ARLINGTON, Va., July 27, 2011 /PRNewswire/ -- Arlington Asset
Investment Corp. (NYSE: AI) (the "Company") today reported core
operating income of $10.6 million for
the quarter ended June 30, 2011, or
$1.37 per share (diluted). On a GAAP
basis, the Company reported net income of $0.1 million for the quarter ended June 30, 2011, or $0.01 per share (diluted), compared to net income
of $8.8 million, or $1.10 per share (diluted), for the quarter ended
June 30, 2010.
The second quarter per share net income and book value include
net non-cash, mark-to-market charges of $1.39 and $1.65,
respectively, related to our agency-backed MBS portfolio and hedge
positions. While the Company's hedge and portfolio structure
are intended to protect MBS portfolio returns over time, unrealized
gains or losses may result from shorter term volatility or
uncertainty in the economy and/or the capital markets. In the
second quarter, decreases in interest rates relative to our swap
cost and increases in market based spreads for our agency-backed
MBS resulted in unrealized losses for the quarter. As of
June 30, 2011, the Company's GAAP
book value per share was $27.12;
excluding net non-cash, mark-to-market charges, book value per
share would have been $28.77.
"Core operating income was strong this quarter as growth in the
agency-backed MBS portfolio drove higher net interest income and
facilitated another increase in the dividend. The Company's
concentration in agency-backed MBS with favorable prepayment
attributes produced single-digit CPRs and enhanced returns in the
quarter, while credit trends in the private-label MBS portfolio
were stable to slightly improved in certain cases," said
J. Rock Tonkel, Jr., President and
Chief Operating Officer. "New investment opportunities remain
attractive, even as we continue to monitor developments in
Washington and the markets
closely."
Second Quarter Highlights
During the second quarter, net interest income increased by
$0.6 million to $12.7 million from $12.1
million for the first quarter of 2011 as the Company
migrated incremental capital to its agency-backed MBS portfolio.
The yield on the agency-backed MBS portfolio was 4.48% for
the second quarter, and the yield on the private-label MBS
portfolio was 16.3% for the second quarter. Net realized
gains from sales of MBS during the second quarter were $2.2 million or $0.29 per share.
As of June 30, 2011, the Company's
agency-backed MBS consisted of $633.1
million in face value with a cost basis of $648.9 million and was fair valued at
$661.1 million. Substantially
all of the Company's agency-backed MBS were fixed-rate 30-year MBS
that had a weighted average coupon of 4.61%, a weighted average
cost of 102.5, and a weighted average cost of funding of 24 basis
points at June 30, 2011. The
three-month CPR for the Company's agency-backed MBS as of
June 30, 2011 was 2%. The Company has
hedged its agency-backed MBS primarily using Eurodollar futures.
These Eurodollar futures mature through June 30, 2016 and have a lifetime weighted
average rate of 2.88% as of June 30,
2011. The Company's debt to equity ratio at
June 30, 2011 was 3.1 to 1.
The Company's private-label MBS portfolio consisted of
$291.6 million in face value with an
amortized cost basis of $144.8
million and fair value of $194.4
million. During the second quarter, the Company sold
private-label MBS with a face value of $22.6
million for a gain of $1.5
million. The following table presents certain
statistics of our private-label MBS portfolio as of and for the
quarter ended June 30, 2011 (dollars
in millions):
|
|
|
Total
Private-Label MBS
|
|
|
|
|
Fair market value
|
$194
|
|
Fair market value (as a % of
face value)
|
66.6%
|
|
|
|
|
2nd qtr. yield (as a % of
amortized cost)
|
16.3%
|
|
Average cost (as a % of face
value)
|
49.0%
|
|
Weighted average
coupon
|
5.5%
|
|
|
|
|
Face value
|
$292
|
|
Amortized cost
|
$145
|
|
Purchase discount
|
$140
|
|
|
|
|
60+ delinquent
|
19.8%
|
|
Credit enhancement
|
8.3%
|
|
Severity (3-month)
|
48.9%
|
|
CPR (3-month)
|
15.1%
|
|
|
|
|
|
The Company's Board of Directors approved a $0.875 dividend for the second quarter of 2011.
The dividend will be paid on July 29,
2011 to shareholders of record on July 5, 2011. This represented a 12%
annualized dividend yield based on the Class A common stock closing
price on the New York Stock Exchange(NYSE) of $29.77 on July 27,
2011.
(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 June 30, 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
June 30, 2011 (dollars in
thousands):
|
|
GAAP net income
|
$91
|
|
Adjustments
|
|
|
Adjusted
expenses(a)
|
532
|
|
Stock
compensation
|
184
|
|
Net unrealized
mark-to-market loss on trading MBS and hedge instruments
|
10,775
|
|
Adjusted interest
related to purchase discount accretion
|
(992)
|
|
Non-GAAP core operating income
|
$10,590
|
|
Non-GAAP core operating income
per share (diluted)
|
$1.37
|
|
|
|
|
|
(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 second quarter 2011 dividend and a
Class A common stock closing price on the NYSE of $29.77 on July 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 15% 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-backed MBS, ability to realize a higher return on
capital migrated to agency-backed MBS, ability and willingness to
make future dividends, the failure of sovereign or municipal
entities to meet their debt obligations or a downgrade in the
credit rating of such debt obligations, 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
|
|
Six Months
Ended
|
|
(Unaudited)
|
June
30,
|
|
June
30,
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
2010
|
|
2011
|
|
2010
|
|
INTEREST INCOME
|
$ 13,262
|
|
$ 10,049
|
|
$ 25,757
|
|
$ 19,251
|
|
|
|
|
|
|
|
|
|
|
INTEREST EXPENSE
|
|
|
|
|
|
|
|
|
Interest on short-term
debt
|
477
|
|
137
|
|
794
|
|
227
|
|
Interest on long-term
debt
|
115
|
|
139
|
|
230
|
|
277
|
|
Total interest
expense
|
592
|
|
276
|
|
1,024
|
|
504
|
|
Net interest
income
|
12,670
|
|
9,773
|
|
24,733
|
|
18,747
|
|
|
|
|
|
|
|
|
|
|
OTHER (LOSS) INCOME,
NET
|
|
|
|
|
|
|
|
|
Investment (loss) gain,
net
|
(8,484)
|
|
2,378
|
|
2,740
|
|
2,731
|
|
Other loss
|
(4)
|
|
(3)
|
|
(7)
|
|
(7)
|
|
Total other (loss)
income, net
|
(8,488)
|
|
2,375
|
|
2,733
|
|
2,724
|
|
Operating income
before other expenses
|
4,182
|
|
12,148
|
|
27,466
|
|
21,471
|
|
|
|
|
|
|
|
|
|
|
OTHER EXPENSES
|
|
|
|
|
|
|
|
|
Compensation and
benefits
|
2,570
|
|
2,379
|
|
5,006
|
|
5,299
|
|
Professional
services
|
561
|
|
90
|
|
684
|
|
760
|
|
Business
development
|
47
|
|
19
|
|
79
|
|
39
|
|
Occupancy and
equipment
|
92
|
|
88
|
|
188
|
|
204
|
|
Communications
|
50
|
|
58
|
|
96
|
|
112
|
|
Other operating
expenses
|
425
|
|
492
|
|
720
|
|
1,297
|
|
Total other
expenses
|
3,745
|
|
3,126
|
|
6,773
|
|
7,711
|
|
|
|
|
|
|
|
|
|
|
Income before income
taxes
|
437
|
|
9,022
|
|
20,693
|
|
13,760
|
|
|
|
|
|
|
|
|
|
|
Income tax provision
|
346
|
|
249
|
|
817
|
|
361
|
|
|
|
|
|
|
|
|
|
|
Net income
|
$
91
|
|
$ 8,773
|
|
$ 19,876
|
|
$ 13,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per
share
|
$ 0.01
|
|
$ 1.12
|
|
$ 2.58
|
|
$ 1.72
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per
share
|
$ 0.01
|
|
$ 1.10
|
|
$ 2.57
|
|
$ 1.70
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares
outstanding - basic (in thousands)
|
7,723
|
|
7,815
|
|
7,692
|
|
7,774
|
|
Weighted average shares
outstanding - diluted (in thousands)
|
7,736
|
|
7,952
|
|
7,728
|
|
7,899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ARLINGTON ASSET INVESTMENT
CORP.
|
|
CONSOLIDATED BALANCE
SHEETS
|
|
(Dollars in thousands, except
per share amounts)
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
June 30,
2011
|
|
December 31,
2010
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
21,077
|
|
$
12,412
|
|
Receivables
|
|
|
|
|
|
Interest
|
|
3,754
|
|
2,345
|
|
Other
|
|
201
|
|
219
|
|
Mortgage-backed securities, at
fair value
|
|
|
|
|
|
Available-for-sale
|
|
194,509
|
|
252,909
|
|
Trading
|
|
660,987
|
|
174,055
|
|
Other investments
|
|
3,227
|
|
8,287
|
|
Deposits
|
|
33,626
|
|
4,748
|
|
Prepaid expenses and other
assets
|
|
998
|
|
358
|
|
Total
assets
|
|
$
918,379
|
|
$
455,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
Repurchase agreements
|
|
$
639,244
|
|
$
190,220
|
|
Interest payable
|
|
245
|
|
187
|
|
Accrued compensation and
benefits
|
|
5,735
|
|
7,201
|
|
Dividend payable
|
|
6,785
|
|
4,655
|
|
Derivative liabilities, at fair
value
|
|
25,097
|
|
2,398
|
|
Purchased securities
payable
|
|
-
|
|
2,555
|
|
Accounts payable, accrued
expenses and other liabilities
|
|
16,156
|
|
16,373
|
|
Long-term debt
|
|
15,000
|
|
15,000
|
|
Total
liabilities
|
|
708,262
|
|
238,589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
Common stock
|
|
77
|
|
77
|
|
Additional paid-in
capital
|
|
1,505,987
|
|
1,505,971
|
|
Accumulated other comprehensive
income, net of taxes
|
|
49,565
|
|
63,495
|
|
Accumulated deficit
|
|
(1,345,512)
|
|
(1,352,799)
|
|
Total equity
|
|
210,117
|
|
216,744
|
|
|
|
|
|
|
|
Total liabilities and
equity
|
|
$
918,379
|
|
$
455,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book Value per
Share
|
|
$
27.12
|
|
$
28.46
|
|
|
|
|
|
|
|
Shares Outstanding (in
thousands)
|
|
7,748
|
|
7,617
|
|
|
|
|
|
|
|
|
SOURCE Arlington Asset Investment Corp.