MCLEAN, Va., March 2, 2022 /PRNewswire/ -- Arlington
Asset Investment Corp. (NYSE: AAIC) (the "Company" or "Arlington") today reported net income
available to common shareholders of $3.1
million, or $0.10 per diluted
common share, and non-GAAP core operating income of $0.5 million, or $0.02 per diluted common share, for the quarter
ended December 31, 2021. A
reconciliation of non-GAAP core operating income to GAAP net income
appears at the end of this press release.
Fourth Quarter 2021 Financial Highlights
- $6.16 per common share of book
value
-
- 3.2% increase from September 30,
2021
- $0.10 per diluted common share of
GAAP net income
- $0.02 per diluted common share of
non-GAAP core operating income
- $0.09 per common share of book
value accretion from the repurchase 3.8% of the outstanding shares
of common stock
-
- Purchased an additional 2.5% of the outstanding shares of
common stock through March 1,
2022
- 12.2 million share remaining authorization as of March 1, 2022
- 1.5 to 1 "at risk" leverage ratio
Full Year 2021 Financial Highlights
- $0.38 per diluted common share of
GAAP net loss
- $0.17 per diluted common share of
non-GAAP core operating income
- $0.27 per common share of book
value accretion from the repurchase of 9.7% of the outstanding
shares of common stock
- Successfully launched two new investment silos in mortgage
servicing right ("MSR") related assets and single-family
residential ("SFR") rental property
-
- Initial purchases of SFR properties of $61 million with commitments to purchase an
additional $20 million
-
- Supported by $150 million
five-year financing facility at attractive fixed cost of funds of
2.76%
- 7% reduction in general and administrative expenses
- Completed a public offering of $37.8
million of 6.00% senior notes due 2026 and redeemed its
outstanding 6.625% senior notes due 2023 with an outstanding
principal balance of $23.8
million
"We are pleased with fourth quarter results, including an
economic return of 3.2% achieved amid challenging market
conditions," said J. Rock Tonkel, Jr., the Company's President and
Chief Executive Officer. "Further, as a result of positive
investment returns and accretive stock repurchases, book value per
share increased by approximately 2.5% during January 2022, and we believe it is relatively
unchanged from that figure through the end of February.
"As previously discussed, the Company continues to progress
toward building multiple high return, non-commodity investment
channels that diversify investment risk and improve reliability of
returns over time. The Company's initial efforts include
platforms for investments in MSRs, SFR rental properties, and
credit securities backed by real estate.
"Our MSR portfolio has generated a 34% annualized return since
its initial formation in late 2020, and now represents 43% of
investment capital. Our SFR portfolio, initiated during the
third quarter, has reached $125
million as of today and is scaling in eight attractive U.S.
markets with a better-than-expected unlevered yield of 4.9%, a
highly attractive financing facility, and anticipated total returns
in the double digits.
"With "at risk" leverage of just 1.5x and high liquidity, we
continue to be positioned with a primary focus on protecting
shareholder capital from the impact of inflation, rising rates, and
Federal Reserve monetary tightening. In addition, we have
reduced G&A expenses by 22% over the last two years and 7% over
the past year against a strong tide of inflation.
"With the Company's stock trading at a significant discount to
book value, we have utilized our strong financial position to
repurchase over $25 million of the
Company's shares as of today. This equates to 21% of the
Company's outstanding shares of common stock since the inception of
our share buyback program in mid-2020. Included in that
number are repurchases to date in 2022 of 0.75 million shares or
2.5% of the outstanding shares of common stock. At our
current stock price, we intend to aggressively repurchase shares of
our common stock under our remaining authorization of 12.2 million
shares. If fully executed, our existing authorization would
retire approximately 40% of currently outstanding shares.
"It has taken great effort to transition Arlington into a differentiated investment
firm dedicated to developing high return programmatic investment
channels, and I would like to thank my colleagues for their efforts
to increase shareholder value. I would note that our
portfolio is still not fully scaled, and I believe there is
additional untapped earnings power in our model. I am
optimistic that our strategy and our team will build on our recent
successes and that the Company has a bright future."
Fourth Quarter Investment Portfolio
As of December 31, 2021, the
Company's investment portfolio totaled $735
million at fair value consisting of the following:
- $484 million of agency
mortgage-backed securities ("MBS")
- $125 million of MSR related
assets
- $65 million of credit
investments
- $61 million of SFR real estate
assets
The Company has allocated 32%, 43%, 16% and 9% of its invested
capital to its agency MBS, MSR related, credit and SFR investment
strategies, respectively, as of December
31, 2021.
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 December 31, 2021, the
Company's agency MBS investment portfolio totaled $484 million at fair value consisting entirely of
specified agency MBS comprised of the following:
- $344 million of 2.0% coupon
30-year agency MBS
- $140 million of 2.5% coupon
30-year agency MBS
As of December 31, 2021, the
Company's $484 million agency MBS
portfolio had a weighted average amortized cost basis of
$103.56 and a weighted average market
price of $100.97. The Company's
agency MBS are comprised of securities backed by specified pools of
mortgage loans selected for their lower propensity for
prepayment. During the fourth quarter of 2021, the Company
sold agency MBS for gross sale proceeds of $134 million for a net realized loss of
$2.0 million. The Company did
not purchase any specified agency MBS during the fourth quarter of
2021.
The Company's weighted average yield on its agency MBS was 1.53%
for the fourth quarter of 2021 compared to 1.52% for the third
quarter of 2021, and the actual weighted-average constant
prepayment rate ("CPR") for the Company's agency MBS was 7.43% for
the fourth quarter of 2021 compared to 8.62% for the third quarter
of 2021.
As of December 31, 2021, the
Company had $426 million of
repurchase agreements outstanding with a weighted average rate of
0.14% and remaining weighted average maturity of 13 days secured by
an aggregate of $448 million of
agency MBS at fair value, which includes $28
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 weighted average cost of repurchase agreement funding
secured by agency MBS was 0.12% during the fourth quarter of 2021
compared to 0.11% during the third 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 December 31, 2021, the Company had $150 million in notional amount of interest rate
swap agreements with a weighted average pay fixed rate of 0.84% and
a remaining weighted average maturity of 5.0 years. The
Company's weighted average net pay rate of its interest rate swap
agreements was 0.69% during the fourth quarter of 2021 compared to
0.51% during the third 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.
MSR Related Investments
The Company is party to 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. 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 that are
subject to the Company's MSR financing receivable 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.
As of December 31, 2021, the
Company had $125 million of MSR
financing receivable investments at fair value. During the
fourth quarter of 2021, the Company invested additional capital of
$5.7 million in MSR financing
receivables. As of December 31,
2021, the mortgage servicing counterparty has drawn
$40 million of financing under its
credit facility collateralized by the MSRs that reference the
Company's MSR financing receivable resulting in a leverage ratio of
0.3 to 1 as of December 31, 2021.
The weighted average yield on the Company's MSR financing
receivables was 9.63% for the fourth quarter of 2021 compared to
8.85% for the third quarter of 2021.
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"). As of
December 31, 2021, the Company's
$65 million credit investment
portfolio at fair value was comprised of the following:
- $29 million commercial mortgage
loan
- $21 million of non-agency MBS
collateralized by business purpose residential mortgage loans
-
- Includes a $10 million net
investment in a consolidated VIE
- $15 million of asset backed
securities collateralized by loans secured by residential solar
panels
During the fourth quarter of 2021, the Company sold credit
investments for gross proceeds of $23
million for a net realized loss of $1.0 million. During the fourth quarter of
2021, the Company purchased credit investments totaling
$24 million.
As of December 31, 2021, the
Company had a $21 million repurchase
agreement outstanding with a rate of 2.60% and remaining maturity
of 319 days secured by a $29 million
commercial mortgage loan at fair value. As of December 31, 2021, the Company did not have any
repurchase agreements outstanding secured by non-agency
MBS.
Single-family Residential Investments
During the third quarter of 2021, the Company launched its SFR
investment strategy of acquiring, leasing and operating
single-family residential homes as rental properties. As of
December 31, 2021, the Company had
acquired 214 SFR properties for a
total cost of $61 million and had
commitments to acquire an additional 69
SFR properties for an aggregate purchase price of
$20 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 December 31, 2021, the
Company has drawn $39.4 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%.
Other Fourth Quarter 2021 Financial Highlights
The Company's "at risk" leverage ratio was 1.5 to 1 as of
December 31, 2021 compared to 1.8 to
1 as of September 30, 2021. The
Company's "at risk" leverage ratio is calculated as the sum of the
Company's repurchase agreement financing, long-term secured debt,
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 fourth quarter of 2021, the Company repurchased 1.2
million shares of its common stock at an average price of
$3.65 per share for a total purchase
cost of $4.4 million, representing
3.8% of common stock outstanding as of September 30, 2021. For the year, the
Company repurchased 3.2 million shares of its common stock at an
average price of $3.83 per share for
a total purchase cost of $12.5
million, representing 9.7% of common stock outstanding as of
December 31, 2020. Subsequent
to December 31, 2021, the Company
repurchased an additional 0.75 million shares of its common stock
at an average price of $3.42 per
share for a total purchase cost of $2.6
million, representing 2.5% of common stock outstanding as of
December 31, 2021. Currently,
the Company had remaining authorization from its Board of Directors
to repurchase up to 12.2 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 2021. The distributions were paid on December 30, 2021 to shareholders of record as of
December 21, 2021. The
Company's Board of Directors determined not to declare a dividend
on its common stock for the fourth quarter of 2021. The
Company's Board of Directors will continue to evaluate the payment
of quarterly dividends based on multiple factors including current
financial results, overall market conditions, return opportunities
on investments, liquidity needs, opportunities to return capital to
shareholders through accretive stock repurchases and REIT
distribution requirements. 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 preferred shareholders in calendar year
2021. 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 all a
return of capital. Preferred 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 Thursday, March 3,
2022 to discuss the Company's fourth quarter 2021 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, 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,
2021
|
|
|
September 30,
2021
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents (includes $2,118 and $-0-,
respectively, from a
consolidated VIE)
|
|
$
|
20,543
|
|
|
$
|
21,166
|
|
Restricted
cash
|
|
|
1,132
|
|
|
|
217
|
|
Restricted cash of
consolidated VIE
|
|
|
111
|
|
|
|
3,267
|
|
Sold securities
receivable
|
|
|
28,219
|
|
|
|
—
|
|
Agency mortgage-backed
securities, at fair value
|
|
|
483,927
|
|
|
|
637,718
|
|
MSR financing
receivables, at fair value
|
|
|
125,018
|
|
|
|
112,834
|
|
Credit investments, at
fair value
|
|
|
55,919
|
|
|
|
55,277
|
|
Mortgage loans of
consolidated VIE, at fair value
|
|
|
7,442
|
|
|
|
16,516
|
|
Single-family
residential real estate
|
|
|
60,889
|
|
|
|
9,407
|
|
Derivative assets, at
fair value
|
|
|
250
|
|
|
|
2,004
|
|
Deposits
|
|
|
4,549
|
|
|
|
6,114
|
|
Other assets (includes
$547 and $67, respectively, from a consolidated VIE)
|
|
|
15,037
|
|
|
|
15,089
|
|
Total
assets
|
|
$
|
803,036
|
|
|
$
|
879,609
|
|
LIABILITIES AND
EQUITY
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Repurchase
agreements
|
|
$
|
446,624
|
|
|
$
|
553,983
|
|
Secured debt of
consolidated VIE, at fair value
|
|
|
508
|
|
|
|
7,350
|
|
Derivative
liabilities, at fair value
|
|
|
228
|
|
|
|
3,020
|
|
Long-term unsecured
debt
|
|
|
85,994
|
|
|
|
85,901
|
|
Long-term debt secured
by single-family properties
|
|
|
39,178
|
|
|
|
—
|
|
Other liabilities
(includes $2 and $52, respectively, from a consolidated
VIE)
|
|
|
6,377
|
|
|
|
4,678
|
|
Total
liabilities
|
|
|
578,909
|
|
|
|
654,932
|
|
Equity:
|
|
|
|
|
|
|
|
|
Preferred stock
(liquidation preference of $37,266 and $36,901,
respectively)
|
|
|
36,208
|
|
|
|
35,849
|
|
Common
stock
|
|
|
307
|
|
|
|
316
|
|
Additional paid-in
capital
|
|
|
2,030,315
|
|
|
|
2,034,310
|
|
Accumulated
deficit
|
|
|
(1,842,703)
|
|
|
|
(1,845,798)
|
|
Total
equity
|
|
|
224,127
|
|
|
|
224,677
|
|
Total liabilities
and equity
|
|
$
|
803,036
|
|
|
$
|
879,609
|
|
Book value per
common share (1)
|
|
$
|
6.16
|
|
|
$
|
5.97
|
|
Common shares
outstanding (in thousands) (2)
|
|
|
30,334
|
|
|
|
31,464
|
|
|
|
|
|
|
|
|
|
|
(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,
2021
|
|
|
September 30,
2021
|
|
Assets and
liabilities of consolidated VIE:
|
|
|
|
|
|
|
|
|
Cash and restricted
cash
|
|
$
|
2,229
|
|
|
$
|
3,267
|
|
Mortgage loans, at
fair value
|
|
|
7,442
|
|
|
|
16,516
|
|
Other
assets
|
|
|
547
|
|
|
|
67
|
|
Secured debt, at fair
value
|
|
|
(508)
|
|
|
|
(7,350)
|
|
Other
liabilities
|
|
|
(2)
|
|
|
|
(52)
|
|
Net investment in
consolidated VIE
|
|
$
|
9,708
|
|
|
$
|
12,448
|
|
ARLINGTON ASSET
INVESTMENT CORP.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Dollars in
thousands, except per share data)
(Unaudited)
|
|
|
|
Year
Ended
|
|
|
Three Months
Ended
|
|
|
|
December
31,
2021
|
|
|
December
31,
2021
|
|
|
September
30,
2021
|
|
|
June
30,
2021
|
|
|
March
31,
2021
|
|
Interest
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency mortgage-backed
securities
|
|
$
|
10,634
|
|
|
$
|
2,206
|
|
|
$
|
2,660
|
|
|
$
|
2,984
|
|
|
$
|
2,784
|
|
MSR financing
receivables
|
|
|
6,282
|
|
|
|
2,589
|
|
|
|
1,945
|
|
|
|
1,390
|
|
|
|
358
|
|
Credit securities and
loans
|
|
|
5,058
|
|
|
|
772
|
|
|
|
1,247
|
|
|
|
1,770
|
|
|
|
1,269
|
|
Mortgage loans of
consolidated VIE
|
|
|
2,908
|
|
|
|
144
|
|
|
|
301
|
|
|
|
776
|
|
|
|
1,687
|
|
Other
|
|
|
648
|
|
|
|
169
|
|
|
|
193
|
|
|
|
125
|
|
|
|
161
|
|
Total interest and
other income
|
|
|
25,530
|
|
|
|
5,880
|
|
|
|
6,346
|
|
|
|
7,045
|
|
|
|
6,259
|
|
Rent revenues from
single-family properties
|
|
|
259
|
|
|
|
259
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Interest
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase
agreements
|
|
|
1,483
|
|
|
|
286
|
|
|
|
306
|
|
|
|
403
|
|
|
|
488
|
|
Long-term debt secured
by single-family properties
|
|
|
151
|
|
|
|
151
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Long-term unsecured
debt
|
|
|
5,112
|
|
|
|
1,376
|
|
|
|
1,435
|
|
|
|
1,150
|
|
|
|
1,151
|
|
Secured debt of
consolidated VIE
|
|
|
1,460
|
|
|
|
20
|
|
|
|
173
|
|
|
|
405
|
|
|
|
862
|
|
Total interest
expense
|
|
|
8,206
|
|
|
|
1,833
|
|
|
|
1,914
|
|
|
|
1,958
|
|
|
|
2,501
|
|
Single-family
property operating expenses
|
|
|
629
|
|
|
|
593
|
|
|
|
36
|
|
|
|
—
|
|
|
|
—
|
|
Net operating
income
|
|
|
16,954
|
|
|
|
3,713
|
|
|
|
4,396
|
|
|
|
5,087
|
|
|
|
3,758
|
|
Investment and
derivative (loss) gain, net
|
|
|
(13,199)
|
|
|
|
3,909
|
|
|
|
(1,313)
|
|
|
|
(9,032)
|
|
|
|
(6,763)
|
|
General and
administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and
benefits
|
|
|
6,979
|
|
|
|
1,855
|
|
|
|
1,888
|
|
|
|
1,841
|
|
|
|
1,395
|
|
Other general and
administrative expenses
|
|
|
4,725
|
|
|
|
1,125
|
|
|
|
1,009
|
|
|
|
1,349
|
|
|
|
1,242
|
|
Total general and
administrative expenses
|
|
|
11,704
|
|
|
|
2,980
|
|
|
|
2,897
|
|
|
|
3,190
|
|
|
|
2,637
|
|
(Loss) income
before income taxes
|
|
|
(7,949)
|
|
|
|
4,642
|
|
|
|
186
|
|
|
|
(7,135)
|
|
|
|
(5,642)
|
|
Income tax
provision (benefit)
|
|
|
1,566
|
|
|
|
808
|
|
|
|
436
|
|
|
|
(76)
|
|
|
|
398
|
|
Net (loss)
income
|
|
|
(9,515)
|
|
|
|
3,834
|
|
|
|
(250)
|
|
|
|
(7,059)
|
|
|
|
(6,040)
|
|
Dividend on preferred
stock
|
|
|
(2,916)
|
|
|
|
(739)
|
|
|
|
(731)
|
|
|
|
(723)
|
|
|
|
(723)
|
|
Net (loss) income
(attributable) available to
common stock
|
|
$
|
(12,431)
|
|
|
$
|
3,095
|
|
|
$
|
(981)
|
|
|
$
|
(7,782)
|
|
|
$
|
(6,763)
|
|
Basic (loss) earnings
per common share
|
|
$
|
(0.38)
|
|
|
$
|
0.10
|
|
|
$
|
(0.03)
|
|
|
$
|
(0.24)
|
|
|
$
|
(0.20)
|
|
Diluted (loss)
earnings per common share
|
|
$
|
(0.38)
|
|
|
$
|
0.10
|
|
|
$
|
(0.03)
|
|
|
$
|
(0.24)
|
|
|
$
|
(0.20)
|
|
Weighted average
common shares outstanding (in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
32,312
|
|
|
|
31,100
|
|
|
|
31,927
|
|
|
|
33,066
|
|
|
|
33,181
|
|
Diluted
|
|
|
32,312
|
|
|
|
31,421
|
|
|
|
31,927
|
|
|
|
33,066
|
|
|
|
33,181
|
|
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 single-family residential 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 and for the year ended December 31, 2021 (unaudited, amounts in
thousands, except per share amounts):
|
|
Year
Ended
|
|
|
Three Months
Ended
|
|
|
|
December
31,
2021
|
|
|
December
31,
2021
|
|
|
September
30,
2021
|
|
|
June
30,
2021
|
|
|
March
31,
2021
|
|
Investments in
financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other
income
|
|
$
|
25,530
|
|
|
$
|
5,880
|
|
|
$
|
6,346
|
|
|
$
|
7,045
|
|
|
$
|
6,259
|
|
TBA dollar roll
income
|
|
|
4,143
|
|
|
|
465
|
|
|
|
1,064
|
|
|
|
1,778
|
|
|
|
836
|
|
Interest
expense
|
|
|
(2,943)
|
|
|
|
(306)
|
|
|
|
(479)
|
|
|
|
(808)
|
|
|
|
(1,350)
|
|
Interest rate swap net
interest expense
|
|
|
(2,929)
|
|
|
|
(653)
|
|
|
|
(379)
|
|
|
|
(1,187)
|
|
|
|
(710)
|
|
Economic net interest
income from financial
assets
|
|
|
23,801
|
|
|
|
5,386
|
|
|
|
6,552
|
|
|
|
6,828
|
|
|
|
5,035
|
|
Investments in SFR
properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rent
revenues
|
|
|
259
|
|
|
|
259
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Property operating
expenses, excluding depreciation
|
|
|
(330)
|
|
|
|
(306)
|
|
|
|
(24)
|
|
|
|
—
|
|
|
|
—
|
|
Interest
expense
|
|
|
(151)
|
|
|
|
(151)
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net operating loss
from SFR properties,
excluding depreciation
|
|
|
(222)
|
|
|
|
(198)
|
|
|
|
(24)
|
|
|
|
—
|
|
|
|
—
|
|
Core general and
administrative expenses
|
|
|
(9,621)
|
|
|
|
(2,457)
|
|
|
|
(2,377)
|
|
|
|
(2,653)
|
|
|
|
(2,134)
|
|
Long-term unsecured
debt interest expense
|
|
|
(5,112)
|
|
|
|
(1,376)
|
|
|
|
(1,435)
|
|
|
|
(1,150)
|
|
|
|
(1,151)
|
|
Preferred stock
dividend
|
|
|
(2,916)
|
|
|
|
(739)
|
|
|
|
(731)
|
|
|
|
(723)
|
|
|
|
(723)
|
|
Income tax provision
for TRS core operating income
|
|
|
(286)
|
|
|
|
(129)
|
|
|
|
(85)
|
|
|
|
(61)
|
|
|
|
(11)
|
|
Non-GAAP core
operating income
|
|
$
|
5,644
|
|
|
$
|
487
|
|
|
$
|
1,900
|
|
|
$
|
2,241
|
|
|
$
|
1,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP core
operating income per
diluted
common share
|
|
$
|
0.17
|
|
|
$
|
0.02
|
|
|
$
|
0.06
|
|
|
$
|
0.07
|
|
|
$
|
0.03
|
|
Weighted average
diluted common
shares
outstanding
|
|
|
32,626
|
|
|
|
31,421
|
|
|
|
32,243
|
|
|
|
33,424
|
|
|
|
33,444
|
|
The following table provides a reconciliation of GAAP net income
(loss) to non-GAAP core operating income for the last four fiscal
quarters and for the year ended December 31,
2021 (unaudited, amounts in thousands):
|
|
Year
Ended
|
|
|
Three Months
Ended
|
|
|
|
December
31,
2021
|
|
|
December
31,
2021
|
|
|
September
30,
2021
|
|
|
June
30,
2021
|
|
|
March
31,
2021
|
|
Net (loss) income
(attributable) available to common
stock
|
|
$
|
(12,431)
|
|
|
$
|
3,095
|
|
|
$
|
(981)
|
|
|
$
|
(7,782)
|
|
|
$
|
(6,763)
|
|
Add
(less):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment and
derivative loss (gain), net
|
|
|
13,199
|
|
|
|
(3,909)
|
|
|
|
1,313
|
|
|
|
9,032
|
|
|
|
6,763
|
|
Stock-based
compensation expense
|
|
|
2,083
|
|
|
|
523
|
|
|
|
520
|
|
|
|
537
|
|
|
|
503
|
|
Income tax provision
(benefit) for TRS investment gain (loss)
|
|
|
1,280
|
|
|
|
679
|
|
|
|
351
|
|
|
|
(137)
|
|
|
|
387
|
|
Depreciation of
single-family residential properties
|
|
|
299
|
|
|
|
287
|
|
|
|
12
|
|
|
|
—
|
|
|
|
—
|
|
Add
back:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TBA dollar roll
income
|
|
|
4,143
|
|
|
|
465
|
|
|
|
1,064
|
|
|
|
1,778
|
|
|
|
836
|
|
Interest rate swap net
interest expense
|
|
|
(2,929)
|
|
|
|
(653)
|
|
|
|
(379)
|
|
|
|
(1,187)
|
|
|
|
(710)
|
|
Non-GAAP core
operating income
|
|
$
|
5,644
|
|
|
$
|
487
|
|
|
$
|
1,900
|
|
|
$
|
2,241
|
|
|
$
|
1,016
|
|
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.
The following tables present information on the Company's
investment and hedge portfolio as of December 31, 2021 (unaudited, dollars in
thousands):
Investments:
|
|
Assets
|
|
|
Capital
Allocation
(1)
|
|
|
Capital
Allocation
(%)
|
|
|
Leverage
(2)
|
|
Agency MBS
|
|
$
|
483,927
|
|
|
$
|
91,763
|
|
|
|
32
|
%
|
|
|
4.3
|
|
MSR financing
receivables
|
|
|
125,018
|
|
|
|
125,018
|
|
|
|
43
|
%
|
|
|
0.3
|
|
Credit investments
(3)
|
|
|
65,627
|
|
|
|
44,946
|
|
|
|
16
|
%
|
|
|
0.5
|
|
Single-family
residential properties
|
|
|
60,889
|
|
|
|
26,407
|
|
|
|
9
|
%
|
|
|
1.5
|
|
Total invested
capital
|
|
|
735,461
|
|
|
|
288,134
|
|
|
|
100
|
%
|
|
|
|
|
|
|
(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,
long-term secured debt, net payable or receivable for unsettled
securities, net contractual forward purchase price of our TBA
commitments and financing embedded in its MSR financing receivables
less our cash and cash equivalents compared to our investable
capital.
|
(3)
|
Includes our net
investment of $9,708 in a variable interest entity with gross
assets and liabilities of $10,218 and $510, respectively, that is
consolidated for GAAP financial reporting purposes.
|
Agency MBS:
|
|
Unpaid Principal
Balance
|
|
|
Net Unamortized
Purchase Premiums
|
|
|
Amortized Cost
Basis
|
|
|
Net Unrealized
Gain (Loss)
|
|
|
Fair
Value
|
|
|
Market
Price
|
|
|
Coupon
|
|
|
Weighted
Average
Expected
Remaining
Life
|
|
30-year fixed
rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.0%
|
|
$
|
343,689
|
|
|
$
|
9,916
|
|
|
$
|
353,605
|
|
|
$
|
(9,213)
|
|
|
$
|
344,392
|
|
|
$
|
100.20
|
|
|
|
2.00
|
%
|
|
|
7.7
|
|
2.5%
|
|
|
135,598
|
|
|
|
7,146
|
|
|
|
142,744
|
|
|
|
(3,218)
|
|
|
|
139,526
|
|
|
|
102.90
|
|
|
|
2.50
|
%
|
|
|
5.7
|
|
5.5%
|
|
|
8
|
|
|
|
—
|
|
|
|
8
|
|
|
|
1
|
|
|
|
9
|
|
|
|
115.14
|
|
|
|
5.50
|
%
|
|
|
4.9
|
|
Total/weighted-average
|
|
$
|
479,295
|
|
|
$
|
17,062
|
|
|
$
|
496,357
|
|
|
$
|
(12,430)
|
|
|
$
|
483,927
|
|
|
$
|
100.97
|
|
|
|
2.14
|
%
|
|
|
7.2
|
|
MSR Financing Receivables:
Amortized Cost
Basis (1)
|
|
|
Unrealized
Gain
|
|
|
Fair
Value
|
|
$
|
110,835
|
|
|
$
|
14,183
|
|
|
$
|
125,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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
|
|
$
|
157,640
|
|
|
$
|
(40,398)
|
|
|
$
|
3,731
|
|
|
$
|
7,865
|
|
|
$
|
(3,820)
|
|
|
$
|
125,018
|
|
|
|
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
|
|
$
|
14,020,461
|
|
|
|
2.94
|
%
|
|
|
0.25
|
%
|
|
11 months
|
|
|
1.11
|
%
|
|
|
4.38
|
|
|
$
|
155,195
|
|
Freddie
Mac
|
|
|
223,975
|
|
|
|
2.98
|
%
|
|
|
0.25
|
%
|
|
8 months
|
|
|
1.09
|
%
|
|
|
4.35
|
|
|
|
2,445
|
|
Total/weighted-average
|
|
$
|
14,244,436
|
|
|
|
2.94
|
%
|
|
|
0.25
|
%
|
|
11 months
|
|
|
1.11
|
%
|
|
|
4.38
|
|
|
$
|
157,640
|
|
|
|
(1)
|
Calculated as the
underlying MSR price divided by the weighted-average servicing
fee.
|
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
|
|
$
|
50,000
|
|
|
|
0.71
|
%
|
|
|
0.13
|
%
|
|
|
(0.58)
|
%
|
|
|
1.8
|
|
3 to less than 10
years
|
|
|
100,000
|
|
|
|
0.90
|
%
|
|
|
0.13
|
%
|
|
|
(0.77)
|
%
|
|
|
6.6
|
|
Total/weighted-average
|
|
$
|
150,000
|
|
|
|
0.84
|
%
|
|
|
0.13
|
%
|
|
|
(0.71)
|
%
|
|
|
5.0
|
|
Credit Investments:
|
|
Unpaid Principal
Balance
|
|
|
Net Unamortized
Premiums (Discounts)
|
|
|
Amortized Original
Cost Basis
|
|
|
Net Unrealized
Gain (Loss)
|
|
|
Fair Value
(1)
|
|
|
Market
Price
|
|
|
Leverage
|
|
|
Total Return on
Capital (2)
|
|
Commercial mortgage
loan
|
|
$
|
29,697
|
|
|
$
|
—
|
|
|
$
|
29,697
|
|
|
$
|
—
|
|
|
$
|
29,697
|
|
|
$
|
100.00
|
|
|
|
2.3
|
|
|
|
10.67
|
%
|
Business purpose
residential MBS (3)
|
|
|
21,609
|
|
|
|
1,887
|
|
|
|
23,496
|
|
|
|
(2,701)
|
|
|
|
20,795
|
|
|
|
96.02
|
|
|
|
—
|
|
|
|
10.52
|
%
|
Residential solar
panel loan ABS
|
|
|
18,589
|
|
|
|
(3,314)
|
|
|
|
15,275
|
|
|
|
(141)
|
|
|
|
15,134
|
|
|
|
81.23
|
|
|
|
—
|
|
|
|
2.80
|
%
|
Total/weighted-average
|
|
$
|
69,895
|
|
|
$
|
(1,427)
|
|
|
$
|
68,468
|
|
|
$
|
(2,842)
|
|
|
$
|
65,626
|
|
|
$
|
93.78
|
|
|
|
0.5
|
|
|
|
10.18
|
%
|
|
|
(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 and accrued
interest thereon (if any).
|
(3)
|
Includes our net
investment in a VIE of $9,708 at fair value that is consolidated
for GAAP financial reporting purposes.
|
Single-Family Residential Properties:
Market
|
|
Number
of
Properties
|
|
|
Gross
Book
Value
|
|
|
Average
Gross
Book
Value
|
|
|
Average
Square
Feet
|
|
|
Average
Year
Built
|
|
Tulsa, OK
|
|
|
49
|
|
|
$
|
12,071
|
|
|
$
|
246
|
|
|
|
1,740
|
|
|
|
2014
|
|
Kansas City,
MO
|
|
|
30
|
|
|
|
8,565
|
|
|
|
286
|
|
|
|
1,925
|
|
|
|
2003
|
|
Memphis,
TN
|
|
|
30
|
|
|
|
8,557
|
|
|
|
285
|
|
|
|
1,949
|
|
|
|
2008
|
|
Atlanta,
GA
|
|
|
28
|
|
|
|
8,434
|
|
|
|
301
|
|
|
|
2,487
|
|
|
|
2010
|
|
Huntsville,
AL
|
|
|
25
|
|
|
|
7,527
|
|
|
|
301
|
|
|
|
2,221
|
|
|
|
2012
|
|
Dallas, TX
|
|
|
21
|
|
|
|
6,994
|
|
|
|
333
|
|
|
|
1,999
|
|
|
|
2013
|
|
Charlotte,
NC
|
|
|
16
|
|
|
|
5,153
|
|
|
|
322
|
|
|
|
1,884
|
|
|
|
2011
|
|
Birmingham,
AL
|
|
|
15
|
|
|
|
3,887
|
|
|
|
259
|
|
|
|
1,659
|
|
|
|
2019
|
|
Total/weighted
average
|
|
|
214
|
|
|
$
|
61,188
|
|
|
$
|
286
|
|
|
|
1,980
|
|
|
|
2011
|
|
Status of
Property
|
|
Number
of
Properties
|
|
|
Gross
Book
Value
|
|
In
rehabilitation
|
|
|
41
|
|
|
$
|
11,260
|
|
In
marketing
|
|
|
59
|
|
|
|
17,375
|
|
Leased not yet
occupied
|
|
|
8
|
|
|
|
2,612
|
|
Leased and
occupied
|
|
|
106
|
|
|
|
29,941
|
|
Total
|
|
|
214
|
|
|
$
|
61,188
|
|
View original
content:https://www.prnewswire.com/news-releases/arlington-asset-investment-corp-reports-fourth-quarter-and-full-year-2021-financial-results-301494531.html
SOURCE Arlington Asset Investment Corp.