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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): August 10, 2022 (August 09, 2022)

 

 

ARLINGTON ASSET INVESTMENT CORP.

(Exact name of Registrant as Specified in Its Charter)

 

 

Virginia

001-34374

54-1873198

(State or Other Jurisdiction
of Incorporation)

(Commission File Number)

(IRS Employer
Identification No.)

 

 

 

 

 

6862 Elm Street

Suite 320

 

McLean, Virginia

 

22101

(Address of Principal Executive Offices)

 

(Zip Code)

 

Registrant’s Telephone Number, Including Area Code: 703 373-0200

 

N/A

(Former Name or Former Address, if Changed Since 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))

Securities registered pursuant to Section 12(b) of the Act:


Title of each class

 

Trading
Symbol(s)

 


Name of each exchange on which registered

Class A Common Stock

 

AAIC

 

New York Stock Exchange

7.00% Series B Cumulative Perpetual Redeemable Preferred Stock

 

AAIC PrB

 

New York Stock Exchange

8.250% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock

 

AAIC PrC

 

New York Stock Exchange

6.000% Senior Notes due 2026

 

AAIN

 

New York Stock Exchange

6.75% Senior Notes due 2025

 

AIC

 

New York Stock Exchange

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

 


Item 2.02. Results of Operations and Financial Condition.

Arlington Asset Investment Corp. (the “Company”) issued a press release on August 9, 2022 announcing its financial results for the quarter ended June 30, 2022. 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 incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended.

Item 7.01 Regulation FD Disclosure.

The Company has posted an updated investor presentation to its website, www.arlingtonasset.com. A copy of the slide presentation is attached as Exhibit 99.2 hereto and incorporated herein by reference. The information in Item 7.01 of this Current Report on Form 8-K, including Exhibit 99.2 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 7.01 of this Current Report on Form 8-K, including Exhibit 99.2 furnished pursuant to Item 9.01, shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits.

 

99.1

Arlington Asset Investment Corp. Press Release dated August 9, 2022.

 

 

99.2

Second Quarter 2022 Investor Presentation.

 

104

Cover Page Interactive Data File (embedded within the Inline XBRL document).

 


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: August 10, 2022

 

 

 

 

By:

 

/s/ Richard E. Konzmann

 

Name:

 

Richard E. Konzmann

 

Title:

 

Executive Vice President, Chief Financial
Officer and Treasurer

 

 



EX-99.1

 

 

Exhibit 99.1

 

img153742315_0.jpg 

 

Contacts:

Media: 703.373.0200 or ir@arlingtonasset.com

Investors: Rich Konzmann at 703.373.0200 or ir@arlingtonasset.com

Arlington Asset Investment Corp. Reports Second Quarter 2022 Financial Results

McLean, VA, August 9, 2022 – Arlington Asset Investment Corp. (NYSE: AAIC) (the “Company” or “Arlington”) today reported financial results for the quarter ended June 30, 2022.

Second Quarter 2022 Financial Highlights

$6.30 per common share of book value
o
1.8% increase from March 31, 2022
$0.01 per diluted common share of GAAP net loss attributable to common shareholders
$0.05 per diluted common share of non-GAAP earnings available for distribution (formerly referred to as core operating income)
$0.09 per common share of book value accretion from the repurchase of 3.2% of the outstanding shares of common stock
o
Purchased an additional 1.1% of the outstanding shares of common stock through August 8, 2022
o
10.7 million share remaining authorization as of August 8, 2022
1.6 to 1 “at risk” leverage ratio

 

“Arlington's successful transition from a primarily levered agency MBS strategy to one focused on multiple high return, non-commodity investment channels in mortgage servicing rights (“MSRs”), single-family residential (“SFR”) rental properties and select credit investments continued to produce positive results during the second quarter, including a positive economic return for the fourth consecutive quarter.

 

“The execution of this strategy has enabled the Company to consistently grow book value per share during periods of volatile market conditions while traditional mortgage REITs experienced losses. Over the last twelve months, the Company delivered a 6.1% economic return while its mortgage REIT peers have experienced a negative 10.5% economic return,” said J. Rock Tonkel, Jr., the Company's President and Chief Executive Officer.

 

“The Company's differentiated investment strategy has performed well during both positive and negative market conditions and is positioned to continue to do so. With our largest investment capital allocation in our MSR strategy, the Company's financial results benefited from another strong quarterly performance in our MSR investment portfolio that generated a total annualized return of 41% during the second quarter.

 

"Within the Company's credit investment strategy, widening of credit spreads has created compelling new investment opportunities in high quality assets. Late in the second quarter, the Company made several investments in highly rated senior commercial mortgage bonds that offer double digit levered returns and is actively evaluating similar investment opportunities.

 

"As of today, the Company has essentially reached its stated goal of $200 million of SFR rental properties with a total committed investment of $197 million and a strong expected net unlevered rental yield of 4.8%. The Company previously announced that it had entered into an agreement to sell a portion of its SFR portfolio with an expected closing date later this month at a significant gain that would be expected to add approximately $0.50 per share to our second quarter book value if consummated. Assuming the sale is completed, we have the ability to grow our SFR investment portfolio back to approximately $200 million, subject to market conditions, to fully realize the benefit of our below market fixed rate five-year financing facility. However, we will take a disciplined approach in purchasing new homes in the near term as the residential housing market evolves in the current environment.

 

 


 

 

“We continue to believe there is greater value in Arlington’s business than the public markets recognize. Since reinstituting our current common stock repurchase program in 2020, the Company has aggressively returned capital to shareholders by purchasing 25% of its outstanding shares, delivering $0.75 per share of accretion to shareholders.

 

“Having successfully positioned Arlington to preserve capital and grow book value per share, the Company now has the opportunity to capitalize on substantially wider investment spreads with superior risk adjusted returns in the low to mid-teens in high grade residential and commercial mortgage securitized products. We expect that the redeployment of capital into these higher return investments will drive greater earnings potential which can be used to increase our equity capital, return capital to shareholders through accretive stock repurchases or reinstate a dividend to common shareholders.”

 

Second Quarter Investment Portfolio

As of June 30, 2022, the Company’s investment portfolio capital allocation was as follows (dollars in thousands):

 

 

 

June 30, 2022

 

 

 

Assets

 

 

Invested Capital
Allocation
(1)

 

 

Invested Capital
Allocation (%)

 

 

Leverage (2)

 

MSR financing receivables

 

$

120,260

 

 

$

120,260

 

 

 

41

%

 

 

0.5

 

Single-family residential properties

 

 

182,783

 

 

 

64,605

 

 

 

22

%

 

 

1.9

 

Credit investments (3)

 

 

168,432

 

 

 

63,058

 

 

 

21

%

 

 

1.7

 

Agency MBS (4)

 

 

235,781

 

 

 

48,102

 

 

 

16

%

 

 

4.0

 

Total invested capital

 

$

707,256

 

 

 

296,025

 

 

 

100

%

 

 

 

Cash and other corporate capital

 

 

 

 

 

5,486

 

 

 

 

 

 

 

Total investable capital

 

 

 

 

$

301,511

 

 

 

 

 

1.6

 

 

(1)
Our investable capital is calculated as the sum of our shareholders’ equity capital plus accumulated depreciation of our single-family residential properties and long-term unsecured debt.
(2)
Our leverage is measured as the ratio of the sum of our repurchase agreement financing, long-term debt secured by single-family residential properties, net payable or receivable for unsettled securities, net contractual forward purchase (sale) price of our TBA commitments and leverage within our MSR financing receivables less our cash and cash equivalents compared to our investable capital.
(3)
Includes our net investment of $25,529 in two variable interest entities with gross assets and liabilities of $231,301 and $205,772, respectively, that are consolidated for GAAP financial reporting purposes.
(4)
Agency MBS assets include the fair value of the agency MBS which underlie the Company's to-be-announced ("TBA") forward purchase and sale commitments. In accordance with GAAP, the Company's TBA forward commitments are reflected on the consolidated balance sheets as derivative assets and liabilities at fair value in the financial statement line items "other assets" and "other liabilities." As of June 30, 2022, the fair value of the agency MBS that underlie the Company's net short position in TBA commitments had a fair value of $(146,576) and a net carrying value of $337.

MSR Related Investments

The Company is party to agreements with a licensed, U.S. government sponsored enterprise (“GSE”) approved residential mortgage loan servicer that enable the Company to garner the economic return of an investment in an MSR purchased by the mortgage servicing counterparty. The arrangement allows the Company to participate in the economic benefits of investing in an MSR without holding the requisite licenses to purchase or hold MSRs directly. Under the terms of the arrangement, the Company provides capital to the mortgage servicing counterparty to purchase MSRs directly and the Company, in turn, receives all the economic benefits of the MSRs less a fee payable to the counterparty. At the Company’s request, the mortgage servicing counterparty may utilize leverage on the MSRs to which the Company’s MSR financing receivables are referenced to finance the purchase of additional MSRs to increase potential returns to the Company. These transactions are accounted for as financing receivables on the Company’s consolidated financial statements.

The Company’s MSR financing receivable investments as of June 30, 2022 are summarized in the tables below (dollars in thousands):

 

Amortized Cost Basis (1)

 

 

Unrealized Gain

 

 

Fair Value

 

$

74,866

 

 

$

45,394

 

 

$

120,260

 

 

(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

 

$

176,408

 

 

$

(60,868

)

 

$

2,348

 

 

$

13,883

 

 

$

(11,511

)

 

$

120,260

 

 

 

0.51

 

 

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

 

$

12,057,248

 

 

 

3.04

%

 

 

0.25

%

 

18 months

 

 

1.35

%

 

 

5.38

 

 

$

162,449

 

Freddie Mac

 

 

1,015,899

 

 

 

3.66

%

 

 

0.25

%

 

17 months

 

 

1.37

%

 

 

5.50

 

 

 

13,959

 

Total/weighted-average

 

$

13,073,147

 

 

 

3.09

%

 

 

0.25

%

 

18 months

 

 

1.35

%

 

 

5.39

 

 

$

176,408

 

 

(1)
Calculated as the underlying MSR price divided by the weighted-average servicing fee.

As of June 30, 2022, the mortgage servicing counterparty had drawn $60.9 million of financing under its credit facility collateralized by the MSRs to which the Company’s MSR financing receivables are referenced, resulting in an implicit leverage ratio of 0.51 to 1. The weighted average yield on the Company’s MSR financing receivables was 15.28% for the second quarter of 2022 compared to 12.49% for the first quarter of 2022, and the actual weighted-average constant prepayment rate (“CPR”) for the MSRs underlying the Company’s MSR financing receivables was 8.10% for the second quarter of 2022 compared to 8.71% for the first quarter of 2022.

Single-family Residential Investments

As of June 30, 2022, the Company had acquired 586 single family residential (“SFR”) properties for a total cost of $182.8 million and had commitments to acquire an additional 25 SFR properties for an aggregate purchase price of $9.0 million. The timing of the earnings benefit to the Company from investing in SFR rental properties is 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.

On May 10, 2022, the Company entered into a purchase and sale agreement to sell 378 SFR properties for $132.8 million with an original closing date no later than June 23, 2022. Pursuant to the purchase and sale agreement, the buyer made a $2.655 million initial deposit with an escrow agent. On May 27, 2022, the Company entered into an amendment to the purchase and sale agreement to remove two properties from the sale transaction reducing the total properties to be sold to 376 SFR properties for $131.9 million. On June 20, 2022, the Company entered into an additional amendment to the purchase and sale agreement that required the buyer to fund an additional $2.655 million deposit with the escrow agent for a total deposit of $5.31 million to extend the closing date to no later than August 19, 2022. During the second quarter of 2022, the Company classified the 376 SFR properties as held-for-sale.

As of June 30, 2022, the Company’s SFR portfolio is summarized in the tables below (dollars in thousands):

 

 

 

Single-family Residential Real Estate

 

 

Single-family Residential Real Estate Held-for-Sale

 

 

Total

 

Land

 

$

11,423

 

 

$

18,913

 

 

$

30,336

 

Buildings and improvements

 

 

57,093

 

 

 

95,354

 

 

 

152,447

 

Investments in single-family residential real estate, at cost

 

 

68,516

 

 

 

114,267

 

 

 

182,783

 

Less: accumulated depreciation

 

 

(326

)

 

 

(1,288

)

 

 

(1,614

)

Investments in single-family residential real estate, net

 

$

68,190

 

 

$

112,979

 

 

$

181,169

 

 

 


 

 

Market

 

Number of
Properties

 

 

Gross Book
Value

 

 

Average Gross
Book Value

 

 

Average
Square Feet

 

 

Average
Year Built

 

Atlanta, GA

 

 

102

 

 

$

34,458

 

 

$

338

 

 

 

2,209

 

 

 

2008

 

Dallas, TX

 

 

88

 

 

 

30,920

 

 

 

351

 

 

 

1,915

 

 

 

2014

 

Huntsville, AL

 

 

86

 

 

 

28,510

 

 

 

332

 

 

 

2,306

 

 

 

2015

 

Tulsa, OK

 

 

103

 

 

 

27,130

 

 

 

263

 

 

 

1,762

 

 

 

2016

 

Birmingham, AL

 

 

69

 

 

 

18,606

 

 

 

270

 

 

 

1,690

 

 

 

2017

 

Kansas City, MO

 

 

52

 

 

 

15,510

 

 

 

298

 

 

 

1,944

 

 

 

2008

 

Memphis, TN

 

 

49

 

 

 

14,421

 

 

 

294

 

 

 

1,890

 

 

 

2006

 

Charlotte, NC

 

 

37

 

 

 

13,228

 

 

 

358

 

 

 

1,920

 

 

 

2010

 

Total/weighted average

 

 

586

 

 

$

182,783

 

 

$

312

 

 

 

1,971

 

 

 

2012

 

 

Status of Property

 

Number of
Properties

 

 

Gross Book
Value

 

In rehabilitation

 

 

38

 

 

$

12,693

 

In marketing

 

 

97

 

 

 

31,455

 

Leased not yet occupied

 

 

1

 

 

 

247

 

Leased and occupied

 

 

450

 

 

 

138,388

 

Total

 

 

586

 

 

$

182,783

 

As of June 30, 2022, the Company had drawn $123.0 million under its $150 million credit facility. Advances may be drawn up to 74% of the fair value of eligible SFR properties with an advance period that expires in March 2023 with outstanding principal balance due in October 2026. Advances under the facility bear interest at a fixed rate of 2.76%.

Credit Investments

The Company’s credit investments generally include mortgage loans secured by residential or commercial real property or MBS collateralized by residential or commercial mortgage loans or residential solar panel loans (“non-agency” MBS or ABS). As of June 30, 2022, the Company’s credit investment portfolio at fair value was comprised of the following (dollars in thousands):

 

 

 

Fair Value (1)

 

 

Market Price

 

 

Leverage

 

Commercial MBS

 

$

99,901

 

 

$

99.90

 

 

 

5.6

 

Commercial mortgage loan

 

 

29,484

 

 

 

100.00

 

 

 

2.3

 

Residential MBS - interest-only (2)

 

 

19,255

 

 

 

8.12

 

 

 

 

Residential MBS (2)

 

 

1,082

 

 

 

67.11

 

 

 

 

Business purpose residential MBS (3)

 

 

15,683

 

 

 

93.51

 

 

 

 

Residential solar panel loan ABS

 

 

3,027

 

 

 

59.81

 

 

 

 

Total/weighted-average

 

$

168,432

 

 

 

 

 

 

1.7

 

 

(1)
For credit investments in securities, includes contractual accrued interest receivable.
(2)
Residential MBS - interest-only and residential MBS, in combination, reflect our net investment at fair value of $20,337 in a VIE that is consolidated for GAAP financial reporting purposes.
(3)
Includes our net investment at fair value of $5,192 in a VIE that is consolidated for GAAP financial reporting purposes.

As of June 30, 2022, the Company had $84.8 million in repurchase agreements outstanding with a weighted average rate of 2.81% and remaining weighted average maturity of 17 days secured by $99.9 million of non-agency MBS at fair value. As of June 30, 2022, the Company had a $20.6 million repurchase agreement outstanding with a rate of 3.77% and remaining maturity of 260 days secured by a $29.5 million commercial mortgage loan at fair value.

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 GSE, such as the Federal National Mortgage Association (“Fannie Mae”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac”). As of June 30, 2022, the Company’s agency MBS investment portfolio totaled $235.8 million at fair

 


 

 

value comprised of $382.4 million of specified agency MBS and $(146.6) million of net short to-be-announced ("TBA") agency MBS. As of June 30, 2022, the Company's specified agency MBS investment portfolio was comprised of the following (dollars in thousands):

 

 

 

Unpaid Principal Balance

 

 

Net Unamortized Purchase Premiums (Discounts)

 

 

Amortized Cost Basis

 

 

Net Unrealized Gain (Loss)

 

 

Fair Value

 

 

Market Price

 

 

Coupon

 

 

Weighted
Average
Expected
Remaining
Life

 

30-year fixed rate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3.5%

 

$

68,634

 

 

$

(844

)

 

$

67,790

 

 

$

(1,440

)

 

$

66,350

 

 

$

96.67

 

 

 

3.50

%

 

 

9.2

 

4.0%

 

 

202,817

 

 

 

1,253

 

 

 

204,070

 

 

 

(3,191

)

 

 

200,879

 

 

 

99.04

 

 

 

4.00

%

 

 

9.0

 

4.5%

 

 

114,419

 

 

 

(9

)

 

 

114,410

 

 

 

710

 

 

 

115,120

 

 

 

100.61

 

 

 

4.50

%

 

 

8.1

 

5.5%

 

 

8

 

 

 

 

 

 

8

 

 

 

 

 

 

8

 

 

 

107.89

 

 

 

5.50

%

 

 

5.7

 

Total/weighted-average

 

$

385,878

 

 

$

400

 

 

$

386,278

 

 

$

(3,921

)

 

$

382,357

 

 

$

99.09

 

 

 

4.06

%

 

 

8.8

 

 

The Company’s weighted average yield on its specified agency MBS was 2.95% for the second quarter of 2022 compared to 1.52% for the first quarter of 2022, and the actual weighted-average CPR for the Company’s specified agency MBS was 8.40% for the second quarter of 2022 compared to 9.01% for the first quarter of 2022.

As of June 30, 2022, the Company's net short TBA agency MBS investment portfolio was comprised of the following (dollars in thousands):

 

 

 

Notional Amount:

 

 

 

 

 

 

 

 

 

 

 

 

Net Long (Short)

 

 

Implied

 

 

Implied

 

 

Net Carrying

 

 

 

Position (1)

 

 

Cost Basis (2)

 

 

Fair Value (3)

 

 

Amount (4)

 

2.5% 30-year MBS sale commitments

 

$

(25,000

)

 

$

(22,649

)

 

$

(22,472

)

 

$

177

 

3.0% 30-year MBS sale commitments

 

 

(30,000

)

 

 

(27,970

)

 

 

(27,932

)

 

 

38

 

3.5% 30-year MBS sale commitments

 

 

(100,000

)

 

 

(95,486

)

 

 

(96,172

)

 

 

(686

)

4.5% 30-year MBS purchase commitments

 

 

50,000

 

 

 

50,121

 

 

 

50,195

 

 

 

74

 

4.5% 30-year MBS sale commitments

 

 

(50,000

)

 

 

(50,929

)

 

 

(50,195

)

 

 

734

 

Total net long (short) agency TBA positions

 

$

(155,000

)

 

$

(146,913

)

 

$

(146,576

)

 

$

337

 

 

(1)
Notional amount represents the unpaid principal balance of the underlying agency MBS.
(2)
Implied cost basis represents the contractual forward price for the underlying agency MBS.
(3)
Implied fair value represents the current fair value of the underlying agency MBS.
(4)
Net carrying amount represents the difference between the implied cost basis and the implied fair value of the underlying agency MBS. This amount is reflected on the Company's consolidated balance sheets as a component of "other assets" and "other liabilities."

As of June 30, 2022, the Company had $224.6 million of repurchase agreements outstanding with a weighted average rate of 1.48% and remaining weighted average maturity of 14 days secured by an aggregate of $237.4 million of agency MBS at fair value. The Company’s weighted average cost of repurchase agreement funding secured by agency MBS was 0.80% during the second quarter of 2022 compared to 0.17% during the first quarter of 2022.

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 June 30, 2022, the Company’s interest swap agreements were comprised of the following (dollars in thousands):

 

 

 

 

 

 

Weighted-average:

 

 

 

Notional Amount

 

 

Fixed Pay Rate

 

 

Variable Receive Rate

 

 

Net Receive (Pay) Rate

 

 

Remaining Life (Years)

 

Years to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less than 3 years

 

$

130,000

 

 

 

1.32

%

 

 

1.22

%

 

 

(0.10

)%

 

 

1.5

 

3 to less than 10 years

 

 

100,000

 

 

 

1.68

%

 

 

1.30

%

 

 

(0.38

)%

 

 

5.4

 

Total / weighted-average

 

$

230,000

 

 

 

1.48

%

 

 

1.25

%

 

 

(0.23

)%

 

 

3.2

 

 

 


 

 

The Company’s weighted average net pay rate of its interest rate swap agreements was 0.53% during the second quarter of 2022 compared to 0.68% during the first quarter of 2022. 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 to line item "investment and derivative gains (losses), net" in the Company’s financial statements.

Other Second Quarter 2022 Financial Highlights

 

The Company’s book value was $6.30 per common share as of June 30, 2022 compared to $6.19 per common share as of March 31, 2022. Book value per common share is calculated as total equity plus accumulated depreciation of SFR properties less the preferred stock liquidation preference divided by common shares outstanding plus vested restricted stock units convertible into common stock less unvested restricted common stock.

The Company’s “at risk” leverage ratio was 1.6 to 1 as of June 30, 2022 compared to 1.3 to 1 as of March 31, 2022. The Company’s “at risk” leverage ratio is calculated as the sum of the Company’s repurchase agreement financing, long-term debt secured by single-family properties, net payable or receivable for unsettled securities, net contractual price of TBA purchase and sale 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 second quarter of 2022, the Company repurchased 0.9 million shares of its common stock at an average price of $3.40 per share for a total purchase cost of $3.2 million, representing 3.2% of common stock outstanding as of March 31, 2022. Subsequent to June 30, 2022, the Company repurchased an additional 0.3 million shares of its common stock at an average price of $3.18 per share for a total purchase cost of $1.0 million, representing 1.1% of common stock outstanding as of June 30, 2022. Currently, the Company has remaining authorization from its Board of Directors to repurchase up to 10.7 million shares of its common stock. In addition, during the second quarter of 2022, the Company repurchased 0.1 million shares of Series C Preferred Stock at an average price of $24.17 per share for a total purchase cost of $1.7 million.

Conference Call

The Company will hold a conference call for investors at 10:00 A.M. Eastern Time on Wednesday, August 10, 2022 to discuss the Company’s second quarter 2022 results.

Investors may listen to the earnings call via the internet at: http://www.arlingtonasset.com/index.php?s=19. Replays of the earnings call will be available for 60 days via webcast at the Internet address provided above, beginning two hours after the call ends.

Additional Information

The Company will make available additional quarterly information for the benefit of its shareholders through a supplemental presentation that will be available at the Company's website, www.arlingtonasset.com. The presentation will be available on the Webcasts and Presentations section located under the Updates & Events tab of the Company's website.

About the Company

Arlington Asset Investment Corp. (NYSE: AAIC) currently invests primarily in mortgage related and residential real estate and has elected to be taxed as a REIT. The Company is headquartered in the Washington, D.C. metropolitan area. For more information, please visit www.arlingtonasset.com.

 

Statements concerning interest rates, portfolio allocation, financing costs, portfolio hedging, prepayments, dividends, book value, utilization of loss carryforwards, any change in long-term tax structures (including any REIT election), use of equity raise proceeds and any other guidance on present or future periods constitute forward-looking statements that are subject to a number of factors, risks and uncertainties that might cause actual results to differ materially from stated expectations or current circumstances. These factors include, but are not limited to, the uncertainty and economic impact of the ongoing coronavirus (COVID-19) pandemic and the measures taken by the government to address it, including the impact on our business, financial condition, liquidity and results of operations due to a significant decrease in economic activity and disruptions in our financing operations, among other factors, changes in interest rates, increased costs of borrowing, decreased interest spreads, credit risks underlying the Company’s assets, especially related to the Company’s mortgage credit investments, our ability to close on the sale of single-family residential homes described herein, and to realize the expected benefits from such sale, changes in political and monetary policies, changes in default rates, changes in prepayment rates and other assumptions underlying our estimates related to our projections of future core earnings, changes in the Company’s returns, changes in the use of the Company’s tax benefits, the Company’s ability to qualify and maintain qualification as a REIT, changes in the agency MBS asset yield, changes in the Company’s monetization of net operating loss carryforwards, changes in the Company’s investment strategy, changes in the Company’s ability to generate cash earnings and dividends, preservation and utilization of the

 


 

 

Company’s net operating loss and net capital loss carryforwards, impacts of changes to and changes by Fannie Mae and Freddie Mac, actions taken by the U.S. Federal Reserve, the Federal Housing Finance Agency and the U.S. Treasury, availability of opportunities that meet or exceed the Company’s risk adjusted return expectations, ability and willingness to make future dividends, ability to generate sufficient cash through retained earnings to satisfy capital needs, and general economic, political, regulatory and market conditions. These and other material risks are described in the Company's most recent Annual Report on Form 10-K and any other documents filed by the Company with the SEC from time to time, which are available from the Company and from the SEC, and you should read and understand these risks when evaluating any forward-looking statement. All forward-looking statements speak only as of the date on which they are made. New risks and uncertainties arise over time, and it is not possible to predict those events or how they may affect the Company. Except as required by law, the Company is not obligated to, and does not intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Financial data to follow

 


 

 

ARLINGTON ASSET INVESTMENT CORP.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share amounts)

(Unaudited)

 

 

 

June 30, 2022

 

 

March 31, 2022

 

ASSETS

 

 

 

 

 

 

Cash and cash equivalents (includes $247 and $73, respectively,
  from consolidated VIEs)

 

$

9,575

 

 

$

21,715

 

Restricted cash

 

 

1,270

 

 

 

851

 

Restricted cash of consolidated VIEs

 

 

4,649

 

 

 

9,292

 

Agency mortgage-backed securities, at fair value

 

 

382,357

 

 

 

292,318

 

MSR financing receivables, at fair value

 

 

120,260

 

 

 

139,225

 

Credit investments, at fair value

 

 

142,903

 

 

 

54,952

 

Mortgage loans of consolidated VIEs, at fair value

 

 

225,004

 

 

 

261,976

 

Single-family residential real estate (net of $326 and $1,010, respectively, of
  accumulated depreciation)

 

 

68,190

 

 

 

120,952

 

Single-family residential real estate held-for-sale (net of $1,288 and $-0-,
  respectively, of accumulated depreciation)

 

 

112,979

 

 

 

 

Deposits

 

 

4,623

 

 

 

4,607

 

Other assets (includes $1,401 and $1,461, respectively, from consolidated VIEs)

 

 

12,945

 

 

 

14,995

 

Total assets

 

$

1,084,755

 

 

$

920,883

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

Repurchase agreements

 

$

329,994

 

 

$

284,862

 

Purchased securities payable

 

 

114,410

 

 

 

 

Secured debt of consolidated VIEs, at fair value

 

 

205,497

 

 

 

244,365

 

Long-term unsecured debt

 

 

86,199

 

 

 

86,096

 

Long-term debt secured by single-family properties

 

 

122,770

 

 

 

77,824

 

Other liabilities (includes $275 and $293, respectively, from consolidated VIEs)

 

 

12,187

 

 

 

9,639

 

Total liabilities

 

 

871,057

 

 

 

702,786

 

Equity:

 

 

 

 

 

 

Preferred stock (liquidation preference of $35,609 and $37,418, respectively)

 

 

34,608

 

 

 

36,357

 

Common stock

 

 

291

 

 

 

301

 

Additional paid-in capital

 

 

2,025,345

 

 

 

2,027,585

 

Accumulated deficit

 

 

(1,846,546

)

 

 

(1,846,146

)

Total equity

 

 

213,698

 

 

 

218,097

 

Total liabilities and equity

 

$

1,084,755

 

 

$

920,883

 

Book value per common share (1)

 

$

6.30

 

 

$

6.19

 

Common shares outstanding (in thousands) (2)

 

 

28,529

 

 

 

29,345

 

 

 

 

 

 

 

 

(1) Book value per common share is calculated as total equity plus accumulated depreciation of single-family residential real estate less the preferred stock liquidation preference divided by common shares outstanding.

 

(2) Represents common shares outstanding plus vested restricted stock units convertible into common stock less unvested restricted common stock.

 

 

 

 

 

 

 

 

 

 

June 30, 2022

 

 

March 31, 2022

 

Assets and liabilities of consolidated VIEs:

 

 

 

 

 

 

Cash and restricted cash

 

$

4,896

 

 

$

9,365

 

Mortgage loans, at fair value

 

 

225,004

 

 

 

261,976

 

Other assets

 

 

1,401

 

 

 

1,461

 

Secured debt, at fair value

 

 

(205,497

)

 

 

(244,365

)

Other liabilities

 

 

(275

)

 

 

(293

)

Net investment in consolidated VIEs

 

$

25,529

 

 

$

28,144

 

 

 


 

 

ARLINGTON ASSET INVESTMENT CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share data)

(Unaudited)

 

 

Three Months Ended

 

 

 

June 30,
2022

 

 

March 31,
2022

 

 

December 31,
2021

 

 

September 30,
2021

 

Interest income

 

 

 

 

 

 

 

 

 

 

 

 

MSR financing receivables

 

$

3,983

 

 

$

3,382

 

 

$

2,589

 

 

$

1,945

 

Agency mortgage-backed securities

 

 

2,065

 

 

 

1,492

 

 

 

2,206

 

 

 

2,660

 

Credit securities and loans

 

 

991

 

 

 

853

 

 

 

772

 

 

 

1,247

 

Mortgage loans of consolidated VIEs

 

 

1,611

 

 

 

1,354

 

 

 

144

 

 

 

301

 

Other

 

 

113

 

 

 

325

 

 

 

169

 

 

 

193

 

Total interest and other income

 

 

8,763

 

 

 

7,406

 

 

 

5,880

 

 

 

6,346

 

Rent revenues from single-family properties

 

 

2,137

 

 

 

1,064

 

 

 

259

 

 

 

 

Interest expense

 

 

 

 

 

 

 

 

 

 

 

 

Repurchase agreements

 

 

763

 

 

 

276

 

 

 

286

 

 

 

306

 

Long-term debt secured by single-family properties

 

 

718

 

 

 

408

 

 

 

151

 

 

 

 

Long-term unsecured debt

 

 

1,400

 

 

 

1,370

 

 

 

1,376

 

 

 

1,435

 

Secured debt of consolidated VIEs

 

 

1,578

 

 

 

1,188

 

 

 

20

 

 

 

173

 

Total interest expense

 

 

4,459

 

 

 

3,242

 

 

 

1,833

 

 

 

1,914

 

Single-family property operating expenses

 

 

1,915

 

 

 

1,531

 

 

 

593

 

 

 

36

 

Net operating income

 

 

4,526

 

 

 

3,697

 

 

 

3,713

 

 

 

4,396

 

Investment and derivative gain (loss), net

 

 

370

 

 

 

(827

)

 

 

3,909

 

 

 

(1,313

)

General and administrative expenses

 

 

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

 

2,324

 

 

 

2,065

 

 

 

1,855

 

 

 

1,888

 

Other general and administrative expenses

 

 

1,463

 

 

 

1,219

 

 

 

1,125

 

 

 

1,009

 

Total general and administrative expenses

 

 

3,787

 

 

 

3,284

 

 

 

2,980

 

 

 

2,897

 

Income (loss) before income taxes

 

 

1,109

 

 

 

(414

)

 

 

4,642

 

 

 

186

 

Income tax provision

 

 

802

 

 

 

2,287

 

 

 

808

 

 

 

436

 

Net income (loss)

 

 

307

 

 

 

(2,701

)

 

 

3,834

 

 

 

(250

)

Dividend on preferred stock

 

 

(707

)

 

 

(742

)

 

 

(739

)

 

 

(731

)

Net (loss) income (attributable) available to
   common stock

 

$

(400

)

 

$

(3,443

)

 

$

3,095

 

 

$

(981

)

Basic (loss) earnings per common share

 

$

(0.01

)

 

$

(0.12

)

 

$

0.10

 

 

$

(0.03

)

Diluted (loss) earnings per common share

 

$

(0.01

)

 

$

(0.12

)

 

$

0.10

 

 

$

(0.03

)

Weighted average common shares outstanding (in
   thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

28,766