ARLINGTON, Va., May 6 /PRNewswire-FirstCall/ -- Arlington Asset
Investment Corp. (NYSE: AI) (the "Company") today reported net
income of $4.6 million for the
quarter ended March 31, 2010, or
$0.59 per share (diluted), compared
to net income of $101.6 million, or
$13.33 per share (diluted) for the
quarter ended March 31, 2009 and net
income of $4.7 million, or
$0.59 per share (diluted), for the
quarter ended December 31, 2009.
First quarter of 2009 results included a pre-tax gain of
$132.5 million from the
extinguishment of trust preferred securities. As of
March 31, 2010, the Company's book
value per share was $20.03.
First Quarter Highlights
During the quarter, the Company fully deployed investable
capital primarily in its non-agency MBS portfolio. At
March 31, 2010, the Company's total
non-agency MBS portfolio had an amortized cost basis of
$176 million, which represented
$366 million of face value, an
average cost of approximately 50% of par, a weighted average coupon
of 5.7%. During the first quarter of 2010, the annualized
yield on the non-agency MBS portfolio, excluding gains or
appreciation, was 18.8% measured as a percentage of amortized cost
basis.
Within the non-agency MBS portfolio, as of March 31, 2010, $84
million of capital was allocated to non-agency senior
securities with a face value of $131
million, an amortized cost basis of 64% of par and an
annualized yield of 16.0% for the month of March 2010, excluding gains or appreciation.
$92 million of capital was allocated to non-agency re-REMIC
and mezzanine securities with a face value of $235 million, an amortized cost basis of 39% of
par and an annualized yield of 19.6% for the month of March 2010, excluding gains or appreciation.
The Company's total long-term debt equaled $16 million, or 5% of total assets, at
March 31, 2010. The Company's
net operating loss carry-forwards and net capital loss
carry-forwards are in excess of $800
million at March 31, 2010.
The Company's board of directors approved a $0.35 dividend for the first quarter. The
dividend was paid on April 30, 2010
to shareholders of record on March 31,
2010. This represented a 6.9% annualized dividend
yield based on the closing price of $20.16 on April 30,
2010.
The Company is fully invested and has benefited from an
increased allocation of capital to re-REMIC mezzanine securities as
well as an all overall non-agency MBS average cost basis of 50% of
face value. Continued indications of stabilization and improvement
in housing, increased liquidity and available leverage have raised
prices for private-label RMBS, particularly among re-REMIC
mezzanine securities. Subsequent to March
31, 2010, rising prices for non-agency MBS assets have had a
pronounced positive effect on the value of the Company's portfolio.
The Company intends to continue to migrate capital from
senior non-agency securities that have achieved targeted reflation
to non-agency MBS that offer more attractive risk adjusted returns
inclusive of current income as well as reflation potential.
"The key theme for Arlington is
providing shareholders with attractive current period earnings
combined with substantial potential growth in book value from
realization over time of the reflation potential in the Company's
non-agency MBS portfolio, as well as retained earnings, on a tax
advantaged basis. Recent increases in non-agency prices have
permitted us to realize gains from our portfolio in the second
quarter. At the same time, new non-agency investments have improved
credit performance across our portfolio, increased expected cash
returns on invested capital, and reduced the Company's cost basis
in non-agency MBS. All of this provides greater upside
potential to earnings and book value per share. Our
non-agency MBS have significant appreciation potential over time up
to an amount approximately equal to our invested capital of
$185 million at the end of the first
quarter and larger than the Company's current market
capitalization. With future yield income, realized gains and
potential appreciation of our non-agency MBS portfolio all
sheltered by Arlington's
$800 million of combined net
operating and capital loss carry-forwards, we expect the Company's
future cash returns on invested capital to be amplified by its tax
benefits and well protected by our low leverage position," said
J. Rock Tonkel, Jr., President and
Chief Operating Officer.
(1) Non-GAAP Financial Measures
In addition to the financial results reported in accordance with
generally accepted accounting principles as consistently applied in
the United States (GAAP), the
Company has disclosed non-GAAP core operating income for the
quarter ended March 31, 2010 in this
press release. This non-GAAP measurement is used by management to
analyze and assess the operating results and dividends. In
determining this non-GAAP core operating income, the Company has
excluded the following non-cash expenses: (1) compensation costs
associated with stock-based awards and (2) accretion/amortization
of MBS purchase discounts/premiums adjusted for principal
repayments in excess of invested capital. The Company has
also excluded non-recurring costs. Management believes that
this non-GAAP measurement assists investors in understanding the
impact of these non-core items and non-cash expenses on the
performance of the Company and provides additional clarity around
the Company's forward earnings capacity and trend.
A limitation of utilizing this non-GAAP measure is that the GAAP
accounting effects of these events do in fact reflect the
underlying financial results of Arlington Asset Investment Corp.'s
business and these effects should not be ignored in evaluating and
analyzing the Company's financial results. Therefore, management
believes net income on a GAAP basis and core operating income on a
non-GAAP basis should be considered together.
The following table presents a reconciliation of the GAAP
financial results to non-GAAP measurements discussed above (dollars
in thousands).
|
|
GAAP net income
|
$ 4,626
|
|
Adjustments:
|
|
|
|
|
Non-recurring costs
|
341
|
|
Stock compensation
|
|
1,218
|
|
Adjusted interest related to purchase discount accretion /
premium amortization
|
(79)
|
|
Non-GAAP
core operating income
|
$ 6,106
|
|
Non-GAAP core operating income per share
(diluted)
|
$ 0.77
|
|
|
|
|
|
|
|
About the Company
Arlington Asset Investment Corp. (NYSE: AI) is a principal
investment firm that invests primarily in mortgage-related assets.
The Company is headquartered in the Washington, D.C. metropolitan area. For more
information, please visit www.arlingtonasset.com.
Statements concerning future performance, returns, plans and
steps to position the Company to realize value, and any other
guidance on present or future periods, constitute forward-looking
statements that are subject to a number of factors, risks and
uncertainties that might cause actual results to differ materially
from stated expectations or current circumstances. These factors
include, but are not limited to, changes in interest rates,
increased costs of borrowing, decreased interest spreads, changes
in default rates, preservation of our net operating loss and net
capital loss carry-forwards, impacts of regulatory changes and
changes to Fannie Mae and Freddie Mac, availability of
opportunities that meet or exceed our risk adjusted return
expectations, ability and willingness to make future dividends,
ability to generate sufficient cash through retained earnings to
satisfy capital needs, changes in mortgage pre-payment speeds,
risks associated with merchant banking investments, the realization
of gains and losses on principal investments, available
technologies, competition for business and personnel, and general
economic, political, regulatory and market conditions. These and
other risks are described in the Company's Annual Report on Form
10-K and Quarterly Reports on Form 10-Q that are available from the
Company and from the SEC and you should read and understand these
risks when evaluating any forward-looking statement.
Financial data follows
ARLINGTON ASSET INVESTMENT
CORP.
CONSOLIDATED STATEMENTS OF
OPERATIONS
(Dollars in thousands, except per
share amounts)
(Unaudited)
|
|
|
Quarter
Ended
|
|
|
March
31
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
INTEREST INCOME
|
|
|
|
|
Interest on mortgage-backed
securities
|
$ 9,201
|
|
$
2,581
|
|
Other interest income
|
1
|
|
19
|
|
Total interest
income
|
9,202
|
|
2,600
|
|
|
|
|
|
|
INTEREST EXPENSE
|
|
|
|
|
Interest on short-term
debt
|
90
|
|
225
|
|
Interest on long-term
debt
|
138
|
|
2,286
|
|
Total interest
expense
|
228
|
|
2,511
|
|
|
|
|
|
|
Net interest
income
|
8,974
|
|
89
|
|
|
|
|
|
|
OTHER INCOME, NET
|
|
|
|
|
Gain on extinguishment of
long-term debt
|
-
|
|
132,453
|
|
Investment gain
|
353
|
|
6
|
|
Other loss
|
(4)
|
|
(139)
|
|
Total other income,
net
|
349
|
|
132,320
|
|
|
|
|
|
|
Income from continuing operations
before other expenses
|
9,323
|
|
132,409
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
Compensation and
benefits
|
2,920
|
|
8,139
|
|
Professional services
|
670
|
|
228
|
|
Business development
|
20
|
|
2,350
|
|
Occupancy and
equipment
|
116
|
|
148
|
|
Other operating
expenses
|
859
|
|
1,767
|
|
Total other
expenses
|
4,585
|
|
12,632
|
|
|
|
|
|
|
Income from continuing operations
before income taxes
|
4,738
|
|
119,777
|
|
|
|
|
|
|
Income tax provision
|
112
|
|
8,946
|
|
|
|
|
|
|
Income from continuing
operations
|
4,626
|
|
110,831
|
|
Loss from discontinued operations, net
of taxes
|
-
|
|
(16,167)
|
|
|
|
|
|
|
Net income
|
4,626
|
|
94,664
|
|
Net loss attributable to
noncontrolling interests
|
-
|
|
(6,900)
|
|
Net income attributable to Arlington
Asset Investment Corp. shareholders
|
$ 4,626
|
|
$
101,564
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS PER SHARE -
BASIC
|
|
|
|
|
Income from
continuing operations attributable to Arlington Asset Investment
Corp. shareholders
|
$
0.60
|
|
$
14.55
|
|
Loss from
discontinued operations attibutable to Arlington Asset Investment
Corp. shareholders
|
-
|
|
(1.22)
|
|
Net income attributable to
Arlington Asset Investment Corp. shareholders
|
$
0.60
|
|
$
13.33
|
|
|
|
|
|
|
EARNINGS PER SHARE -
DILUTED
|
|
|
|
|
Income from
continuing operations attributable to Arlington Asset Investment
Corp. shareholders
|
$
0.59
|
|
$
14.54
|
|
Loss from
discontinued operations attibutable to Arlington Asset Investment
Corp. shareholders
|
-
|
|
(1.21)
|
|
Net income attributable to
Arlington Asset Investment Corp. shareholders
|
$
0.59
|
|
$
13.33
|
|
|
|
|
|
|
Weighted average shares - basic
(in thousands)
|
7,733
|
|
7,617
|
|
Weighted average shares -
diluted (in thousands)
|
7,879
|
|
7,622
|
|
|
|
|
|
ARLINGTON ASSET INVESTMENT
CORP.
CONSOLIDATED BALANCE
SHEETS
(Dollars in thousands, except per
share amounts)
(Unaudited)
|
|
|
|
|
|
|
|
ASSETS
|
|
March 31,
2010
|
|
December 31,
2009
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
5,875
|
|
$
10,123
|
|
Receivables
|
|
|
|
|
|
Interest
|
|
2,279
|
|
2,011
|
|
Other
|
|
799
|
|
20
|
|
Mortgage-backed securities, at fair
value
|
|
|
|
|
|
Available-for-sale
|
|
186,252
|
|
295,600
|
|
Trading
|
|
142,802
|
|
-
|
|
Other investments
|
|
2,028
|
|
2,580
|
|
Equipment and software, net
|
|
104
|
|
114
|
|
Prepaid expenses and other
assets
|
|
481
|
|
3,201
|
|
Total assets
|
|
$
340,620
|
|
$
313,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
Repurchase agreements
|
|
$
140,474
|
|
$
126,830
|
|
Interest payable
|
|
124
|
|
124
|
|
Accrued compensation and
benefits
|
|
6,144
|
|
5,921
|
|
Dividend payable
|
|
2,811
|
|
-
|
|
Accounts payable, accrued expenses and
other liabilities
|
|
18,890
|
|
13,904
|
|
Long-term debt
|
|
15,907
|
|
16,857
|
|
Total liabilities
|
|
184,350
|
|
163,636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
Common stock
|
|
79
|
|
80
|
|
Additional paid-in capital
|
|
1,508,463
|
|
1,507,394
|
|
Accumulated other comprehensive
income
|
|
10,385
|
|
7,015
|
|
Accumulated deficit
|
|
(1,362,657)
|
|
(1,364,476)
|
|
Total equity
|
|
156,270
|
|
150,013
|
|
|
|
|
|
|
|
Total liabilities and
equity
|
|
$
340,620
|
|
$
313,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book value per share
|
|
$
20.03
|
|
$
19.54
|
|
|
|
|
|
|
|
Shares outstanding (in
thousands)
|
|
7,801
|
|
7,679
|
|
|
|
|
|
|
SOURCE Arlington Asset Investment Corp.