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``` 11111

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

OR

 

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-34374

 

ARLINGTON ASSET INVESTMENT CORP.

(Exact name of Registrant as specified in its charter)

 

 

Virginia

 

54-1873198

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

6862 Elm Street, Suite 320

McLean, VA

 

22101

(Address of Principal Executive Offices)

 

(Zip Code)

 

(703) 373-0200

(Registrant’s Telephone Number, Including Area Code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Class A Common Stock

 

AAIC

 

NYSE

7.00% Series B Cumulative Perpetual Redeemable Preferred Stock

 

AAIC PrB

 

NYSE

8.250% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock

 

AAIC PrC

 

NYSE

6.000% Senior Notes due 2026

 

AAIN

 

NYSE

6.75% Senior Notes due 2025

 

AIC

 

NYSE

 

 

 

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Sec. 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

☐

 

Accelerated filer

 

☐

 

 

 

 

Non-accelerated filer

 

☒

 

 

Small reporting company

 

☒

 

 

 

 

 

 

 

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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No ☒

Number of shares outstanding of each of the registrant’s classes of common stock, as of October 31, 2022:

 

Title

 

Outstanding

Class A Common Stock

 

28,366,678 shares

 

 

ARLINGTON ASSET INVESTMENT CORP.

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2022

INDEX

 

 

 

 

 

 

 

Page

PART I — FINANCIAL INFORMATION

 

 

 

 

Item 1.

 

Consolidated Financial Statements and Notes — (unaudited)

 

1

 

 

 

 

Consolidated Balance Sheets

 

1

 

 

 

 

Consolidated Statements of Comprehensive Income

 

2

 

 

 

 

Consolidated Statements of Changes in Equity

 

3

 

 

 

 

Consolidated Statements of Cash Flows

 

5

 

 

 

 

Notes to Consolidated Financial Statements

 

6

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

37

 

 

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

 

58

 

 

Item 4.

 

Controls and Procedures

 

63

PART II — OTHER INFORMATION

 

 

 

 

Item 1.

 

Legal Proceedings

 

64

 

 

Item 1A.

 

Risk Factors

 

64

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

64

 

 

Item 3.

 

Defaults Upon Senior Securities

 

65

 

 

Item 4.

 

Mine Safety Disclosures

 

65

 

 

Item 5.

 

Other Information

 

65

 

 

Item 6.

 

Exhibits

 

65

 

 

 

 

Signatures

 

68

 

i

 

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

ARLINGTON ASSET INVESTMENT CORP.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

(Unaudited)

 

 

 

September 30, 2022

 

 

December 31, 2021

 

ASSETS

 

 

 

 

 

 

Cash and cash equivalents (includes $560 and $2,118, respectively, from
  consolidated VIEs)

 

$

13,803

 

 

$

20,543

 

Restricted cash

 

 

590

 

 

 

1,132

 

Restricted cash of consolidated VIEs

 

 

1,954

 

 

 

111

 

Sold securities receivable

 

 

—

 

 

 

28,219

 

Agency mortgage-backed securities, at fair value

 

 

445,122

 

 

 

483,927

 

MSR financing receivables, at fair value

 

 

164,585

 

 

 

125,018

 

Credit securities, at fair value

 

 

115,783

 

 

 

26,222

 

Mortgage loans, at fair value

 

 

29,375

 

 

 

29,697

 

Mortgage loans of consolidated VIEs, at fair value

 

 

203,456

 

 

 

7,442

 

Single-family residential real estate (net of $977 and $299, respectively, of
  accumulated depreciation)

 

 

81,242

 

 

 

60,889

 

Deposits

 

 

3,228

 

 

 

4,549

 

Other assets (includes $1,413 and $547, respectively, from consolidated VIEs)

 

 

15,003

 

 

 

15,287

 

Total assets

 

$

1,074,141

 

 

$

803,036

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

Repurchase agreements

 

$

429,910

 

 

$

446,624

 

Purchased securities payable

 

 

93,081

 

 

 

—

 

Secured debt of consolidated VIEs, at fair value

 

 

182,336

 

 

 

508

 

Long-term unsecured debt

 

 

86,302

 

 

 

85,994

 

Long-term debt secured by single-family properties

 

 

56,801

 

 

 

39,178

 

Other liabilities (includes $265 and $2, respectively, from consolidated VIEs)

 

 

11,501

 

 

 

6,605

 

Total liabilities

 

 

859,931

 

 

 

578,909

 

Commitments and contingencies

 

 

 

 

 

 

Stockholders’ Equity:

 

 

 

 

 

 

Series B Preferred stock, $0.01 par value, 379,668 and 373,610, shares issued
   and outstanding, respectively (liquidation preference of $9,492 and $9,340,
   respectively)

 

 

9,001

 

 

 

8,852

 

Series C Preferred stock, $0.01 par value, 964,823 and 1,117,034, shares issued
   and outstanding, respectively (liquidation preference of $24,120 and $27,926,
   respectively)

 

 

23,967

 

 

 

27,356

 

Class A common stock, $0.01 par value, 450,000,000 shares authorized, 28,628,959
   and 30,676,931 shares issued and outstanding, respectively

 

 

286

 

 

 

307

 

Additional paid-in capital

 

 

2,024,746

 

 

 

2,030,315

 

Accumulated deficit

 

 

(1,843,790

)

 

 

(1,842,703

)

Total stockholders’ equity

 

 

214,210

 

 

 

224,127

 

Total liabilities and stockholders’ equity

 

$

1,074,141

 

 

$

803,036

 

 

 

 

 

 

 

 

 

 

September 30, 2022

 

 

December 31, 2021

 

Assets and liabilities of consolidated VIEs

 

 

 

 

 

 

Cash and restricted cash

 

$

2,514

 

 

$

2,229

 

Mortgage loans, at fair value

 

 

203,456

 

 

 

7,442

 

Other assets

 

 

1,413

 

 

 

547

 

Secured debt, at fair value

 

 

(182,336

)

 

 

(508

)

Other liabilities

 

 

(265

)

 

 

(2

)

Net investment in consolidated VIEs

 

$

24,782

 

 

$

9,708

 

 

See notes to consolidated financial statements.

1

 

ARLINGTON ASSET INVESTMENT CORP.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in thousands, except per share data)

(Unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Interest income

 

 

 

 

 

 

 

 

 

 

 

 

MSR financing receivables

 

$

3,608

 

 

$

1,945

 

 

$

10,973

 

 

$

3,693

 

Agency mortgage-backed securities

 

 

3,631

 

 

 

2,660

 

 

 

7,188

 

 

 

8,428

 

Credit securities and loans

 

 

2,736

 

 

 

1,247

 

 

 

4,580

 

 

 

4,286

 

Mortgage loans of consolidated VIEs

 

 

2,303

 

 

 

301

 

 

 

5,268

 

 

 

2,764

 

Other

 

 

110

 

 

 

193

 

 

 

548

 

 

 

479

 

Total interest and other income

 

 

12,388

 

 

 

6,346

 

 

 

28,557

 

 

 

19,650

 

Rent revenues from single-family properties

 

 

2,103

 

 

 

—

 

 

 

5,304

 

 

 

—

 

Interest expense

 

 

 

 

 

 

 

 

 

 

 

 

Repurchase agreements

 

 

2,863

 

 

 

306

 

 

 

3,902

 

 

 

1,197

 

Long-term debt secured by single-family properties

 

 

741

 

 

 

—

 

 

 

1,867

 

 

 

—

 

Long-term unsecured debt

 

 

1,456

 

 

 

1,435

 

 

 

4,226

 

 

 

3,736

 

Secured debt of consolidated VIEs

 

 

912

 

 

 

173

 

 

 

3,678

 

 

 

1,440

 

Total interest expense

 

 

5,972

 

 

 

1,914

 

 

 

13,673

 

 

 

6,373

 

Single-family property operating expenses

 

 

1,872

 

 

 

36

 

 

 

5,318

 

 

 

36

 

Net operating income

 

 

6,647

 

 

 

4,396

 

 

 

14,870

 

 

 

13,241

 

Investment and derivative gain (loss), net

 

 

1,235

 

 

 

(1,313

)

 

 

778

 

 

 

(17,108

)

General and administrative expenses

 

 

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

 

2,256

 

 

 

1,888

 

 

 

6,645

 

 

 

5,124

 

Other general and administrative expenses

 

 

1,121

 

 

 

1,009

 

 

 

3,803

 

 

 

3,600

 

Total general and administrative expenses

 

 

3,377

 

 

 

2,897

 

 

 

10,448

 

 

 

8,724

 

Income (loss) before income taxes

 

 

4,505

 

 

 

186

 

 

 

5,200

 

 

 

(12,591

)

Income tax provision

 

 

1,074

 

 

 

436

 

 

 

4,163

 

 

 

758

 

Net income (loss)

 

 

3,431

 

 

 

(250

)

 

 

1,037

 

 

 

(13,349

)

Dividend on preferred stock

 

 

(675

)

 

 

(731

)

 

 

(2,124

)

 

 

(2,177

)

Net income (loss) available (attributable)
  to common stock

 

$

2,756

 

 

$

(981

)

 

$

(1,087

)

 

$

(15,526

)

Basic earnings (loss) per common share

 

$

0.10

 

 

$

(0.03

)

 

$

(0.04

)

 

$

(0.47

)

Diluted earnings (loss) per common share

 

$

0.10

 

 

$

(0.03

)

 

$

(0.04

)

 

$

(0.47

)

Weighted-average common shares outstanding
  (in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

28,338

 

 

 

31,927

 

 

 

28,973

 

 

 

32,720

 

Diluted

 

 

28,913

 

 

 

31,927

 

 

 

28,973

 

 

 

32,720

 

 

See notes to consolidated financial statements.

2

 

ARLINGTON ASSET INVESTMENT CORP.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Dollars in thousands)

(Unaudited)

 

 

 

Series B
Preferred
Stock
(#)

 

 

Series B
Preferred
Amount
($)

 

 

Series C
Preferred
Stock
(#)

 

 

Series C
Preferred
Amount
($)

 

 

Class A
Common
Stock
(#)

 

 

Class A
Amount
($)

 

 

Additional
Paid-In
Capital

 

 

Accumulated
Deficit

 

 

Total

 

Balances, December 31, 2020

 

 

336,273

 

 

$

7,933

 

 

 

1,117,034

 

 

$

27,356

 

 

 

33,517,018

 

 

$

335

 

 

$

2,040,918

 

 

$

(1,830,272

)

 

$

246,270

 

Net loss

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(6,040

)

 

 

(6,040

)

Issuance of Class A common
  stock under stock-based
  compensation plans

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

101,818

 

 

 

1

 

 

 

(1

)

 

 

—

 

 

 

—

 

Repurchase of Class A
  common stock

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(137,655

)

 

 

(1

)

 

 

(522

)

 

 

—

 

 

 

(523

)

Stock-based compensation

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

503

 

 

 

—

 

 

 

503

 

Dividends declared

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(723

)

 

 

(723

)

Balances, March 31, 2021

 

 

336,273

 

 

$

7,933

 

 

 

1,117,034

 

 

$

27,356

 

 

 

33,481,181

 

 

$

335

 

 

$

2,040,898

 

 

$

(1,837,035

)