ARLINGTON, Va., April 25, 2017 /PRNewswire/ -- Arlington
Asset Investment Corp. (NYSE: AI) (the "Company" or "Arlington") today reported net income of
$5.3 million, or $0.22 per diluted share, and non-GAAP core
operating income of $14.2 million, or
$0.60 per diluted share, for the
quarter ended March 31, 2017. A
reconciliation of non-GAAP core operating income to GAAP net income
(loss) before income taxes appears at the end of this press
release.
First Quarter 2017 Financial Highlights
- $0.22 per diluted share of GAAP
net income
- $0.60 per diluted share of
non-GAAP core operating income
- $15.83 per share of book
value
- $13.08 per share of tangible book
value
- $0.625 per share dividend
"The Company generated positive results for the quarter," said
J. Rock Tonkel, Jr., the Company's
President and Chief Executive Officer. "Despite volatility in
the mortgage sector during the quarter, rates ended about flat and
tangible book value was generally unchanged from year-end.
Cash returns continued to be strong with an annualized return on
tangible equity from core operating income of 18%. Earnings
for the quarter benefited from lower prepayment speeds due to both
normal seasonal factors and the sharp increase in rates following
the U.S. Presidential election. However, the benefit to
earnings of lower prepayments speeds was offset by higher cost of
funding driven by Federal Reserve rate increases, a larger average
interest rate hedge position, and lower investment balances at the
beginning of the quarter. Overall, hedged agency investment
returns continue to remain attractive, while dampened somewhat from
recent levels by increases in short-term funding costs. The
Company remains committed to generating a resilient stream of
consistent spread income to support dividends in a tax advantaged
manner to its shareholders."
Other First Quarter Highlights
As of March 31, 2017, the
Company's agency MBS investment portfolio totaled $4,864 million in fair value, consisting of
$4,391 million of specified agency
mortgage-backed securities ("MBS") and $473
million of net long to-be-announced ("TBA") agency
MBS. As of March 31, 2017, the
Company's $4,864 million agency MBS
investment portfolio was comprised of the following:
- $1,889 million of 3.5% coupon
30-year agency MBS
- $2,975 million of 4.0% coupon
30-year agency MBS and TBA agency MBS
As of March 31, 2017, the
Company's $4,391 million specified
agency MBS portfolio had a weighted average amortized cost basis of
$105.48 and a weighted average market
price of $104.30. The Company's
fixed-rate agency MBS are comprised of securities backed by
specified pools of mortgage loans selected for their lower
propensity for prepayment. Weighted average pay-up premiums
on the Company's agency MBS portfolio, which represent the
estimated price premium of agency MBS backed by specified pools
over a generic TBA agency MBS, were almost one-half a percentage
point as of March 31, 2017,
relatively unchanged from December
31, 2016.
As of March 31, 2017, the
Company's net long TBA agency MBS investment portfolio had a
purchase price of $469 million and
market value of $473 million,
resulting in a net GAAP carrying fair value of $4 million. Under GAAP, the gross fair
value of the agency MBS underlying the Company's TBA commitments is
not recognized on the balance sheet as the Company accounts for its
TBA commitments as derivative instruments.
As of March 31, 2017, the Company
had $4,242 million of repurchase
agreements outstanding with a weighted average rate of 1.03% and
remaining weighted average maturity of 12 days secured by an
aggregate of $4,497 million of agency
MBS at fair value.
Interest income less interest expense on short-term financing on
the Company's agency MBS portfolio was $21.4
million for the first quarter of 2017 compared to
$16.8 million for the fourth quarter
of 2016, including the amortization of the Company's net premium on
its agency MBS of $7.4 million for
the first quarter of 2017 compared to $9.4
million for the fourth quarter of 2016. The Company's
weighted average yield on its agency MBS was 2.85% for the first
quarter of 2017 compared to 2.55% for the fourth quarter of 2016,
and the actual weighted-average constant prepayment rate ("CPR")
for the Company's agency MBS was 8.17% for the first quarter of
2017 compared to 12.90% for the fourth quarter of 2016.
The Company reported TBA dollar roll income of $3.4 million for the first quarter of 2017
compared to $6.4 million for the
fourth quarter of 2016. TBA dollar roll income is considered
the economic equivalent of investing in agency MBS financed with a
repurchase agreement and is calculated as the price discount of a
forward-settling purchase of a TBA agency MBS relative to the
"spot" sale of the same security. Under GAAP, the
Company accounts for its TBA commitments as derivative instruments
and recognizes income from TBA dollar rolls as a component of net
investment gains and losses in the Company's financial
statements.
The Company enters into various hedging transactions to mitigate
the interest rate sensitivity of its cost of borrowing and the
value of its agency MBS portfolio including interest rate swap
agreements and put and call options on 10-year U.S. Treasury note
futures.
Under the terms of the Company's interest rate swap agreements,
the Company pays semiannual interest payments based on a fixed rate
and receives quarterly variable interest payments based upon the
prevailing three-month London Interbank Offered Rate ("LIBOR") on
the date of reset. As of March 31,
2017, the Company had $1,100
million in notional amount of interest rate swap agreements
maturing in less than 3 years with a weighted average pay fixed
rate of 1.24% and a remaining weighted average maturity of 2.0
years, $125 million in notional
amount of interest rate swap agreements maturing between 3 to 7
years with a weighted average pay fixed rate of 2.09% and weighted
average maturity of 4.8 years, and $2,000
million in notional amount of interest rate swap agreements
maturing between 7 to 10 years with a weighted average pay fixed
rate of 2.01% and a remaining weighted average maturity of 9.1
years. In addition, the Company had $375 million in notional amount of forward
starting two-year interest rate swap agreements that become
effective in September and October of 2017 with a weighted average
pay fixed rate of 1.13%.
In addition to interest rate swap agreements, the Company also
had a series of contracts whereby the Company either purchased or
sold put and call options on 10-year U.S. Treasury note futures to
mitigate the interest rate sensitivity of the value of its
fixed-rate agency MBS portfolio. As of March 31, 2017, the Company purchased contracts
that provide the Company with the option to put 10-year U.S.
Treasury note futures to a counterparty with an equivalent notional
amount of $700 million that were
struck at a weighted average strike price per contract that equates
to a 10-year U.S. Treasury rate of approximately 2.63%, and sold
contracts that provide a counterparty the option to call 10-year
U.S. Treasury note futures from the Company with an equivalent
notional amount of $350 million that
were struck at a weighted average strike price per contract that
equates to a 10-year U.S. Treasury rate of approximately
2.35%. In order to limit its exposure on the sold call
options from a significant fall in long-term interest rates, the
Company also purchased contracts that provide the Company with the
option to call 10-year U.S. Treasury note futures from a
counterparty with an equivalent notional amount of $350 million as of March
31, 2017 that were struck at a weighted average strike price
per contract that equates to a 10-year U.S. Treasury rate of
approximately 2.10%.
As of March 31, 2017, the
Company's private-label MBS portfolio consisted of $1.3 million at fair value. Interest income
less interest expense on short-term financing on the Company's
private-label MBS portfolio was $37
thousand for the first quarter of 2017 compared to
$0.5 million for the fourth quarter
of 2016.
During the first quarter of 2017, the Company recorded net
investment losses on its investment portfolio, inclusive of TBA
derivative positions, of $0.9 million
and net investment losses on its related interest rate derivative
hedging instruments of $0.9 million
for a net investment loss on its hedged investment portfolio of
$1.8 million. Excluding TBA
dollar roll income and interest rate swap net interest expense
included in non-GAAP core operating income, the Company had net
investment losses on its investment portfolio of $4.3 million and net investment gains on its
related interest rate derivative hedging instruments of
$4.5 million for a net investment
gain on its hedged investment portfolio of $0.2 million, or $0.01 per share.
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 March 31, 2017,
the Company's estimated net operating loss carry-forward was
$85.1 million that begins to expire
in 2027 and its estimated net capital loss carry-forward was
$320.0 million that begins to expire
in 2019. The Company's estimated net operating and net
capital loss carry-forwards as of March 31,
2017 are subject to potential adjustments up to the time of
filing the Company's income tax returns. For GAAP accounting
purposes, as of March 31, 2017 the
Company had a deferred tax asset of $65.1
million, or $2.75 per share,
which reflects a substantial valuation allowance against its net
capital loss carry-forwards. During the first quarter of
2017, the Company recorded an increase in the valuation allowance
of $3.1 million, or $0.13 per diluted share.
Distributions to Shareholders
The Company's Board of Directors approved a distribution to
common shareholders of $0.625 per
share for the first quarter of 2017. The distribution will be
paid on April 28, 2017 to
shareholders of record as of March 31,
2017.
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% maximum 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% maximum federal tax rate, inclusive of the 3.8%
Medicare tax rate, on ordinary income. 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, April 26,
2017 to discuss the Company's first quarter 2017 results.
Investors may listen to the earnings call via the internet
at:
http://www.arlingtonasset.com/index.php?s=19.
Replays of the earnings call will be available for 60 days via
webcast at the Internet address provided above, beginning two hours
after the call ends.
Additional Information
The Company will make available additional quarterly information
for the benefit of its shareholders through a supplemental
presentation that will be available at the Company's website,
www.arlingtonasset.com. The presentation will be
available on the Webcasts and Presentations section located under
the Updates & Events tab of the Company's website.
About the Company
Arlington Asset Investment Corp. (NYSE: AI) 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, 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 the Company's 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,
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, 2016 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)
|
|
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
15,775
|
|
|
$
|
54,794
|
|
Interest receivable
|
|
|
13,723
|
|
|
|
11,646
|
|
Sold securities receivable
|
|
|
160,431
|
|
|
|
—
|
|
Mortgage-backed securities, at fair
value
|
|
|
|
|
|
|
|
|
Agency
|
|
|
4,391,274
|
|
|
|
3,911,375
|
|
Private-label
|
|
|
1,292
|
|
|
|
1,266
|
|
Derivative assets, at fair value
|
|
|
5,546
|
|
|
|
74,889
|
|
Deferred tax assets, net
|
|
|
65,149
|
|
|
|
73,432
|
|
Deposits, net
|
|
|
63,782
|
|
|
|
11,149
|
|
Other assets
|
|
|
3,520
|
|
|
|
3,003
|
|
Total assets
|
|
$
|
4,720,492
|
|
|
$
|
4,141,554
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Repurchase agreements
|
|
$
|
4,241,855
|
|
|
$
|
3,649,102
|
|
Interest payable
|
|
|
2,415
|
|
|
|
3,434
|
|
Accrued compensation and benefits
|
|
|
1,589
|
|
|
|
5,406
|
|
Dividend payable
|
|
|
15,964
|
|
|
|
15,739
|
|
Derivative liabilities, at fair
value
|
|
|
6,096
|
|
|
|
9,554
|
|
Other liabilities
|
|
|
4,380
|
|
|
|
1,247
|
|
Long-term unsecured debt
|
|
|
73,712
|
|
|
|
73,656
|
|
Total liabilities
|
|
|
4,346,011
|
|
|
|
3,758,138
|
|
Equity:
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
236
|
|
|
|
236
|
|
Additional paid-in capital
|
|
|
1,911,194
|
|
|
|
1,910,284
|
|
Accumulated deficit
|
|
|
(1,536,949)
|
|
|
|
(1,527,104)
|
|
Total equity
|
|
|
374,481
|
|
|
|
383,416
|
|
Total liabilities and equity
|
|
$
|
4,720,492
|
|
|
$
|
4,141,554
|
|
Book value per share
|
|
$
|
15.83
|
|
|
$
|
16.21
|
|
Tangible book value per share
(1)
|
|
$
|
13.08
|
|
|
$
|
13.11
|
|
Shares outstanding (in thousands)
(2)
|
|
|
23,652
|
|
|
|
23,651
|
|
|
|
|
|
|
|
|
|
|
(1) Tangible book value represents total
stockholders' equity less net deferred tax
assets.
|
|
|
|
|
|
|
|
|
|
|
(2) 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)
(Unaudited)
|
|
|
Three Months Ended
|
|
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
|
September 30, 2016
|
|
|
June 30, 2016
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency mortgage-backed securities
|
|
$
|
30,286
|
|
|
$
|
24,073
|
|
|
$
|
23,917
|
|
|
$
|
23,408
|
|
Private-label mortgage-backed
securities
|
|
|
37
|
|
|
|
473
|
|
|
|
1,655
|
|
|
|
2,808
|
|
Other
|
|
|
20
|
|
|
|
31
|
|
|
|
82
|
|
|
|
135
|
|
Total interest income
|
|
|
30,343
|
|
|
|
24,577
|
|
|
|
25,654
|
|
|
|
26,351
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term secured debt
|
|
|
8,859
|
|
|
|
7,231
|
|
|
|
6,193
|
|
|
|
5,509
|
|
Long-term unsecured debt
|
|
|
1,207
|
|
|
|
1,205
|
|
|
|
1,197
|
|
|
|
1,194
|
|
Total interest expense
|
|
|
10,066
|
|
|
|
8,436
|
|
|
|
7,390
|
|
|
|
6,703
|
|
Net interest income
|
|
|
20,277
|
|
|
|
16,141
|
|
|
|
18,264
|
|
|
|
19,648
|
|
Investment (loss) gain, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized gain (loss) on sale of
available-for-sale investments,
net
|
|
|
—
|
|
|
|
2,931
|
|
|
|
2,439
|
|
|
|
(593)
|
|
Other-than-temporary impairment
charges
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,638)
|
|
(Loss) gain on trading investments,
net
|
|
|
(4,219)
|
|
|
|
(122,332)
|
|
|
|
2,468
|
|
|
|
27,665
|
|
Gain (loss) from derivative instruments,
net
|
|
|
2,305
|
|
|
|
88,285
|
|
|
|
15,196
|
|
|
|
(34,381)
|
|
Other, net
|
|
|
152
|
|
|
|
(87)
|
|
|
|
619
|
|
|
|
—
|
|
Total investment (loss) gain, net
|
|
|
(1,762)
|
|
|
|
(31,203)
|
|
|
|
20,722
|
|
|
|
(8,947)
|
|
General and administrative
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and benefits
|
|
|
3,445
|
|
|
|
2,776
|
|
|
|
3,430
|
|
|
|
2,756
|
|
Other general and administrative
expenses
|
|
|
1,480
|
|
|
|
1,343
|
|
|
|
1,200
|
|
|
|
4,916
|
|
Total general and administrative
expenses
|
|
|
4,925
|
|
|
|
4,119
|
|
|
|
4,630
|
|
|
|
7,672
|
|
Income (loss) before income
taxes
|
|
|
13,590
|
|
|
|
(19,181)
|
|
|
|
34,356
|
|
|
|
3,029
|
|
Income tax provision (benefit)
|
|
|
8,336
|
|
|
|
22,255
|
|
|
|
15,543
|
|
|
|
(9,865)
|
|
Net income (loss)
|
|
$
|
5,254
|
|
|
$
|
(41,436)
|
|
|
$
|
18,813
|
|
|
$
|
12,894
|
|
Basic earnings (loss) per share
|
|
$
|
0.22
|
|
|
$
|
(1.79)
|
|
|
$
|
0.82
|
|
|
$
|
0.56
|
|
Diluted earnings (loss) per share
|
|
$
|
0.22
|
|
|
$
|
(1.79)
|
|
|
$
|
0.81
|
|
|
$
|
0.56
|
|
Weighted average shares outstanding (in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
23,652
|
|
|
|
23,167
|
|
|
|
23,038
|
|
|
|
23,003
|
|
Diluted
|
|
|
23,897
|
|
|
|
23,167
|
|
|
|
23,349
|
|
|
|
23,070
|
|
Other comprehensive income (loss), net of
taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized losses on available-for-sale
securities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(221)
|
|
|
$
|
(1,006)
|
|
Reclassification in investment (loss) gain, net,
related to sales and other-than-temporary impairment
charges on available-for-sale securities
|
|
|
—
|
|
|
|
(4,685)
|
|
|
|
(2,324)
|
|
|
|
775
|
|
Comprehensive income (loss)
|
|
$
|
5,254
|
|
|
$
|
(46,121)
|
|
|
$
|
16,268
|
|
|
$
|
12,663
|
|
The following tables present information on the Company's
investment and hedge portfolio as of March
31, 2017 (unaudited, dollars in thousands):
Agency
MBS:
|
|
|
|
|
|
Fair Value
|
|
Specified agency MBS
|
|
$
|
4,391,274
|
|
Net long agency TBA position
|
|
|
472,430
|
|
Total
|
|
$
|
4,863,704
|
|
Specified Agency
MBS:
|
|
|
|
Unpaid
Principal Balance
|
|
|
Net Unamortized Purchase
Premiums
|
|
|
Amortized
Cost Basis
|
|
|
Net Unrealized Gain (Loss)
|
|
|
Fair Value
|
|
|
Market
Price
|
|
|
Coupon
|
|
|
Weighted Average Expected Remaining
Life
|
|
30-year fixed rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.5%
|
|
$
|
1,841,121
|
|
|
$
|
91,748
|
|
|
$
|
1,932,869
|
|
|
$
|
(43,615)
|
|
|
$
|
1,889,254
|
|
|
$
|
102.61
|
|
|
|
3.50%
|
|
|
|
8.2
|
|
4.0%
|
|
|
2,369,023
|
|
|
|
138,860
|
|
|
|
2,507,883
|
|
|
|
(5,886)
|
|
|
|
2,501,997
|
|
|
|
105.61
|
|
|
|
4.00%
|
|
|
|
7.3
|
|
5.5%
|
|
|
20
|
|
|
|
—
|
|
|
|
20
|
|
|
|
3
|
|
|
|
23
|
|
|
|
111.95
|
|
|
|
5.50%
|
|
|
|
5.8
|
|
Total/weighted-average
|
|
$
|
4,210,164
|
|
|
$
|
230,608
|
|
|
$
|
4,440,772
|
|
|
$
|
(49,498)
|
|
|
$
|
4,391,274
|
|
|
|
104.30
|
|
|
|
3.78%
|
|
|
|
7.7
|
|
Net Long Agency
TBA Positions:
|
|
|
|
Notional Amount:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Long (Short)
Position
|
|
|
Implied Cost
Basis
|
|
|
Implied
Fair Value
|
|
|
Net Carrying
Amount
|
|
30-year 4.0% coupon purchase
commitments
|
|
$
|
500,000
|
|
|
$
|
521,012
|
|
|
$
|
524,922
|
|
|
$
|
3,910
|
|
30-year 4.0% coupon sale
commitments
|
|
|
(50,000)
|
|
|
|
(52,400)
|
|
|
|
(52,492)
|
|
|
|
(92)
|
|
Total dollar roll positions, net
|
|
$
|
450,000
|
|
|
$
|
468,612
|
|
|
$
|
472,430
|
|
|
$
|
3,818
|
|
Interest Rate
Swaps Currently Effective:
|
|
|
|
|
|
|
|
Weighted-average:
|
|
|
|
|
|
|
|
Notional Amount
|
|
|
Fixed
Pay Rate
|
|
|
Variable
Receive Rate
|
|
|
Net Pay Rate
|
|
|
Remaining
Life (Years)
|
|
|
Fair Value
|
|
Years to maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 3 years
|
|
$
|
1,100,000
|
|
|
|
1.24%
|
|
|
|
1.10%
|
|
|
|
0.14%
|
|
|
|
2.0
|
|
|
$
|
(322)
|
|
3 to less than 7 years
|
|
|
125,000
|
|
|
|
2.09%
|
|
|
|
1.15%
|
|
|
|
0.94%
|
|
|
|
4.8
|
|
|
|
(117)
|
|
7 to 10 years
|
|
|
2,000,000
|
|
|
|
2.01%
|
|
|
|
1.09%
|
|
|
|
0.92%
|
|
|
|
9.1
|
|
|
|
(3,709)
|
|
Total / weighted-average
|
|
$
|
3,225,000
|
|
|
|
1.75%
|
|
|
|
1.10%
|
|
|
|
0.65%
|
|
|
|
6.6
|
|
|
$
|
(4,148)
|
|
Forward-Starting
Interest Rate Swaps:
|
|
|
|
|
|
|
|
Weighted-average:
|
|
|
|
|
|
|
|
Notional Amount
|
|
|
Fixed
Pay Rate
|
|
|
Term After Effective
Date (Years)
|
|
|
Fair Value
|
|
Effective in September / October
2017
|
|
$
|
375,000
|
|
|
|
1.13%
|
|
|
|
2.0
|
|
|
$
|
(166)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options on 10-year
U.S. Treasury Note Futures:
|
|
|
|
Notional Amount
Long/(Short)
|
|
|
Weighted-average
Strike Price
|
|
|
Implied Strike
Rate (1)
|
|
|
Net Fair Value
|
|
Purchased put options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 2017 expiration
|
|
$
|
700,000
|
|
|
|
122.5
|
|
|
|
2.63%
|
|
|
$
|
1,531
|
|
Sold call options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 2017 expiration
|
|
$
|
(250,000)
|
|
|
|
124.5
|
|
|
|
2.40%
|
|
|
$
|
(1,289)
|
|
May 2017 expiration
|
|
|
(100,000)
|
|
|
|
126.0
|
|
|
|
2.22%
|
|
|
|
(390)
|
|
Total / weighted average for sold call
options
|
|
$
|
(350,000)
|
|
|
|
124.9
|
|
|
|
2.35%
|
|
|
$
|
(1,679)
|
|
Purchased call options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 2017 expiration
|
|
$
|
350,000
|
|
|
|
127.1
|
|
|
|
2.10%
|
|
|
$
|
94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(54)
|
|
|
(1) The implied strike
rate is estimated based upon the weighted average strike price per
option contract and the price of an equivalent U.S. Treasury note
futures contract.
|
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" less "core general and
administrative expenses."
Economic Net Interest Income
Economic net interest income, a non-GAAP financial measure,
represents the interest income earned net of interest expense
incurred from all of our interest bearing financial instruments as
well as agency MBS which underlie, and are implicitly financed
through, our TBA dollar roll transactions. Economic net
interest income is comprised of the following:
- net interest income determined in accordance with GAAP;
- TBA agency MBS dollar roll income, which is calculated as the
price discount of a forward-settling purchase of a TBA agency MBS
relative to the "spot" sale of the same security, earned ratably
over the period beginning on the settlement date of the sale and
ending on the settlement date of the forward-settling purchase;
and
- net interest income or expense incurred from interest rate swap
agreements.
In the Company's consolidated statements of comprehensive income
prepared in accordance with GAAP, TBA agency MBS dollar roll income
and the net interest income or expense incurred from interest rate
swap agreements are reported as a component of the overall periodic
change in the fair value of derivative instruments within the line
item "gain (loss) from derivative instruments, net" of the
"investment gain (loss), net" section. We believe that economic net
interest income assists investors in understanding and evaluating
the financial performance of the Company's long-term-focused, net
interest spread-based investment strategy, prior to the deduction
of core general and administrative expenses.
Core General and Administrative Expenses
Core general and administrative expenses are non-interest
expenses reported within the line item "total general and
administrative expenses" of the consolidated statements of
comprehensive income less stock-based compensation expense.
For the first and second quarters of 2016, core general and
administrative expenses also exclude non-recurring expenses related
to the 2016 proxy contest that are in excess of those normally
incurred for an annual meeting of shareholders.
Non-GAAP Core Operating Income Results
The following table presents the Company's computation of core
operating income for the last four fiscal quarters (unaudited,
amounts in thousands, except per share amounts):
|
Three Months Ended
|
|
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
|
September 30, 2016
|
|
|
June 30, 2016
|
|
GAAP net interest income
|
|
$
|
20,277
|
|
|
$
|
16,141
|
|
|
$
|
18,264
|
|
|
$
|
19,648
|
|
TBA dollar roll income
|
|
|
3,398
|
|
|
|
6,426
|
|
|
|
5,321
|
|
|
|
3,719
|
|
Interest rate swap net interest
expense
|
|
|
(5,409)
|
|
|
|
(4,326)
|
|
|
|
(5,126)
|
|
|
|
(4,376)
|
|
Economic net interest income
|
|
|
18,266
|
|
|
|
18,241
|
|
|
|
18,459
|
|
|
|
18,991
|
|
Core and general administrative
expenses
|
|
|
(4,024)
|
|
|
|
(3,326)
|
|
|
|
(3,612)
|
|
|
|
(3,444)
|
|
Non-GAAP core operating income
|
|
$
|
14,242
|
|
|
$
|
14,915
|
|
|
$
|
14,847
|
|
|
$
|
15,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP core operating income per
diluted share
|
|
$
|
0.60
|
|
|
$
|
0.64
|
|
|
$
|
0.64
|
|
|
$
|
0.67
|
|
Weighted average diluted shares
outstanding
|
|
|
23,897
|
|
|
|
23,343
|
|
|
|
23,349
|
|
|
|
23,070
|
|
The following table provides a reconciliation of GAAP pre-tax
net income (loss) to non-GAAP core operating income for the last
four fiscal quarters (unaudited, amounts in thousands):
|
Three Months Ended
|
|
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
|
September 30, 2016
|
|
|
June 30, 2016
|
|
GAAP income (loss) before income
taxes
|
|
$
|
13,590
|
|
|
$
|
(19,181)
|
|
|
$
|
34,356
|
|
|
$
|
3,029
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment loss (gain), net
|
|
|
1,762
|
|
|
|
31,203
|
|
|
|
(20,722)
|
|
|
|
8,947
|
|
Stock-based compensation expense
|
|
|
901
|
|
|
|
793
|
|
|
|
1,018
|
|
|
|
647
|
|
Non-recurring proxy contest related
expenses
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,581
|
|
Add back:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TBA dollar roll income
|
|
|
3,398
|
|
|
|
6,426
|
|
|
|
5,321
|
|
|
|
3,719
|
|
Interest rate swap net interest
expense
|
|
|
(5,409)
|
|
|
|
(4,326)
|
|
|
|
(5,126)
|
|
|
|
(4,376)
|
|
Non-GAAP core operating income
|
|
$
|
14,242
|
|
|
$
|
14,915
|
|
|
$
|
14,847
|
|
|
$
|
15,547
|
|
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 stockholders. The Company believes that
non-GAAP core operating income assists investors in understanding
and evaluating the financial performance of the Company's long-term
investment strategy and core business activities over periods of
time as well as its earnings capacity. A limitation of
utilizing this non-GAAP financial measure is that the effect of
accounting for "non-core" events or transactions in accordance with
GAAP does, in fact, reflect the financial results of our business
and these effects should not be ignored when evaluating and
analyzing our financial results. For example, the economic
cost or benefit of hedging instruments other than interest rate
swap agreements, such as U.S. Treasury note futures or options on
U.S. Treasury note futures, do not affect the computation of
non-GAAP core operating income. In addition, the Company's
calculation of non-GAAP core operating income may not be comparable
to other similarly titled measures of other companies.
Therefore, the Company believes that net income and comprehensive
income determined in accordance with GAAP should be considered in
conjunction with non-GAAP core operating income.
To view the original version on PR Newswire,
visit:http://www.prnewswire.com/news-releases/arlington-asset-investment-corp-reports-first-quarter-2017-financial-results-300445564.html
SOURCE Arlington Asset Investment Corp.