Arlington Asset Investment Corp. Reports Second Quarter 2015 Financial Results

ARLINGTON, Va., July 27, 2015

Second Quarter 2015 Financial Highlights

• $1.76 per diluted share of non-GAAP core operating income
• $1.32 per diluted share of non-GAAP core operating income excluding gain on private-label MBS
• $0.29 per diluted share of net income
• $23.71 per share of book value
• $0.875 per share dividend declared

"The Company experienced solid core operating income this quarter driven by growth in the Company's agency MBS portfolio.  However, persistent interest rate volatility and spread widening in fixed-rate agency MBS contributed to a decline in the Company's book value during the quarter," said J. Rock Tonkel, Jr., the Company's President and Chief Executive Officer.  "We reallocated approximately $67 million of capital this quarter from private-label MBS into higher return agency MBS investments, and we continue to maintain a substantial hedge position with a focus on protecting our portfolio from rising interest rates.  Looking forward, while higher future financing costs associated with expected Federal Reserve tightening as well as increased economic hedge costs will likely lead to compressed net spread income over time, we continue to benefit from the investment flexibility and future reallocation opportunity afforded by our remaining $152 million private-label MBS portfolio."

Other Second Quarter Highlights

As of June 30, 2015, the Company's agency MBS portfolio consisted of $3,914 million in face value and $4,154 million of fair value.  As of June 30, 2015, the Company's agency MBS were fixed-rate 30-year MBS specifically selected for their prepayment protections with a weighted average coupon of 3.98%, a weighted average original cost of 106.14 and a weighted average market price of 106.15.  As of June 30, 2015, approximately 48% of the Company's agency MBS portfolio is in specified pools of low loan balance loans, approximately 30% is in specified pools of loans issued under the Home Affordable Refinance Program ("HARP"), while the remainder includes specified pools of loans with low FICO scores or with other characteristics selected for the prepayment protection.  Weighted average pay-up premiums on the Company's agency MBS portfolio, which represent the estimated price premium of agency MBS backed by specified pools over a generic to-be-announced agency security, declined to approximately 1/2 of a point as of June 30, 2015 compared to approximately ¾ of a point as of March 31, 2015.  The three-month constant prepayment rate ("CPR") for the Company's agency MBS increased to 12.34% as of June 30, 2015, compared to 8.18% as of March 31, 2015.  As of June 30, 2015, the Company had $3,592 million of repurchase agreements outstanding with a weighted average rate of 38 basis points secured by $3,784 million of agency MBS at fair value.  The Company's total debt to equity ratio as of June 30, 2015 was approximately 6.8 to 1.

As of June 30, 2015, the Company's Eurodollar futures run consecutively through June 2020 with a weighted average notional amount of $2,427 million with a weighted average contract rate of 2.69% and a current market rate of 1.74%.  As of June 30, 2015, the Company also had $1,075 million in notional 10-year interest rate swap futures with a weighted average contract rate of 2.77% and a current market rate of 2.47%.  As of June 30, 2015, the total weighted average hedge notional amount as a percentage of the Company's outstanding repurchase agreement financing on its agency MBS was 97%, relatively unchanged from the prior quarter.  The Company increased its long-term hedges to 31% of its total hedge portfolio as of June 30, 2015 compared to approximately 27% as of March 31, 2015.

Net interest income for the second quarter of 2015 was $34.1 million, including non-cash accretion on private-label MBS of $2.3 million required under GAAP.  During the second quarter of 2015, the Company recorded net investment losses on its agency MBS portfolio of $61.8 million and net investment gains on its derivative hedging instruments of $30.4 million for a net investment loss on its hedged agency MBS portfolio of $31.4 million.  In recent quarters, the Company's increased allocation of capital to agency MBS has resulted in growth in the Company's net interest income and core operating income.  With this growth in the agency MBS portfolio, the economic costs of the Company's hedge instruments have grown proportionately, which are reflected in the Company's GAAP net income and changes in book value through net investment gains and losses rather than through net interest income and core operating income.