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): February 18, 2020 (February 18, 2020)

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)

6862 Elm Street, Suite 320

McLean, VA 22101

(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))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock	AI	NYSE
7.00% Series B Cumulative Perpetual Redeemable Preferred Stock	AI PrB	NYSE
8.250% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock	AI PrC	NYSE
6.625% Senior Notes due 2023	AIW	NYSE
6.75% Senior Notes due 2025	AIC	NYSE

Item 2.02. Results of Operations and Financial Condition.

Arlington Asset Investment Corp. (the “Company”) issued a press release on February 18, 2020 announcing its financial results for the quarter and year ended December 31, 2019. 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 7.01Regulation FD Disclosure.

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.  The foregoing information is not deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference in filings under the Securities Act of 1933.

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 mortgage-backed security (“MBS”) spreads, prepayments, hedging instruments, duration, 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 securities, 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 our current strategy of focusing on acquiring primarily agency MBS and mortgage credit investments; credit risks underlying the Company’s assets, especially related to the Company’s mortgage credit investments; our ability to forecast our tax attributes, which are based upon various facts and assumptions, our ability to protect and use our net operating losses and net capital losses  to offset future taxable income, including whether our shareholder rights plan will be effective in preventing an ownership change that would significantly limit our ability to utilize such losses; our business, acquisition, leverage, asset allocation, operational, investment, hedging and financing strategies and the success of these strategies; the effect of changes in prepayment rates, interest rates and default rates on our portfolio; the effect of governmental regulation and actions; our ability to roll our repurchase agreements on favorable terms, if at all; our liquidity; our asset valuation policies; our decisions with respect to, and ability to make, future dividends; investing in assets other than MBS or pursuing business activities other than investing in MBS; our ability to maintain our exclusion from the definition of “investment company” under the Investment Company Act of 1940, as amended; our ability to qualify and maintain our qualification as a real estate investment trust under the Internal Revenue Code; competition for investment opportunities, including competition from the U.S. Department of Treasury and the U.S. Federal Reserve, for investments in agency MBS; the federal conservatorship of the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) and related efforts, along with any changes in laws and regulations affecting the relationship between Fannie Mae and Freddie Mac and the federal government; mortgage loan prepayment activity, modification programs and future legislative action; changes in, and success of, our acquisition, hedging and leverage strategies, changes in our asset allocation and changes in our operational policies, all of which may be changed by us without shareholder approval; failure of sovereign or municipal entities to meet their debt obligations or a downgrade in the credit rating of such debt obligations; fluctuations of the value of our hedge instruments; fluctuating quarterly operating results; changes in laws and regulations and industry practices that may adversely affect our business; volatility of the securities markets and activity in the secondary securities markets in the United States and elsewhere; our ability to successfully expand our business into areas other than investing in MBS; 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 most recent Annual Report on Form 10-K, 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 February 18, 2020.
99.2	Fourth Quarter 2019 Investor Presentation.

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:  February 18, 2020
	By:		/s/ Richard E. Konzmann
	Name:		Richard E. Konzmann
	Title:		Executive Vice President, Chief Financial Officer and Treasurer

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 Fourth Quarter and Full Year 2019 Financial Results

McLean, VA, February 18, 2020 – Arlington Asset Investment Corp. (NYSE: AI) (the “Company” or “Arlington”) today reported net income available to common shareholders of $26.6 million, or $0.72 per diluted common share, and non-GAAP core operating income of $6.5 million, or $0.18 per diluted common share, for the quarter ended December 31, 2019.  A reconciliation of non-GAAP core operating income to GAAP net income (loss) appears at the end of this press release.

Fourth Quarter 2019 Financial Highlights

• $0.72 per diluted common share of GAAP net income

• $0.18 per diluted common share of non-GAAP core operating income

• $7.86 per common share of book value

• $0.225 per common share dividend

• 10.0% total economic return

• Measured as the change in book value per common share plus declared dividends per common share

Full Year 2019 Financial Highlights

• $0.31 per diluted common share of GAAP net income

• $0.89 per diluted common share of non-GAAP core operating income

• $1.05 per common share dividend

• 2.3% total economic return

“During the fourth quarter, a strong outperformance of agency mortgage-backed securities (“MBS”) relative to interest rate hedges helped the Company deliver a 10% total economic return for the quarter and a positive return for the year.  The Company’s net spread earnings during the fourth quarter were relatively unchanged from the prior quarter as the improved funding backdrop from Federal Reserve rate cuts were generally offset by lower asset yields,” said J. Rock Tonkel, Jr., the Company's President and Chief Executive Officer.  “Although the Company believes that current investment opportunities in agency MBS are attractive, the Company actively began to expand its investment strategy during the fourth quarter to incorporate tailored mortgage credit investments, including through co-investing with select sourcing partners, with the objective of enhancing investment returns, diversifying risks, reducing overall leverage and, over time, improving the Company’s cost of capital.  As of year-end, the Company’s capital allocation to specialty mortgage credit investments totaled 14% of investable capital, and the Company will continue to evaluate new mortgage credit investment opportunities that it believes will deliver higher risk-adjusted returns to its shareholders over time.”

Other Fourth Quarter Highlights

As of December 31, 2019, the Company’s mortgage investment portfolio totaled $3,847 million in fair value, consisting of $3,768 million of agency MBS and $79 million of mortgage credit investments.  Based on investable capital, the Company has allocated 86% and 14% of its capital to its agency MBS and mortgage credit investment strategies, respectively, as of December 31, 2019.  

The Company’s agency MBS consist of residential mortgage pass-through certificates for which the principal and interest payments are guaranteed by either a U.S. government sponsored enterprise (“GSE”), such as the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”), or by a U.S. government agency, such as the Government

National Mortgage Association (“Ginnie Mae”).  The Company’s mortgage credit investments generally include mortgage loans secured by residential or commercial real property or MBS collateralized by such mortgage loans, which are referred to as non-agency MBS.

As of December 31, 2019, the Company’s $3,768 million agency MBS investment portfolio was comprised entirely of specified agency MBS as follows:

• $118 million of 2.5% coupon 30-year agency MBS

• $1,408 million of 3.0% coupon 30-year agency MBS

• $1,201 million of 3.5% coupon 30-year agency MBS

• $783 million of 4.0% coupon 30-year agency MBS

• $258 million of 4.5% coupon 30-year agency MBS

As of December 31, 2019, the Company’s $3,768 million specified agency MBS portfolio had a weighted average amortized cost basis of $102.97 and a weighted average market price of $103.80.  The Company’s fixed-rate agency MBS are comprised of securities backed by specified pools of mortgage loans selected for their lower propensity for prepayment.  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 to-be-announced (“TBA”) agency MBS, was approximately 1.07 percentage point as of December 31, 2019, compared to 1.25 percentage point as of September 30, 2019.  Overall, pay-up premiums on fixed-rate agency MBS decreased during the fourth quarter of 2019 due to lower prepayment expectations as a result of the increase in mortgage rates as well as the Company’s further reallocation of its concentration of fixed-rate agency MBS toward lower coupon securities which generally carry lower pay-up premiums compared to higher coupon securities.  

As of December 31, 2019, the Company’s $79 million mortgage credit investment portfolio was comprised of a $45 million commercial mortgage loan and $34 million of non-agency MBS collateralized by commercial mortgage loans, all of which were acquired during the fourth quarter of 2019.  

As of December 31, 2019, the Company had a total of $3,581 million of repurchase agreements outstanding.  As of December 31, 2019, the Company had $3,560 million of repurchase agreements outstanding with a weighted average rate of 2.10% and remaining weighted average maturity of 24 days secured by an aggregate of $3,741 million of agency MBS at fair value, which includes $71 million at sale price of unsettled agency MBS sale commitments which is included in the line item “sold securities receivable” in the Company’s financial statements.  As of December 31, 2019, the Company had $21 million of repurchase agreements outstanding with a weighted average rate of 3.11% and remaining weighted average maturity of 8 days secured by an aggregate of $31 million of non-agency MBS at fair value.  The Company’s “at risk” short-term secured financing to investable capital ratio was 8.7 to 1 as of December 31, 2019 compared to 9.9 to 1 as of September 30, 2019.  The Company’s “at risk” short-term secured financing to investable capital is measured as the ratio of the sum of the Company’s repurchase agreement financing, net payable or receivable for unsettled securities and net contractual price of TBA commitments less cash and cash equivalents compared to the Company’s investable capital measured as the sum of the Company’s shareholders’ equity and long-term unsecured debt.

GAAP net interest income was $7.0 million for the fourth quarter of 2019 compared to $4.7 million for the third quarter of 2019, including the amortization of the Company’s net premium on its agency MBS of $6.1 million for the fourth quarter of 2019 compared to $7.4 million for the third quarter of 2019.  The Company’s weighted average yield on its agency MBS was 2.81% for the fourth quarter of 2019 compared to 2.96% for the third quarter of 2019, and the actual weighted-average constant prepayment rate (“CPR”) for the Company’s agency MBS was 12.11% for the fourth quarter of 2019 compared to 12.85% for the third quarter of 2019.  The Company’s weighted average cost of repurchase agreement funding was 2.09% during the fourth quarter of 2019 compared to 2.46% during the third quarter of 2019.

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 including interest rate swap agreements, U.S. Treasury note futures, put and call options on U.S. Treasury note futures, and options on agency MBS.  Under GAAP, the Company has not designated these transactions as hedging instruments for financial reporting purposes and therefore all gains and losses on its hedging instruments are recorded as net investment gains and losses in the Company’s financial statements.  

Under the terms of the Company’s interest rate swap agreements, the Company pays semiannual interest payments based on a fixed rate and receives quarterly variable interest payments based upon the prevailing three-month London Interbank Offered Rate (“LIBOR”) on the date of reset. As of December 31, 2019, the Company had $2,985 million in notional amount of interest rate swap agreements with a weighted average pay fixed rate of 1.81% and a remaining weighted average maturity of 3.6 years.  The Company’s weighted average

net receive rate of its interest rate swap agreements was 0.24% during the fourth quarter of 2019 compared to 0.52% during the thirdquarter of 2019.

As of December 31, 2019, the total notional amount of the Company’s interest rate swaps was 83% of the Company’s outstanding repurchase agreement funding and net TBA purchase commitments with a net duration gap of 0.7 years.  

The Company reported TBA dollar roll income of $0.1 million for the fourth quarter of 2019 compared to $0.9 million for the third quarter of 2019.  The implied weighted-average net interest spread of the Company’s TBA dollar rolls was 0.58% for the fourth quarter of 2019 compared to 0.93% for the third quarter of 2019.  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 commitments 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.  

Economic net interest income was $9.3 million for the fourth quarter of 2019 compared to $10.1 million for the third quarter of 2019.  Economic net interest income is comprised of net interest income determined in accordance with GAAP, TBA dollar roll income and net interest income or expense from interest rate swaps.  Economic net interest income is a non-GAAP financial measure that is described later in this press release.  

Total general and administrative expenses were $3.0 million for the fourth quarter of 2019 compared to $4.2 million for the third quarter of 2019, a decline of 28%.  The decline in total general and administrative expenses was driven primarily by lower compensation and benefits expenses due to lower annual short-term cash incentive compensation.  Compensation and benefits expenses were $2.0 million for the fourth quarter of 2019 compared to $2.8 million for the third quarter of 2019, a decline of 29%. 

Excluding TBA dollar roll income, the Company had net investment losses on its investment portfolio of $1.2 million for the fourth quarter of 2019. On its related interest rate hedging instruments, the Company had net investment gains of $22.2 million, excluding interest rate swap net interest income. This results in a net investment gain on the Company’s hedged investment portfolio of $21.0 million, or $0.57 per diluted common share, for the fourth quarter of 2019.  

Distributions to Shareholders

The Company’s Board of Directors approved a distribution to common shareholders of $0.225 per share for the fourth quarter of 2019.  The distribution was paid on February 3, 2020 to shareholders of record as of December 31, 2019.  The Company’s Board of Directors also approved distributions to its Series B and Series C preferred shareholders of $0.4375 per share and $0.515625 per share, respectively, for the fourth quarter of 2019.  The distributions were paid on December 30, 2019 to shareholders of record as of December 16, 2019.

The Company intends to elect to be taxed as a real estate investment trust (“REIT”) for its taxable year ended December 31, 2019 upon the filing of its tax return for such taxable year. The Company is organized and operated in a manner that will allow it to qualify as a REIT for U.S. federal income tax purposes and intends to continue to be organized and operated in such a manner.  As a REIT, distributions to shareholders will generally be taxable as ordinary income that are not eligible to be taxed as qualified dividends.  However, a portion of such distributions may be designated as long-term capital gain dividends to the extent that such portion is attributable to the Company’s sale of capital assets held for more than one year.  Non-corporate taxpayers may deduct up to 20% of dividends received from a REIT that are not designated as capital gain dividends or qualified dividend income, subject to certain limitations.  Distributions in excess of the Company’s current and accumulated earnings and profits will be treated as a tax-free return of capital to the extent of each shareholder’s tax basis in the Company’s stock and as capital gain thereafter.

The Company has also announced the tax characteristics of the distributions paid to its common and preferred shareholders in calendar year 2019.  The Company's distributions paid to common shareholders in 2019 of $1.20 per share were all a distribution of ordinary income that are considered Section 199A dividends for which non-corporate taxpayers may be eligible to deduct 20% of the dividends received.  The Company's distributions paid to its Series B and Series C preferred shareholders in 2019 of $1.75 per share and $1.65 per share, respectively, were also all a distribution of ordinary income that are considered Section 199A dividends.  Shareholders should receive a Form 1099-DIV containing this information from their brokers, transfer agents or other institutions.  The fourth quarter 2019 distribution to the Company's common shareholders paid on February 3, 2020 will be reported as a 2020 distribution for federal income tax purposes.

Conference Call

The Company will hold a conference call for investors at 10:00 A.M. Eastern Time on Tuesday, February 18, 2020 to discuss the Company’s fourth quarter 2019 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) currently invests primarily in mortgage-related and other assets and intends to qualify to be taxed as a REIT for its taxable year ending December 31, 2019.  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, utilization of loss carryforwards, any change in long-term tax structures (including any REIT election), use of equity raise proceeds 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, credit risks underlying the Company’s assets, especially related to the Company’s mortgage credit investments, changes in political and monetary policies, changes in default rates, changes in prepayment rates and other assumptions underlying our estimates related to our projections of future core earnings, changes in the Company’s returns, changes in the use of the Company’s tax benefits, the Company’s ability to qualify and maintain qualification as a REIT, changes in the agency MBS asset yield, changes in the Company’s monetization of net operating loss carryforwards, changes in the Company’s investment strategy, 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 carryforwards, 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, and general economic, political, regulatory and market conditions.  These and other material risks are described in the Company's most recent Annual Report on Form 10-K 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. 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 the Company.  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.

Financial data to follow

ARLINGTON ASSET INVESTMENT CORP.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share amounts)

(Unaudited)

	December 31, 2019			September 30, 2019
ASSETS
Cash and cash equivalents	$	19,636		$	12,129
Interest receivable		10,663			11,684
Sold securities receivable		71,199			—
Agency mortgage-backed securities, at fair value		3,768,496			4,013,161
Non-agency mortgage-backed securities, at fair value		33,501			25
Mortgage loans, at fair value		45,000			—
Derivative assets, at fair value		1,417			675
Deposits		37,123			43,298
Other assets		13,079			18,566
Total assets	$	4,000,114		$	4,099,538
LIABILITIES AND EQUITY
Liabilities:
Repurchase agreements	$	3,581,237		$	3,697,906
Interest payable		4,666			3,356
Accrued compensation and benefits		3,626			3,502
Dividend payable		8,494			8,397
Derivative liabilities, at fair value		8			724
Other liabilities		507			3,204
Long-term unsecured debt		74,328			74,272
Total liabilities		3,672,866			3,791,361
Equity:
Preferred stock (liquidation preference of $38,851)		37,214			37,227
Common stock		368			368
Additional paid-in capital		2,049,292			2,048,423
Accumulated deficit		(1,759,626	)		(1,777,841	)
Total equity		327,248			308,177
Total liabilities and equity	$	4,000,114		$	4,099,538
Book value per common share (1)	$	7.86		$	7.35
Common shares outstanding (in thousands) (2)		36,692			36,627
(1) Book value per common share is calculated as total equity less the preferred stock liquidation preference divided by common shares       outstanding.
(2) Represents common shares outstanding plus vested restricted stock units convertible into common stock less unvested restricted common stock.

ARLINGTON ASSET INVESTMENT CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share data)

(Unaudited)

	Year Ended			Three Months Ended
	December 31, 2019			December 31, 2019			September 30, 2019			June 30, 2019			March 31, 2019
Interest income
Agency mortgage-backed securities	$	122,227		$	27,927		$	28,455		$	32,275		$	33,570
Non-agency mortgage-backed securities		184			165			4			14			1
Mortgage loans		8			8			—			—			—
Other		1,059			155			215			428			261
Total interest income		123,478			28,255			28,674			32,717			33,832
Interest expense
Short-term secured debt		92,200			19,970			22,721			24,866			24,643
Long-term unsecured debt		5,050			1,248			1,261			1,269			1,272
Total interest expense		97,250			21,218			23,982			26,135			25,915
Net interest income		26,228			7,037			4,692			6,582			7,917
Investment advisory fee income		332			82			—			—			250
Investment gains (loss), net
Gain (loss) on trading investments, net		128,029			(268	)		16,890			42,239			69,168
(Loss) gain from derivative instruments, net		(126,190	)		23,440			(25,353	)		(69,072	)		(55,205	)
Other, net		358			136			232			150			(160	)
Total investment gain (loss), net		2,197			23,308			(8,231	)		(26,683	)		13,803
General and administrative expenses
Compensation and benefits		10,194			2,012			2,833			2,233			3,116
Other general and administrative expenses		4,821			1,005			1,365			1,191			1,260
Total general and administrative expenses		15,015			3,017			4,198			3,424			4,376
Net income (loss)		13,742			27,410			(7,737	)		(23,525	)		17,594
Dividend on preferred stock		(2,600	)		(774	)		(774	)		(774	)		(278	)
Net income (loss) available (attributable) to    common stock	$	11,142		$	26,636		$	(8,511	)	$	(24,299	)	$	17,316
Basic earnings (loss) per common share	$	0.31		$	0.73		$	(0.23	)	$	(0.67	)	$	0.52
Diluted earnings (loss) per common share	$	0.31		$	0.72		$	(0.23	)	$	(0.67	)	$	0.52
Weighted average common shares outstanding (in    thousands)
Basic		35,709			36,628			36,572			36,533			33,053
Diluted		35,833			36,750			36,572			36,533			33,139

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 also reports “non-GAAP core operating income.”  The Company defines core operating income as “economic net interest income” and investment advisory fee income less “core general and administrative expenses” and preferred stock dividends.

Economic Net Interest Income

Economic net interest income, a non-GAAP financial measure, represents the interest income earned net of interest expense incurred from all of our interest bearing financial instruments as well as the agency MBS which underlie, and are implicitly financed through, our TBA dollar roll transactions.  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 earned 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 earned 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. We believe that economic net interest income assists investors in understanding and evaluating the financial performance of the Company’s long-term-focused, net interest spread-based investment strategy, prior to the deduction of core general and administrative expenses.  

Core General and Administrative Expenses

Core general and administrative expenses are non-interest expenses reported within the line item “total general and administrative expenses” of the consolidated statements of comprehensive income less stock-based compensation expense and non-recurring expense. For the three months ended September 30, 2019 and the twelve months ended December 31, 2019, core general and administrative expense excludes a non-recurring expense related to a one-time out-of-period payment made in the third quarter of 2019 for a business, professional and occupation license tax from Arlington County, Virginia for the 2018 tax year.

Non-GAAP Core Operating Income Results

The following table presents the Company’s computation of economic net interest income and core operating income for the last four fiscal quarters and for the year ended December 31, 2019 (unaudited, amounts in thousands, except per share amounts):

	Year Ended			Three Months Ended
	December 31, 2019			December 31, 2019			September 30, 2019			June 30, 2019			March 31, 2019
GAAP net interest income	$	26,228		$	7,037		$	4,692		$	6,582		$	7,917
TBA dollar roll income		4,470			132			923			1,995			1,420
Interest rate swap net interest income		15,087			2,126			4,445			3,769			4,747
Economic net interest income		45,785			9,295			10,060			12,346			14,084
Investment advisory fee income		332			82			—			—			250
Core general and administrative expenses		(11,747	)		(2,140	)		(2,797	)		(3,207	)		(3,603	)
Preferred stock dividend		(2,600	)		(774	)		(774	)		(774	)		(278	)
Non-GAAP core operating income	$	31,770		$	6,463		$	6,489		$	8,365		$	10,453
Non-GAAP core operating income per    diluted common share	$	0.89		$	0.18		$	0.18		$	0.23		$	0.32
Weighted average diluted common    shares outstanding		35,833			36,750			36,751			36,644			33,139

The following table provides a reconciliation of GAAP net income (loss) to non-GAAP core operating income for the last four fiscal quarters and for the year ended December 31, 2019 (unaudited, amounts in thousands):

	Year Ended			Three Months Ended
	December 31, 2019			December 31, 2019			September 30, 2019			June 30, 2019			March 31, 2019
GAAP net income (loss)	$	13,742		$	27,410		$	(7,737	)	$	(23,525	)	$	17,594
Add (less):
Total investment (gain) loss, net		(2,197	)		(23,308	)		8,231			26,683			(13,803	)
Stock-based compensation expense		2,780			877			913			217			773
Preferred stock dividend		(2,600	)		(774	)		(774	)		(774	)		(278	)
Non-recurring expense		488			—			488			—			—
Add back:
TBA dollar roll income		4,470			132			923			1,995			1,420
Interest rate swap net interest income		15,087			2,126			4,445			3,769			4,747
Non-GAAP core operating income	$	31,770		$	6,463		$	6,489		$	8,365		$	10,453

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 common 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 determined in accordance with GAAP should be considered in conjunction with non-GAAP core operating income.  Furthermore, there may be differences between non-GAAP core operating income and taxable income determined in accordance with the Internal Revenue Code.  As a REIT, the Company will be required to distribute at least 90% of its REIT taxable income (subject to certain adjustments) to qualify as a REIT and all of its taxable income in order to not be subject to any U.S. Federal or state corporate income taxes.  Accordingly, non-GAAP core operating income may not equal the Company’s distribution requirements as a REIT.

The following tables present information on the Company’s investment and hedge portfolio as of December 31, 2019 (unaudited, dollars in thousands):

Mortgage Investments:

	Fair Value
Agency MBS:
Specified agency MBS	$	3,768,496
Net long agency TBA position		—
Total agency MBS		3,768,496
Mortgage credit investments:
Non-agency MBS		33,501
Mortgage loans		45,000
Total mortgage credit investments		78,501
Total mortgage investments	$	3,846,997

Specified Agency MBS:

	Unpaid Principal Balance		Net Unamortized Purchase Premiums		Amortized Cost Basis		Net Unrealized Gain (Loss)			Fair Value		Market Price		Coupon			Weighted Average Expected Remaining Life
30-year fixed rate:
2.5%	$	118,954	$	675	$	119,629	$	(1,458	)	$	118,171	$	99.34		2.50	%		8.4
3.0%		1,377,252		35,860		1,413,112		(5,182	)		1,407,930		102.23		3.00	%		7.2
3.5%		1,154,885		35,422		1,190,307		10,791			1,201,098		104.00		3.50	%		5.2
4.0%		738,732		24,440		763,172		19,969			783,141		106.01		4.00	%		5.0
4.5%		240,634		11,451		252,085		6,057			258,142		107.28		4.50	%		4.8
5.5%		12		—		12		2			14		112.61		5.50	%		5.9
Total/weighted-average	$	3,630,469	$	107,848	$	3,738,317	$	30,179		$	3,768,496	$	103.80		3.45	%		6.0

Interest Rate Swap Agreements:

			Weighted-average:
	Notional Amount		Fixed Pay Rate			Variable Receive Rate			Net Receive (Pay) Rate			Remaining Life (Years)
Years to maturity:
Less than 3 years	$	2,050,000		1.77	%		1.92	%		0.15	%		1.6
3 to less than 7 years		510,000		1.61	%		1.92	%		0.31	%		6.0
7 to less than 10 years		400,000		2.24	%		1.91	%		(0.33	)%		9.5
10 or more years		25,000		2.96	%		1.90	%		(1.06	)%		28.2
Total / weighted-average	$	2,985,000		1.81	%		1.92	%		0.11	%		3.6

EX-99.2

Investor Presentation Fourth Quarter 2019 Exhibit 99.2

Information Related to Forward-Looking Statements Statements concerning interest rates, portfolio allocation, financing costs, portfolio hedging, prepayments, dividends, book value, utilization of loss carryforwards, any change in long-term tax structures (including any REIT election) 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 and other assumptions underlying our estimates related to our projections of future core earnings, changes in the Company’s returns, changes in the use of the Company’s tax benefits, changes in mortgage investment asset yields, changes in the Company’s monetization of net operating loss carryforwards, 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 carryforwards, 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, and general economic, political, regulatory and market conditions. These and other material risks are described in the Company's most recent Annual Report on Form 10-K 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. 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 the Company. 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.

Contents SECTION SLIDE NUMBER Company Snapshot Slide 3 Q4 2019 Financial Results and Portfolio Update Slide 7 Additional Market Data and Financial Information Slide 19

COMPANY SNAPSHOT

Publicly Traded Capital Class A Common Stock Ticker: AI Exchange: NYSE Market Capitalization: $217 million (1) Annual Dividend Yield: 15.3% (1)(2) Senior Notes Due 2023 Ticker: AIW Exchange: NYSE Per Annum Interest Rate: 6.625% Current Strip Yield per Annum: 7.14%(1)(3) Maturity Date: May 1, 2023 Senior Notes Due 2025 Ticker: AIC Exchange: NYSE Per Annum Interest Rate: 6.75% Current Strip Yield per Annum: 7.47%(1)(3) Maturity Date: March 15, 2025 Series B Cumulative Perpetual Redeemable Preferred Stock Ticker: AI PrB Exchange: NYSE Per Annum Dividend Rate: 7.00% Payable Quarterly Current Strip Yield per Annum: 8.25%(1)(3) As of February 13, 2020. Based on most recent quarterly dividend. Source: Bloomberg Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock Ticker: AI PrC Exchange: NYSE Per Annum Dividend Rate: 8.25% Payable Quarterly Current Strip Yield per Annum: 9.29%(1)(3)

Company Snapshot Real estate investment trust (“REIT”) focused on mortgage assets Selectively and opportunistically allocate investable capital among the following current investment strategies: Agency MBS Highly liquid residential MBS that carry a credit guarantee from Fannie Mae, Freddie Mac or Ginnie Mae Mortgage Credit Investments Includes MBS or mortgage loans secured by residential or commercial real property Internally-managed NYSE Ticker AI Share Price (2/13/20) $5.90 Book Value Per Common Share (12/31/19) $7.86 GAAP Net Income per Diluted Share (Q4 ‘19) $0.72 Non-GAAP Core Operating Income per Diluted Share (Q4 ‘19) (1) $0.18 Dividend per Common Share (Q4 ‘19) $0.225 Dividend Yield (2/13/20) 15.3% Common Equity Market Cap (2/13/20) $217 million Mortgage Investment Portfolio (12/31/19) $3.9 billion Investable Capital (12/31/19) (2) $402 million A reconciliation of non-GAAP core operating income to GAAP net income (loss) available (attributable) to common stock is provided on slide 24. Investable capital represents shareholders’ equity plus long-term unsecured debt. Arlington Asset Investment Corp. Summary

Mortgage loans secured by, or MBS ultimately secured by, residential or commercial real property Includes the following primary asset classes: Single borrower, single property commercial mortgage loans Pools of small balance commercial mortgage loans Business purpose loans consisting of mortgages on residential investment properties Non-qualified residential mortgage (“Non-QM”) loans Prudently utilize leverage to increase potential returns Level of leverage is based upon asset class and risk profile Highly liquid residential MBS that carry a credit guarantee from Fannie Mae, Freddie Mac or Ginnie Mae Allocate between high quality specified pools selected for favorable prepayment characteristics or generic “TBA” pools Prudently utilize leverage to increase potential returns Utilize hedging transactions to mitigate interest rate sensitivity Current Investment Strategy Alternatives . Agency MBS Mortgage Credit Investments Illustrative levered returns – approximately 9% to 11% Illustrative levered returns – approximately 11% to 16%

Q4 2019 FINANCIAL RESULTS AND PORTFOLIO UPDATE

Q4 2019 Financial Highlights $0.72 GAAP net income per diluted common share $0.18 non-GAAP core operating income (1) per diluted common share 9.5% annualized core operating income return on average common equity (2) Unchanged from the prior quarter as a result of: a decrease in weighted average secured financing costs driven by Federal Reserve interest rate cuts lower general and administrative expenses a reduction in agency MBS asset yields due primarily to continued reallocation from higher to lower coupon securities a reduction in average leverage and investment portfolio volumes $0.225 per common share dividend $7.86 book value per common share as of December 31, 2019 Increase of 6.9% from $7.35 as of September 30, 2019 Economic return of 10% measured as the change in book value per common share plus dividends declared during the quarter A reconciliation of non-GAAP core operating income to GAAP net income (loss) available (attributable) to common stock is provided on slide 24. See slide 16 for further information. Economic net interest income is a non-GAAP financial measure. See slide 15 for further information.

Investment Portfolio Allocation as of 12/31/2019 Investable capital is calculated as the Company’s GAAP shareholders’ equity plus long-term unsecured debt. Investable capital allocated to mortgage credit assets is calculated as Non-Agency MBS plus Mortgage Loans less the short-term secured debt collateralized by such assets. Remaining investable capital is allocated to Agency MBS. For Agency MBS, calculated as [short-term secured financing collateralized by agency MBS +(-) net payable (receivable) for unsettled securities – cash] divided by the investable capital allocated to agency MBS. For Mortgage Credit, calculated as short-term secured financing collateralized by Non-Agency MBS and Mortgage Loans divided by the investable capital allocated to Mortgage Credit assets. Asset Allocation Investable Capital Allocation

As of December 31, 2019 $3.77 Billion Fair Value As of September 30, 2019 $4.11 Billion Fair Value Agency MBS Investment Portfolio Allocation Specified Pool vs. TBA Allocation (1) Includes the fair value of the agency MBS underlying forward-settling “to-be-announced (“TBA”) purchase or sale commitments that are accounted for as derivative instruments in accordance with GAAP. The difference between the contractual forward price of the Company’s TBA commitments and the fair value of the underlying MBS is reflected on the Company’s consolidated balance sheets as a component of “derivative assets, at fair value” or “derivative liabilities, at fair value.” By Fixed Coupon Rate (1) As of September 30, 2019 As of December 31, 2019

Specified Agency MBS Yield Performance Historical Quarterly Prepayments (2) and GAAP Asset Yield Performance: Q4 2019 GAAP Prepayments and Asset Yield Performance (dollars in thousands): Unpaid principal balance. CPR of equivalent TBA eligible calculated as the average of the outstanding population of all Fannie Mae TBA eligible MBS weighted based on the contractual maturity and coupon composition of AI’s monthly investment portfolio.

To-be-Announced (“TBA”) Dollar Roll Performance TBA dollar roll transactions involve delaying, or “rolling,” the settlement of a forward-settling purchase of a TBA agency MBS by entering into an offsetting “spot” sale prior to the settlement date, net settling the “paired-off” positions in cash, and contemporaneously entering another forward-settling purchase of a TBA agency MBS of the same essential characteristics for a later settlement date at a price discount relative to the “spot” sale. Cost basis is based upon the contractual price of the initial TBA purchase trade of each individual series of dollar roll transactions. Asset yield calculated based upon future cash flow estimates obtain from Citi’s the Yield Book, a third-party model, for an illustrative 3.0% coupon specified pool purchased on January 15, 2020. For comparative purposes, assumes agency MBS is 100% financed with a one-month repurchase agreement. TBA dollar roll net interest spread based upon the “price drop” between the February and March settlement of a 3.0% coupon TBA as of January 15, 2020. Source: Bloomberg Q4 2019 Dollar Roll (1) Income (dollars in thousands): Recent Relative TBA Dollar Roll Performance and Historical Monthly Price Drop:

Financing Update 16 counterparties with access to 19 total counterparties Less than 10% of equity-at-risk with any one counterparty 6.0% of equity-at-risk with largest counterparty 25.9% of equity-at-risk with five largest counterparties Diversified Funding Sources As of December 31, 2019 (dollars in thousands): The Company’s repo agreements generally have one-month terms while the Company receives three-month LIBOR on its interest rate swaps Increases in the spread between three- and one-month LIBOR generally positively impact the Company’s economic funding costs (and vice versa) Repo Rate vs. One-Month LIBOR One-Month vs. Three-Month LIBOR The spread of repo financing rates over one-month LIBOR has increased in recent quarters

Hedging Update Interest Rate Swaps as of December 31, 2019 (dollars in thousands): Duration is calculated based upon each interest rate swap’s “DV01” (a valuation metric illustrating the dollar value of a one basis point increase in interest rates) as reported by the Chicago Mercantile Exchange, the clearinghouse through which those instruments were centrally cleared. 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. Q4 2019 Interest Rate Swap Activity

Non-GAAP Core Operating Income (1) Core operating income and economic net interest income are non-GAAP financial measures. These non-GAAP measures are 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 and economic net interest income assist 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 these non-GAAP financial measures 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 and economic net interest income. A reconciliation of non-GAAP core operating income to GAAP net income (loss) available (attributable) to common stock is provided on slide 24. Non-GAAP Core Operating Income Per Diluted Share Rollforward – Q4 2019 vs. Q3 2019

Core Operating Income Return on Equity Includes interest expense incurred from repurchase agreement financing and net interest income earned or expense incurred from interest rate swaps. Excludes the economic cost or benefit of hedging instruments other than interest rate swaps. Calculated based upon the weighted average balance of repurchase agreement financing for the period multiplied by the ratio of average common equity to average total investable capital (common equity plus preferred equity plus unsecured debt). Expressed as an annualized percentage of average common equity for the period. Expressed as an annualized percentage of average common equity for the period. For example, for the fourth quarter of 2019, calculated as $0.1 million in dollar roll income (representing an implied net interest spread of 0.58% on a weighted average cost basis of $90 million). All else being equal, as the average balance of the Company’s TBA dollar roll portfolio increases, the calculated annualized return on average common equity will increase (and vice versa). Calculated as [GAAP interest income less repurchase agreement interest expense plus (less) interest rate swap net interest income (expense) plus TBA dollar roll income] multiplied by the ratio of average preferred equity and unsecured debt to average total investable capital. Expressed as an annualized percentage of average common equity for the period. Core general and administrative expenses represent non-interest expenses reported within the line item “total general and administrative expenses” of the consolidated statements of comprehensive income less stock-based compensation expense. Presented net of investment advisory fee income. For the third quarter of 2019, excludes a non-recurring expense related to a one-time out-of-period payment made in that period for a business, professional and occupation license tax from Arlington County, Virginia for the 2018 tax year. Core general and administrative expenses and investment advisory fee income have been allocated to common equity and preferred equity and unsecured debt on a pro rata basis based upon average capital balances for the period.

Agency MBS Portfolio Weighted Average Statistics Includes interest expense incurred from repurchase agreement financing and net interest income earned or expense incurred from interest rate swaps. Excludes the economic cost or benefit of hedging instruments other than interest rate swaps. Calculated as the total of the following, expressed as an annualized percentage of the total agency MBS weighted average cost basis for the period: GAAP interest income from agency MBS, plus TBA dollar roll income, less agency MBS repurchase agreement interest expense, less interest rate swap net interest expense.

Book Value Per Share Rollforward Calculated based upon weighted average diluted shares outstanding during the quarter. Excludes TBA dollar roll income, which is included in non-GAAP core operating income. Excludes net interest income or expense incurred from interest rate swap agreements, which is included in non-GAAP core operating income.

ADDITIONAL MARKET DATA AND FINANCIAL INFORMATION

Market Data (1)(2) 30-Year FNMA fixed rate price information is provided for illustrative purposes only and represents generic FNMA TBA prices and is not meant to be reflective of securities held by the Company. Source: Bloomberg

Well Matched Hedging Can Protect Profitability Though Various Rate Environments Net interest margin fluctuates based on economic and U.S. Federal Reserve cycles The Company utilizes interest rate swaps to attempt to lock into cost of funds for a defined period Mortgage principal repayments are reinvested at then-current investment spreads Mortgage investment spreads have historically never been negative even in periods of inverted U.S. Treasury yield curves Historical Agency MBS Investment Spread and Related Data 150 bps 76 bps on 1/24/2019

Balance Sheet Represents shares of common stock outstanding plus vested restricted stock units convertible into common stock less unvested restricted common stock. Book value per common share is calculated as total equity less the preferred stock liquidation preference divided by common shares outstanding. Calculated as the sum of repurchase agreement financing, plus (less) any net payable (receivable) for unsettled securities, plus the net contractual forward price of TBA commitments, less cash compared to shareholders’ equity plus long-term unsecured debt.

Statement of Comprehensive Income

Non-GAAP Core Operating Income Reconciliation (1) Core operating income and economic net interest income are non-GAAP financial measures. These non-GAAP measures are 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 and economic net interest income assist 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 these non-GAAP financial measures 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 and economic net interest income. Core operating income for the third quarter of 2019 excludes a non-recurring expense related to a one-time out-of-period payment made in that period for a business, professional and occupation license tax from Arlington County, Virginia for the 2018 tax year. Reconciliation of GAAP net income to non-GAAP core operating income:

Specified Agency MBS Investment Portfolio Specified pools of loans with original balances of up to $150K. Specified pools of loans with original balances between $150K and $175K. Specified pools of loans with original balances between $175K and $200K. Specified pools of loans with original balances between $200K and $225K. Other specified pools primarily include pools of loans with higher loan-to-value ratios, loans for properties in certain geographical areas, and low FICO loans. Unpaid principal balance. WAC represents the weighted average coupon of the underlying collateral. Loan age represents the weighted average age of the underlying collateral. Actual 3-month constant prepayment rate (“CPR”) represents annualized 3-month CPR published in January 2020 for securities held as of December 31, 2019. Remaining life represents the weighted average expected remaining life of the security based on expected future CPR as estimated by Citi’s “The Yield Book,” a third-party model. Duration is derived from the Citi’s “The Yield Book,” a third-party 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. Fixed-Rate Agency MBS Selected for Favorable Prepayment Characteristics as of December 31, 2019

Duration is derived from the Citi’s “The Yield Book,” a third-party 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. Total liability and hedge duration is expressed in asset units. Excludes unsecured debt. Interest rate sensitivity of MBS and TBA commitments is derived from The Yield Book, a third-party model. Actual results could differ significantly from these estimates. Interest rate sensitivity is based on assumptions resulting in certain limitations, including (i) an instantaneous shift in rates with no changes to the slope of the yield curve, (ii) no changes in MBS spreads, and (iii) no changes to the investment or hedge portfolio. Agency MBS Portfolio Net Duration Gap as of December 31, 2019 Interest Rate Sensitivity as of December 31, 2019 (3) Book Value Sensitivity to Interest Rates

Agency MBS spread sensitivity is derived from The Yield Book, a third-party model. Actual results could differ significantly from these estimates. The estimated change in book value reflects an assumed spread weighted average duration of 5.2 years, which is a model-based assumption that is dependent upon the size and composition of our portfolio as well as economic conditions present as of December 31, 2019. The agency MBS spread sensitivity is based on assumptions resulting in certain limitations, including (i) no changes in interest rates, and (ii) no changes to the investment or hedge portfolio. Agency MBS Spread Sensitivity as of December 31, 2019 (1) Historical Agency MBS to U.S. Treasury Yield Spread 107 bps 134 bps 80 bps on 1/24/2020 89 bps on 1/24/2020 Book Value Sensitivity to Agency MBS Spreads