Arlington Asset Funding Corp. Reviews Fourth Quarter and Full Yr 2021 Monetary Outcomes

MCLEAN, Va., March 2, 2022 /PRNewswire/ — Arlington Asset Funding Corp. (NYSE: AAIC) (the “Firm” or “Arlington“) at present reported web revenue out there to frequent shareholders of $3.1 million, or $0.10 per diluted frequent share, and non-GAAP core working revenue of $0.5 million, or $0.02 per diluted frequent share, for the quarter ended December 31, 2021. A reconciliation of non-GAAP core working revenue to GAAP web revenue seems on the finish of this press launch.

Fourth Quarter 2021 Monetary Highlights

• $6.16 per frequent share of e book worth

• $0.10 per diluted frequent share of GAAP web revenue

• $0.02 per diluted frequent share of non-GAAP core working revenue

• $0.09 per frequent share of e book worth accretion from the repurchase 3.8% of the excellent shares of frequent inventory

• 1.5 to 1 “in danger” leverage ratio

Full Yr 2021 Monetary Highlights

• $0.38 per diluted frequent share of GAAP web loss

• $0.17 per diluted frequent share of non-GAAP core working revenue

• $0.27 per frequent share of e book worth accretion from the repurchase of 9.7% of the excellent shares of frequent inventory

• Efficiently launched two new funding silos in mortgage servicing proper (“MSR”) associated belongings and single-family residential (“SFR”) rental property

• 7% discount normally and administrative bills

• Accomplished a public providing of $37.8 million of 6.00% senior notes due 2026 and redeemed its excellent 6.625% senior notes due 2023 with an excellent principal stability of $23.8 million

“We’re happy with fourth quarter outcomes, together with an financial return of three.2% achieved amid difficult market circumstances,” stated J. Rock Tonkel, Jr., the Firm’s President and Chief Govt Officer. “Additional, because of constructive funding returns and accretive inventory repurchases, e book worth per share elevated by roughly 2.5% throughout January 2022, and we consider it’s comparatively unchanged from that determine by means of the top of February.

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“As beforehand mentioned, the Firm continues to progress towards constructing a number of excessive return, non-commodity funding channels that diversify funding threat and enhance reliability of returns over time. The Firm’s preliminary efforts embody platforms for investments in MSRs, SFR rental properties, and credit score securities backed by actual property.

“Our MSR portfolio has generated a 34% annualized return since its preliminary formation in late 2020, and now represents 43% of funding capital. Our SFR portfolio, initiated through the third quarter, has reached $125 million as of at present and is scaling in eight engaging U.S. markets with a better-than-expected unlevered yield of 4.9%, a extremely engaging financing facility, and anticipated complete returns within the double digits.

“With “in danger” leverage of simply 1.5x and excessive liquidity, we proceed to be positioned with a major concentrate on defending shareholder capital from the impression of inflation, rising charges, and Federal Reserve financial tightening. As well as, we’ve decreased G&A bills by 22% during the last two years and seven% over the previous 12 months in opposition to a robust tide of inflation.

“With the Firm’s inventory buying and selling at a major low cost to e book worth, we’ve utilized our robust monetary place to repurchase over $25 million of the Firm’s shares as of at present. This equates to 21% of the Firm’s excellent shares of frequent inventory for the reason that inception of our share buyback program in mid-2020. Included in that quantity are repurchases to this point in 2022 of 0.75 million shares or 2.5% of the excellent shares of frequent inventory. At our present inventory worth, we intend to aggressively repurchase shares of our frequent inventory below our remaining authorization of 12.2 million shares. If absolutely executed, our current authorization would retire roughly 40% of presently excellent shares.

“It has taken nice effort to transition Arlington right into a differentiated funding agency devoted to growing excessive return programmatic funding channels, and I wish to thank my colleagues for his or her efforts to extend shareholder worth. I’d word that our portfolio remains to be not absolutely scaled, and I consider there’s further untapped earnings energy in our mannequin. I’m optimistic that our technique and our staff will construct on our current successes and that the Firm has a vibrant future.”

Fourth Quarter Funding Portfolio

As of December 31, 2021, the Firm’s funding portfolio totaled $735 million at honest worth consisting of the next:

• $484 million of company mortgage-backed securities (“MBS”)

• $125 million of MSR associated belongings

• $65 million of credit score investments

• $61 million of SFR actual property belongings

The Firm has allotted 32%, 43%, 16% and 9% of its invested capital to its company MBS, MSR associated, credit score and SFR funding methods, respectively, as of December 31, 2021.

Company MBS

The Firm’s company MBS encompass residential mortgage pass-through certificates for which the principal and curiosity funds are assured by a U.S. authorities sponsored enterprise (“GSE”), such because the Federal Nationwide Mortgage Affiliation (“Fannie Mae”) or the Federal Residence Mortgage Mortgage Company (“Freddie Mac”).

As of December 31, 2021, the Firm’s company MBS funding portfolio totaled $484 million at honest worth consisting fully of specified company MBS comprised of the next:

As of December 31, 2021, the Firm’s $484 million company MBS portfolio had a weighted common amortized value foundation of $103.56 and a weighted common market worth of $100.97. 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. Through the fourth quarter of 2021, the Firm offered company MBS for gross sale proceeds of $134 million for a web realized lack of $2.0 million. The Firm didn’t buy any specified company MBS through the fourth quarter of 2021.

The Firm’s weighted common yield on its company MBS was 1.53% for the fourth quarter of 2021 in comparison with 1.52% for the third quarter of 2021, and the precise weighted-average fixed prepayment fee (“CPR”) for the Firm’s company MBS was 7.43% for the fourth quarter of 2021 in comparison with 8.62% for the third quarter of 2021.

As of December 31, 2021, the Firm had $426 million of repurchase agreements excellent with a weighted common fee of 0.14% and remaining weighted common maturity of 13 days secured by an mixture of $448 million of company MBS at honest worth, which incorporates $28 million at sale worth of unsettled company MBS sale commitments which is included within the line merchandise “offered securities receivable” within the Firm’s monetary statements. The Firm’s weighted common value of repurchase settlement funding secured by company MBS was 0.12% through the fourth quarter of 2021 in comparison with 0.11% through the third quarter of 2021.

The Firm enters into numerous hedging transactions to mitigate the rate of interest sensitivity of its value borrowing and the worth of its fixed-rate company MBS. Beneath the phrases of the Firm’s rate of interest swap agreements, the Firm pays semiannual curiosity funds primarily based on a set fee and receives variable curiosity funds primarily based upon both the prevailing three-month London Interbank Supplied Fee (“LIBOR”) or Secured In a single day Financing Fee (“SOFR”). As of December 31, 2021, the Firm had $150 million in notional quantity of rate of interest swap agreements with a weighted common pay mounted fee of 0.84% and a remaining weighted common maturity of 5.0 years. The Firm’s weighted common web pay fee of its rate of interest swap agreements was 0.69% through the fourth quarter of 2021 in comparison with 0.51% through the third quarter of 2021. Beneath GAAP, the Firm has not designated these transactions as hedging devices for monetary reporting functions and, subsequently, all features and losses on its hedging devices are recorded as web funding features and losses within the Firm’s monetary statements.

MSR Associated Investments

The Firm is social gathering to agreements with a licensed, GSE authorised 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. Beneath the phrases of the association, the Firm gives capital to the mortgage servicing counterparty to buy MSRs immediately, and the Firm in flip receives all of the financial advantages of the MSRs much less a price payable to the counterparty. On the Firm’s possibility, the mortgage servicing counterparty may make the most of leverage on the MSRs which might be topic to the Firm’s MSR financing receivable to finance the acquisition of further MSRs to extend potential returns to the Firm. The transactions are accounted for as a financing receivable on the Firm’s consolidated monetary statements.

As of December 31, 2021, the Firm had $125 million of MSR financing receivable investments at honest worth. Through the fourth quarter of 2021, the Firm invested further capital of $5.7 million in MSR financing receivables. As of December 31, 2021, the mortgage servicing counterparty has drawn $40 million of financing below its credit score facility collateralized by the MSRs that reference the Firm’s MSR financing receivable leading to a leverage ratio of 0.3 to 1 as of December 31, 2021. The weighted common yield on the Firm’s MSR financing receivables was 9.63% for the fourth quarter of 2021 in comparison with 8.85% for the third quarter of 2021.

Credit score Investments

The Firm’s credit score investments typically embody mortgage loans secured by residential or business actual property or MBS collateralized by residential or business mortgage loans or residential photo voltaic panel loans (“non-agency MBS”). As of December 31, 2021, the Firm’s $65 million credit score funding portfolio at honest worth was comprised of the next:

• $29 million business mortgage mortgage

• $21 million of non-agency MBS collateralized by enterprise goal residential mortgage loans

• $15 million of asset backed securities collateralized by loans secured by residential photo voltaic panels

Through the fourth quarter of 2021, the Firm offered credit score investments for gross proceeds of $23 million for a web realized lack of $1.0 million. Through the fourth quarter of 2021, the Firm bought credit score investments totaling $24 million.

As of December 31, 2021, the Firm had a $21 million repurchase settlement excellent with a fee of two.60% and remaining maturity of 319 days secured by a $29 million business mortgage mortgage at honest worth. As of December 31, 2021, the Firm didn’t have any repurchase agreements excellent secured by non-agency MBS.

Single-family Residential Investments

Through the third quarter of 2021, the Firm launched its SFR funding technique of buying, leasing and working single-family residential houses as rental properties. As of December 31, 2021, the Firm had acquired 214 SFR properties for a complete value of $61 million and had commitments to accumulate an extra 69 SFR properties for an mixture buy worth of $20 million. The timing of the earnings profit to the Firm from investing in SFR rental properties might be dictated by the tempo of dwelling purchases, the extent of any property stage refurbishments required after buy and the size of the lease advertising and marketing interval. The Firm expects the time interval between the date of settlement of the house buy to the date the home is occupied by a tenant to common between 30 to 60 days. Through the interval previous to a lease graduation, the Firm is incurring prices to carry the property together with actual property taxes, insurance coverage, home-owner affiliation charges and curiosity prices.

As of December 31, 2021, the Firm has drawn $39.4 million below its $150 million credit score facility. Advances could also be drawn as much as 74% of the honest worth of eligible SFR properties with an advance interval that expires in March 2023 with excellent principal stability due in October 2026. Advances below the power bear curiosity at a set fee of two.76%.

Different Fourth Quarter 2021 Monetary Highlights

The Firm’s “in danger” leverage ratio was 1.5 to 1 as of December 31, 2021 in comparison with 1.8 to 1 as of September 30, 2021. The Firm’s “in danger” leverage ratio is calculated because the sum of the Firm’s repurchase settlement financing, long-term secured debt, web payable or receivable for unsettled securities, web contractual worth of TBA commitments and financing embedded in its MSR financing receivables 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.

Through the fourth quarter of 2021, the Firm repurchased 1.2 million shares of its frequent inventory at a median worth of $3.65 per share for a complete buy value of $4.4 million, representing 3.8% of frequent inventory excellent as of September 30, 2021. For the 12 months, the Firm repurchased 3.2 million shares of its frequent inventory at a median worth of $3.83 per share for a complete buy value of $12.5 million, representing 9.7% of frequent inventory excellent as of December 31, 2020. Subsequent to December 31, 2021, the Firm repurchased an extra 0.75 million shares of its frequent inventory at a median worth of $3.42 per share for a complete buy value of $2.6 million, representing 2.5% of frequent inventory excellent as of December 31, 2021. At the moment, the Firm had remaining authorization from its Board of Administrators to repurchase as much as 12.2 million shares of its frequent inventory.

Distributions to Shareholders

The Firm’s Board of Administrators authorised distributions to its Sequence B and Sequence C most popular shareholders of $0.4375 per share and $0.515625 per share, respectively, for the fourth quarter of 2021. The distributions have been paid on December 30, 2021 to shareholders of document as of December 21, 2021. The Firm’s Board of Administrators decided to not declare a dividend on its frequent inventory for the fourth quarter of 2021. The Firm’s Board of Administrators will proceed to judge the fee of quarterly dividends primarily based on a number of elements together with present monetary outcomes, general market circumstances, return alternatives on investments, liquidity wants, alternatives to return capital to shareholders by means of accretive inventory repurchases and REIT distribution necessities. No definitive dedication has been made presently concerning the declaration of future dividends.

The Firm is organized and operated in a way that may permit it to qualify as a REIT for U.S. federal revenue tax functions and presently intends to proceed to be organized and operated in such a way. As a REIT, distributions to shareholders will typically be taxable as abnormal revenue that aren’t eligible to be taxed as certified dividends. Nonetheless, a portion of such distributions could also be designated as long-term capital acquire dividends to the extent that such portion is attributable to the Firm’s sale of capital belongings held for a couple of 12 months. Non-corporate taxpayers might deduct as much as 20% of dividends acquired from a REIT that aren’t designated as capital acquire dividends or certified dividend revenue, topic to sure limitations. Distributions in extra of the Firm’s present and gathered earnings and earnings might 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 acquire thereafter.

The Firm has additionally introduced the tax traits of the distributions paid to its most popular shareholders in calendar 12 months 2021. The Firm’s distributions paid to its Sequence B and Sequence C most popular shareholders in 2020 of $1.75 per share and $2.0625 per share, respectively, have been all a return of capital. Most popular shareholders ought to obtain a Type 1099-DIV containing this info from their brokers, switch brokers or different establishments.

Convention Name

The Firm will maintain a convention name for buyers at 10:00 A.M. Jap Time on Thursday, March 3, 2022 to debate the Firm’s fourth quarter 2021 outcomes.

Traders might take heed to the earnings name by way of the web at: http://www.arlingtonasset.com/index.php?s=19. Replays of the earnings name might be out there for 60 days by way of webcast on the Web deal with offered above, starting two hours after the decision ends.

Extra Data

The Firm will make out there further quarterly info for the good thing about its shareholders by means of a supplemental presentation that might be out there on the Firm’s web site, www.arlingtonasset.com. The presentation might be out there on the Webcasts and Displays part situated below the Updates & Occasions tab of the Firm’s web site.

In regards to the Firm

Arlington Asset Funding Corp. (NYSE: AAIC) presently invests primarily in mortgage associated and residential actual property and has elected to be taxed as a REIT. The Firm is headquartered within the Washington, D.C. metropolitan space. For extra info, 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 elevate proceeds and another steerage on current or future intervals represent forward-looking statements which might be topic to a variety of elements, dangers and uncertainties which may trigger precise outcomes to vary materially from acknowledged expectations or present circumstances. These elements embody, however will not be 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 as a result of a major lower in financial exercise and disruptions in our financing operations, amongst different elements, modifications 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, modifications in political and financial insurance policies, modifications in default charges, modifications in prepayment charges and different assumptions underlying our estimates associated to our projections of future core earnings, modifications within the Firm’s returns, modifications in the usage of the Firm’s tax advantages, the Firm’s capacity to qualify and preserve qualification as a REIT, modifications within the company MBS asset yield, modifications within the Firm’s monetization of web working loss carryforwards, modifications within the Firm’s funding technique, modifications within the Firm’s capacity to generate money earnings and dividends, preservation and utilization of the Firm’s web working loss and web capital loss carryforwards, impacts of modifications to and modifications 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 threat adjusted return expectations, capacity and willingness to make future dividends, capacity to generate adequate money by means of retained earnings to fulfill capital wants, and normal financial, political, regulatory and market circumstances. These and different materials dangers are described within the Firm’s most up-to-date Annual Report on Type 10-Ok and another paperwork filed by the Firm with the SEC once in a while, which can be found from the Firm and from the SEC, and you need to 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 is just not obligated to, and doesn’t intend to, replace or revise any forward-looking statements, whether or not because of new info, future occasions or in any other case.

Monetary information to comply with

403

488

Lengthy-term debt secured by single-family properties

151

151

—

—

—

Lengthy-term unsecured debt

5,112

1,376

1,435

1,150

1,151

Secured debt of consolidated VIE

1,460

20

173

405

862

Whole curiosity expense

8,206

1,833

1,914

1,958

2,501

Single-family property working bills

629

593

36

—

—

Internet working revenue

16,954

3,713

4,396

5,087

3,758

Funding and spinoff (loss) acquire, web

(13,199)

3,909

(1,313)

(9,032)

(6,763)

Basic and administrative bills

Compensation and advantages

6,979

1,855

1,888

1,841

1,395

Different normal and administrative bills

4,725

1,125

1,009

1,349

1,242

Whole normal and administrative bills

11,704

2,980

2,897

3,190

2,637

(Loss) revenue earlier than revenue taxes

(7,949)

4,642

186

(7,135)

(5,642)

Earnings tax provision (profit)

1,566

808

436

(76)

398

Internet (loss) revenue

(9,515)

3,834

(250)

(7,059)

(6,040)

Dividend on most popular inventory

(2,916)

(739)

(731)

(723)

(723)

Internet (loss) revenue (attributable) out there to

frequent inventory

$

(12,431)

$

3,095

$

(981)

$

(7,782)

$

(6,763)

Fundamental (loss) earnings per frequent share

$

(0.38)

$

0.10

$

(0.03)

$

(0.24)

$

(0.20)

Diluted (loss) earnings per frequent share

$

(0.38)

$

0.10

$

(0.03)

$

(0.24)

$

(0.20)

Weighted common frequent shares excellent (in

hundreds)

Fundamental

32,312

31,100

31,927

33,066

33,181

Diluted

32,312

31,421

31,927

33,066

33,181

Non-GAAP Core Working Earnings

Along with the Firm’s outcomes of operations decided in accordance with typically accepted accounting rules as persistently utilized in the US (“GAAP”), the Firm additionally stories “non-GAAP core working revenue.” The Firm defines core working revenue as “financial web curiosity revenue from monetary belongings” and “web working revenue from SFR properties, excluding depreciation,” much less “core normal and administrative bills,” long-term unsecured debt curiosity expense, most popular inventory dividends and an “revenue tax provision for taxable REIT subsidiary (“TRS”) core working revenue.”

Financial Internet Curiosity Earnings from Monetary Belongings

Financial web curiosity revenue from monetary belongings, a non-GAAP monetary measure, is comprised of the next:

• complete curiosity and different revenue from our investments in interest-bearing securities loans and different monetary belongings;

• TBA greenback roll revenue, which represents the implied web curiosity revenue earned from the company MBS which underlie, and are implicitly financed by means of, our TBA greenback roll transactions. TBA greenback revenue is calculated as the value 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; web of

• curiosity expense incurred from repurchase agreements or different financing preparations secured by our investments in interest-bearing monetary belongings; and

• web curiosity revenue earned or expense incurred from rate of interest swap agreements.

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

Internet Working Earnings (Loss) from SFR Properties, Excluding Depreciation

Internet working revenue (loss) from SFR properties, excluding depreciation, represents the working revenue (loss) of the Firm’s single-family residential properties decided in accordance with GAAP plus the depreciation and amortization of the SFR properties. Internet working revenue (loss) from SFR properties, excluding depreciation is comprised of the next:

• hire revenues from single-family properties; web of

• single-family property working bills; and

• curiosity expense incurred from long-term debt secured by single-family properties.

Core Basic and Administrative Bills

Core normal and administrative bills are non-interest bills reported inside the line merchandise “complete normal and administrative bills” of the consolidated statements of complete revenue much less stock-based compensation expense.

Earnings Tax Provision for TRS Core Working Earnings

Our TRSs are topic to U.S. federal and state company revenue taxes. Our computation of core working revenue features a provision for revenue taxes on the core working revenue of our TRSs. The core working revenue of our TRSs is comprised of web curiosity revenue generated by our TRSs web of our TRSs’ normal and administrative bills. In our consolidated statements of complete revenue ready in accordance with GAAP, the “revenue tax provision (profit)” contains (i) the revenue tax provision for TRS core working revenue and (ii) an revenue tax provision for (or profit from) periodic will increase (or decreases) within the honest worth of the investments of our TRSs, that are acknowledged in web revenue as a element of “funding and spinoff acquire (loss) web.”

Non-GAAP Core Working Earnings Outcomes

The next desk presents the Firm’s computation of financial web curiosity revenue and core working revenue for the final 4 fiscal quarters and for the 12 months ended December 31, 2021 (unaudited, quantities in hundreds, besides per share quantities):