PR Newswire
MCLEAN, Va., Aug. 14, 2023
MCLEAN, Va., Aug. 14, 2023 /PRNewswire/ -- Arlington Asset Investment Corp. (NYSE: AAIC) (the "Company," "Arlington," "we," "us" or "our") today reported financial results for the quarter ended June 30, 2023.
Second Quarter 2023 Financial Highlights
- $6.64 per common share of book value, a 2.6% increase from prior quarter
- $0.15 per diluted common share of GAAP net income available to common shareholders
- $0.06 per diluted common share of non-GAAP earnings available for distribution
- 0.5 to 1 "at risk" leverage ratio as of June 30, 2023
- Entered into Agreement and Plan of Merger with Ellington Financial Inc. ("Ellington Financial")
Second Quarter Investment Portfolio
As of June 30, 2023, the Company's investment portfolio capital allocation was as follows (dollars in thousands):
June 30, 2023 | ||||||||||||||||
Assets | Invested Capital | Invested Capital | Leverage (2) | |||||||||||||
MSR financing receivables | $ | 195,893 | $ | 195,893 | 66 | % | — | |||||||||
Credit investments (3) | 130,347 | 33,952 | 11 | % | 2.8 | |||||||||||
Agency MBS (4) | 124,267 | 68,894 | 23 | % | 0.8 | |||||||||||
Total invested capital | $ | 450,507 | 298,739 | 100 | % | |||||||||||
Cash and other corporate capital, net | 7,884 | |||||||||||||||
Total investable capital | $ | 306,623 | 0.5 | |||||||||||||
(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 $2,152 in a VIE with gross assets and liabilities of $2,265 and $113, respectively, that is consolidated for GAAP financial reporting purposes. |
(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 June 30, 2023, the fair value of the underlying agency MBS that underlie our net short position in TBA commitments had a fair value of ($343,236) with a net carrying value of $1,504. |
MSR Related Investments
The Company is party to agreements with a licensed, U.S. government sponsored enterprise ("GSE") approved residential mortgage loan servicer that enable the Company to garner the economic return of an investment in a mortgage servicing right ("MSR") purchased by the mortgage servicing counterparty. The arrangement allows the Company to participate in the economic benefits of investing in an MSR without holding the requisite licenses to purchase or hold MSRs directly. Under the terms of the arrangement, the Company provides capital to the mortgage servicing counterparty to purchase MSRs directly and the Company, in turn, receives all the economic benefits of the MSRs less a fee payable to the counterparty. At the Company's request, the mortgage servicing counterparty may utilize leverage on the MSRs to which the Company's MSR financing receivables are referenced to finance the purchase of additional MSRs to increase potential returns to the Company. These transactions are accounted for as financing receivables in the Company's consolidated financial statements.
The Company's MSR financing receivable investments as of June 30, 2023 are summarized in the tables below (dollars in thousands):
Amortized Cost Basis (1) | Unrealized Gain | Fair Value | ||||||||
$ | 144,480 | $ | 51,413 | $ | 195,893 | |||||
(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 | Counterparty | MSR Financing | Implicit | ||||||||||||||||||||
$ | 182,751 | $ | — | $ | 3,283 | $ | 9,859 | $ | — | $ | 195,893 | — | ||||||||||||||
Underlying Reference MSRs: | ||||||||||||||||||||||||||
Holder of Loans | Unpaid Principal | Weighted- | Weighted- | Weighted- | Price | Multiple (1) | Fair Value | |||||||||||||||||||
Fannie Mae | $ | 12,093,517 | 3.09 | % | 0.25 | % | 32 months | 1.39 | % | 5.57 | $ | 168,668 | ||||||||||||||
Freddie Mac | 985,572 | 3.71 | % | 0.25 | % | 28 months | 1.43 | % | 5.72 | 14,083 | ||||||||||||||||
Total/weighted-average | $ | 13,079,089 | 3.14 | % | 0.25 | % | 32 months | 1.40 | % | 5.58 | $ | 182,751 | ||||||||||||||
(1) | Calculated as the underlying MSR price divided by the weighted-average servicing fee. |
As of June 30, 2023, the mortgage servicing counterparty had no draws outstanding under its credit facility collateralized by the MSRs to which the Company's MSR financing receivables are referenced. The weighted average yield on the Company's MSR financing receivables was 13.79% for the second quarter of 2023 compared to 13.78% for the first quarter of 2023, and the actual weighted-average constant prepayment rate ("CPR") for the MSRs underlying the Company's MSR financing receivables was 5.19% for the second quarter of 2023 compared to 3.44% for the first quarter of 2023. As of June 30, 2023, the valuation multiple of the MSRs underlying the Company's MSR financing receivables, calculated as the underlying MSR price divided by the weighted-average servicing fee, was 5.58x.
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 June 30, 2023, the Company's credit investment portfolio at fair value was comprised of the following (dollars in thousands):
Market Price | Fair Value (1) | Financing | Invested | Leverage | ||||||||||||||||
AAA rated commercial MBS | $ | 99.66 | $ | 99,657 | $ | 79,493 | $ | 20,355 | 3.9 | |||||||||||
Commercial mortgage loan | 100.00 | 25,992 | 17,247 | 8,899 | 1.9 | |||||||||||||||
Business purpose residential MBS (3) | 61.85 | 2,935 | — | 2,935 | — | |||||||||||||||
Solar ABS | 34.84 | 1,763 | — | 1,763 | — | |||||||||||||||
Total/weighted-average | $ | 130,347 | $ | 96,740 | $ | 33,952 | 2.8 | |||||||||||||
(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) | Includes our net investment of $2,152 in a VIE with gross assets and liabilities of $2,265 and $113, respectively, that is consolidated for GAAP financial reporting purposes. |
As of June 30, 2023, the Company had $79.5 million in repurchase agreements outstanding with a weighted average rate of 5.84% and remaining weighted average maturity of 19 days secured by $88.7 million of non-agency MBS at fair value. As of June 30, 2023, the Company had a $17.2 million repurchase agreement outstanding with a rate of 7.75% and remaining maturity of 115 days secured by a $26.0 million commercial mortgage loan at fair value.
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 June 30, 2023, the Company's agency MBS investment portfolio was comprised of the following (dollars in thousands):
Fair Value | ||||
Agency MBS | $ | 467,503 | ||
Net short TBA Position | (343,236) | |||
Total agency MBS investment portfolio | $ | 124,267 | ||
As of June 30, 2023, the Company's specified agency MBS investment portfolio was comprised of the following (dollars in thousands):
Unpaid | Net | Amortized | Net Unrealized | Fair Value | Market | Coupon | Weighted | |||||||||||||||||||||||||
Fannie Mae | $ | 241,390 | $ | (4,859) | $ | 236,531 | $ | (8,690) | $ | 227,841 | $ | 94.39 | 4.13 | % | 9.7 | |||||||||||||||||
Freddie Mac | 254,421 | (2,847) | 251,574 | (11,912) | 239,662 | 94.20 | 4.09 | % | 9.9 | |||||||||||||||||||||||
Total/weighted-average | $ | 495,811 | $ | (7,706) | $ | 488,105 | $ | (20,602) | $ | 467,503 | $ | 94.29 | 4.11 | % | 9.8 | |||||||||||||||||
The Company's weighted average yield on its specified agency MBS was 4.26% for the second quarter of 2023 compared to 4.23% for the first quarter of 2023, and the actual weighted-average CPR for the Company's specified agency MBS was 4.58% for the second quarter of 2023 compared to 3.52% for the first quarter of 2023.
As of June 30, 2023, the Company's net short TBA agency MBS investment portfolio was comprised of the following (dollars in thousands):
Notional Amount: | ||||||||||||||||
Net Long (Short) | Implied | Implied | Net Carrying | |||||||||||||
Position (1) | Cost Basis (2) | Fair Value (3) | Amount (4) | |||||||||||||
3.0% 30-year MBS sale commitments | $ | (67,000) | $ | (59,315) | $ | (58,944) | $ | 371 | ||||||||
4.0% 30-year MBS purchase commitments | 40,000 | 37,875 | 37,522 | (353) | ||||||||||||
4.0% 30-year MBS sale commitments | (90,000) | (84,818) | (84,424) | 394 | ||||||||||||
4.5% 30-year MBS sale commitments | (247,000) | (238,482) | (237,390) | 1,092 | ||||||||||||
Total net long (short) agency TBA positions | $ | (364,000) | $ | (344,740) | $ | (343,236) | $ | 1,504 | ||||||||
(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 June 30, 2023, the Company had $403.2 million of repurchase agreements outstanding with a weighted average rate of 5.31% and remaining weighted average maturity of 13 days secured by an aggregate of $423.4 million of agency MBS at fair value. The Company's weighted average cost of repurchase agreement funding secured by agency MBS was 5.14% during the second quarter of 2023 compared to 4.67% during the first quarter of 2023.
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 June 30, 2023, the Company's interest swap agreements were comprised of the following (dollars in thousands):
Weighted-average: | ||||||||||||||||||||||||
Notional | Fixed Receive | Variable (Pay) | Net (Pay) | Remaining | Fair | |||||||||||||||||||
Receive-fixed | $ | 60,000 | 3.58 | % | (5.06) | % | (1.48) | % | 4.4 | $ | (1) | |||||||||||||
Pay-fixed | 25,000 | (4.20) | % | 5.06 | % | 0.86 | % | 1.6 | (2) | |||||||||||||||
Total / weighted-average | $ | 85,000 | 1.29 | % | ||||||||||||||||||||
