAAP;
- TBA agency MBS dollar roll income, which is calculated as the
price discount of a forward-settling purchase of a TBA agency MBS
relative to the "spot" sale of the same security, earned ratably
over the period beginning on the settlement date of the sale and
ending on the settlement date of the forward-settling purchase;
and
- net interest income earned or expense incurred from interest
rate swap agreements.
In the Company's consolidated statements of comprehensive income
prepared in accordance with GAAP, TBA agency MBS dollar roll income
and the net interest income earned or expense incurred from
interest rate swap agreements are reported as a component of the
overall periodic change in the fair value of derivative instruments
within the line item "gain (loss) from derivative instruments, net"
of the "investment gain (loss), net" section. We believe that
economic net interest income assists investors in understanding and
evaluating the financial performance of the Company's
long-term-focused, net interest spread-based investment strategy,
prior to the deduction of core general and administrative
expenses.
Core General and Administrative Expenses
Core general and administrative expenses are non-interest
expenses reported within the line item "total general and
administrative expenses" of the consolidated statements of
comprehensive income less stock-based compensation
expense.
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
|
|
|
June
30,
2019
|
|
|
March
31,
2019
|
|
|
December
31,
2018
|
|
|
September
30,
2018
|
|
GAAP net interest
income
|
$
|
6,582
|
|
|
$
|
7,917
|
|
|
$
|
10,624
|
|
|
$
|
10,338
|
|
TBA dollar roll
income
|
|
1,995
|
|
|
|
1,420
|
|
|
|
2,940
|
|
|
|
4,604
|
|
Interest rate swap
net interest income
|
|
3,769
|
|
|
|
4,747
|
|
|
|
2,304
|
|
|
|
2,295
|
|
Economic net interest
income
|
|
12,346
|
|
|
|
14,084
|
|
|
|
15,868
|
|
|
|
17,237
|
|
Investment advisory
fee income
|
|
—
|
|
|
|
250
|
|
|
|
—
|
|
|
|
—
|
|
Core general and
administrative expenses
|
|
(3,207)
|
|
|
|
(3,603)
|
|
|
|
(2,324)
|
|
|
|
(3,202)
|
|
Preferred stock
dividend
|
|
(774)
|
|
|
|
(278)
|
|
|
|
(153)
|
|
|
|
(151)
|
|
Non-GAAP core
operating income
|
$
|
8,365
|
|
|
$
|
10,453
|
|
|
$
|
13,391
|
|
|
$
|
13,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP core
operating income per
diluted
common share
|
$
|
0.23
|
|
|
$
|
0.32
|
|
|
$
|
0.44
|
|
|
$
|
0.47
|
|
Weighted average
diluted common
shares
outstanding
|
|
36,644
|
|
|
|
33,139
|
|
|
|
30,437
|
|
|
|
29,718
|
|
The following table provides a reconciliation of GAAP pre-tax
net income (loss) to non-GAAP core operating income for the last
four fiscal quarters (unaudited, amounts in thousands):
|
Three Months
Ended
|
|
|
June
30,
2019
|
|
|
March
31,
2019
|
|
|
December
31,
2018
|
|
|
September
30,
2018
|
|
GAAP (loss) income
before income taxes
|
$
|
(23,525)
|
|
|
$
|
17,594
|
|
|
$
|
(59,944)
|
|
|
$
|
4,127
|
|
Add
(less):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment loss
(gain), net
|
|
26,683
|
|
|
|
(13,803)
|
|
|
|
68,910
|
|
|
|
2,257
|
|
Stock-based
compensation expense
|
|
217
|
|
|
|
773
|
|
|
|
(666)
|
|
|
|
752
|
|
Preferred stock
dividend
|
|
(774)
|
|
|
|
(278)
|
|
|
|
(153)
|
|
|
|
(151)
|
|
Add
back:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TBA dollar roll
income
|
|
1,995
|
|
|
|
1,420
|
|
|
|
2,940
|
|
|
|
4,604
|
|
Interest rate swap net
interest income
|
|
3,769
|
|
|
|
4,747
|
|
|
|
2,304
|
|
|
|
2,295
|
|
Non-GAAP core
operating income
|
$
|
8,365
|
|
|
$
|
10,453
|
|
|
$
|
13,391
|
|
|
$
|
13,884
|
|
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 and comprehensive 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 June
30, 2019 (unaudited, dollars in thousands):
Agency MBS:
|
|
Fair
Value
|
|
Specified agency
MBS
|
|
$
|
3,414,580
|
|
Net long agency TBA
position
|
|
|
550,984
|
|
Total
|
|
$
|
3,965,564
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.5%
|
|
$
|
388,090
|
|
|
$
|
8,866
|
|
|
$
|
396,956
|
|
|
$
|
2,239
|
|
|
$
|
399,195
|
|
|
$
|
102.86
|
|
|
|
3.50
|
%
|
|
|
5.0
|
|
4.0%
|
|
|
1,973,458
|
|
|
|
86,919
|
|
|
|
2,060,377
|
|
|
|
17,963
|
|
|
|
2,078,340
|
|
|
|
105.31
|
|
|
|
4.00
|
%
|
|
|
5.4
|
|
4.5%
|
|
|
875,207
|
|
|
|
42,723
|
|
|
|
917,930
|
|
|
|
19,101
|
|
|
|
937,031
|
|
|
|
107.06
|
|
|
|
4.50
|
%
|
|
|
4.8
|
|
5.5%
|
|
|
12
|
|
|
|
—
|
|
|
|
12
|
|
|
|
2
|
|
|
|
14
|
|
|
|
111.38
|
|
|
|
5.50
|
%
|
|
|
5.5
|
|
Total/weighted-average
|
|
$
|
3,236,767
|
|
|
$
|
138,508
|
|
|
$
|
3,375,275
|
|
|
$
|
39,305
|
|
|
$
|
3,414,580
|
|
|
$
|
105.49
|
|
|
|
4.08
|
%
|
|
|
5.2
|
|
Net Long Agency TBA Positions:
|
|
Notional
Amount:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Long
(Short)
Position
|
|
|
Implied
Cost
Basis
|
|
|
Implied
Fair
Value
|
|
|
Net
Carrying
Amount
|
|
2.5% 30-year MBS
purchase commitments, net
|
|
$
|
200,000
|
|
|
$
|
198,082
|
|
|
$
|
198,359
|
|
|
$
|
277
|
|
3.0% 30-year MBS
purchase commitments, net
|
|
|
200,000
|
|
|
|
200,715
|
|
|
|
201,594
|
|
|
|
879
|
|
3.5% 30-year MBS
purchase commitments, net
|
|
|
250,000
|
|
|
|
254,641
|
|
|
|
255,547
|
|
|
|
906
|
|
4.0% 30-year MBS
purchase commitments, net
|
|
|
—
|
|
|
|
(465)
|
|
|
|
(16)
|
|
|
|
449
|
|
4.5% 30-year MBS sale
commitments, net
|
|
|
(100,000)
|
|
|
|
(103,969)
|
|
|
|
(104,500)
|
|
|
|
(531)
|
|
Total TBA commitments,
net
|
|
$
|
550,000
|
|
|
$
|
549,004
|
|
|
$
|
550,984
|
|
|
$
|
1,980
|
|
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
|
|
$
|
1,675,000
|
|
|
|
1.64
|
%
|
|
|
2.46
|
%
|
|
|
0.82
|
%
|
|
|
1.5
|
|
3 to less than 7
years
|
|
|
500,000
|
|
|
|
1.67
|
%
|
|
|
2.40
|
%
|
|
|
0.73
|
%
|
|
|
6.1
|
|
7 to less than 10
years
|
|
|
400,000
|
|
|
|
2.88
|
%
|
|
|
2.52
|
%
|
|
|
(0.36)
|
%
|
|
|
9.4
|
|
10 or more
years
|
|
|
25,000
|
|
|
|
2.96
|
%
|
|
|
2.42
|
%
|
|
|
(0.54)
|
%
|
|
|
28.7
|
|
Total /
weighted-average
|
|
$
|
2,600,000
|
|
|
|
1.85
|
%
|
|
|
2.46
|
%
|
|
|
0.61
|
%
|
|
|
3.9
|
|
U.S. Treasury Note Futures:
|
|
Maturity
Date
|
|
Notional
Amount
|
|
10-year U.S. Treasury
note futures
|
|
September
2019
|
|
$
|
155,000
|
|
|
|
|
|
|
|
|
View original
content:http://www.prnewswire.com/news-releases/arlington-asset-investment-corp-reports-second-quarter-2019-financial-results-300897527.html
SOURCE Arlington Asset Investment Corp.