Arlington Asset Investment Corp. Reports Third Quarter 2009 Financial Results
Positive operating cash income
PRNewswire - First Call
Arlington, Virginia
NYSE: Al

ARLINGTON, Va.Nov. 9 /PRNewswire-FirstCall/ -- Arlington Asset Investment Corp. (NYSE: AI) (the Company) today reported net income of $42.4 million for the quarter ended September 30, 2009, or $5.38 per share (diluted), compared to a net loss of $169.0 million, or $22.34 per share (diluted) for the quarter endedSeptember 30, 2008. For the nine months ended September 30, 2009, the Company reported net income of$111.8 million, or $14.28 per share (diluted), compared to a net loss of $149.0 million, or $19.71 per share (diluted) for the nine months ended September 30, 2008. As of September 30, 2009, book value per share was$17.84. The per share data reflect the impact of a 1-for-20 reverse stock split that was effective on October 6, 2009.

 

Third Quarter Highlights

 

Net income of $42.4 million for the third quarter of 2009 includes the following:

 

    --  $0.9 million of operating cash income, excluding $2.0 million of
        non-cash compensation charges;
    --  $1.7 million in net investment gains from mortgage-backed securities
        (MBS) related activities;
    --  $4.2 million of net expenses related to income tax provisions and
        non-recurring activities;
    --  $28.0 million of gain from the extinguishment of Trust Preferred
        securities;

    --  $18.0 million in net gain from the sale and change in fair value of
        shares of FBR Capital Markets Corporation (FBR Capital Markets) common
        stock.

 

During the quarter, the Company deployed proceeds from its May 20, 2009 sale of FBR Capital Markets stock primarily to grow its non-agency MBS portfolio. The non-agency MBS portfolio consists primarily of first tranche securities in private label residential mortgage securitizations. At September 30, 2009, the book value of the Company's unlevered non-agency MBS portfolio was $55.7 million which represented $132.1 million of face value with a weighted average coupon of 5.7% and an average cost of 42% of par. During the third quarter of 2009, the unlevered annualized yield on that portfolio was 20% measured as a percentage of book value.

 

The Company's net interest income increased to $3.4 million during the quarter primarily as a result of growth in our non-agency MBS portfolio. In addition, the Company's ongoing overhead expenses were reduced by $1 million compared to the second quarter of 2009. During the quarter, the levered agency MBS portfolio of $118.1 million was structured with the intent to significantly reduce bond price risk.

 

Subsequent to September 30, 2009, additional capital was deployed to the Company's non-agency MBS portfolio, including a portion of the proceeds from the Company's October 28, 2009 sale of FBR Capital Marketsstock. At November 6, 2009, the book value of the Company's non-agency portfolio was approximately $99 million which represented $211 million of face value with a weighted average coupon of 5.7%, an average cost basis of 47% of par, and an expected annualized yield of approximately 20% measured as a percentage of book value.

 

Corporate Direction

 

On October 28, 2009, the Company announced the closing on the sale of all of its remaining 14.8 million shares of FBR Capital Markets common stock at $6.00 per share in an underwritten public offering. Proceeds to the Company, after the underwriting discount but before expenses, were $84.1 million. The net price per share after the underwriting discount to the Company was $5.70, which was less than the Company's carrying value of$5.93 per share at September 30, 2009. As a result, in the fourth quarter of 2009, the Company expects to record a pre-tax book loss of $3.4 million related to the sale of FBR Capital Markets common stock.

 

With the sale of FBR Capital Markets stock and other actions taken to strengthen the Company's balance sheet and reduce costs, the Company is positioned to focus all of its capital and resources on its core principal investing strategy and expects to benefit from:

 

    --  Approximately $165 million of investable capital;
    --  Low balance sheet leverage of 0.5x total assets as of September 30,         2009;
    --  Unlevered non-agency MBS portfolio of $211 million in face value at
        November 6, 2009, with a cost basis of 47% of par, and expected
        annualized yield of approximately 20%;
    --  Strong liquidity position with $62 million in cash available for future
        investment at November 6, 2009; and

    --  Reduction of $1 million in general overhead expenses compared to the
        second quarter of 2009 with potential for additional reductions in
        future quarters.

 

The Company intends to expand investments that generate attractive current cash returns and have potential for capital appreciation, including primarily the growth of its existing non-agency mortgage securities portfolio. The deployment of capital into investments that offer current income as well as capital appreciation potential positions the Company to utilize its net operating loss carry-forwards and net capital loss carry-forwards, which are currently in excess of $800 million.

 

"We have completed the major steps to strengthen and monetize the Company's balance sheet, achieved operational independence, reduced overhead costs and deployed liquidity from recent asset sales primarily in non-agency MBS with attractive cash risk adjusted returns as well as upside potential," said  J. Rock Tonkel, Jr. , President and Chief Operating Officer. "We look forward to realizing the Company's earnings potential for shareholders as we achieve full deployment of our capital along with continued reductions in one time as well as ongoing fixed expenses. We believe our capital is well protected with substantial liquidity and low leverage. Using a selective approach, we continue to capitalize on attractive investment opportunities which we expect to allow us to generate attractive cash returns on invested capital, utilize our tax benefits and offer an opportunity for growth in book value per share going forward."

 

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, 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)                                              September 30,
                                                         -------------------

                                                             2009       2008
                                                         --------   --------
    REVENUES:
    Capital markets                                            $-    $50,694
    Principal investment:
      Interest                                              3,719     23,173
      Net investment income (loss)                         19,737   (153,110)
      Dividends                                                 -        158
    Other                                                       -        739
                                                         --------   --------
    Total revenues (loss)                                  23,456    (78,346)
    Interest expense                                          310     25,387
                                                         --------   --------
      Revenues (loss), net of interest expense             23,146   (103,733)
                                                         --------   --------

    NON-INTEREST EXPENSES:
    Compensation and benefits                               2,735     61,111
    Professional services                                     878     10,442
    Business development                                       16      5,262
    Clearing and brokerage fees                                 -      3,834
    Occupancy and equipment                                    94      8,282
    Communications                                            100      5,773
    Other operating expenses                                1,163      6,668
                                                         --------   --------
      Total non-interest expenses                           4,986    101,372
                                                         --------   --------

    Operating income (loss)                                18,160   (205,105)
                                                         --------   --------

    OTHER INCOME (LOSS):
      Loss on subsidiary share transactions                  (116)         -
      Gain on extinguishment of long-term debt             27,982      4,078
      Other loss                                               (4)        (4)
                                                         --------   --------

      Income (loss) before income taxes                    46,022   (201,031)

    Income tax provision (benefit)                          3,585    (18,123)
                                                         --------   --------

      Net income (loss)                                    42,437   (182,908)

      Less: Net loss attributable to the noncontrolling
       interest of consolidated subsidiary                      -    (13,886)
                                                         --------   --------

      Net income (loss) attributable to Arlington Asset
       shareholders                                       $42,437  $(169,022)
                                                         ========  =========

    Basic earnings (loss) per share attributable to
     Arlington Asset (1)                                    $5.51    $(22.34)
                                                         ========  =========
    Diluted earnings (loss) per share attributable to
     Arlington Asset (1)                                    $5.38    $(22.34)
                                                         ========  =========

    Weighted average shares  - basic (in thousands) (1)     7,705      7,565
                                                         ========  =========
    Weighted average shares  - diluted (in thousands) (1)   7,895      7,565
                                                         ========  =========

    (1) Reflects the impact of 1-for-20 reverse stock split effective
        October 6, 2009.

 

    ARLINGTON ASSET INVESTMENT CORP.
    CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
    (Dollars in thousands, except per share amounts)       Nine Months Ended
    (Unaudited)                                              September 30,
                                                          -------------------

                                                              2009       2008
                                                          --------   --------
    REVENUES:
    Capital markets                                        $81,075   $207,766
    Principal investment:
      Interest                                               7,600     70,867
      Net investment income (loss)                          15,754   (173,311)
      Dividends                                                108        497
    Other                                                        -      3,095
                                                          --------   --------
    Total revenues                                         104,537    108,914
    Interest expense                                         3,656     70,895
                                                          --------   --------
      Revenues, net of interest expense                    100,881     38,019
                                                          --------   --------

    NON-INTEREST EXPENSES:
    Compensation and benefits                               73,466    192,035
    Professional services                                   12,871     33,401
    Business development                                    13,139     24,368
    Clearing and brokerage fees                              5,950     10,857
    Occupancy and equipment                                 13,573     26,051
    Communications                                           8,964     18,046
    Other operating expenses                                10,099     19,107
                                                          --------   --------
      Total non-interest expenses                          138,062    323,865
                                                          --------   --------

    Operating loss                                         (37,181)  (285,846)
                                                          --------   --------

    OTHER INCOME (LOSS):
      Loss on subsidiary share transactions                (10,028)      (189)
      Gain on extinguishment of long-term debt             160,435      4,078
      Other (loss) income                                      (11)    73,030
                                                          --------   --------

      Income (loss) before income taxes                    113,215   (208,927)

    Income tax provision (benefit)                          12,830    (28,903)
                                                          --------   --------
      Net income (loss)                                    100,385   (180,024)

      Less: Net loss attributable to the noncontrolling
       interest of consolidated subsidiary                 (11,459)   (31,053)
                                                          --------   --------

      Net income (loss) attributable to Arlington Asset
       shareholders                                       $111,844  $(148,971)
                                                          ========   ========

    Basic earnings (loss) per share attributable to
     Arlington Asset (1)                                    $14.58    $(19.71)
                                                          ========   ========
    Diluted earnings (loss) per share attributable to
     Arlington Asset (1)                                    $14.28    $(19.71)
                                                          ========   ========

    Weighted average shares  - basic (in thousands) (1)      7,673      7,557
                                                          ========   ========
    Weighted average shares  - diluted (in thousands) (1)    7,830      7,557
                                                          ========   ========

    (1) Reflects the impact of 1-for-20 reverse stock split effective
        October 6, 2009.

 

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


    ASSETS                                    30-Sep-09   31-Dec-08
                                             ----------  ----------

    Cash and cash equivalents                   $13,299    $254,653
    Receivables:
      Interest                                    1,111       1,378
      Other                                          60      32,571
    Investments:
      Mortgage-backed securities, at fair
       value                                    173,895     594,294
      U.S. Treasury bonds, at fair value              -     550,000
      Equity investments, at fair value          87,497           -
      Trading securities, at fair value               -      17,954
      Long-term and other investments             2,563      54,976
    Derivative assets, at fair value                  -         264
    Intangible assets, net                            -       8,943
    Furniture, equipment, software and
     leasehold improvements, net                    114      24,442
    Prepaid expenses and other assets             4,786      20,816
                                             ----------  ----------
      Total assets                             $283,325  $1,560,291
                                             ==========  ==========


    LIABILITIES AND EQUITY

    Liabilities:
    Repurchase agreements                      $100,000  $1,063,040
    Trading account securities sold but
     not yet purchased, at fair value                 -       8,325
    Derivative liabilities, at fair value             -          56
    Interest payable                                129       2,064
    Accrued compensation and benefits             7,360      47,259
    Due to clearing broker                            -       3,009
    Accounts payable, accrued expenses and
     other liabilities                           22,041      38,925
    Long-term debt                               16,816     254,357
                                             ----------  ----------
      Total liabilities                         146,346   1,417,035
                                             ----------  ----------


    Equity:
    Common stock, 7,920 and 7,961 shares (1)         80          80
    Additional paid-in capital (1)            1,505,787   1,494,642
    Accumulated other comprehensive income
     (loss)                                         289        (118)
    Accumulated deficit                      (1,369,177) (1,481,021)
                                             ----------  ----------
      Total Arlington Asset shareholders'
       equity                                   136,979      13,583
                                             ----------  ----------
    Noncontrolling interest                           -     129,673
                                             ----------  ----------
      Total equity                              136,979     143,256
                                             ----------  ----------

      Total liabilities and equity             $283,325  $1,560,291
                                             ==========  ==========


    Book value per share - Arlington Asset
     shareholder's equity (1)                    $17.84       $1.80
    Book value per share - total equity (1)      $17.84      $18.95

    Shares outstanding (in thousands) (1)         7,679       7,561

    (1) Reflects the impact of 1-for-20 reverse stock split effective
        October 6, 2009.

 

 

 

SOURCE Arlington Asset Investment Corp.


For further information: Media, +1-877-370-4413, or ir@arlingtonasset.com; Investors: Kurt Harrington, +1-877-370-4413, or ir@arlingtonasset.com