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Actionable news in AI: ARLINGTON ASSET INVESTMENT Corp,

Arlington Asset Investment Corp. Reports Third Quarter 2015 Financial Results

The following excerpt is from the company's SEC filing.

Announces Increase to Share Repurchase Program

– Arlington Asset Investment Corp. (NYSE: AI) (the “Company” or “Arlington”) today reported non-GAAP core operating income of $31.1 million for the quarter ended September 30, 2015, or $1.35 per diluted share. Excluding realized gains and losses on private-label mortgage-backed securities (“MBS”), the Company reported non-GAAP core operating income of $31.2 million, or $1.35 per diluted share. A reconciliation of non-GAAP core operating income measures to GAAP net income (loss) appears at the end of this press release.

Third Quarter 2015 Financial Highlights

$1.35 per diluted share of non-GAAP core operating income

$1.35 per diluted share of non-GAAP core operating income excluding gain (loss) on private-label MBS

$(2.29) per diluted share of net loss

$20.75 per share of book value

$0.625 per share dividend declared

Board approval for share repurchase program of up to 2.0 million shares of Class A common stock

“Continued interest rate volatility and spread widening between the Company’s interest rate hedges and its agency MBS investments primarily drove the decline in book value during the quarter,” said J. Rock Tonkel, Jr., the Company's President and Chief Executive Officer. “In light of continued expectations for moderate economic growth and more stable interest rates, the Company adjusted the composition of its hedges during the quarter by increasing its 10-year duration hedge instruments and reducing its shorter duration Eurodollar futures. Looking forward, our interest rate hedges continue to be structured to maintain substantial protection to our agency MBS portfolio against rising interest rates but with a lower initial hedge cost. As of quarter end, the Company’s allocation of investable capital remained relatively unchanged with approximately 23% directed to private-label MBS. The Company expects to maintain its current allocation of investable capital to private-label MBS in the near future to capture the benefit of investment diversification and return opportunities afforded by investing in credit oriented, variable rate investments at low leverage levels. Also, we are pleased to announce that the Company’s wholly-owned captive insurance subsidiary was approved as a member of the Federal Home Loan Bank (“FHLB”) of Cincinnati during the quarter providing the Company with diversification of funding sources at a reduced cost to traditional repurchase financing. Beginning in the fourth quarter, the Company further expanded its lower cost funding sources with its initial “direct repo” provider.”

Other Third Quarter Highlights

As of September 30, 2015, the Company’s agency investment portfolio totaled $4,198 million consisting of $3,790 million of agency MBS and $408 million of net long to-be-announced (“TBA”) agency securities. As of September 30, 2015, the Company’s $3,790 million of fixed-rate agency MBS were comprised of the following:

$537.3 million of 3.5% 30-year MBS

$3,107.7 million of 4.0% 30-year MBS

$145.0 million of 4.5% 30-year MBS

As of September 30, 2015, the Company’s agency MBS had a weighted average original cost of 105.99 and a weighted average market price of 106.99. The Company’s fixed-rate agency MBS was specifically selected for their prepayment protections with approximately 48% of the Company’s agency MBS portfolio in specified pools of low loan balance loans, approximately 26% in specified pools of loans issued under the Home Affordable Refinance Program (“HARP”), while the remainder includes specified pools of loans with low FICO scores or with other characteristics selected for the prepayment protection. Weighted average pay-up premiums on the Company’s agency MBS portfolio, which represent the estimated price premium of agency MBS backed by specified pools over a generic TBA agency security, increased modestly to approximately 3/5 of a point as of September 30, 2015 compared to approximately 1/2 of a point as of June 30, 2015. The three-month constant prepayment rate (“CPR”) for the Company’s agency MBS decreased to 8.16% as of September 30, 2015, compared to 12.34% as of June 30, 2015.

As of September 30, 2015, the Company’s net long TBA securities had a net notional amount of $390.0 million, purchase price of $404.9 million and market value of $408.4 million resulting in a net GAAP carrying fair value of $3.5 million. The Company accounts for its TBA mortgage portfolio as derivative instruments and recognizes income from TBA dollar rolls in other gains and losses in the Company’s financial statements. As of September 30, 3015, the Company’s $408.4 million of net long TBA securities were comprised of the following:

$265.8 million of 3.5% 30-year MBS

$90.5 million of 4.0% 30-year MBS

$52.1 million of 3.0% 15-year MBS

As of September 30, 2015, the total weighted average notional amount of the Company’s interest rate hedges on its agency investment portfolio was $3,050 million comprised of Eurodollar futures, 10-year interest rate swap futures and 10-year U.S. Treasury futures. The total weighted average hedge notional amount as a percentage of the Company’s outstanding repurchase agreement and FHLB advance financing on its agency MBS and net long TBA position was 79% as of September 30, 2015. As of September 30, 2015, the Company’s Eurodollar futures run consecutively for five quarters from June 2016 through June 2017 with a weighted average notional amount of $1,000 million and a weighted average contract rate of 2.40% and a current market rate of 0.93%. As of September 30, 2015, the Company had $985 million in notional 10-year interest rate swap futures with a weighted average implied contract rate of 2.28% and a current market rate of 2.06%. The Company also had $1,065 million in notional 10-year U.S. Treasury futures that were purchased when the 10-year U.S. Treasury rate was 2.20% on a weighted average basis and had a market rate of 2.06% as of period end.

Interest income less interest expense on short-term financing on the Company’s agency MBS portfolio for the third quarter of 2015 was $33.5 million. The amortization of net premiums on the Company’s agency MBS is reflected in the Company’s GAAP net income and changes in book value through net investment gains and losses rather than through net interest income and core operating income. For the quarter ended September 30, 2015, the amortization of the Company’s net premium on its agency MBS based on actual total principal payments was approximately $8.1 million, or $0.35 per diluted share. During the third quarter of 2015, the Company recorded net investment gains on its agency investment portfolio of $34.2 million and net investment losses on its related derivative hedging instruments of $104.2 million for a...


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