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): May 2, 2019 (May 1, 2019)

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))

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

Item 2.02. Results of Operations and Financial Condition.

Arlington Asset Investment Corp. (the “Company”) issued a press release on May 1, 2019 announcing its financial results for the quarter ended March 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.

Item 8.01Other Events.

The Company reported net income available to common shareholders of $17.3 million, or $0.52 per diluted common share, and non-GAAP core operating income of $10.5 million, or $0.32 per diluted common share, for the quarter ended March 31, 2019.  The Company reported book value of $8.70 per common share as of March 31, 2019.

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; 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, as well as the timing of the termination by the U.S. Federal Reserve of its purchases of 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 May 1, 2019.
99.2	First 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:  May 2, 2019
	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 First Quarter 2019 Financial Results

ARLINGTON, VA, May 1, 2019 – Arlington Asset Investment Corp. (NYSE: AI) (the “Company” or “Arlington”) today reported net income available to common shareholders of $17.3 million, or $0.52 per diluted common share, and non-GAAP core operating income of $10.5 million, or $0.32 per diluted common share, for the quarter ended March 31, 2019.  A reconciliation of non-GAAP core operating income to GAAP net income (loss) before income taxes appears at the end of this press release.

First Quarter 2019 Financial Highlights

• $0.52 per diluted common share of GAAP net income

• $0.32 per diluted common share of non-GAAP core operating income

• $8.70 per common share of book value

• $0.375 per common share dividend

• Completed a common stock offering for proceeds of $48.8 million, net of underwriting discounts and commissions and offering expenses

• Completed a preferred stock offering for proceeds of $28.9 million, net of underwriting discounts and commissions and offering expenses

• Commenced operations of plan to elect to be taxed as a real estate investment trust (“REIT”)

“With lower market volatility and solid portfolio performance during the first quarter, the Company delivered a 16.8% annualized economic return, measured as the change in book value per common share plus the quarterly dividend per common share,” said J. Rock Tonkel, Jr., the Company's President and Chief Executive Officer.  “During the first quarter, the Company successfully raised $78 million in equity capital that it expects will be accretive to earnings.  The Company was able to deploy the capital in a favorable investment environment at attractive returns while also improving the Company’s operating leverage by lowering its ratio of general and administrative expenses to investable capital by approximately 70 basis points.”  

Other First Quarter Highlights

As of March 31, 2019, the Company’s agency MBS investment portfolio totaled $5,118 million in fair value, consisting of $4,192 million of specified agency MBS and $926 million of net long to-be-announced (“TBA”) agency MBS.  As of March 31, 2019, the Company’s $5,118 million agency MBS investment portfolio was comprised of the following:

• $230 million of 4.0% coupon 20-year agency MBS

• $214 million of 3.5% coupon 30-year agency MBS

• $3,356 million of 4.0% coupon 30-year agency MBS

• $1,318 million of 4.5% coupon 30-year agency MBS

As of March 31, 2019, the Company’s $4,192 million specified agency MBS portfolio had a weighted average amortized cost basis of $104.40 and a weighted average market price of $104.59.  The Company’s fixed-rate agency MBS are comprised of securities backed by specified pools of mortgage loans selected for their lowerpropensity 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 TBA agency MBS, were approximately 1.2 percentage points as of March 31, 2019, compared to three-fifths of a percentage point as of December 31, 2018.

As of March 31, 2019, the Company had $3,964 million of repurchase agreements outstanding with a weighted average rate of 2.73% and remaining weighted average maturity of 21 days secured by an aggregate of $4,198 million of agency MBS at fair value, which includes $323 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.  The Company’s “at risk” short-term recourse financing to investable capital ratio was 11.0 to 1 as of March 31, 2019 compared to 10.6 to 1 as of December 31, 2018.  The Company’s “at risk” short-term recourse 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 $7.9 million for the first quarter of 2019 compared to $10.6 million for the fourth quarter of 2018, including the amortization of the Company’s net premium on its agency MBS of $5.9 million for the first quarter of 2019 compared to $7.2 million for the fourth quarter of 2018.  The Company’s weighted average yield on its agency MBS was 3.36% for the first quarter of 2019 compared to 3.30% for the fourth quarter of 2018, and the actual weighted-average constant prepayment rate (“CPR”) for the Company’s agency MBS was 7.55% for the first quarter of 2019 compared to 8.25% for the fourth quarter of 2018.  The Company’s weighted average cost of repurchase agreement funding was 2.68% during the first quarter of 2019 compared to 2.43% during the fourth quarter of 2018.

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 10-year 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 March 31, 2019, the Company had $2,850 million in notional amount of interest rate swap agreements with a weighted average pay fixed rate of 2.11% and a remaining weighted average maturity of 5.7 years.  The Company’s weighted average net receive rate of its interest rate swap agreements was 0.59% during the first quarter of 2019 compared to 0.33% during the fourth quarter of 2018.

In addition to interest rate swap agreements, the Company held $215 million in equivalent notional amount of short positions in 10-year U.S. Treasury note futures as of March 31, 2019 that were purchased during the first quarter of 2019 when the 10-year U.S. Treasury rate was 2.64%.  As of March 31, 2019, the total notional amount of the Company’s interest rate hedges consisting of interest rate swaps and U.S. Treasury note futures was 63% of the Company’s outstanding repurchase agreement funding and net TBA purchase commitments with a net duration gap of negative 0.2 years.

The Company reported TBA dollar roll income of $1.4 million for the first quarter of 2019 compared to $2.9 million for the fourth quarter of 2018.  The implied weighted-average net interest spread of the Company’s TBA dollar rolls was 1.05% for the first quarter of 2019 compared to 1.66% for the fourth quarter of 2018.  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 $14.1 million for the first quarter of 2019 compared to $15.9 million for the fourth quarter of 2018.  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.  

Excluding TBA dollar roll income, the Company had net investment gains on our investment portfolio of $76.6 million for the first quarter of 2019. On its related interest rate hedging instruments, the Company had net investment losses of $69.0 million, excluding interest rate swap net interest income. This results in a net investment gain on our hedged investment portfolio of $7.6 million, or $0.23 per diluted common share, for the first quarter of 2019.

On December 27, 2018, the Company’s Board of Directors approved a plan for the Company to elect to be taxed and to operate in a manner that will allow the Company to qualify as a REIT for U.S. federal income tax purposes commencing with the Company’s taxable year ending December 31, 2019.  As a REIT, the Company can utilize its net operating loss (“NOL”) and net capital loss (“NCL”) carryforwards to reduce its taxable income and therefore its REIT distribution requirements.  As of March 31, 2019, the Company estimated its NOL carryforward at $14.5 million that expires in 2028 and its NCL carryforward at $433.3 million that begins to expire in 2019.  In addition, the Company had an alternative minimum tax (“AMT”) credit carryforward of $9.1 million as of March 31, 2019 that does not expire.  The AMT credit carryforward can be realized as either a cash refund or as an offset to future regular tax liabilities or a combination of both.  The Company’s estimated loss and tax credit carryforwards as of March 31, 2019 are subject to potential adjustments up to the time of filing the Company’s income tax returns.  

Distributions to Shareholders

The Company’s Board of Directors approved a distribution to common shareholders of $0.375 per share for the first quarter of 2019.  The distribution was paid on April 30, 2019 to shareholders of record as of March 29, 2019.  The Company’s Board of Directors also approved a distribution to its Series B preferred shareholders of $0.4375 per share for the first quarter of 2019.  The distribution was paid on April 1, 2019 to shareholders of record as of February 27, 2019.

The tax characterization of the Company’s distributions to shareholders is determined and reported to shareholders on Form 1099-DIV after the end of the calendar year.  

Commencing with its taxable year ending December 31, 2019, the Company intends to elect and operate in a manner that will allow it to qualify as a REIT for U.S. federal income tax purposes.  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.

Conference Call

The Company will hold a conference call for investors at 9:00 A.M. Eastern Time on Thursday, May 2, 2019 to discuss the Company’s first 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 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.

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, 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 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)

	March 31, 2019			December 31, 2018
ASSETS
Cash and cash equivalents	$	37,547		$	26,713
Interest receivable		14,128			13,349
Sold securities receivable		341,798			—
Mortgage-backed securities, at fair value
Agency		4,192,327			3,982,106
Private-label		28			24
Derivative assets, at fair value		15,248			438
Deposits		53,446			61,052
Other assets		18,636			15,768
Total assets	$	4,673,158		$	4,099,450
LIABILITIES AND EQUITY
Liabilities:
Repurchase agreements	$	3,964,127		$	3,721,629
Interest payable		5,063			4,646
Accrued compensation and benefits		1,420			3,732
Dividend payable		14,190			11,736
Derivative liabilities, at fair value		2,346			6,959
Purchased securities payable		251,144			—
Other liabilities		4,297			2,200
Long-term unsecured debt		74,160			74,104
Total liabilities		4,316,747			3,825,006
Equity:
Preferred stock (liquidation preference of $38,816 and $8,765, respectively)		37,170			8,245
Common stock		366			305
Additional paid-in capital		2,047,398			1,997,876
Accumulated deficit		(1,728,523	)		(1,731,982	)
Total equity		356,411			274,444
Total liabilities and equity	$	4,673,158		$	4,099,450
Book value per common share (1)	$	8.70		$	8.71
Common shares outstanding (in thousands) (2)		36,520			30,516
(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)

	Three Months Ended
	March 31, 2019			December 31, 2018			September 30, 2018			June 30, 2018
Interest income
Agency mortgage-backed securities	$	33,570		$	36,914		$	32,679		$	29,940
Private-label mortgage-backed securities		1			4			2			10
Other		261			256			183			105
Total interest income		33,832			37,174			32,864			30,055
Interest expense
Short-term secured debt		24,643			25,286			21,265			17,936
Long-term unsecured debt		1,272			1,264			1,261			1,257
Total interest expense		25,915			26,550			22,526			19,193
Net interest income		7,917			10,624			10,338			10,862
Investment advisory fee income		250			—			—			—
Investment income (loss), net
Gain (loss) on trading investments, net		69,168			32,591			(37,878	)		(20,892	)
(Loss) gain from derivative instruments, net		(55,205	)		(101,483	)		35,620			16,052
Other, net		(160	)		(18	)		1			324
Total investment income (loss), net		13,803			(68,910	)		(2,257	)		(4,516	)
General and administrative expenses
Compensation and benefits		3,116			395			2,833			2,061
Other general and administrative expenses		1,260			1,263			1,121			1,400
Total general and administrative expenses		4,376			1,658			3,954			3,461
Income (loss) before income taxes		17,594			(59,944	)		4,127			2,885
Income tax (benefit) provision		—			(33,639	)		9,628			6,493
Net income (loss)		17,594			(26,305	)		(5,501	)		(3,608	)
Dividend on preferred stock		(278	)		(153	)		(151	)		(149	)
Net income (loss) available (attributable) to common stock	$	17,316		$	(26,458	)	$	(5,652	)	$	(3,757	)
Basic earnings (loss) per common share	$	0.52		$	(0.87	)	$	(0.19	)	$	(0.13	)
Diluted earnings (loss) per common share	$	0.52		$	(0.87	)	$	(0.19	)	$	(0.13	)
Weighted average common shares outstanding (in    thousands)
Basic		33,053			30,392			29,382			28,210
Diluted		33,139			30,392			29,382			28,210

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.”

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.  

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 (unaudited, amounts in thousands, except per share amounts):

	Three Months Ended
	March 31, 2019			December 31, 2018			September 30, 2018			June 30, 2018
GAAP net interest income	$	7,917		$	10,624		$	10,338		$	10,862
TBA dollar roll income		1,420			2,940			4,604			6,742
Interest rate swap net interest income		4,747			2,304			2,295			2,483
Economic net interest income		14,084			15,868			17,237			20,087
Investment advisory fee income		250			—			—			—
Core general and administrative expenses		(3,603	)		(2,324	)		(3,202	)		(3,162	)
Preferred stock dividend		(278	)		(153	)		(151	)		(149	)
Non-GAAP core operating income	$	10,453		$	13,391		$	13,884		$	16,776
Non-GAAP core operating income per    diluted common share	$	0.32		$	0.44		$	0.47		$	0.59
Weighted average diluted common    shares outstanding		33,139			30,437			29,718			28,463

The following table provides a reconciliation of GAAP pre-tax net income (loss) to non-GAAP core operating income for the last four fiscal quarters (unaudited, amounts in thousands):

	Three Months Ended
	March 31, 2019			December 31, 2018			September 30, 2018			June 30, 2018
GAAP income (loss) before income taxes	$	17,594		$	(59,944	)	$	4,127		$	2,885
Add (less):
Total investment (gain) loss, net		(13,803	)		68,910			2,257			4,516
Stock-based compensation expense		773			(666	)		752			299
Preferred stock dividend		(278	)		(153	)		(151	)		(149	)
Add back:
TBA dollar roll income		1,420			2,940			4,604			6,742
Interest rate swap net interest income		4,747			2,304			2,295			2,483
Non-GAAP core operating income	$	10,453		$	13,391		$	13,884		$	16,776

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 and comprehensive 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 March 31, 2019 (unaudited, dollars in thousands):

Agency MBS:

	Fair Value
Specified agency MBS	$	4,192,327
Net long agency TBA position		925,797
Total	$	5,118,124

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
20-year fixed rate:
4.0%	$	221,558	$	7,027	$	228,585	$	1,184		$	229,769	$	103.71		4.00	%		3.7
30-year fixed rate:
3.5%		209,323		6,708		216,031		(2,450	)		213,581		102.03		3.50	%		7.3
4.0%		2,334,089		100,160		2,434,249		(3,687	)		2,430,562		104.13		4.00	%		6.4
4.5%		1,243,502		62,550		1,306,052		12,349			1,318,401		106.02		4.50	%		5.7
5.5%		13		—		13		1			14		109.06		5.50	%		5.7
Total/weighted-average	$	4,008,485	$	176,445	$	4,184,930	$	7,397		$	4,192,327	$	104.59		4.13	%		6.1

Net Long Agency TBA Positions:

	Notional Amount:
	Net Long (Short) Position			Implied Cost Basis			Implied Fair Value			Net Carrying Amount
3.5% 30-year MBS purchase commitments	$	25,000		$	25,094		$	25,348		$	254
3.5% 30-year MBS sale commitments		(25,000	)		(25,332	)		(25,348	)		(16	)
4.0% 30-year MBS purchase commitments		1,450,000			1,482,877			1,491,844			8,967
4.0% 30-year MBS sale commitments		(550,000	)		(563,996	)		(566,047	)		(2,051	)
Total TBA commitments, net	$	900,000		$	918,643		$	925,797		$	7,154

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	$	1,175,000		1.59	%		2.70	%		1.11	%		1.4
3 to less than 7 years		100,000		1.77	%		2.63	%		0.86	%		3.4
7 to less than 10 years		1,550,000		2.51	%		2.64	%		0.13	%		8.7
10 or more years		25,000		2.96	%		2.63	%		(0.33	)%		29.0
Total / weighted-average	$	2,850,000		2.11	%		2.66	%		0.55	%		5.7

U.S. Treasury Note Futures:

	Maturity Date	Notional Amount
10-year U.S. Treasury note futures	June 2019	$	215,000

EX-99.2

Investor Presentation First 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 the agency MBS asset yield, 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 First Quarter of 2019 Financial Results and Portfolio Update…………………….Slide 4 Appendix – Additional Financial Data…………………………………………………Slide 17

First Quarter of 2019 Financial Results and Portfolio Update

Publicly Traded Capital Class A Common Stock Ticker: AI Exchange: NYSE Market Capitalization: $289 million (1) Annual Dividend Yield: 19.0% (1) Senior Notes Due 2023 Ticker: AIW Exchange: NYSE Per Annum Interest Rate: 6.625% Current Strip Yield per Annum: 7.39%(1)(2) Maturity Date: May 1, 2023 Senior Notes Due 2025 Ticker: AIC Exchange: NYSE Per Annum Interest Rate: 6.75% Current Strip Yield per Annum: 7.89%(1)(2) 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: 8.19%(1)(2) As of May 1, 2019. 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: 8.91%(1)(2)

Company Snapshot Real estate investment trust (“REIT”) focused on securitized residential mortgage assets Currently invest primarily in agency MBS issued by Fannie Mae and Freddie Mac May invest opportunistically in other asset classes High quality liquid assets with substantial interest rate hedges to protect long-term capital that produce predictable cash flows to support consistent dividends to shareholders Internally-managed NYSE Ticker AI Share Price (5/1/19) $7.91 Book Value Per Common Share (3/31/19) $8.70 GAAP Net Income per Diluted Share (Q1 ‘19) $0.52 Non-GAAP Core Operating Income per Diluted Share (Q1 ‘19) (1) $0.32 Dividend per Common Share (Q1 ‘19) $0.375 Dividend Yield (5/1/19) 19.0% Common Equity Market Cap (5/1/19) $289 million Total Investment Portfolio (3/31/19) $5.1 billion (1) A reconciliation of non-GAAP core operating income to GAAP pre-tax income is provided on slide 20.

First Quarter of 2019 Financial Highlights $0.52 GAAP net income per diluted common share $0.32 non-GAAP core operating income (1) per diluted common share 14.13% annualized core operating income return on average common equity (2) $8.70 book value per common share as of March 31, 2019 Effectively unchanged from the prior quarter end book value per common share of $8.71 $0.375 per common share dividend Economic return of 4.2% measured as the change in book value per common share plus dividends declared during the quarter Net interest income of $7.9 million compared to $10.6 million in the fourth quarter of 2018, driven by a reduction in average leverage and a 25 basis point increase in weighted average repo financing costs, partially offset by higher weighted average agency MBS asset yields (3.36% versus 3.30%) due primarily to a reduction in prepayment rates (7.55% versus 8.25%, annualized) Economic net interest income of $14.1 million, which includes TBA dollar roll income and net interest income earned or expense incurred from interest rate swaps, compared to $15.9 million in the fourth quarter of 2018, driven primarily by a reduction in average leverage Completed a common stock offering for net proceeds of $48.8 million Completed a preferred stock offering for net proceeds of $28.9 million Commenced operations of plan to elect to be taxed as a REIT A reconciliation of non-GAAP core operating income to GAAP pre-tax income is provided on slide 20. See slide 13 for further information.

As of March 31, 2019: $5.12 Billion Fair Value As of December 31, 2018 : $3.98 Billion Fair Value Agency MBS Investment Portfolio Update 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 December 31, 2018: As of March 31, 2019

Agency MBS Quarterly Balances and Yields 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 4.0% coupon specified pool purchased on April 18, 2019. 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 May and June settlement of a 4.0% coupon TBA as of April 18, 2019. Estimated TBA Dollar Roll Advantage as of April 18, 2019

Financing Summary 15 counterparties with access to 18 total counterparties Less than 10% of equity at risk with any one counterparty 6.1% of equity at risk with largest counterparty 28.3% of equity at risk with five largest counterparties Favorable repo financing costs Diversified Funding Sources As of March 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) Includes $323,156 at sale price of unsettled agency MBS sale commitments which is included in the line item “sold securities receivable” on the Company’s consolidated balance sheets.

Hedging Summary 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. Interest Rate Swaps as of March 31, 2019 (dollars in thousands): U.S. Treasury Note Futures as of March 31, 2019 (dollars in thousands):

Interest rate swap book well matched to repo funding balance for the life of the portfolio Hedged agency MBS portfolio exhibits durable net interest spread in a wide range of interest rate environments over its life Excludes the Company’s TBA dollar roll position. Illustrative repurchase agreement balances in future periods are based upon outstanding balances as of March 31, 2019 reflecting paydown of agency MBS collateral based on projected agency MBS balances based upon cash flow and prepayment estimates derived from Citi’s “The Yield Book,” a third-party model. Illustrative interest rate swap notional amounts in future periods are based upon the contractual maturity dates of the Company’s interest rate swap agreements in place as of March 31, 2019. Illustrative agency MBS asset yields in future periods are based upon cash flow and prepayment estimates derived from Citi’s “The Yield Book,” a third-party model. Illustrative repurchase agreement and interest rate swap receive rates are assumed to be equal to 2.50% and 3.50%, respectively, in all future periods of the illustration.

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 pre-tax income is provided on slide 18. Non-GAAP Core Operating Income Per Diluted Share Rollforward – Q1 2019 vs. Q4 2018

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 first quarter of 2019, calculated as $1.4 million in dollar roll income (representing an implied net interest spread of 1.05% on a weighted average cost basis of $539 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. 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.

Portfolio Weighted Average Statistics 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 – First Quarter 2019 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. Includes the effect of a full quarter dividend accrued on common shares outstanding for less than the full quarter.

Appendix – Additional Financial Data

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

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. Reconciliation of GAAP pre-tax 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 include pools of loans refinanced through the Home Affordable Refinance Program (“HARP”), low FICO loans, 100% investor occupancy status loans, high LTV loans, and seasoned loans. 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 April 2019 for securities held as of March 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 Prepayment Characteristics

TBA Agency MBS Investment Portfolio Net Long TBA Position (1) as of March 31, 2019 (dollars in thousands): Net long position in TBA securities represents forward-settling contracts to purchase or sell agency MBS on a generic pool basis. TBA commitments 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.” 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.

Book Value Sensitivity to Interest Rates 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 agency 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 agency MBS spreads, and (iii) no changes to the investment or hedge portfolio. Net Duration Gap Interest Rate Sensitivity

Book Value Sensitivity to MBS Spreads 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 4.8 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 March 31, 2019. The agency MBS spread sensitivity is based on assumptions resulting in certain limitations, including no changes in interest rates and no changes to the investment or hedge portfolio. MBS Spread Sensitivity Historical MBS to U.S. Treasury Spread 108 bps 135 bps