Attached files
| file | filename |
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| 8-K - Arlington Asset Investment Corp. | v200086_8k.htm |
Contacts:
Media:
877.370.4413 or ir@arlingtonasset.com
Investors:
Kurt Harrington at 877.370.4413 or ir@arlingtonasset.com
Arlington
Asset Investment Corp. Reports Third Quarter 2010 Financial
Results
Book
value increase of $1.81 per share to $25.02 per share
Core
Operating Income of $7.7 million or $0.97 per
share (1)
Continued
positive trend in credit performance
ARLINGTON, VA, October 25, 2010 – Arlington Asset
Investment Corp. (NYSE: AI) (the “Company”) today reported core operating income
of $7.7 million for the quarter ended September 30, 2010, or $0.97 per share
(diluted). In determining core operating income, a non-GAAP financial
measure, the Company has excluded non-recurring costs and the following non-cash
expenses: (1) compensation costs associated with stock-based awards, (2)
accretion/amortization of mortgage-backed securities (“MBS”) purchase
discounts/premiums adjusted for principal repayments in excess of proportionate
invested capital, and (3) unrealized mark-to-market adjustments on the trading
MBS and interest rate hedge instruments. A reconciliation of core
operating income to GAAP net income appears at the end of this press
release. On a GAAP basis, the Company reported net income of $5.2
million for the quarter ended September 30, 2010, or $0.65 per share (diluted),
compared to net income of $8.8 million, or $1.10 per share (diluted) for the
quarter ended June 30, 2010 and $42.4 million, or $5.38 per share (diluted) for
the quarter ended September 30, 2009. As of September 30, 2010, the
Company’s book value per share was $25.02.
“For the
third quarter, Arlington shareholders experienced a $1.81 per share increase in
book value after payment of a $0.60 per share dividend. The dividend
plus the increase in book value resulted in a 10.4% return to investors for the
quarter and a 34.7% return for the nine months ended September 30, 2010 (46.3%
on an annualized basis). Total 60 day plus delinquencies and loss
severities in the Company’s non-agency MBS portfolio continued a positive trend
for the third consecutive quarter. Arlington benefited again this
quarter from generally higher non-agency MBS prices associated with increased
capital flows to the sector, a continued positive trend in credit statistics and
broadened investor awareness of the attractive loss adjusted returns available
in the non-agency MBS sector,” said J. Rock Tonkel, Jr., President and
Chief Operating Officer. “We believe the non-agency MBS sector
continues to be undervalued and offers the opportunity for attractive
risk-adjusted returns on new investments as well as the potential for reflation
to prices more in line with other investment alternatives. For
Arlington, the potential for book value growth through reflation is represented
by the $194 million discount on the Company’s non-agency MBS.”
Third
Quarter Highlights
Net
interest income from the Company’s non-agency MBS portfolio was $8.1 million
during the third quarter of 2010 representing an annualized yield of 18.2% as
compared to $8.1 million during the second quarter of 2010 representing an
annualized yield of 18.6%. Realized gains from sales of non-agency
MBS during the third quarter of 2010 were $1.9 million. Cash expenses
declined to $2.4 million for the third quarter of 2010.
During
the quarter, the Company’s investable capital was deployed primarily in its
non-agency MBS portfolio with a market value of $220 million at September 30,
2010. The following table represents certain statistics of the
Company’s non-agency MBS portfolio as of September 30, 2010 (dollars in
millions):
|
Senior
Securities
|
Re-REMIC /
Mezzanine
Securities
|
Total Non-Agency MBS
|
||||||||||
|
3rd
Qtr. yield (as a % of amortized cost)
|
16.0 | % | 19.1 | % | 18.2 | % | ||||||
|
Average
cost (as a % of face value)
|
65 | % | 44 | % | 48 | % | ||||||
|
WAC
|
5.1 | % | 5.7 | % | 5.6 | % | ||||||
|
Face
value
|
$ | 75 | $ | 298 | $ | 373 | ||||||
|
Amortized
cost
|
$ | 49 | $ | 130 | $ | 179 | ||||||
|
Purchase
discount
|
$ | 26 | $ | 161 | $ | 187 | ||||||
|
Fair
market value
|
$ | 57 | $ | 163 | $ | 220 | ||||||
|
60+
delinquent
|
27.4 | % | 17.1 | % | 19.9 | % | ||||||
|
Credit
enhancement
|
14.2 | % | 8.0 | % | 9.7 | % | ||||||
|
Severity
|
44.7 | % | 42.0 | % | 42.7 | % | ||||||
|
3
month CPR
|
15.2 | 15.6 | 15.5 | |||||||||
Key
credit and prepayment measures in the Company’s non-agency MBS portfolio
continued a positive trend during the quarter. Total 60 day plus delinquencies
in the Company’s non-agency MBS portfolio declined to 19.9% at September 30,
2010 from 20.8% at June 30, 2010 and trailing three month average loss
severities on liquidated loans declined to 42.7% at September 30, 2010 from
42.8% at June 30, 2010.
At
September 30, 2010, the face value of the Company’s agency MBS portfolio was
$163 million with a weighted average coupon of 4.81, a CPR of 12.0, and a yield
of 4.8%. The Company hedged the agency MBS portfolio using Eurodollar
futures with a September 15, 2015 maturity and a weighted average rate of 2.34%
at September 30, 2010.
The
Company’s Board of Directors approved a $0.60 dividend for the third quarter of
2010. The dividend will be paid on October 29, 2010 to shareholders
of record on September 30, 2010. This represented a 10% annualized
dividend yield based on the Class A common stock closing price of $24.10 on
October 25, 2010.
During
the three and nine months ended September 30, 2010, the Company repurchased
193,824 and 222,846 shares of its Class A common stock pursuant to its share
repurchase program. As of September 30, 2010, 277,154 shares remain
available for repurchase under the repurchase program.
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
September 30, 2010 in this press release. This non-GAAP measurement is used by
management to analyze and assess the operating results and
dividends. 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
|
$ | 5,156 | ||
|
Adjustments:
|
||||
|
Non-recurring
costs
|
(610 | ) | ||
|
Stock
compensation
|
702 | |||
|
Net
unrealized mark-to-market loss on trading MBS and interest rate hedge
instruments
|
3,036 | |||
|
Adjusted
interest related to purchase discount accretion / premium
amortization
|
(630 | ) | ||
|
Non-GAAP
core operating income
|
$ | 7,654 | ||
|
Non-GAAP
core operating income per share (diluted)
|
$ | 0.97 |
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, ability to realize book value growth through reflation,
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 data)
|
Quarter Ended
|
Nine Months Ended
|
||||||||||||||
|
(Unaudited)
|
September 30
|
September 30
|
||||||||||||||
|
2010
|
2009
|
2010
|
2009
|
|||||||||||||
|
INTEREST
INCOME
|
||||||||||||||||
|
Interest
on investment securities
|
$ | 10,150 | $ | 3,717 | $ | 29,400 | $ | 7,578 | ||||||||
|
Dividends
and other interest income
|
- | 2 | 1 | 130 | ||||||||||||
|
Total
interest income
|
10,150 | 3,719 | 29,401 | 7,708 | ||||||||||||
|
INTEREST
EXPENSE
|
||||||||||||||||
|
Interest
on short-term debt
|
178 | 114 | 405 | 418 | ||||||||||||
|
Interest
on long-term debt
|
146 | 196 | 423 | 2,986 | ||||||||||||
|
Total
interest expense
|
324 | 310 | 828 | 3,404 | ||||||||||||
|
Net
interest income
|
9,826 | 3,409 | 28,573 | 4,304 | ||||||||||||
|
OTHER
INCOME (LOSS), NET
|
||||||||||||||||
|
Investment
(loss) gain
|
(2,089 | ) | 1,588 | 642 | 1,632 | |||||||||||
|
Gain
on extinguishment of long-term debt
|
- | 27,982 | - | 160,435 | ||||||||||||
|
Other
loss
|
(3 | ) | (4 | ) | (10 | ) | (147 | ) | ||||||||
|
Total
other (loss) income, net
|
(2,092 | ) | 29,566 | 632 | 161,920 | |||||||||||
|
Income
from continuing operations before other expenses
|
7,734 | 32,975 | 29,205 | 166,224 | ||||||||||||
|
OTHER
EXPENSES
|
||||||||||||||||
|
Compensation
and benefits
|
2,365 | 2,736 | 7,664 | 13,238 | ||||||||||||
|
Professional
services
|
233 | 878 | 993 | 5,997 | ||||||||||||
|
Business
development
|
19 | 17 | 58 | 7,900 | ||||||||||||
|
Occupancy
and equipment
|
90 | 94 | 294 | 416 | ||||||||||||
|
Communications
|
44 | 99 | 156 | 247 | ||||||||||||
|
Other
operating expenses
|
387 | 1,163 | 1,684 | 3,859 | ||||||||||||
|
Total
other expenses
|
3,138 | 4,987 | 10,849 | 31,657 | ||||||||||||
|
Income
from continuing operations before income taxes
|
4,596 | 27,988 | 18,356 | 134,567 | ||||||||||||
|
Income
tax (benefit) provision
|
(560 | ) | 3,584 | (199 | ) | 12,029 | ||||||||||
|
Income
from continuing operations, net of taxes
|
5,156 | 24,404 | 18,555 | 122,538 | ||||||||||||
|
Income
(loss) from discontinued operations, net of taxes
|
- | 18,033 | - | (22,153 | ) | |||||||||||
|
Net
income
|
5,156 | 42,437 | 18,555 | 100,385 | ||||||||||||
|
Net
loss attributable to noncontrolling interests
|
- | - | - | (11,459 | ) | |||||||||||
|
Net
income attributable to Arlington Asset Investment Corp.
shareholders
|
$ | 5,156 | $ | 42,437 | $ | 18,555 | $ | 111,844 | ||||||||
|
EARNINGS
PER SHARE - BASIC
|
||||||||||||||||
|
Income
from continuing operations attributable to Arlington Asset Investment
Corp. shareholders
|
$ | 0.66 | $ | 3.17 | $ | 2.39 | $ | 15.97 | ||||||||
|
Income
(loss) from discontinued operations attributable to Arlington Asset
Investment Corp. shareholders
|
- | 2.34 | - | (1.39 | ) | |||||||||||
|
Net
income attributable to Arlington Asset Investment Corp.
shareholders
|
$ | 0.66 | $ | 5.51 | $ | 2.39 | $ | 14.58 | ||||||||
|
EARNINGS
PER SHARE - DILUTED
|
||||||||||||||||
|
Income
from continuing operations attributable to Arlington Asset Investment
Corp. shareholders
|
$ | 0.65 | $ | 3.09 | $ | 2.35 | $ | 15.65 | ||||||||
|
Income
(loss) from discontinued operations attributable to Arlington Asset
Investment Corp. shareholders
|
- | 2.29 | - | (1.37 | ) | |||||||||||
|
Net
income attributable to Arlington Asset Investment Corp.
shareholders
|
$ | 0.65 | $ | 5.38 | $ | 2.35 | $ | 14.28 | ||||||||
|
Weighted
average shares outstanding - basic (in thousands)
|
7,755 | 7,705 | 7,768 | 7,673 | ||||||||||||
|
Weighted
average shares outstanding - diluted (in thousands)
|
7,887 | 7,895 | 7,904 | 7,830 | ||||||||||||
ARLINGTON
ASSET INVESTMENT CORP.
CONSOLIDATED
BALANCE SHEETS
(Dollars
in thousands, except per share amounts)
(Unaudited)
|
September 30, 2010
|
December 31, 2009
|
|||||||
|
ASSETS
|
||||||||
|
Cash
and cash equivalents
|
$ | 8,231 | $ | 10,123 | ||||
|
Receivables
|
||||||||
|
Interest
|
2,368 | 2,011 | ||||||
|
Sold
securities receivable
|
58,686 | - | ||||||
|
Other
|
424 | 20 | ||||||
|
Mortgage-backed
securities, at fair value
|
||||||||
|
Available-for-sale
|
220,403 | 295,600 | ||||||
|
Trading
|
163,151 | - | ||||||
|
Other
investments
|
5,857 | 2,580 | ||||||
|
Deposits
|
5,929 | 2,589 | ||||||
|
Prepaid
expenses and other assets
|
572 | 726 | ||||||
|
Total
assets
|
$ | 465,621 | $ | 313,649 | ||||
|
LIABILITIES
AND EQUITY
|
||||||||
|
Liabilities:
|
||||||||
|
Repurchase
agreements
|
$ | 164,584 | $ | 126,830 | ||||
|
Purchased
securities payable
|
64,277 | - | ||||||
|
Interest
payable
|
160 | 124 | ||||||
|
Dividend
payable
|
4,672 | - | ||||||
|
Derivative
liability
|
4,597 | - | ||||||
|
Accounts
payable, accrued expenses and other liabilities
|
14,544 | 13,904 | ||||||
|
Accrued
compensation and benefits
|
5,715 | 5,921 | ||||||
|
Long-term
debt
|
15,948 | 16,857 | ||||||
|
Total
liabilities
|
274,497 | 163,636 | ||||||
|
Equity:
|
||||||||
|
Common
stock
|
77 | 80 | ||||||
|
Additional
paid-in capital
|
1,505,823 | 1,507,394 | ||||||
|
Accumulated
other comprehensive income
|
41,399 | 7,015 | ||||||
|
Accumulated
deficit
|
(1,356,175 | ) | (1,364,476 | ) | ||||
|
Total
equity
|
191,124 | 150,013 | ||||||
|
Total
liabilities and equity
|
$ | 465,621 | $ | 313,649 | ||||
|
Book
Value per Share
|
$ | 25.02 | $ | 19.54 | ||||
|
Shares
Outstanding (in thousands)
|
7,638 | 7,679 | ||||||