ARLINGTON, Va., Feb. 2, 2016 /PRNewswire/ -- Arlington Asset
Investment Corp. (NYSE: AI) (the "Company" or "Arlington") today reported non-GAAP core
operating income of $30.3 million for
the quarter ended December 31, 2015,
or $1.31 per diluted share.
Excluding realized gains and losses on private-label
mortgage-backed securities ("MBS"), the Company reported non-GAAP
core operating income of $31.1
million, or $1.35 per diluted
share. A reconciliation of non-GAAP core operating income
measures to GAAP net income (loss) appears at the end of this press
release.
Fourth Quarter 2015 Financial Highlights
- $1.31 per diluted share of
non-GAAP core operating income
- $1.35 per diluted share of
non-GAAP core operating income excluding gain (loss) on
private-label MBS
- $0.82 per diluted share of net
income
- $0.86 per diluted share of total
comprehensive income
- $21.05 per share of book
value
- $0.625 per share dividend
declared
- Repurchased 48,695 shares of common stock for $0.6 million
- Subsequent to year-end, fully repaid outstanding Federal Home
Loan Bank ("FHLB") advances
Full Year 2015 Financial Highlights
- $5.91 per diluted share of
non-GAAP core operating income
- $5.30 per diluted share of
non-GAAP core operating income excluding gain (loss) on
private-label MBS
- $(3.02) per diluted share of net
loss
- $(4.04) per diluted share of
total comprehensive loss
- $3.00 per share dividend
declared
"Less volatile market conditions and lower prepayment speeds in
Arlington's agency MBS portfolio
during the fourth quarter contributed to an improvement in the
Company's book value per share at year-end. Arlington's private-label MBS portfolio
continued its steady credit improvement trend and exhibited flat
price performance during the quarter," said J. Rock Tonkel, Jr., the Company's President and
Chief Executive Officer. "Renewed volatility subsequent to
year-end accompanied by declines in global growth expectations,
risk assets and forward interest rates have produced additional
spread widening between the Company's interest rate hedges and its
agency MBS to date this year. Looking forward from today,
Arlington should benefit from
enhanced agency MBS spreads, its flexible allocation to
private-label MBS and tax-advantaged structure, although we remain
cautious given global uncertainty and market conditions. In
addition, our sizeable stock repurchase authorization remains
available to enhance shareholder returns going forward."
Other Fourth Quarter Highlights
As of December 31, 2015, the
Company's agency investment portfolio totaled $4,254.6 million consisting of $3,865.3 million of agency MBS and $389.3 million of net long to-be-announced
("TBA") agency securities. As of December 31, 2015, the Company's $3,865.3 million of fixed-rate agency MBS were
comprised of the following:
- $714.9 million of 3.5% 30-year
MBS
- $3,016.5 million of 4.0% 30-year
MBS
- $133.9 million of 4.5% 30-year
MBS
As of December 31, 2015, the
Company's agency MBS had a weighted average original cost of
$105.85 and a weighted average market
price of $105.84. The Company's
fixed-rate agency MBS were specifically selected for their
prepayment protections with approximately 48% of the Company's
agency MBS portfolio in specified pools of low loan balance loans,
approximately 20% in specified pools of loans issued under the Home
Affordable Refinance Program ("HARP"), while the remainder includes
specified pools of loans originated in certain geographic areas,
loans with low FICO scores or loans with other characteristics
selected for the prepayment protection. Weighted average
pay-up premiums on the Company's agency MBS portfolio, which
represent the estimated price premium of agency MBS backed by
specified pools over a generic TBA agency security, decreased
modestly to approximately 1/2 of a point as of December 31, 2015 compared to approximately 3/5
of a point as of September 30,
2015. The three-month constant prepayment rate ("CPR") for
the Company's agency MBS decreased to 7.15% as of December 31, 2015, compared to 8.16% as of
September 30, 2015.
As of December 31, 2015, the
Company's net long TBA securities had a net notional amount of
$375.0 million, purchase price of
$389.8 million and market value of
$389.3 million resulting in a net
GAAP carrying fair value of $(0.6)
million. The Company accounts for its TBA mortgage
portfolio as derivative instruments and recognizes income from TBA
dollar rolls as a component of net investment gains and losses in
the Company's financial statements. As of December 31, 2015, the Company's $389.3 million of net long TBA securities were
comprised of the following:
- $283.5 million of 3.5% 30-year
MBS
- $105.8 million of 4.0% 30-year
MBS
During the fourth quarter of 2015, the Company modified the
types of instruments it uses to hedge its agency MBS investment
portfolio. The Company closed its Eurodollar and interest
rate swap future contracts and generally replaced them with
centrally cleared interest rate swap agreements and U.S. Treasury
note futures. As of December 31,
2015, the total notional amount of the Company's interest
rate hedges on its agency investment portfolio was $2,835 million comprised of interest rate swap
agreements and U.S. Treasury note futures. The total hedge
notional amount as a percentage of the Company's outstanding
repurchase agreement and FHLB advance financing on its agency MBS
and net long TBA position was 71% as of December 31, 2015 compared to 79% as of
September 30, 2015. As of
December 31, 2015, the Company had
$750 million in notional amount of
two-year interest rate swap agreements with a weighted average pay
fixed rate of 1.04% and a remaining weighted average maturity of
1.9 years and $750 million in
notional amount of 10-year interest rate swap agreements with a
weighted average pay fixed rate of 2.12% and a remaining weighted
average maturity of 9.9 years. As of December 31, 2015, the Company also had
$1,335 million in notional 10-year
U.S. Treasury note futures that were purchased during the fourth
quarter when the 10-year U.S. Treasury note rate was 2.22% on a
weighted average basis and had a market rate of 2.27% as of
December 31, 2015.
Interest income less interest expense on short-term financing on
the Company's agency MBS portfolio for the fourth quarter of 2015
was $31.5 million. The
amortization of net premiums on the Company's agency MBS is
reflected in the Company's GAAP net income and changes in book
value through net investment gains and losses rather than through
net interest income and core operating income. For the
quarter ended December 31, 2015, the
estimated amortization of the Company's net premium on its agency
MBS, if amortized in proportion to the principal payments received
during the period as a percentage of face value at the time of
purchase, would have been approximately $5.9
million, or $0.25 per diluted
share. Beginning in 2016, the Company intends to change its
accounting policy for recognizing interest income on its agency MBS
by amortizing purchase premiums as an adjustment to net interest
income. During the fourth quarter of 2015, the Company
recorded net investment losses on its agency investment portfolio
of $44.9 million and net investment
gains on its related derivative hedging instruments of $39.8 million for a net investment loss on its
hedged agency MBS portfolio of $5.1
million. In recent quarters, the Company's increased
allocation of capital to agency MBS has resulted in growth in the
Company's net interest income and core operating income. With
this growth in the agency MBS portfolio, the economic costs of the
Company's hedge instruments have grown proportionately. The
economic costs of the Company's hedge instruments are reflected in
GAAP net income and changes in book value through net investment
gains and losses rather than through net interest income and core
operating income, with the exception of the net periodic interest
costs of the Company's interest rate swap agreements, which are
reflected in core operating income.
As of December 31, 2015, the
Company's private-label MBS portfolio consisted of $169.8 million in face value with an amortized
cost basis of $114.7 million and a
fair value of $130.4 million.
During the fourth quarter of 2015, the Company sold
private-label MBS for sale proceeds of $5.5
million, realizing a GAAP gain of $0.3 million. Net sale proceeds from these
private-label MBS after deducting associated repurchase financing
was $2.4 million. Interest
income less interest expense on short-term financing on the
Company's private-label MBS portfolio for the fourth quarter of
2015 was $2.7 million, including
non-cash accretion of $1.6 million
required under GAAP.
As of December 31, 2015, the
Company had $2,797.6 million of
repurchase agreements outstanding with a weighted average rate of
61 basis points and $786.9
million of FHLB advances outstanding with a weighted average
rate of 36 basis points secured by an aggregate of $3,751.8 million of agency MBS at fair
value. As of December 31, 2015,
the Company also had $37.2 million of
repurchase agreements outstanding with a weighted average rate of
242 basis points secured by $70.5
million of private-label MBS at fair value.
FHLB Membership and Advances
In September 2015, the Company's
wholly-owned captive insurance subsidiary was granted membership to
the FHLB of Cincinnati. On January 12,
2016, the regulator of the FHLB system, the Federal Housing
Finance Agency ("FHFA"), released a final rule that amends
regulations governing FHLB membership, including preventing captive
insurance companies from being eligible for FHLB membership.
Under the terms of the final rule, the Company's captive insurance
company is required to terminate its membership and repay its
existing advances within one year following the effective date of
the final rule. In addition, the Company's captive insurance
company is prohibited from taking new advances or renewing existing
maturing advances during the one-year transition period. The final
rule becomes effective on February
19, 2016. The Company has repaid all of its
outstanding FHLB advances, funded primarily through repurchase
agreement financing.
Corporate Tax Structure
The Company is subject to taxation as a corporation under
Subchapter C of the Internal Revenue Code of 1986, as
amended. As of December 31,
2015, the Company had $107
million of net operating loss carry-forwards that begin to
expire in 2027 and $241 million of
net capital loss carry-forwards that begin to expire in 2019.
For GAAP accounting purposes, as of December 31, 2015 the Company had a deferred tax
asset of $97.5 million, or
$4.24 per share, which reflects a
partial valuation allowance against its net capital
loss-carryforwards.
Stock Repurchase Program
In October 2015, the Company's
board of directors authorized an increase in the Company's share
repurchase program pursuant to which the Company may repurchase up
to 2.0 million shares of its Class A common stock. During the
fourth quarter, the Company repurchased 48,695 shares at an average
price of $12.15 per share for a total
purchase price of $0.6
million.
Distributions to Shareholders
The Company has announced the tax characteristics of the
distributions paid on its common stock in calendar year 2015. The
Company has determined that all of its cash distributions paid to
shareholders in calendar year 2015 were returns of capital.
Shareholders should receive a Form 1099-DIV containing this
information from their brokers, transfer agents or other
institutions.
The Company's board of directors previously approved a
distribution to common shareholders of $0.625 per share for the fourth quarter of 2015
that was paid on January 29, 2016 to
shareholders of record as of December 31,
2015.
The tax characterization of the Company's distributions to
shareholders is determined annually and reported to shareholders on
Form 1099-DIV after the end of the calendar year. As a
C-corporation, distributions to shareholders of current or
accumulated earnings and profits are qualified dividends eligible
for the 23.8% federal income tax rate whereas similar distributions
to shareholders by a REIT of current or accumulated earnings and
profits are nonqualified dividends subject to the higher 43.4% tax
rate on ordinary income inclusive of the 3.8% Medicare tax.
Any distributions in excess of current or accumulated earnings and
profits would be reported as returns of capital instead of
qualified dividends. Distributions that are classified as
returns of capital are nontaxable to the extent they do not exceed
a shareholder's adjusted tax basis in the Company's stock, or as a
capital gain to the extent that the amount of the distribution
exceeds a shareholder's adjusted tax basis in the Company's
stock.
Conference Call
The Company will hold a conference call for investors
at 9:00 A.M. Eastern Time on Wednesday, February 3,
2016 to discuss the results. Investors wishing to listen
to the earnings call may do so 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 Events tab
of the Company's website.
About the Company
Arlington Asset Investment Corp. (NYSE: AI) is a principal
investment firm that currently invests primarily in
mortgage-related and other assets. The Company is
headquartered in the Washington,
D.C. metropolitan area. For more information, please
visit www.arlingtonasset.com.
Statements concerning interest rates, portfolio allocation,
financing costs, portfolio hedging, prepayments, dividends, book
value, FHLB advances, direct repo, and any other guidance on
present or future periods constitute forward-looking statements
that are subject to a number of factors, risks and uncertainties
that might cause actual results to differ materially from stated
expectations or current circumstances. These factors include,
but are not limited to, changes in interest rates, increased costs
of borrowing, decreased interest spreads, changes in political and
monetary policies, changes in default rates, changes in prepayment
rates, changes in the Company's returns, changes in the use of the
Company's tax benefits, changes in the agency MBS asset yield,
changes in the Company's monetization of net operating loss
carry-forwards, changes in the Company's ability to generate cash
earnings and dividends, preservation and utilization of our net
operating loss and net capital loss carry-forwards, impacts of
changes to 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,
ability to realize book value growth through reflation of
private-label MBS, and general economic, political, regulatory and
market conditions. These and other material risks are
described in the Company's Annual Report on Form 10-K for the year
ended December 31, 2014 and any other
documents filed by the Company with the SEC from time to time,
which are available from the Company and from the SEC, and you
should read and understand these risks when evaluating any
forward-looking statement.
Financial data to follow
ARLINGTON ASSET
INVESTMENT CORP.
|
|
|
|
|
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
(Dollars in
thousands, except per share amounts)
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
December 31,
2015
|
|
September 30,
2015
|
|
December 31,
2014
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
36,987
|
|
$
13,529
|
|
$
33,832
|
Interest
receivable
|
|
11,936
|
|
11,459
|
|
10,701
|
Sold securities
receivable
|
|
-
|
|
28,035
|
|
-
|
Mortgage-backed
securities, at fair value
|
|
|
|
|
|
|
Private-label securities
|
|
130,435
|
|
134,789
|
|
267,437
|
Agency
securities
|
|
3,865,316
|
|
3,790,044
|
|
3,414,340
|
Derivative
assets, at fair value
|
|
12,991
|
|
3,863
|
|
1,267
|
Deferred tax
assets, net
|
|
97,530
|
|
103,319
|
|
125,607
|
Deposits
|
|
29,429
|
|
87,258
|
|
160,427
|
Other
assets
|
|
20,182
|
|
9,938
|
|
4,120
|
Total
assets
|
|
$
4,204,806
|
|
$
4,182,234
|
|
$
4,017,731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
Repurchase
agreements
|
|
$
2,834,780
|
|
$
3,153,756
|
|
$
3,179,775
|
Federal Home
Loan Bank advances
|
|
786,900
|
|
308,500
|
|
-
|
Interest
payable
|
|
2,436
|
|
1,200
|
|
1,106
|
Accrued
compensation and benefits
|
|
5,170
|
|
4,293
|
|
6,067
|
Dividend
payable
|
|
14,504
|
|
14,553
|
|
20,195
|
Derivative
liabilities, at fair value
|
|
553
|
|
53,514
|
|
124,308
|
Purchased
securities payable
|
|
-
|
|
92,107
|
|
-
|
Other
liabilities
|
|
1,132
|
|
1,003
|
|
1,006
|
Long-term
debt
|
|
75,300
|
|
75,300
|
|
40,000
|
Total
liabilities
|
|
3,720,775
|
|
3,704,226
|
|
3,372,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
Common
stock
|
|
230
|
|
230
|
|
230
|
Additional
paid-in capital
|
|
1,898,085
|
|
1,897,472
|
|
1,897,027
|
Accumulated
other comprehensive income, net of taxes
|
|
12,371
|
|
11,334
|
|
35,872
|
Accumulated
deficit
|
|
(1,426,655)
|
|
(1,431,028)
|
|
(1,287,855)
|
Total
equity
|
|
484,031
|
|
478,008
|
|
645,274
|
|
|
|
|
|
|
|
|
Total
liabilities and equity
|
|
$
4,204,806
|
|
$
4,182,234
|
|
$
4,017,731
|
|
|
|
|
|
|
|
|
Book value
per share
|
|
$
21.05
|
|
$
20.75
|
|
$
28.09
|
|
|
|
|
|
|
|
|
Shares
outstanding (in thousands) (1)
|
|
22,994
|
|
23,042
|
|
22,973
|
|
|
|
|
|
|
|
|
(1) Represents shares
of Class A common stock and Class B common stock outstanding plus
vested restricted stock units
|
convertible into
Class A common stock less unvested restricted Class A common
stock.
|
|
|
|
|
|
|
|
|
|
|
ARLINGTON ASSET
INVESTMENT CORP.
|
|
|
|
|
|
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
(Dollars in
thousands, except per share data)
|
Three Months
Ended
|
|
Fiscal Year
Ended
|
(Unaudited)
|
December
31,
|
|
December
31,
|
|
|
2015
|
|
2014
|
|
2015
|
|
2014
|
INTEREST
INCOME
|
|
|
|
|
|
|
|
|
Interest on agency
securities
|
$
35,475
|
|
$
31,297
|
|
$
139,244
|
|
$ 97,900
|
|
Interest on
private-label securities
|
2,880
|
|
5,012
|
|
15,322
|
|
25,597
|
|
Other
|
9
|
|
7
|
|
27
|
|
50
|
|
Total interest
income
|
38,364
|
|
36,316
|
|
154,593
|
|
123,547
|
|
|
|
|
|
|
|
|
|
INTEREST
EXPENSE
|
|
|
|
|
|
|
|
|
Interest on
short-term debt
|
4,237
|
|
2,901
|
|
14,701
|
|
9,181
|
|
Interest on long-term
debt
|
1,184
|
|
553
|
|
4,188
|
|
2,210
|
|
Total interest
expense
|
5,421
|
|
3,454
|
|
18,889
|
|
11,391
|
|
|
|
|
|
|
|
|
|
|
Net interest
income
|
32,943
|
|
32,862
|
|
135,704
|
|
112,156
|
|
|
|
|
|
|
|
|
|
INVESTMENT LOSS,
NET
|
|
|
|
|
|
|
|
|
Realized gain on sale
of available-for-sale investments, net
|
291
|
|
4,431
|
|
17,725
|
|
17,257
|
|
Other-than-temporary
impairment charges
|
(2,417)
|
|
(298)
|
|
(2,417)
|
|
(449)
|
|
(Loss) gain on
trading investments, net
|
(43,383)
|
|
39,723
|
|
(64,388)
|
|
84,152
|
|
Gain (loss) from
derivative instruments, net
|
38,207
|
|
(77,844)
|
|
(105,349)
|
|
(140,353)
|
|
Other, net
|
1,628
|
|
291
|
|
2,050
|
|
706
|
|
Total
investment loss, net
|
(5,674)
|
|
(33,697)
|
|
(152,379)
|
|
(38,687)
|
|
|
|
|
|
|
|
|
|
OTHER
EXPENSES
|
|
|
|
|
|
|
|
|
Compensation and
benefits
|
2,567
|
|
3,326
|
|
9,719
|
|
13,467
|
|
Other operating
expenses
|
1,216
|
|
1,154
|
|
4,448
|
|
4,602
|
|
Total other
expenses
|
3,783
|
|
4,480
|
|
14,167
|
|
18,069
|
|
|
|
|
|
|
|
|
|
Income (loss)
before income taxes
|
23,486
|
|
(5,315)
|
|
(30,842)
|
|
55,400
|
|
|
|
|
|
|
|
|
|
Income tax
provision
|
4,675
|
|
25,651
|
|
38,561
|
|
47,647
|
|
|
|
|
|
|
|
|
|
Net income
(loss)
|
$
18,811
|
|
$
(30,966)
|
|
$
(69,403)
|
|
$
7,753
|
|
|
|
|
|
|
|
|
|
Basic earnings
(loss) per share
|
$
0.82
|
|
$
(1.35)
|
|
$
(3.02)
|
|
$
0.39
|
|
|
|
|
|
|
|
|
|
Diluted earnings
(loss) per share
|
$
0.82
|
|
$
(1.35)
|
|
$
(3.02)
|
|
$
0.38
|
|
|
|
|
|
|
|
|
|
Weighted average
shares outstanding - basic (in thousands)
|
23,034
|
|
22,973
|
|
23,002
|
|
20,043
|
Weighted average
shares outstanding - diluted (in thousands)
|
23,066
|
|
22,973
|
|
23,002
|
|
20,397
|
|
|
|
|
|
|
|
|
|
OTHER
COMPREHENSIVE INCOME (LOSS), NET OF TAXES
|
|
|
|
|
|
|
|
|
Unrealized gains
(losses) on available-for-sale securities (net of taxes
of $(164), $(1,084), $(4,281), and $633, respectively)
|
$ ( 258
)
|
|
$ ( 1,702
)
|
|
$ ( 7,033
)
|
|
$
995
|
|
Reclassification in
investment (loss) gain, net, related to sales and
other-than-temporary impairment charges on available-for-sale
securities (net of tax of $824, $(1,458), $(4,155) and $(5,324),
respectively)
|
1,295
|
|
( 3,116 )
|
|
( 16,468 )
|
|
( 11,392 )
|
Comprehensive
income (loss)
|
$
19,848
|
|
$ ( 35,784 )
|
|
$ ( 92,904 )
|
|
$ ( 2,644 )
|
In addition to the financial results reported in accordance with
generally accepted accounting principles as consistently applied in
the United States ("GAAP"), the
Company calculated non-GAAP core operating income for the three
months and years ended December 31,
2015 and 2014. In determining core operating income,
the Company excludes certain legacy litigation expenses and adjusts
net income determined in accordance with GAAP for the following
non-cash and other items:
- compensation costs associated with stock-based awards;
- non-cash accretion of private-label MBS purchase
discounts;
- private-label MBS purchase discount accretion realized upon
sale or repayment;
- other-than-temporary impairment charges;
- other-than-temporary impairment charges realized upon sale or
repayment;
- both realized and unrealized gains and losses on agency
MBS;
- unrealized gains and losses and early termination net
settlement payments or receipts on interest rate swap
agreements;
- both realized and unrealized gains on losses on all other
derivative instruments; and
- non-cash income tax provisions.
In determining core operating income, the Company includes the
periodic interest costs of its interest rate swap agreements, which
the Company first began to enter into during the fourth quarter of
2015.
The Company's investment strategy for its agency MBS portfolio
is to generate a net interest margin on the leveraged assets and
hedge the market value of the assets, expecting that the
fluctuations in the market value of the agency MBS and related
hedges should largely offset each other over time. As a result, the
Company excludes both the realized and unrealized fluctuations in
the gains and losses in the assets and hedges, except for the
periodic interest costs of interest rate swap agreements, on its
hedged agency MBS portfolio when assessing the underlying core
operating income of the Company. However, the Company's investment
strategy for its private-label MBS portfolio is to generate a total
cash return comprised of both interest income collected and the
cash return realized when the private-label MBS are sold that
equals the difference between the sale price and the discount to
par paid at acquisition. Therefore, the Company excludes non-cash
accretion of private-label MBS purchase discounts from non-GAAP
core operating income, but includes realized cash gains or losses
on its private-label MBS portfolio in core operating income to
reflect the total cash return on those securities over their
holding period. Since the timing of realized cash gains or
losses on private-label MBS may vary significantly between periods,
the Company also reports core operating income excluding gains on
private-label MBS.
These non-GAAP core operating income measurements are used by
management to analyze and assess the Company's operating results on
its portfolio and assist with the determination of the appropriate
level of dividends. The Company believes that these non-GAAP
measurements assist investors in understanding the impact of these
non-core items and non-cash expenses on our performance and
provides additional clarity around our earnings capacity and
trends. A limitation of utilizing this non-GAAP measure is that the
GAAP accounting effects of these events do in fact reflect the
underlying financial results of our business and these effects
should not be ignored in evaluating and analyzing our financial
results. Additional limitations of core operating income are
that it does not include economic financing costs on the Company's
hedging instruments (with the exception of periodic net interest
costs of interest rate swap agreements) or amortization of premiums
or discounts on the Company's agency MBS whereas those amounts are
both reflected in net income determined in accordance with GAAP and
changes in book value. Therefore, the Company believes net
income on a GAAP basis and these core operating income measures on
a non-GAAP basis should be considered together.
The following is a reconciliation of GAAP net income to non-GAAP
core operating income measures for the three months and years ended
December 31, 2015 and 2014 (dollars
in thousands):
ARLINGTON ASSET
INVESTMENT CORP.
|
|
|
|
|
|
|
NON-GAAP CORE
OPERATING INCOME
|
|
|
|
|
|
|
(Dollars in
thousands, except per share data)
|
Three Months
Ended
|
|
Fiscal Year
Ended
|
(Unaudited)
|
December
31,
|
|
December
31,
|
|
|
2015
|
|
2014
|
|
2015
|
|
2014
|
GAAP net income
(loss)
|
$
18,811
|
|
$
(30,966)
|
|
$
(69,403)
|
|
$
7,753
|
Adjustments:
|
|
|
|
|
|
|
|
|
Legacy litigation
expenses
|
-
|
|
-
|
|
-
|
|
54
|
|
Non-cash income tax
provision
|
5,480
|
|
25,254
|
|
37,515
|
|
46,354
|
|
Stock
compensation
|
853
|
|
834
|
|
1,145
|
|
3,814
|
|
Net realized and
unrealized loss on trading MBS and hedge instruments
|
3,879
|
|
38,022
|
|
168,339
|
|
55,830
|
|
Net realized gain on
private-label MBS
|
(291)
|
|
(4,431)
|
|
(17,725)
|
|
(17,257)
|
|
Other-than-temporary
impairment charges
|
2,417
|
|
298
|
|
2,417
|
|
449
|
|
|
|
|
|
|
|
|
|
Non-GAAP core
operating income excluding gain on private-label MBS
|
31,149
|
|
29,011
|
|
122,288
|
|
96,997
|
|
|
|
|
|
|
|
|
|
|
Net realized gain on
private-label MBS
|
291
|
|
4,431
|
|
17,725
|
|
17,257
|
|
Other-than-temporary
impairment charges realized upon sale or repayment
|
-
|
|
( 1,154 )
|
|
( 7,303 )
|
|
( 5,180 )
|
|
Purchase discount
accretion of private-label MBS realized upon sale or
repayment
|
485
|
|
1,453
|
|
12,199
|
|
4,074
|
|
Non-cash interest
income related to purchase discount accretion of private-label
MBS
|
( 1,633 )
|
|
( 2,315 )
|
|
( 8,453 )
|
|
( 12,570 )
|
|
|
|
|
|
|
|
|
|
Non-GAAP core
operating income
|
$
30,292
|
|
$
31,426
|
|
$
136,456
|
|
$ 100,578
|
|
|
|
|
|
|
|
|
|
Non-GAAP core
operating income excluding gain on private-label MBS per diluted
share
|
$
1.35
|
|
$
1.24
|
|
$
5.30
|
|
$
4.76
|
|
|
|
|
|
|
|
|
|
Non-GAAP core
operating income per diluted share
|
$
1.31
|
|
$
1.35
|
|
$
5.91
|
|
$
4.93
|
|
|
|
|
|
|
|
|
|
Weighted average
diluted shares outstanding
|
23,066
|
|
23,316
|
|
23,088
|
|
20,397
|
The following tables present information on the Company's
investment and hedge portfolio as of December 31, 2015 (unaudited, dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Agency
MBS:
|
|
|
|
|
|
|
|
|
|
|
|
Face
Amount
|
|
Fair
Value
|
|
Market
Price
|
|
Coupon
|
|
Weighted
Average Life
|
30-year fixed
rate:
|
|
|
|
|
|
|
|
|
|
|
3.5%
|
$
691,622
|
|
$
714,925
|
|
$
103.37
|
|
3.50%
|
|
7.0
|
|
4.0%
|
2,837,244
|
|
3,016,444
|
|
106.32
|
|
4.00%
|
|
5.5
|
|
4.5%
|
123,010
|
|
133,921
|
|
108.87
|
|
4.50%
|
|
4.6
|
|
5.5%
|
23
|
|
26
|
|
111.77
|
|
5.50%
|
|
5.0
|
|
Total/weighted
average
|
$
3,651,899
|
|
$
3,865,316
|
|
105.84
|
|
3.92%
|
|
5.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net TBA
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
Net Notional
Amount
|
|
Average Net
Contractual
Forward Price
|
|
Average Net
Market Price
|
|
Fair
Value
|
|
|
30-year fixed
rate:
|
|
|
|
|
|
|
|
|
|
|
3.5%
|
$
275,000
|
|
$
283,928
|
|
$
283,469
|
|
$ ( 459
)
|
|
|
|
4.0%
|
100,000
|
|
105,883
|
|
105,789
|
|
( 94 )
|
|
|
|
Total
|
$
375,000
|
|
$
389,811
|
|
$
389,258
|
|
$ ( 553
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private-label
MBS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Face value
|
|
|
$
169,757
|
|
|
|
|
|
|
Discount
|
|
|
$ ( 55,031
)
|
|
|
|
|
|
|
Amortized
cost
|
|
|
$
114,726
|
|
|
|
|
|
|
Net unrealized
gain
|
|
|
$
15,710
|
|
|
|
|
|
|
Fair market
value
|
|
|
$
130,436
|
|
|
|
|
|
|
Fair market value (as
a % of face value)
|
|
76.8%
|
|
|
|
|
|
|
Quarterly GAAP yield
(annualized)
|
|
9.78%
|
|
|
|
|
|
|
Weighted average
coupon
|
|
|
3.03%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private-Label MBS
Loan Collateral Statistics:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60+ days
delinquent
|
|
|
11.9%
|
|
|
|
|
|
|
Credit
enhancement
|
|
|
0.1%
|
|
|
|
|
|
|
Constant default rate
(3-month)
|
|
4.7%
|
|
|
|
|
|
|
Loss severity
(3-month)
|
|
|
32.1%
|
|
|
|
|
|
|
Voluntary prepayment
rate (3-month)
|
|
6.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Rate Swaps:
|
|
|
|
|
|
|
Years to
Maturity
|
|
Notional
Amount
|
|
Average Fixed
Pay
Rate
|
|
Fair
Value
|
|
Average
Remaining
Maturity (Years)
|
|
|
|
|
|
|
|
|
|
Less than 2
years
|
|
$
750,000
|
|
1.04%
|
|
$
1,166
|
|
1.9
|
Greater than 9
years
|
|
750,000
|
|
2.12%
|
|
4,987
|
|
9.9
|
Total/weighted average
|
|
$
1,500,000
|
|
1.58%
|
|
$
6,153
|
|
5.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury Note Futures:
|
|
|
|
|
|
|
|
|
|
|
Notional
Amount
|
|
Fair
Value
|
|
Contract
Maturity
|
|
|
|
|
|
|
|
|
|
|
|
10-year U.S.
Treasury note futures
|
|
$
1,335,000
|
|
$
6,813
|
|
March
2016
|
|
|
To view the original version on PR Newswire,
visit:http://www.prnewswire.com/news-releases/arlington-asset-investment-corp-reports-fourth-quarter-and-full-year-2015-financial-results-300214040.html
SOURCE Arlington Asset Investment Corp.