Investor Presentation May 15, 2015 Information Related to - PowerPoint PPT Presentation

Investor Presentation May 15, 2015

Information Related to Forward-Looking Statements This presentation contains “forward - looking statements” within the meaning of the Private Securities Litigation Reform Act of 19 95. These include statements regarding future results or expectations about our investments, returns on invested capital, investment strategy, taxes, portfolio, earnings, book value, core income, growth in capital, agency MBS spreads, prepayments, hedging instruments, duration, credit performance of private-label MBS, cash flow and benefit of deferred tax asset value. Forward-looking statements can be identified by forward- looking language, including words such as “believes,” “anticipates,” “views,” “expects,” “estimates,” “intends,” “may,” “plans,” “projects,” “potential,” “prospective,” “will” and similar expressions, or the negative of these words. Such forward -looking statements are based on facts and conditions as they exist at the time such statements are made. Forward-looking statements are also based on predictions as to future facts and conditions, the accurate prediction of which may be difficult and involve the assessment of events beyond our control. Forward-looking statements are further based on various operating and return assumptions. Caution must be exercised in relying on forward- looking statements. Due to known and unknown risks, actual results may differ materially from expectations or projections. You should carefully consider these risks when you make a decision concerning an investment in our common stock or senior notes, along with the following factors, among others, that may cause our actual results to differ materially from those described in any forward-looking statements: availability of, and our ability to deploy, capital; growing our business primarily through a strategy focused on acquiring primarily private-label mortgage- backed securities (“MBS”) and agency -backed MBS; yields on MBS; our ability to successfully implement our hedging strategy; our ability to realize reflation on our private-label MBS; our ability to effectively migrate capital invested in private-label MBS to agency-backed MBS; the credit performance of our private-label MBS; our ability to potentially realize a higher return on capital reallocated to agency-backed MBS; current conditions and adverse developments in the residential mortgage market and the overall economy; potential risk attributable to our mortgage-related portfolios; impacts of regulatory changes, including actions taken by the SEC, the U.S. Federal Reserve and the U.S. Treasury and changes affecting Fannie Mae and Freddie Mac; overall interest rate environment and changes in interest rates, interest rate spreads, the yield curve and prepayment rates; changes in anticipated earnings and returns; the amount and growth in our cash earnings and distributable income; growth in our book value per share; our ability to maintain adequate liquidity; our use of leverage and dependence on repurchase agreements and other short-term borrowings to finance our mortgage-related holdings; the loss of our exclusion from the definition of “investment company” under the Investment Company Act of 1940; our ability to forecast our tax attribu tes and protect and use our net operating loss carry-forwards and net capital loss carry-forwards to offset future taxable income and gains; changes in our business, acquisition, leverage, asset allocation, operational, hedging and financing strategies and policies; our ability and willingness to make future dividends; changes in, and our ability to remain in compliance with, law, regulations or governmental policies affecting our business; and the factors described in the sections entitled “Risk Factors” in our Annual Report on Form 10 -K for the year ended December 31, 2014 and other documents filed by the Company with the SEC from time to time. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this presentation. We undertake no obligation to update or revise any forward-looking statement, whether written or oral, relating to matters discussed in this presentation, except as may be required by applicable securities laws. 1

Company Overview  Arlington Asset Investment Corp. (“AI” or the NYSE Ticker “Company”) is a principal investment firm focused AI on securitized residential mortgage assets Share Price (5/14/15) $21.19 - Invests in high quality liquid assets with Dividend Yield (5/14/15) 17% predictable cash flows and substantial hedges Market Cap (5/14/15) $487 million - Attractive returns on invested capital Total Assets (3/31/15) $4.37 billion - Internally-managed Book Value Per Share (3/31/15) $24.83 - Structured as a C-corp to optimize investment strategy and taxes  $147.1 million of net operating loss carry- forwards and $140.5 million net capital loss carry-forwards as of 12/31/14 (1)  Our hybrid investment portfolio is positioned to benefit from normalization of interest rates and the housing market - Portfolio consists of agency and private-label MBS (1) The NCL carry-forwards are available to offset taxable capital gains through 2019, and the NOL carry-forwards will begin to expire in 2027. 2

AI Has Delivered Strong Returns to Shareholders Over Time Total Shareholder Return (1) Differentiated Investment and Risk Management Approach Drives Strong Returns (1) Total Return is stock price appreciation (or depreciation) plus reinvested dividends. Source: Bloomberg 3

Investment Highlights 1 High-quality, liquid MBS portfolio Differentiated investment approach drives consistent investment returns 2 Strong, growing core income drives attractive risk adjusted return on capital 3 Corporate structure provides flexibility and capital growth 4 4

High-Quality, Liquid MBS Portfolio 1  Complementary hybrid portfolio comprised of ~$3.9 billion of high-quality, liquid securities - Hedged, prepayment protected agency MBS - Floating rate private-label MBS in Re-Remic form backed by prime collateral  Portfolio and deposits comprise ~97% of total assets as of March 31, 2015 Allocated Capital (1) Investment Portfolio (1) Agency MBS allocated capital is composed of MBS and its related interest receivable, repo, derivative instruments, deposits, net receivable or payable for unsettled securities and cash. Private-label MBS allocated capital is composed of MBS and its related repo. 5

High- Quality, Liquid MBS Portfolio (Cont’d) 1 Agency MBS Portfolio Private-Label MBS Portfolio  Focus on Prime Jumbo & Alt-A  Attractive agency MBS portfolio securities at deep discounts spreads in current environment - No subprime, no option arms - 100% selected for prepayment protections: 34% HARP high LTV, - Solid credit performance, 49% low balance loan attractive yield, positive technicals - 3-month portfolio CPR of 8.18% Private-Label MBS Portfolio Statistics with 106.2 cost and 107.8 fair as of 3/31/15 market value (1) Face Value $321M Weighted Average Cost/Mark 54% / 75%  Hedged to mitigate impact of Purchase Discount $117M increasing interest rates as economic Average Loan Size $647,876 environment shifts Coupon 2.7% Orig FICO 722 - Mix of Eurodollar futures and 10 Orig LTV 67% year Swap futures WALA 104 Credit Enhancement 0.2% 60+ Delinquency 14% 3 month Severity 42% 3 month CPR 11% (1) As of 3/31/15. 6

Private-label MBS Portfolio 1  Jumbo Prime and Alt-A Loans - Higher home values and larger loan sizes (approximately $648K) - Prime borrowers with greater financial flexibility - Stronger demographics, higher incomes - More desirable / stable housing markets  Top 5 Largest MSAs (1) : - Los Angeles-Long Beach-Santa Ana, CA: 21.6% - San Francisco-Oakland-Fremont, CA: 10.0% - New York-Northern New Jersey-Long Island, NY-NJ-PA: 7.7% - Washington-Arlington-Alexandria, DC-VA- MD-WV: 5.5% - San Diego-Carlsbad-San Marcos, CA: 5.8%  5.0% HPA nationwide in February 2015 year-over-year  33 rd consecutive month of year-over-year home price gains  Housing supply remains limited and demand remains strong (1) Source: Bloomberg (2) Source: The Standard & Poor's Case – Shiller Home Price Indices 7

Differen Di fferenti tiate ated d Inve Investmen stment t Appro Approac ach Dri h Drive ves s Consistent Cons istent Inve Investmen stment t Returns Returns 2  Flexibility in allocating capital between agency and private-label MBS to achieve the highest risk adjusted returns  Long-term agency MBS investment strategy over an investment cycle - Hedged agency MBS portfolio enables the Company to earn targeted investment spread over investment cycle despite mark-to-market fluctuations in book value  We have achieved this by constructing a portfolio with various market conditions in mind - Highly liquid, complementary RMBS portfolio - Attractive agency MBS portfolio selected for prepayment protections - Hedged against increasing interest rates as economic environment shifts - Private-label MBS portfolio purchased at a deep discount with solid credit performance - Moderate leverage of ~6x 8