Arlington Asset Investment Corp. Reports Fourth Quarter and Full Year 2020 Financial Results

MCLEAN, Va., Feb. 16, 2021 /PRNewswire/ — Arlington Asset Funding Corp. (NYSE: AAIC) (the “Firm” or “Arlington“) at this time reported internet earnings obtainable to frequent shareholders of $10.7 million, or $0.32 per diluted frequent share, and non-GAAP core working earnings of $4.1 million, or $0.12 per diluted frequent share, for the quarter ended December 31, 2020. A reconciliation of non-GAAP core working earnings to GAAP internet earnings seems on the finish of this press launch.

Fourth Quarter 2020 Monetary Highlights

• $0.32 per diluted frequent share of GAAP internet earnings
• $0.12 per diluted frequent share of non-GAAP core working earnings
• $6.31 per frequent share of e book worth
• 7% financial return
• 2.4 to 1 “in danger” leverage ratio
• 0.5 million shares of frequent inventory repurchased, or 1.5% of excellent frequent inventory, at a mean value of $2.83 per share
• Established strategic relationship to put money into mortgage servicing rights

Full Yr 2020 Monetary Highlights

• $2.00 per diluted frequent share of GAAP internet loss
• $0.33 per diluted frequent share of non-GAAP core working earnings
• 3.7 million shares of frequent inventory repurchased, or 10.0% of excellent frequent inventory, at a mean value of $2.81 per share
• $2.4 million, or 16%, decline on the whole and administrative bills from prior yr

“Throughout the fourth quarter, the Firm delivered a 7% financial return to shareholders whereas sustaining a conservative danger profile and low leverage,” stated J. Rock Tonkel, Jr., the Firm’s President and Chief Govt Officer.  “The Firm continues to function with full monetary flexibility that permits it to shift capital to benefit from engaging return alternatives that will come up throughout sectors as financial situations evolve.  Within the present market atmosphere of low charges and tight funding spreads, the Firm continues to make robust progress in establishing a number of channels of excessive return funding alternatives that supply ongoing entry to non-commodity investments with potential platform upside.  These alternatives complement our company mortgage investments, diversify danger and may enhance the extent and reliability of returns to shareholders.  The Firm took one other robust step in the direction of its goal of making sustainable funding partnerships within the fourth quarter by efficiently establishing a strategic relationship that permits it to speculate capital in mortgage servicing rights which presently provide engaging double-digit unlevered returns.  Alongside these optimistic steps, the Firm repurchased a good portion of its frequent shares accretively in the course of the yr and made substantial progress in the direction of bettering its value construction, decreasing its basic and administrative bills by 16% with further reductions anticipated in 2021.  Trying ahead, we’re optimistic concerning the ongoing stream of excessive return alternatives we proceed to guage whereas additionally benefitting from a powerful stability sheet and a big remaining frequent inventory repurchase program.”

Different Fourth Quarter Highlights

As of December 31, 2020, the Firm’s funding portfolio totaled $1,145 million at honest worth, which incorporates $93 million of mortgage loans of a consolidated variable curiosity entity (“VIE”).  Assuming the Firm’s funding within the VIE shouldn’t be consolidated, the Firm’s funding portfolio totaled $1,063 million at honest worth as of December 31, 2020 consisting of $971 million of company mortgage-backed securities (“MBS”), $83 million of mortgage credit score investments and $9 million of mortgage servicing proper (“MSR”) associated belongings.  Based mostly on investable capital, the Firm has allotted 81%, 16%, and three% of its capital to its company MBS, mortgage credit score and MSR associated funding methods, respectively, as of December 31, 2020. 

The Firm’s company MBS encompass residential mortgage pass-through certificates for which the principal and curiosity funds are assured by both a U.S. authorities sponsored enterprise (“GSE”), such because the Federal Nationwide Mortgage Affiliation (“Fannie Mae”) and the Federal Residence Mortgage Mortgage Company (“Freddie Mac”), or by a U.S. authorities company, such because the Authorities Nationwide Mortgage Affiliation (“Ginnie Mae“).  The Firm’s mortgage credit score investments usually embrace mortgage loans secured by residential or business actual property or MBS collateralized by residential or business mortgage loans (“non-agency MBS”).

As of December 31, 2020, the Firm’s $971 million company MBS funding portfolio at honest worth was comprised fully of specified company MBS as follows:

• $171 million of 1.5% coupon 30-year company MBS
• $505 million of two.0% coupon 30-year company MBS
• $197 million of two.5% coupon 30-year company MBS
• $98 million of three.0% coupon 30-year company MBS

As of December 31, 2020, the Firm’s $971 million company MBS portfolio had a weighted common amortized value foundation of $103.67 and a weighted common market value of $104.62.  The Firm’s company MBS are comprised of securities backed by specified swimming pools of mortgage loans chosen for his or her decrease propensity for prepayment.  Weighted common pay-up premiums on the Firm’s company MBS portfolio, which symbolize the estimated value premium of company MBS backed by specified swimming pools over a generic to-be-announced (“TBA”) company MBS, have been roughly 0.94 share level as of December 31, 2020 as in comparison with 1.41 share factors as of September 30, 2020. 

Throughout the fourth quarter of 2020, the Firm bought company MBS totaling $548 million and offered company MBS for gross sale proceeds of $179 million for a internet realized achieve of $3.0 million. 

As of December 31, 2020, the Firm’s $83 million mortgage credit score funding portfolio at honest worth was comprised primarily of the next:

• $45 million business mortgage mortgage
• $21 million of non-agency MBS collateralized by enterprise function residential mortgage loans
• Contains an $11 million internet funding in a consolidated VIE
• $15 million of non-agency MBS collateralized by small stability business mortgage loans

Throughout the fourth quarter of 2020, the Firm bought mortgage credit score investments totaling $2 million and offered or acquired full principal funds on its mortgage credit score investments for gross proceeds of $49 million for a internet realized achieve of $1.6 million.

On December 31, 2020, the Firm entered into agreements with a licensed, GSE accredited residential mortgage mortgage servicer that allow the Firm to garner the financial return of an funding in an MSR bought by the mortgage servicing counterparty.  The association permits the Firm to take part within the financial advantages of investing in an MSR with out holding the requisite licenses to buy or maintain MSRs immediately.  The transactions are accounted for as a financing receivable on the Firm’s consolidated monetary statements.  Throughout the fourth quarter of 2020, the Firm made an preliminary funding of $9.3 million funding in an MSR financing receivable and has a dedication to fund a minimal of $25 million of capital beneath this relationship.  At its possibility, the Firm may have its mortgage servicing counterparty make the most of leverage on the Firm’s invested capital to extend potential returns.

As of December 31, 2020, the Firm had a complete of $655 million of repurchase agreements excellent.  As of December 31, 2020, the Firm had $624 million of repurchase agreements excellent with a weighted common price of 0.21% and remaining weighted common maturity of 14 days secured by an mixture of $656 million of company MBS at honest worth.  As of December 31, 2020, the Firm had a $31 million repurchase settlement excellent with a price of three.00% and remaining maturity of 315 days secured by a $45 million business mortgage mortgage at honest worth.  As of December 31, 2020, the Firm didn’t have any repurchase agreements excellent secured by non-agency MBS. 

The Firm’s “in danger” leverage ratio was 2.4 to 1 as of December 31, 2020 in comparison with 1.5 to 1 as of September 30, 2020.  The Firm’s “in danger” leverage ratio is calculated because the sum of the Firm’s repurchase settlement financing, internet payable or receivable for unsettled securities and internet contractual value of TBA commitments much less money and money equivalents in comparison with the Firm’s investable capital measured because the sum of the Firm’s shareholders’ fairness and long-term unsecured debt. 

GAAP internet curiosity earnings was $6.4 million for the fourth quarter of 2020 in comparison with $3.8 million for the third quarter of 2020.  GAAP internet curiosity earnings for the fourth quarter of 2020 contains $2.9 million of internet curiosity earnings from the Firm’s funding in a consolidated belief of enterprise function residential mortgage loans.  The Firm expects that this performing funding’s contribution to internet curiosity earnings will likely be decrease within the first two quarters of 2021 because the brief length of this asset is anticipated to result in accelerated pay down of the funding within the first half of the yr.

The Firm’s weighted common yield on its company MBS was 1.80% for the fourth quarter of 2020 in comparison with 2.08% for the third quarter of 2020, and the precise weighted-average fixed prepayment price (“CPR”) for the Firm’s company MBS was 7.29% for the fourth quarter of 2020 in comparison with 8.49% for the third quarter of 2020.  The Firm’s weighted common value of repurchase settlement funding secured by company MBS was 0.21% in the course of the fourth quarter of 2020 in comparison with 0.22% in the course of the third quarter of 2020.  

Underneath the phrases of the Firm’s rate of interest swap agreements, the Firm pays semiannual curiosity funds primarily based on a hard and fast price and receives variable curiosity funds primarily based upon both the prevailing three-month London Interbank Provided Fee (“LIBOR”) or Secured In a single day Financing Fee (“SOFR”).  As of December 31, 2020, the Firm had $275 million in notional quantity of rate of interest swap agreements with a weighted common pay fastened price of 0.28% and a remaining weighted common maturity of 4.7 years.  The Firm’s weighted common internet pay price of its rate of interest swap agreements was 0.21% in the course of the fourth quarter of 2020 in comparison with 0.18% in the course of the third quarter of 2020.  As of December 31, 2020, the entire notional quantity of the Firm’s rate of interest swaps was 42% of the Firm’s excellent repurchase settlement funding and internet TBA buy commitments with a internet length hole of two.5 years.  Underneath GAAP, the Firm has not designated these transactions as hedging devices for monetary reporting functions and due to this fact all positive factors and losses on its hedging devices are recorded as internet funding positive factors and losses within the Firm’s monetary statements. 

The Firm reported annual basic and administrative bills of $12.6 million for 2020, a lower of 16% from the prior yr.  

Core working earnings was $4.1 million, or $0.12 per diluted frequent share for the fourth quarter of 2020 in comparison with $1.0 million, or $0.03 per diluted frequent share for the third quarter of 2020.  Core working earnings is a non-GAAP monetary measure that’s described later on this press launch. 

The Firm had internet funding positive factors of $7.0 million, or $0.21 per diluted frequent share, for the fourth quarter of 2020 on its funding portfolio and associated rate of interest hedging devices, excluding TBA greenback roll earnings and rate of interest swap internet curiosity expense.

Throughout the fourth quarter of 2020, the Firm repurchased 0.5 million shares of its frequent inventory for a purchase order value of $1.5 million representing 1.5% of frequent inventory excellent as of September 30, 2020.  For the yr ended December 31, 2020, the Firm repurchased 3.7 million shares of its frequent inventory for a purchase order value of $10.4 million representing 10.0% of frequent inventory excellent as of December 31, 2019.  As of December 31, 2020, the Firm had remaining authorization from its Board of Administrators to repurchase as much as 16.2 million shares of its frequent inventory.

Distributions to Shareholders

The Firm’s Board of Administrators accredited distributions to its Collection B and Collection C most popular shareholders of $0.4375 per share and $0.515625 per share, respectively, for the fourth quarter of 2020.  The distributions have been paid on December 30, 2020 to shareholders of document as of December 16, 2020.  In step with the Firm’s intent to retain capital and strengthen its stability sheet, the Firm’s Board of Administrators decided to not declare a dividend on its frequent inventory for the fourth quarter of 2020.  The Firm’s Board of Administrators will proceed to guage the cost of quarterly dividends primarily based on a number of elements together with general market situations, return alternatives on investments, liquidity wants and REIT distribution necessities and no definitive willpower has been made right now concerning the declaration of future dividends. 

The Firm is organized and operated in a way that can enable it to qualify as a REIT for U.S. federal earnings tax functions and presently intends to proceed to be organized and operated in such a way.  As a REIT, distributions to shareholders will usually be taxable as peculiar earnings that aren’t eligible to be taxed as certified dividends.  Nonetheless, a portion of such distributions could also be designated as long-term capital achieve dividends to the extent that such portion is attributable to the Firm’s sale of capital belongings held for multiple yr.  Non-corporate taxpayers could deduct as much as 20% of dividends acquired from a REIT that aren’t designated as capital achieve dividends or certified dividend earnings, topic to sure limitations.  Distributions in extra of the Firm’s present and accrued earnings and income will likely be handled as a tax-free return of capital to the extent of every shareholder’s tax foundation within the Firm’s inventory and as capital achieve thereafter.

The Firm has additionally introduced the tax traits of the distributions paid to its frequent and most popular shareholders in calendar yr 2020. The Firm’s distributions paid to frequent shareholders in 2020 of $0.225 per share have been all a return of capital. The Firm’s distributions paid to its Collection B and Collection C most popular shareholders in 2020 of $1.75 per share and $2.0625 per share, respectively, have been additionally all a return of capital. Shareholders ought to obtain a Type 1099-DIV containing this data from their brokers, switch brokers or different establishments. 

Convention Name

The Firm will maintain a convention name for buyers at 10:00 A.M. Japanese Time on Tuesday, February 16, 2021 to debate the Firm’s fourth quarter 2020 outcomes.

Traders could hearken to the earnings name through the web at: http://www.arlingtonasset.com/index.php?s=19. Replays of the earnings name will likely be obtainable for 60 days through webcast on the Web handle offered above, starting two hours after the decision ends.

Further Info

The Firm will make obtainable further quarterly data for the good thing about its shareholders via a supplemental presentation that will likely be obtainable on the Firm’s web site, www.arlingtonasset.com.  The presentation will likely be obtainable on the Webcasts and Displays part positioned beneath the Updates & Occasions tab of the Firm’s web site.

Concerning the Firm

Arlington Asset Funding Corp. (NYSE: AAIC) presently invests primarily in mortgage-related and different belongings and has elected to be taxed as a REIT.  The Firm is headquartered within the Washington, D.C. metropolitan space.  For extra data, please go to www.arlingtonasset.com.

Statements regarding rates of interest, portfolio allocation, financing prices, portfolio hedging, prepayments, dividends, e book worth, utilization of loss carryforwards, any change in long-term tax constructions (together with any REIT election), use of fairness increase proceeds and some other steering on current or future intervals represent forward-looking statements which might be topic to various elements, dangers and uncertainties that may trigger precise outcomes to vary materially from acknowledged expectations or present circumstances.  These elements embrace, however usually are not restricted to, the uncertainty and financial impression of the continued coronavirus (COVID-19) pandemic and the measures taken by the federal government to deal with it, together with the impression on our enterprise, monetary situation, liquidity and outcomes of operations because of a major lower in financial exercise and disruptions in our financing operations, amongst different elements, adjustments in rates of interest, elevated prices of borrowing, decreased curiosity spreads, credit score dangers underlying the Firm’s belongings, particularly associated to the Firm’s mortgage credit score investments, adjustments in political and financial insurance policies, adjustments in default charges, adjustments in prepayment charges and different assumptions underlying our estimates associated to our projections of future core earnings, adjustments within the Firm’s returns, adjustments in using the Firm’s tax advantages, the Firm’s capacity to qualify and preserve qualification as a REIT, adjustments within the company MBS asset yield, adjustments within the Firm’s monetization of internet working loss carryforwards, adjustments within the Firm’s funding technique, adjustments within the Firm’s capacity to generate money earnings and dividends, preservation and utilization of the Firm’s internet working loss and internet capital loss carryforwards, impacts of adjustments to and adjustments by Fannie Mae and Freddie Mac, actions taken by the U.S. Federal Reserve, the Federal Housing Finance Company and the U.S. Treasury, availability of alternatives that meet or exceed the Firm’s danger adjusted return expectations, capacity and willingness to make future dividends, capacity to generate enough money via retained earnings to fulfill capital wants, and basic financial, political, regulatory and market situations.  These and different materials dangers are described within the Firm’s most up-to-date Annual Report on Type 10-Ok and some other paperwork filed by the Firm with the SEC every so often, which can be found from the Firm and from the SEC, and you must learn and perceive these dangers when evaluating any forward-looking assertion. All forward-looking statements communicate solely as of the date on which they’re made. New dangers and uncertainties come up over time, and it isn’t potential to foretell these occasions or how they might have an effect on the Firm.  Besides as required by regulation, the Firm shouldn’t be obligated to, and doesn’t intend to, replace or revise any forward-looking statements, whether or not on account of new data, future occasions or in any other case.

Monetary information to observe

Non-GAAP Core Working Revenue

Along with the Firm’s outcomes of operations decided in accordance with usually accepted accounting rules as persistently utilized in america (“GAAP”), the Firm additionally studies “non-GAAP core working earnings.”  The Firm defines core working earnings as “financial internet curiosity earnings” much less “core basic and administrative bills” and most popular inventory dividends.

Financial Web Curiosity Revenue

Financial internet curiosity earnings, a non-GAAP monetary measure, represents the curiosity earnings earned internet of curiosity expense incurred from all of our interest-bearing monetary devices in addition to the company MBS which underlie, and are implicitly financed via, our TBA greenback roll transactions.  Financial internet curiosity earnings is comprised of the next:

• internet curiosity earnings decided in accordance with GAAP;
• TBA company MBS greenback roll earnings, which is calculated as the worth low cost of a forward-settling buy of a TBA company MBS relative to the “spot” sale of the identical safety, earned ratably over the interval starting on the settlement date of the sale and ending on the settlement date of the forward-settling buy; and
• internet curiosity earnings earned or expense incurred from rate of interest swap agreements.

Within the Firm’s consolidated statements of complete earnings ready in accordance with GAAP, TBA company MBS greenback roll earnings and the web curiosity earnings earned or expense incurred from rate of interest swap agreements are reported as a part of the general periodic change within the honest worth of spinoff devices throughout the line merchandise “achieve (loss) from spinoff devices, internet” of the “funding achieve (loss), internet” part. We consider that financial internet curiosity earnings assists buyers in understanding and evaluating the monetary efficiency of the Firm’s long-term-focused, internet curiosity spread-based funding technique, previous to the deduction of core basic and administrative bills. 

Core Common and Administrative Bills

Core basic and administrative bills are non-interest bills reported throughout the line merchandise “whole basic and administrative bills” of the consolidated statements of complete earnings much less stock-based compensation expense.

Non-GAAP Core Working Revenue Outcomes

The next desk presents the Firm’s computation of financial internet curiosity earnings and core working earnings for the final 4 fiscal quarters and for the yr ended December 31, 2020 (unaudited, quantities in 1000’s, besides per share quantities):

The next desk offers a reconciliation of GAAP internet earnings (loss) to non-GAAP core working earnings for the final 4 fiscal quarters (unaudited, quantities in 1000’s):

Non-GAAP core working earnings is utilized by administration to guage the monetary efficiency of the Firm’s long-term funding technique and core enterprise actions over intervals of time in addition to help with the willpower of the suitable degree of periodic dividends to frequent stockholders.  The Firm believes that non-GAAP core working earnings assists buyers in understanding and evaluating the monetary efficiency of the Firm’s long-term funding technique and core enterprise actions over intervals of time in addition to its earnings capability.  A limitation of using this non-GAAP monetary measure is that the impact of accounting for “non-core” occasions or transactions in accordance with GAAP does, the truth is, mirror the monetary outcomes of our enterprise and these results shouldn’t be ignored when evaluating and analyzing our monetary outcomes.  For instance, the financial value or advantage of hedging devices apart from rate of interest swap agreements, corresponding to U.S. Treasury be aware futures or choices on U.S. Treasury be aware futures, don’t have an effect on the computation of non-GAAP core working earnings.  As well as, the Firm’s calculation of non-GAAP core working earnings might not be akin to different equally titled measures of different corporations.  Subsequently, the Firm believes that internet earnings decided in accordance with GAAP ought to be thought-about together with non-GAAP core working earnings.  Moreover, there could also be variations between non-GAAP core working earnings and taxable earnings decided in accordance with the Inner Income Code.  As a REIT, the Firm will likely be required to distribute not less than 90% of its REIT taxable earnings (topic to sure changes) to qualify as a REIT and all of its taxable earnings so as to not be topic to any U.S. Federal or state company earnings taxes.  Accordingly, non-GAAP core working earnings could not equal the Firm’s distribution necessities as a REIT.

The next tables current data on the Firm’s funding and hedge portfolio as of December 31, 2020 (unaudited, {dollars} in 1000’s):

Mortgage Investments:

Specified Company MBS:

Mortgage Credit score Investments:

Curiosity Fee Swap Agreements:

SOURCE Arlington Asset Funding Corp.

Associated Hyperlinks

http://www.arlingtonasset.com