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].

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[164]. - The company is internally managed and does not have an external investment advisor, allowing for direct control over investment strategies[165]. - Arlington Asset's investment strategy includes hedging transactions to mitigate interest rate sensitivity of borrowing costs and the value of fixed-rate mortgage investments[165]. - The company anticipates potential investment opportunities arising from the current economic environment due to increased liquidity[183]. - The company has committed to invest a minimum of $25 million in MSR financing transactions, fully funded as of March 31, 2021[262]. Economic Environment - Housing prices reported an 11.2% annual gain in January 2021, the highest recorded in nearly 15 years, driven by low mortgage rates and low supply of homes[169]. - The impacts of the COVID-19 pandemic and changes in interest rates are significant factors affecting the company's financial condition and results of operations[166]. - The Federal Open Market Committee plans to maintain a target range for the federal funds rate at 0% to 0.25% and continue asset purchases of at least $80 billion per month in Treasury securities and $40 billion in agency MBS[168]. - The transition from LIBOR to SOFR is expected to be gradual and complicated, with significant differences between the two rates potentially affecting borrowing costs[171]. Financial Performance - GAAP net interest income decreased by $5.3 million, or 58.2%, from $9.1 million for the three months ended March 31, 2020, to $3.8 million for the three months ended March 31, 2021[206]. - Net loss attributable to common stock was $6.763 million, compared to a net loss of $94.944 million in the previous year[205]. - Diluted loss per common share was $(0.20), a significant improvement from $(2.59) in the prior year[205]. - Economic net interest income for the three months ended March 31, 2021, was $3.884 million, down from $9.838 million in the same period last year[212]. - The company reported a GAAP net loss of $6.040 million for Q1 2021, a significant improvement compared to a net loss of $94.170 million in Q1 2020[232]. Asset Management - Liquid assets totaled $181.6 million as of March 31, 2021, consisting of cash and cash equivalents of $48.2 million and unencumbered agency MBS of $133.4 million at fair value[183]. - The total mortgage investment portfolio at fair value as of March 31, 2021, was $724.1 million, with a capital allocation of $312.6 million[184]. - The company has a mortgage loan investment with a principal balance of $44.9 million, bearing interest at one-month LIBOR plus a spread of 4.25% and a LIBOR floor of 2.00%[174]. - The company had $36 million of MSR financing receivable investments at fair value[194]. - The company reported net interest income primarily from agency MBS, mortgage credit investments, and MSR financing receivables, net of interest expenses[199]. Debt and Leverage - As of March 31, 2021, the company's debt-to-equity leverage ratio was 2.7 to 1, indicating a significant reliance on debt financing[237]. - The company reduced its "at risk" leverage ratio to 1.4 to 1 as of March 31, 2021, by selling mortgage investments and reducing repo borrowings[183]. - The company had $73.1 million of total long-term unsecured debt as of March 31, 2021, with senior notes accruing interest at rates of 6.625% and 6.75%[244]. - As of March 31, 2021, outstanding repurchase agreements totaled $505.6 million, with a weighted-average rate of 0.33% and a weighted-average term to maturity of 27.1 days[252]. Risk Management - The company is exposed to interest rate risk, particularly in its agency MBS portfolio, which is financed with short-term borrowing facilities[277]. - The company utilizes interest rate hedging instruments to manage its exposure to changes in benchmark interest rates[278]. - Credit risk is present in mortgage credit investments, which do not carry a credit guarantee, exposing the company to potential credit losses[287]. - The company manages credit risk through prudent asset selection and ongoing performance monitoring, but there are no guarantees of success[291]. Shareholder Returns - The company intends to distribute 100% of its taxable income to shareholders, complying with REIT distribution requirements[274]. - The company did not declare a dividend on common stock during the first quarter of 2021 to preserve liquidity[183]. - The Series C Preferred Stock has a liquidation preference of $27.9 million and pays a fixed dividend of 8.250% per annum until March 30, 2024[269]. - The Series B Preferred Stock has a liquidation preference of $8.4 million and pays a cumulative cash dividend of 7.00% per annum[269].

Financing Strategies - The company utilizes TBA dollar roll transactions for financing agency MBS acquisitions, which involves selling a TBA contract for current month settlement and purchasing a similar contract for a forward settlement date, resulting in a "price drop" that is economically equivalent to net interest carry income[42]. - The company seeks non-recourse term securitization debt financing for targeted investments in residential or commercial mortgage loans, with implicit financing leverage through securitized debt issued by underlying trusts[43]. - The company may issue long-term unsecured notes as an additional source of financing for its investments in MSR related assets[44]. Market Risks - The company is exposed to various market risks, including interest rate, prepayment, extension, spread, credit, liquidity, and regulatory risks, and employs strategies to manage these risks[45]. - Interest rate hedging instruments, including swaps and U.S. Treasury note futures, are used to hedge exposure to interest rate, prepayment, and extension risks[55]. - The company actively monitors its overall leverage levels to manage exposure to market risks, which may lower earnings and dividends in the short term[59]. - The company competes with various financial entities for mortgage investments, which may impact its ability to secure financing on favorable terms[60]. - The company is exposed to various market risks, including interest rate risk, which affects the fair value of its agency MBS and MSR financing receivables[319]. Taxation and Compliance - The company has elected to be taxed as a REIT, requiring it to distribute annually 90% of its REIT taxable income to avoid corporate taxes[61]. - The company must satisfy two gross income requirements annually: at least 75% of gross income must come from real property investments, and at least 95% must come from qualifying income sources[62][63]. - The company intends to operate to be excluded from regulation under the 1940 Act, requiring at least 55% of its assets to consist of qualified assets[74]. Financial Performance and Metrics - As of December 31, 2020, the company's agency MBS portfolio primarily consists of securities backed by specified pools selected for their lower prepayment characteristics[57]. - The company's agency MBS portfolio had a fair value of $970.88 million as of December 31, 2020, with a projected value of $948.24 million under a 50 basis point increase in interest rates[322]. - The book value per common share was $6.31 as of December 31, 2020, reflecting a 3.13% increase under a 50 basis point decrease in interest rates[322]. - Equity available to common stock increased to $209,937, with a potential decrease to $195,391 under a 25 basis point spread increase scenario[327]. - Book value per common share rose to $6.31, with a potential decrease to $5.87 under a 25 basis point spread increase scenario, reflecting a 6.93% change[327]. - Book value per common share experienced a percent change of -17.30% in one scenario, indicating volatility in the company's financial metrics[326]. Risk Management - The company faces spread risk, which may lead to fluctuations in the fair value of agency MBS independent of interest rate changes[324]. - Credit risk is present in mortgage credit investments, which do not carry a credit guarantee, exposing the company to potential credit losses[328]. - The company employs interest rate hedging instruments to mitigate net book value sensitivity to benchmark interest rate changes, but these do not address spread risk[325]. - The estimated change in fair value for agency MBS and TBA commitments is sensitive to movements in MBS spreads, with a spread duration assumption of 6.0 years[325]. - The company manages credit risk through prudent asset selection and ongoing performance monitoring, but there are no guarantees against substantial losses[328]. - Inflation risk is less impactful compared to interest rate sensitivity, as the company's performance is more influenced by interest rates than inflation rates[329]. Workforce and Diversity - The company had 12 employees as of December 31, 2020, and aims to maintain a workplace free from discrimination[76].

Investment Strategy - The company focuses primarily on investing in mortgage-related assets, with current capital allocated between agency mortgage-backed securities (MBS) and mortgage credit investments [141]. - The company leverages its investment portfolio to increase potential returns, primarily through short-term financing arrangements structured as repurchase agreements [142]. - The company does not have an external investment advisor, operating as an internally managed entity [144]. - The company aims to reduce risk by lowering leverage and increasing liquidity, impacting average investment balances [189]. - The company may seek debt or equity financings for corporate purposes and strategic business opportunities, including possible acquisitions [221]. Financial Performance - Net interest income for Q3 2020 was $3.8 million, a decrease of 19.1% from $4.7 million in Q3 2019 [189]. - Net interest income for the nine months ended September 30, 2020, was $16.7 million, down 13.0% from $19.2 million in the same period of 2019 [189]. - Interest income for Q3 2020 was $5.4 million, compared to $28.7 million in Q3 2019, reflecting a significant decline [186]. - Interest expense for Q3 2020 was $1.6 million, down from $24.0 million in Q3 2019 [186]. - Total net income available to common stock for Q3 2020 was $4.0 million, compared to a loss of $8.5 million in Q3 2019 [186]. - GAAP net income for the three months ended September 30, 2020, was $4.8 million, compared to a loss of $7.7 million for the same period in 2019 [211]. Asset Management - The company's liquid assets totaled $124.2 million, consisting of cash and cash equivalents of $8.9 million and unencumbered agency MBS of $115.3 million at fair value [172]. - The total mortgage investments amounted to $744.2 million as of September 30, 2020, a significant decrease from $3.8 billion as of December 31, 2019 [172]. - The specified agency MBS portfolio had a fair value of $617.2 million as of September 30, 2020, compared to $3.8 billion as of December 31, 2019 [173]. - The mortgage credit investment portfolio comprised $46.4 million in mortgage credit securities and $70.0 million in loans at fair value as of September 30, 2020 [177]. - The average balance of agency MBS for Q3 2020 was $539.1 million, yielding an income of $2.8 million at a yield of 2.08% [190]. Risk Management - The company is exposed to spread risk, which can affect the fair value of mortgage investments independent of changes in benchmark interest rates [259]. - The company has exposure to credit risk due to mortgage credit investments that do not carry a credit guarantee, which could lead to substantial losses if credit performance falls short of expectations [264][268]. - Credit enhancements are in place for some mortgage credit investments to mitigate exposure to credit risk, with losses allocated on a "reverse sequential" basis [265]. - The company emphasizes the importance of managing credit risks, including changes in default rates and the effect of governmental regulations on business operations [271]. Regulatory and Economic Environment - The Federal Open Market Committee (FOMC) maintained the target federal funds rate at 0% to 0.25% as of September 16, 2020, with expectations to keep it in this range for the next twelve months [149]. - The CARES Act, signed on March 27, 2020, authorized over $2 trillion in economic relief, including a foreclosure moratorium and borrower forbearance rights for federally-backed residential mortgages [156]. - The overall performance is sensitive to interest rate changes, which may not correlate with inflation rates [269]. Shareholder Information - The company changed its ticker symbol to "AAIC" on the NYSE on October 22, 2020, with trading under the new symbol commencing on October 26, 2020 [145]. - The company has authorized a share repurchase program allowing the repurchase of up to 18,000,000 shares of Class A common stock, with 16,746,801 shares remaining available for repurchase as of September 30, 2020 [247]. - The Series C Preferred Stock had a liquidation preference of $28.3 million and was entitled to a cumulative cash dividend of 8.250% per annum until March 30, 2024 [168]. Market Conditions - Prepayment speeds in the fixed-rate 30-year residential mortgage market increased, with the primary/secondary mortgage spread at 168 basis points as of September 30, 2020, significantly higher than the ten-year average of 118 basis points [152]. - The S&P CoreLogic Case-Shiller U.S. National Home Price NSA index reported a 4.8% annual gain in July 2020, indicating a modest increase in historical housing prices [153]. - The 10-year U.S. Treasury rate increased by 2 basis points to 0.68% as of September 30, 2020, with the spread between the 2-year and 10-year U.S. Treasury rate widening to 55 basis points [151].

PART I — FINANCIAL INFORMATION [Item 1. Consolidated Financial Statements and Notes](index=3&type=section&id=Item%201.%20Consolidated%20Financial%20Statements%20and%20Notes) The company's financial statements reflect a significant strategic shift in H1 2020, with reduced assets and liabilities, and a net income of $10.2 million in Q2 2020, driven by investment gains [Consolidated Financial Statements](index=3&type=section&id=Consolidated%20Financial%20Statements) Consolidated financial statements for June 30, 2020, show significant deleveraging with an 80% asset decrease, a $10.2 million net income in Q2 2020, but an $83.9 million net loss for the six-month period Consolidated Balance Sheets (in thousands) | | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | **Total Assets** | $785,800 | $4,000,114 | | Agency mortgage-backed securities | $501,582 | $3,768,496 | | **Total Liabilities** | $546,815 | $3,672,866 | | Repurchase agreements | $426,877 | $3,581,237 | | **Total Stockholders' Equity** | $238,985 | $327,248 | Consolidated Statements of Operations (in thousands) | | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | | :--- | :--- | :--- | | **Net Interest Income** | $3,765 | $6,582 | | **Total Investment Gain (Loss), Net** | $9,797 | $(26,683) | | **Net Income (Loss)** | $10,234 | $(23,525) | | **Diluted Earnings (Loss) Per Share** | $0.26 | $(0.67) | Consolidated Statements of Cash Flows (in thousands) | | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | **Net Cash Provided by Operating Activities** | $15,978 | $18,704 | | **Net Cash Provided by Investing Activities** | $3,146,981 | $127,917 | | **Net Cash Used in Financing Activities** | $(3,168,499) | $(138,650) | | **Net (Decrease) Increase in Cash** | $(5,540) | $7,971 | [Notes to Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Notes detail accounting policies, the company's focus on a levered mortgage investment portfolio, REIT election intent, reduced investment securities, derivative use, and the suspension of common stock dividends in Q1 and Q2 2020 - The company focuses on acquiring and holding a levered portfolio of mortgage investments, primarily agency MBS and mortgage credit investments, and intends to elect to be taxed as a REIT for the taxable year ended December 31, 2019[15](index=15&type=chunk) Investment Securities (in thousands) | Category | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | **Agency MBS** | $501,582 | $3,768,496 | | **Mortgage Credit Securities** | $79,871 | $33,501 | | **Loans** | $69,575 | $45,000 | Financing (in thousands) | Financing Type | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | **Repurchase Agreements** | $426,877 | $3,581,237 | | Weighted-Average Rate | 0.43% | 2.11% | | **Long-Term Unsecured Debt** | $74,022 | $74,328 | - For the quarters ended March 31, 2020, and June 30, 2020, the Board of Directors determined that the Company would not declare a dividend on its common stock[106](index=106&type=chunk) - During the three and six months ended June 30, 2020, the Company repurchased **1,069,340 shares** of Class A common stock for a total purchase price of **$3,047 thousand**[112](index=112&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=27&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the strategic response to COVID-19, including reduced leverage and increased liquidity, resulting in a smaller portfolio, lower net interest income, and significant Q2 2020 investment gains [Overview and Market Conditions](index=27&type=section&id=Overview%20and%20Market%20Conditions) The company, an investment firm, navigated extreme H1 2020 market volatility due to COVID-19, with Federal Reserve actions stabilizing markets and the CARES Act impacting mortgages, while managing the LIBOR transition - The global economic impact of the COVID-19 pandemic led to substantial liquidity strains and extreme market volatility, with Federal Reserve actions improving market functioning and tightening agency mortgage spreads during Q2 2020[135](index=135&type=chunk)[136](index=136&type=chunk) - In response to the pandemic, the FOMC lowered its target federal funds rate by a total of **150 basis points** to a range of **0% to 0.25%** and announced large-scale asset purchases to support smooth market functioning[137](index=137&type=chunk)[138](index=138&type=chunk) - The CARES Act instituted a foreclosure moratorium and a borrower's right to request forbearance on any federally-backed residential mortgage, including those in agency MBS[145](index=145&type=chunk) [Portfolio Overview and Results of Operations](index=31&type=section&id=Portfolio%20Overview%20and%20Results%20of%20Operations) In H1 2020, the company reduced risk and leverage, shrinking its portfolio to $651 million, resulting in lower net interest income but a $9.8 million net investment gain in Q2 2020 - The company reduced its 'at risk' short term secured financing to investable capital ratio to **1.2 to 1** as of June 30, 2020, compared to **8.7 to 1** as of December 31, 2019, by selling mortgage investments and reducing repo borrowings[160](index=160&type=chunk) Total Mortgage Investments (in thousands) | Investment Type | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | **Total Agency MBS** | $501,582 | $3,768,496 | | **Total Mortgage Credit Investments** | $149,446 | $78,501 | | **Total Mortgage Investments** | $651,028 | $3,846,997 | GAAP and Non-GAAP Income Metrics (in thousands) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | | :--- | :--- | :--- | | **GAAP Net Income (Loss) Attributable to Common Stock** | $9,476 | $(24,299) | | **Non-GAAP Core Operating Income** | $437 | $8,365 | | **Non-GAAP Core Operating Income per Diluted Share** | $0.01 | $0.23 | [Liquidity and Capital Resources](index=41&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity strategy resulted in $100.2 million in liquid assets as of June 30, 2020, with significantly reduced repurchase agreements and ongoing access to capital markets - As of June 30, 2020, the company's liquid assets totaled **$100.2 million**, consisting of **$14.1 million** in cash and cash equivalents and **$86.1 million** in unencumbered agency MBS[208](index=208&type=chunk) - The 'at risk' short-term financing to investable capital ratio was **1.2 to 1** as of June 30, 2020[207](index=207&type=chunk) Repurchase Agreements Outstanding (in thousands) | Financing | June 30, 2020 | | :--- | :--- | | **Repurchase Agreements Outstanding** | $426,877 | | Weighted-Average Rate | 0.43% | | Weighted-Average Term to Maturity | 36.3 days | - As of June 30, 2020, the company had **11,302,160 shares** of Class A common stock available for sale under its common equity distribution agreements and **881,965 shares** available for repurchase under its repurchase program[234](index=234&type=chunk)[238](index=238&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=46&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company faces interest rate, prepayment, spread, and credit risks, with sensitivity analysis showing a 100 basis point rate increase decreases book value by 5.26% and a 25 basis point spread widening decreases it by 2.77% Estimated Change in Book Value Per Common Share Due to Interest Rate Changes | Interest Rate Change | Estimated Change in Book Value Per Common Share | | :--- | :--- | | +100 basis points | -5.26% | | +50 basis points | -1.75% | | -50 basis points | +0.53% | | -100 basis points | +0.37% | Estimated Change in Book Value Per Common Share Due to Agency MBS Spread Changes | Agency MBS Spread Change | Estimated Change in Book Value Per Common Share | | :--- | :--- | | +25 basis points | -2.77% | | +10 basis points | -1.11% | | -10 basis points | +1.11% | | -25 basis points | +2.77% | - The company's mortgage credit investments expose it to credit risk, as they are not guaranteed by a GSE or government agency, representing the risk of not receiving full principal or interest payments due to borrower default[254](index=254&type=chunk) [Item 4. Controls and Procedures](index=51&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of June 30, 2020, with no material changes to internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures are **effective** as of the end of the period covered by the report[266](index=266&type=chunk) - There were no **material changes** in internal control over financial reporting during the quarter ended June 30, 2020[267](index=267&type=chunk) PART II — OTHER INFORMATION [Item 1. Legal Proceedings](index=52&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in ordinary course legal proceedings but reports no specific material cases expected to adversely affect its financial condition - The company is involved in civil lawsuits, legal proceedings, and arbitration matters considered to be in the ordinary course of business, with no assurance that they will not have a material adverse effect in the future[269](index=269&type=chunk) [Item 1A. Risk Factors](index=52&type=section&id=Item%201A.%20Risk%20Factors) A new risk factor addresses severe COVID-19 disruptions, potentially impacting investment values, prepayment rates, financing, personnel, and future dividend payments - A new risk factor has been added to address the severe disruptions caused by the COVID-19 pandemic, which may have a material adverse impact on the business[271](index=271&type=chunk) - Specific COVID-19 related risks include adverse effects on the value of investments, increased refinancing and prepayment activity, disruptions in financing operations such as increased margin calls, and potential unavailability of key personnel[272](index=272&type=chunk)[273](index=273&type=chunk)[274](index=274&type=chunk) - The Board of Directors did not declare a common stock dividend for the first and second quarters of 2020 to enhance liquidity, and future dividends are subject to uncertainty[276](index=276&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=53&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company repurchased 1,069,340 shares of Class A common stock, along with Series B and Series C Preferred Stock, during Q2 2020 Common Stock Repurchases | Period | Total Shares Purchased (Class A Common) | Average Price Paid Per Share | | :--- | :--- | :--- | | April 2020 | — | $— | | May 2020 | 22,249 | $2.46 | | June 2020 | 1,047,091 | $2.86 | | **Total Q2 2020** | **1,069,340** | **$2.85** | - In June 2020, the company repurchased **10,200 shares** of its Series B Preferred Stock at an average price of **$16.98 per share**[280](index=280&type=chunk) - In June 2020, the company repurchased **33,100 shares** of its Series C Preferred Stock at an average price of **$18.95 per share**[281](index=281&type=chunk) [Other Items (Defaults, Mine Safety, Other Info, Exhibits)](index=54&type=section&id=Other%20Items%20(Defaults%2C%20Mine%20Safety%2C%20Other%20Info%2C%20Exhibits)) The company reports no defaults on senior securities, mine safety is not applicable, and Item 6 lists exhibits including officer certifications - Item 3: No defaults upon senior securities were reported[281](index=281&type=chunk) - Item 6: A comprehensive list of exhibits filed with the report is provided, including certifications by the CEO and CFO[284](index=284&type=chunk)[286](index=286&type=chunk)[287](index=287&type=chunk)

Taxation and REIT Status - The company intends to elect to be taxed as a REIT, planning to distribute 100% of its taxable income, which is subject to certain adjustments[128]. - The company intends to distribute 100% of its taxable income as a REIT, which requires an annual distribution of 90% of REIT taxable income[228]. - The company aims to maintain its qualification as a real estate investment trust (REIT), which is crucial for its operational strategy[250]. Market Conditions and Economic Impact - The 10-year U.S. Treasury rate declined by 125 basis points to 0.67% as of March 31, 2020, indicating significant market volatility[133]. - The Federal Open Market Committee lowered its target federal funds rate to a range of 0% to 0.25% in response to the economic impact of the COVID-19 pandemic[132]. - The ongoing COVID-19 pandemic has created uncertainty and economic impact, affecting the company's financial condition and operations due to decreased economic activity[249]. Mortgage Market Dynamics - Agency mortgage spreads widened significantly during the first quarter of 2020 but tightened by the end of March due to Federal Reserve actions[131]. - Prepayment speeds in the fixed-rate 30-year residential mortgage market decreased modestly in the first quarter but are expected to remain elevated due to historically low interest rates[134]. - The S&P CoreLogic Case-Shiller U.S. National Home Price NSA index reported a 3.9% annual gain in January 2020, although future housing price trends remain uncertain[135]. Company Financials and Performance - The company reported a net loss of $94,170,000 for the three months ended March 31, 2020, compared to a net income of $17,594,000 for the same period in 2019[170]. - Diluted loss per common share for the three months ended March 31, 2020 was $(2.59), compared to earnings of $0.52 per share in the same period in 2019[170]. - For the three months ended March 31, 2020, net interest income was $9,141,000, an increase from $7,917,000 in the same period in 2019[170]. Investment Portfolio and Asset Management - The company holds a levered portfolio of mortgage investments, including agency MBS and non-agency MBS, with the latter not guaranteed by a GSE or U.S. government agency[126]. - The total mortgage investments decreased to $722.2 million as of March 31, 2020, down from $3,846.997 million as of December 31, 2019[155]. - The company's non-agency MBS investments had a total unpaid principal balance of $49,921,000 with a net unrealized loss of $15,692,000 as of March 31, 2020[160]. Liquidity and Financing - The company primarily funds its investments through short-term financing arrangements, mainly repurchase agreements[127]. - As of March 31, 2020, the outstanding repurchase agreements amounted to $2,036,466,000, with a weighted-average rate of 0.98% and a weighted-average term to maturity of 19.5 days[213]. - The company has not experienced any margin calls on its repurchase agreements that it could not satisfy with cash or additional collateral, but potential increases in interest rates could adversely affect liquidity[209]. Risk Management - The company is exposed to spread risk, which can affect the fair value of agency MBS independent of changes in benchmark interest rates[237][238]. - Credit risk is present in mortgage credit investments, which do not carry a credit guarantee from a GSE or government agency[243]. - The company employs strategies to manage credit risk through asset selection and ongoing performance monitoring[246]. Operational Strategies and Future Outlook - The company is focused on acquiring residential mortgage-backed securities (MBS) issued or guaranteed by U.S. government agencies, as part of its growth strategy[249]. - The company is considering expanding its business beyond mortgage investments, which may involve new strategies and risk factors[250]. - The company acknowledges that various risks and uncertainties could cause actual results to differ materially from its forward-looking statements[252].