UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): August 4, 2021 (
(Exact name of Registrant as Specified in Its Charter)
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(State or Other Jurisdiction of Incorporation or Organization)
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(I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip code)
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(Registrant’s telephone number including area code)
N/A
(Former name or former address, if changed from last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02. |
Results of Operations and Financial Condition. |
Arlington Asset Investment Corp. (the “Company”) issued a press release on August 3, 2021 announcing its financial results for the quarter ended June 30, 2021. A copy of the press release is attached hereto as Exhibit 99.1.
The information in Item 2.02 of this Current Report on Form 8-K, including Exhibit 99.1 furnished pursuant to Item 9.01, shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities under that Section. Furthermore, the information in Item 2.02 of this Current Report on Form 8-K, including Exhibit 99.1 furnished pursuant to Item 9.01, shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended.
Item 7.01 |
Regulation FD Disclosure. |
The Company has posted an updated investor presentation to its website, www.arlingtonasset.com. A copy of the slide presentation is attached as Exhibit 99.2 hereto and incorporated herein by reference. The information in Item 7.01 of this Current Report on Form 8-K, including Exhibit 99.2 furnished pursuant to Item 9.01, shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities under that Section. Furthermore, the information in Item 7.01 of this Current Report on Form 8-K, including Exhibit 99.2 furnished pursuant to Item 9.01, shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended.
Item 9.01. |
Financial Statements and Exhibits. |
(d) |
Exhibits. |
99.1 |
Arlington Asset Investment Corp. Press Release dated August 3, 2021. |
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99.2 |
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104 |
Cover Page Interactive Data File (embedded within the Inline XBRL document). |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned hereunto duly authorized.
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ARLINGTON ASSET INVESTMENT CORP. |
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Date: August 4, 2021 |
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By: |
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/s/ Richard E. Konzmann |
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Name: |
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Richard E. Konzmann |
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Title: |
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Executive Vice President, Chief Financial |
Exhibit 99.1
Contacts:
Media: 703.373.0200 or ir@arlingtonasset.com
Investors: Rich Konzmann at 703.373.0200 or ir@arlingtonasset.com
Arlington Asset Investment Corp. Reports Second Quarter 2021 Financial Results
McLean, VA, August 3, 2021 – Arlington Asset Investment Corp. (NYSE: AAIC) (the “Company” or “Arlington”) today reported a net loss attributable to common shareholders of $7.8 million, or $0.24 per diluted common share, and non-GAAP core operating income of $2.2 million, or $0.07 per diluted common share, for the quarter ended June 30, 2021. A reconciliation of non-GAAP core operating income to GAAP net income appears at the end of this press release.
Second Quarter 2021 Financial Highlights
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$0.07 per diluted common share of non-GAAP core operating income |
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$5.94 per common share of book value |
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2.2 to 1 “at risk” leverage ratio |
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0.9 million shares of common stock repurchased, or 2.6% of outstanding common stock at an average price of $4.06 per share |
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Subsequent to June 30, 2021, repurchased an additional 0.4 million shares of common stock, or 1.1% of outstanding common stock at an average price of $3.96 per share |
“The Company successfully expanded its capital allocation to investments in mortgage servicing rights (“MSR”) to 25% of investable capital with attractive unlevered returns and realized higher profitability during the quarter as a result. The Company’s MSR investments add a strong return opportunity to the Company’s earnings profile while also providing an important duration hedge for the Company’s low coupon agency mortgage portfolio,” said J. Rock Tonkel, Jr., the Company's President and Chief Executive Officer. “The diversification of the Company’s investment portfolio into its MSR and mortgage credit strategies and its continued low overall leverage profile reduced the Company’s sensitivity to agency mortgage spreads and helped cushion its portfolio results during a period of agency mortgage-backed security (“MBS”) spread widening through the second quarter. The Company continues to make accretive repurchases of shares of its common stock, having repurchased 3.7% of its outstanding common stock since the prior quarter end. The Company is currently operating with low leverage and high liquidity while it continues to scale its MSR portfolio and make solid progress in evaluating and deploying capital to high return investment opportunities that complement its agency mortgage investments and diversify risk, with the goal of improving the level and reliability of returns to shareholders over time.”
Other Second Quarter Highlights
As of June 30, 2021, the Company’s investment portfolio totaled $954 million at fair value, which includes $36 million of business purpose residential mortgage loans of a consolidated variable interest entity (“VIE”). Assuming the Company’s investment in the VIE was not consolidated, the Company’s investment portfolio totaled $930 million at fair value as of June 30, 2021 consisting of $726 million of agency mortgage-backed securities (“MBS”), $130 million of mortgage credit investments and $74 million of MSR related assets. Based on investable capital, the Company has allocated 39%, 36%, and 25% of its capital to its agency MBS, mortgage credit and MSR related investment strategies, respectively, as of June 30, 2021.
The Company’s agency MBS consist of residential mortgage pass-through certificates for which the principal and interest payments are guaranteed by a U.S. government sponsored enterprise (“GSE”), such as the Federal National Mortgage Association (“Fannie Mae”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac”). The Company’s mortgage credit investments generally include mortgage loans secured by residential or commercial real property or MBS collateralized by residential or commercial mortgage loans (“non-agency MBS”).
As of June 30, 2021, the Company’s agency MBS investment portfolio, totaling $726 million at fair value was comprised solely of specified agency MBS. As of June 30, 2021, Company did not hold any net long to-be-announced (“TBA”) agency MBS. As of June 30, 2021, the Company’s $726 million agency MBS investment portfolio was comprised of the following:
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$473 million of 2.0% coupon 30-year agency MBS |
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$253 million of 2.5% coupon 30-year agency MBS |
As of June 30, 2021, the Company’s $726 million specified agency MBS portfolio had a weighted average amortized cost basis of $103.66 and a weighted average market price of $102.40. The Company’s 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 approximately one-half of a percentage point as of June 30, 2021.
During the second quarter of 2021, the Company purchased agency MBS totaling $253 million and sold agency MBS for gross sale proceeds of $34 million for a net realized loss of $0.1 million.
As of June 30, 2021, the Company’s $130 million mortgage credit investment portfolio at fair value was comprised of the following:
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$75 million of commercial mortgage loans |
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$25 million of non-agency MBS collateralized by residential mortgage loans |
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$23 million of non-agency MBS collateralized by business purpose residential mortgage loans |
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Includes a $12 million net investment in a consolidated VIE |
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$4 million of non-agency MBS collateralized by small balance commercial mortgage loans |
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$3 million of asset backed securities collateralized by loans secured by residential solar panels |
During the second quarter of 2021, the Company purchased mortgage credit investments totaling $58 million and sold mortgage credit investments for gross proceeds of $2 million for a net realized loss of $0.1 million.
As of June 30, 2021, the Company had $74 million of MSR financing receivable investments at fair value. The Company is party to agreements with a licensed, GSE approved residential mortgage loan servicer that enable the Company to garner the economic return of an investment in an MSR purchased by the mortgage servicing counterparty. The arrangement allows the Company to participate in the economic benefits of investing in an MSR without holding the requisite licenses to purchase or hold MSRs directly. The transactions are accounted for as a financing receivable on the Company’s consolidated financial statements. During the second quarter of 2021, the Company purchased $39 million of MSR financing receivables.
As of June 30, 2021, the Company had a total of $695 million of repurchase agreements outstanding. As of June 30, 2021, the Company had $674 million of repurchase agreements outstanding with a weighted average rate of 0.09% and remaining weighted average maturity of 14 days secured by an aggregate of $711 million of agency MBS at fair value, including $34 million of unsettled agency MBS sale commitments included in the line item “sold securities receivable” on the consolidated balance sheet. As of June 30, 2021, the Company had a $21 million repurchase agreement outstanding with a rate of 2.59% and remaining maturity of 307 days secured by a $30 million commercial mortgage loan at fair value. As of June 30, 2021, the Company did not have any repurchase agreements outstanding secured by non-agency MBS.
The Company’s “at risk” leverage ratio was 2.2 to 1 as of June 30, 2021 compared to 1.4 to 1 as of March 31, 2021. The Company’s “at risk” leverage ratio is calculated as 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 $5.1 million for the second quarter of 2021 compared to $3.8 million for the first quarter of 2021. The Company’s weighted average yield on its agency MBS was 1.62% for the second quarter of 2021 compared to 1.55% for the first quarter of 2021, and the actual weighted-average constant prepayment rate (“CPR”) for the Company’s agency MBS was 6.34% for the second quarter of 2021 compared to 5.26% for the first quarter of 2021. The Company’s weighted average cost of repurchase agreement funding secured by agency MBS was 0.11% during the second quarter of 2021 compared to 0.18% during the first quarter of 2021. The weighted average yield on the Company’s MSR financing receivables was 10.68% for the second quarter of 2021 compared to 9.37% for the first quarter of 2021.
Under the terms of the Company’s interest rate swap agreements, the Company pays semiannual interest payments based on a fixed rate and receives variable interest payments based upon either the prevailing three-month London Interbank Offered Rate (“LIBOR”) or Secured Overnight Financing Rate (“SOFR”). As of June 30, 2021, the Company had $525 million in notional amount of interest rate swap agreements with a weighted average pay fixed rate of 0.70% and a remaining weighted average maturity of 6.3 years. The
Company’s weighted average net pay rate of its interest rate swap agreements was 0.73% during the second quarter of 2021 compared to 0.64% during the first quarter of 2021. The Company also held a $45 million notional amount of net long U.S. Treasury futures as of June 30, 2021. As of June 30, 2021, the total notional amount of the Company’s interest rate swaps and U.S. Treasury futures was 69% of the Company’s outstanding repurchase agreement funding and net TBA purchase commitments with a net duration gap of (0.8) years. 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.
Core operating income was $2.2 million, or $0.07 per diluted common share for the second quarter of 2021 compared to $1.0 million, or $0.03 per diluted common share for the first quarter of 2021. Core operating income is a non-GAAP financial measure that is described later in this press release.
The Company had net investment losses of $9.6 million, or $0.29 per diluted common share, for the second quarter of 2021 on its investment portfolio and related interest rate hedging instruments, excluding TBA dollar roll income and interest rate swap net interest expense.
During the second quarter of 2021, the Company repurchased 0.9 million shares of its common stock at an average price of $4.06 per share for a total purchase cost of $3.5 million, representing 2.6% of common stock outstanding as of March 31, 2021. Subsequent to June 30, 2021, the Company purchased an additional 0.4 million shares of its common stock at an average price of $3.96 per share for a total purchase cost of $1.5 million, representing 1.1% of common stock outstanding as of June 30, 2021. Currently, the Company had remaining authorization from its Board of Directors to repurchase up to 14.9 million shares of its common stock.
Distributions to Shareholders
The Company’s Board of Directors approved distributions to its Series B and Series C preferred shareholders of $0.4375 per share and $0.515625 per share, respectively, for the second quarter of 2021. The distributions were paid on June 30, 2021 to shareholders of record as of June 15, 2021. The Company’s Board of Directors determined not to declare a dividend on its common stock for the second quarter of 2021. The Company’s Board of Directors will continue to evaluate the payment of quarterly dividends based on multiple factors including current financial results, overall market conditions, return opportunities on investments, liquidity needs and REIT distribution requirements. No definitive determination has been made at this time regarding the declaration of future dividends.
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 currently 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.
Conference Call
The Company will hold a conference call for investors at 9:00 A.M. Eastern Time on Wednesday, August 4, 2021 to discuss the Company’s second quarter 2021 results.
Investors may listen to the earnings call via the internet at: http://www.arlingtonasset.com/index.php?s=19. Replays of the earnings call will be available for 60 days via webcast at the Internet address provided above, beginning two hours after the call ends.
Additional Information
The Company will make available additional quarterly information for the benefit of its shareholders through a supplemental presentation that will be available at the Company's website, www.arlingtonasset.com. The presentation will be available on the Webcasts and Presentations section located under the Updates & Events tab of the Company's website.
About the Company
Arlington Asset Investment Corp. (NYSE: AAIC) currently invests primarily in mortgage-related and other assets and has elected to be taxed as a REIT. The Company is headquartered in the Washington, D.C. metropolitan area. For more information, please visit www.arlingtonasset.com.
Statements concerning interest rates, portfolio allocation, financing costs, portfolio hedging, prepayments, dividends, book value, utilization of loss carryforwards, any change in long-term tax structures (including any REIT election), use of equity raise proceeds and any other guidance on present or future periods constitute forward-looking statements that are subject to a number of factors, risks and uncertainties that might cause actual results to differ materially from stated expectations or current circumstances. These factors include, but are not limited to, the uncertainty and economic impact of the ongoing coronavirus (COVID-19) pandemic and the measures taken by the government to address it, including the impact on our business, financial condition, liquidity and results of operations due to a significant decrease in economic activity and disruptions in our financing operations, among other factors, changes in interest rates, increased costs of borrowing, decreased interest spreads, credit risks underlying the Company’s assets, especially related to the Company’s mortgage credit investments, 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)
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June 30, 2021 |
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March 31, 2021 |
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ASSETS |
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Cash and cash equivalents |
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$ |
2,349 |
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$ |
48,198 |
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Restricted cash of consolidated VIE |
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4,456 |
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12,557 |
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Interest receivable of consolidated VIE |
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179 |
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309 |
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Sold securities receivable |
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34,456 |
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109,068 |
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Agency mortgage-backed securities, at fair value |
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725,709 |
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515,674 |
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Mortgage credit investments, at fair value |
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117,902 |
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61,319 |
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Mortgage loans of consolidated VIE, at fair value |
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35,778 |
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57,467 |
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MSR financing receivables, at fair value |
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74,652 |
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36,005 |
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Derivative assets, at fair value |
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881 |
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2,280 |
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Deposits |
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16,554 |
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25,421 |
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Other assets |
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17,181 |
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15,046 |
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Total assets |
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$ |
1,030,097 |
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$ |
883,344 |
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LIABILITIES AND EQUITY |
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Liabilities: |
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Repurchase agreements |
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$ |
694,586 |
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$ |
505,550 |
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Secured debt of consolidated VIE, at fair value |
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28,465 |
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58,654 |
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Interest payable of consolidated VIE |
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99 |
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201 |
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Derivative liabilities, at fair value |
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2,327 |
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4,267 |
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Other liabilities |
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2,739 |
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2,111 |
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Long-term unsecured debt |
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73,129 |
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73,074 |
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Total liabilities |
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801,345 |
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643,857 |
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Equity: |
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Preferred stock (liquidation preference of $36,333) |
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35,289 |
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35,289 |
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Common stock |
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327 |
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335 |
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Additional paid-in capital |
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2,037,953 |
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2,040,898 |
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Accumulated deficit |
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(1,844,817 |
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(1,837,035 |
) |
Total equity |
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228,752 |
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239,487 |
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Total liabilities and equity |
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$ |
1,030,097 |
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$ |
883,344 |
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Book value per common share (1) |
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$ |
5.94 |
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$ |
6.12 |
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Common shares outstanding (in thousands) (2) |
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32,411 |
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33,169 |
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(1) Book value per common share is calculated as total equity less the preferred stock liquidation preference divided by common shares outstanding. |
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(2) Represents common shares outstanding plus vested restricted stock units convertible into common stock less unvested restricted common stock. |
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June 30, 2021 |
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March 31, 2021 |
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Assets and liabilities of consolidated VIE: |
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Restricted cash |
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$ |
4,456 |
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$ |
12,557 |
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Mortgage loans, at fair value |
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35,778 |
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57,467 |
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Interest receivable |
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179 |
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309 |
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Secured debt, at fair value |
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(28,465 |
) |
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(58,654 |
) |
Interest payable |
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(99 |
) |
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(201 |
) |
Net investment in consolidated VIE |
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$ |
11,849 |
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$ |
11,478 |
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ARLINGTON ASSET INVESTMENT CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
(Unaudited)
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Three Months Ended |
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June 30, 2021 |
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March 31, 2021 |
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December 31, 2020 |
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September 30, 2020 |
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Interest income |
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Agency mortgage-backed securities |
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$ |
2,984 |
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$ |
2,784 |
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$ |
3,015 |
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$ |
2,808 |
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Mortgage credit investments |
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1,770 |
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1,269 |
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1,863 |
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2,217 |
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Mortgage loans of consolidated VIE |
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776 |
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1,687 |
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4,305 |
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— |
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MSR financing receivables |
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1,390 |
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358 |
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— |
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— |
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Interest and other income |
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125 |
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161 |
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314 |
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385 |
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Total interest income |
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7,045 |
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6,259 |
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9,497 |
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5,410 |
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Interest expense |
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Short-term secured debt |
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|
403 |
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|
488 |
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526 |
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|
470 |
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Long-term unsecured debt |
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1,150 |
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1,151 |
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1,154 |
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|
1,162 |
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Secured debt of consolidated VIE |
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405 |
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862 |
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|
1,403 |
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— |
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Total interest expense |
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1,958 |
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2,501 |
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3,083 |
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1,632 |
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Net interest income |
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5,087 |
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|
3,758 |
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6,414 |
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|
3,778 |
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Investment (loss) gain, net |
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Gain (loss) on mortgage investments, net |
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5,334 |
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(21,665 |
) |
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2,161 |
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|
|
2,696 |
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(Loss) gain from derivative instruments, net |
|
|
(14,983 |
) |
|
|
14,545 |
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|
1,223 |
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|
487 |
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Other, net |
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617 |
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|
357 |
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|
4,736 |
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|
769 |
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Total investment (loss) gain, net |
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(9,032 |
) |
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(6,763 |
) |
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8,120 |
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3,952 |
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General and administrative expenses |
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Compensation and benefits |
|
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1,841 |
|
|
|
1,395 |
|
|
|
1,712 |
|
|
|
1,774 |
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Other general and administrative expenses |
|
|
1,349 |
|
|
|
1,242 |
|
|
|
1,361 |
|
|
|
1,197 |
|
Total general and administrative expenses |
|
|
3,190 |
|
|
|
2,637 |
|
|
|
3,073 |
|
|
|
2,971 |
|
(Loss) income before income taxes |
|
|
(7,135 |
) |
|
|
(5,642 |
) |
|
|
11,461 |
|
|
|
4,759 |
|
Income tax (benefit) provision |
|
|
(76 |
) |
|
|
398 |
|
|
|
— |
|
|
|
— |
|
Net (loss) income |
|
|
(7,059 |
) |
|
|
(6,040 |
) |
|
|
11,461 |
|
|
|
4,759 |
|
Dividend on preferred stock |
|
|
(723 |
) |
|
|
(723 |
) |
|
|
(733 |
) |
|
|
(726 |
) |
Net (loss) income (attributable) available to common stock |
|
$ |
(7,782 |
) |
|
$ |
(6,763 |
) |
|
$ |
10,728 |
|
|
$ |
4,033 |
|
Basic (loss) earnings per common share |
|
$ |
(0.24 |
) |
|
$ |
(0.20 |
) |
|
$ |
0.32 |
|
|
$ |
0.12 |
|
Diluted (loss) earnings per common share |
|
$ |
(0.24 |
) |
|
$ |
(0.20 |
) |
|
$ |
0.32 |
|
|
$ |
0.12 |
|
Weighted average common shares outstanding (in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
33,066 |
|
|
|
33,181 |
|
|
|
33,415 |
|
|
|
34,655 |
|
Diluted |
|
|
33,066 |
|
|
|
33,181 |
|
|
|
33,554 |
|
|
|
34,697 |
|
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,” preferred stock dividends and an “income tax provision for taxable REIT subsidiary (“TRS”) core operating income”.
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.
Income Tax Provision for TRS Core Operating Income
Our TRSs are subject to U.S. federal and state corporate income taxes. Our computation of core operating income includes a provision for income taxes on the core operating income of our TRSs. The core operating income of our TRSs is comprised of net interest income generated by our TRSs net of our TRSs’ general and administrative expenses. In our consolidated statements of comprehensive income prepared in accordance with GAAP, the “income tax provision (benefit)” includes (i) the income tax provision for TRS core operating income and (ii) an income tax provision for (or benefit from) periodic increases (or decreases) in the fair value of the investments of our TRSs, which are recognized in net income as a component of “investment gain (loss) net.”
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 (unaudited, amounts in thousands, except per share amounts):
|
|
Three Months Ended |
|
|||||||||||||
|
|
June 30, 2021 |
|
|
March 31, 2021 |
|
|
December 31, 2020 |
|
|
September 30, 2020 |
|
||||
GAAP net interest income |
|
$ |
5,087 |
|
|
$ |
3,758 |
|
|
$ |
6,414 |
|
|
$ |
3,778 |
|
TBA dollar roll income |
|
|
1,778 |
|
|
|
836 |
|
|
|
1,156 |
|
|
|
319 |
|
Interest rate swap net interest expense |
|
|
(1,187 |
) |
|
|
(710 |
) |
|
|
(62 |
) |
|
|
(23 |
) |
Economic net interest income |
|
|
5,678 |
|
|
|
3,884 |
|
|
|
7,508 |
|
|
|
4,074 |
|
Core general and administrative expenses |
|
|
(2,653 |
) |
|
|
(2,134 |
) |
|
|
(2,668 |
) |
|
|
(2,375 |
) |
Preferred stock dividend |
|
|
(723 |
) |
|
|
(723 |
) |
|
|
(733 |
) |
|
|
(726 |
) |
Income tax provision for TRS core operating income |
|
|
(61 |
) |
|
|
(11 |
) |
|
|
— |
|
|
|
— |
|
Non-GAAP core operating income |
|
$ |
2,241 |
|
|
$ |
1,016 |
|
|
$ |
4,107 |
|
|
$ |
973 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP core operating income per diluted common share |
|
$ |
0.07 |
|
|
$ |
0.03 |
|
|
$ |
0.12 |
|
|
$ |
0.03 |
|
Weighted average diluted common shares outstanding |
|
|
33,424 |
|
|
|
33,444 |
|
|
|
33,554 |
|
|
|
34,697 |
|
The following table provides a reconciliation of GAAP net income (loss) to non-GAAP core operating income for the last four fiscal quarters (unaudited, amounts in thousands):
|
|
Three Months Ended |
|
|||||||||||||
|
|
June 30, 2021 |
|
|
March 31, 2021 |
|
|
December 31, 2020 |
|
|
September 30, 2020 |
|
||||
GAAP net (loss) income |
|
$ |
(7,059 |
) |
|
$ |
(6,040 |
) |
|
$ |
11,461 |
|
|
$ |
4,759 |
|
Add (less): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment loss (gain), net |
|
|
9,032 |
|
|
|
6,763 |
|
|
|
(8,120 |
) |
|
|
(3,952 |
) |
Stock-based compensation expense |
|
|
537 |
|
|
|
503 |
|
|
|
405 |
|
|
|
596 |
|
Income tax (benefit) provision for TRS investment gain (loss) |
|
|
(137 |
) |
|
|
387 |
|
|
|
— |
|
|
|
— |
|
Preferred stock dividend |
|
|
(723 |
) |
|
|
(723 |
) |
|
|
(733 |
) |
|
|
(726 |
) |
Add back: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TBA dollar roll income |
|
|
1,778 |
|
|
|
836 |
|
|
|
1,156 |
|
|
|
319 |
|
Interest rate swap net interest expense |
|
|
(1,187 |
) |
|
|
(710 |
) |
|
|
(62 |
) |
|
|
(23 |
) |
Non-GAAP core operating income |
|
$ |
2,241 |
|
|
$ |
1,016 |
|
|
$ |
4,107 |
|
|
$ |
973 |
|
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 June 30, 2021 (unaudited, dollars in thousands):
Mortgage Investments:
|
|
Assets |
|
|
Capital Allocation (1) |
|
|
Capital Allocation (%) |
|
|
Leverage (2) |
|
||||
Agency MBS |
|
$ |
725,709 |
|
|
$ |
118,409 |
|
|
|
39 |
% |
|
|
5.4 |
|
Mortgage credit investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgage loans |
|
|
74,685 |
|
|
|
53,754 |
|
|
|
18 |
% |
|
|
0.4 |
|
Residential MBS |
|
|
24,995 |
|
|
|
24,995 |
|
|
|
8 |
% |
|
|
— |
|
Business purpose loan residential MBS (3) |
|
|
22,731 |
|
|
|
22,731 |
|
|
|
8 |
% |
|
|
— |
|
Small balance commercial MBS |
|
|
3,915 |
|
|
|
3,915 |
|
|
|
1 |
% |
|
|
— |
|
Other |
|
|
3,425 |
|
|
|
3,425 |
|
|
|
1 |
% |
|
|
— |
|
Total mortgage credit investments |
|
|
129,751 |
|
|
|
108,820 |
|
|
|
36 |
% |
|
|
0.2 |
|
MSR financing receivable |
|
|
74,652 |
|
|
|
74,652 |
|
|
|
25 |
% |
|
|
— |
|
Total |
|
$ |
930,112 |
|
|
$ |
301,881 |
|
|
|
100 |
% |
|
|
2.2 |
|
|
(1) |
Our investable capital is calculated as the sum of our shareholders’ equity capital and long-term unsecured debt. |
|
(2) |
Our leverage is measured as the ratio of our repurchase agreement financing, net payable or receivable for unsettled securities, net contractual forward purchase price of our TBA commitments less our cash and cash equivalents compared to our investable capital. |
|
(3) |
Includes our net investment of $11,849 in a variable interest entity with gross assets and liabilities of $40,413 and $28,564, respectively, that is consolidated for GAAP financial reporting purposes. |
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: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.0% |
|
$ |
466,229 |
|
|
$ |
12,645 |
|
|
$ |
478,874 |
|
|
$ |
(6,111 |
) |
|
$ |
472,763 |
|
|
$ |
101.40 |
|
|
|
2.00 |
% |
|
|
7.9 |
|
2.5% |
|
|
242,469 |
|
|
|
13,282 |
|
|
|
255,751 |
|
|
|
(2,818 |
) |
|
|
252,933 |
|
|
|
104.32 |
|
|
|
2.50 |
% |
|
|
6.4 |
|
5.5% |
|
|
11 |
|
|
|
— |
|
|
|
11 |
|
|
|
2 |
|
|
|
13 |
|
|
|
116.51 |
|
|
|
5.50 |
% |
|
|
4.9 |
|
Total/weighted-average |
|
$ |
708,709 |
|
|
$ |
25,927 |
|
|
$ |
734,636 |
|
|
$ |
(8,927 |
) |
|
$ |
725,709 |
|
|
$ |
102.40 |
|
|
|
2.17 |
% |
|
|
7.4 |
|
Mortgage Credit Investments:
|
|
Unpaid Principal Balance |
|
|
Net Unamortized Premiums (Discounts) |
|
|
Amortized Original Cost Basis |
|
|
Net Unrealized Gain (Loss) |
|
|
Fair Value (1) |
|
|
Market Price |
|
||||||
Mortgage credit investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgage loans |
|
$ |
74,685 |
|
|
$ |
— |
|
|
$ |
74,685 |
|
|
$ |
— |
|
|
$ |
74,685 |
|
|
$ |
100.00 |
|
Residential MBS |
|
|
27,481 |
|
|
|
(2,534 |
) |
|
|
24,947 |
|
|
|
48 |
|
|
|
24,995 |
|
|
|
90.59 |
|
Business purpose residential MBS (1) |
|
|
24,593 |
|
|
|
1,603 |
|
|
|
26,196 |
|
|
|
(3,465 |
) |
|
|
22,731 |
|
|
|
93.70 |
|
Commercial MBS |
|
|
6,000 |
|
|
|
(787 |
) |
|
|
5,213 |
|
|
|
(1,298 |
) |
|
|
3,915 |
|
|
|
64.73 |
|
Other |
|
|
5,061 |
|
|
|
(1,635 |
) |
|
|
3,426 |
|
|
|
(1 |
) |
|
|
3,425 |
|
|
|
67.67 |
|
Total/weighted-average |
|
$ |
137,820 |
|
|
$ |
(3,353 |
) |
|
$ |
134,467 |
|
|
$ |
(4,716 |
) |
|
$ |
129,751 |
|
|
$ |
94.28 |
|
|
(1) |
Includes our net investment in a VIE of $11,849 at fair value that is consolidated for GAAP financial reporting purposes. |
|
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 |
|
$ |
200,000 |
|
|
|
0.10 |
% |
|
|
0.04 |
% |
|
|
(0.06 |
)% |
|
|
2.4 |
|
3 to less than 7 years |
|
|
75,000 |
|
|
|
0.89 |
% |
|
|
0.19 |
% |
|
|
(0.70 |
)% |
|
|
6.5 |
|
7 to less than 10 years |
|
|
250,000 |
|
|
|
1.12 |
% |
|
|
0.17 |
% |
|
|
(0.95 |
)% |
|
|
9.4 |
|
Total / weighted-average |
|
$ |
525,000 |
|
|
|
0.70 |
% |
|
|
0.12 |
% |
|
|
(0.58 |
)% |
|
|
6.3 |
|
MSR Financing Receivable:
Underlying MSR |
|
|
|
|
|
|||||||||||||||||||||
Holder of Loans |
|
UPB |
|
|
Weighted-Average Note Rate |
|
|
Weighted-Average Servicing Fee |
|
|
Weighted-Average Loan Age |
|
Price |
|
|
Multiple (1) |
|
|
Financing Receivable Fair Value |
|
||||||
Fannie Mae |
|
$ |
6,838,328 |
|
|
|
2.94 |
% |
|
|
0.26 |
% |
|
9 months |
|
|
1.04 |
% |
|
|
4.08 |
|
|
$ |
74,652 |
|
|
(1) |
Calculated as the underlying MSR price divided by the weighted-average servicing fee. |
Investor Presentation Second Quarter 2021 Exhibit 99.2
Information Related to Forward-Looking Statements Statements concerning interest rates, portfolio allocation, financing costs, portfolio hedging, prepayments, dividends, book value, utilization of loss carryforwards, any change in long-term tax structures (including any REIT election), use of equity raise proceeds and any other guidance on present or future periods constitute forward-looking statements that are subject to a number of factors, risks and uncertainties that might cause actual results to differ materially from stated expectations or current circumstances. These factors include, but are not limited to, the uncertainty and economic impact of the ongoing coronavirus (COVID-19) pandemic and the measures taken by the government to address it, including the impact on our business, financial condition, liquidity and results of operations due to a significant decrease in economic activity and disruptions in our financing operations, among other factors, changes in interest rates, increased costs of borrowing, decreased interest spreads, credit risks underlying the Company’s assets, especially related to the Company’s mortgage credit investments, 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.
Contents
COMPANY SNAPSHOT
Publicly Traded Capital Class A Common Stock Ticker: AAIC Exchange: NYSE Market Capitalization: $124 million (1) Senior Notes Due 2026 Ticker: AAIN Exchange: NYSE Per Annum Interest Rate: 6.00% Current Strip Yield per Annum: 6.31%(1)(2) Maturity Date: August 1, 2026 Series B Cumulative Perpetual Redeemable Preferred Stock Ticker: AAIC PrB Exchange: NYSE Per Annum Dividend Rate: 7.00% Payable Quarterly Current Strip Yield per Annum: 7.04%(1)(2) As of August 2, 2021. Source: Bloomberg Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock Ticker: AAIC PrC Exchange: NYSE Per Annum Dividend Rate: 8.25% Payable Quarterly Current Strip Yield per Annum: 8.28%(1)(2) Senior Notes Due 2025 Ticker: AIC Exchange: NYSE Per Annum Interest Rate: 6.75% Current Strip Yield per Annum: 6.55%(1)(2) Maturity Date: March 15, 2025
Company Snapshot Real estate investment trust (“REIT”) Internally-managed Selectively and opportunistically allocate investable capital primarily in mortgage assets with flexibility to invest in other asset classes Agency MBS Highly liquid residential MBS that carry a credit guarantee from Fannie Mae, Freddie Mac or Ginnie Mae MSR Related Assets Financing receivables with a mortgage servicing counterparty for which the investment return is based upon the performance of a pool of mortgage servicing rights (“MSRs”) Mortgage Credit Investments Includes MBS or mortgage loans secured by residential or commercial real property A reconciliation of non-GAAP core operating income to GAAP net income (loss) available (attributable) to common stock is provided on slide 17. Reflects the Company’s net investment of $11.8 million in a variable interest entity with gross assets and liabilities of $40.4 million and $28.6 million, respectively, that is consolidated for GAAP financial reporting purposes. Investable capital represents shareholders’ equity plus long-term unsecured debt. Arlington Asset Investment Corp. Summary
Q2 2021 FINANCIAL RESULTS AND PORTFOLIO UPDATE
Q2 2021 Financial Highlights $0.24 GAAP net loss per diluted common share $0.07 non-GAAP core operating income (1) per diluted common share Increase from $0.03 per diluted common share in Q1 2021 due primarily to an increase in the volume of MSR related assets, agency MBS and mortgage credit investments $5.94 book value per common share as of June 30, 2021 Decrease of 2.9% from $6.12 as of March 31, 2021 2.2 to 1 “at risk” leverage ratio (2) as of June 30, 2021 Increased capital allocated to MSR related assets to 25% through the strategic relationship established with a licensed, GSE approved servicer Repurchased 0.9 million shares, or 2.6%, of common stock at an average price of $4.06 per share Subsequent to June 30, 2021, repurchased an additional 0.4 million shares, or 1.1%, of common stock at an average price of $3.96 per share In July, extended the maturity and reduced the cost of Senior Notes On July 15, completed a public offering of $37.8 million in principal amount of 6.00% Senior Notes due 2026 On July 7, announced the redemption of all outstanding $23.8 million in principal amount of 6.625% Senior Notes due 2023 A reconciliation of non-GAAP core operating income to GAAP net income (loss) available (attributable) to common stock is provided on slide 17. Calculated the ratio of the sum of repurchase agreement financing, net payable or receivable for unsettled securities, net contractual forward price of TBA commitments less cash and cash equivalents compared to investable capital. Investable capital is calculated as the sum of stockholders’ equity and long-term unsecured debt.
Investment Portfolio Allocation as of June 30, 2021 Asset Allocation Investable Capital Allocation Reflects the Company’s net investment of $11,849 in a variable interest entity with gross assets and liabilities of $40,413 and $28,564, respectively, that is consolidated for GAAP financial reporting purposes. Investable capital is calculated as the Company’s GAAP shareholders’ equity plus long-term unsecured debt. Investable capital allocated to mortgage credit assets is calculated as mortgage credit securities plus loans less the secured debt collateralized buy such assets. Remaining investable capital is allocated to Agency MBS. Calculated as [short-term secured financing collateralized by MBS +(-) net payable (receivable) for unsettled securities – allocated cash] divided by the allocated investable capital.
Agency MBS Investments Agency MBS Investment Portfolio as of June 30, 2021 (Dollars in thousands) Investable capital is calculated as the Company’s GAAP shareholders’ equity plus long-term unsecured debt. Investable capital allocated to mortgage credit assets and MSR related assets is calculated as mortgage credit assets or MSR related assets less the secured debt collateralized buy such assets, respectively. Remaining investable capital is allocated to Agency MBS. Calculated as [short-term secured financing collateralized by MBS +(-) net payable (receivable) for unsettled securities – allocated cash] divided by the allocated investable capital. Calculated as the sum of GAAP net interest income attributable to agency MBS, TBA dollar roll income, and interest rate swap net income (expense) divided by the weighted average amortized cost basis of agency MBS net of the weighted average balance of agency MBS repurchase agreement financing for the period, annualized. Includes $34,456 at sale price of unsettled agency MBS sale commitments which are included in “sold securities receivable” on the balance sheet.
MSR Related Assets MSR Related Assets as of June 30, 2021 (Dollars in thousands) AAIC has a strategic relationship with a licensed, GSE approved mortgage servicer that enables us to garner the economic return of an investment in an MSR purchased by the servicer For an MSR purchased by our partner, AAIC: purchases the excess servicing spread entitling the Company to servicing fees in excess of 12.5 basis points; and funds the balance of the MSR in exchange for an unsecured right to payment equal to the underlying base servicing fee of 12.5 basis points less the costs of servicing and any proceeds from the sale of the underlying MSR, less a monthly oversight fee and an annual incentive fee, if earned At our option, we can direct our partner to leverage our capital Investable capital is calculated as the Company’s GAAP shareholders’ equity plus long-term unsecured debt. Investable capital allocated to mortgage credit assets and MSR related assets is calculated as mortgage credit assets or MSR related assets less the secured debt collateralized buy such assets, respectively. Remaining investable capital is allocated to Agency MBS.
Mortgage Credit Investments Investable capital is calculated as the Company’s GAAP shareholders’ equity plus long-term unsecured debt. Investable capital allocated to mortgage credit assets and MSR related assets is calculated as mortgage credit assets or MSR related assets less the secured debt collateralized buy such assets, respectively. Remaining investable capital is allocated to Agency MBS. Calculated as [short-term secured financing collateralized by mortgage credit investments +(-) net payable (receivable) for unsettled securities – allocated cash] divided by the allocated investable capital. Reflects the Company’s net investment in a consolidated VIE on a net basis. Reflects the Company’s net investment of $11,849 in a variable interest entity with gross assets and liabilities of $40,413 and $28,564, respectively, that is consolidated for GAAP financial reporting purposes on a net basis. For mortgage credit investments in securities, includes contractual accrued interest receivable. Mortgage Credit Investment Portfolio as of June 30, 2021 (Dollars in thousands)
Non-GAAP Core Operating Income (1) Core operating income and economic net interest income are non-GAAP financial measures. These non-GAAP measures are 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 and economic net interest income assist 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 these non-GAAP financial measures 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. 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 and economic net interest income. A reconciliation of non-GAAP core operating income to GAAP net income (loss) available (attributable) to common stock is provided on slide 17. Excludes the Company’s net investment in its consolidated VIE. Non-GAAP Core Operating Income Per Diluted Share Rollforward – Q2 2021 vs. Q1 2021 (2)
Book Value Per Share Rollforward Calculated based upon weighted average diluted common shares outstanding for the period. Calculated based upon common shares outstanding as of the end of the period. Excludes TBA dollar roll income which is included in non-GAAP core operating income. Excludes net interest income earned or expense incurred from interest rate swap agreements which is included in non-GAAP core operating income. Net of income tax provision (benefit) for TRS investment gain (loss), net.
ADDITIONAL FINANCIAL INFORMATION AND MARKET DATA
Balance Sheet Represents shares of common stock outstanding plus vested restricted stock units convertible into common stock less unvested restricted common stock. Book value per common share is calculated as total equity less the preferred stock liquidation preference divided by common shares outstanding. Calculated as the sum of repurchase agreement financing, plus (less) any net payable (receivable) for unsettled securities, plus the net contractual forward price of TBA commitments, less cash compared to shareholders’ equity plus long-term unsecured debt.
Statement of Comprehensive Income
Non-GAAP Core Operating Income Reconciliation (1) Core operating income and economic net interest income are non-GAAP financial measures. These non-GAAP measures are 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 and economic net interest income assist 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 these non-GAAP financial measures 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. 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 and economic net interest income. Reconciliation of GAAP Net Income to Non-GAAP Core Operating Income
Historical Agency MBS Investment Spread and Yield Curve Data 147 bps 3/31/21 – 105 bps 6/30/21 – 103 bps 7/30/21 – 99 bps 3/31/21 – 158 bps 6/30/21 – 122 bps 7/30/21 – 104 bps Historical Agency MBS Spread and Yield Curve Data
Interest rate sensitivity of MBS and TBA commitments is derived from The Yield Book, a third-party model. Interest rate sensitivity of MSR financing receivables is derived from an internal model. Actual results could differ significantly from these estimates. Interest rate sensitivity is based on assumptions resulting in certain limitations, including (i) an instantaneous shift in rates with no changes to the slope of the yield curve, (ii) the effect of negative interest rates, (iii) no changes in MBS spreads, and (iv) no changes to the investment or hedge portfolio. Excludes mortgage credit investments. Duration for agency MBS is derived from the Citi’s “The Yield Book,” a third-party model. Duration for MSR financing receivables is derived from an internal model. Duration is a measure of how much the price of an asset or liability is expected to change if interest rates move in a parallel manner and is dependent upon several subjective inputs and assumptions. Actual results could differ materially from these estimates. In addition, different models could generate materially different estimates using similar inputs and assumptions. Total liability and hedge duration is expressed in asset units. Excludes unsecured debt. Agency MBS spread sensitivity is derived from The Yield Book, a third-party model. Actual results could differ significantly from these estimates. The estimated change in book value reflects an assumed spread weighted average duration of 6.8 years, which is a model-based assumption that is dependent upon the size and composition of our portfolio as well as economic conditions present as of June 30, 2021. The agency MBS spread sensitivity is based on assumptions resulting in certain limitations, including (i) no changes in interest rates, and (ii) no changes to the investment or hedge portfolio. Interest Rate Sensitivity as of June 30, 2021 (1) Book Value Sensitivity to Interest Rates and Spreads Agency MBS Spread Sensitivity as of June 30, 2021 (4) Agency MBS Portfolio Net Duration Gap as of June 30, 2021
Market Data (1)(2) 30-Year FNMA fixed rate price information is provided for illustrative purposes only and represents generic FNMA TBA prices and is not meant to be reflective of securities held by the Company. Source: Bloomberg
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