Economic Indicators - As of September 30, 2023, the 10-year U.S. Treasury rate increased to 4.57%, a rise of 73 basis points from the previous quarter[194]. - The Freddie Mac average primary mortgage rate rose by 60 basis points to 7.31% as of September 30, 2023[196]. - The Consumer Price Index (CPI) reached 3.7% for the twelve-month period ending September 30, 2023[196]. - Housing prices increased by 2.6% year-over-year as reported by the S&P CoreLogic Case-Shiller U.S. National Home Price NSA index in August 2023[196]. Company Financials - The company's MSR financing receivables amounted to $191.8 million at fair value, with an unrealized gain of $49.9 million[202]. - Total invested capital as of September 30, 2023, was $434.9 million, with 64% allocated to MSR financing receivables[200]. - The company's leverage ratio was 0.4 as of September 30, 2023[200]. - The total fair value of credit investments as of September 30, 2023 is $128,488, with an invested capital of $49,290 and leverage of 1.6[206]. - The company reported net operating income primarily from interest and other income recognized from investments, net of interest expenses[212]. - Net operating income for Q3 2023 was $4.8 million, down from $6.6 million in Q3 2022[217]. - The net loss attributable to common stock was $7.3 million in Q3 2023, compared to a net income of $2.8 million in Q3 2022[217]. - Diluted loss earnings per common share were $(0.26) in Q3 2023, compared to earnings of $0.10 in Q3 2022[217]. - Interest and other income increased by $1.2 million, or 9.7%, from $12.4 million in Q3 2022 to $13.6 million in Q3 2023[218]. - For the nine months ended September 30, 2023, interest and other income rose by $11.7 million, or 40.9%, from $28.6 million in 2022 to $40.3 million in 2023[218]. - Interest expense increased by $2.8 million, or 46.7%, from $6.0 million in Q3 2022 to $8.8 million in Q3 2023[223]. - For the nine months ended September 30, 2023, interest expense rose by $11.6 million, or 84.7%, from $13.7 million in 2022 to $25.3 million in 2023[223]. Investment Portfolio - The agency MBS investment portfolio has a fair value of $520,851, with a net short TBA position of $(406,204), resulting in a total agency MBS investment portfolio of $114,647[209]. - The annualized prepayment rate for agency MBS was 5.31% for the three months ended September 30, 2023, with 61% of the portfolio in specified pools of loans[210]. - The commercial mortgage loan investment is a $25.6 million participation in a $75.8 million syndicated mortgage loan, secured by 42 health care facilities, with a variable note rate of SOFR plus 5.61%[207]. - The total fair value of commercial MBS investments is $99.4 million, with an unpaid principal balance of $100 million and 30.9% in subordinated credit support[207]. - The average balance of agency MBS increased to $498.9 million in Q3 2023, with an interest yield of 4.34%[219]. Debt and Financing - The company reported a total of $14.6 billion in long-term unsecured debt as of September 30, 2023, a decrease of $2.9 billion from the previous year[226]. - The company sold all its SFR rental properties in two separate transactions in August 2022 and December 2022[227]. - Total long-term unsecured debt as of September 30, 2023, was $86.7 million, including $34.9 million in Senior Notes due 2025 and $37.8 million in Senior Notes due 2026[247]. - The company may seek debt or equity financings for strategic business opportunities, including possible acquisitions[240]. - As of September 30, 2023, outstanding repurchase agreements for agency MBS financing were $475,109 million, with a weighted-average rate of 5.48%[245]. - The average balance of repurchase agreements was $504.5 million in Q3 2023, with an interest expense of $7.2 million[224]. Risk Management - The primary market risks the company is exposed to include interest rate risk, liquidity risk, and credit risk[262]. - The company manages interest rate risk through investment allocation and hedging instruments, including interest rate swaps and U.S. Treasury note futures[263]. - The company is exposed to spread risk, with the fair value of Agency MBS potentially decreasing to $517,715,000 and increasing to $523,987,000 with basis point changes in spreads[269]. - The company accepts credit risk at levels deemed prudent, with credit losses allocated on a "reverse sequential" basis for non-agency MBS investments[270]. - The company utilizes interest rate hedging instruments to mitigate exposure to changes in benchmark interest rates, but these do not address spread risk[267]. Corporate Strategy and Operations - The company no longer anticipates allocating capital to a single-family residential investment strategy after selling its SFR portfolio in 2022[192]. - The company is exploring business expansion beyond investing in MBS, with uncertain returns expected from such ventures[275]. - The company is dependent on short-term borrowings and repurchase agreements to finance its mortgage-related holdings, which poses liquidity risks[275]. - The company acknowledges potential adverse developments in the residential mortgage market and the overall economy, which could impact performance[273]. - The proposed merger with EFC is subject to shareholder approval and other conditions, with potential risks including significant transaction costs and management distraction[273]. Tax and Compliance - The company is required to distribute annually 90% of its REIT taxable income to shareholders to maintain its REIT status[259]. - The company has estimated NOL carryforwards of $163,800,000 to offset future taxable income[259]. - The company has not guaranteed any obligations of unconsolidated entities as of September 30, 2023[260]. - The company must maintain its qualification as a REIT for federal income tax purposes, which is critical for its financial strategy[275]. Miscellaneous - The company is monitoring the economic impact of the COVID-19 pandemic and other public health emergencies on its operations[275]. - The company has identified various risk factors in its Annual Report that could lead to actual results differing materially from forward-looking statements[273].

Financial Performance - Net income for the three months ended June 30, 2023, was $4.9 million, compared to a net income of $0.3 million for the same period in 2022 [218]. - Diluted earnings per common share for the three months ended June 30, 2023, was $0.15, compared to a loss of $0.01 for the same period in 2022 [218]. - Interest and other income increased by $3.9 million, or 44.3%, from $8.8 million for the three months ended June 30, 2022, to $12.7 million for the three months ended June 30, 2023 [218]. - Interest and other income for the six months ended June 30, 2023, rose by $10.5 million, or 64.8%, to $26.7 million compared to $16.2 million for the same period in 2022 [218]. - Interest expense increased by $3.7 million, or 82.2%, from $4.5 million for the three months ended June 30, 2022, to $8.2 million for the three months ended June 30, 2023 [223]. - The total interest expense for the six months ended June 30, 2023, was $16.5 million, up from $7.7 million for the same period in 2022, reflecting a 114.3% increase [223]. - Net income available to common stock for the three months ended June 30, 2023, was $4.2 million, compared to a loss of $0.4 million for the same period in 2022 [235]. - Non-GAAP earnings available for distribution for the six months ended June 30, 2023, were $3.7 million, up from $2.8 million in the same period of 2022, representing a 32% increase [235]. Investment Portfolio - The total invested capital as of June 30, 2023, was $450.5 million, with 66% allocated to MSR financing receivables, 11% to credit investments, and 23% to agency MBS [199]. - The agency MBS investment portfolio has a fair value of $467,503, with a net short TBA position of $(343,236), resulting in a total portfolio value of $124,267 [207]. - The total credit investment portfolio as of June 30, 2023, is valued at $130,347, with a leverage ratio of 2.8 [205]. - The company holds two AAA rated senior position commercial MBS with a combined fair value of $99.6 million, secured by properties in New York and North Carolina [205]. - The average balance of agency MBS increased to $472.8 million, generating interest and other income of $5.0 million at a yield of 4.26% for the three months ended June 30, 2023 [219]. - The average balance of credit investments was $132.2 million, yielding $2.8 million at an 8.48% rate for the three months ended June 30, 2023 [219]. Market Conditions - The 10-year U.S. Treasury rate increased by 37 basis points to 3.84% as of June 30, 2023, contributing to a rise in residential mortgage rates, which reached 6.71% [193]. - The average primary mortgage rate from Freddie Mac increased by 39 basis points to 6.71% as of June 30, 2023, impacting the housing market [195]. - Housing prices declined by 0.5% annually as reported by the S&P CoreLogic Case-Shiller U.S. National Home Price NSA index in May 2023 [195]. - The Consumer Price Index (CPI) declined to 3.0% for the twelve-month period ending June 30, 2023, indicating a decrease in inflation from its peak in 2022 [195]. Risk Factors - The company is exposed to various market risks including interest rate risk, credit risk, and spread risk, which can significantly impact its financial position [261]. - Credit risk is present in the company's non-agency MBS investments, which do not carry a credit guarantee, exposing the company to potential credit losses [270]. - The company acknowledges that actual results may differ materially from estimates due to various market conditions and risks [265]. - The company is facing risks related to the proposed merger with EFC, including the need for shareholder approval and potential litigation risks [272]. - Current adverse conditions in the residential mortgage market and the overall economy could affect the company's performance [273]. Capital Structure - The company’s leverage ratio was reported at 0.5 as of June 30, 2023, reflecting the ratio of financing and commitments to investable capital [199]. - As of June 30, 2023, the debt-to-equity leverage ratio was 2.7 to 1, indicating a significant reliance on debt financing [238]. - Total repurchase agreements outstanding as of June 30, 2023, amounted to $499.9 million, with a weighted-average rate of 5.48% [243]. - The company had outstanding repurchase agreement balances with eight counterparties, with no more than 4.2% of stockholders' equity at risk with any one counterparty [245]. - As of June 30, 2023, the company had $86.6 million in total long-term unsecured debt, with $34.9 million in 6.75% Senior Notes due 2025 and $37.8 million in 6.00% Senior Notes due 2026 [246]. Strategic Decisions - The company no longer anticipates allocating capital to a single-family residential investment strategy after selling its SFR portfolio in 2022 [191]. - The company does not anticipate allocating capital to an SFR investment strategy going forward, having sold all SFR rental properties in 2022 [222]. - The company is exploring business expansion beyond mortgage-backed securities (MBS), with uncertain returns [273]. - The company intends to distribute 100% of its taxable income to shareholders, in compliance with REIT distribution requirements [257]. Operational Insights - General and administrative expenses include professional services, insurance, and non-recurring expenses related to the proposed merger with EFC [214]. - General and administrative expenses increased by $0.9 million from $3.8 million for the three months ended June 30, 2022, to $4.7 million for the same period in 2023, primarily due to non-recurring legal and professional service fees [230]. - The company incurred property operating expenses of $1.9 million for the three months ended June 30, 2022, including $0.6 million of depreciation expense [226]. - The company recognized a provision for income taxes of $1.4 million for the three months ended June 30, 2023, compared to $0.8 million for the same period in 2022 [231]. Future Outlook - The company expects substantial realization of remaining value from business purpose residential MBS within the next several quarters [205]. - The company anticipates that changes in prepayment rates and interest rates will affect its portfolio performance [271]. - The company acknowledges the potential economic impact of the COVID-19 pandemic on its operations [273].

Interest Rates and Inflation - The 10-year U.S. Treasury rate decreased by 40 basis points to 3.47% as of March 31, 2023, contributing to a modest decline in residential mortgage rates [188]. - The average primary mortgage rate from Freddie Mac decreased by 10 basis points to 6.32% as of March 31, 2023 [190]. - The Consumer Price Index (CPI) declined to 5.0% for the twelve-month period ending March 31, 2023, indicating a decrease in inflation from its peak in 2022 [189]. - The Federal Open Market Committee raised the federal funds rate by 50 basis points to a target range of 4.75% to 5.00% during the first quarter of 2023 [189]. - The market is projecting a 50% likelihood of an additional 25 basis point increase in the federal funds rate within the next three months [189]. Company Financials and Performance - Net operating income for the three months ended March 31, 2023, was $5.653 million, an increase from $3.697 million in the same period of 2022, representing a 53.1% increase [211]. - Interest and other income increased by $6.6 million, or 89.2%, from $7.4 million in Q1 2022 to $14.0 million in Q1 2023, primarily due to higher average investment yields [213]. - Interest expense rose by $5.1 million, or 159.4%, from $3.2 million in Q1 2022 to $8.3 million in Q1 2023, mainly due to higher interest rates on repurchase agreement financings [219]. - The company reported a net loss of $(2.218) million for the three months ended March 31, 2023, compared to a net loss of $(2.701) million in the same period of 2022 [211]. - Diluted loss per common share was $(0.10) for Q1 2023, compared to $(0.12) for Q1 2022 [211]. Mortgage-Related Assets and Investments - The company has shifted its investment focus primarily to mortgage-related assets, including mortgage servicing rights, credit investments, and agency mortgage-backed securities [186]. - The company sold its portfolio of single-family residential properties in 2022 and does not plan to allocate capital to an SFR investment strategy in the future [186]. - As of March 31, 2023, the company had $183.1 million in MSR financing receivables at fair value, with an amortized cost basis of $139.2 million and an unrealized gain of $43.9 million [195]. - The total agency MBS consisted of various fixed-rate securities, with a total unpaid principal balance of $480.5 million and a net unrealized loss of $(12.6) million [203]. - The company anticipates substantial realization of the remaining value in its business purpose residential MBS within the next several quarters [201]. Debt and Leverage - The total invested capital as of March 31, 2023, was $404.5 million, with a leverage ratio of 2.8 [193]. - For the three months ended March 31, 2023, the company reported a total debt of $5.454 billion, a decrease of $349 million compared to $5.105 billion in the same period of 2022 [221]. - As of March 31, 2023, the company's debt-to-equity leverage ratio was 2.7 to 1, and the "at risk" leverage ratio was 0.4 to 1 [234]. - The company had outstanding repurchase agreement borrowings of $385.9 million, with a fair value of $413.2 million as of March 31, 2023 [240]. Risk Management - The company is exposed to interest rate risk, with potential impacts on the fair value of agency MBS and MSR related assets due to changes in interest rates [259]. - Interest rate hedging instruments include swaps and U.S. Treasury note futures to manage exposure to interest rate fluctuations [259]. - The company faces spread risk, which may lead to fluctuations in the fair value of Agency MBS independent of interest rate changes [262]. - Credit risk is present in non-agency MBS investments, with potential losses if underlying mortgage loans default [265]. - The company aims to manage credit risk through prudent asset selection and ongoing performance monitoring [265]. Corporate Governance and Compliance - The company emphasizes the importance of maintaining its qualification as a REIT for federal income tax purposes [267]. - The company intends to distribute 100% of its taxable income to shareholders, subject to REIT distribution requirements [254]. - The company has no relationships with unconsolidated entities or financial partnerships that could materially affect its financial condition as of March 31, 2023 [255]. Future Outlook - Forward-looking statements include expectations regarding capital deployment and business growth strategies [266]. - The potential impact of the COVID-19 pandemic remains a concern for the company's operations and market conditions [270].

Financial Losses and Carryforwards - As of December 31, 2022, the company had estimated net operating loss (NOL) carryforwards of $162.5 million, with $14.6 million expiring in 2028 and $147.9 million having no expiration period[38] - The company reported estimated net capital loss (NCL) carryforwards of $155.7 million, with scheduled expirations of $110.3 million in 2023, $14.2 million in 2026, and $31.2 million in 2027[38] REIT Compliance and Requirements - The company intends to distribute 100% of its taxable income to maintain its REIT status, which requires an annual distribution of at least 90% of REIT taxable income[34] - The company must satisfy two gross income requirements annually to qualify as a REIT: at least 75% of gross income must come from real property investments, and at least 95% must come from a combination of qualifying income[36] - At the close of each calendar quarter, the company must meet five gross asset tests, including that at least 75% of asset value must be in real estate assets, cash, or U.S. Government securities[37] - The company aims to maintain its exclusion from regulation under the 1940 Act by ensuring that at least 55% of its assets consist of qualified assets[40] Market and Investment Risks - The company is exposed to various market risks, including interest rate, prepayment, extension, spread, credit, liquidity, and regulatory risks, which it manages through hedging instruments and investment strategies[32] - The company competes with various entities for targeted investments, including mortgage finance companies, banks, and institutional investors, which may impact its investment strategy and financing availability[33] Financing and Capital Management - The company has issued long-term unsecured notes as an additional source of financing, indicating a strategy to diversify funding sources[31] Employee and Workplace Policies - As of December 31, 2022, the company had nine employees and focuses on maintaining a workplace free from discrimination while ensuring fair compensation[42] Fair Value and Interest Rate Sensitivity - The fair value of Agency MBS as of December 31, 2022, is $443,540, with a projected decrease to $432,852 with a 50 basis point increase in interest rates and an increase to $453,192 with a 50 basis point decrease[262] - The estimated fair value of MSR financing receivables is $180,365, projected to increase to $183,526 with a 50 basis point decrease in interest rates and decrease to $177,422 with a 50 basis point increase[262] - Equity available to common stock is $183,920, with a projected increase of 0.39% under a 50 basis point increase in interest rates and a decrease of 0.25% under a 50 basis point decrease[262] - The analysis indicates that a 100 basis point increase in interest rates would decrease the fair value of Agency MBS to $421,404, while a decrease would increase it to $461,688[262] - Spread risk is highlighted, with the fair value of Agency MBS potentially declining independently of changes in benchmark interest rates, reflecting market conditions and monetary policy actions[263] - The fair value of Agency MBS is projected to decrease to $441,034 with a 10 basis point increase in spreads and increase to $446,046 with a 10 basis point decrease[264] Credit Risk Management - Credit risk is present in non-agency MBS investments, with potential losses if underlying mortgage loans default, and credit enhancements may mitigate some exposure[266] - The company accepts credit risk at levels deemed prudent within its overall investment strategy, with ongoing performance monitoring to manage exposure[266] Interest Rate Hedging - The company utilizes interest rate hedging instruments, including swaps and U.S. Treasury note futures, to manage interest rate risk[259] - The effective durations for interest rate sensitivity are based on observed fair value changes and historical prepayment patterns[259]

Interest Rates and Economic Indicators - As of September 30, 2022, the 10-year U.S. Treasury rate increased by 82 basis points to 3.83% compared to the previous quarter[198]. - The average primary mortgage rate rose by 100 basis points to 6.70% during the third quarter of 2022[200]. - The Consumer Price Index increased by 8.2% for the twelve months ending September 30, 2022, marking one of the largest increases in over 40 years[200]. - The spread between the 2-year and 10-year U.S. Treasury rates inverted to a negative 45 basis points as of September 30, 2022[198]. - The Federal Reserve raised its target range for the federal funds rate by 75 basis points to a range of 3.00% to 3.25% on September 21, 2022[201]. - The market is anticipating additional interest rate hikes totaling approximately 150 basis points in the next six months[201]. Mortgage and Housing Market - Housing prices reported a 13.0% annual gain in August 2022, down from 15.6% in the previous month, indicating a deceleration in growth[203]. - Prepayment speeds in the fixed-rate residential mortgage market decreased during the third quarter of 2022 due to rising primary mortgage rates[202]. - Valuation multiples of mortgage servicing rights (MSRs) increased during the third quarter of 2022, driven by declining prepayment speed expectations[202]. - The average unpaid principal balance of underlying MSRs was $13.8 billion with a weighted average note rate of 3.14%[218]. - The annualized prepayment rate for agency MBS was 6.36% for the three months ended September 30, 2022, with approximately 29% in high loan-to-value pools and 18% in low balance loans[222]. Financial Performance - Interest and other income increased by $6.1 million, or 96.8%, from $6.3 million for the three months ended September 30, 2021, to $12.4 million for the same period in 2022[233]. - Net operating income for the three months ended September 30, 2022, was $6,647,000, compared to $4,396,000 for the same period in 2021, representing a 51.3% increase[232]. - The company reported a net income of $3,431,000 for the three months ended September 30, 2022, compared to a net loss of $250,000 for the same period in 2021[232]. - General and administrative expenses for the three months ended September 30, 2022, were $3,377,000, an increase from $2,897,000 in the same period of 2021[232]. - The company reported a net loss on agency MBS investments of $22.728 million for the three months ended September 30, 2022, compared to a loss of $2.447 million in 2021[243]. Debt and Financing - The total invested capital as of September 30, 2022, was $624.9 million, with a total investable capital of $301.5 million[216]. - The company had $15.0 million of junior subordinated debt outstanding requiring quarterly interest payments at three-month LIBOR plus a spread of 2.25% to 3.00%[212]. - As of September 30, 2022, the debt-to-equity leverage ratio was 3.5 to 1, indicating a significant reliance on debt financing[253]. - The company has a $75 million credit facility with its mortgage servicing counterparty, which was increased to $100 million on October 15, 2022[279]. - Total long-term unsecured debt as of September 30, 2022, was $86.3 million, with 6.75% Senior Notes due 2025 and 6.00% Senior Notes due 2026 outstanding[270]. Cash Flow and Liquidity - Cash used in operating activities during the nine months ended September 30, 2022, was $2.4 million, primarily due to net interest income less general and administrative expenses[256]. - Cash provided by investing activities during the nine months ended September 30, 2022, was $48.1 million, mainly from sales of agency MBS and credit securities[256]. - Cash used in financing activities during the nine months ended September 30, 2022, was $51.2 million, primarily from repayments of repurchase agreements and dividend payments to stockholders[256]. - The company believes that existing cash balances and other sources of liquidity will be sufficient to meet cash requirements for at least the next twelve months[255]. - The company's liquid assets totaled $45.9 million, consisting of cash and cash equivalents of $13.8 million and settled unencumbered agency MBS of $32.1 million at fair value[254]. Risk Management - The company manages interest rate risk through investment allocation and the utilization of interest rate hedging instruments[299]. - The company faces spread risk, which is the risk of an increase in the spread between market participants' required rate of return and prevailing benchmark interest rates[304]. - The company has credit risk exposure due to investments in non-agency MBS, which do not carry a credit guarantee from a GSE or government agency[308]. - The company attempts to manage credit risk through prudent asset selection and ongoing performance monitoring[311]. - The company does not guarantee the success of its credit risk management strategies, which could lead to substantial losses if credit performance falls short of expectations[312]. Shareholder and Equity Information - The company intends to distribute 100% of its taxable income to shareholders, in compliance with REIT distribution requirements[292]. - The Series C Preferred Stock has a liquidation preference of $24.1 million and pays a cumulative cash dividend at a fixed rate of 8.250% per annum until March 30, 2024[289]. - The company reported a net income available to common stock of $2.756 million for the three months ended September 30, 2022, compared to a net loss of $981,000 in the same period of 2021[248]. - As of September 30, 2022, the equity available to common stock was $181,575,000, with a 0.47% increase and a 0.21% decrease in response to a 50 basis point change in interest rates[302]. - The company has issued 6,058 shares of Series B preferred stock for proceeds net of selling commissions and expenses of $0.1 million during the nine months ended September 30, 2022[291].

Interest Rates and Economic Indicators - The 10-year U.S. Treasury rate increased by 67 basis points to 3.01% as of June 30, 2022[212]. - The average primary mortgage rate rose by 103 basis points to 5.70% as of June 30, 2022[214]. - The Consumer Price Index increased by 9.1% for the twelve-month period ending June 30, 2022, marking the largest increase in over 40 years[214]. - The Federal Open Market Committee raised the federal funds rate by a total of 225 basis points from 0.75%-1.00% to 2.25%-2.50% between May and July 2022[214]. - The U.S. Federal Reserve is expected to continue raising interest rates, with market expectations of an additional 100 basis points in the next six months[214]. Mortgage Market and Valuation - The Standard & Poor's CoreLogic Case-Shiller U.S. National Home Price NSA index reported a 19.7% annual gain in May 2022[214]. - Prepayment speeds in the fixed-rate residential mortgage market decreased during the second quarter of 2022 due to rising primary mortgage rates[214]. - Valuation multiples of mortgage servicing rights (MSRs) increased during the second quarter of 2022 driven by declining prepayment speed expectations[214]. - The spread between the market yield on agency mortgage-backed securities (MBS) and benchmark interest rates widened during the second quarter of 2022[214]. Company Financials and Investments - The total invested capital as of June 30, 2022, was $707.3 million, with a capital allocation of $296 million across various investment strategies[227]. - The credit investment portfolio as of June 30, 2022, included a $29.5 million commercial mortgage loan and $138.9 million in non-agency MBS or ABS investments[233]. - The company had $120.3 million of MSR financing receivable investments at fair value as of June 30, 2022, with an amortized cost basis of $74.9 million and an unrealized gain of $45.4 million[230]. - The company had outstanding repurchase agreements of $329,994,000 as of June 30, 2022, with a weighted-average rate of 1.96% and a weighted-average term to maturity of 30.2 days[292]. Preferred Stock and Debt - The Series C Preferred Stock had a liquidation preference of $26.1 million and was entitled to a cumulative cash dividend at a fixed rate of 8.250% per annum until March 30, 2024, after which it would be based on three-month LIBOR plus a spread of 5.664%[224]. - The company has $86.2 million in total long-term unsecured debt, including $34.9 million in 6.75% Senior Notes due 2025 and $37.8 million in 6.00% Senior Notes due 2026[296]. - The company’s debt-to-equity leverage ratio was 3.5 to 1 as of June 30, 2022, indicating a significant level of leverage[279]. Operational Performance - Net operating income for Q2 2022 was $4,526, a decrease of 11% from $5,087 in Q2 2021[253]. - Interest and other income for Q2 2022 was $8,763, an increase of 24.4% from $7,045 in Q2 2021[253]. - The company reported a net loss attributable to common stock of $(400) in Q2 2022, compared to a net loss of $(7,782) in Q2 2021[253]. - The company experienced a loss on agency MBS investments of $10.6 million for the three months ended June 30, 2022, compared to a gain of $7.1 million for the same period in 2021[266]. Risk Management - The company is exposed to interest rate risk, with significant impacts on the value of fixed-rate agency MBS and SFR investments due to fluctuations in interest rates[316]. - The company manages interest rate risk through investment allocation and hedging instruments, including interest rate swaps and U.S. Treasury note futures[316]. - The company acknowledges credit risk exposure due to non-guaranteed credit investments, which may lead to substantial losses if mortgage loan performance declines[327]. - The company employs prudent asset selection and ongoing performance monitoring to manage credit risk exposure[331]. Future Outlook and Commitments - The company has commitments to acquire 25 additional properties for a total purchase price of $9.0 million[237]. - The company is in the process of selling 376 properties for $131.9 million, with an investment cost basis of $113.0 million[238]. - The company intends to distribute 100% of its taxable income to shareholders, adhering to REIT distribution requirements[311]. - Forward-looking statements include expectations regarding capital deployment and business growth strategies focused on acquiring residential MBS and credit investments[333].

Economic Indicators - As of March 31, 2022, the 10-year U.S. Treasury rate was 2.34%, an increase of 83 basis points from the previous quarter[165]. - The Consumer Price Index rose by 1.2% in the first quarter of 2022, with an annual increase of 8.5%[165]. - The Federal Open Market Committee raised the federal funds rate by 25 basis points to a range of 0.25% to 0.50% and anticipates ongoing increases[166]. - Housing prices showed a significant annual gain of 19.8% as reported by the Standard & Poor's CoreLogic Case-Shiller U.S. National Home Price NSA index in February 2022[166]. Company Financials - As of March 31, 2022, the total invested capital was $636.6 million, with MSR financing receivables accounting for $139.2 million[176][178]. - The company reported a net loss attributable to common stock for the three months ended March 31, 2022, was $3.443 million, compared to a net loss of $6.763 million for the same period in 2021[199]. - Economic net interest income from financial assets was $6,474,000 for the three months ended March 31, 2022, compared to $5,035,000 for the same period in 2021, reflecting a 28.7% increase[207]. - The company reported net interest income/spread of $5,942,000 for the three months ended March 31, 2022, compared to $4,909,000 for the same period in 2021[207]. Investment Portfolio - The credit investment portfolio included a $29.6 million commercial mortgage loan and $53.5 million in non-agency MBS or ABS investments[180]. - As of March 31, 2022, the agency MBS investment portfolio had an unpaid principal balance of $304.666 million, with a net unrealized loss of $22.667 million[186]. - The annualized prepayment rate for the agency MBS was 9.01% for the three months ended March 31, 2022, with approximately 79% of the portfolio in specified pools of low balance loans[187]. Debt and Leverage - As of March 31, 2022, the company's debt-to-equity leverage ratio was 3.2 to 1, and the "at risk" leverage ratio was 1.3 to 1[233]. - The company had outstanding repurchase agreement borrowings of $284.9 million as of March 31, 2022, with a weighted-average rate of 0.54% and a weighted-average term to maturity of 37.6 days[246]. - The outstanding principal balance of long-term unsecured debt was $86.1 million as of March 31, 2022, with various senior notes maturing between 2025 and 2035[250]. Risk Factors - The company is subject to various risks including changes in interest rates, economic conditions, and regulatory changes that may affect its financial performance[164]. - Key risks include changes in interest rates, the overall environment for mortgage markets, and the impact of U.S. Federal Reserve monetary policy[289]. - Changes in laws and regulations affecting the business are considered significant risks[290]. Operational Performance - Net operating income from investments in financial assets increased by $1.0 million, or 20.4%, from $4.9 million for the three months ended March 31, 2021, to $5.9 million for the same period in 2022[202]. - General and administrative expenses for the three months ended March 31, 2022, were $3.284 million, compared to $2.637 million for the same period in 2021[199]. - The company reported a net operating loss of $800,000 from SFR properties for the three months ended March 31, 2022, due to property costs incurred prior to lease commencement[210]. Shareholder Information - The company intends to distribute 100% of its taxable income to shareholders, subject to REIT distribution requirements[264]. - The company repurchased 1,009,566 shares of common stock for a total purchase price of $3.5 million during the three months ended March 31, 2022[261]. - As of March 31, 2022, the company had Series B Preferred Stock outstanding with a liquidation preference of $9.5 million and Series C Preferred Stock with a liquidation preference of $27.9 million[262]. Future Outlook - The ongoing COVID-19 pandemic poses uncertainty and economic impact on the company's business, financial condition, and results of operations[286]. - Future expansion into areas beyond investing in MBS is anticipated, with expectations of returns from such expansions[289]. - The company acknowledges that actual results could differ significantly from estimates due to various market conditions and assumptions[271].

Financial Performance and Strategy - The company had estimated net operating loss (NOL) carryforwards of $165.0 million as of December 31, 2021, which can offset future taxable ordinary income[40]. - The company intends to distribute 100% of its taxable income to maintain its REIT status, which requires an annual distribution of at least 90% of REIT taxable income[33]. - The company may leverage its equity capital in its single-family rental (SFR) investment strategy up to approximately 3.0 to 1[29]. Risk Management - The company is exposed to various market risks, including interest rate risk, prepayment risk, and credit risk, and employs hedging instruments to manage these risks[30]. - The company has a risk management strategy that includes monitoring overall leverage levels and asset selection to mitigate market risks[30]. - The company manages credit risk through prudent asset selection and ongoing performance monitoring, but there is no guarantee that these measures will be successful[274]. - The company utilizes interest rate hedging instruments, including swaps and U.S. Treasury note futures, to manage interest rate risk[266]. REIT Compliance - The company must satisfy income tests, including deriving at least 75% of gross income from real property investments to qualify as a REIT[34][35]. - The company must ensure that at least 75% of its assets are represented by real estate assets to maintain its REIT qualification[36]. Market Competition - The company competes with various entities, including mortgage finance companies and institutional investors, for targeted investments[31]. Asset Valuation and Sensitivity - The fair value of agency MBS as of December 31, 2021, was $483,927, with a projected decrease to $470,976 under a 50 basis point increase in interest rates and an increase to $494,278 under a 50 basis point decrease[269]. - MSR financing receivables were valued at $125,018, projected to increase to $134,736 with a 50 basis point increase in interest rates and decrease to $112,155 with a 50 basis point decrease[269]. - The book value per common share was $6.16, with a projected decrease to $6.15 under a 50 basis point increase in interest rates and a decrease to $6.00 under a 50 basis point decrease[269]. - The company is exposed to spread risk, which is the risk of an increase in the spread between market participants' required rate of return and prevailing benchmark interest rates[271]. - The estimated change in fair value for agency MBS under a 10 basis point increase in agency spreads is projected to decrease to $480,974, while a decrease in spreads would increase the value to $486,880[272]. - Under a 25 basis point increase in agency spreads, the value of agency MBS is projected to decrease to $476,546, while a decrease in spreads would increase the value to $491,308[273]. - The effective durations for the agency MBS and TBA commitments are derived from The Yield Book, indicating sensitivity to interest rate changes[270]. - The analysis of interest rate sensitivity assumes a static portfolio and does not account for future management actions in response to market conditions[270]. Workforce - The company has a total of 11 employees as of December 31, 2021, and focuses on maintaining a discrimination-free workplace[44].

Investment Strategy - Arlington Asset Investment Corp. focuses on investing in mortgage-related assets and residential real estate, with capital allocated to agency MBS, MSR-related assets, mortgage credit investments, and single-family residential properties [169]. - The company leverages its investment portfolio prudently to increase potential returns, primarily funding investments through short-term financing arrangements [171]. - The company is internally managed and does not have an external investment advisor, allowing for direct control over investment strategies [171]. - The company has diversified its repurchase agreement funding across eight counterparties, with no more than 4.0% of stockholders' equity at risk with any one counterparty [277]. - The company may seek additional debt or equity financing for strategic business opportunities, including acquisitions [265]. Economic Environment - The Federal Open Market Committee (FOMC) maintains a target range for the federal funds rate at 0% to 0.25% and continues its asset purchase program, buying at least $80 billion in Treasury securities and $40 billion in agency MBS monthly [176]. - The impacts of the COVID-19 pandemic and changes in interest rates are significant factors affecting the company's results of operations [172]. - The ongoing COVID-19 pandemic poses uncertainty and economic impact on the company's financial condition and operations [320]. - Key risks include changes in interest rates, the overall environment for mortgage markets, and the impact of U.S. Federal Reserve monetary policy [322]. Financial Performance - GAAP net interest income increased by $0.6 million, or 15.8%, from $3.8 million for the three months ended September 30, 2020, to $4.4 million for the three months ended September 30, 2021 [224]. - GAAP net interest income decreased by $3.4 million, or 20.4%, from $16.7 million for the nine months ended September 30, 2020, to $13.3 million for the nine months ended September 30, 2021 [224]. - The company reported a net loss attributable to common stock of $981 million for the three months ended September 30, 2021, compared to net income of $4,033 million for the same period in 2020 [223]. - The company experienced an investment loss of $(1,313) million for the three months ended September 30, 2021, compared to a gain of $3,952 million for the same period in 2020 [223]. - Non-GAAP core operating income for the three months ended September 30, 2021, was $1,900,000, up from $973,000 in the same period of 2020, reflecting a growth of 95.3% [254]. Interest Rate and Market Risks - The company is exposed to interest rate risk in its agency MBS portfolio, which is financed with short-term borrowing facilities [302]. - The company faces spread risk, which is the risk of an increase in the spread between market yields on mortgage investments and prevailing benchmark interest rates [310]. - The sensitivity of Agency MBS and TBA commitments to changes in MBS spreads is based on an assumed spread duration of 6.3 years [312]. - The company has credit risk exposure due to mortgage credit investments that do not carry a credit guarantee from a GSE or government agency [316]. - The company attempts to manage credit risk through prudent asset selection and ongoing performance monitoring [318]. Asset Management - The company's mortgage investment portfolio at fair value as of September 30, 2021, totaled $849.946 million, with agency MBS and net long TBA commitments accounting for $659.968 million [198]. - As of September 30, 2021, the company had $112.8 million in MSR financing receivable investments at fair value, with an amortized cost basis of $104.4 million and an unrealized gain of $8.4 million [203]. - The mortgage credit investment portfolio included a $29.8 million commercial mortgage loan and $37.9 million in non-agency MBS investments, with a total unpaid principal balance of $72.4 million [210]. - The company had commitments to acquire 75 properties for an aggregate purchase price of $19.9 million as of September 30, 2021 [215]. - The company has committed a total minimum of $50 million in capital for MSR financing, with $25 million expiring on December 31, 2023, and another $25 million expiring on April 1, 2024 [288]. Shareholder and Capital Management - The company repurchased 1,059,980 shares of Class A common stock for a total purchase price of $4.1 million during the three months ended September 30, 2021 [295]. - The company has 11,302,160 shares of Class A common stock available for sale under common equity distribution agreements as of September 30, 2021 [294]. - The Series C Preferred Stock has a liquidation preference of $27.9 million and pays a cumulative cash dividend at a fixed rate of 8.250% per annum until March 30, 2024 [297]. - The company intends to distribute 100% of its taxable income as a REIT, which requires an annual distribution of 90% of its REIT taxable income [299]. - The company's debt-to-equity leverage ratio as of September 30, 2021, was 2.9 to 1, indicating a significant reliance on debt financing [261]. Regulatory and Compliance - The transition from LIBOR to SOFR is being addressed, with the New York LIBOR Legislation providing a statutory remedy for contracts referencing USD LIBOR [185]. - The fallback provisions for interest rate swap agreements based on LIBOR were amended to include SOFR adjustments, but the impact of these changes remains uncertain [188]. - The company emphasizes the importance of maintaining qualification as a REIT for federal income tax purposes [322]. - Changes in laws and regulations, as well as industry practices, may adversely impact the company's business operations [322]. - The company does not intend to update or revise forward-looking statements unless required by law [322].

Investment Strategy - Arlington Asset Investment Corp. focuses primarily on investing in mortgage-related assets, with capital allocated between agency MBS, mortgage credit investments, and MSR-related assets[157]. - The company believes it prudently leverages its investment portfolio to increase potential returns, primarily funding investments through short-term financing arrangements[159]. - The company is internally managed and does not have an external investment advisor, which allows for direct control over investment strategies[159]. - The company anticipates potential adverse effects on its financial condition due to uncertainties surrounding LIBOR reforms and alternative reference rates[176]. - The company expects ongoing discussions regarding residential housing and mortgage reform, which may affect future operations and strategies[182]. - The company intends to distribute 100% of its taxable income as a REIT, which requires an annual distribution of at least 90% of its REIT taxable income[277]. - The company expresses its intention to expand its business into areas beyond investing in MBS, with expectations of returns from such expansions[302]. Financial Performance - The impacts of the COVID-19 pandemic and changes in interest rates are significant factors affecting the company's results of operations and financial condition[160]. - GAAP net interest income increased by $1.3 million, or 34.2%, from $3.8 million in Q2 2020 to $5.1 million in Q2 2021[204]. - Net interest income for the six months ended June 30, 2021, decreased by $4.1 million, or 31.8%, to $8.8 million from $12.9 million in the same period of 2020[204]. - The company reported a net loss of $7,059,000 for Q2 2021, compared to a net income of $10,234,000 in Q2 2020[235]. - The company recognized a net investment loss of $9,032 thousand for the three months ended June 30, 2021, compared to a gain of $9,797 thousand for the same period in 2020[218]. - Economic net interest income for Q2 2021 was $5.68 million, compared to $3.93 million in Q2 2020[211]. - The company reported a provision for income taxes of $(0.1) million for the three months ended June 30, 2021, and $0.3 million for the six months ended June 30, 2021[220]. Interest Rates and Market Conditions - The 10-year U.S. Treasury rate decreased by 27 basis points to 1.47% as of June 30, 2021, while the spread between the 2-year and 10-year U.S. Treasury rate narrowed by 36 basis points to 122 basis points[162]. - The Federal Open Market Committee plans to maintain an accommodative monetary policy stance, keeping the federal funds rate target range at 0% to 0.25% and continuing asset purchases of at least $80 billion in Treasury securities and $40 billion in agency MBS per month[163]. - The transition from LIBOR to SOFR is expected to be gradual and complicated, with potential basis risk affecting operating results[169]. - The company highlights potential risks related to changes in interest rates, including the Federal Funds rate by the U.S. Federal Reserve[302]. - The financial performance is significantly influenced by interest rates rather than inflation, as most assets and liabilities are interest rate sensitive[298]. Mortgage Investments - The total mortgage investments amounted to $930.1 million as of June 30, 2021, with a capital allocation of $301.9 million[184]. - The company's mortgage credit investments totaled $129.8 million, with commercial mortgage loans at $74.7 million and residential MBS at $25.0 million[184]. - The agency MBS portfolio had an annualized prepayment rate of 6.34% for the three months ended June 30, 2021, with approximately 58% in specified pools of low balance loans[186]. - The mortgage credit investment portfolio included $74.7 million in commercial mortgage loans and $55.1 million in non-agency MBS investments as of June 30, 2021[189]. - The company had two mortgage loan investments with an aggregate principal balance of $74.7 million, with one loan fully repaid for $44.8 million, leaving a remaining balance of $29.9 million[173]. Debt and Financing - As of June 30, 2021, the company had $15.0 million of junior subordinated debt outstanding, requiring quarterly interest payments at three-month LIBOR plus a spread of 2.25% to 3.00%[174]. - The company had $73.1 million in total long-term unsecured debt as of June 30, 2021, with interest rates ranging from 6.625% to 6.75%[245][246]. - A public offering on July 15, 2021 raised $37.8 million in 6.00% Senior Notes due 2026, with net proceeds of $36.6 million[247]. - Outstanding repurchase agreements for Agency MBS financing totaled $673.7 million as of June 30, 2021, with a weighted-average rate of 0.09%[255]. - The company diversified its repurchase agreement funding across 8 counterparties, with no more than 3.9% of stockholders' equity at risk with any one counterparty[256]. Risk Management - The company has credit risk exposure due to mortgage credit investments that do not carry a credit guarantee from a GSE or government agency[295]. - Credit losses on non-agency MBS are allocated on a "reverse sequential" basis, absorbing losses first through subordinate interests[296]. - The company attempts to manage credit risk through prudent asset selection and ongoing performance monitoring[297]. - The company recognizes the risks associated with its mortgage-related portfolios, including changes in fair value[302]. - The company mentions the potential impact of fluctuations in the value of hedge instruments on its financial results[302]. Shareholder Information - As of June 30, 2021, the company had 11,302,160 shares of Class A common stock available for sale under common equity distribution agreements[272]. - The company has a share repurchase program authorized for up to 18,000,000 shares of Class A common stock, with 15,239,159 shares remaining available for repurchase as of June 30, 2021[273]. - The Series B Preferred Stock has a liquidation preference of $8.4 million and pays a cumulative cash dividend of 7.00% per annum[274]. - The Series C Preferred Stock has a liquidation preference of $27.9 million and pays a cumulative cash dividend of 8.250% per annum until March 30, 2024[274]. Economic Conditions - The CARES Act authorized over $2 trillion in economic relief, impacting the company's mortgage loan portfolio and borrower forbearance options[177]. - The company acknowledges the impact of general economic conditions on its business performance[302]. - Forward-looking statements include uncertainties regarding capital deployment, economic impacts from COVID-19, and the ability to maintain REIT qualification[299]. - The company indicates that changes in laws and regulations may adversely affect its business operations[302].