Attached files
| file | filename |
|---|---|
| 8-K - Arlington Asset Investment Corp. | v211627_8k.htm |
| EX-99.2 - Arlington Asset Investment Corp. | v211627_ex99-2.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 Fourth Quarter and Full Year 2010 Financial
Results
Book
value of $28.46 per share at December 31, 2010, up 14% or $3.44 per share in
fourth quarter 2010
55%
return from book value growth plus dividends in 2010
Core
Operating Income of $0.99 per share for the fourth quarter 2010 and
$3.96 for the full year 2010 (1)
Fourth
quarter 2010 dividend of $0.60 per share paid on January 31, 2011
Debt to
equity of 0.9 to 1 as of December 31, 2010
ARLINGTON, VA, February 9, 2011 – Arlington Asset
Investment Corp. (NYSE: AI) (the “Company”) today reported core operating income
of $7.7 million for the quarter ended December 31, 2010, or $0.99 per share
(diluted). In determining core operating income, a non-GAAP financial
measure, 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 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 $8.0 million for the quarter ended December 31,
2010, or $1.03 per share (diluted), compared to net income of $5.2 million, or
$0.65 per share (diluted) for the quarter ended September 30, 2010 and $4.7
million, or $0.59 per share (diluted) for the quarter ended December 31,
2009. The Company reported net income of $26.6 million for the
year ended December 31, 2010, or $3.38 per share (diluted) as compared to net
income of $116.5 million, or $14.89 per share (diluted) for the year ended
December 31, 2009. Full year 2009 results included a pre-tax gain of
$160.4 million from the extinguishment of trust preferred
securities. As of December 31, 2010, the Company’s book value per
share was $28.46.
“For the
fourth quarter and full year 2010, the Company returned 16% and 55%,
respectively, to shareholders from book value per share growth plus
dividends. 2011 has begun on a positive note,
and Arlington has realized $3.2 million of cash gains from sales of
non-agency MBS in the first quarter. The Company has continued to
benefit in the first quarter from generally higher non-agency MBS prices
associated with increased capital flows to the sector, a limited supply of newly
issued securities, a continued overall stable 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. “With an expanded capital base and the
benefit of over $800 million of combined net operating and capital loss
carry-forwards to amplify returns, we remain optimistic about the Company’s
ability to generate attractive cash returns to shareholders going forward
combined with the potential for growth in book value per share, all protected by
the Company’s low leverage position. In addition, under the tax bill
passed by the U.S. Congress in late 2010, individual shareholders currently
benefit from a 15% Federal tax rate on dividends from the Company.”
Throughout
2010, the Company benefitted from the allocation of substantially all of its
investable capital to non-agency MBS, primarily Re-REMIC mezzanine
securities. As market prices for the Company’s non-agency MBS
portfolio have appreciated substantially, the Company now has the opportunity to
migrate a portion of its reflated capital from appreciated non-agency MBS to
hedged and appropriately levered agency MBS with significantly higher cash
returns. Subsequent to December 31, 2010, the Company has sold $31
million face value of its non-agency MBS, generating liquid capital of $23
million which the Company intends to allocate to agency MBS.
In
addition, at current market prices, approximately $113 million of the Company’s
investable capital is allocated to non-agency MBS with a cash yield of
approximately 7.5% and an expected total annual yield of 10.5% including
expected reflation. The Company expects to migrate that capital to
agency MBS based on cash returns currently available in that sector, maintaining
cash returns consistent with that of the Company’s existing agency MBS described
below. If that were to occur, approximately 50% of the Company’s
investable capital would be allocated to agency MBS with a potential positive
impact on overall MBS portfolio cash returns and earnings. As of
February 8th, the Company’s agency MBS portfolio equaled approximately $360
million in face value with a 4.61% coupon, 102.8 cost, a 28 bps cost of funds,
and asset values hedged against market value fluctuations. Assuming
leverage of approximately 6 times, the Company’s capital allocated to these
assets is expected to produce cash returns on invested capital in excess of
20%.
Fourth
Quarter Highlights
Net
interest income from the Company’s non-agency MBS portfolio for the quarter and
year ended December 31, 2010 was $8.1 million and $31.9 million, respectively,
representing an annualized yield of 18.1% and 18.3%,
respectively. Realized gains from sales of non-agency MBS for the
quarter and year ended December 31, 2010 was $2.7 million and $10.8 million,
respectively.
During
the quarter, the Company’s investable capital was deployed primarily in its
non-agency MBS portfolio with a market value of $253 million at December 31,
2010. The following table represents certain statistics of the
Company’s non-agency MBS portfolio as of December 31, 2010 (dollars in
millions):
|
Senior
Securities
|
Re-REMIC /
Mezzanine
Securities
|
Total Non-Agency MBS
|
||||||||||
|
Fair
market value
|
$ | 51 | $ | 202 | $ | 253 | ||||||
|
Fair
market value (as a % of face value)
|
79.8 | % | 62.7 | % | 65.5 | % | ||||||
|
4th
Qtr. yield (as a % of amortized cost)
|
15.8 | % | 19.1 | % | 18.2 | % | ||||||
|
Average
cost (as a % of face value)
|
67.0 | % | 45.6 | % | 49.1 | % | ||||||
|
Weighted
average coupon
|
4.3 | % | 5.5 | % | 5.3 | % | ||||||
|
Face
value
|
$ | 64 | $ | 322 | $ | 386 | ||||||
|
Amortized
cost
|
$ | 43 | $ | 147 | $ | 190 | ||||||
|
Purchase
discount
|
$ | 21 | $ | 168 | $ | 189 | ||||||
|
60+
delinquent
|
23.2 | % | 19.6 | % | 20.2 | % | ||||||
|
Credit
enhancement
|
9.8 | % | 9.6 | % | 9.6 | % | ||||||
|
Severity
(3 month)
|
50.1 | % | 43.4 | % | 44.5 | % | ||||||
|
CPR
(3 month)
|
15.6 | 17.7 | 17.3 | |||||||||
Key
credit and prepayment measures in the Company’s non-agency MBS portfolio
continued to remain relatively stable during the fourth
quarter. Total 60 day plus delinquencies in the Company’s non-agency
MBS portfolio increased to 20.2% at December 31, 2010 from 19.9% at September
30, 2010, the trailing three month average loss severities on liquidated loans
increased to 44.5% at December 31, 2010 from 42.7% at September 30,
2010.
At
December 31, 2010, the face value of the Company’s agency MBS portfolio was $168
million with a weighted average coupon of 4.7, a one month CPR of 11.6, and a
fourth quarter yield of 4.6%. The Company hedged a portion of the
agency MBS portfolio using Eurodollar futures with a December 15, 2015 maturity
and a lifetime weighted average rate of 2.72%, and current rate of 0.83% at
December 31, 2010.
The
Company’s Board of Directors approved a $0.60 dividend for the fourth quarter of
2010. The dividend was paid on January 31, 2011 to shareholders of
record on December 31, 2010. This represented a 9.4% annualized
dividend yield based on the Class A common stock closing price of $25.58 on
February 9, 2011.
During
the quarter and year ended December 31, 2010, the Company repurchased 20,969 and
243,815 shares of its Class A common stock, respectively, pursuant to its share
repurchase program. As of December 31, 2010, 256,185 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
December 31, 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 for the quarter ended December 31, 2010
(dollars in thousands):
|
GAAP
net income
|
$ | 8,031 | ||
|
Adjustments
|
||||
|
Adjusted
expenses(1)
|
374 | |||
|
Stock
compensation
|
699 | |||
|
Net
unrealized mark-to-market gain on trading MBS and interest rate hedge
instruments
|
(446 | ) | ||
|
Adjusted
interest related to purchase discount accretion
|
(945 | ) | ||
|
Non-GAAP
core operating income
|
$ | 7,713 | ||
|
Non-GAAP
core operating income per share (diluted)
|
$ | 0.99 |
|
(1)
|
Adjusted
expenses represents certain professional fees and income taxes that are
not considered representative of routine activities of the
Company.
|
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 non-agency MBS into 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, 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)
(Unaudited)
|
|
Three Months Ended
|
Twelve Months Ended
|
||||||||||||||
|
|
December 31,
|
December 31,
|
||||||||||||||
|
2010
|
2009
|
2010
|
2009
|
|||||||||||||
|
INTEREST
INCOME
|
||||||||||||||||
|
Interest
on investment securities
|
$ | 10,166 | $ | 6,362 | $ | 39,566 | $ | 13,940 | ||||||||
|
Dividends
and other interest income
|
- | 9 | 1 | 139 | ||||||||||||
|
Total
interest income
|
10,166 | 6,371 | 39,567 | 14,079 | ||||||||||||
|
INTEREST
EXPENSE
|
||||||||||||||||
|
Interest
on short-term debt
|
188 | 77 | 593 | 495 | ||||||||||||
|
Interest
on long-term debt
|
139 | 164 | 562 | 3,150 | ||||||||||||
|
Total
interest expense
|
327 | 241 | 1,155 | 3,645 | ||||||||||||
|
Net
interest income
|
9,839 | 6,130 | 38,412 | 10,434 | ||||||||||||
|
OTHER
INCOME (LOSS), NET
|
||||||||||||||||
|
Investment
gain
|
2,686 | 2,294 | 3,328 | 3,926 | ||||||||||||
|
Other
loss
|
(4 | ) | (4 | ) | (14 | ) | (151 | ) | ||||||||
|
Gain
on extinguishment of long-term debt
|
- | - | - | 160,435 | ||||||||||||
|
Total
other income, net
|
2,682 | 2,290 | 3,314 | 164,210 | ||||||||||||
|
Income
from continuing operations before other expenses
|
12,521 | 8,420 | 41,726 | 174,644 | ||||||||||||
|
OTHER
EXPENSES
|
||||||||||||||||
|
Compensation
and benefits
|
2,996 | 1,128 | 10,660 | 14,366 | ||||||||||||
|
Professional
services
|
270 | 1,056 | 1,263 | 7,053 | ||||||||||||
|
Business
development
|
39 | (1,323 | ) | 97 | 6,577 | |||||||||||
|
Occupancy
and equipment
|
94 | 122 | 388 | 538 | ||||||||||||
|
Communications
|
48 | (1 | ) | 204 | 246 | |||||||||||
|
Other
operating expenses
|
338 | 1,850 | 2,022 | 5,709 | ||||||||||||
|
Total
other expenses
|
3,785 | 2,832 | 14,634 | 34,489 | ||||||||||||
|
Income
from continuing operations before income taxes
|
8,736 | 5,588 | 27,092 | 140,155 | ||||||||||||
|
Income
tax provision (benefit)
|
705 | (2,507 | ) | 506 | 9,522 | |||||||||||
|
Income
from continuing operations, net of taxes
|
8,031 | 8,095 | 26,586 | 130,633 | ||||||||||||
|
Loss
from discontinued operations, net of taxes
|
- | (3,394 | ) | - | (25,547 | ) | ||||||||||
|
Net
income
|
8,031 | 4,701 | 26,586 | 105,086 | ||||||||||||
|
Net
loss attributable to noncontrolling interests
|
- | - | - | (11,459 | ) | |||||||||||
|
Net
income attributable to Arlington Asset Investment Corp.
shareholders
|
$ | 8,031 | $ | 4,701 | $ | 26,586 | $ | 116,545 | ||||||||
|
EARNINGS
PER SHARE - BASIC, attributable to Arlington Asset Investment Corp.
shareholders
|
||||||||||||||||
|
Income
from continuing operations
|
$ | 1.05 | $ | 1.05 | $ | 3.44 | $ | 17.02 | ||||||||
|
Discontinued
operations
|
- | (0.44 | ) | - | (1.83 | ) | ||||||||||
|
Net
income
|
$ | 1.05 | $ | 0.61 | $ | 3.44 | $ | 15.19 | ||||||||
|
EARNINGS
PER SHARE - DILUTED, attributable to Arlington Asset Investment Corp.
shareholders
|
||||||||||||||||
|
Income
from continuing operations
|
$ | 1.03 | $ | 1.02 | $ | 3.38 | $ | 16.69 | ||||||||
|
Discontinued
operations
|
- | (0.43 | ) | - | (1.80 | ) | ||||||||||
|
Net
income
|
$ | 1.03 | $ | 0.59 | $ | 3.38 | $ | 14.89 | ||||||||
|
Weighted
average shares outstanding - basic (in thousands)
|
7,635 | 7,679 | 7,734 | 7,675 | ||||||||||||
|
Weighted
average shares outstanding - diluted (in thousands)
|
7,773 | 7,907 | 7,873 | 7,825 | ||||||||||||
ARLINGTON
ASSET INVESTMENT CORP.
CONSOLIDATED
BALANCE SHEETS
(Dollars
in thousands, except per share amounts)
(Unaudited)
|
December 31,
2010
|
December 31,
2009
|
|||||||
|
ASSETS
|
||||||||
|
Cash
and cash equivalents
|
$ | 12,412 | $ | 10,123 | ||||
|
Receivables
|
||||||||
|
Interest
|
2,345 | 2,011 | ||||||
|
Other
|
219 | 20 | ||||||
|
Mortgage-backed
securities, at fair value
|
||||||||
|
Available-for-sale
|
252,909 | 295,600 | ||||||
|
Trading
|
174,055 | - | ||||||
|
Other
investments
|
8,287 | 2,580 | ||||||
|
Deposits
|
4,748 | 2,589 | ||||||
|
Prepaid
expenses and other assets
|
358 | 726 | ||||||
|
Total
assets
|
$ | 455,333 | $ | 313,649 | ||||
|
LIABILITIES
AND EQUITY
|
||||||||
|
Liabilities:
|
||||||||
|
Repurchase
agreements
|
$ | 190,220 | $ | 126,830 | ||||
|
Interest
payable
|
187 | 124 | ||||||
|
Accrued
compensation and benefits
|
7,201 | 5,921 | ||||||
|
Dividend
payable
|
4,655 | - | ||||||
|
Derivative
liabilities, at fair value
|
2,398 | - | ||||||
|
Purchased
securities payable
|
2,555 | - | ||||||
|
Accounts
payable, accrued expenses and other liabilities
|
16,373 | 13,904 | ||||||
|
Long-term
debt
|
15,000 | 16,857 | ||||||
|
Total
liabilities
|
238,589 | 163,636 | ||||||
|
Equity:
|
||||||||
|
Common
stock
|
77 | 80 | ||||||
|
Additional
paid-in capital
|
1,505,971 | 1,507,394 | ||||||
|
Accumulated
other comprehensive income
|
63,495 | 7,015 | ||||||
|
Accumulated
deficit
|
(1,352,799 | ) | (1,364,476 | ) | ||||
|
Total
equity
|
216,744 | 150,013 | ||||||
|
Total
liabilities and equity
|
$ | 455,333 | $ | 313,649 | ||||
|
Book
Value per Share
|
$ | 28.46 | $ | 19.54 | ||||
|
Shares
Outstanding (in thousands)
|
7,617 | 7,679 | ||||||