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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, 2020

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)

 

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, 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 

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

6.625% Senior Notes due 2023

 

AIW

 

NYSE

6.75% Senior Notes due 2025

 

AIC

 

NYSE

 

Number of shares outstanding of each of the registrant’s classes of common stock, as of October 30, 2020:

 

Title

 

Outstanding

Class A Common Stock

 

33,427,687 shares

 

 


 

ARLINGTON ASSET INVESTMENT CORP.

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2020

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

 

27

 

 

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

 

46

 

 

Item 4.

 

Controls and Procedures

 

51

PART II — OTHER INFORMATION

 

 

 

 

Item 1.

 

Legal Proceedings

 

52

 

 

Item 1A.

 

Risk Factors

 

52

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

52

 

 

Item 3.

 

Defaults Upon Senior Securities

 

53

 

 

Item 4.

 

Mine Safety Disclosures

 

53

 

 

Item 5.

 

Other Information

 

53

 

 

Item 6.

 

Exhibits

 

53

 

 

 

 

Signatures

 

56

 

 

 

i


 

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

ARLINGTON ASSET INVESTMENT CORP.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

(Unaudited)

 

 

 

September 30, 2020

 

 

December 31, 2019

 

ASSETS

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

8,877

 

 

$

19,636

 

Restricted cash of consolidated VIE

 

 

8,658

 

 

 

 

Interest receivable

 

 

1,589

 

 

 

10,663

 

Sold securities receivable

 

 

43,703

 

 

 

71,199

 

Agency mortgage-backed securities, at fair value

 

 

617,170

 

 

 

3,768,496

 

Mortgage credit securities, at fair value

 

 

46,352

 

 

 

33,501

 

Mortgage loans of consolidated VIE, at fair value

 

 

124,345

 

 

 

 

Loans, at fair value

 

 

70,000

 

 

 

45,000

 

Derivative assets, at fair value

 

 

1,181

 

 

 

1,417

 

Deposits

 

 

2,252

 

 

 

37,123

 

Other assets

 

 

21,208

 

 

 

13,079

 

Total assets

 

$

945,335

 

 

$

4,000,114

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Repurchase agreements

 

$

508,739

 

 

$

3,581,237

 

Debt of consolidated VIE, at fair value

 

 

121,894

 

 

 

 

Interest payable

 

 

569

 

 

 

4,666

 

Accrued compensation and benefits

 

 

2,044

 

 

 

3,626

 

Dividend payable

 

 

 

 

 

8,494

 

Derivative liabilities, at fair value

 

 

852

 

 

 

8

 

Other liabilities

 

 

820

 

 

 

507

 

Other liabilities of consolidated VIE

 

 

416

 

 

 

 

Long-term unsecured debt

 

 

73,115

 

 

 

74,328

 

Total liabilities

 

 

708,449

 

 

 

3,672,866

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders’ Equity:

 

 

 

 

 

 

 

 

Series B Preferred stock, $0.01 par value, 336,273 and 354,039, shares issued

   and outstanding, respectively (liquidation preference of $8,407 and $8,851,

   respectively)

 

 

7,943

 

 

 

8,270

 

Series C Preferred stock, $0.01 par value, 1,131,648 and 1,200,000 shares issued

   and outstanding, respectively (liquidation preference of $28,291 and $30,000,

   respectively)

 

 

27,630

 

 

 

28,944

 

Class A common stock, $0.01 par value, 450,000,000 shares authorized, 33,731,170

   and 36,755,387 shares issued and outstanding, respectively

 

 

337

 

 

 

368

 

Additional paid-in capital

 

 

2,041,986

 

 

 

2,049,292

 

Accumulated deficit

 

 

(1,841,010

)

 

 

(1,759,626

)

Total stockholders’ equity

 

 

236,886

 

 

 

327,248

 

Total liabilities and stockholders’ equity

 

$

945,335

 

 

$

4,000,114

 

 

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,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Interest income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agency mortgage-backed securities

 

$

2,808

 

 

$

28,455

 

 

$

29,713

 

 

$

94,300

 

Mortgage credit securities

 

 

1,095

 

 

 

4

 

 

 

3,084

 

 

 

19

 

Loans

 

 

1,122

 

 

 

 

 

 

2,658

 

 

 

 

Interest and other income

 

 

385

 

 

 

215

 

 

 

1,062

 

 

 

904

 

Total interest income

 

 

5,410

 

 

 

28,674

 

 

 

36,517

 

 

 

95,223

 

Interest expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term secured debt

 

 

470

 

 

 

22,721

 

 

 

16,216

 

 

 

72,230

 

Long-term unsecured debt

 

 

1,162

 

 

 

1,261

 

 

 

3,617

 

 

 

3,802

 

Total interest expense

 

 

1,632

 

 

 

23,982

 

 

 

19,833

 

 

 

76,032

 

Net interest income

 

 

3,778

 

 

 

4,692

 

 

 

16,684

 

 

 

19,191

 

Investment advisory fee income

 

 

 

 

 

 

 

 

 

 

 

250

 

Investment gain (loss), net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain on mortgage investments, net

 

 

2,696

 

 

 

16,890

 

 

 

13,415

 

 

 

128,297

 

Gain (loss) from derivative instruments, net

 

 

487

 

 

 

(25,353

)

 

 

(102,510

)

 

 

(149,630

)

Other, net

 

 

769

 

 

 

232

 

 

 

2,776

 

 

 

222

 

Total investment gain (loss), net

 

 

3,952

 

 

 

(8,231

)

 

 

(86,319

)

 

 

(21,111

)

General and administrative expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

 

1,774

 

 

 

2,833

 

 

 

5,529

 

 

 

8,182

 

Other general and administrative expenses

 

 

1,197

 

 

 

1,365

 

 

 

4,013

 

 

 

3,816

 

Total general and administrative expenses

 

 

2,971

 

 

 

4,198

 

 

 

9,542

 

 

 

11,998

 

Net income (loss)

 

 

4,759

 

 

 

(7,737

)

 

 

(79,177

)

 

 

(13,668

)

Dividend on preferred stock

 

 

(726

)

 

 

(774

)

 

 

(2,258

)

 

 

(1,826

)

Net income (loss) available (attributable) to

  common stock

 

$

4,033

 

 

$

(8,511

)

 

$

(81,435

)

 

$

(15,494

)

Basic earnings (loss) per common share

 

$

0.12

 

 

$

(0.23

)

 

$

(2.26

)

 

$

(0.44

)

Diluted earnings (loss) per common share

 

$

0.12

 

 

$

(0.23

)

 

$

(2.26

)

 

$

(0.44

)

Weighted-average common shares outstanding

  (in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

34,655

 

 

 

36,572

 

 

 

35,990

 

 

 

35,399

 

Diluted

 

 

34,697

 

 

 

36,572

 

 

 

35,990

 

 

 

35,399

 

 

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, 2018

 

 

350,595

 

 

$

8,245

 

 

 

 

 

$

 

 

 

30,497,998

 

 

$

305

 

 

$

1,997,876

 

 

$

(1,731,982

)

 

$

274,444

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17,594

 

 

 

17,594

 

Issuance of Class A common

  stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,000,000

 

 

 

60

 

 

 

48,750

 

 

 

 

 

 

48,810

 

Issuance of Class A common

  stock under stock-based

  compensation plans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

74,619

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

Issuance of preferred stock

 

 

2,035

 

 

 

45

 

 

 

1,200,000

 

 

 

28,880

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

28,925

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

773

 

 

 

 

 

 

773

 

Dividends declared

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(14,135

)

 

 

(14,135

)

Balances, March 31, 2019

 

 

352,630

 

 

$

8,290

 

 

 

1,200,000

 

 

$

28,880

 

 

 

36,572,617

 

 

$

366

 

 

$

2,047,398

 

 

$

(1,728,523

)

 

$

356,411

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(23,525

)

 

 

(23,525

)

Issuance of Class A common

  stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

1

 

Issuance of preferred stock

 

 

1,409

 

 

 

6

 

 

 

 

 

 

64

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

70

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

217

 

 

 

 

 

 

217

 

Dividends declared

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,885

)

 

 

(8,885

)

Balances, June 30, 2019

 

 

354,039

 

 

$

8,296

 

 

 

1,200,000

 

 

$

28,944

 

 

 

36,572,617

 

 

$

366

 

 

$

2,047,616

 

 

$

(1,760,933

)

 

$

324,289

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,737

)

 

 

(7,737

)

Issuance of Class A common

  stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9

)

 

 

 

 

 

(9

)

Issuance of Class A common

  stock under stock-based

  compensation plans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

219,395

 

 

 

2

 

 

 

107

 

 

 

 

 

 

109

 

Issuance of preferred stock

 

 

 

 

 

(13

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13

)

Repurchase of Class A common

  stock under stock-based

  compensation plans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(36,625

)

 

 

 

 

 

(204

)

 

 

 

 

 

(204

)

Stock-based compensation