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``` 11111

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-34374

 

ARLINGTON ASSET INVESTMENT CORP.

(Exact name of Registrant as specified in its charter)

 

 

Virginia

 

54-1873198

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

6862 Elm Street, Suite 320

McLean, VA

 

22101

(Address of Principal Executive Offices)

 

(Zip Code)

 

(703) 373-0200

(Registrant’s Telephone Number, Including Area Code)

 

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

 

NYSE

7.00% Series B Cumulative Perpetual Redeemable Preferred Stock

 

AAIC PrB

 

NYSE

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

 

AAIC PrC

 

NYSE

6.000% Senior Notes due 2026

 

AAIN

 

NYSE

6.75% Senior Notes due 2025

 

AIC

 

NYSE

 

 

 

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Sec. 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

 

 

Small reporting company

 

 

 

 

 

 

 

 

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.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes No

Number of shares outstanding of each of the registrant’s classes of common stock, as of July 29, 2022:

 

Title

 

Outstanding

Class A Common Stock

 

28,890,953 shares

 


 

ARLINGTON ASSET INVESTMENT CORP.

FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2022

INDEX

 

 

 

 

 

 

 

Page

PART I — FINANCIAL INFORMATION

 

 

 

 

Item 1.

 

Consolidated Financial Statements and Notes — (unaudited)

 

1

 

 

 

 

Consolidated Balance Sheets

 

1

 

 

 

 

Consolidated Statements of Comprehensive Income

 

2

 

 

 

 

Consolidated Statements of Changes in Equity

 

3

 

 

 

 

Consolidated Statements of Cash Flows

 

4

 

 

 

 

Notes to Consolidated Financial Statements

 

5

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

36

 

 

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

 

57

 

 

Item 4.

 

Controls and Procedures

 

62

PART II — OTHER INFORMATION

 

 

 

 

Item 1.

 

Legal Proceedings

 

63

 

 

Item 1A.

 

Risk Factors

 

63

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

63

 

 

Item 3.

 

Defaults Upon Senior Securities

 

64

 

 

Item 4.

 

Mine Safety Disclosures

 

64

 

 

Item 5.

 

Other Information

 

64

 

 

Item 6.

 

Exhibits

 

64

 

 

 

 

Signatures

 

67

 

i


 

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

ARLINGTON ASSET INVESTMENT CORP.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

(Unaudited)

 

 

 

June 30, 2022

 

 

December 31, 2021

 

ASSETS

 

 

 

 

 

 

Cash and cash equivalents (includes $247 and $2,118, respectively, from
  consolidated VIEs)

 

$

9,575

 

 

$

20,543

 

Restricted cash

 

 

1,270

 

 

 

1,132

 

Restricted cash of consolidated VIEs

 

 

4,649

 

 

 

111

 

Sold securities receivable

 

 

 

 

 

28,219

 

Agency mortgage-backed securities, at fair value

 

 

382,357

 

 

 

483,927

 

MSR financing receivables, at fair value

 

 

120,260

 

 

 

125,018

 

Credit securities, at fair value

 

 

113,419

 

 

 

26,222

 

Mortgage loans, at fair value

 

 

29,484

 

 

 

29,697

 

Mortgage loans of consolidated VIEs, at fair value

 

 

225,004

 

 

 

7,442

 

Single-family residential real estate (net of $326 and $299, respectively, of
  accumulated depreciation)

 

 

68,190

 

 

 

60,889

 

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

 

 

112,979

 

 

 

 

Deposits

 

 

4,623

 

 

 

4,549

 

Other assets (includes $1,401 and $547, respectively, from consolidated VIEs)

 

 

12,945

 

 

 

15,287

 

Total assets

 

$

1,084,755

 

 

$

803,036

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

Repurchase agreements

 

$

329,994

 

 

$

446,624

 

Purchased securities payable

 

 

114,410

 

 

 

 

Secured debt of consolidated VIEs, at fair value

 

 

205,497

 

 

 

508

 

Long-term unsecured debt

 

 

86,199

 

 

 

85,994

 

Long-term debt secured by single-family properties

 

 

122,770

 

 

 

39,178

 

Other liabilities (includes $275 and $2, respectively, from consolidated VIEs)

 

 

12,187

 

 

 

6,605

 

Total liabilities

 

 

871,057

 

 

 

578,909

 

Commitments and contingencies

 

 

 

 

 

 

Stockholders’ Equity:

 

 

 

 

 

 

Series B Preferred stock, $0.01 par value, 379,668 and 373,610, shares issued
   and outstanding, respectively (liquidation preference of $
9,492 and $9,340,
   respectively)

 

 

9,001

 

 

 

8,852

 

Series C Preferred stock, $0.01 par value, 1,044,671 and 1,117,034, shares issued
   and outstanding, respectively (liquidation preference of $
26,117 and $27,926,
   respectively)

 

 

25,607

 

 

 

27,356

 

Class A common stock, $0.01 par value, 450,000,000 shares authorized, 29,112,374
   and
30,676,931 shares issued and outstanding, respectively

 

 

291

 

 

 

307

 

Additional paid-in capital

 

 

2,025,345

 

 

 

2,030,315

 

Accumulated deficit

 

 

(1,846,546

)

 

 

(1,842,703

)

Total stockholders’ equity

 

 

213,698

 

 

 

224,127

 

Total liabilities and stockholders’ equity

 

$

1,084,755

 

 

$

803,036

 

 

 

 

 

 

 

 

 

 

June 30, 2022

 

 

December 31, 2021

 

Assets and liabilities of consolidated VIEs

 

 

 

 

 

 

Cash and restricted cash

 

$

4,896

 

 

$

2,229

 

Mortgage loans, at fair value

 

 

225,004

 

 

 

7,442

 

Other assets

 

 

1,401

 

 

 

547

 

Secured debt, at fair value

 

 

(205,497

)

 

 

(508

)

Other liabilities

 

 

(275

)

 

 

(2

)

Net investment in consolidated VIEs

 

$

25,529

 

 

$

9,708

 

 

See notes to consolidated financial statements.

1


 

ARLINGTON ASSET INVESTMENT CORP.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in thousands, except per share data)

(Unaudited)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Interest income

 

 

 

 

 

 

 

 

 

 

 

 

MSR financing receivables

 

$

3,983

 

 

$

1,390

 

 

$

7,365

 

 

$

1,748

 

Agency mortgage-backed securities

 

 

2,065

 

 

 

2,984

 

 

 

3,557

 

 

 

5,768

 

Credit securities and loans

 

 

991

 

 

 

1,770

 

 

 

1,844

 

 

 

3,039

 

Mortgage loans of consolidated VIEs

 

 

1,611

 

 

 

776

 

 

 

2,965

 

 

 

2,463

 

Other

 

 

113

 

 

 

125

 

 

 

438

 

 

 

286

 

Total interest and other income

 

 

8,763

 

 

 

7,045

 

 

 

16,169

 

 

 

13,304

 

Rent revenues from single-family properties

 

 

2,137

 

 

 

 

 

 

3,201

 

 

 

 

Interest expense

 

 

 

 

 

 

 

 

 

 

 

 

Repurchase agreements

 

 

763

 

 

 

403

 

 

 

1,039

 

 

 

891

 

Long-term debt secured by single-family properties

 

 

718

 

 

 

 

 

 

1,126

 

 

 

 

Long-term unsecured debt

 

 

1,400

 

 

 

1,150

 

 

 

2,770

 

 

 

2,301

 

Secured debt of consolidated VIEs

 

 

1,578

 

 

 

405

 

 

 

2,766

 

 

 

1,267

 

Total interest expense

 

 

4,459

 

 

 

1,958

 

 

 

7,701

 

 

 

4,459

 

Single-family property operating expenses

 

 

1,915

 

 

 

 

 

 

3,446

 

 

 

 

Net operating income

 

 

4,526

 

 

 

5,087

 

 

 

8,223

 

 

 

8,845

 

Investment and derivative gain (loss), net

 

 

370

 

 

 

(9,032

)

 

 

(457

)

 

 

(15,795

)

General and administrative expenses

 

 

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

 

2,324

 

 

 

1,841

 

 

 

4,389

 

 

 

3,236

 

Other general and administrative expenses

 

 

1,463

 

 

 

1,349

 

 

 

2,682

 

 

 

2,591

 

Total general and administrative expenses

 

 

3,787

 

 

 

3,190

 

 

 

7,071

 

 

 

5,827

 

Income (loss) before income taxes

 

 

1,109

 

 

 

(7,135

)

 

 

695

 

 

 

(12,777

)

Income tax provision (benefit)

 

 

802

 

 

 

(76

)

 

 

3,089

 

 

 

322

 

Net income (loss)

 

 

307

 

 

 

(7,059

)

 

 

(2,394

)

 

 

(13,099

)

Dividend on preferred stock

 

 

(707

)

 

 

(723

)

 

 

(1,449

)

 

 

(1,446

)

Net loss attributable to common stock

 

$

(400

)

 

$

(7,782

)

 

$

(3,843

)

 

$

(14,545

)

Basic loss per common share

 

$

(0.01

)

 

$

(0.24

)

 

$

(0.13

)

 

$

(0.44

)

Diluted loss per common share

 

$

(0.01

)

 

$

(0.24

)

 

$

(0.13

)

 

$

(0.44

)

Weighted-average common shares outstanding
  (in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

28,766

 

 

 

33,066

 

 

 

29,296

 

 

 

33,123

 

Diluted

 

 

28,766

 

 

 

33,066

 

 

 

29,296

 

 

 

33,123

 

 

See notes to consolidated financial statements.

2


 

ARLINGTON ASSET INVESTMENT CORP.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Dollars in thousands)

(Unaudited)

 

 

 

Series B
Preferred
Stock
(#)

 

 

Series B
Preferred
Amount
($)

 

 

Series C
Preferred
Stock
(#)

 

 

Series C
Preferred
Amount
($)

 

 

Class A
Common
Stock
(#)

 

 

Class A
Amount
($)

 

 

Additional
Paid-In
Capital

 

 

Accumulated
Deficit

 

 

Total

 

Balances, December 31, 2020

 

 

336,273

 

 

$

7,933

 

 

 

1,117,034

 

 

$

27,356

 

 

 

33,517,018

 

 

$

335

 

 

$

2,040,918

 

 

$

(1,830,272

)

 

$

246,270

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,040

)

 

 

(6,040

)

Issuance of Class A common
  stock under stock-based
  compensation plans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

101,818

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

Repurchase of Class A
  common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(137,655

)

 

 

(1

)

 

 

(522

)

 

 

 

 

 

(523

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

503

 

 

 

 

 

 

503

 

Dividends declared

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(723

)

 

 

(723

)

Balances, March 31, 2021

 

 

336,273

 

 

$

7,933

 

 

 

1,117,034

 

 

$

27,356

 

 

 

33,481,181

 

 

$

335

 

 

$

2,040,898

 

 

$

(1,837,035

)

 

$

239,487

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,059

)

 

 

(7,059

)

Issuance of Class A common
  stock under stock-based
  compensation plans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

76,592

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

Forfeiture of Class A common
  stock under stock-based
  compensation plans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(22,000

)

 

 

 

 

 

 

 

 

 

 

 

 

Repurchase of Class A
  common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(855,835

)

 

 

(9

)

 

 

(3,481

)