Arlington Asset Investment Corp. Reports Second Quarter 2009 Financial Results
PRNewswire - First Call via COMTEX
Arlington, Virginia
NYSE: Al

ARLINGTON, Va., Aug 10, 2009 /PRNewswire-FirstCall via COMTEX/ -- Arlington Asset Investment Corp. (NYSE: AI) (the Company) today reported a net after-tax loss of $32.2 million for the quarter ended June 30, 2009, or $0.21 per share (diluted), compared to a net after-tax loss of $25.1 million, or $0.17 per share (diluted) for the second quarter of 2008. For the six months ending June 30, 2009, the Company reported net income of $69.4 million, or $0.45 per share (diluted), compared to net income of $20.1 million, or $0.13 per share (diluted) for the six months ending June 30, 2008. As of June 30, 2009, book value per share was $0.59.

During the quarter ended June 30, 2009, the Company sold 18.2 million shares of its holding in FBR Capital Markets Corporation (FBR Capital Markets) generating a loss of $13.8 million, including a mark-to-market adjustment of $4.0 million on the remaining holdings. The Company is accounting for its remaining investment in FBR Capital Markets under the fair value method of accounting using quoted market prices. As of June 30, 2009, the Company's remaining 15.1 million shares of FBR Capital Markets stock were valued at $4.70 per share and represent approximately a 24% interest.

As a result of the sales of FBR Capital Markets stock, the Company no longer had majority control of FBR Capital Markets and therefore, the Company's consolidated financial statements for the periods subsequent to May 20, 2009 will not include the results of FBR Capital Markets' operations. The Company's consolidated financial statements will reflect the fair value of the FBR Capital Markets stock on the balance sheet and the changes in the market value of FBR Capital Markets stock in earnings as a component of investment income or loss for the respective period.

Subsequent to June 30, 2009, the Company extinguished an additional $25.0 million of trust preferred securities for $5.0 million, resulting in a $20.0 million gain. In addition, the Company also sold an additional 411,032 shares of FBR Capital Markets stock at a price of $4.42 per share in connection with the over-allotment option that was granted to the underwriters under the underwriting agreement entered into on June 15, 2009.

As of August 10, 2009, excluding the Agency mortgage-backed securities (MBS) portfolio, the Company's unlevered non-agency residential MBS portfolio equaled $115.8 million face value with an average cost of 42.6%, was valued at $49.3 million and had a weighted average coupon of 5.6% of face value. At that date, the Company also had $9.4 million of unrestricted cash, 14.7 million shares of FBR Capital Markets stock and $25.0 million of remaining trust preferred securities outstanding.

Second Quarter Highlights

Net loss of $32.2 million for the second quarter of 2009, reflecting both cash and non-cash items, includes the following:

    --  $2.3 million of operating cash loss, excluding $1.2 million of non-cash
        compensation charges;
    --  $13.8 million in net losses from the sale and mark-to-market of shares
        of FBR Capital Markets;
    --  $5.6 million of losses, net of minority interest, relating to FBR
        Capital Markets operations for April and May, 2009; and

    --  $9.3 million of net expenses related to non-recurring activities
        including the 2010 FBR Open and fees and expenses related to the sale of
        FBR Capital Markets stock in the second quarter.

New Corporate Direction

The sale of FBR Capital Markets stock is in furtherance of the strategic shift the Company has initiated to focus on a principal investing strategy by monetizing the Company's investment in FBR Capital Markets. Given current dislocations in the capital markets, the Company seeks to benefit from potential high current cash returns available on mortgage investments. The Company plans to deploy the net cash proceeds for investments that offer current income as well as capital appreciation potential, and which may utilize the Company's net operating loss carry-forwards ("NOLs") and net capital loss carry-forwards ("NCLs"). The Company expects future investments to include non-agency residential mortgage-backed securities and residential mortgage-backed securities guaranteed by a U.S. Government agency or U.S. Government-sponsored entity, among others. The Company may also consider opportunities for financial service operating businesses potentially in the form of a bank charter, and will seek to continue strengthening its balance sheet by converting long-term debt to equity through the extinguishment of the remaining $25 million of trust preferred securities at a discount to face value.

Consistent with its new direction, the Company expects to deploy proceeds from potential future dispositions of FBR Capital Markets stock to fund the extinguishment of the remaining trust preferred securities and expand the investment portfolio, net interest income, and earnings.

About the Company

Arlington Asset Investment Corp. (NYSE: AI) invests in mortgage-related assets and merchant banking opportunities. The Company is headquartered in the Washington, D.C. metropolitan area. For more information, please visit www.arlingtonasset.com.

Complete second quarter 2009 financial results and tables for FBR Capital Markets can be found at www.fbrcapitalmarkets.com.

Statements concerning future performance, 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 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.

Financial data follows.

    ARLINGTON ASSET INVESTMENT CORP.
    CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
    (Dollars in thousands, except per share amounts)       Quarter Ended
    (Unaudited)                                               June 30,
                                                     -----------------------
                                                         2009         2008
                                                     ----------   ----------
    REVENUES:
    Capital markets                                     $31,171      $52,993
    Principal investment:
      Interest                                            1,282       22,842
      Net investment loss                                (3,989)      (5,542)
      Dividends                                             108          133
    Other                                                     -          902
                                                     ----------   ----------
    Total revenues                                       28,572       71,328
    Interest expense                                        582       21,858
                                                     ----------   ----------
      Revenues, net of interest expense                  27,990       49,470
                                                     ----------   ----------

    NON-INTEREST EXPENSES:
    Compensation and benefits                            25,594       53,970
    Professional services                                 7,224       10,492
    Business development                                  7,142        6,812
    Clearing and brokerage fees                           2,653        3,393
    Occupancy and equipment                               5,374        8,580
    Communications                                        3,637        6,255
    Other operating expenses                              3,611        7,055
                                                     ----------   ----------
      Total non-interest expenses                        55,235       96,557
                                                     ----------   ----------

    Operating loss                                      (27,245)     (47,087)
                                                     ----------   ----------

    OTHER INCOME (LOSS):
      Loss on subsidiary share transactions              (9,776)        (189)
      Other loss                                             (4)          (3)
                                                     ----------   ----------

      Loss before income taxes                          (37,025)     (47,279)

    Income tax benefit                                     (310)      (9,974)
                                                     ----------   ----------

      Net loss                                          (36,715)     (37,305)

      Less: Net loss attributable to the
       noncontrolling interest of
       consolidated subsidiary                           (4,558)     (12,254)
                                                     ----------   ----------

      Net loss attributable to
       Arlington Asset shareholders                    $(32,157)    $(25,051)
                                                     ==========   ==========
    Basic loss per share
     attributable to Arlington Asset                     $(0.21)      $(0.17)
                                                     ==========   ==========
    Diluted loss per share
     attributable to Arlington Asset                     $(0.21)      $(0.17)
                                                     ==========   ==========

    Weighted average shares
     outstanding - basic (in thousands)                 153,912      150,948
                                                     ==========   ==========
    Weighted average shares
     outstanding - diluted (in thousands)               153,912      150,948
                                                     ==========   ==========



    ARLINGTON ASSET INVESTMENT CORP.
    CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
    (Dollars in thousands, except per share amounts)     Six Months Ended
    (Unaudited)                                              June 30,
                                                     -----------------------
                                                         2009         2008
                                                     ----------   ----------
    REVENUES:
    Capital markets                                     $81,075     $157,072
    Principal investment:
      Interest                                            3,881       47,694
      Net investment loss                                (3,983)     (20,201)
      Dividends                                             108          339
    Other                                                     -        2,356
                                                     ----------   ----------
    Total revenues                                       81,081      187,260
    Interest expense                                      3,346       45,508
                                                     ----------   ----------
      Revenues, net of interest expense                  77,735      141,752
                                                     ----------   ----------

    NON-INTEREST EXPENSES:
    Compensation and benefits                            70,731      130,924
    Professional services                                11,993       22,959
    Business development                                 13,123       19,106
    Clearing and brokerage fees                           5,950        7,023
    Occupancy and equipment                              13,479       17,769
    Communications                                        8,864       12,273
    Other operating expenses                              8,936       12,439
                                                     ----------   ----------
      Total non-interest expenses                       133,076      222,493
                                                     ----------   ----------

    Operating loss                                      (55,341)     (80,741)
                                                     ----------   ----------

    OTHER INCOME (LOSS):
      Loss on subsidiary share transactions              (9,912)        (189)
      Gain on extinguishment of long-term debt          132,453            -
      Other (loss) income                                    (7)      73,034
                                                     ----------   ----------

      Income (loss) before income taxes                  67,193       (7,896)

    Income tax provision (benefit)                        9,245      (10,780)
                                                     ----------   ----------

      Net income                                         57,948        2,884

      Less: Net loss attributable to the
       noncontrolling interest
       of consolidated subsidiary                       (11,459)     (17,167)
                                                     ----------   ----------

      Net income attributable to
       Arlington Asset shareholders                     $69,407      $20,051
                                                     ==========   ==========

    Basic earnings per share
     attributable to Arlington Asset                      $0.45        $0.13
                                                     ==========   ==========
    Diluted earnings per share
     attributable to Arlington Asset                      $0.45        $0.13
                                                     ==========   ==========

    Weighted average shares
     outstanding - basic (in thousands)                 153,135      150,869
                                                     ==========   ==========
    Weighted average shares
     outstanding - diluted (in thousands)               153,551      151,345
                                                     ==========   ==========



    ARLINGTON ASSET INVESTMENT CORP.
    CONSOLIDATED BALANCE SHEETS
    (Dollars and shares in thousands, except per share amounts)
    (Unaudited)


    ASSETS                                           30-Jun-09   31-Dec-08
                                                    ----------  ----------

    Cash and cash equivalents                          $36,831    $254,653
    Receivables:
      Interest                                             802       1,378
      Other                                                199      32,571
    Investments:
      Mortgage-backed securities, at
       fair value                                      149,298     594,294
      U.S. Treasury bonds, at fair value                     -     550,000
      Equity investments, at fair value                 71,280           -
      Trading securities, at fair value                      -      17,954
      Long-term and other investments                    4,148      54,976
    Derivative assets, at fair value                         -         264
    Intangible assets, net                                   -       8,943
    Furniture, equipment, software and
     leasehold improvements, net                            34      24,442
    Prepaid expenses and other assets                    6,995      20,816
                                                    ----------  ----------
        Total assets                                  $269,587  $1,560,291
                                                    ==========  ==========


    LIABILITIES AND EQUITY

    Liabilities:
    Repurchase agreements                              $94,738  $1,063,040
    Trading account securities sold, but
     not yet purchased, at fair value                        -       8,325
    Derivative liabilities, at fair value                    -          56
    Interest payable                                       483       2,064
    Accrued compensation and benefits                    7,175      47,259
    Due to clearing broker                                   -       3,009
    Accounts payable, accrued expenses
     and other liabilities                              23,740      38,925
    Long-term debt                                      51,775     254,357
                                                    ----------  ----------
        Total liabilities                              177,911   1,417,035
                                                    ----------  ----------


    Equity:
    Common stock, 158,984 and 159,217
     shares                                              1,590       1,592
    Additional paid-in capital                       1,502,911   1,493,130
    Accumulated other comprehensive loss,
     net of taxes                                       (1,211)       (118)
    Accumulated deficit                             (1,411,614) (1,481,021)
                                                    ----------  ----------
        Total Arlington Asset
         shareholders' equity                           91,676      13,583
    Noncontrolling interest                                  -     129,673
                                                    ----------  ----------
        Total equity                                    91,676     143,256
                                                    ----------  ----------

        Total liabilities and equity                  $269,587  $1,560,291
                                                    ==========  ==========

    Book value per share - Arlington Asset
     shareholders' equity                                $0.59       $0.09
                                                    ==========  ==========
    Book value per share - total equity                  $0.59       $0.95
                                                    ==========  ==========
    Shares outstanding (in thousands)                  154,116     151,221
                                                    ==========  ==========

SOURCE Arlington Asset Investment Corp.