Arlington Asset Investment Corp. (NYSE: AAIC) today reported net income available to common shareholders of $4.0 million, or $0.12 per diluted common share, and non-GAAP core operating income of $1.0 million, or $0.03 per diluted common share, for the quarter ended September 30, 2020. A reconciliation of non-GAAP core operating income to GAAP net income appears at the end of this press release.

Third Quarter 2020 Financial Highlights

• $0.12 per diluted common share of GAAP net income
• $0.03 per diluted common share of non-GAAP core operating income
• $5.92 per common share of book value
• 1.5 to 1 "at risk" short term recourse secured financing to investable capital ratio
• 2.1 million shares of common stock repurchased at an average price of $2.80 per share

"The Company is pleased with the performance of its investment portfolio and resulting 5% economic return during the third quarter against the backdrop of steady market conditions and lower volatility amid ongoing Federal Reserve support," said J. Rock Tonkel, Jr., the Company's President and Chief Executive Officer. "The Company repurchased stock accretively during the quarter while also making positive progress toward key objectives for growing its investment portfolio and future earnings, diversifying risk and establishing multiple sources of income. Overall, the Company continues to operate with low leverage and financial flexibility, which permits it to take ongoing advantage of attractive asset return opportunities available today across multiple mortgage related and other asset classes that can offer compelling long term risk adjusted returns and value creation to shareholders."

Other Third Quarter Highlights

As of September 30, 2020, the Company's mortgage investment portfolio totaled $858 million at fair value, which includes $124 million of mortgage loans of a consolidated variable interest entity ("VIE"). Assuming the Company's investment in the VIE is not consolidated, the Company's mortgage investment portfolio totaled $744 million at fair value as of September 30, 2020 consisting of $617 million of agency mortgage-backed securities ("MBS") and $127 million of mortgage credit investments. Based on investable capital, the Company has allocated 69% and 31% of its capital to its agency mortgage and mortgage credit investment strategies, respectively, as of September 30, 2020.

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, MBS collateralized by residential or commercial mortgage loans ("non-agency MBS"), and securities or loans collateralized by mortgage servicing rights ("MSRs").

As of September 30, 2020, the Company's $617 million agency MBS investment portfolio at fair value was comprised entirely of specified agency MBS as follows:

• $130 million of 2.0% coupon 30-year agency MBS
• $301 million of 2.5% coupon 30-year agency MBS
• $186 million of 3.0% coupon 30-year agency MBS

As of September 30, 2020, the Company's $617 million specified agency MBS portfolio had a weighted average amortized cost basis of $104.46 and a weighted average market price of $106.28. 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, were approximately 1.41 percentage points as of September 30, 2020, relatively unchanged from 1.42 percentage points as of June 30, 2020.

During the third quarter of 2020, the Company purchased agency MBS totaling $271 million and sold agency MBS for gross sale proceeds of $142 million for a net realized gain of $3.7 million.

As of September 30, 2020, the Company's $127 million mortgage credit investment portfolio at fair value was comprised of the following:

• $45 million commercial mortgage loan
• $43 million of financing collateralized by MSRs
• $21 million of non-agency MBS collateralized by business purpose residential mortgage loans
  • Includes an $11 million net investment in a consolidated VIE
• $13 million of non-agency MBS collateralized by commercial mortgage loans
• $5 million of non-agency MBS collateralized by residential mortgage loans

During the third quarter of 2020, the Company purchased mortgage credit investments totaling $32 million and sold mortgage credit investments for gross sale proceeds of $55 million for a net realized gain of $2.5 million.

As of September 30, 2020, the Company had a total of $509 million of repurchase agreements outstanding. As of September 30, 2020, the Company had $477 million of repurchase agreements outstanding with a weighted average rate of 0.21% and remaining weighted average maturity of 14 days secured by an aggregate of $502 million of agency MBS at fair value, which includes $41 million at sale price of unsettled agency MBS sale commitments included in the line item "sold securities receivable" in the Company's financial statements. As of September 30, 2020, the Company had a $32 million repurchase agreement outstanding with a rate of 3.00% and remaining maturity of 318 days secured by a $45 million commercial mortgage loan at fair value. As of September 30, 2020, the Company did not have any repurchase agreements outstanding secured by non-agency MBS or loans or securities collateralized by MSRs.

The Company's "at risk" recourse short-term secured financing to investable capital ratio was 1.5 to 1 as of September 30, 2020 compared to 1.2 to 1 as of June 30, 2020. The Company's "at risk" recourse 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 $3.8 million for the third quarter of 2020 compared to $3.8 million for the second quarter of 2020, including the amortization of the Company's net premium on its agency MBS of $0.7 million for the third quarter of 2020 compared to $2.0 million for the second quarter of 2020. The Company's weighted average yield on its agency MBS was 2.08% for the third quarter of 2020 compared to 2.11% for the second quarter of 2020, and the actual weighted-average constant prepayment rate ("CPR") for the Company's agency MBS was 8.49% for the third quarter of 2020 compared to 19.67% for the second quarter of 2020. The Company's weighted average cost of repurchase agreement funding secured by agency MBS was 0.22% during the third quarter of 2020 compared to 0.65% during the second quarter of 2020. The Company's weighted average cost of repurchase agreement funding secured by mortgage credit investments was 3.17% during the third quarter of 2020 compared to 3.29% during the second quarter of 2020.

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 September 30, 2020, the Company had $50 million in notional amount of interest rate swap agreements with a weighted average pay fixed rate of 0.64% and a remaining weighted average maturity of 9.6 years. The Company's weighted average net pay rate of its interest rate swap agreements was 0.18% during the third quarter of 2020 compared to 0.02% during the second quarter of 2020. As of September 30, 2020, the total notional amount of the Company's interest rate swaps was 10% of the Company's outstanding repurchase agreement funding and net TBA purchase commitments with a net duration gap of 1.7 years. 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.

Economic net interest income was $4.1 million for the third quarter of 2020 compared to $3.9 million for the second quarter of 2020. Economic net interest income is comprised of net interest and other 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.

Excluding TBA dollar roll income, the Company had net investment gains of $1.8 million on its agency MBS investment portfolio and a net investment gain of $0.3 million on its related interest rate hedging instruments, excluding interest rate swap net interest expense, for a net investment gain of $2.1 million for the third quarter of 2020. The Company had net investment gains of $1.6 million on its mortgage credit and other investment portfolio for the third quarter of 2020. This results in a net investment gain on the Company's total investment and hedge portfolio of $3.7 million, or $0.11 per diluted common share, for the third quarter of 2020.

During the third quarter of 2020, the Company repurchased 2.1 million shares of its common stock for a purchase cost of $5.9 million representing 5.8% of common stock outstanding as of June 30, 2020.

Distributions to Shareholders

The Company's Board of Directors approved distributions to its Series B and Series C preferred shareholders of $0.4375 per share and $0.515625 per share, respectively, for the third quarter of 2020. The distributions were paid on September 30, 2020 to shareholders of record as of September 15, 2020. Consistent with the Company's intent to retain capital and strengthen its balance sheet, the Company's Board of Directors determined not to declare a dividend on its common stock for the third quarter of 2020. The Company's Board of Directors will continue to evaluate the payment of quarterly dividends based on multiple factors including overall market conditions, return opportunities on investments, liquidity needs and REIT distribution requirements and no definitive determination has been made at this time regarding the declaration of future dividends.

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 currently 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.

Change in NYSE Stock Ticker

As previously announced, the Company changed its ticker symbol for its Class A common stock on the New York Stock Exchange (the "NYSE") to "AAIC". The Company also changed the ticker symbols for its 7.00% Series B Cumulative Perpetual Redeemable Preferred Stock and 8.250% Series C Fixed-to-Floating Cumulative Redeemable Preferred Stock on the NYSE to "AAIC PrB" and "AAIC PrC", respectively. These securities began trading on the NYSE under the new ticker symbols on October 26, 2020.

The Company's Senior Notes due 2023 and Senior Notes due 2025 that are also publicly traded on the NYSE remain unchanged under the ticker symbols "AIW" and "AIC", respectively.

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: AAIC) currently invests primarily in mortgage-related and other assets and has elected to be taxed as a REIT commencing with 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.