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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 June 30, 2021

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

6.625% Senior Notes due 2023

 

AIW

 

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 July 30, 2021:

 

Title

 

Outstanding

Class A Common Stock

 

32,331,068 shares

 

 


 

 

ARLINGTON ASSET INVESTMENT CORP.

FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2021

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

 

4

 

 

 

 

Notes to Consolidated Financial Statements

 

5

 

 

Item 2.

 

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

 

27

 

 

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

 

49

 

 

Item 4.

 

Controls and Procedures

 

54

PART II — OTHER INFORMATION

 

 

 

 

Item 1.

 

Legal Proceedings

 

55

 

 

Item 1A.

 

Risk Factors

 

55

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

55

 

 

Item 3.

 

Defaults Upon Senior Securities

 

55

 

 

Item 4.

 

Mine Safety Disclosures

 

55

 

 

Item 5.

 

Other Information

 

56

 

 

Item 6.

 

Exhibits

 

56

 

 

 

 

Signatures

 

59

 

 

 

i


 

 

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

ARLINGTON ASSET INVESTMENT CORP.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

(Unaudited)

 

 

 

June 30, 2021

 

 

December 31, 2020

 

ASSETS

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

2,349

 

 

$

28,796

 

Restricted cash of consolidated VIE

 

 

4,456

 

 

 

11,169

 

Interest receivable of consolidated VIE

 

 

179

 

 

 

545

 

Sold securities receivable

 

 

34,456

 

 

 

 

Agency mortgage-backed securities, at fair value

 

 

725,709

 

 

 

970,880

 

Mortgage credit securities, at fair value

 

 

43,217

 

 

 

26,660

 

Mortgage loans of consolidated VIE, at fair value

 

 

35,778

 

 

 

93,283

 

Mortgage loans, at fair value

 

 

74,685

 

 

 

45,000

 

MSR financing receivables, at fair value

 

 

74,652

 

 

 

9,346

 

Derivative assets, at fair value

 

 

881

 

 

 

258

 

Deposits

 

 

16,554

 

 

 

6,306

 

Other assets

 

 

17,181

 

 

 

20,146

 

Total assets

 

$

1,030,097

 

 

$

1,212,389

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Repurchase agreements

 

$

694,586

 

 

$

655,212

 

Secured debt of consolidated VIE, at fair value

 

 

28,465

 

 

 

93,627

 

Interest payable of consolidated VIE

 

 

99

 

 

 

321

 

Derivative liabilities, at fair value

 

 

2,327

 

 

 

221

 

Purchased securities payable

 

 

 

 

 

139,013

 

Other liabilities

 

 

2,739

 

 

 

4,698

 

Long-term unsecured debt

 

 

73,129

 

 

 

73,027

 

Total liabilities

 

 

801,345

 

 

 

966,119

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders’ Equity:

 

 

 

 

 

 

 

 

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

   and outstanding (liquidation preference of $8,407)

 

 

7,933

 

 

 

7,933

 

Series C Preferred stock, $0.01 par value, 1,117,034 shares issued

   and outstanding (liquidation preference of $27,926)

 

 

27,356

 

 

 

27,356

 

Class A common stock, $0.01 par value, 450,000,000 shares authorized, 32,679,938

   and 33,517,018 shares issued and outstanding, respectively

 

 

327

 

 

 

335

 

Additional paid-in capital

 

 

2,037,953

 

 

 

2,040,918

 

Accumulated deficit

 

 

(1,844,817

)

 

 

(1,830,272

)

Total stockholders’ equity

 

 

228,752

 

 

 

246,270

 

Total liabilities and stockholders’ equity

 

$

1,030,097

 

 

$

1,212,389

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2021

 

 

December 31, 2020

 

Assets and liabilities of consolidated VIE

 

 

 

 

 

 

 

 

Restricted cash

 

$

4,456

 

 

$

11,169

 

Interest receivable

 

 

179

 

 

 

545

 

Mortgage loans, at fair value

 

 

35,778

 

 

 

93,283

 

Secured debt, at fair value

 

 

(28,465

)

 

 

(93,627

)

Interest payable

 

 

(99

)

 

 

(321

)

Net investment in consolidated VIE

 

$

11,849

 

 

$

11,049

 

 

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 June 30,

 

 

Six Months Ended June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Interest income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agency mortgage-backed securities

 

$

2,984

 

 

$

3,517

 

 

$

5,768

 

 

$

26,905

 

Mortgage credit securities

 

 

637

 

 

 

1,258

 

 

 

1,203

 

 

 

1,989

 

Loans

 

 

1,133

 

 

 

825

 

 

 

1,836

 

 

 

1,536

 

Mortgage loans of consolidated VIE

 

 

776

 

 

 

 

 

 

2,463

 

 

 

 

MSR financing receivables

 

 

1,390

 

 

 

 

 

 

1,748

 

 

 

 

Interest and other income

 

 

125

 

 

 

534

 

 

 

286

 

 

 

677

 

Total interest income

 

 

7,045

 

 

 

6,134

 

 

 

13,304

 

 

 

31,107

 

Interest expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term secured debt

 

 

403

 

 

 

1,154

 

 

 

891

 

 

 

15,746

 

Long-term unsecured debt

 

 

1,150

 

 

 

1,215

 

 

 

2,301

 

 

 

2,455

 

Secured debt of consolidated VIE

 

 

405

 

 

 

 

 

 

1,267

 

 

 

 

Total interest expense

 

 

1,958

 

 

 

2,369

 

 

 

4,459

 

 

 

18,201

 

Net interest income

 

 

5,087

 

 

 

3,765

 

 

 

8,845

 

 

 

12,906

 

Investment (loss) gain, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain (loss) on mortgage investments, net

 

 

5,334

 

 

 

7,625

 

 

 

(16,331

)

 

 

10,719

 

Loss from derivative instruments, net

 

 

(14,983

)

 

 

(397

)

 

 

(438

)

 

 

(102,997

)

Other, net

 

 

617

 

 

 

2,569

 

 

 

974

 

 

 

2,007

 

Total investment (loss) gain, net

 

 

(9,032

)

 

 

9,797

 

 

 

(15,795

)

 

 

(90,271

)

General and administrative expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

 

1,841

 

 

 

1,897

 

 

 

3,236

 

 

 

3,755

 

Other general and administrative expenses

 

 

1,349

 

 

 

1,431

 

 

 

2,591

 

 

 

2,816

 

Total general and administrative expenses

 

 

3,190

 

 

 

3,328

 

 

 

5,827

 

 

 

6,571

 

(Loss) income before income taxes

 

 

(7,135

)

 

 

10,234

 

 

 

(12,777

)

 

 

(83,936

)

Income tax (benefit) provision

 

 

(76

)

 

 

 

 

 

322

 

 

 

 

Net (loss) income

 

 

(7,059

)

 

 

10,234

 

 

 

(13,099

)

 

 

(83,936

)

Dividend on preferred stock

 

 

(723

)

 

 

(758

)

 

 

(1,446

)

 

 

(1,532

)

Net (loss) income (attributable) available to

    common stock

 

$

(7,782

)

 

$

9,476

 

 

$

(14,545

)

 

$

(85,468

)

Basic (loss) earnings per common share

 

$

(0.24

)

 

$

0.26

 

 

$

(0.44

)

 

$

(2.33

)

Diluted (loss) earnings per common share

 

$

(0.24

)

 

$

0.26

 

 

$

(0.44

)

 

$

(2.33

)

Weighted-average common shares outstanding

  (in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

33,066

 

 

 

36,618

 

 

 

33,123

 

 

 

36,665

 

Diluted

 

 

33,066

 

 

 

36,666

 

 

 

33,123

 

 

 

36,665

 

 

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, 2019

 

 

354,039

 

 

$

8,270

 

 

 

1,200,000

 

 

$

28,944

 

 

 

36,755,387

 

 

$

368

 

 

$

2,049,292

 

 

$

(1,759,626

)

 

$

327,248

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(94,170

)

 

 

(94,170

)

Issuance of Class A common

  stock under stock-based

  compensation plans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

60,374

 

 

 

 

 

 

62

 

 

 

 

 

 

62

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

393

 

 

 

 

 

 

393

 

Other

 

 

 

 

 

(6

)

 

 

 

 

 

(10

)

 

 

 

 

 

 

 

 

(6

)

 

 

 

 

 

(22

)

Dividends declared

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(702

)

 

 

(702

)

Balances, March 31, 2020

 

 

354,039

 

 

$

8,264

 

 

 

1,200,000

 

 

$

28,934

 

 

 

36,815,761

 

 

$

368

 

 

$

2,049,741

 

 

$

(1,854,498

)

 

$

232,809

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10,234

 

 

 

10,234

 

Repurchase of Class A common

  stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,069,340

)

 

 

(11

)

 

 

(3,036

)

 

 

 

 

 

(3,047

)

Repurchase of preferred stock

 

 

(10,200

)

 

 

(173

)

 

 

(33,100

)

 

 

(627

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(800

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

594

 

 

 

 

 

 

594

 

Other

 

 

 

 

 

(13

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13

)

 

 

 

 

 

(26

)

Dividends declared

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(779

)

 

 

(779

)

Balances, June 30, 2020

 

 

343,839

 

 

$

8,078

 

 

 

1,166,900

 

 

$

28,307

 

 

 

35,746,421

 

 

$

357

 

 

$

2,047,286

 

 

$

(1,845,043

)

 

$

238,985

 

 

 

 

 

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

 

 

$