MCLEAN, Va., Feb. 18, 2020 /PRNewswire/ -- Arlington Asset
Investment Corp. (NYSE: AI) (the "Company" or "Arlington") today reported net income
available to common shareholders of $26.6
million, or $0.72 per diluted
common share, and non-GAAP core operating income of $6.5 million, or $0.18 per diluted common share, for the quarter
ended December 31, 2019. A
reconciliation of non-GAAP core operating income to GAAP net income
(loss) appears at the end of this press release.
Fourth Quarter 2019 Financial Highlights
- $0.72 per diluted common share of
GAAP net income
- $0.18 per diluted common share of
non-GAAP core operating income
- $7.86 per common share of book
value
- $0.225 per common share
dividend
- 10.0% total economic return
-
- Measured as the change in book value per common share plus
declared dividends per common share
Full Year 2019 Financial Highlights
- $0.31 per diluted common share of
GAAP net income
- $0.89 per diluted common share of
non-GAAP core operating income
- $1.05 per common share
dividend
- 2.3% total economic return
"During the fourth quarter, a strong outperformance of agency
mortgage-backed securities ("MBS") relative to interest rate hedges
helped the Company deliver a 10% total economic return for the
quarter and a positive return for the year. The Company's net
spread earnings during the fourth quarter were relatively unchanged
from the prior quarter as the improved funding backdrop from
Federal Reserve rate cuts were generally offset by lower asset
yields," said J. Rock Tonkel, Jr., the Company's President and
Chief Executive Officer. "Although the Company believes that
current investment opportunities in agency MBS are attractive, the
Company actively began to expand its investment strategy during the
fourth quarter to incorporate tailored mortgage credit investments,
including through co-investing with select sourcing partners, with
the objective of enhancing investment returns, diversifying risks,
reducing overall leverage and, over time, improving the Company's
cost of capital. As of year-end, the Company's capital
allocation to specialty mortgage credit investments totaled 14% of
investable capital, and the Company will continue to evaluate new
mortgage credit investment opportunities that it believes will
deliver higher risk-adjusted returns to its shareholders over
time."
Other Fourth Quarter Highlights
As of December 31, 2019, the
Company's mortgage investment portfolio totaled $3,847 million in fair value, consisting of
$3,768 million of agency MBS and
$79 million of mortgage credit
investments. Based on investable capital, the Company has
allocated 86% and 14% of its capital to its agency MBS and mortgage
credit investment strategies, respectively, as of December 31, 2019.
The Company's agency MBS consist of residential mortgage
pass-through certificates for which the principal and interest
payments are guaranteed by either a U.S. government sponsored
enterprise ("GSE"), such as the Federal National Mortgage
Association ("Fannie Mae") and the Federal Home Loan Mortgage
Corporation ("Freddie Mac"), or by a U.S. government agency, such
as the Government National Mortgage Association ("Ginnie Mae"). The Company's mortgage
credit investments generally include mortgage loans secured by
residential or commercial real property or MBS collateralized by
such mortgage loans, which are referred to as non-agency MBS.
As of December 31, 2019, the
Company's $3,768 million agency MBS
investment portfolio was comprised entirely of specified agency MBS
as follows:
- $118 million of 2.5% coupon
30-year agency MBS
- $1,408 million of 3.0% coupon
30-year agency MBS
- $1,201 million of 3.5% coupon
30-year agency MBS
- $783 million of 4.0% coupon
30-year agency MBS
- $258 million of 4.5% coupon
30-year agency MBS
As of December 31, 2019, the
Company's $3,768 million specified
agency MBS portfolio had a weighted average amortized cost basis of
$102.97 and a weighted average market
price of $103.80. 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 to-be-announced ("TBA") agency MBS, was
approximately 1.07 percentage point as of December 31, 2019, compared to 1.25 percentage
point as of September 30, 2019.
Overall, pay-up premiums on fixed-rate agency MBS decreased during
the fourth quarter of 2019 due to lower prepayment expectations as
a result of the increase in mortgage rates as well as the Company's
further reallocation of its concentration of fixed-rate agency MBS
toward lower coupon securities which generally carry lower pay-up
premiums compared to higher coupon securities.
As of December 31, 2019, the
Company's $79 million mortgage credit
investment portfolio was comprised of a $45
million commercial mortgage loan and $34 million of non-agency MBS collateralized by
commercial mortgage loans, all of which were acquired during the
fourth quarter of 2019.
As of December 31, 2019, the
Company had a total of $3,581 million
of repurchase agreements outstanding. As of December 31, 2019, the Company had $3,560 million of repurchase agreements
outstanding with a weighted average rate of 2.10% and remaining
weighted average maturity of 24 days secured by an aggregate of
$3,741 million of agency MBS at fair
value, which includes $71 million at
sale price of unsettled agency MBS sale commitments which is
included in the line item "sold securities receivable" in the
Company's financial statements. As of December 31, 2019, the Company had $21 million of repurchase agreements outstanding
with a weighted average rate of 3.11% and remaining weighted
average maturity of 8 days secured by an aggregate of $31 million of non-agency MBS at fair
value. The Company's "at risk" short-term secured financing
to investable capital ratio was 8.7 to 1 as of December 31, 2019 compared to 9.9 to 1 as of
September 30, 2019. The
Company's "at risk" short-term secured financing to investable
capital is measured as the ratio of the sum of the Company's
repurchase agreement financing, net payable or receivable for
unsettled securities and net contractual price of TBA commitments
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.
GAAP net interest income was $7.0
million for the fourth quarter of 2019 compared to
$4.7 million for the third quarter of
2019, including the amortization of the Company's net premium on
its agency MBS of $6.1 million for
the fourth quarter of 2019 compared to $7.4
million for the third quarter of 2019. The Company's
weighted average yield on its agency MBS was 2.81% for the fourth
quarter of 2019 compared to 2.96% for the third quarter of 2019,
and the actual weighted-average constant prepayment rate ("CPR")
for the Company's agency MBS was 12.11% for the fourth quarter of
2019 compared to 12.85% for the third quarter of 2019. The
Company's weighted average cost of repurchase agreement funding was
2.09% during the fourth quarter of 2019 compared to 2.46% during
the third quarter of 2019.
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, U.S. Treasury note futures, put and call options on
U.S. Treasury note futures, and options on agency MBS. Under
GAAP, the Company has not designated these transactions as hedging
instruments for financial reporting purposes and therefore all
gains and losses on its hedging instruments are recorded as net
investment gains and losses in the Company's financial
statements.
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 December 31,
2019, the Company had $2,985
million in notional amount of interest rate swap agreements
with a weighted average pay fixed rate of 1.81% and a remaining
weighted average maturity of 3.6 years. The Company's
weighted average net receive rate of its interest rate swap
agreements was 0.24% during the fourth quarter of 2019 compared to
0.52% during the third quarter of 2019.
As of December 31, 2019, the total
notional amount of the Company's interest rate swaps was 83% of the
Company's outstanding repurchase agreement funding and net TBA
purchase commitments with a net duration gap of 0.7
years.
The Company reported TBA dollar roll income of $0.1 million for the fourth quarter of 2019
compared to $0.9 million for the
third quarter of 2019. The implied weighted-average net
interest spread of the Company's TBA dollar rolls was 0.58% for the
fourth quarter of 2019 compared to 0.93% for the third quarter of
2019. 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.
Economic net interest income was $9.3
million for the fourth quarter of 2019 compared to
$10.1 million for the third quarter
of 2019. Economic net interest income is comprised of net
interest income determined in accordance with GAAP, TBA dollar roll
income and net interest income or expense from interest rate
swaps. Economic net interest income is a non-GAAP financial
measure that is described later in this press release.
Total general and administrative expenses were $3.0
million for the fourth quarter of 2019 compared to $4.2
million for the third quarter of 2019, a decline of 28%.
The decline in total general and administrative expenses was driven
primarily by lower compensation and benefits expenses due to lower
annual short-term cash incentive compensation. Compensation
and benefits expenses were $2.0 million for the fourth
quarter of 2019 compared to $2.8 million for the third
quarter of 2019, a decline of 29%.
Excluding TBA dollar roll income, the Company had net investment
losses on its investment portfolio of $1.2
million for the fourth quarter of 2019. On its related
interest rate hedging instruments, the Company had net investment
gains of $22.2 million, excluding
interest rate swap net interest income. This results in a net
investment gain on the Company's hedged investment portfolio of
$21.0 million, or $0.57 per diluted common share, for the fourth
quarter of 2019.
Distributions to Shareholders
The Company's Board of Directors approved a distribution to
common shareholders of $0.225 per
share for the fourth quarter of 2019. The distribution was
paid on February 3, 2020 to
shareholders of record as of December
31, 2019. The Company's Board of Directors also
approved distributions to its Series B and Series C preferred
shareholders of $0.4375 per share and
$0.515625 per share, respectively,
for the fourth quarter of 2019. The distributions were paid
on December 30, 2019 to shareholders
of record as of December 16,
2019.
The Company intends to elect to be taxed as a real estate
investment trust ("REIT") for its taxable year ended December 31, 2019 upon the filing of its tax
return for such taxable year. The Company is organized and operated
in a manner that will allow it to qualify as a REIT for U.S.
federal income tax purposes and intends to continue to be organized
and operated in such a manner. As a REIT, distributions to
shareholders will generally be taxable as ordinary income that are
not eligible to be taxed as qualified dividends. However, a
portion of such distributions may be designated as long-term
capital gain dividends to the extent that such portion is
attributable to the Company's sale of capital assets held for more
than one year. Non-corporate taxpayers may deduct up to 20%
of dividends received from a REIT that are not designated as
capital gain dividends or qualified dividend income, subject to
certain limitations. Distributions in excess of the Company's
current and accumulated earnings and profits will be treated as a
tax-free return of capital to the extent of each shareholder's tax
basis in the Company's stock and as capital gain thereafter.
The Company has also announced the tax characteristics of the
distributions paid to its common and preferred shareholders in
calendar year 2019. The Company's distributions paid to
common shareholders in 2019 of $1.20 per share were all a
distribution of ordinary income that are considered Section 199A
dividends for which non-corporate taxpayers may be eligible to
deduct 20% of the dividends received. The Company's
distributions paid to its Series B and Series C preferred
shareholders in 2019 of $1.75 per share and $1.65 per share, respectively, were also all a
distribution of ordinary income that are considered Section 199A
dividends. Shareholders should receive a Form 1099-DIV
containing this information from their brokers, transfer agents or
other institutions. The fourth quarter 2019 distribution to
the Company's common shareholders paid on February 3, 2020 will be reported as a 2020
distribution for federal income tax purposes.
Conference Call
The Company will hold a conference call for investors
at 10:00 A.M. Eastern Time on Tuesday, February 18,
2020 to discuss the Company's fourth quarter 2019 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) currently invests
primarily in mortgage-related and other assets and intends to
qualify to be taxed as a REIT for its taxable year ending
December 31, 2019. 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,
changes in interest rates, increased costs of borrowing, decreased
interest spreads, credit risks underlying the Company's assets,
especially related to the Company's mortgage credit investments,
changes in political and monetary policies, changes in default
rates, changes in prepayment rates and other assumptions underlying
our estimates related to our projections of future core earnings,
changes in the Company's returns, changes in the use of the
Company's tax benefits, the Company's ability to qualify and
maintain qualification as a REIT, changes in the agency MBS asset
yield, changes in the Company's monetization of net operating loss
carryforwards, changes in the Company's investment strategy,
changes in the Company's ability to generate cash earnings and
dividends, preservation and utilization of the Company's net
operating loss and net capital loss carryforwards, impacts of
changes to and changes by Fannie Mae and Freddie Mac, actions taken
by the U.S. Federal Reserve, the Federal Housing Finance Agency and
the U.S. Treasury, availability of opportunities that meet or
exceed the Company's risk adjusted return expectations, ability and
willingness to make future dividends, ability to generate
sufficient cash through retained earnings to satisfy capital needs,
and general economic, political, regulatory and market
conditions. These and other material risks are described in
the Company's most recent Annual Report on Form 10-K and any other
documents filed by the Company with the SEC from time to time,
which are available from the Company and from the SEC, and you
should read and understand these risks when evaluating any
forward-looking statement. All forward-looking statements speak
only as of the date on which they are made. New risks and
uncertainties arise over time, and it is not possible to predict
those events or how they may affect the Company. Except as
required by law, the Company is not obligated to, and does not
intend to, update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise.
Financial data to follow
ARLINGTON ASSET
INVESTMENT CORP.
|
CONSOLIDATED
BALANCE SHEETS
|
(Dollars in
thousands, except per share amounts)
|
(Unaudited)
|
|
|
|
December 31,
2019
|
|
|
September 30,
2019
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
19,636
|
|
|
$
|
12,129
|
|
Interest
receivable
|
|
|
10,663
|
|
|
|
11,684
|
|
Sold securities
receivable
|
|
|
71,199
|
|
|
|
—
|
|
Agency mortgage-backed
securities, at fair value
|
|
|
3,768,496
|
|
|
|
4,013,161
|
|
Non-agency
mortgage-backed securities, at fair value
|
|
|
33,501
|
|
|
|
25
|
|
Mortgage loans, at
fair value
|
|
|
45,000
|
|
|
|
—
|
|
Derivative assets, at
fair value
|
|
|
1,417
|
|
|
|
675
|
|
Deposits
|
|
|
37,123
|
|
|
|
43,298
|
|
Other
assets
|
|
|
13,079
|
|
|
|
18,566
|
|
Total
assets
|
|
$
|
4,000,114
|
|
|
$
|
4,099,538
|
|
LIABILITIES AND
EQUITY
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Repurchase
agreements
|
|
$
|
3,581,237
|
|
|
$
|
3,697,906
|
|
Interest
payable
|
|
|
4,666
|
|
|
|
3,356
|
|
Accrued compensation
and benefits
|
|
|
3,626
|
|
|
|
3,502
|
|
Dividend
payable
|
|
|
8,494
|
|
|
|
8,397
|
|
Derivative
liabilities, at fair value
|
|
|
8
|
|
|
|
724
|
|
Other
liabilities
|
|
|
507
|
|
|
|
3,204
|
|
Long-term unsecured
debt
|
|
|
74,328
|
|
|
|
74,272
|
|
Total
liabilities
|
|
|
3,672,866
|
|
|
|
3,791,361
|
|
Equity:
|
|
|
|
|
|
|
|
|
Preferred stock
(liquidation preference of $38,851)
|
|
|
37,214
|
|
|
|
37,227
|
|
Common
stock
|
|
|
368
|
|
|
|
368
|
|
Additional paid-in
capital
|
|
|
2,049,292
|
|
|
|
2,048,423
|
|
Accumulated
deficit
|
|
|
(1,759,626)
|
|
|
|
(1,777,841)
|
|
Total
equity
|
|
|
327,248
|
|
|
|
308,177
|
|
Total liabilities
and equity
|
|
$
|
4,000,114
|
|
|
$
|
4,099,538
|
|
Book value per
common share (1)
|
|
$
|
7.86
|
|
|
$
|
7.35
|
|
Common shares
outstanding (in thousands) (2)
|
|
|
36,692
|
|
|
|
36,627
|
|
|
|
|
|
|
|
|
|
|
(1) Book value per
common share is calculated as total equity less the preferred stock
liquidation preference divided by common shares
outstanding.
|
|
|
|
|
|
|
|
|
|
|
(2) Represents common
shares outstanding plus vested restricted stock units convertible
into common stock less unvested restricted common stock.
|
|
|
|
|
|
|
|
|
|
|
|
|
ARLINGTON ASSET
INVESTMENT CORP.
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
(Dollars in
thousands, except per share data)
|
(Unaudited)
|
|
|
|
Year
Ended
|
|
|
Three Months
Ended
|
|
|
|
December
31,
2019
|
|
|
December
31,
2019
|
|
|
September
30,
2019
|
|
|
June
30,
2019
|
|
|
March
31,
2019
|
|
Interest
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency mortgage-backed
securities
|
|
$
|
122,227
|
|
|
$
|
27,927
|
|
|
$
|
28,455
|
|
|
$
|
32,275
|
|
|
$
|
33,570
|
|
Non-agency
mortgage-backed securities
|
|
|
184
|
|
|
|
165
|
|
|
|
4
|
|
|
|
14
|
|
|
|
1
|
|
Mortgage
loans
|
|
|
8
|
|
|
|
8
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Other
|
|
|
1,059
|
|
|
|
155
|
|
|
|
215
|
|
|
|
428
|
|
|
|
261
|
|
Total interest
income
|
|
|
123,478
|
|
|
|
28,255
|
|
|
|
28,674
|
|
|
|
32,717
|
|
|
|
33,832
|
|
Interest
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term secured
debt
|
|
|
92,200
|
|
|
|
19,970
|
|
|
|
22,721
|
|
|
|
24,866
|
|
|
|
24,643
|
|
Long-term unsecured
debt
|
|
|
5,050
|
|
|
|
1,248
|
|
|
|
1,261
|
|
|
|
1,269
|
|
|
|
1,272
|
|
Total interest
expense
|
|
|
97,250
|
|
|
|
21,218
|
|
|
|
23,982
|
|
|
|
26,135
|
|
|
|
25,915
|
|
Net interest
income
|
|
|
26,228
|
|
|
|
7,037
|
|
|
|
4,692
|
|
|
|
6,582
|
|
|
|
7,917
|
|
Investment
advisory fee income
|
|
|
332
|
|
|
|
82
|
|
|
|
—
|
|
|
|
—
|
|
|
|
250
|
|
Investment gains
(loss), net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on trading
investments, net
|
|
|
128,029
|
|
|
|
(268)
|
|
|
|
16,890
|
|
|
|
42,239
|
|
|
|
69,168
|
|
(Loss) gain from
derivative instruments, net
|
|
|
(126,190)
|
|
|
|
23,440
|
|
|
|
(25,353)
|
|
|
|
(69,072)
|
|
|
|
(55,205)
|
|
Other, net
|
|
|
358
|
|
|
|
136
|
|
|
|
232
|
|
|
|
150
|
|
|
|
(160)
|
|
Total investment gain
(loss), net
|
|
|
2,197
|
|
|
|
23,308
|
|
|
|
(8,231)
|
|
|
|
(26,683)
|
|
|
|
13,803
|
|
General and
administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and
benefits
|
|
|
10,194
|
|
|
|
2,012
|
|
|
|
2,833
|
|
|
|
2,233
|
|
|
|
3,116
|
|
Other general and
administrative expenses
|
|
|
4,821
|
|
|
|
1,005
|
|
|
|
1,365
|
|
|
|
1,191
|
|
|
|
1,260
|
|
Total general and
administrative expenses
|
|
|
15,015
|
|
|
|
3,017
|
|
|
|
4,198
|
|
|
|
3,424
|
|
|
|
4,376
|
|
Net income
(loss)
|
|
|
13,742
|
|
|
|
27,410
|
|
|
|
(7,737)
|
|
|
|
(23,525)
|
|
|
|
17,594
|
|
Dividend on preferred
stock
|
|
|
(2,600)
|
|
|
|
(774)
|
|
|
|
(774)
|
|
|
|
(774)
|
|
|
|
(278)
|
|
Net income (loss)
available (attributable) to
common stock
|
|
$
|
11,142
|
|
|
$
|
26,636
|
|
|
$
|
(8,511)
|
|
|
$
|
(24,299)
|
|
|
$
|
17,316
|
|
Basic earnings (loss)
per common share
|
|
$
|
0.31
|
|
|
$
|
0.73
|
|
|
$
|
(0.23)
|
|
|
$
|
(0.67)
|
|
|
$
|
0.52
|
|
Diluted earnings
(loss) per common share
|
|
$
|
0.31
|
|
|
$
|
0.72
|
|
|
$
|
(0.23)
|
|
|
$
|
(0.67)
|
|
|
$
|
0.52
|
|
Weighted average
common shares outstanding (in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
35,709
|
|
|
|
36,628
|
|
|
|
36,572
|
|
|
|
36,533
|
|
|
|
33,053
|
|
Diluted
|
|
|
35,833
|
|
|
|
36,750
|
|
|
|
36,572
|
|
|
|
36,533
|
|
|
|
33,139
|
|
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" and investment advisory fee
income less "core general and administrative expenses" and
preferred stock dividends.
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 the 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 earned 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 earned or expense incurred from
interest rate swap agreements are reported as a component of the
overall periodic change in the fair value of derivative instruments
within the line item "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 and
non-recurring expense. For the three months ended September 30, 2019 and the twelve months ended
December 31, 2019, core general and
administrative expense excludes a non-recurring expense related to
a one-time out-of-period payment made in the third quarter of 2019
for a business, professional and occupation license tax from
Arlington County, Virginia for the
2018 tax year.
Non-GAAP Core Operating Income Results
The following table presents the Company's computation of
economic net interest income and core operating income for the last
four fiscal quarters and for the year ended December 31, 2019 (unaudited, amounts in
thousands, except per share amounts):
|
|
Year
Ended
|
|
|
Three Months
Ended
|
|
|
|
December
31,
2019
|
|
|
December
31,
2019
|
|
|
September
30,
2019
|
|
|
June
30,
2019
|
|
|
March
31,
2019
|
|
GAAP net interest
income
|
|
$
|
26,228
|
|
|
$
|
7,037
|
|
|
$
|
4,692
|
|
|
$
|
6,582
|
|
|
$
|
7,917
|
|
TBA dollar roll
income
|
|
|
4,470
|
|
|
|
132
|
|
|
|
923
|
|
|
|
1,995
|
|
|
|
1,420
|
|
Interest rate swap
net interest income
|
|
|
15,087
|
|
|
|
2,126
|
|
|
|
4,445
|
|
|
|
3,769
|
|
|
|
4,747
|
|
Economic net interest
income
|
|
|
45,785
|
|
|
|
9,295
|
|
|
|
10,060
|
|
|
|
12,346
|
|
|
|
14,084
|
|
Investment advisory
fee income
|
|
|
332
|
|
|
|
82
|
|
|
|
—
|
|
|
|
—
|
|
|
|
250
|
|
Core general and
administrative expenses
|
|
|
(11,747)
|
|
|
|
(2,140)
|
|
|
|
(2,797)
|
|
|
|
(3,207)
|
|
|
|
(3,603)
|
|
Preferred stock
dividend
|
|
|
(2,600)
|
|
|
|
(774)
|
|
|
|
(774)
|
|
|
|
(774)
|
|
|
|
(278)
|
|
Non-GAAP core
operating income
|
|
$
|
31,770
|
|
|
$
|
6,463
|
|
|
$
|
6,489
|
|
|
$
|
8,365
|
|
|
$
|
10,453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP core
operating income per
diluted
common share
|
|
$
|
0.89
|
|
|
$
|
0.18
|
|
|
$
|
0.18
|
|
|
$
|
0.23
|
|
|
$
|
0.32
|
|
Weighted average
diluted common
shares
outstanding
|
|
|
35,833
|
|
|
|
36,750
|
|
|
|
36,751
|
|
|
|
36,644
|
|
|
|
33,139
|
|
The following table provides a reconciliation of GAAP net income
(loss) to non-GAAP core operating income for the last four fiscal
quarters and for the year ended December 31,
2019 (unaudited, amounts in thousands):
|
|
Year
Ended
|
|
|
Three Months
Ended
|
|
|
|
December
31,
2019
|
|
|
December
31,
2019
|
|
|
September
30,
2019
|
|
|
June
30,
2019
|
|
|
March
31,
2019
|
|
GAAP net income
(loss)
|
|
$
|
13,742
|
|
|
$
|
27,410
|
|
|
$
|
(7,737)
|
|
|
$
|
(23,525)
|
|
|
$
|
17,594
|
|
Add
(less):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment
(gain) loss, net
|
|
|
(2,197)
|
|
|
|
(23,308)
|
|
|
|
8,231
|
|
|
|
26,683
|
|
|
|
(13,803)
|
|
Stock-based
compensation expense
|
|
|
2,780
|
|
|
|
877
|
|
|
|
913
|
|
|
|
217
|
|
|
|
773
|
|
Preferred stock
dividend
|
|
|
(2,600)
|
|
|
|
(774)
|
|
|
|
(774)
|
|
|
|
(774)
|
|
|
|
(278)
|
|
Non-recurring
expense
|
|
|
488
|
|
|
|
—
|
|
|
|
488
|
|
|
|
—
|
|
|
|
—
|
|
Add
back:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TBA dollar roll
income
|
|
|
4,470
|
|
|
|
132
|
|
|
|
923
|
|
|
|
1,995
|
|
|
|
1,420
|
|
Interest rate swap net
interest income
|
|
|
15,087
|
|
|
|
2,126
|
|
|
|
4,445
|
|
|
|
3,769
|
|
|
|
4,747
|
|
Non-GAAP core
operating income
|
|
$
|
31,770
|
|
|
$
|
6,463
|
|
|
$
|
6,489
|
|
|
$
|
8,365
|
|
|
$
|
10,453
|
|
Non-GAAP core operating income is used by management to evaluate
the financial performance of the Company's long-term investment
strategy and core business activities over periods of time as well
as assist with the determination of the appropriate level of
periodic dividends to common stockholders. The Company
believes that non-GAAP core operating income assists investors in
understanding and evaluating the financial performance of the
Company's long-term investment strategy and core business
activities over periods of time as well as its earnings
capacity. A limitation of utilizing this non-GAAP financial
measure is that the effect of accounting for "non-core" events or
transactions in accordance with GAAP does, in fact, reflect the
financial results of our business and these effects should not be
ignored when evaluating and analyzing our financial results.
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 determined in accordance with GAAP should be considered in
conjunction with non-GAAP core operating income. Furthermore,
there may be differences between non-GAAP core operating income and
taxable income determined in accordance with the Internal Revenue
Code. As a REIT, the Company will be required to distribute
at least 90% of its REIT taxable income (subject to certain
adjustments) to qualify as a REIT and all of its taxable income in
order to not be subject to any U.S. Federal or state corporate
income taxes. Accordingly, non-GAAP core operating income may
not equal the Company's distribution requirements as a REIT.
The following tables present information on the Company's
investment and hedge portfolio as of December 31, 2019 (unaudited, dollars in
thousands):
Mortgage Investments:
|
|
Fair
Value
|
|
Agency
MBS:
|
|
|
|
|
Specified agency
MBS
|
|
$
|
3,768,496
|
|
Net long agency TBA
position
|
|
|
—
|
|
Total
agency MBS
|
|
|
3,768,496
|
|
Mortgage credit
investments:
|
|
|
|
|
Non-agency
MBS
|
|
|
33,501
|
|
Mortgage
loans
|
|
|
45,000
|
|
Total mortgage
credit investments
|
|
|
78,501
|
|
Total mortgage
investments
|
|
$
|
3,846,997
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.5%
|
|
$
|
118,954
|
|
|
$
|
675
|
|
|
$
|
119,629
|
|
|
$
|
(1,458)
|
|
|
$
|
118,171
|
|
|
$
|
99.34
|
|
|
|
2.50
|
%
|
|
|
8.4
|
|
3.0%
|
|
|
1,377,252
|
|
|
|
35,860
|
|
|
|
1,413,112
|
|
|
|
(5,182)
|
|
|
|
1,407,930
|
|
|
|
102.23
|
|
|
|
3.00
|
%
|
|
|
7.2
|
|
3.5%
|
|
|
1,154,885
|
|
|
|
35,422
|
|
|
|
1,190,307
|
|
|
|
10,791
|
|
|
|
1,201,098
|
|
|
|
104.00
|
|
|
|
3.50
|
%
|
|
|
5.2
|
|
4.0%
|
|
|
738,732
|
|
|
|
24,440
|
|
|
|
763,172
|
|
|
|
19,969
|
|
|
|
783,141
|
|
|
|
106.01
|
|
|
|
4.00
|
%
|
|
|
5.0
|
|
4.5%
|
|
|
240,634
|
|
|
|
11,451
|
|
|
|
252,085
|
|
|
|
6,057
|
|
|
|
258,142
|
|
|
|
107.28
|
|
|
|
4.50
|
%
|
|
|
4.8
|
|
5.5%
|
|
|
12
|
|
|
|
—
|
|
|
|
12
|
|
|
|
2
|
|
|
|
14
|
|
|
|
112.61
|
|
|
|
5.50
|
%
|
|
|
5.9
|
|
Total/weighted-average
|
|
$
|
3,630,469
|
|
|
$
|
107,848
|
|
|
$
|
3,738,317
|
|
|
$
|
30,179
|
|
|
$
|
3,768,496
|
|
|
$
|
103.80
|
|
|
|
3.45
|
%
|
|
|
6.0
|
|
Interest Rate Swap Agreements:
|
|
|
|
|
|
Weighted-average:
|
|
|
|
Notional Amount
|
|
|
Fixed
Pay Rate
|
|
|
Variable
Receive Rate
|
|
|
Net Receive
(Pay) Rate
|
|
|
Remaining
Life (Years)
|
|
Years to
maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 3
years
|
|
$
|
2,050,000
|
|
|
|
1.77
|
%
|
|
|
1.92
|
%
|
|
|
0.15
|
%
|
|
|
1.6
|
|
3 to less than 7
years
|
|
|
510,000
|
|
|
|
1.61
|
%
|
|
|
1.92
|
%
|
|
|
0.31
|
%
|
|
|
6.0
|
|
7 to less than 10
years
|
|
|
400,000
|
|
|
|
2.24
|
%
|
|
|
1.91
|
%
|
|
|
(0.33)
|
%
|
|
|
9.5
|
|
10 or more
years
|
|
|
25,000
|
|
|
|
2.96
|
%
|
|
|
1.90
|
%
|
|
|
(1.06)
|
%
|
|
|
28.2
|
|
Total /
weighted-average
|
|
$
|
2,985,000
|
|
|
|
1.81
|
%
|
|
|
1.92
|
%
|
|
|
0.11
|
%
|
|
|
3.6
|
|
View original
content:http://www.prnewswire.com/news-releases/arlington-asset-investment-corp-reports-fourth-quarter-and-full-year-2019-financial-results-301006307.html
SOURCE Arlington Asset Investment Corp.