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].
Arlington Asset Investment(AAIC) - 2020 Q1 - Quarterly Report