Arlington Asset Investment(AAIC) - 2022 Q2 - Quarterly Report

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$86.2 million in total long-term unsecured debt, including $34.9 million in 6.75$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$5,087 in Q2 2021[253]. - Interest and other income for Q2 2022 was $8,763, an increase of 24.4$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].