ARLINGTON, Va., April 27, 2011 /PRNewswire/ -- Arlington Asset
Investment Corp. (NYSE: AI) (the "Company") today reported core
operating income of $18.5 million for
the quarter ended March 31, 2011, or
$2.41 per share (diluted). On a
GAAP basis, the Company reported net income of $19.8 million for the quarter ended March 31, 2011, or $2.58 per share (diluted), compared to net income
of $8.0 million, or $1.03 per share (diluted), for the quarter ended
December 31, 2010, and $4.6 million, or $0.59 per share (diluted), for the quarter ended
March 31, 2010. As of
March 31, 2011, the Company's book
value per share was $28.52.
"The Company made solid progress during the first quarter,
achieving strong overall results, a 23% increase in net interest
income from the prior quarter, $11
million in net realized gains and a 25% dividend increase
from the prior quarter primarily driven by the partial reallocation
of its capital from reflated private-label MBS to hedged agency
MBS. We expect earnings in future periods to benefit from MBS
investments made late in the first quarter of 2011 and to date in
the second quarter," said J. Rock Tonkel,
Jr., President and Chief Operating Officer. "Finally,
as Arlington's core operating
income substantially exceeded the dividend again this quarter, the
Company has considerable flexibility in the use of that capital for
reinvestment and/or dividend growth going forward."
Subsequent to March 31, 2011, the
Company sold private-label MBS with a current face value of
approximately $14.9 million
generating $8.1 million in proceeds
and $1.2 million in net gains.
As of April 27, 2011, the
Company's private-label MBS portfolio had a face value of
$300.5 million comprised of
$14.2 million senior securities and
$286.3 million re-REMIC securities.
Agency MBS as of April 27, 2011
had a cost basis of $654.7 million
and a face value of $639.9 million,
including agency MBS purchases that have not yet settled.
Going forward the Company expects to migrate additional capital
from reflated private-label MBS to higher return alternatives with
the potential to realize gains from current embedded appreciation
as well as potential future reflation in that portfolio. With
attractive investment opportunities available today in both agency
MBS and private-label MBS, the Company continues to be optimistic
about its potential to realize future growth in earnings and book
value from internal capital.
First Quarter Highlights
Prices for certain of the Company's private-label MBS reflated
significantly during 2010 and loss-adjusted yields in those assets
declined accordingly. As a result, in the first quarter of
2011 the Company sold private-label MBS with a face value of
$88.8 million realizing net gains on
sales of private-label MBS of $10.7
million. Private-label MBS sales during the quarter
generated $62.0 million of capital
and were comprised primarily of lower yielding senior securities.
Proceeds were redeployed primarily into hedged agency MBS on
a leveraged basis that we expect will generate increased returns on
the redeployed capital.
As of March 31, 2011, our private-label MBS portfolio
consisted of $306.6 million in face
value with an amortized cost basis of $148.0
million and fair value of $201.3
million. During the three months ended March 31, 2011, we recognized net interest income
of $8.6 million, representing a 20.1%
annualized net yield, including coupon payments and accretion of
purchase discount, from our private-label MBS portfolio.
The following table represents certain statistics of the
Company's private-label MBS portfolio as of and for the quarter
ended March 31, 2011 (dollars in
millions):
|
|
|
Senior
Securities
|
Re-REMIC
/
Mezzanine
Securities
|
Total
Private-
Label
MBS
|
|
|
|
|
|
|
Fair market
value
|
$16
|
$185
|
$201
|
|
Fair market value (as a %
of face value)
|
78.7%
|
64.7%
|
65.7%
|
|
|
|
|
|
|
1st Qtr. yield (as a % of
amortized cost)
|
15.9%
|
21.1%
|
20.3%
|
|
Average cost (as a % of
face value)
|
65.3%
|
46.8%
|
48.0%
|
|
Weighted average
coupon
|
5.4%
|
5.6%
|
5.6%
|
|
|
|
|
|
|
Face value
|
$20
|
$287
|
$307
|
|
Amortized cost
|
$13
|
$135
|
$148
|
|
Purchase
discount
|
$7
|
$145
|
$152
|
|
|
|
|
|
|
60+ delinquent
|
33.9%
|
20.6%
|
21.5%
|
|
Credit
enhancement
|
11.7%
|
8.6%
|
8.8%
|
|
Severity
(3 month)
|
71.3%
|
46.5%
|
48.1%
|
|
CPR (3 month)
|
14.8%
|
18.9%
|
18.7%
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2011, our agency
MBS consisted of $545.9 million in
face value with a cost basis of $557.6
million and was fair valued at $559.0
million. Our agency MBS had a weighted average coupon
of 4.54%, and a weighted average cost of funding of 29 basis points
at March 31, 2011. We have
hedged against the market value movements of our agency MBS using
Eurodollar and U.S. Treasury futures and MBS put options.
These Eurodollar futures mature through March 31, 2016
and have a lifetime weighted average rate of 2.79% as of
March 31, 2011.
The Company's Board of Directors approved a $0.75 dividend for the first quarter of 2011.
The dividend will be paid on April 29,
2011 to shareholders of record on April 4, 2011. This represented a 10%
annualized dividend yield based on the Class A common stock closing
price on the New York Stock Exchange (NYSE) of $30.74 on April 27,
2011.
During the quarter ended March 31,
2011, the Company repurchased 8,910 shares of its Class A
common stock at an average price of $25.70 pursuant to its share repurchase program.
As of March 31, 2011, 247,275
shares remain available for repurchase under the repurchase
program.
(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, 2011 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.
In determining core operating income, the Company has excluded
certain costs and the following non-cash expenses: (1) compensation
costs associated with stock-based awards, (2) accretion of
mortgage-backed securities ("MBS") purchase discounts adjusted for
principal repayments in excess of proportionate invested capital,
and (3) unrealized mark-to-market adjustments on the trading MBS
and hedge instruments.
The following table presents a reconciliation of the GAAP
financial results to non-GAAP measurements for the quarter ended
March 31, 2011 (dollars in
thousands):
|
|
GAAP net income
|
$19,785
|
|
Adjustments
|
|
|
Adjusted
expenses(a)
|
23
|
|
Stock
compensation
|
479
|
|
Net unrealized
mark-to-market gain on trading MBS and hedge instruments
|
(1,263)
|
|
Adjusted interest
related to purchase discount accretion
|
(548)
|
|
Non-GAAP
core operating income
|
$18,476
|
|
Non-GAAP core operating income
per share (diluted)
|
$2.41
|
|
(a) Adjusted expenses represents
certain professional fees and
income taxes that are not
considered representative of
routine activities of the Company.
|
|
|
|
(2) Based on the annualized first quarter 2011 dividend and a
Class A common stock closing price on the NYSE of $30.74 on April 27,
2011.
(3) The Company's dividends are eligible for the 15%
federal income tax rate on qualified dividend income, whereas
dividends paid by a REIT are generally subject to the higher 35%
tax rate on ordinary income. To provide the same return
after payment of federal income tax as the Company, a REIT would be
required to pay dividends providing a 13% yield.
About the Company
Arlington Asset Investment Corp. (NYSE: AI) is a principal
investment firm that invests in mortgage-related and other 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, leverage,
portfolio allocation, 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 to effectively migrate private-label
MBS into agency MBS, ability to realize a higher return on capital
migrated to agency MBS, 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 of
private-label MBS, 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)
|
Three Months
Ended
|
|
(Unaudited)
|
March
31,
|
|
|
|
|
|
|
|
2011
|
|
2010
|
|
INTEREST INCOME
|
$ 12,495
|
|
$ 9,202
|
|
|
|
|
|
|
INTEREST EXPENSE
|
|
|
|
|
Interest on short-term
debt
|
317
|
|
90
|
|
Interest on long-term
debt
|
115
|
|
138
|
|
Total interest
expense
|
432
|
|
228
|
|
Net interest
income
|
12,063
|
|
8,974
|
|
|
|
|
|
|
OTHER INCOME, NET
|
|
|
|
|
Investment gain,
net
|
11,224
|
|
353
|
|
Other loss
|
(3)
|
|
(4)
|
|
Total other income,
net
|
11,221
|
|
349
|
|
Operating income
before other expenses
|
23,284
|
|
9,323
|
|
|
|
|
|
|
OTHER EXPENSES
|
|
|
|
|
Compensation and
benefits
|
2,436
|
|
2,920
|
|
Professional
services
|
123
|
|
670
|
|
Business
development
|
32
|
|
20
|
|
Occupancy and
equipment
|
96
|
|
116
|
|
Communications
|
46
|
|
54
|
|
Other operating
expenses
|
295
|
|
805
|
|
Total other
expenses
|
3,028
|
|
4,585
|
|
Income before income
taxes
|
20,256
|
|
4,738
|
|
Income tax provision
|
471
|
|
112
|
|
Net income
|
$ 19,785
|
|
$ 4,626
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per
share
|
$ 2.58
|
|
$ 0.60
|
|
|
|
|
|
|
Diluted earnings per
share
|
$ 2.58
|
|
$ 0.59
|
|
|
|
|
|
|
Weighted average shares
outstanding - basic (in thousands)
|
7,661
|
|
7,733
|
|
Weighted average shares
outstanding - diluted (in thousands)
|
7,681
|
|
7,879
|
|
|
|
|
|
ARLINGTON ASSET INVESTMENT
CORP.
|
|
CONSOLIDATED BALANCE
SHEETS
|
|
(Dollars in thousands, except
per share amounts)
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
March 31,
2011
|
|
December 31,
2010
|
|
|
|
|
|
|
Cash and cash
equivalents
|
$
20,319
|
|
$
12,412
|
|
Receivables
|
|
|
|
|
Interest
|
3,488
|
|
2,345
|
|
Other
|
557
|
|
219
|
|
Mortgage-backed securities, at
fair value
|
|
|
|
|
Available-for-sale
|
201,489
|
|
252,909
|
|
Trading
|
558,874
|
|
174,055
|
|
Other investments
|
3,280
|
|
8,287
|
|
Derivative assets, at fair
value
|
1,270
|
|
-
|
|
Deposits
|
13,658
|
|
4,748
|
|
Prepaid expenses and other
assets
|
373
|
|
358
|
|
Total
assets
|
$
803,308
|
|
$
455,333
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
EQUITY
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
Repurchase agreements
|
$
538,049
|
|
$
190,220
|
|
Interest payable
|
241
|
|
187
|
|
Accrued compensation and
benefits
|
4,310
|
|
7,201
|
|
Dividend payable
|
5,808
|
|
4,655
|
|
Derivative liabilities, at fair
value
|
4,345
|
|
2,398
|
|
Purchased securities
payable
|
-
|
|
2,555
|
|
Accounts payable, accrued
expenses and other liabilities
|
15,667
|
|
16,373
|
|
Long-term debt
|
15,000
|
|
15,000
|
|
Total
liabilities
|
583,420
|
|
238,589
|
|
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
Common stock
|
77
|
|
77
|
|
Additional paid-in
capital
|
1,505,378
|
|
1,505,971
|
|
Accumulated other comprehensive
income, net of taxes
|
53,251
|
|
63,495
|
|
Accumulated deficit
|
(1,338,818)
|
|
(1,352,799)
|
|
Total equity
|
219,888
|
|
216,744
|
|
|
|
|
|
|
Total liabilities and
equity
|
$
803,308
|
|
$
455,333
|
|
|
|
|
|
|
|
|
|
|
|
Book Value per
Share
|
$
28.52
|
|
$
28.46
|
|
|
|
|
|
|
Shares Outstanding (in
thousands)
|
7,711
|
|
7,617
|
|
|
|
|
|
SOURCE Arlington Asset Investment Corp.