8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (date of earliest event reported): July 27, 2016 (July 26, 2016)

ARLINGTON ASSET INVESTMENT CORP.

(Exact name of Registrant as specified in its charter)

Virginia	54-1873198	001-34374
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)	(Commission File Number)

1001 Nineteenth Street North

Arlington, VA 22209

(Address of principal executive offices) (Zip code)

(703) 373-0200

(Registrant’s telephone number including area code)

N/A

(Former name or former address, if changed from last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02. Results of Operations and Financial Condition.

Arlington Asset Investment Corp. (the “Company”) issued a press release on July 26, 2016 announcing its financial results for the quarter ended June 30, 2016. A copy of the press release is attached hereto as Exhibit 99.1.

The information in Item 2.02 of this Current Report on Form 8-K, including Exhibit 99.1 furnished pursuant to Item 9.01, shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities under that Section. Furthermore, the information in this Current Report on Form 8-K, including Exhibit 99.1 hereto, shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended.

Item 8.01 Other Events.

The Company has posted an updated investor presentation to its website, www.arlingtonasset.com. A copy of the slide presentation is attached as Exhibit 99.2 hereto and incorporated herein by reference.

Forward-Looking Statements Disclaimer

This Current Report on Form 8-K contains “forward-looking statements” made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements regarding future results or expectations about our investments, interest rates, portfolio allocation, dividends, financing agreements, returns on invested capital, investment strategy, taxes, portfolio, earnings, book value, housing market, compensation, growth in capital, agency MBS spreads, prepayments, hedging instruments, duration, credit performance of private-label MBS, cash flow and benefit of deferred tax asset value. Forward-looking statements can be identified by forward-looking language, including words such as “believes,” “anticipates,” “views,” “expects,” “estimates,” “intends,” “may,” “plans,” “projects,” “potential,” “prospective,” “will” and similar expressions, or the negative of these words. Such forward-looking statements are based on facts and conditions as they exist at the time such statements are made. Forward-looking statements are also based on predictions as to future facts and conditions, the accurate prediction of which may be difficult and involve the assessment of events beyond our control. Forward-looking statements are further based on various operating and return assumptions. Caution must be exercised in relying on forward-looking statements. Due to known and unknown risks, actual results may differ materially from expectations or projections. You should carefully consider these risks when you make a decision concerning an investment in our common stock or senior notes, along with the following factors, among others, that may cause our actual results to differ materially from those described in any forward-looking statements: availability of, and our ability to deploy, capital; growing our business primarily through a strategy focused on acquiring primarily private-label mortgage-backed securities (“MBS”) and agency MBS; yields on MBS; our ability to successfully implement our hedging strategy; our ability to realize reflation on our private-label MBS; the credit performance of our private-label MBS; current conditions and adverse developments in the residential mortgage market and the overall economy; potential risk attributable to our mortgage-related portfolios; impacts of regulatory changes, including actions taken by the SEC, the U.S. Federal Reserve, the Federal Housing Finance Agency and the U.S. Treasury and changes affecting Fannie Mae and Freddie Mac; overall interest rate environment and changes in interest rates, interest rate spreads, the yield curve and prepayment rates; changes in anticipated earnings and returns; the amount and growth in our cash earnings and distributable income; growth in our book value per share; our ability to maintain adequate liquidity; our use of leverage and dependence on repurchase agreements and other short-term borrowings to finance our mortgage-related holdings; the loss of our exclusion from the definition of an “investment company” under the Investment Company Act of 1940; our ability to forecast our tax attributes and protect and use our net operating loss carry-forwards and net capital loss carry-forwards to offset future taxable income and gains; changes in our business, acquisition, leverage, asset allocation, operational, hedging and financing strategies and policies; our ability and willingness to make future dividends; changes in, and our ability to remain in compliance with, law, regulations or governmental policies affecting our business; and the factors described in the sections entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2015, subsequent Quarterly Reports on Form 10-Q and other documents filed by the Company with the SEC from time to time. All forward-looking statements speak only as of the date on which they are made. New risks and uncertainties arise over time, and it is not possible to predict those events or how they may affect us. Except as required by law, the Company is not obligated to, and does not intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits.

99.1	Arlington Asset Investment Corp. Press Release dated July 26, 2016.
99.2	Investor Presentation dated July 26, 2016 posted to the Company’s website.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned hereunto duly authorized.

		ARLINGTON ASSET INVESTMENT CORP.
Date: July 27, 2016
	By:	/s/ Richard E. Konzmann
	Name:	Richard E. Konzmann
	Title:	Executive Vice President, Chief Financial Officer and Treasurer

EXHIBIT INDEX

Exhibit No.	Description
99.1	Arlington Asset Investment Corp. Press Release dated July 26, 2016.
99.2	Investor Presentation dated July 26, 2016 posted to the Company’s website.

EX-99.1

Exhibit 99.1

Contacts:

Media: 703.373.0200 or ir@arlingtonasset.com

Investors: Rich Konzmann at 703.373.0200 or ir@arlingtonasset.com

Arlington Asset Investment Corp. Reports Second Quarter 2016 Financial Results

ARLINGTON, VA, July 26, 2016 – Arlington Asset Investment Corp. (NYSE: AI) (the “Company” or “Arlington”) today reported net income of $12.9 million, or $0.56 per diluted share, and non-GAAP core operating income of $15.5 million, or $0.67 per diluted share, for the quarter ended June 30, 2016. A reconciliation of non-GAAP core operating income to GAAP income (loss) before income taxes appears at the end of this press release.

Second Quarter 2016 Financial Highlights

• $0.56 per diluted share of GAAP net income

• $0.67 per diluted share of non-GAAP core operating income

• $18.77 per share of book value

• $13.92 per share of tangible book value

• $0.625 per share dividend

“Our investment portfolio produced solid cash spread earnings during the quarter, despite volatile market conditions and elevated prepayment speeds. For the quarter, the Company generated core operating income of $0.67 per diluted share, which allowed the Company to continue to pay a dividend to our shareholders of $0.625 per share,” said J. Rock Tonkel, Jr., the Company’s President and Chief Executive Officer. “During the quarter, Brexit related risks and lower market expectations for global economic growth drove increased demand for U.S. government bonds, steering the 10-year U.S. Treasury rate to historic lows and leading to further spread widening in fixed-income securities. Despite these volatile market conditions, as well as absorbing non-recurring proxy contest related costs, the Company was able to sustain its 22nd consecutive quarterly dividend of $0.625 per share or higher, generate a positive economic return, and provide an 18.9% annualized return on tangible book value from non-GAAP core operating income during the quarter. We would like to thank our fellow shareholders for their support of our efforts to continue to drive strong returns and value creation for our shareholders over the long-term.”

Other Second Quarter Highlights

As of June 30, 2016, the Company’s agency investment portfolio totaled $4,482 million, consisting of $3,570 million of agency MBS and $912 million of both net long to-be-announced (“TBA”) agency securities and commitments to purchase specified agency MBS. As of June 30, 2016, the Company’s $3,570 million of agency MBS were comprised primarily of the following:

• $1,577 million of 3.5% 30-year MBS

• $1,914 million of 4.0% 30-year MBS

• $73 million of 4.5% 30-year MBS

As of June 30, 2016, the Company’s agency MBS had a weighted average original purchase price of $105.45 and a weighted average market price of $107.55. The Company’s fixed-rate agency MBS were specifically selected for their relatively lower propensity for prepayment, with approximately 70% of the Company’s agency MBS portfolio in specified pools of low balance loans, approximately 14% in specified pools of loans originated in certain geographic areas, while the remainder includes specified pools of loans issued under the Home Affordable Refinance Program (“HARP”), 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, were approximately one percentage point as of June 30, 2016 compared to approximately 5/8 of a percentage point as of March 31, 2016.

As of June 30, 2016, the Company’s net long TBA securities and commitments to purchase specified agency MBS had a net notional amount of $875 million, purchase price of $902 million and market value of $912 million, resulting in a net GAAP carrying fair value of $10 million. Under GAAP, the Company accounts for its TBA securities and commitments to purchase specified agency MBS as

derivative instruments. As of June 30, 2016, the Company’s $912 million of net long TBA securities and commitments to purchase specified agency MBS were comprised of the following:

• $805 million of 3.0% 30-year agency TBA securities

• $107 million of 3.5% 30-year specified agency MBS commitments

The Company enters into various hedging transactions to mitigate the interest rate sensitivity of its cost of borrowing and the value of its agency MBS portfolio. As of June 30, 2016, the Company had interest rate derivatives used to hedge its agency MBS investment portfolio with net notional amounts as follows:

• $750 million of interest rate swaps with original maturities of two years

• $1,500 million of interest rate swaps with original maturities of ten years

• $2,000 million of put options on 10-year U.S. Treasury note futures

As of June 30, 2016, the Company had $750 million in notional amount of two-year interest rate swap agreements with a weighted average pay fixed rate of 1.04% and a remaining weighted average maturity of 1.4 years, and $1,500 million in notional amount of 10-year interest rate swap agreements with a weighted average pay fixed rate of 1.89% and a remaining weighted average maturity of 9.7 years. As of June 30, 2016, the Company also had contracts that provide the Company the option to put 10-year U.S. Treasury note futures with an equivalent net notional amount of $2,000 million that were struck at a weighted average strike price per contract that equates to a 10-year U.S. Treasury rate of approximately 2.17%.

Interest income less interest expense on short-term financing on the Company’s agency MBS portfolio for the second quarter of 2016 and 2015 was $18.1 million and $21.0 million, respectively. For the quarters ended June 30, 2016 and 2015, the amortization of the Company’s net premium on its agency MBS was $7.8 million and $10.4 million, respectively, and its weighted average yield on its agency MBS was 2.73% and 2.64%, respectively. The actual weighted-average constant prepayment rate (“CPR”) for the Company’s agency MBS was 11.40% for the second quarter of 2016.

For the quarters ended June 30, 2016 and 2015, the Company reported TBA dollar roll income of $3.7 million and $2.2 million, respectively. TBA dollar roll income is considered the economic equivalent of investing in agency MBS financed with a repurchase agreement and is calculated as the price discount of a forward-settling purchase of a TBA agency MBS relative to the “spot” sale of the same security. Under GAAP, the Company accounts for its TBA securities as derivative instruments and recognizes income from TBA dollar rolls as a component of net investment gains and losses in the Company’s financial statements.

During the second quarter of 2016, the Company recorded net investment gains on its agency investment portfolio of $40.3 million and net investment losses on its related interest rate derivative hedging instruments of $46.8 million for a net investment loss on its hedged agency portfolio of $6.5 million. Excluding TBA dollar roll income and interest rate swap net interest expense included in non-GAAP core operating income, the Company had net investment gains on its agency investment portfolio of $36.6 million and net investment losses on its related interest rate derivative hedging instruments of $42.4 million for a net investment loss on its hedged agency portfolio of $5.8 million, or $0.25 per share.

As of June 30, 2016, the Company’s private-label MBS portfolio consisted of $120.7 million in face value with an amortized cost basis of $81.8 million and a fair value of $89.1 million. Interest income less interest expense on short-term financing on the Company’s private-label MBS portfolio for the second quarter of 2016 and 2015 was $2.6 million and $3.9 million, respectively, including non-cash accretion of $1.4 million and $2.3 million, respectively. During the second quarter of 2016, the Company sold private-label MBS for sale proceeds of $38.3 million, which was $1.1 million less than the prior quarter fair value. In addition, the Company recorded net unrealized losses on its available-for-sale private-label MBS of $1.6 million included in other comprehensive income and net unrealized losses on its trading private-label MBS of $0.2 million for total net unrealized losses of $1.8 million during the second quarter of 2016. The Company’s total net losses for private-label MBS included in both net income and other comprehensive income was $2.9 million, or $0.12 per diluted share, during the second quarter of 2016.

As of June 30, 2016, the Company had $3,287 million of repurchase agreements outstanding with a weighted average rate of 66 basis points secured by an aggregate of $3,477 million of agency MBS at fair value. As of June 30, 2016, the Company also had $30 million of repurchase agreements outstanding with a weighted average rate of 241 basis points secured by $51 million of private-label MBS at fair value.

During the second quarter of 2016 and 2015, the Company’s expenses totaled $7.7 million and $3.9 million, respectively. For the second quarter of 2016, the Company’s expenses included $3.6 million, or $0.16 per diluted share, of non-recurring expenses related to the 2016 proxy contest that are in excess of those normally incurred for an annual meeting of shareholders.

Corporate Tax Structure

The Company is subject to taxation as a corporation under Subchapter C of the Internal Revenue Code of 1986, as amended. As of June 30, 2016, the Company’s estimated net operating loss carry-forwards were $98.5 million that begin to expire in 2027 and its estimated net capital loss carry-forwards were $291.3 million that begin to expire in 2019. The Company’s estimated net operating and net capital loss carry-forwards as of June 30, 2016 are subject to potential adjustments up to the time of filing the Company’s income tax returns. For GAAP accounting purposes, as of June 30, 2016 the Company had a deferred tax asset of $111.8 million, or $4.85 per share, which reflects a substantial valuation allowance against its net capital loss carry-forwards. During the second quarter of 2016, the Company recorded a decrease in the valuation allowance of $11.0 million primarily attributable to net gains on its MBS investment portfolio during the period.

Stock Repurchase Program

In October 2015, the Company’s Board of Directors authorized an increase in the Company’s share repurchase program pursuant to which the Company may repurchase up to 2.0 million shares of its Class A common stock. As of June 30, 2016, 1.95 million shares of the Company’s Class A common stock remain available for repurchase under the repurchase program, unchanged from March 31, 2016.

Distributions to Shareholders

The Company’s Board of Directors approved a distribution to common shareholders of $0.625 per share for the second quarter of 2016. The distribution will be paid on July 29, 2016 to shareholders of record as of June 30, 2016.

The tax characterization of the Company’s distributions to shareholders is determined annually and reported to shareholders on Form 1099-DIV after the end of the calendar year. As a C-corporation, distributions to shareholders of current or accumulated earnings and profits are qualified dividends eligible for the 23.8% federal income tax rate whereas similar distributions to shareholders by a REIT of current or accumulated earnings and profits are nonqualified dividends subject to the higher 43.4% tax rate, inclusive of the 3.8% Medicare tax rate, on ordinary income. Any distributions in excess of current or accumulated earnings and profits would be reported as returns of capital instead of qualified dividends. Distributions that are classified as returns of capital are nontaxable to the extent they do not exceed a shareholder’s adjusted tax basis in the Company’s stock, or as a capital gain to the extent that the amount of the distribution exceeds a shareholder’s adjusted tax basis in the Company’s stock.

Conference Call

The Company will hold a conference call for investors at 9:00 A.M. Eastern Time on Wednesday, July 27, 2016 to discuss the Company’s second quarter of 2016 results.

Investors may listen to the earnings call via the internet at: http://www.arlingtonasset.com/index.php?s=19. Replays of the earnings call will be available for 60 days via webcast at the Internet address provided above, beginning two hours after the call ends.

Additional Information

The Company will make available additional quarterly information for the benefit of its shareholders through a supplemental presentation that will be available at the Company’s website, www.arlingtonasset.com. The presentation will be available on the Webcasts and Presentations section located under the Updates & Events tab of the Company’s website.

About the Company

Arlington Asset Investment Corp. (NYSE: AI) is a principal investment firm that currently invests primarily 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 interest rates, portfolio allocation, financing costs, portfolio hedging, prepayments, dividends, book 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 political and monetary policies, changes in default rates, changes in prepayment rates, changes in the Company’s returns, changes in the use of the Company’s tax benefits, changes in the agency MBS asset yield, changes in the Company’s monetization of net operating loss

carry-forwards, changes in the Company’s ability to generate cash earnings and dividends, preservation and utilization of the Company’s net operating loss and net capital loss carry-forwards, impacts of changes to and changes by Fannie Mae and Freddie Mac, actions taken by the U.S. Federal Reserve, the Federal Housing Finance Agency and the U.S. Treasury, availability of opportunities that meet or exceed the Company’s risk adjusted return expectations, ability and willingness to make future dividends, ability to generate sufficient cash through retained earnings to satisfy capital needs, ability to realize book value growth through reflation of private-label MBS, and general economic, political, regulatory and market conditions. These and other material risks are described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 and any other documents filed by the Company with the SEC from time to time, which 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 to follow

ARLINGTON ASSET INVESTMENT CORP.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share amounts)

(Unaudited)

	June 30, 2016			December 31, 2015
ASSETS
Cash and cash equivalents	$	18,913		$	36,987
Interest receivable		10,432			11,936
Sold securities receivable		48,778			—
Mortgage-backed securities, at fair value
Private-label		89,086			130,435
Agency		3,570,379			3,865,316
Derivative assets, at fair value		9,927			12,991
Deferred tax assets, net		111,824			97,530
Deposits		123,314			29,429
Other assets		2,391			18,315
Total assets	$	3,985,044		$	4,202,939
LIABILITIES AND EQUITY
Liabilities:
Repurchase agreements	$	3,316,577		$	2,834,780
Federal Home Loan Bank advances		—			786,900
Interest payable		1,365			2,436
Accrued compensation and benefits		2,795			5,170
Dividend payable		14,490			14,504
Derivative liabilities, at fair value		75,818			553
Purchased securities payable		63,483			—
Other liabilities		4,488			1,132
Long-term debt		73,545			73,433
Total liabilities		3,552,561			3,718,908
Equity:
Common stock		230			230
Additional paid-in capital		1,899,282			1,898,085
Accumulated other comprehensive income, net of taxes		7,230			12,371
Accumulated deficit		(1,474,259	)		(1,426,655	)
Total equity		432,483			484,031
Total liabilities and equity	$	3,985,044		$	4,202,939
Book value per share	$	18.77		$	21.05
Tangible book value per share (1)	$	13.92		$	16.81
Shares outstanding (in thousands) (2)		23,037			22,994

(1) Tangible book value represents total stockholders’ equity less net deferred tax assets.

(2) Represents shares of Class A common stock and Class B common stock outstanding plus vested restricted stock units convertible into Class A common stock less unvested restricted Class A common stock.

ARLINGTON ASSET INVESTMENT CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share data)

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
Interest income
Agency mortgage-backed securities	$	23,408		$	24,126		$	49,063		$	49,586
Private-label mortgage-backed securities		2,805			4,155			5,776			9,198
Other		138			5			266			12
Total interest income		26,351			28,286			55,105			58,796
Interest expense
Short-term debt		5,509			3,395			11,009			6,475
Long-term debt		1,194			1,180			2,387			1,828
Total interest expense		6,703			4,575			13,396			8,303
Net interest income		19,648			23,711			41,709			50,493
Investment loss, net
Realized (loss) gain on sale of available-for-sale investments, net		(593	)		13,117			(593	)		16,465
Other-than-temporary impairment charges		(1,638	)		—			(1,737	)		—
Gain (loss) on trading investments, net		27,665			(51,445	)		78,615			(31,700	)
(Loss) gain from derivative instruments, net		(34,381	)		30,501			(135,141	)		(45,511	)
Other, net		—			309			19			421
Total investment loss, net		(8,947	)		(7,518	)		(58,837	)		(60,325	)
Other expenses
Compensation and benefits		2,756			2,669			5,320			5,081
Other expenses		4,916			1,276			6,687			2,282
Total other expenses		7,672			3,945			12,007			7,363
Income (loss) before income taxes		3,029			12,248			(29,135	)		(17,195	)
Income tax (benefit) provision		(9,865	)		5,647			(10,411	)		18,389
Net income (loss)	$	12,894		$	6,601		$	(18,724	)	$	(35,584	)
Basic earnings (loss) per share	$	0.56		$	0.29		$	(0.81	)	$	(1.55	)
Diluted earnings (loss) per share	$	0.56		$	0.29		$	(0.81	)	$	(1.55	)
Weighted-average shares outstanding (in thousands)
Basic		23,003			22,979			22,998			22,976
Diluted		23,070			23,098			22,998			22,976
Other comprehensive income (loss), net of taxes
Unrealized gains (losses) on available-for-sale securities (net of taxes of $(641), $108, $(3,805), and $(2,555), respectively)	$	(1,006	)	$	169		$	(5,976	)	$	(4,324	)
Reclassification
Included in investment loss, net, related to sales of available-for-sale securities (net of taxes of $(144), $(4,312), $(144), and $(4,692), respectively)		(226	)		(13,279	)		(226	)		(16,641	)
Included in investment loss, net, related to other-than-temporary impairment charges on available-for-sale securities (net of taxes of $637, $-0-, $676, and $-0-, respectively)		1,001			—			1,061			—
Comprehensive income (loss)	$	12,663		$	(6,509	)	$	(23,865	)	$	(56,549	)

The following tables present information on the Company’s investment and hedge portfolio as of June 30, 2016 (unaudited, dollars in thousands):

Agency MBS:

	Fair Value
Specified agency MBS	$	3,564,488
Interest-only agency MBS		5,891
Total agency MBS		3,570,379
Net agency TBA and other purchase commitments		911,505
Total	$	4,481,884

Specified agency MBS:

	Face Amount		Fair Value		Market Price		Coupon			Weighted Average Life
30-year fixed rate:
3.5%	$	1,481,966	$	1,577,539	$	106.45		3.50	%		5.0
4.0%		1,766,249		1,914,373		108.39		4.00	%		4.3
4.5%		65,969		72,551		109.98		4.50	%		3.8
5.5%		22		25		113.18		5.50	%		4.7
Total/weighted-average	$	3,314,206	$	3,564,488		107.55		3.79	%		4.6

Net agency TBA and other purchase commitments:

	Notional Amount:
	Net Long (Short) Position		Implied Cost Basis		Implied Fair Value		Net Carrying Amount
30-year 3.0% coupon TBA securities	$	775,000	$	795,746	$	804,414	$	8,668
30-year 3.5% coupon specified agency MBS purchase commitments		100,441		106,040		107,091		1,051
Total	$	875,441	$	901,786	$	911,505	$	9,719

Private-label MBS:

Face value	$	120,655
Discount	$	(38,901	)
Amortized cost	$	81,754
Net unrealized gain	$	7,332
Fair market value	$	89,086
Fair market value (as a % of face value)		73.8	%
Quarterly GAAP yield (annualized)		9.49	%
Weighted average coupon		3.21	%
Three-month voluntary prepayment rate (annualized)		9.3	%
Credit enhancement		0.1	%
60+ days delinquent		12.2	%
Three-month default rate (annualized)		7.4	%
Three-month loss severity rate (1)		33.0	%
Three-month credit loss rate (annualized) (2)		2.4	%

(1) Represents a “loss-given-default” rate. Private-label MBS collateral pools which experienced no defaults within the three-month historical period are excluded from the loss severity rate calculation.

(2) Calculated as the three-month default rate multiplied by the three-month loss severity rate.

Interest Rate Swaps:

	June 30, 2016
	Notional Amount		Average Fixed Pay Rate			Average Remaining Maturity (Years)		Fair Value
Years to maturity:
Less than 2 years	$	750,000		1.04	%		1.4	$	(3,839	)
2 to 10 years		1,500,000		1.89	%		9.7		(71,979	)
Total / weighted-average	$	2,250,000		1.61	%		6.9	$	(75,818	)

Put Options on 10-year U.S. Treasury Note Futures:

Maturity Date	Notional Amount		Net Fair Value
July 2016	$	2,000,000	$	208

Non-GAAP Core Operating Income

In addition to the Company’s results of operations determined in accordance with generally accepted accounting principles as consistently applied in the United States (“GAAP”), the Company computed “non-GAAP core operating income” for the three and six months ended June 30, 2016. The Company defines core operating income as “economic net interest income” less “core general and administrative expenses.”

Economic Net Interest Income

Economic net interest income is comprised of the following:

• net interest income determined in accordance with GAAP;

• TBA agency MBS dollar roll income, which is calculated as the price discount of a forward-settling purchase of a TBA agency MBS relative to the “spot” sale of the same security, earned ratably over the period beginning on the settlement date of the sale and ending on the settlement date of the forward-settling purchase; and

• net interest income or expense incurred from interest rate swap agreements.

In the Company’s consolidated statements of comprehensive income prepared in accordance with GAAP, TBA agency MBS dollar roll income and the net interest income or expense incurred from interest rate swap agreements are reported as a component of the overall periodic change in the fair value of derivative instruments within the line item “gain (loss) from derivative instruments, net” of the “investment gain (loss), net” section.

Core General and Administrative Expenses

Core general and administrative expenses are non-interest expenses reported within the line item “total other expenses” of the consolidated statements of comprehensive income less stock-based compensation expense. For the three and six months ended June 30 2016, core general and administrative expenses also exclude non-recurring expenses related to the 2016 proxy contest that are in excess of those normally incurred for an annual meeting of shareholders.

Non-GAAP Core Operating Income for the Three and Six Months Ended June 30, 2016

The following table presents the Company’s computation of core operating income for the three and six months ended June 30, 2016 (unaudited, amounts in thousands, except per share amounts):

	Three Months Ended			Six Months Ended
	June 30, 2016			June 30, 2016
GAAP net interest income	$	19,648		$	41,709
TBA dollar roll income		3,719			7,514
Interest rate swap net interest expense		(4,376	)		(8,373	)
Economic net interest income		18,991			40,850
Core general and administrative expenses		(3,444	)		(6,864	)
Non-GAAP core operating income	$	15,547		$	33,986
Non-GAAP core operating income per diluted share	$	0.67		$	1.47
Weighted average diluted shares outstanding		23,070			23,055

The following table provides a reconciliation of GAAP pre-tax net income to non-GAAP core operating income for the three and six months ended June 30, 2016 (unaudited, amounts in thousands):

	Three Months Ended			Six Months Ended
	June 30, 2016			June 30, 2016
GAAP income (loss) before income taxes	$	3,029		$	(29,135	)
Less:
Total investment loss, net		8,947			58,837
Stock-based compensation expense		647			1,164
Non-recurring proxy contest related expenses		3,581			3,979
Add back:
TBA dollar roll income		3,719			7,514
Interest rate swap net interest expense		(4,376	)		(8,373	)
Non-GAAP core operating income	$	15,547		$	33,986

Non-GAAP core operating income is used by management to evaluate the financial performance of the Company’s long-term investment strategy and core business activities over periods of time as well as assist with the determination of the appropriate level of periodic dividends to stockholders. The Company believes that non-GAAP core operating income assists investors in understanding and evaluating the financial performance of the Company’s long-term investment strategy and core business activities over periods of time as well as its earnings capacity. A limitation of utilizing this non-GAAP financial measure is that the effect of accounting for “non-core” events or transactions in accordance with GAAP does, in fact, reflect the financial results of our business and these effects should not be ignored when evaluating and analyzing our financial results. For example, the economic cost or benefit of hedging instruments other than interest rate swap agreements, such as U.S. Treasury note futures or options on U.S. Treasury note futures, do not affect the computation of non-GAAP core operating income. In addition, the Company’s calculation of non-GAAP core operating

income may not be comparable to other similarly titled measures of other companies. Therefore, the Company believes that net income and comprehensive income determined in accordance with GAAP should be considered in conjunction with non-GAAP core operating income.

Non-GAAP Core Operating Income for Fiscal Year 2015

The Company retrospectively applied its revised definition of core operating income to the quarterly and annual periods of fiscal year 2015. The Company notes, however, that the non-GAAP core operating income measures computed for prior year periods are not directly comparable to the results computed for the three and six months ended June 30, 2016, as the Company solely utilized hedging instruments other than interest rate swap agreements prior to November 2015. The economic costs or benefits of hedging instruments other than interest rate swap agreements do not affect the computation of non-GAAP core operating income. The results of the Company’s retrospective application of its revised definition of core operating income to fiscal year 2015 are presented in the following table (unaudited, amounts in thousands, except per share amounts):

	Fiscal Year 2015
	Total Year			Fourth Quarter			Third Quarter			Second Quarter			First Quarter
GAAP net interest income	$	102,374		$	25,807		$	26,074		$	23,711		$	26,782
TBA dollar roll income		6,743			2,353			1,896			2,235			259
Interest rate swap net interest expense		(1,282	)		(1,282	)		—			—			—
Economic net interest income		107,835			26,878			27,970			25,946			27,041
Core general and administrative expenses		(13,642	)		(3,121	)		(3,639	)		(3,575	)		(3,307	)
Non-GAAP core operating income	$	94,193		$	23,757		$	24,331		$	22,371		$	23,734
Non-GAAP core operating income per diluted share	$	4.08		$	1.03		$	1.05		$	0.97		$	1.03
Weighted average diluted shares outstanding		23,088			23,066			23,065			23,098			23,096

The following table provides a reconciliation of GAAP pre-tax net income to non-GAAP core operating income for fiscal year 2015 (amounts in thousands):

	Fiscal Year 2015
	Total Year			Fourth Quarter			Third Quarter			Second Quarter		First Quarter
GAAP income (loss) before income taxes	$	(30,842	)	$	23,486		$	(37,133	)	$	12,248	$	(29,443	)
Less:
Total investment (gain) loss, net		118,429			(1,653	)		59,757			7,518		52,807
Stock-based compensation expense		1,145			853			(189	)		370		111
Add back:
TBA dollar roll income		6,743			2,353			1,896			2,235		259
Interest rate swap net interest expense		(1,282	)		(1,282	)		—			—		—
Non-GAAP core operating income	$	94,193		$	23,757		$	24,331		$	22,371	$	23,734

EX-99.2

Exhibit 99.2

Investor Presentation

Second Quarter 2016

Information Related to Forward-Looking Statements

This presentation contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These include statements regarding future results or expectations about our investments, interest rates, portfolio allocation, dividends, financing agreements, returns on invested capital, investment strategy, taxes, portfolio, earnings, book value, housing market, compensation, growth in capital, agency MBS spreads, prepayments, hedging instruments, duration, credit performance of private-label MBS, cash flow and benefit of deferred tax asset value. Forward-looking statements can be identified by forward-looking language, including words such as “believes,” “anticipates,” “views,” “expects,” “estimates,” “intends,” “may,” “plans,” “projects,” “potential,” “prospective,” “will” and similar expressions, or the negative of these words. Such forward-looking statements are based on facts and conditions as they exist at the time such statements are made. Forward-looking statements are also based on predictions as to future facts and conditions, the accurate prediction of which may be difficult and involve the assessment of events beyond our control. Forward-looking statements are further based on various operating and return assumptions. Caution must be exercised in relying on forward-looking statements. Due to known and unknown risks, actual results may differ materially from expectations or projections.

You should carefully consider these risks when you make a decision concerning an investment in our common stock or senior notes, along with the following factors, among others, that may cause our actual results to differ materially from those described in any forward-looking statements: availability of, and our ability to deploy, capital; growing our business primarily through a strategy focused on acquiring primarily private-label mortgage-backed securities (“MBS”) and agency MBS; yields on MBS; our ability to successfully implement our hedging strategy; our ability to realize reflation on our private-label MBS; the credit performance of our private-label MBS; current conditions and adverse developments in the residential mortgage market and the overall economy; potential risk attributable to our mortgage-related portfolios; impacts of regulatory changes, including actions taken by the SEC, the U.S. Federal Reserve, the Federal Housing Finance Agency and the U.S. Treasury and changes affecting Fannie Mae and Freddie Mac; overall interest rate environment and changes in interest rates, interest rate spreads, the yield curve and prepayment rates; changes in anticipated earnings and returns; the amount and growth in our cash earnings and distributable income; growth in our book value per share; our ability to maintain adequate liquidity; our use of leverage and dependence on repurchase agreements and other short-term borrowings to finance our mortgage-related holdings; the loss of our exclusion from the definition of an “investment company” under the Investment Company Act of 1940; our ability to forecast our tax attributes and protect and use our net operating loss carry-forwards and net capital loss carry-forwards to offset future taxable income and gains; changes in our business, acquisition, leverage, asset allocation, operational, hedging and financing strategies and policies; our ability and willingness to make future dividends; changes in, and our ability to remain in compliance with, law, regulations or governmental policies affecting our business; and the factors described in the sections entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2015, subsequent Quarterly Reports on Form 10-Q and other documents filed by the Company with the SEC from time to time. You should not place undue reliance on these forward-looking statements, which apply only as of

the date of this presentation. We undertake no obligation to update or revise any forward-looking statement, whether written or oral, relating to matters discussed in this presentation, except as may be required by applicable securities laws.

1

Company Overview

Arlington Asset Investment Corp. (“AI” or the “Company”) is an investment firm focused on securitized residential mortgage assets

Invests in high quality liquid assets with predictable cash flows and substantial interest rate hedges to protect long-term capital

Internally-managed

Structured as a C-corp to enhance shareholder returns and optimize investment strategy

Our hybrid investment portfolio is positioned to benefit from normalization of interest rates and the housing market

Invest in interest rate sensitive agency MBS issued by Fannie Mae and Freddie Mac

Invest in credit sensitive private-label MBS

NYSE Ticker AI

Share Price (7/22/16) $13.48

Dividend Yield (7/22/16) 18.5%

Market Cap (7/22/16) $310 million

Total Assets (6/30/16) $4.0 billion

Book Value Per Share (6/30/16) $18.77

Tangible Book Value Per Share (6/30/16) $13.92

2

MBS Investment Portfolio Overview

Complementary hybrid portfolio comprised of ~$4.6 billion of high-quality, liquid securities

Hedged, prepayment protected fixed-rate agency MBS

Floating rate private-label MBS in Re-REMIC form backed by prime and Alt-A collateral

Flexibility in allocating capital between agency and private-label MBS to achieve the highest risk adjusted returns

Allocated Capital (1) Investment Portfolio (2)

(1) Agency MBS allocated capital is composed of MBS and its related interest receivable, repo, derivative instruments, deposits, net receivable or payable for unsettled securities and cash. Private-label MBS allocated capital is composed of MBS and its related repo. (2) Investment portfolio includes net long position in to-be-announced (“TBA”) securities representing forward contracts to purchase or sell agency MBS on a generic pool basis which are accounted for as derivatives in the Company’s financial statements. Dollars in thousands.

3

Agency MBS Investment Portfolio Overview

Fixed-rate agency MBS portfolio

Hedged to mitigate impact of increasing interest rates as economic environment shifts

Hedged agency MBS portfolio enables the Company to earn targeted investment spread over investment cycle despite mark-to-market fluctuations in book value

Specified agency MBS 100% selected for prepayment protections

Actual portfolio weighted average CPR of 11.40% during the quarter (2)

Weighted average yield of specified agency MBS of 2.73% (3)

As of June 30, 2016 (dollars in thousands)

Fair Value

Specified agency MBS $ 3,564,488

Net long agency TBA and other purchase commitments (1) 804,414

Commitments to purchase specified agency MBS (1) 107,091

Inverse interest-only agency MBS 5,891

Total $ 4,481,884

Agency Investment Portfolio by Issuance (4)

(1) Represents the fair value of the agency MBS underlying forward-settling purchase or sale commitments that are accounted for as derivatives in accordance with GAAP. The net carrying amount of the commitments are included in “derivatives” on the consolidated balance sheets.

(2) Represents the weighted average of the monthly annualized CPRs published in April, May and June 2016 for agency MBS held as of the prior month-end. (3) Weighted average for the quarter ended June 30, 2016.

(4) Includes net long agency TBA position and forward-settling commitments to purchase specified agency MBS that are accounted for as derivatives in accordance with GAAP.

4

Specified Agency MBS Investment Portfolio

30-Year Fixed-Rate Agency MBS Selected for Prepayment Characteristics

Weighted Average:

Loan Age Actual 3-Month Remaining Life Duration

(Dollars in thousands) MBS Coupon Face Amount Fair Value Market Price WAC (7)(Months) (8) CPR (9)(Years) (10)(Years) (11)

Low Loan Balance <= $150K (1)

3.5% $ 63,891 $ 68,318 $ 106.93 4.13% 8 7.56% 5.7 3.3

4.0% 455,309 496,697 109.09 4.62% 24 12.75% 4.6 2.3

$ 519,200 $ 565,015 $ 108.82 4.56% 22 12.11% 4.7 2.4

Low Loan Balance <= $200K (2)

3.5% $ 984,649 $ 1,047,650 $ 106.39 4.14% 7 2.68% 5.1 3.0

4.0% 818,110 886,807 108.40 4.62% 22 13.55% 4.3 2.3

$ 1,802,759 $ 1,934,457 $ 107.30 4.36% 14 7.62% 4.7 -

HARP LTV <95% (3)

3.5% $ 25,178 $ 26,601 $ 105.65 4.14% 16 23.70% 4.1 2.7

4.0% 95,392 102,638 107.60 4.57% 28 14.85% 4.3 3.2

4.5% 43,539 47,852 109.90 4.86% 66 9.78% 3.9 2.1

HARP LTV >=95% (4)

4.0% $ 48,421 $ 52,172 $ 107.75 4.40% 39 20.62% 5.2 3.6

4.5% 22,429 24,699 110.12 4.88% 65 24.21% 3.6 1.7

$ 70,850 $ 76,871 $ 108.50 4.55% 47 21.76% 4.7 3.0

Geographic (5)

3.5% $ 408,249 $ 434,970 $ 106.55 4.08% 13 4.66% 4.9 2.7

4.0% 64,879 70,338 108.41 4.61% 14 10.44% 3.9 2.2

$ 473,128 $ 505,308 $ 106.80 4.16% 13 5.46% 4.7 2.7

Other Specified Pools (6)

4.0% $ 284,137 $ 305,720 $ 107.60 4.67% 16 15.58% 3.7 2.5

5.5% 22 25 113.18 5.92% 99 5.03% 4.7 2.8

$ 284,159 $ 305,745 $ 107.60 4.67% 16 15.58% 3.7 2.5

Total

3.5% $ 1,481,967 $ 1,577,539 $ 106.45 4.13% 9 3.80% 5.0 2.9

4.0% 1,766,249 1,914,373 108.39 4.62% 22 13.82% 4.3 2.4

4.5% 65,968 72,551 109.98 4.87% 66 14.69% 3.8 2.0

5.5% 22 $ 25 113.18 5.92% 99 5.03% 4.7 2.8

$ 3,314,206 $ 3,564,488 $ 107.55 4.41% 17 9.36% 4.6 2.6

(1) Specified pools of loans with original balances of up to $150K.

(2) Specified pools of loans with original balances between $150K and $200K.

(3) Specified pools of loans refinanced through the Home Affordable Refinance Program (“HARP”) with original loan-to-value (“LTV”) ratios of greater than or equal to 80% but less than 95%.

(4) Specified pools of loans refinanced through HARP with original LTV ratios of greater than or equal to 95%. (5) Specified pools of loans originated in New York, Texas, or California.

(6) Other specified pools include low FICO loans, 100% investor occupancy status loans, high LTV loans, and seasoned loans. (7) Average WAC represents the weighted average coupon of the underlying collateral.

(8) Average age represents the weighted average age of the underlying collateral.

(9) Actual 3-month constant prepayment rate (“CPR”) represents annualized 3-month CPR published in July 2016 for securities held as of June 30, 2016. (10) Remaining life represents the weighted average expected remaining life of the security based on expected future CPR.

(11) Duration is derived from the Citi’s “The Yield Book” model. Duration is a measure of how much the price of an asset or liability is expected to change if interest rates move in a parallel manner and is dependent upon several subjective inputs and assumptions. Actual results could differ materially from these estimates. In addition, different models could generate materially different estimates using similar inputs and assumptions.

5

TBA Agency Investment Portfolio

TBA Agency Portfolio Generates Additional Investment Income

Net Long TBA Position (1) as of June 30, 2016 (dollars in thousands):

Average Net

Net Notional Contractual Average Net Net Carrying Duration

Amount Price Market Price Amount(Years) (2)

30-year 3.0% fixed rate TBAs:

Fannie Mae $ 475,000 $ 488,027 $ 493,258 $ 5,231 2.9

Freddie Mac 300,000 307,719 311,156 3,437 2.8

Total net long TBA position 775,000 795,746 804,414 8,668 2.8

TBA Dollar Roll Income (3) (dollars in thousands):

Second Quarter First Quarter Second Quarter

2016 2016 2015

TBA dollar roll income $ 3,719 $ 3,795 $ 2,235

Average cost basis (4) 609,022 595,306 307,090

Implied net interest spread 2.44% 2.55% 2.91%

(1) Net long position in TBA securities represent forward-settling contracts to purchase or sell agency MBS on a generic pool basis which are accounted for as derivatives in accordance with GAAP with the net carrying amount included in “derivatives” on the balance sheet.

(2) Duration is derived from the Citi’s “The Yield Book” model. Duration is a measure of how much the price of an asset or liability is expected to change if interest rates move in a parallel manner and is dependent upon several subjective inputs and assumptions. Actual results could differ materially from these estimates. In addition, different models could generate materially different estimates using similar inputs and assumptions.

(3) Represents the economic equivalent of net interest income (implied interest income net of financing costs) generated from the Company’s investments in non-specified fixed-rate agency MBS, executed through sequential series of forward-settling purchase and sale transactions that are settled on a net basis (known as “dollar roll” transactions). Excludes the net interest cost or benefit of any associated hedging instruments.

(4) Cost basis is based upon the contractual price of the initial TBA purchase trade of each individual series of dollar roll transactions.

6

Private-Label MBS Portfolio Overview

Floating rate private-label MBS Primarily composed of mezzanine interests in re-REMIC securities collateralized by senior class REMIC securities Benefiting from ongoing improvement of housing fundamentals Focus on underlying collateral of prime jumbo and Alt-A loans

No subprime, no option ARMs

Higher home values and larger loan sizes (approximately $650K)

Prime borrowers with greater financial flexibility and higher incomes

Stronger demographics with more desirable / stable housing markets

Valued at 73.8% of aggregate face amount as of June 30, 2016

As of June 30, 2016 (dollars in thousands)

Face amount $ 120,655

Discount(38,901)

Amortized cost 81,754

Net unrealized gain 7,332

Fair value $ 89,086

Weighted average coupon 3.21%

Weighted average GAAP Yield 9.49%

Loan Collateral Statistics

60+ days delinquent 12.2%

Original FICO 725

Original LTV 65%

Weighted average loan age (months) 122

Credit enhancement 0.1%

Three-month voluntary prepayment rate (annualized) 9.3%

Three-month default rate (annualized) 7.4%

Three-month loss severity rate (1) 33.0%

Three-month credit loss rate (annualized) (2) 2.4%

(1) Represents a “loss-given-default” rate. Private-label MBS collateral pools which experienced no defaults within the three-month historical period are excluded from the loss severity rate calculation.

(2) Calculated as the three-month default rate multiplied by the three-month loss severity rate.

7

Financing Summary

Diversified Funding Sources

?17 counterparties with access to 18 total counterparties ?Less than 10% of equity at risk with any one counterparty

5.8% of equity at risk with largest counterparty

21.9% of equity at risk with five largest counterparties

As of June 30, 2016 (dollars in thousands)

Average Average

Outstanding Collateral Interest Days to

Borrowing Fair Value Rate Maturity

Agency MBS repo $ 3,286,533 $ 3,476,981 0.66% 16.3

Private-label MBS repo 30,044 50,637 2.41% 12.2

Total/weighted average $ 3,316,577 $ 3,527,618 0.68% 16.3

Number of Outstanding Percent

Counterparty Region Counterparties Borrowing of Total

North America 12 $ 2,308,317 69.6%

Europe 2 305,467 9.2%

Asia 3 702,793 21.2%

Total 17 $ 3,316,577 100.0%

8

Hedging Summary

Hedge Position Helps Mitigate Impact of Rising Rates on Agency Portfolio

Hedge position comprised of both longer and

shorter term hedges comprised of:

2-year interest rate swaps

$750MM of notional amount

Weighted average pay fixed rate of 1.04%

Weighted average remaining maturity of

1.4 years

10-year interest rate swaps

$1,500MM of notional amount

Weighted average pay fixed rate of 1.89%

Weighted average remaining maturity of

9.7 years

Interest rate swap notional-to-repo balance

ratio of 68% as of June 30, 2016

Put options on 10-year U.S. Treasury futures

$2,000MM of notional amount

Expire in July 2016

Provide the Company with the right to sell

10-year U.S. Treasury note futures at a

weighted average strike price that equates

to a note rate of approximately 2.17%

As of June 30, 2016 (dollars in thousands)

Notional Collateral

Amount Duration (1) Fair Value Deposit (2)

Original contractual maturity:

2 years $ 750,000(1.3) $(3,839) $ 6,244

10 years 1,500,000(9.4)(71,979) 117,070

Total / weighted average $ 2,250,000(6.7) $(75,818) $ 123,314

Agency MBS Hedged Duration Gap (4)

Market Value/

Notional Duration (1)

Specified agency MBS $ 3,564,488 2.6

Net long agency TBA and other purchase commitments 911,505 3.0

Interest-only agency MBS 5,891 3.1

Total agency MBS $ 4,481,884 2.7

Agency repo $(3,286,533)(0.1)

Interest rate swap agreements(2,250,000)(6.7)

Total (3)(3.4)

Net Duration Gap(0.7)

(1) Duration is derived from the Citi’s “The Yield Book” model. Duration is a measure of how much the price of an asset or liability is expected to change if interest rates move in a parallel manner and is dependent upon several subjective inputs and assumptions. Actual results could differ materially from these estimates. In addition, different models could generate materially different estimates using similar inputs and assumptions.

(2) Collateral deposit represents initial and variation margin held by the respective custodian which is generally set by the central clearing house. For presentation purposes, the total collateral deposit for interest rate swaps has been allocated to two-year and 10-year instruments, respectively, on the basis of their relative fair values.

(3) Total liability and hedge duration is expressed in asset units. Long-term debt is excluded. (4) Hedged duration gap excludes put options on U.S. Treasury note futures.

9

MBS Portfolio Economics

MBS Portfolio Spread Income Return on Capital (1):

Second Quarter 2016 2016 Year-to-Date

Agency Private—Agency Private -

MBS Label MBS Total MBS Label MBS Total

Asset yield 2.73% 9.49% 2.96% 2.83% 9.90% 3.06%

Economic cost of funds (2)(1.19)%(2.44)%(1.20)%(1.15)%(2.46)%(1.16)%

Economic net interest rate spread 1.54% 7.05% 1.76% 1.68% 7.44% 1.90%

Leverage ratio (3) 10.1 0.4 8.2 9.9 0.4 8.0

Leveraged economic net interest rate spread 15.51% 2.90% 14.43% 16.68% 2.99% 15.12%

Plus: asset yield 2.73% 9.49% 2.96% 2.83% 9.90% 3.06%

Spread income return on average capital, gross 18.24% 12.39% 17.39% 19.51% 12.89% 18.18%

TBA dollar roll income (4) 3.70% 3.59%

Long-term debt interest cost (4)(1.19)%(1.14)%

Core expenses (4)(5)(3.43)%(3.28)%

Spread income return on average capital, net 16.47% 17.35%

(1) Capital is calculated as stockholders’ equity determined in accordance with GAAP, less the net deferred tax asset, plus long-term debt.

(2) Includes interest expense incurred from short-term debt and net interest expense incurred from interest rate swap agreements. Excludes the economic cost or benefit of hedging instruments other than interest rate swap agreements.

(3) Calculated based upon average repurchase agreement and capital balances for the period. (4) Expressed as an annualized percentage of average capital for the period.

(5) Core expenses represent non-interest expenses reported within the line item “total other expenses” of the consolidated statements of comprehensive income less (i) stock-based compensation expense and (ii) non-recurring expenses related to the 2016 proxy contest that are in excess of those normally incurred for an annual meeting of shareholders.

10

Corporate Tax Structure Provides Enhanced Shareholder Returns and Flexibility

Our C-corp structure benefits stockholders by providing a tax-advantaged dividend as we continue to utilize our net operating loss and net capital loss carry-forwards

Net operating loss carry-forward of $98MM as of June 30, 2016

Net capital loss carry-forward of $291MM as of June 30, 2016

18.5% annualized dividend yield (1)

25.0% annualized dividend yield, on a tax adjusted basis (2)

Structure provides flexibility as we are not required to distribute taxable earnings to stockholders

Provides option to reinvest earnings and opportunistically benefit from market dislocation

Allows investment flexibility as we are not bound by any substantial restrictions

(1) Based on the Company’s Class A common stock closing price on the NYSE of $13.48 on 7/22/2016. The annual dividend rate presented is calculated by annualizing the second quarter of 2016 dividend payment of $0.625 per share of Class A common stock. The Company maintains a variable dividend policy and the Board of Directors, in its sole discretion, approves the payment of dividends. Actual dividends in the future may differ materially from historical practice and from the annualized dividend rate presented.

(2) The Company’s distributions to shareholders of current or accumulated earnings and profits (“E&P”) are qualified dividends eligible for the 23.8% federal income tax rate whereas similar distributions to shareholders by a REIT of current or accumulated E&P are nonqualified dividends subject to the higher 43.4% tax rate on ordinary income. Any distributions in excess of current or accumulated E&P would be reported as a return of capital instead of qualified dividends. Distributions that are classified as returns of capital are nontaxable to the extent they do not exceed a shareholder’s adjusted tax basis in the Company’s common stock, or as a capital gain to the extent that the amount of the distribution exceeds a shareholder’s adjusted tax basis in the Company’s common stock. To provide the same after-tax return to a shareholder of distributions of current or accumulated E&P eligible for the 23.8% rate on qualified dividend income and otherwise subject to the maximum marginal rate on ordinary income, a REIT would be required to pay dividends providing a 25.0% yield.

11

Efficient Internally Managed Structure

Internally-managed structure provides operating leverage

Alignment of interest between shareholders and management

Eliminates inherent conflicts of interest of externally managed structures

Alignment of management compensation to Company performance

Annual cash incentive compensation and long-term incentive stock compensation earned based on Company and stock performance

2016 GAAP expenses include a total of $4MM in non-recurring proxy contest expenses (1)

$0.4MM incurred in first quarter

$3.6MM incurred in second quarter

Core Expenses as % of Investable Capital (1)(2) – Last 12 Months

Annual GAAP and Core Expenses (1) – Last 12 Months

(1) Core expense is calculated as expenses determined in accordance with GAAP less stock compensation, 2016 proxy contest fees that are in excess of those normally incurred for an annual meeting of shareholders and legacy litigation expenses in 2011 through 2014.

(2) Average investable capital is composed of shareholders’ equity plus long-term debt less deferred tax assets, net.

12

Appendix

13

Balance Sheet

(In thousands, except per share amounts)

June 30, 2016 December 31, 2015

ASSETS

Cash and cash equivalents $ 18,913 $ 36,987

Interest receivable 10,432 11,936

Private-label MBS 89,086 130,435

Agency MBS 3,570,379 3,865,316

Sold securities receivable 48,778 —

Derivative assets, at fair value 9,927 12,991

Deferred tax assets, net 111,824 97,530

Deposits 123,314 29,429

Other assets 2,391 18,315

Total assets $ 3,985,044 $ 4,202,939

LIABILITIES AND STOCKHOLDERS’ EQUITY

Liabilities:

Repurchase agreements $ 3,316,577 $ 2,834,780

Federal Home Loan Bank advances — 786,900

Dividend payable 14,490 14,504

Derivative liabilities, at fair value 75,818 553

Purchased securities payable 63,483 —

Other liabilities 8,648 8,738

Long-term debt 73,545 73,433

Total liabilities 3,552,561 3,718,908

Stockholders’ Equity:

Common stock and paid-in capital 1,899,512 1,898,315

Accumulated other comprehensive income 7,230 12,371

Accumulated deficit(1,474,259)(1,426,655)

Total stockholders’ equity 432,483 484,031

Total liabilities and stockholders’ equity $ 3,985,044 $ 4,202,939

Book value per share $ 18.77 $ 21.05

Tangible book value per share (1) $ 13.92 $ 16.81

Shares outstanding (in thousands) (2) 23,037 22,994

(1) Tangible book value represents total stockholders’ equity less net deferred tax assets.

(2) Represents shares of Class A common stock and Class B common stock outstanding plus vested restricted stock units convertible into Class A common stock less unvested restricted Class A common stock.

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Statement of Comprehensive Income

(In thousands, except per share amounts)

Second Quarter 2016 First Quarter 2016 Second Quarter 2015

Interest income

Agency mortgage-backed securities $ 23,408 $ 25,655 $ 24,126

Private-label mortgage-backed securities 2,805 2,971 4,155

Other 138 128 5

Total interest income 26,351 28,754 28,286

Interest expense

Short-term debt 5,509 5,500 3,395

Long-term debt 1,194 1,193 1,180

Total interest expense 6,703 6,693 4,575

Net interest income 19,648 22,061 23,711

Investment loss, net(8,947)(49,890)(7,518)

Other expenses

Compensation and benefits 2,756 2,564 2,669

Other expenses 4,916 1,771 1,276

Total other expenses 7,672 4,335 3,945

Income (loss) before income taxes 3,029(32,164) 12,248

Income tax (benefit) provision(9,865)(546) 5,647

Net income (loss) $ 12,894 $(31,618) $ 6,601

Other comprehensive income (loss)

Unrealized (losses) gains on available-for-sale securities, net of tax $(1,006) $(4,970) $ 169

Reclassifications related to available-for-sale securities, net of tax 775 60(13,279)

Comprehensive income (loss) $ 12,663 $(36,528) $(6,509)

Basic earnings (loss) per share $ 0.56 $(1.38) $ 0.29

Diluted earnings (loss) per share $ 0.56 $(1.38) $ 0.29

Weighted-average shares outstanding (in thousands)

Basic 23,003 22,994 22,979

Diluted 23,070 22,994 23,098

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Non-GAAP Core Operating Income (1)

(In thousands, except per share amounts)

Second Quarter 2016 First Quarter 2016 Second Quarter 2015

GAAP net interest income $ 19,648 $ 22,061 $ 23,711

TBA dollar roll income 3,719 3,795 2,235

Interest rate swap net interest expense(4,376)(3,997) —

Economic net interest income 18,991 21,859 25,946

Core general and administrative expenses(3,444)(3,420)(3,575)

Non-GAAP core operating income $ 15,547 $ 18,439 $ 22,371

Non-GAAP core operating income per diluted share $ 0.67 $ 0.80 $ 0.97

Weighted average diluted shares outstanding 23,070 23,040 23,098

The reduction in core operating income from the first quarter to the second quarter of 2016 is primarily attributable to:

An approximate $0.08 per share reduction due to lower agency portfolio yields driven primarily by higher prepayments

An increase in CPR from 8.14% to 11.40% resulted in a reduction in agency MBS yields from 2.93% to 2.73%

An approximate $0.03 per share reduction from the replacement of 10-year U.S. Treasury note futures with 10-year interest rate swaps (no impact on the overall hedge position)

The economic costs or benefits of hedging instruments other than interest rate swap agreements do not affect the computation of non-GAAP core operating income.

Core operating income for the second quarter of 2015 did not include interest rate swap net interest expense

The Company solely utilized hedging instruments other than interest rate swap agreements prior to November 2015.

(1) Core operating income is a non-GAAP financial measure. This non-GAAP measure is used by management to evaluate the financial performance of the Company’s long-term investment strategy and core business activities over periods of time as well as assist with the determination of the appropriate level of periodic dividends to stockholders. The Company believes that non-GAAP core operating income assists investors in understanding and evaluating the financial performance of the Company’s long-term investment strategy and core business activities over periods of time as well as its earnings capacity. A limitation of utilizing this non-GAAP financial measure is that the effect of accounting for “non-core” events or transactions in accordance with GAAP does, in fact, reflect the financial results of our business and these effects should not be ignored when evaluating and analyzing our financial results. The Company believes that net income and comprehensive income determined in accordance with GAAP should be considered in conjunction with non-GAAP core operating income.

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Non-GAAP Core Operating Income (1)

Reconciliation of GAAP pre-tax net income to non-GAAP core operating income (dollars in thousands):

Second Quarter 2016 First Quarter 2016 Second Quarter 2015

GAAP income (loss) before income taxes $ 3,029 $(32,164) $ 12,248

Less:

Total investment loss, net 8,947 49,890 7,518

Stock-based compensation expense 647 517 370

Non-recurring proxy contest related expenses 3,581 398 —

Add back:

TBA dollar roll income 3,719 3,795 2,235

Interest rate swap net interest expense(4,376)(3,997) —

Non-GAAP core operating income $ 15,547 $ 18,439 $ 22,371

(1) Core operating income is a non-GAAP financial measure. This non-GAAP measure is used by management to evaluate the financial performance of the Company’s long-term investment strategy and core business activities over periods of time as well as assist with the determination of the appropriate level of periodic dividends to stockholders. The Company believes that non-GAAP core operating income assists investors in understanding and evaluating the financial performance of the Company’s long-term investment strategy and core business activities over periods of time as well as its earnings capacity. A limitation of utilizing this non-GAAP financial measure is that the effect of accounting for “non-core” events or transactions in accordance with GAAP does, in fact, reflect the financial results of our business and these effects should not be ignored when evaluating and analyzing our financial results. The Company believes that net income and comprehensive income determined in accordance with GAAP should be considered in conjunction with non-GAAP core operating income.

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Book Value Per Share Rollforward – Second Quarter 2016

Tangible Book Value (1) GAAP Book Value

Per Share Per Share

At March 31, 2016 $ 14.45 $ 18.86

Non-GAAP core operating income 0.67 0.67

Dividend to common shareholders(0.63)(0.63)

Agency MBS and TBA gain, net (2) 1.59 1.59

Interest rate derivative loss, net (3)(1.84)(1.84)

Private-label MBS loss, net(0.12)(0.12)

Non-recurring proxy contest expenses(0.16)(0.16)

Other, net(0.04)(0.05)

Decrease in gross deferred tax asset -(0.03)

Decrease in deferred tax asset valuation allowance—0.48

At June 30, 2016 $ 13.92 $ 18.77

(1) Tangible book value represents total stockholders’ equity less net deferred tax assets. (2) Excludes TBA dollar roll income, which is included in non-GAAP core operating income.

(3) Excludes net interest expense incurred from interest rate swap agreements, which is included in non-GAAP core operating income.

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Experienced Management Team Through Numerous Cycles

Eric F. Billings

Executive Chairman

J. Rock Tonkel, Jr.

President and Chief Executive Officer

Richard E. Konzmann

EVP and Chief Financial Officer

Brian J. Bowers

Chief Investment Officer and Portfolio Manager

Served as a Director of AI since co-founding the Company in 1989

Served as Vice Chairman and Chief Operating Officer from 1989 to 1999, Vice Chairman and Co-Chief Executive Officer from 1999 to 2003, Co-Chairman and Co-Chief Executive Officer from 2003 to 2005, Chairman and Chief Executive Officer from 2005 to 2014 and as Executive Chairman since 2014 Over 30 years of experience

Served as Chief Executive Officer since 2014, Chief Operating Officer since 2007, and a Director of AI since March 2007 From 2004 to 2007, Mr. Tonkel served as President and Head of Investment Banking at FBR & Co.

Over 30 years of experience

Mr. Konzmann joined the Company in March 2015

Previously, he was with American Capital, Ltd., a publicly traded private equity firm and global asset manager of alternative investment funds including residential mortgage REITs, from 2002 until March 2015, most recently as Senior Vice President, Accounting Over 25 years of experience

Mr. Bowers joined the Company in 2000

Previously, he was the Chief Portfolio Strategist for BB&T Capital Markets and the Portfolio Manager/Plan Sponsor of CareFirst, Inc.

Over 30 years of experience

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