Arlington Asset Investment(AAIC) - 2021 Q3 - Quarterly Report

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$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].