Arlington Asset Investment Corp. Reports Fourth Quarter and Full Year 2022 Financial Results
Arlington Asset Investment Corp. (NYSE: AAIC) reported its fourth quarter 2022 and full-year financial results, showing a 2.2% increase in book value to $6.59 per share. The company achieved a net income of $0.13 per diluted common share and non-GAAP earnings of $0.09 per diluted share. The firm successfully completed the sale of its remaining single-family residential portfolio, enhancing its book value by $0.02. Total invested capital stood at $391.6 million, with a 0.3:1 leverage ratio. The company repurchased 1.3% of its outstanding shares, and the weighted average yield on MSR financing receivables was 14.98% for the quarter, down from 15.95%.
- 2.2% increase in book value to $6.59 per share.
- $0.02 per share increase in book value from the sale of SFR properties.
- Successful share repurchases totaling $1.1 million.
- 0.3:1 leverage ratio indicates reduced financial risk.
- GAAP net income remained low at $0.13 per diluted share.
- Weighted average yield on MSR financing receivables decreased from 15.95% to 14.98%.
- Weighted average cost of repurchase agreements rose to 5.02%.
Fourth Quarter 2022 Financial Highlights
$6.59 2.2% increase from prior quarter$6.48 February 28, 2023 (a)$0.13 $0.09 $0.04 1.3% of the outstanding shares of common stock as ofSeptember 30, 2022 - 0.3 to 1 "at risk" leverage ratio as of
December 31, 2022 - decrease from 1.2 to 1 as of
September 30, 2022 - Completed previously announced sale of remaining portfolio of single-family residential ("SFR") properties that resulted in a
$0.02
Full Year 2022 Financial Highlights
$0.09 $0.29 7.0% increase in book value per common share$0.30 9.2% of the outstanding shares of common stock
Fourth Quarter Investment Portfolio
As of
Assets |
|
| Leverage (2) | |||||||||||||
MSR financing receivables | $ | 180,365 | $ | 180,365 | 63 | % | — | |||||||||
Credit investments (3) | 167,519 | 58,485 | 21 | % | 1.9 | |||||||||||
Agency MBS (4) | 43,722 | 45,566 | 16 | % | — | |||||||||||
Total invested capital | $ | 391,606 | 284,416 | 100 | % | |||||||||||
Cash and other corporate capital, net | 19,329 | |||||||||||||||
Total investable capital | $ | 303,745 | 0.3 | |||||||||||||
(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 the sum of our repurchase agreement financing, net payable or receivable for unsettled securities, net contractual forward purchase or sale price of our TBA commitments and leverage within our MSR financing receivables less our cash and cash equivalents compared to our investable capital. |
(3) | Includes our net investment of |
(4) | Agency mortgage-backed securities ("MBS") assets include the fair value of the agency MBS which underlie our TBA forward purchase and sale commitments. In accordance with GAAP, our TBA forward commitments are reflected on the consolidated balance sheets as derivative assets and liabilities at fair value in the financial statement line items "other assets" and "other liabilities". As of |
MSR Related Investments
The Company is party to agreements with a licensed,
The Company's MSR financing receivable investments as of
Amortized Cost Basis (1) | Unrealized Gain | Fair Value | ||||||||
$ | 134,469 | $ | 45,896 | $ | 180,365 | |||||
(1) | Represents capital investments plus accretion of interest income net of cash distributions. |
MSR Financing Receivable Underlying Reference Amounts: | ||||||||||||||||||||||||||
MSRs | Financing | Advances | Cash and Other Net | Counterparty Incentive Fee Accrual | MSR Financing | Implicit | ||||||||||||||||||||
$ | 184,107 | $ | (7,863) | $ | 6,046 | $ | 10,643 | $ | (12,568) | $ | 180,365 | 0.04 | ||||||||||||||
Underlying Reference MSRs: | ||||||||||||||||||||||||||
Holder of Loans | Unpaid | Weighted- | Weighted- | Weighted- | Price | Multiple (1) | Fair Value | |||||||||||||||||||
Fannie Mae | $ | 12,547,523 | 3.09 | % | 0.25 | % | 24 months | 1.35 | % | 5.41 | $ | 169,839 | ||||||||||||||
Freddie Mac | 1,023,446 | 3.72 | % | 0.25 | % | 22 months | 1.39 | % | 5.58 | 14,268 | ||||||||||||||||
Total/weighted-average | $ | 13,570,969 | 3.14 | % | 0.25 | % | 24 months | 1.36 | % | 5.42 | $ | 184,107 | ||||||||||||||
(1) | Calculated as the underlying MSR price divided by the weighted-average servicing fee. |
As of
Credit Investments
The Company's credit investments generally include mortgage loans secured by residential or commercial real property or MBS collateralized by residential or commercial mortgage loans or residential solar panel loans ("non-agency" MBS or ABS). As of
Market Price | Fair Value (1) | Financing |
| Leverage | ||||||||||||||||
Commercial MBS | $ | 98.93 | $ | 98,933 | $ | 88,953 | $ | 10,188 | 8.7 | |||||||||||
Commercial mortgage loan | 100.00 | 29,264 | 20,485 | 8,931 | 2.3 | |||||||||||||||
Residential MBS - interest-only (3) | 10.76 | 24,036 | — | 24,036 | — | |||||||||||||||
Residential MBS (3) | 64.66 | 1,048 | — | 1,048 | — | |||||||||||||||
Business purpose residential MBS (4) | 91.75 | 7,244 | — | 7,244 | — | |||||||||||||||
Corporate asset-backed loan | 100.00 | 4,914 | — | 4,958 | — | |||||||||||||||
Solar ABS | 41.10 | 2,080 | — | 2,080 | — | |||||||||||||||
Total/weighted-average | $ | 167,519 | $ | 109,438 | $ | 58,485 | 1.9 | |||||||||||||
(1) | For non-commercial credit investments in securities, includes contractual accrued interest receivable. |
(2) | Invested capital includes investment accrued interest receivable and financing accrued interest payable. |
(3) | Residential MBS – interest-only and residential MBS, in combination, reflect our net investment at fair value of |
(4) | Includes our net investment of |
As of
Agency MBS
The Company's agency MBS consist of residential mortgage pass-through certificates for which the principal and interest payments are guaranteed by a government sponsored enterprise, such as the Federal National Mortgage Association ("Fannie Mae") or the Federal Home Loan Mortgage Corporation ("Freddie Mac"). As of
Unpaid | Net | Amortized | Net | Fair Value | Market | Coupon | Weighted | |||||||||||||||||||||||||
Fannie Mae | $ | 253,120 | $ | (3,813) | $ | 249,307 | $ | (10,294) | $ | 239,013 | $ | 94.43 | 4.09 | % | 9.2 | |||||||||||||||||
Freddie Mac | 217,206 | (1,451) | 215,755 | (11,228) | 204,527 | 94.16 | 4.06 | % | 9.6 | |||||||||||||||||||||||
Total/weighted-average | $ | 470,326 | $ | (5,264) | $ | 465,062 | $ | (21,522) | $ | 443,540 | $ | 94.30 | 4.07 | % | 9.4 | |||||||||||||||||
The Company's weighted average yield on its specified agency MBS was
As of
Notional Amount: | Implied | Implied | Net Carrying | |||||||||||||
$ | (70,000 | ) | $ | (62,828 | ) | $ | (61,516 | ) | $ | 1,312 | ||||||
(150,000 | ) | (142,255 | ) | (140,830 | ) | 1,425 | ||||||||||
(205,000 | ) | (200,365 | ) | (197,472 | ) | 2,893 | ||||||||||
Total net long (short) agency TBA positions | $ | (425,000 | ) | $ | (405,448 | ) | $ | (399,818 | ) | $ | 5,630 | |||||
(1) | Notional amount represents the unpaid principal balance of the underlying agency MBS. |
(2) | Implied cost basis represents the contractual forward price for the underlying agency MBS. |
(3) | Implied fair value represents the current fair value of the underlying agency MBS. |
(4) | Net carrying amount represents the difference between the implied cost basis and the implied fair value of the underlying agency MBS. This amount is reflected on the Company's consolidated balance sheets as a component of "other assets" and "other liabilities." |
As of
The Company enters into various hedging transactions to mitigate the interest rate sensitivity of its cost borrowing and the value of its fixed-rate agency MBS and MSR financing receivables. Under the terms of the Company's interest rate swap agreements, the Company pays or receives interest payments based on a fixed rate and pays or receives variable interest payments based upon the Secured Overnight Financing Rate ("SOFR"). As of
Weighted-average: | ||||||||||||||
Notional Amount | Fixed | Variable |
| Remaining | ||||||||||
Years to maturity: | ||||||||||||||
Less than 5 years | $ | 60,000 | 3.58 % | 4.30 % | (0.72) % | 4.9 | ||||||||
The Company's weighted average net receive rate of its interest rate swap agreements was
Single-family Residential Investments
During the fourth quarter of 2022, the Company completed its previously announced sale of its wholly-owned subsidiary,
Other Fourth Quarter 2022 Financial Highlights
The Company's book value was
The Company's "at risk" leverage ratio was 0.3 to 1 as of
During the fourth quarter of 2022, the Company repurchased 0.4 million shares of its common stock at an average price of
Distributions to Shareholders
The Company has also announced the tax characteristics of the distributions paid to its preferred shareholders in calendar year 2022. The Company's distributions paid to its Series B and Series C preferred shareholders in 2022 of
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
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, as well as the Company's estimates for certain financial information post year-end, 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, inflation, 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 earnings available for distribution, 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
Financial data to follow
CONSOLIDATED BALANCE SHEETS | ||||||||
(Dollars in thousands, except per share amounts) | ||||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Cash and cash equivalents (includes | $ | 28,021 | $ | 13,803 | ||||
Restricted cash | — | 590 | ||||||
Restricted cash of consolidated VIEs | 2,191 | 1,954 | ||||||
Agency mortgage-backed securities, at fair value | 443,540 | 445,122 | ||||||
MSR financing receivables, at fair value | 180,365 | 164,585 | ||||||
Credit investments, at fair value | 133,701 | 145,158 | ||||||
Mortgage loans of consolidated VIEs, at fair value | 193,957 | 203,456 | ||||||
Single-family residential real estate (net of | — | 81,242 | ||||||
Deposits | 1,823 | 3,228 | ||||||
Other assets (includes | 18,720 | 15,003 | ||||||
Total assets | $ | 1,002,318 | $ | 1,074,141 | ||||
LIABILITIES AND EQUITY | ||||||||
Liabilities: | ||||||||
Repurchase agreements | $ | 515,510 | $ | 429,910 | ||||
Purchased securities payable | — | 93,081 | ||||||
Secured debt of consolidated VIEs, at fair value | 169,345 | 182,336 | ||||||
Long-term unsecured debt | 86,405 | 86,302 | ||||||
Long-term debt secured by single-family properties | — | 56,801 | ||||||
Other liabilities (includes | 13,718 | 11,501 | ||||||
Total liabilities | 784,978 | 859,931 | ||||||
Equity: | ||||||||
Preferred stock (liquidation preference of | 32,821 | 32,968 | ||||||
Common stock | 282 | 286 | ||||||
Additional paid-in capital | 2,024,298 | 2,024,746 | ||||||
Accumulated deficit | (1,840,061) | (1,843,790) | ||||||
Total equity | 217,340 | 214,210 | ||||||
Total liabilities and equity | $ | 1,002,318 | $ | 1,074,141 | ||||
Book value per common share (1) | $ | 6.59 | $ | 6.45 | ||||
Common shares outstanding (in thousands) (2) | 27,904 | 28,154 | ||||||
(1) Book value per common share is calculated as total equity plus accumulated depreciation of single-family residential real estate less the | ||||||||
(2) Represents common shares outstanding plus vested restricted stock units convertible into common stock less shares of unvested restricted | ||||||||
Assets and liabilities of consolidated VIEs: | ||||||||
Cash and restricted cash | $ | 2,487 | $ | 2,514 | ||||
Mortgage loans, at fair value | 193,957 | 203,456 | ||||||
Other assets | 2,067 | 1,413 | ||||||
Secured debt, at fair value | (169,345) | (182,336) | ||||||
Other liabilities | (262) | (265) | ||||||
Net investment in consolidated VIEs | $ | 28,904 | $ | 24,782 | ||||
CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||||||
(Dollars in thousands, except per share data) | ||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||
Year Ended | Three Months Ended | |||||||||||||||||||
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Interest income | ||||||||||||||||||||
MSR financing receivables | $ | 15,419 | $ | 4,446 | $ | 3,608 | $ | 3,983 | $ | 3,382 | ||||||||||
Agency mortgage-backed securities | 11,920 | 4,732 | 3,631 | 2,065 | 1,492 | |||||||||||||||
Credit securities and loans | 7,512 | 2,932 | 2,736 | 991 | 853 | |||||||||||||||
Mortgage loans of consolidated VIEs | 7,570 | 2,302 | 2,303 | 1,611 | 1,354 | |||||||||||||||
Other | 862 | 314 | 110 | 113 | 325 | |||||||||||||||
Total interest and other income | 43,283 | 14,726 | 12,388 | 8,763 | 7,406 | |||||||||||||||
Rent revenues from single-family properties | 6,173 | 869 | 2,103 | 2,137 | 1,064 | |||||||||||||||
Interest expense | ||||||||||||||||||||
Repurchase agreements | 8,983 | 5,081 | 2,863 | 763 | 276 | |||||||||||||||
Long-term debt secured by single-family properties | 2,202 | 335 | 741 | 718 | 408 | |||||||||||||||
Long-term unsecured debt | 5,742 | 1,516 | 1,456 | 1,400 | 1,370 | |||||||||||||||
Secured debt of consolidated VIEs | 4,584 | 906 | 912 | 1,578 | 1,188 | |||||||||||||||
Total interest expense | 21,511 | 7,838 | 5,972 | 4,459 | 3,242 | |||||||||||||||
Single-family property operating expenses | 6,073 | 755 | 1,872 | 1,915 | 1,531 | |||||||||||||||
Net operating income | 21,872 | 7,002 | 6,647 | 4,526 | 3,697 | |||||||||||||||
Investment and derivative gain (loss), net | 2,587 | 1,809 | 1,235 | 370 | (827) | |||||||||||||||
General and administrative expenses | ||||||||||||||||||||
Compensation and benefits | 9,845 | 3,200 | 2,256 | 2,324 | 2,065 | |||||||||||||||
Other general and administrative expenses | 5,070 | 1,267 | 1,121 | 1,463 | 1,219 | |||||||||||||||
Total general and administrative expenses | 14,915 | 4,467 | 3,377 | 3,787 | 3,284 | |||||||||||||||
Income (loss) before income taxes | 9,544 | 4,344 | 4,505 | 1,109 | (414) | |||||||||||||||
Income tax provision (benefit) | 4,118 | (45) | 1,074 | 802 | 2,287 | |||||||||||||||
Net income (loss) | 5,426 | 4,389 | 3,431 | 307 | (2,701) | |||||||||||||||
Dividend on preferred stock | (2,784) | (660) | (675) | (707) | (742) | |||||||||||||||
Net income (loss) available (attributable) to | $ | 2,642 | $ | 3,729 | $ | 2,756 | $ | (400) | $ | (3,443) | ||||||||||
Basic earnings (loss) per common share | $ | 0.09 | $ | 0.13 | $ | 0.10 | $ | (0.01) | $ | (0.12) | ||||||||||
Diluted earnings (loss) per common share | $ | 0.09 | $ | 0.13 | $ | 0.10 | $ | (0.01) | $ | (0.12) | ||||||||||
Weighted average common shares outstanding (in | ||||||||||||||||||||
Basic | 28,717 | 27,956 | 28,338 | 28,766 | 29,832 | |||||||||||||||
Diluted | 29,243 | 28,468 | 28,913 | 28,766 | 29,832 | |||||||||||||||
Non-GAAP Earnings Available for Distribution
In addition to the results of operations determined in accordance with GAAP, we also report a non-GAAP financial measure "earnings available for distribution". We define earnings available for distribution as net income available to common stock determined in accordance with GAAP adjusted for the following items:
- Plus (less) realized and unrealized losses (gains) on investments and derivatives;
- Plus (less) income tax provision (benefit) for TRS realized and unrealized gains and losses on investments and derivatives
- Plus TBA dollar roll income (expense)
- Plus (less) interest rate swap net interest income (expense)
- Plus depreciation of single-family residential properties
- Plus stock-based compensation
Realized and unrealized gains and losses recognized with respect to our mortgage related investments and economic hedging instruments, which are reported in line item "investment and derivative gain (loss), net" of our consolidated statements of comprehensive income, other than TBA dollar roll income and interest rate swap net interest income or expense, are excluded from the computation of earnings available for distribution as such gains on losses are not reflective of the economic interest income earned or interest expense incurred from our interest-bearing financial assets and liabilities during the indicated reporting period. Because our long-term-focused investment strategy for our mortgage related investment portfolio is to generate a net spread on the leveraged assets while prudently hedging periodic changes in the fair value of those assets attributable to changes in benchmark interest rates, we generally expect the fluctuations in the fair value of our mortgage related investments and economic hedging instruments to largely offset one another over time. In addition, certain of our investments are held by our TRS which is subject to
TBA dollar roll income (expense) represents the economic equivalent of net interest income (expense) generated from our transactions in non-specified fixed-rate agency MBS, executed through sequential series of forward-settling purchase and sale transactions that are settled on a net basis (known as "dollar roll" transactions). Dollar roll income (expense) is generated (incurred) as a result of delaying, or "rolling," the settlement of a forward-settling purchase (sale) of a TBA agency MBS by entering into an offsetting "spot" sale (purchase) with the same counterparty prior to the settlement date, net settling the "paired-off" positions in cash, and contemporaneously entering another forward-settling purchase (sale) with the same counterparty of a TBA agency MBS of the same essential characteristics for a later settlement date at a price discount relative to the spot sale (purchase). The price discount of the forward-settling purchase (sale) relative to the contemporaneously executed spot sale (purchase) reflects compensation to the seller for the interest income (inclusive of expected prepayments) that, at the time of sale, is expected to be foregone as a result of relinquishing beneficial ownership of the MBS from the settlement date of the spot sale until the settlement date of the forward purchase, net of implied repurchase financing costs. We calculate dollar roll income (expense) as the excess of the spot sale (purchase) price over the forward-settling purchase (sale) price and recognize this amount ratably over the period beginning on the settlement date of the sale (purchase) and ending on the settlement date of the forward purchase (sale). In our consolidated statements of comprehensive income prepared in accordance with GAAP, TBA agency MBS dollar roll income (expense) is reported as a component of the overall periodic change in the fair value of TBA forward commitments within the line item "investment and derivative gain (loss), net."
We utilize interest rate swap agreements to economically hedge a portion of our exposure to variability in future interest cash flows, attributable to changes in benchmark interest rates, associated with future roll-overs of our short-term repurchase agreement financing arrangements. Accordingly, the net interest income earned or expense incurred (commonly referred to as "net interest carry") from our interest rate swap agreements in combination with repurchase agreement interest expense recognized in accordance with GAAP represents our effective "economic interest expense." In our consolidated statements of comprehensive income prepared in accordance with GAAP, the net interest income earned or expense incurred from interest rate swap agreements is reported as a component of the overall periodic change in the fair value of derivative instruments within the line item "investment and derivative gain (loss), net."
The following table provides a reconciliation of GAAP net income (loss) available (attributable) to common stock for the last four fiscal quarters (unaudited, dollars in thousands):
Year Ended | Three Months Ended | |||||||||||||||||||
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Net income (loss) available (attributable) to common | $ | 2,642 | $ | 3,729 | $ | 2,756 | $ | (400) | $ | (3,443) | ||||||||||
Add (less): | ||||||||||||||||||||
Investment and derivative (gain) loss, net | (2,587) | (1,809) | (1,235) | (370) | 827 | |||||||||||||||
Income tax provision (benefit) for TRS investment | 2,616 | (344) | 406 | 496 | 2,058 | |||||||||||||||
Depreciation of single-family residential properties | 2,176 | 225 | 632 | 604 | 715 | |||||||||||||||
Stock-based compensation expense | 3,537 | 865 | 919 | 992 | 761 | |||||||||||||||
Add back: | ||||||||||||||||||||
TBA dollar roll income (expense) | 253 | (429) | (421) | 280 | 823 | |||||||||||||||
Interest rate swap net interest (expense) income | (103) | 212 | 258 | (282) | (291) | |||||||||||||||
Non-GAAP earnings available for distribution | $ | 8,534 | $ | 2,449 | $ | 3,315 | $ | 1,320 | $ | 1,450 | ||||||||||
Non-GAAP earnings available for distribution per | $ | 0.29 | $ | 0.09 | $ | 0.11 | $ | 0.05 | $ | 0.05 | ||||||||||
Weighted average diluted common shares outstanding | $ | 29,243 | 28,468 | 28,913 | 29,300 | 30,315 | ||||||||||||||
Earnings available for distribution is used by management to evaluate the financial performance of our long-term-focused, net interest spread-based 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. In addition, we believe that earnings available for distribution assists investors in understanding and evaluating the financial performance of our long-term-focused, net interest spread-based 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 all 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. In addition, our calculation of earnings available for distribution may not be comparable to other similarly titled measures of other companies. Therefore, we believe that earnings available for distribution should be considered as a supplement to, and in conjunction with, net income and comprehensive income determined in accordance with GAAP. Furthermore, there may be differences between earnings available for distribution and taxable income determined in accordance with the Internal Revenue Code. As a REIT, we are required to distribute at least
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(a) The Company's financial statement closing and review procedures for the quarter ended
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FAQ
What were Arlington Asset Investment Corp.'s fourth quarter 2022 earnings results?
How did the book value change for Arlington Asset Investment Corp.?
What was the leverage ratio for Arlington Asset Investment Corp. as of December 31, 2022?
What impact did the sale of single-family residential properties have on Arlington's financials?
What is the weighted average yield on MSR financing receivables for Arlington?
