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].
Arlington Asset Investment(AAIC) - 2021 Q2 - Quarterly Report