Arlington Asset Investment Corp. Reports First Quarter 2010 Financial Results
Core Operating Income of $6.1 million or $0.77 per share(1) --Net income of $4.6 million or $0.59 per share
Book value of $156.3 million or $20.03 per share
PRNewswire via COMTEX
Arlington, Virginia
NYSE: Al

ARLINGTON, Va., May 6, 2010 /PRNewswire via COMTEX/ --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 attractiverisk 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)


                                              March 31,       December 31,
    ASSETS                                       2010              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.