Arlington Asset Investment Corp. Reports Fourth Quarter and Full Year 2009 Financial Results
Net income of $0.59 per share --Book value of $19.54 per share
PRNewswire via COMTEX
Arlington, Virginia
NYSE: Al

ARLINGTON, Va., Feb 11, 2010 /PRNewswire via COMTEX/ -- Arlington Asset Investment Corp. (NYSE: AI) (the "Company") today reported net income of $4.7 million for the quarter ended December 31, 2009, or $0.59 per share (diluted), compared to a net loss of $268.5 million, or $35.50 per share (diluted) for the quarter ended December 31, 2008. For the twelve months ended December 31, 2009, the Company reported net income of $116.5 million, or $14.89 per share (diluted), compared to a net loss of $417.5 million, or $55.23 per share (diluted) for the twelve months ended December 31, 2008. As of December 31, 2009, book value per share was $19.54.

 

Fourth Quarter Highlights

Net income of $4.7 million for the fourth quarter of 2009 includes the following:

 

  • $4.0 million of operating cash income;
  • $2.3 million in net investment gains from mortgage-backed securities (MBS) and other investment related activities;
  • $2.5 million in income tax benefits;
  • $3.4 million loss from the sale of FBR Capital Markets Corporation stock.

 

During the quarter, the Company invested proceeds from its October 28, 2009 sale of FBR Capital Markets stock primarily to grow its non-agency MBS portfolio. At December 31, 2009, the Company's non-agency MBS portfolio was unlevered with a cost basis of $151 million, which represented $308 million of face value, an average cost of 51% of par, and a weighted average coupon of 5.7%. During the fourth quarter of 2009, the unlevered annualized cash yield on the non-agency MBS portfolio was approximately 19% measured as a percentage of cost basis.

The Company's net interest income increased to $6.1 million during the quarter primarily as a result of growth in our non-agency MBS portfolio. Ongoing fixed operating overhead expenses were approximately $2.2 million for the fourth quarter, a decline of $0.3 million compared to the prior quarter. During the fourth quarter, the agency MBS portfolio of $137 million was structured to substantially eliminate market price risk. Excluding borrowings on the agency MBS portfolio, Arlington's total debt equaled $17 million, or 5% of total assets, at December 31, 2009. The Company's net operating loss carry-forwards and net capital loss carry-forwards are currently in excess of $800 million.

Subsequent to December 31, 2009, additional capital was invested in the Company's non-agency MBS portfolio such that at February 11, 2010, the cost basis was $160 million and was allocated approximately 65% to first tranche securities and approximately 35% to re-remic mezzanine securities. At that time, the total face value of the non-agency MBS securities was $324 million with an average cost basis of 51% of par, and a weighted average coupon of 5.7%. Total investable capital was approximately $174 million at February 11, 2010, inclusive of capital invested in agency MBS.

Arlington's unlevered non-agency MBS portfolio is now nearly fully deployed with a current annualized cash yield on invested capital of approximately 19% before expenses. Future portfolio growth is expected to come primarily from internally-generated capital through retained earnings which the Company expects will benefit from potential future reductions in ongoing fixed overhead expenses, Arlington's estimated tax rate of 2%, and the potential realization over time of the purchase discount (currently $164 million) on the Company's non-agency MBS securities.

"Our company made significant progress in the fourth quarter and for the full year 2009. With our non-agency MBS portfolio now nearly fully invested, continued expense reductions, and utilization of our tax benefits, Arlington is currently generating significant after tax cash returns with very low leverage. In addition, the large purchase discount on our non-agency portfolio means the Company has significant reflation potential above its current tangible book value. While market conditions improved over the course of the fourth quarter and the value of our assets has correspondingly increased, we continue to see new opportunities which meet or exceed our risk adjusted return expectations. The outlook for Arlington makes us optimistic about its ability to offer shareholders an attractive cash dividend as well as an opportunity for growth in earnings and book value on a tax advantaged basis going forward given our C-Corp. structure and substantial loss carry-forwards," said J. Rock Tonkel, Jr., President and Chief Operating Officer.

The Company's board of directors has approved a $0.35 dividend for the first quarter. The dividend will be payable on April 30, 2010 to shareholders of record on March 31, 2010 (ex-dividend date of March 29, 2010). This represents a 9.4% annualized dividend yield based on the closing price of $14.84 on February 10, 2010, resulting in a payout ratio of 50% to 60% of current period net income on a cash basis excluding non-recurring items. Arlington will continue to assess the best alternatives for shareholders with regard to the appropriate dividend payout ratio in future periods.

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
                                                    --------------------
                                                         December 31
                                                    --------------------
                                                         2009       2008
                                                    ---------- ---------
    INTEREST INCOME:
      Interest on investment securities                $6,362     $9,402
      Dividends                                             4        227
      Other interest income                                 5        132
                                                    ---------  ---------
        Total interest income                           6,371      9,761

    INTEREST EXPENSE:
      Interest on short-term debt                          77      4,612
      Interest on long-term debt                          163      4,922
                                                    ---------  ---------
        Total interest expense                            240      9,534
                                                    ---------  ---------
        Net interest income                             6,131        227

    OTHER INCOME (LOSS), NET:
      Gain on extinguishment of long-term debt              -     35,005
      Investment income (loss)                          2,294   (217,068)
      Other (loss) income                                  (4)     7,981
                                                    ---------  ---------
        Total other income (loss), net                  2,290   (174,082)
                                                    ---------  ---------
    Income (loss) from continuing
     operations before other expenses                   8,421   (173,855)

    OPERATING EXPENSES
      Compensation and benefits                         1,128      4,485
      Professional services                             1,055      1,939
      Business development                             (1,323)        70
      Occupancy and equipment                             122        241
      Other operating expenses                          1,850     11,071
                                                    ---------  ---------
        Total other expenses                            2,832     17,806

    Income (loss) from continuing
     operations before income taxes                     5,589   (191,661)
                                                    ---------  ---------

    Income tax (benefit) provision                     (2,507)     1,899
                                                    ---------  ---------
    Net income (loss) from
     continuing operations                              8,096   (193,560)
    Loss from discontinued operations,
     net of taxes                                      (3,394)  (130,747)
                                                    ---------  ---------
    Net income (loss)                                   4,702   (324,307)
    Net loss attributable to
     noncontrolling interests                               -    (55,815)
                                                    ---------  ---------
    Net income (loss) attributable to
     Arlington Asset Investment Corp.                  $4,702  $(268,492)
                                                    =========  =========

    EARNINGS PER SHARE - BASIC:
      Income (loss) from continuing operations
       attributable to Arlington Asset
       Investment Corp. shareholders                    $1.05    $(25.59)
      Discontinued operations attributable to
       Arlington Asset Investment Corp. shareholders    (0.44)     (9.91)
                                                    ---------  ---------
      Net income (loss) attributable to
       Arlington Asset Investment Corp. shareholders    $0.61    $(35.50)
                                                    =========  =========

    EARNINGS PER SHARE - DILUTED:
      Income (loss) from continuing operations
       attributable to Arlington Asset
       Investment Corp. shareholders                    $1.02    $(25.59)
      Discontinued operations attributable to
       Arlington Asset Investment Corp. shareholders    (0.43)     (9.91)
                                                    ---------  ---------
      Net income (loss) attributable to
       Arlington Asset Investment Corp.
       shareholders                                     $0.59    $(35.50)
                                                    =========  =========
    Weighted average shares  - basic
     (in thousands)                                     7,679      7,564
                                                    =========  =========
    Weighted average shares  - diluted
     (in thousands)                                     7,907      7,564
                                                    =========  =========



    ARLINGTON ASSET INVESTMENT CORP.
    CONSOLIDATED STATEMENTS OF OPERATIONS
    (Dollars in thousands, except per share amounts)
    (Unaudited)

                                                   Twelve Months Ended
                                                  --------------------
                                                       December 31,
                                                  --------------------
                                                       2009       2008
                                                  ---------  ---------
    INTEREST INCOME:
      Interest on MBS                               $13,940    $77,954
      Interest on loans held for sale                     -         37
      Dividends                                         112        724
      Other interest income                              27      2,379
                                                  ---------  ---------
        Total interest income                        14,079     81,094

    INTEREST EXPENSE:
      Interest on short-term debt                       495     50,539
      Interest on long-term debt                      3,150     21,764
      Interest on mortgage loans and
       mortgage banking operations                        -        401
      Other interest expense                              -         47
                                                  ---------  ---------
        Total interest expense                        3,645     72,751
                                                  ---------  ---------
        Net interest income                          10,434      8,343

    OTHER INCOME (LOSS), NET:
      Gain on extinguishment of long-term debt      160,435     39,083
      Investment income (loss)                        3,926   (390,378)
      Other (loss) income                              (147)    83,947
                                                  ---------  ---------
        Total other income (loss), net              164,214   (267,348)
                                                  ---------  ---------
    Income (loss) from continuing
     operations before other expenses               174,648   (259,005)

    OPERATING EXPENSES
      Compensation and benefits                      14,366     21,780
      Professional services                           7,053      6,056
      Business development                            6,577        604
      Occupancy and equipment                           538      1,248
      Other operating expenses                        5,955     19,008
                                                  ---------  ---------
        Total other expenses                         34,489     48,696

    Income (loss) from continuing
     operations before income taxes                 140,159   (307,701)
                                                  ---------  ---------
    Income tax provision                              9,522      1,899
                                                  ---------  ---------
    Net income (loss) from
     continuing operations                          130,637   (309,600)
    Loss from discontinued
     operations, net of taxes                       (25,551)  (194,730)
                                                  ---------  ---------
    Net income (loss)                               105,086   (504,330)
    Net loss attributable to
     noncontrolling interests                       (11,459)   (86,867)
                                                  ---------  ---------
    Net income (loss) attributable to
     Arlington Asset Investment Corp.              $116,545  $(417,463)
                                                  =========  =========

    EARNINGS PER SHARE - BASIC:
      Income (loss) from continuing operations
       attributable to Arlington Asset
       Investment Corp. shareholders                 $17.02    $(40.96)
      Discontinued operations attributable
       to Arlington Asset Investment Corp.
       shareholders                                   (1.84)    (14.27)
                                                  ---------  ---------
      Net income (loss) attributable to
       Arlington Asset Investment Corp.
       shareholders                                  $15.19    $(55.23)
                                                  =========  =========

    EARNINGS PER SHARE - DILUTED:
      Income (loss) from continuing operations
       attributable to Arlington Asset
       Investment Corp. shareholders                 $16.69    $(40.96)
      Discontinued operations attributable  to
       Arlington Asset Investment Corp.
       shareholders                                   (1.80)    (14.27)
                                                  ---------  ---------
      Net income (loss) attributable to
       Arlington Asset Investment Corp.
       shareholders                                  $14.89    $(55.23)
                                                  =========  =========

    Weighted average shares  - basic
     (in thousands)                                   7,675      7,558
                                                  =========  =========
    Weighted average shares  - diluted
     (in thousands)                                   7,825      7,558
                                                  =========  =========



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

    ASSETS                                        31-Dec-09   31-Dec-08
                                                -----------  ----------
    Cash and cash equivalents                      $10,123     $46,851
    Receivables:
      Interest                                       2,011       1,130
      Other                                             20         356
    Investments:
      Mortgage-backed securities,
       at fair value                               295,600     139,955
      U.S. Treasury bonds, at fair value                 -     550,000
      Other investments                              2,580      13,802
    Furniture, equipment, software and
     leasehold improvements, net                       114           -
    Prepaid expenses and other assets                3,201       7,475
    Assets of discontinued operation                     -     800,722
                                                ----------  ----------
      Total assets                                $313,649  $1,560,291
                                                ==========  ==========

    LIABILITIES AND EQUITY

    Liabilities:
    Repurchase agreements                         $126,830    $647,003
    Interest payable                                   124       2,019
    Accrued compensation and benefits                5,921       3,339
    Accounts payable, accrued expenses
     and other liabilities                          13,904      13,322
    Long-term debt                                  16,857     254,357
    Liabilities of discontinued operation                -     496,995
                                                ----------   ---------
      Total liabilities                            163,636   1,417,035
                                                ----------   ---------
    Equity:
    Common stock, 7,919 and 7,961 shares                80          80
    Additional paid-in capital                   1,507,394   1,494,642
    Accumulated other comprehensive
     income (loss)                                   7,015        (118)
    Accumulated deficit                         (1,364,476) (1,481,021)
                                                ----------  ----------
      Total Arlington Asset
       Investment Corp.
       shareholders' equity                        150,013      13,583
                                                ----------   ---------
    Noncontrolling interest                              -     129,673
                                                ----------   ---------
      Total equity                                 150,013     143,256
                                                ----------   ---------
      Total liabilities and equity                $313,649  $1,560,291
                                                ==========  ==========

    Book value per share                            $19.54      $18.95

    Shares outstanding (in thousands)                7,679       7,561



SOURCE Arlington Asset Investment Corporation