Arlington Asset Investment Corp. (AI) filed Quarterly Report for the period ended 2009-09-30.
Arlington Asset Investment Corporation is a publicly traded company that invests on a leveraged basis in residential mortgage-backed securities (MBS), including collateralized mortgage obligations (CMOs). These CMOs are either issued by a United States Government agency, or guaranteed as to principal and interest by United States Government agencies or United States Government-sponsored entities. The Company also invests in both AAA-rated MBS issued by private organizations (private-label MBS) and net interest margin securities and it holds merchant banking investments. In addition to this, the company owns approximately 39% interest in FBR Capital Markets Corporation. FBR Capital Markets Corporation is a holding company for various subsidiaries that conducts capital markets, asset management and merchant banking businesses. Arlington Asset Investment Corp. has a market cap of $93.96 million; its shares were traded at around $11.82 with and P/S ratio of 0.16.
Highlight of Business Operations:
As discussed above, we liquidated an additional 411,032 shares of FBR Capital Markets stock at a price of $4.42 per share on July 15, 2009 in connection with the over-allotment option that was granted to the underwriters under the underwriting agreement entered into on June 15, 2009. We have continued our efforts to divest our holdings in FBR Capital Markets to further fund the principal investing strategy. Accordingly, on October 28, 2009, the Company announced the closing on the sale of 14,755,017 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 of $5.70, is less than the carrying value of the FBR Capital Markets stock of $5.93 at September 30, 2009, and will result in the Company recording a pre-tax book loss of $3.4 million during the quarter ending December 31, 2009. These shares represented the Company’s remaining interest in FBR Capital Markets.
Our efforts to continue the extinguishment of the remaining Trust Preferred securities resulted in an additional extinguishment of $35.0 million of Trust Preferred securities at a gain of $28.0 million for the three months ended September 30, 2009. As of September 30, 2009, we have $15.0 million in remaining Trust Preferred securities.
The Company recorded net interest income of $3.6 million and $7.7 million from MBS held in its principal investment portfolio for the three months ended September 30, 2009 and 2008, respectively. The Company recorded net interest income of $7.2 million and $22.6 million from MBS held in its principal investment portfolio for the nine months ended September 30, 2009 and 2008, respectively. The decrease in net interest income during the three and nine months ended September 30, 2009 is due mainly to the decrease in the average balance of MBS investments held in our portfolio offset by the increase in the average yield.
The total value of our merchant banking portfolio and other investments was $90.1 million as of September 30, 2009. Of this total, $87.5 million represents an investment in FBR Capital Markets, $1.5 million was held in the merchant banking portfolio and $1.1 million was held in alternative asset funds. There were no unrealized losses in the merchant banking portfolio included in accumulated other comprehensive income (AOCI) as of September 30, 2009.
As shown in the table above, net interest income decreased by $4.3 million to $3.6 million during the three months ended September 30, 2009 compared to $7.9 million during the three months ended September 30, 2008. This decrease in interest income was primarily due to a lower average balance on the MBS portfolio.
AI is in the portfolios of Charles Brandes of Brandes Investment.
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