false 2021 Q1 0001209028 --12-31 false 2021 LIBOR+ 2.25 - 3.00 % LIBOR+ 2.25 - 3.00 % 2033 2033 P2Y7M6D P6Y9M18D P9Y9M18D P7Y3M18D P2Y10M24D P9Y6M P4Y8M12D 2021-04-30 0001209028 2021-01-01 2021-03-31 0001209028 us-gaap:CommonClassAMember 2021-01-01 2021-03-31 0001209028 ai:SevenPercentSeriesBCumulativePerpetualRedeemablePreferredStockMember 2021-01-01 2021-03-31 0001209028 ai:EightPointTwoFivePercentSeriesCFixedToFloatingRateCumulativeRedeemablePreferredStockMember 2021-01-01 2021-03-31 0001209028 ai:SixPointSixTwoFivePercentageSeniorNotesDueTwoThousandTwentyThreeMember 2021-01-01 2021-03-31 0001209028 ai:SixPointSevenFivePercentageSeniorNotesDueTwoThousandTwentyFiveMember 2021-01-01 2021-03-31 xbrli:shares 0001209028 2021-04-30 iso4217:USD 0001209028 2021-03-31 0001209028 2020-12-31 0001209028 us-gaap:VariableInterestEntityPrimaryBeneficiaryMember 2021-03-31 0001209028 us-gaap:VariableInterestEntityPrimaryBeneficiaryMember 2020-12-31 0001209028 us-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember 2021-03-31 0001209028 us-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember 2020-12-31 0001209028 us-gaap:MortgageBackedSecuritiesIssuedByPrivateEnterprisesMember 2021-03-31 0001209028 us-gaap:MortgageBackedSecuritiesIssuedByPrivateEnterprisesMember 2020-12-31 0001209028 us-gaap:SeriesBPreferredStockMember 2021-03-31 0001209028 us-gaap:SeriesBPreferredStockMember 2020-12-31 0001209028 us-gaap:SeriesCPreferredStockMember 2021-03-31 0001209028 us-gaap:SeriesCPreferredStockMember 2020-12-31 0001209028 us-gaap:CommonClassAMember 2021-03-31 0001209028 us-gaap:CommonClassAMember 2020-12-31 iso4217:USD xbrli:shares 0001209028 us-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember 2021-01-01 2021-03-31 0001209028 us-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember 2020-01-01 2020-03-31 0001209028 us-gaap:MortgageBackedSecuritiesIssuedByPrivateEnterprisesMember 2021-01-01 2021-03-31 0001209028 us-gaap:MortgageBackedSecuritiesIssuedByPrivateEnterprisesMember 2020-01-01 2020-03-31 0001209028 2020-01-01 2020-03-31 0001209028 us-gaap:VariableInterestEntityPrimaryBeneficiaryMember 2021-01-01 2021-03-31 0001209028 us-gaap:SecuredDebtMember 2021-01-01 2021-03-31 0001209028 us-gaap:SecuredDebtMember 2020-01-01 2020-03-31 0001209028 us-gaap:UnsecuredDebtMember 2021-01-01 2021-03-31 0001209028 us-gaap:UnsecuredDebtMember 2020-01-01 2020-03-31 0001209028 us-gaap:SecuredDebtMember us-gaap:VariableInterestEntityPrimaryBeneficiaryMember 2021-01-01 2021-03-31 0001209028 us-gaap:PreferredStockMember us-gaap:SeriesBPreferredStockMember 2019-12-31 0001209028 us-gaap:PreferredStockMember us-gaap:SeriesCPreferredStockMember 2019-12-31 0001209028 us-gaap:CommonStockMember us-gaap:CommonClassAMember 2019-12-31 0001209028 us-gaap:AdditionalPaidInCapitalMember 2019-12-31 0001209028 us-gaap:RetainedEarningsMember 2019-12-31 0001209028 2019-12-31 0001209028 us-gaap:RetainedEarningsMember 2020-01-01 2020-03-31 0001209028 us-gaap:CommonStockMember us-gaap:CommonClassAMember 2020-01-01 2020-03-31 0001209028 us-gaap:AdditionalPaidInCapitalMember 2020-01-01 2020-03-31 0001209028 us-gaap:PreferredStockMember us-gaap:SeriesBPreferredStockMember 2020-01-01 2020-03-31 0001209028 us-gaap:PreferredStockMember us-gaap:SeriesCPreferredStockMember 2020-01-01 2020-03-31 0001209028 us-gaap:PreferredStockMember us-gaap:SeriesBPreferredStockMember 2020-03-31 0001209028 us-gaap:PreferredStockMember us-gaap:SeriesCPreferredStockMember 2020-03-31 0001209028 us-gaap:CommonStockMember us-gaap:CommonClassAMember 2020-03-31 0001209028 us-gaap:AdditionalPaidInCapitalMember 2020-03-31 0001209028 us-gaap:RetainedEarningsMember 2020-03-31 0001209028 2020-03-31 0001209028 us-gaap:PreferredStockMember us-gaap:SeriesBPreferredStockMember 2020-12-31 0001209028 us-gaap:PreferredStockMember us-gaap:SeriesCPreferredStockMember 2020-12-31 0001209028 us-gaap:CommonStockMember us-gaap:CommonClassAMember 2020-12-31 0001209028 us-gaap:AdditionalPaidInCapitalMember 2020-12-31 0001209028 us-gaap:RetainedEarningsMember 2020-12-31 0001209028 us-gaap:RetainedEarningsMember 2021-01-01 2021-03-31 0001209028 us-gaap:CommonStockMember us-gaap:CommonClassAMember 2021-01-01 2021-03-31 0001209028 us-gaap:AdditionalPaidInCapitalMember 2021-01-01 2021-03-31 0001209028 us-gaap:PreferredStockMember us-gaap:SeriesBPreferredStockMember 2021-03-31 0001209028 us-gaap:PreferredStockMember us-gaap:SeriesCPreferredStockMember 2021-03-31 0001209028 us-gaap:CommonStockMember us-gaap:CommonClassAMember 2021-03-31 0001209028 us-gaap:AdditionalPaidInCapitalMember 2021-03-31 0001209028 us-gaap:RetainedEarningsMember 2021-03-31 0001209028 ai:LoansHeldForInvestmentMember 2021-01-01 2021-03-31 0001209028 ai:MSRFinancingReceivablesMember 2021-01-01 2021-03-31 0001209028 us-gaap:MortgageBackedSecuritiesOtherMember 2021-01-01 2021-03-31 0001209028 us-gaap:InterestRateSwapMember 2021-01-01 2021-03-31 0001209028 ai:OptionsOnTenYearUSTreasuryNoteFuturesMember 2021-01-01 2021-03-31 0001209028 ai:TbaCommitmentsMember 2021-01-01 2021-03-31 xbrli:pure 0001209028 ai:AccountingStandardsUpdate202004Member 2021-03-31 0001209028 us-gaap:MortgageBackedSecuritiesOtherMember 2020-01-01 2020-03-31 0001209028 ai:HealthcareFacilitiesMortgageLoanMember 2021-03-31 0001209028 ai:HealthcareFacilitiesMortgageLoanMember 2020-12-31 0001209028 srt:MinimumMember 2021-03-31 0001209028 srt:MinimumMember srt:ScenarioForecastMember 2021-01-01 2023-12-31 0001209028 us-gaap:VariableInterestEntityPrimaryBeneficiaryMember 2020-09-29 2020-09-30 0001209028 us-gaap:VariableInterestEntityPrimaryBeneficiaryMember us-gaap:UnfundedLoanCommitmentMember 2021-03-31 0001209028 us-gaap:FinancingReceivables60To89DaysPastDueMember us-gaap:PerformingFinancingReceivableMember us-gaap:VariableInterestEntityPrimaryBeneficiaryMember 2021-03-31 0001209028 us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember us-gaap:NonperformingFinancingReceivableMember us-gaap:VariableInterestEntityPrimaryBeneficiaryMember 2021-03-31 0001209028 srt:MinimumMember us-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember 2021-01-01 2021-03-31 0001209028 us-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember srt:MaximumMember 2021-01-01 2021-03-31 0001209028 ai:OneMonthLiborMember us-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember 2021-03-31 0001209028 ai:LIBORFloorInterestRateMember us-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember 2021-03-31 0001209028 us-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember 2020-01-01 2020-12-31 0001209028 us-gaap:CommercialMortgageBackedSecuritiesMember 2021-03-31 0001209028 us-gaap:CommercialMortgageBackedSecuritiesMember 2020-12-31 0001209028 us-gaap:CommercialMortgageBackedSecuritiesMember 2021-01-01 2021-03-31 0001209028 us-gaap:CommercialMortgageBackedSecuritiesMember 2020-01-01 2020-12-31 0001209028 2020-01-01 2020-12-31 0001209028 ai:UnsettledAgencyMortgageBackedSecuritiesMember 2021-03-31 0001209028 ai:SeniorNotesDue2025Member 2021-03-31 0001209028 ai:SeniorNotesDue2023Member 2021-03-31 0001209028 ai:SeniorNotesDue2025Member 2020-12-31 0001209028 ai:SeniorNotesDue2023Member 2020-12-31 0001209028 ai:SeniorNotesDue2025Member 2021-01-01 2021-03-31 0001209028 ai:SeniorNotesDue2023Member 2021-01-01 2021-03-31 0001209028 ai:SeniorNotesDue2025Member 2020-01-01 2020-12-31 0001209028 ai:SeniorNotesDue2023Member 2020-01-01 2020-12-31 0001209028 ai:TrustPreferredDebtMember 2021-03-31 0001209028 ai:TrustPreferredDebtMember 2020-12-31 0001209028 ai:TrustPreferredDebtMember 2021-01-01 2021-03-31 0001209028 ai:TrustPreferredDebtMember 2020-01-01 2020-12-31 0001209028 ai:TrustPreferredDebtMember srt:MinimumMember 2021-01-01 2021-03-31 0001209028 ai:TrustPreferredDebtMember srt:MaximumMember 2021-01-01 2021-03-31 0001209028 ai:TrustPreferredDebtMember srt:MinimumMember 2020-01-01 2020-12-31 0001209028 ai:TrustPreferredDebtMember srt:MaximumMember 2020-01-01 2020-12-31 0001209028 us-gaap:UnsecuredDebtMember 2020-01-01 2020-12-31 0001209028 us-gaap:InterestRateSwapMember 2021-03-31 0001209028 ai:OptionsOnTenYearUSTreasuryNoteFuturesMember 2021-03-31 0001209028 ai:TbaCommitmentsMember 2021-03-31 0001209028 us-gaap:InterestRateSwapMember 2020-12-31 0001209028 ai:OptionsOnTenYearUSTreasuryNoteFuturesMember 2020-12-31 0001209028 ai:TbaCommitmentsMember 2020-12-31 0001209028 ai:LessThanThreeYearMaturityMember us-gaap:InterestRateSwapMember 2021-03-31 0001209028 ai:ThreeToLessThanSevenYearMaturityMember us-gaap:InterestRateSwapMember 2021-03-31 0001209028 ai:SevenToLessThanTenYearsMaturityMember us-gaap:InterestRateSwapMember 2021-03-31 0001209028 ai:LessThanThreeYearMaturityMember us-gaap:InterestRateSwapMember 2021-01-01 2021-03-31 0001209028 ai:ThreeToLessThanSevenYearMaturityMember us-gaap:InterestRateSwapMember 2021-01-01 2021-03-31 0001209028 ai:SevenToLessThanTenYearsMaturityMember us-gaap:InterestRateSwapMember 2021-01-01 2021-03-31 0001209028 us-gaap:InterestRateSwapMember 2021-01-01 2021-03-31 0001209028 ai:LessThanThreeYearMaturityMember us-gaap:InterestRateSwapMember 2020-12-31 0001209028 ai:ThreeToLessThanTenYearMaturityMember us-gaap:InterestRateSwapMember 2020-12-31 0001209028 ai:LessThanThreeYearMaturityMember us-gaap:InterestRateSwapMember 2020-01-01 2020-12-31 0001209028 ai:ThreeToLessThanTenYearMaturityMember us-gaap:InterestRateSwapMember 2020-01-01 2020-12-31 0001209028 us-gaap:InterestRateSwapMember 2020-01-01 2020-12-31 0001209028 ai:USTreasuryNoteFuturesMember 2021-03-31 0001209028 ai:USTreasuryNoteFuturesMember 2020-12-31 0001209028 ai:OptionsOnUSTreasuryNoteFuturesMember 2020-12-31 0001209028 ai:OnePointFivePercentThirtyYearMortgageBackedSecuritiesPurchaseSaleCommitmentsPurchaseMember ai:TbaCommitmentsMember 2021-03-31 0001209028 ai:OnePointFivePercentThirtyYearMortgageBackedSecuritiesPurchaseSaleCommitmentsSaleMember ai:TbaCommitmentsMember 2021-03-31 0001209028 ai:TwoPercentThirtyYearMortgageBackedSecuritiesPurchaseSaleCommitmentsPurchaseMember ai:TbaCommitmentsMember 2021-03-31 0001209028 ai:TwoPercentThirtyYearMortgageBackedSecuritiesPurchaseSaleCommitmentsSaleMember ai:TbaCommitmentsMember 2021-03-31 0001209028 ai:OnePointFivePercentThirtyYearMortgageBackedSecuritiesPurchaseSaleCommitmentsPurchaseMember ai:TbaCommitmentsMember 2020-12-31 0001209028 ai:OnePointFivePercentThirtyYearMortgageBackedSecuritiesPurchaseSaleCommitmentsSaleMember ai:TbaCommitmentsMember 2020-12-31 0001209028 ai:InterestRateSwapsNetInterestIncomeExpenseMember 2021-01-01 2021-03-31 0001209028 ai:InterestRateSwapsNetInterestIncomeExpenseMember 2020-01-01 2020-03-31 0001209028 ai:InterestRateSwapsUnrealizedGainsLossesNetMember 2021-01-01 2021-03-31 0001209028 ai:InterestRateSwapsUnrealizedGainsLossesNetMember 2020-01-01 2020-03-31 0001209028 ai:InterestRateSwapsGainsLossesRealizedUponEarlyTerminationNetMember 2021-01-01 2021-03-31 0001209028 ai:InterestRateSwapsGainsLossesRealizedUponEarlyTerminationNetMember 2020-01-01 2020-03-31 0001209028 us-gaap:InterestRateSwapMember 2020-01-01 2020-03-31 0001209028 us-gaap:USTreasuryNotesSecuritiesMember 2021-01-01 2021-03-31 0001209028 us-gaap:USTreasuryNotesSecuritiesMember 2020-01-01 2020-03-31 0001209028 ai:OptionsOnUSTreasuryNoteFuturesMember 2021-01-01 2021-03-31 0001209028 ai:OptionsOnUSTreasuryNoteFuturesMember 2020-01-01 2020-03-31 0001209028 ai:TbaDollarRollIncomeMember 2021-01-01 2021-03-31 0001209028 ai:TbaDollarRollIncomeMember 2020-01-01 2020-03-31 0001209028 ai:OtherGainsLossesOnTbaCommitmentsMember 2021-01-01 2021-03-31 0001209028 ai:OtherGainsLossesOnTbaCommitmentsMember 2020-01-01 2020-03-31 0001209028 ai:TwoYearUSTreasuryNoteFuturesMember 2020-12-31 0001209028 ai:TenYearUsTreasuryNoteFuturesMember 2020-12-31 0001209028 ai:PurchasedCallOptionsOnTenYearUSTreasuryNoteMember 2020-12-31 0001209028 ai:TwoYearUSTreasuryNoteFuturesMember 2021-01-01 2021-03-31 0001209028 ai:TenYearUsTreasuryNoteFuturesMember 2021-01-01 2021-03-31 0001209028 ai:PurchasedCallOptionsOnTenYearUSTreasuryNoteMember 2021-01-01 2021-03-31 0001209028 ai:TwoYearUSTreasuryNoteFuturesMember 2021-03-31 0001209028 ai:TenYearUsTreasuryNoteFuturesMember 2021-03-31 0001209028 ai:PurchasedCallOptionsOnTenYearUSTreasuryNoteMember 2021-03-31 0001209028 us-gaap:InterestRateSwapMember 2019-12-31 0001209028 ai:TwoYearUSTreasuryNoteFuturesMember 2019-12-31 0001209028 ai:TenYearUsTreasuryNoteFuturesMember 2019-12-31 0001209028 ai:PutOptionsOnSalesAndPurchaseFiveHundredETFMember 2019-12-31 0001209028 us-gaap:InterestRateSwapMember 2020-01-01 2020-03-31 0001209028 ai:TwoYearUSTreasuryNoteFuturesMember 2020-01-01 2020-03-31 0001209028 ai:TenYearUsTreasuryNoteFuturesMember 2020-01-01 2020-03-31 0001209028 ai:PutOptionsOnSalesAndPurchaseFiveHundredETFMember 2020-01-01 2020-03-31 0001209028 us-gaap:InterestRateSwapMember 2020-03-31 0001209028 ai:TwoYearUSTreasuryNoteFuturesMember 2020-03-31 0001209028 ai:TenYearUsTreasuryNoteFuturesMember 2020-03-31 0001209028 ai:PutOptionsOnSalesAndPurchaseFiveHundredETFMember 2020-03-31 0001209028 ai:UnsettledMortgageBackedSecuritiesTradesAndTbaCommitmentsNetMember 2021-03-31 0001209028 ai:UnsettledMortgageBackedSecuritiesTradesAndTbaCommitmentsNetMember 2020-12-31 0001209028 us-gaap:DerivativeFinancialInstrumentsAssetsMember 2021-03-31 0001209028 us-gaap:RepurchaseAgreementsMember 2021-03-31 0001209028 us-gaap:DerivativeFinancialInstrumentsLiabilitiesMember 2021-03-31 0001209028 us-gaap:DerivativeFinancialInstrumentsAssetsMember 2020-12-31 0001209028 us-gaap:RepurchaseAgreementsMember 2020-12-31 0001209028 us-gaap:DerivativeFinancialInstrumentsLiabilitiesMember 2020-12-31 0001209028 us-gaap:MeasurementInputDefaultRateMember us-gaap:MortgageBackedSecuritiesIssuedByPrivateEnterprisesMember us-gaap:FairValueInputsLevel3Member 2021-03-31 0001209028 us-gaap:MeasurementInputDefaultRateMember us-gaap:MortgageBackedSecuritiesIssuedByPrivateEnterprisesMember us-gaap:FairValueInputsLevel3Member 2020-12-31 0001209028 us-gaap:MeasurementInputLossSeverityMember us-gaap:MortgageBackedSecuritiesIssuedByPrivateEnterprisesMember us-gaap:FairValueInputsLevel3Member 2021-03-31 0001209028 us-gaap:MeasurementInputLossSeverityMember us-gaap:MortgageBackedSecuritiesIssuedByPrivateEnterprisesMember us-gaap:FairValueInputsLevel3Member 2020-12-31 0001209028 us-gaap:MeasurementInputDiscountRateMember us-gaap:MortgageBackedSecuritiesIssuedByPrivateEnterprisesMember us-gaap:FairValueInputsLevel3Member 2021-03-31 0001209028 us-gaap:MeasurementInputDiscountRateMember us-gaap:MortgageBackedSecuritiesIssuedByPrivateEnterprisesMember us-gaap:FairValueInputsLevel3Member 2020-12-31 0001209028 us-gaap:FairValueInputsLevel3Member us-gaap:CommercialMortgageBackedSecuritiesMember 2021-01-01 2021-03-31 0001209028 us-gaap:FairValueInputsLevel3Member us-gaap:CommercialMortgageBackedSecuritiesMember 2020-01-01 2020-12-31 0001209028 us-gaap:FairValueInputsLevel3Member us-gaap:CommercialMortgageBackedSecuritiesMember 2021-03-31 0001209028 us-gaap:FairValueInputsLevel3Member us-gaap:CommercialMortgageBackedSecuritiesMember 2020-12-31 0001209028 us-gaap:MeasurementInputDefaultRateMember us-gaap:SubordinatedDebtMember us-gaap:FairValueInputsLevel3Member 2021-03-31 0001209028 us-gaap:MeasurementInputDefaultRateMember us-gaap:SubordinatedDebtMember us-gaap:FairValueInputsLevel3Member 2020-12-31 0001209028 us-gaap:MeasurementInputLossSeverityMember us-gaap:SubordinatedDebtMember us-gaap:FairValueInputsLevel3Member 2021-03-31 0001209028 us-gaap:MeasurementInputLossSeverityMember us-gaap:SubordinatedDebtMember us-gaap:FairValueInputsLevel3Member 2020-12-31 0001209028 us-gaap:MeasurementInputDiscountRateMember us-gaap:SubordinatedDebtMember us-gaap:FairValueInputsLevel3Member 2021-03-31 0001209028 us-gaap:MeasurementInputDiscountRateMember us-gaap:SubordinatedDebtMember us-gaap:FairValueInputsLevel3Member 2020-12-31 0001209028 us-gaap:MeasurementInputDiscountRateMember us-gaap:FairValueInputsLevel3Member ai:MortgageServicingRightsFinancingReceivablesMember 2021-03-31 0001209028 us-gaap:MeasurementInputPrepaymentRateMember us-gaap:FairValueInputsLevel3Member ai:MortgageServicingRightsFinancingReceivablesMember 2021-03-31 0001209028 ai:MeasurementInputRecaptureRateMember us-gaap:FairValueInputsLevel3Member ai:MortgageServicingRightsFinancingReceivablesMember 2021-03-31 ai:LoanCost 0001209028 ai:AnnualPerLoanCostOfServicingMember us-gaap:FairValueInputsLevel3Member ai:MortgageServicingRightsFinancingReceivablesMember 2021-03-31 0001209028 ai:MortgageServicingRightsFinancingReceivablesMember 2021-03-31 0001209028 ai:EquitySecuritiesOfPubliclyTradedCompaniesMember 2021-03-31 0001209028 ai:EquitySecuritiesOfPubliclyTradedCompaniesMember 2020-12-31 0001209028 us-gaap:PrivateEquityFundsMember 2021-03-31 0001209028 us-gaap:PrivateEquityFundsMember 2020-12-31 0001209028 us-gaap:PrivateEquityFundsMember us-gaap:FairValueInputsLevel3Member ai:MeasurementInputStockPriceToNetAssetMultipleMember 2021-03-31 0001209028 us-gaap:PrivateEquityFundsMember us-gaap:FairValueInputsLevel3Member ai:MeasurementInputStockPriceToNetAssetMultipleMember 2020-12-31 0001209028 us-gaap:PrivateEquityFundsMember us-gaap:FairValueInputsLevel3Member us-gaap:MeasurementInputDiscountForLackOfMarketabilityMember 2021-03-31 0001209028 us-gaap:PrivateEquityFundsMember us-gaap:FairValueInputsLevel3Member us-gaap:MeasurementInputDiscountForLackOfMarketabilityMember 2020-12-31 0001209028 us-gaap:PrivateEquityFundsMember us-gaap:FairValueInputsLevel3Member ai:MeasurementInputCostOfEquityDiscountRateMember 2021-03-31 0001209028 us-gaap:PrivateEquityFundsMember us-gaap:FairValueInputsLevel3Member ai:MeasurementInputCostOfEquityDiscountRateMember 2020-12-31 0001209028 us-gaap:FairValueMeasurementsRecurringMember us-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember 2021-03-31 0001209028 us-gaap:FairValueMeasurementsRecurringMember us-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember us-gaap:FairValueInputsLevel1Member 2021-03-31 0001209028 us-gaap:FairValueMeasurementsRecurringMember us-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember us-gaap:FairValueInputsLevel2Member 2021-03-31 0001209028 us-gaap:FairValueMeasurementsRecurringMember us-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember us-gaap:FairValueInputsLevel3Member 2021-03-31 0001209028 us-gaap:FairValueMeasurementsRecurringMember us-gaap:MortgageBackedSecuritiesIssuedByPrivateEnterprisesMember 2021-03-31 0001209028 us-gaap:FairValueMeasurementsRecurringMember us-gaap:MortgageBackedSecuritiesIssuedByPrivateEnterprisesMember us-gaap:FairValueInputsLevel1Member 2021-03-31 0001209028 us-gaap:FairValueMeasurementsRecurringMember us-gaap:MortgageBackedSecuritiesIssuedByPrivateEnterprisesMember us-gaap:FairValueInputsLevel2Member 2021-03-31 0001209028 us-gaap:FairValueMeasurementsRecurringMember us-gaap:MortgageBackedSecuritiesIssuedByPrivateEnterprisesMember us-gaap:FairValueInputsLevel3Member 2021-03-31 0001209028 us-gaap:FairValueMeasurementsRecurringMember us-gaap:VariableInterestEntityPrimaryBeneficiaryMember 2021-03-31 0001209028 us-gaap:FairValueMeasurementsRecurringMember us-gaap:VariableInterestEntityPrimaryBeneficiaryMember us-gaap:FairValueInputsLevel1Member 2021-03-31 0001209028 us-gaap:FairValueMeasurementsRecurringMember us-gaap:VariableInterestEntityPrimaryBeneficiaryMember us-gaap:FairValueInputsLevel2Member 2021-03-31 0001209028 us-gaap:FairValueMeasurementsRecurringMember us-gaap:VariableInterestEntityPrimaryBeneficiaryMember us-gaap:FairValueInputsLevel3Member 2021-03-31 0001209028 us-gaap:FairValueMeasurementsRecurringMember 2021-03-31 0001209028 us-gaap:FairValueMeasurementsRecurringMember us-gaap:FairValueInputsLevel1Member 2021-03-31 0001209028 us-gaap:FairValueMeasurementsRecurringMember us-gaap:FairValueInputsLevel2Member 2021-03-31 0001209028 us-gaap:FairValueMeasurementsRecurringMember us-gaap:FairValueInputsLevel3Member 2021-03-31 0001209028 us-gaap:FairValueMeasurementsRecurringMember us-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember 2020-12-31 0001209028 us-gaap:FairValueMeasurementsRecurringMember us-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember us-gaap:FairValueInputsLevel1Member 2020-12-31 0001209028 us-gaap:FairValueMeasurementsRecurringMember us-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember us-gaap:FairValueInputsLevel2Member 2020-12-31 0001209028 us-gaap:FairValueMeasurementsRecurringMember us-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember us-gaap:FairValueInputsLevel3Member 2020-12-31 0001209028 us-gaap:FairValueMeasurementsRecurringMember us-gaap:MortgageBackedSecuritiesIssuedByPrivateEnterprisesMember 2020-12-31 0001209028 us-gaap:FairValueMeasurementsRecurringMember us-gaap:MortgageBackedSecuritiesIssuedByPrivateEnterprisesMember us-gaap:FairValueInputsLevel1Member 2020-12-31 0001209028 us-gaap:FairValueMeasurementsRecurringMember us-gaap:MortgageBackedSecuritiesIssuedByPrivateEnterprisesMember us-gaap:FairValueInputsLevel2Member 2020-12-31 0001209028 us-gaap:FairValueMeasurementsRecurringMember us-gaap:MortgageBackedSecuritiesIssuedByPrivateEnterprisesMember us-gaap:FairValueInputsLevel3Member 2020-12-31 0001209028 us-gaap:FairValueMeasurementsRecurringMember us-gaap:VariableInterestEntityPrimaryBeneficiaryMember 2020-12-31 0001209028 us-gaap:FairValueMeasurementsRecurringMember us-gaap:VariableInterestEntityPrimaryBeneficiaryMember us-gaap:FairValueInputsLevel1Member 2020-12-31 0001209028 us-gaap:FairValueMeasurementsRecurringMember us-gaap:VariableInterestEntityPrimaryBeneficiaryMember us-gaap:FairValueInputsLevel2Member 2020-12-31 0001209028 us-gaap:FairValueMeasurementsRecurringMember us-gaap:VariableInterestEntityPrimaryBeneficiaryMember us-gaap:FairValueInputsLevel3Member 2020-12-31 0001209028 us-gaap:FairValueMeasurementsRecurringMember 2020-12-31 0001209028 us-gaap:FairValueMeasurementsRecurringMember us-gaap:FairValueInputsLevel1Member 2020-12-31 0001209028 us-gaap:FairValueMeasurementsRecurringMember us-gaap:FairValueInputsLevel2Member 2020-12-31 0001209028 us-gaap:FairValueMeasurementsRecurringMember us-gaap:FairValueInputsLevel3Member 2020-12-31 0001209028 us-gaap:CapitalLossCarryforwardMember 2021-03-31 0001209028 ai:RestrictedStockRestrictedStockUnitsAndPerformanceSharesMember 2021-01-01 2021-03-31 0001209028 ai:RestrictedStockRestrictedStockUnitsAndPerformanceSharesMember 2020-01-01 2020-03-31 0001209028 us-gaap:CommonClassBMember 2021-03-31 0001209028 srt:MaximumMember us-gaap:CommonStockMember us-gaap:CommonClassAMember ai:AmendedNewEquityDistributionAgreementsMember 2018-08-10 0001209028 us-gaap:CommonStockMember ai:CommonEquityDistributionAgreementsMember 2021-01-01 2021-03-31 0001209028 us-gaap:CommonStockMember ai:CommonEquityDistributionAgreementsMember 2020-01-01 2020-03-31 0001209028 ai:AmendedNewEquityDistributionAgreementsMember us-gaap:CommonStockMember us-gaap:CommonClassAMember 2021-03-31 0001209028 us-gaap:CommonClassAMember srt:MaximumMember 2015-10-26 0001209028 srt:MaximumMember 2020-07-31 0001209028 2020-07-31 0001209028 us-gaap:CommonClassAMember us-gaap:CommonStockMember 2020-01-01 2020-12-31 0001209028 us-gaap:CommonClassAMember 2020-01-01 2020-12-31 0001209028 ai:SevenPercentSeriesBCumulativePerpetualRedeemablePreferredStockMember 2021-03-31 0001209028 us-gaap:SeriesAPreferredStockMember 2021-03-31 0001209028 ai:UndesignatedPreferredStockMember 2021-03-31 0001209028 us-gaap:SeriesBPreferredStockMember 2021-01-01 2021-03-31 0001209028 us-gaap:SeriesBPreferredStockMember us-gaap:PreferredStockMember 2020-01-01 2020-12-31 0001209028 us-gaap:SeriesBPreferredStockMember us-gaap:PreferredStockMember 2021-01-01 2021-03-31 0001209028 us-gaap:SeriesCPreferredStockMember 2021-01-01 2021-03-31 0001209028 us-gaap:SeriesCPreferredStockMember us-gaap:LondonInterbankOfferedRateLIBORMember 2021-01-01 2021-03-31 0001209028 us-gaap:SeriesCPreferredStockMember us-gaap:PreferredStockMember 2020-01-01 2020-12-31 0001209028 us-gaap:SeriesCPreferredStockMember us-gaap:PreferredStockMember 2021-01-01 2021-03-31 0001209028 srt:MaximumMember us-gaap:PreferredStockMember us-gaap:SeriesBPreferredStockMember ai:SeriesBPreferredEquityDistributionAgreementMember 2019-03-21 0001209028 us-gaap:PreferredStockMember us-gaap:SeriesBPreferredStockMember ai:SeriesBPreferredEquityDistributionAgreementMember 2021-01-01 2021-03-31 0001209028 us-gaap:PreferredStockMember us-gaap:SeriesBPreferredStockMember ai:SeriesBPreferredEquityDistributionAgreementMember 2021-01-01 2023-12-31 0001209028 us-gaap:PreferredStockMember us-gaap:SeriesBPreferredStockMember ai:SeriesBPreferredEquityDistributionAgreementMember 2021-03-31 0001209028 ai:ShareholderRightsPlanMember 2009-06-01 2009-06-01 0001209028 us-gaap:CommonClassAMember ai:ShareholderRightsPlanMember srt:MinimumMember 2009-06-01 2009-06-01

 

```11111

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File Number: 001-34374

 

ARLINGTON ASSET INVESTMENT CORP.

(Exact name of Registrant as specified in its charter)

 

 

Virginia

 

54-1873198

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

6862 Elm Street, Suite 320

McLean, VA

 

22101

(Address of Principal Executive Offices)

 

(Zip Code)

 

(703) 373-0200

(Registrant’s Telephone Number, Including Area Code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Sec. 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

  

Small reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes  No 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Class A Common Stock

 

AAIC

 

NYSE

7.00% Series B Cumulative Perpetual Redeemable Preferred Stock

 

AAIC PrB

 

NYSE

8.250% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock

 

AAIC PrC

 

NYSE

6.625% Senior Notes due 2023

 

AIW

 

NYSE

6.75% Senior Notes due 2025

 

AIC

 

NYSE

 

Number of shares outstanding of each of the registrant’s classes of common stock, as of April 30, 2021:

 

Title

 

Outstanding

Class A Common Stock

 

33,481,181 shares

 

 


 

 

ARLINGTON ASSET INVESTMENT CORP.

FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2021

INDEX

 

 

 

 

 

 

 

Page

PART I — FINANCIAL INFORMATION

 

 

 

 

Item 1.

 

Consolidated Financial Statements and Notes — (unaudited)

 

1

 

 

 

 

Consolidated Balance Sheets

 

1

 

 

 

 

Consolidated Statements of Comprehensive Income

 

2

 

 

 

 

Consolidated Statements of Changes in Equity

 

3

 

 

 

 

Consolidated Statements of Cash Flows

 

4

 

 

 

 

Notes to Consolidated Financial Statements

 

5

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

27

 

 

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

 

47

 

 

Item 4.

 

Controls and Procedures

 

52

PART II — OTHER INFORMATION

 

 

 

 

Item 1.

 

Legal Proceedings

 

53

 

 

Item 1A.

 

Risk Factors

 

53

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

53

 

 

Item 3.

 

Defaults Upon Senior Securities

 

53

 

 

Item 4.

 

Mine Safety Disclosures

 

53

 

 

Item 5.

 

Other Information

 

54

 

 

Item 6.

 

Exhibits

 

54

 

 

 

 

Signatures

 

56

 

 

 

i


 

 

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

ARLINGTON ASSET INVESTMENT CORP.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

(Unaudited)

 

 

 

March 31, 2021

 

 

December 31, 2020

 

ASSETS

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

48,198

 

 

$

28,796

 

Restricted cash of consolidated VIE

 

 

12,557

 

 

 

11,169

 

Interest receivable of consolidated VIE

 

 

309

 

 

 

545

 

Sold securities receivable

 

 

109,068

 

 

 

 

Agency mortgage-backed securities, at fair value

 

 

515,674

 

 

 

970,880

 

Mortgage credit securities, at fair value

 

 

16,405

 

 

 

26,660

 

Mortgage loans of consolidated VIE, at fair value

 

 

57,467

 

 

 

93,283

 

Mortgage loans, at fair value

 

 

44,914

 

 

 

45,000

 

MSR financing receivable, at fair value

 

 

36,005

 

 

 

9,346

 

Derivative assets, at fair value

 

 

2,280

 

 

 

258

 

Deposits

 

 

25,421

 

 

 

6,306

 

Other assets

 

 

15,046

 

 

 

20,146

 

Total assets

 

$

883,344

 

 

$

1,212,389

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Repurchase agreements

 

$

505,550

 

 

$

655,212

 

Secured debt of consolidated VIE, at fair value

 

 

58,654

 

 

 

93,627

 

Interest payable of consolidated VIE

 

 

201

 

 

 

321

 

Derivative liabilities, at fair value

 

 

4,267

 

 

 

221

 

Purchased securities payable

 

 

 

 

 

139,013

 

Other liabilities

 

 

2,111

 

 

 

4,698

 

Long-term unsecured debt

 

 

73,074

 

 

 

73,027

 

Total liabilities

 

 

643,857

 

 

 

966,119

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders’ Equity:

 

 

 

 

 

 

 

 

Series B Preferred stock, $0.01 par value, 336,273 shares issued

   and outstanding (liquidation preference of $8,407)

 

 

7,933

 

 

 

7,933

 

Series C Preferred stock, $0.01 par value, 1,117,034 shares issued

   and outstanding (liquidation preference of $27,926)

 

 

27,356

 

 

 

27,356

 

Class A common stock, $0.01 par value, 450,000,000 shares authorized, 33,481,181

   and 33,517,018 shares issued and outstanding, respectively

 

 

335

 

 

 

335

 

Additional paid-in capital

 

 

2,040,898

 

 

 

2,040,918

 

Accumulated deficit

 

 

(1,837,035

)

 

 

(1,830,272

)

Total stockholders’ equity

 

 

239,487

 

 

 

246,270

 

Total liabilities and stockholders’ equity

 

$

883,344

 

 

$

1,212,389

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2021

 

 

December 31, 2020

 

Assets and liabilities of consolidated VIE

 

 

 

 

 

 

 

 

Restricted cash

 

$

12,557

 

 

$

11,169

 

Interest receivable

 

 

309

 

 

 

545

 

Mortgage loans, at fair value

 

 

57,467

 

 

 

93,283

 

Secured debt, at fair value

 

 

(58,654

)

 

 

(93,627

)

Interest payable

 

 

(201

)

 

 

(321

)

Net investment in consolidated VIE

 

$

11,478

 

 

$

11,049

 

 

See notes to consolidated financial statements.

1


 

ARLINGTON ASSET INVESTMENT CORP.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in thousands, except per share data)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

Interest income

 

 

 

 

 

 

 

 

Agency mortgage-backed securities

 

$

2,784

 

 

$

23,388

 

Mortgage credit securities

 

 

566

 

 

 

731

 

Loans

 

 

703

 

 

 

711

 

Mortgage loans of consolidated VIE

 

 

1,687

 

 

 

 

MSR financing receivable

 

 

358

 

 

 

 

Interest and other income

 

 

161

 

 

 

143

 

Total interest income

 

 

6,259

 

 

 

24,973

 

Interest expense

 

 

 

 

 

 

 

 

Short-term secured debt

 

 

488

 

 

 

14,592

 

Long-term unsecured debt

 

 

1,151

 

 

 

1,240

 

Secured debt of consolidated VIE

 

 

862

 

 

 

 

Total interest expense

 

 

2,501

 

 

 

15,832

 

Net interest income

 

 

3,758

 

 

 

9,141

 

Investment (loss) gain, net

 

 

 

 

 

 

 

 

(Loss) gain on mortgage investments, net

 

 

(21,665

)

 

 

3,094

 

Gain (loss) from derivative instruments, net

 

 

14,545

 

 

 

(102,600

)

Other, net

 

 

357

 

 

 

(562

)

Total investment (loss) gain, net

 

 

(6,763

)

 

 

(100,068

)

General and administrative expenses

 

 

 

 

 

 

 

 

Compensation and benefits

 

 

1,395

 

 

 

1,858

 

Other general and administrative expenses

 

 

1,242

 

 

 

1,385

 

Total general and administrative expenses

 

 

2,637

 

 

 

3,243

 

Loss before income taxes

 

 

(5,642

)

 

 

(94,170

)

Income tax provision

 

 

398

 

 

 

 

Net loss

 

 

(6,040

)

 

 

(94,170

)

Dividend on preferred stock

 

 

(723

)

 

 

(774

)

Net loss attributable to common stock

 

$

(6,763

)

 

$

(94,944

)

Basic loss per common share

 

$

(0.20

)

 

$

(2.59

)

Diluted loss per common share

 

$

(0.20

)

 

$

(2.59

)

Weighted-average common shares outstanding

  (in thousands)

 

 

 

 

 

 

 

 

Basic

 

 

33,181

 

 

 

36,711

 

Diluted

 

 

33,181

 

 

 

36,711

 

 

See notes to consolidated financial statements.

2


 

ARLINGTON ASSET INVESTMENT CORP.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Dollars in thousands)

(Unaudited)

 

 

 

Series B

Preferred

Stock

(#)

 

 

Series B

Preferred

Amount

($)

 

 

Series C

Preferred

Stock

(#)

 

 

Series C

Preferred

Amount

($)

 

 

Class A

Common

Stock

(#)

 

 

Class A

Amount

($)

 

 

Additional

Paid-In

Capital

 

 

Accumulated

Deficit

 

 

Total

 

Balances, December 31, 2019

 

 

354,039

 

 

$

8,270

 

 

 

1,200,000

 

 

$

28,944

 

 

 

36,755,387

 

 

$

368

 

 

$

2,049,292

 

 

$

(1,759,626

)

 

$

327,248

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(94,170

)

 

 

(94,170

)

Issuance of Class A common

  stock under stock-based

  compensation plans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

60,374

 

 

 

 

 

 

62

 

 

 

 

 

 

62

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

393

 

 

 

 

 

 

393

 

Other

 

 

 

 

 

(6

)

 

 

 

 

 

(10

)

 

 

 

 

 

 

 

 

(6

)

 

 

 

 

 

(22

)

Dividends declared

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(702

)

 

 

(702

)

Balances, March 31, 2020

 

 

354,039

 

 

$

8,264

 

 

 

1,200,000

 

 

$

28,934

 

 

 

36,815,761

 

 

$

368

 

 

$

2,049,741

 

 

$

(1,854,498

)

 

$

232,809

 

 

 

 

 

Series B

Preferred

Stock

(#)

 

 

Series B

Preferred

Amount

($)

 

 

Series C

Preferred

Stock

(#)

 

 

Series C

Preferred

Amount

($)

 

 

Class A

Common

Stock

(#)

 

 

Class A

Amount

($)

 

 

Additional

Paid-In

Capital

 

 

Accumulated

Deficit

 

 

Total

 

Balances, December 31, 2020

 

 

336,273

 

 

$

7,933

 

 

 

1,117,034

 

 

$

27,356

 

 

 

33,517,018

 

 

$

335

 

 

$

2,040,918

 

 

$

(1,830,272

)

 

$

246,270

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,040

)

 

 

(6,040

)

Issuance of Class A common

  stock under stock-based

  compensation plans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

101,818

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

Repurchase of Class A

  common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(137,655

)

 

 

(1

)

 

 

(522

)

 

 

 

 

 

(523

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

503

 

 

 

 

 

 

503

 

Dividends declared

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(723

)

 

 

(723

)

Balances, March 31, 2021

 

 

336,273

 

 

$

7,933

 

 

 

1,117,034

 

 

$

27,356

 

 

 

33,481,181

 

 

$

335

 

 

$

2,040,898

 

 

$

(1,837,035

)

 

$

239,487

 

 

See notes to consolidated financial statements.

 

 

3


 

 

ARLINGTON ASSET INVESTMENT CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(6,040

)

 

$

(94,170

)

Adjustments to reconcile net loss to net cash provided by operating activities

 

 

 

 

 

 

 

 

Total investment loss, net

 

 

6,763

 

 

 

100,068

 

Net (discount) premium (accretion) amortization

 

 

(357

)

 

 

4,587

 

Other

 

 

564

 

 

 

521

 

Changes in operating assets

 

 

 

 

 

 

 

 

Interest receivable

 

 

510

 

 

 

4,536

 

Other assets

 

 

(90

)

 

 

(86

)

Changes in operating liabilities

 

 

 

 

 

 

 

 

Interest payable and other liabilities

 

 

1,091

 

 

 

(3,282

)

Accrued compensation and benefits

 

 

(1,754

)

 

 

(2,794

)

Net cash provided by operating activities

 

 

687

 

 

 

9,380

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of agency mortgage-backed securities

 

 

(354,417

)

 

 

(149,781

)

Purchases of mortgage credit securities

 

 

 

 

 

(49,353

)

Purchases of MSR financing receivables

 

 

(21,279

)

 

 

 

Proceeds from sales of agency mortgage-backed securities

 

 

517,200

 

 

 

1,762,433

 

Proceeds from sales of mortgage credit securities

 

 

11,978

 

 

 

30,054

 

Receipt of principal payments on agency mortgage-backed securities

 

 

14,305

 

 

 

121,715

 

Receipt of principal payments on mortgage credit securities

 

 

 

 

 

1

 

Receipt of principal payments on loans

 

 

85

 

 

 

 

Receipt of principal payments on mortgage loans of consolidated VIE

 

 

36,529

 

 

 

 

Payments for derivatives and deposits, net

 

 

(2,543

)

 

 

(100,818

)

Other

 

 

4,154

 

 

 

 

Net cash provided by investing activities

 

 

206,012

 

 

 

1,614,251

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Repayments of repurchase agreements, net

 

 

(149,662

)

 

 

(1,544,771

)

Repayments of secured debt of consolidated VIE, net

 

 

(34,994

)

 

 

 

Repurchase of common stock

 

 

(523

)

 

 

 

Repurchase of long-term unsecured debt

 

 

(7

)

 

 

 

Dividends paid

 

 

(723

)

 

 

(9,098

)

Other

 

 

 

 

 

(22

)

Net cash used in financing activities

 

 

(185,909

)

 

 

(1,553,891

)

Net increase in cash, cash equivalents and restricted cash

 

 

20,790

 

 

 

69,740

 

Cash, cash equivalents and restricted cash, beginning of period

 

 

39,965

 

 

 

19,636

 

Cash, cash equivalents and restricted cash, end of period

 

$

60,755

 

 

$

89,376

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Cash payments for interest

 

$

2,434

 

 

$

19,243

 

Cash payments for taxes

 

$

 

 

$

 

 

See notes to consolidated financial statements.

 

 

 

4


 

 

ARLINGTON ASSET INVESTMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

(Unaudited)

 

Note 1. Organization and Basis of Presentation

Arlington Asset Investment Corp. (“Arlington Asset”) and its consolidated subsidiaries (unless the context otherwise provides, collectively, the “Company”) is an investment firm that focuses primarily on investing in mortgage related assets.  The Company may also invest in other asset classes that its management team believes may offer attractive risk adjusted returns, such as real estate assets or investments outside the real estate or mortgage asset classes.  The Company’s investment capital is currently allocated between agency mortgage-backed securities (“MBS”), mortgage credit investments and mortgage servicing right (“MSR”) related assets.

The Company’s agency MBS consist of residential mortgage pass-through certificates for which the principal and interest payments are guaranteed by either a U.S. government sponsored enterprise (“GSE”), such as the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”), or by a U.S. government agency, such as the Government National Mortgage Association (“Ginnie Mae”).  The Company’s mortgage credit investments generally include investments in mortgage loans secured by either residential or commercial real property or MBS collateralized by residential or commercial mortgage loans (“non-agency MBS”).  The principal and interest of the Company’s mortgage credit investments are not guaranteed by a GSE or a U.S government agency.  The Company’s MSR related assets represent investments for which the return is based on the economic performance of a pool of specific MSRs.

Arlington Asset is a Virginia corporation. The Company is internally managed and does not have an external investment advisor.

The Company has elected to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”). As a REIT, the Company is required to distribute annually 90% of its REIT taxable income (subject to certain adjustments). So long as the Company continues to qualify as a REIT, it will generally not be subject to U.S. Federal or state corporate income taxes on its taxable income that it distributes to its shareholders on a timely basis. At present, it is the Company’s intention to distribute 100% of its taxable income, although the Company will not be required to do so. The Company intends to make distributions of its taxable income within the time limits prescribed by the Internal Revenue Code, which may extend into the subsequent taxable year.

The unaudited interim consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X. The Company’s unaudited interim consolidated financial statements and notes thereto should be read in conjunction with the Company’s audited annual consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

The Company’s consolidated financial statements include the accounts of Arlington Asset and all other entities in which the Company has a controlling financial interest. All intercompany accounts and transactions have been eliminated in consolidation.

The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect amounts reported in the consolidated financial statements. Although the Company bases these estimates and assumptions on historical experience and all other reasonably available information that the Company believes to be relevant under the circumstances, such estimates frequently require management to exercise significant subjective judgment about matters that are inherently uncertain. Actual results may differ from these estimates materially.

Certain amounts in the consolidated financial statements and notes for prior periods have been reclassified to conform to the current year’s presentation. These reclassifications had no impact on the previously reported net income, total assets or total liabilities.

 

Note 2. Summary of Significant Accounting Policies

Cash Equivalents

Cash equivalents include demand deposits with banks, money market accounts and highly liquid investments with original maturities of three months or less. As of March 31, 2021 and December 31, 2020, approximately 99% of the Company’s cash

5


 

equivalents were invested in money market funds that invest primarily in U.S. Treasuries and other securities backed by the U.S. government.

Investment Security Purchases and Sales

Purchases and sales of investment securities are recorded on the settlement date of the transfer unless the trade qualifies as a “regular-way” trade and the associated commitment qualifies for an exemption from the accounting guidance applicable to derivative instruments. A regular-way trade is an investment security purchase or sale transaction that is expected to settle within the period of time following the trade date that is prevalent or traditional for that specific type of security. Any amounts payable or receivable for unsettled security trades are recorded as “sold securities receivable” or “purchased securities payable” in the consolidated balance sheets.

Interest Income Recognition for Investments in Agency MBS and Mortgage Loans of a Consolidated VIE

The Company recognizes interest income for its investments in agency MBS and mortgage loans of a consolidated variable interest entity (“VIE”) by applying the “interest method” permitted by GAAP, whereby purchase premiums and discounts are amortized and accreted, respectively, as an adjustment to contractual interest income accrued at each investment’s stated interest rate. The interest method is applied at the individual instrument level based upon each instrument’s effective interest rate. The Company calculates each instrument’s effective interest rate at the time of purchase or initial recognition by solving for the discount rate that equates the present value of that instrument's remaining contractual cash flows (assuming no principal prepayments) to its purchase cost. Because each instrument’s effective interest rate does not reflect an estimate of future prepayments, the Company refers to this manner of applying the interest method as the “contractual effective interest method.” When applying the contractual effective interest method to its investments in agency MBS and mortgage loans of a consolidated VIE, as principal prepayments occur, a proportional amount of the unamortized premium or unaccreted discount is recognized in interest income such that the contractual effective interest rate on any remaining security or loan balance is unaffected.

For mortgage loans of a consolidated VIE, the Company ceases the accrual of interest income (i.e., places the loan in non-accrual status) when it believes collectability of principal and interest in full is not reasonably assured, which generally occurs when a loan is three or more monthly payments past due, unless the loan is well secured and in the process of collection based upon an individual loan assessment.  When a loan is placed in non-accrual status, all accrued but uncollected contractual interest as well as any discount accreted during the period of delinquency are reversed.  While a loan is in non-accrual status, the Company recognizes interest income only when interest payments occur.

Interest Income Recognition for Investments in Mortgage Credit Securities and MSR Financing Receivables

The Company recognizes interest income for its investments in mortgage credit securities and MSR financing receivables by applying the prospective level-yield methodology required by GAAP for financial assets that are either not of high credit quality at the time of acquisition or can be contractually prepaid or otherwise settled in such a way that the Company would not recover substantially all of its recorded investment.  The amount of periodic interest income recognized is determined by applying the investment’s effective interest rate to its amortized cost basis (or “reference amount”). At the time of acquisition, the investment’s effective interest rate is calculated by solving for the single discount rate that equates the present value of the Company’s best estimate of the amount and timing of the cash flows expected to be collected from the investment to its purchase cost. To prepare its best estimate of cash flows expected to be collected, the Company develops a number of assumptions about the future performance of the pool of mortgage loans that serve as collateral for its investment, including assumptions about the timing and amount of prepayments and credit losses.  In each subsequent quarterly reporting period, the amount and timing of cash flows expected to be collected from the investment are re-estimated based upon current information and events. The following table provides a description of how periodic changes in the estimate of cash flows expected to be collected affect interest income recognition prospectively for investments in mortgage credit securities and MSR financing receivables:

 

 Scenario:

 

 

Effect on Interest Income Recognition for Investments

in Mortgage Credit Securities and MSR Financing Receivables:

 

 

A positive change in cash flows occurs.

 

Actual cash flows exceed prior estimates and/or a positive change occurs in the estimate of expected remaining cash flows.

 

 

A revised effective interest rate is calculated and applied prospectively such that the positive change in cash flows will be recognized as incremental interest income over the remaining life of the investment.

 

 

 

 

 

The amount of periodic interest income recognized over the remaining life of the investment will be reduced accordingly. Generally, the investment’s effective interest rate is reduced accordingly and applied on a prospective basis.  However, if the revised effective interest rate is negative, the investment’s existing effective interest rate is retained while the reference amount to which the existing effective interest rate will be prospectively applied is reduced to the present value of cash flows expected to be collected, discounted at the investment’s existing effective interest rate.

An adverse change in cash flows occurs.

 

Actual cash flows fall short of prior estimates and/or an adverse change occurs in the estimate of expected remaining cash flows.

 

 

6


 

 

 

Other Significant Accounting Policies

Certain of the Company’s other significant accounting policies are summarized in the following notes:

 

Investments in agency MBS, subsequent measurement

Note 3

Investments in mortgage credit securities, subsequent measurement

Loans held for investment, subsequent measurement

Investments in MSR financing receivables, subsequent measurement

Consolidation of variable interest entities

Borrowings

Note 4

Note 5

Note 6

Note 7

Note 8

To-be-announced agency MBS transactions, including “dollar rolls”

Note 9

Derivative instruments

Note 9

Balance sheet offsetting

Note 10

Fair value measurements

Income taxes

Note 11

Note 12

 

Refer to the Company’s 2020 Annual Report on Form 10-K for a complete inventory and summary of the Company’s significant accounting policies.

 

Recent Accounting Pronouncements

The following table provides a brief description of recently issued accounting pronouncements and their actual or expected effect on the Company’s consolidated financial statements:

 

Standard

Description

Date of

Adoption

Effect on the Consolidated

Financial Statements

Recently Issued Accounting Guidance Not Yet Adopted

ASU Nos. 2020-04 and 2021-01, Reference Rate Reform (Topic 848)

 

 

The amendments in these updates provide optional practical expedients and exceptions for applying GAAP to the modification of receivables, debt or lease contracts as well as cash flow and fair value hedge accounting relationships that reference a rate, such as the London Interbank Offered Rate (“LIBOR”), that is expected to be discontinued because of reference rate reform.

 

The practical expedients and exceptions provided by these updates are effective from March 12, 2020 through December 31, 2022.

Not yet adopted.

To date, the Company has not made any modifications to contracts due to reference rate reform.

 

The Company has not elected to apply hedge accounting for financial reporting purposes.

 

The Company does not currently expect the adoption of ASU Nos. 2020-04 and 2021-01 to have an effect on its consolidated financial statements.

 

 

7


 

 

Note 3. Investments in Agency MBS

The Company has elected to classify its investments in agency MBS as trading securities.  Accordingly, the Company’s investments in agency MBS are reported in the accompanying consolidated balance sheets at fair value.  As of March 31, 2021 and December 31, 2020, the fair value of the Company’s investments in agency MBS was $515,674 and $970,880, respectively. As of March 31, 2021, all the Company’s investments in agency MBS represent undivided (or “pass-through”) beneficial interests in specified pools of fixed-rate mortgage loans.

All periodic changes in the fair value of agency MBS that are not attributed to interest income are recognized as a component of “investment gain (loss), net” in the accompanying consolidated statements of comprehensive income. The following table provides additional information about the gains and losses recognized as a component of “investment gain (loss), net” in the Company’s consolidated statements of comprehensive income for the periods indicated with respect to investments in agency MBS:

 

 

 

Three Months Ended March 31,

 

 

 

 

2021

 

 

2020

 

 

Net gains (losses) recognized in earnings for:

 

 

 

 

 

 

 

 

 

Agency MBS still held at period end

 

$

(19,035

)

 

$

12,127

 

 

Agency MBS sold during the period

 

 

(10,180

)

 

 

11,391

 

 

Total

 

$

(29,215

)

 

$

23,518

 

 

 

The Company also invests in and finances fixed-rate agency MBS on a generic pool basis through sequential series of to-be-announced security transactions commonly referred to as “dollar rolls.” Dollar rolls are accounted for as a sequential series of derivative instruments. Refer to “Note 9. Derivative Instruments” for further information about dollar rolls.

 

 

 

Note 4. Investments in Mortgage Credit Securities

The Company has elected to classify its investments in mortgage credit securities as trading securities.  Accordingly, the Company’s investments in mortgage credit securities are reported in the accompanying consolidated balance sheets at fair value.  As of March 31, 2021 and December 31, 2020, the fair value of the Company’s investments in mortgage credit securities was $16,405 and $26,660, respectively.  As of March 31, 2021, the Company’s investments in mortgage credit securities primarily consist of non-agency MBS collateralized by pools of business purpose residential mortgage loans or smaller balance commercial mortgage loans.

All periodic changes in the fair value of mortgage credit securities that are not attributed to interest income are recognized as a component of “investment gain (loss), net” in the accompanying consolidated statements of comprehensive income. The following table provides additional information about the gains and losses recognized as a component of “investment gain (loss), net” in the Company’s consolidated statements of comprehensive income for the periods indicated with respect to investments in mortgage credit securities:

 

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

Net gains (losses) recognized in earnings for:

 

 

 

 

 

 

 

 

Mortgage credit securities still held at period end

 

$

551

 

 

$

(15,618

)

Mortgage credit securities sold during the period

 

 

840

 

 

 

(4,420

)

Total

 

$

1,391

 

 

$

(20,038

)

 

 

Note 5. Loans Held for Investment

As of March 31, 2021 and December 31, 2020, the Company held a loan secured by a first lien position in healthcare facilities and guaranteed by the operator of the facilities with an outstanding principal balance of $44,914 and $45,000, respectively.  The loan bears interest at a floating note rate equal to one-month LIBOR plus 4.25% with a LIBOR floor of 2.00%.  The maturity date of the loan is December 31, 2021 with a one-year extension available at the option of the borrower.  The loan has an initial interest-only period of one year followed by principal amortization based upon a 30-year amortization schedule beginning in 2021 with the remaining principal balance due at loan maturity. 

8


 

The Company has elected to account for its loan held for investment at fair value on a recurring basis with periodic changes in fair value recognized as a component of “investment gain (loss), net” in the accompanying consolidated statements of comprehensive income.  As of March 31, 2021 and December 31, 2020, the Company’s investment was $44,914 and $45,000, respectively, at fair value.  The Company recognizes interest income on its loan investment based upon the contractual note rate of the loan.

 

 

Note 6. Investments in MSR Financing Receivables

 

The Company does not hold the requisite licenses to purchase or hold MSRs directly.  However, the Company has entered into agreements with a licensed, GSE approved residential mortgage loan servicer that enable the Company to garner the economic return of an investment in an MSR purchased by the mortgage servicing counterparty through an MSR financing transaction.  Under the terms of the arrangement, for an MSR acquired by the mortgage servicing counterparty (i) the Company purchases the “excess servicing spread” from the mortgage servicer counterparty, entitling the Company to monthly distributions of the servicing fees collected by the mortgage servicing counterparty in excess of 12.5 basis points per annum (and to distributions of corresponding proceeds of sale of the MSRs), and (ii) the Company funds the balance of the MSR purchase price to the parent company of the mortgage servicing counterparty and, in exchange, has an unsecured right to payment of certain amounts determined by reference to the  MSR, generally equal to the servicing fee revenue less the excess servicing spread and the costs of servicing (and to distributions of corresponding proceeds of sale of the MSRs), net of fees earned by the mortgage servicing counterparty and its affiliates including an incentive fee equal to a percentage of the total return of the MSR in excess of a hurdle rate of return.  Under the arrangement, the Company is obligated to provide funds to the mortgage servicing counterparty to fund its advances of delinquent payments on the serviced pool of mortgage loans with the mortgage servicing counterparty required to return to the Company any subsequent servicing advances collected.  The Company has committed to invest a minimum of $25,000 in capital with the counterparty for a three-year period ending December 31, 2023. 

 

Under GAAP, the Company accounts for transactions executed under its arrangement as financing transactions and reflects the associated financing receivables in the line item “MSR financing receivables” on its consolidated balance sheets.  The Company has elected to account for its MSR financing receivables at fair value with changes in fair value that are not attributed to interest income recognized as a component of “investment gain (loss), net” in the accompanying consolidated statements of comprehensive income.  As described in further detail in “Note 2. Summary of Significant Accounting Policies,” the Company recognizes interest income for MSR financing receivables by applying the prospective level-yield methodology required by GAAP for financial assets that are either not of high credit quality at the time of acquisition or can be contractually prepaid or otherwise settled in such a way that the Company would not recover substantially all of its recorded investment.

 

As of March 31, 2021 and December 31, 2020, the fair value of the Company’s investments in MSR financing receivables was $36,005 and $9,346, respectively. The following table presents activity related to the carrying value of the Company’s investments in MSR financing receivables:

 

 

 

MSR Financing Receivables, at Fair Value

 

Balance as of December 31, 2020

 

$

9,346

 

Capital investments

 

 

20,344

 

Accretion of interest income

 

 

358

 

Changes in fair value due to:

 

 

 

 

Amortization of underlying MSRs

 

 

(1,276

)

Changes in valuation inputs and assumptions

 

 

7,233

 

Balance as of March 31, 2021

 

$

36,005

 

 

 

Note 7. Consolidation of Variable Interest Entities

 

The vehicles that issue the Company’s investments in securitized mortgage assets are considered VIEs. The Company is required to consolidate any VIE in which it holds a variable interest if it determines that it holds a controlling financial interest in the VIE and is, therefore, determined to be the primary beneficiary of the VIE.  The Company is determined to be the primary beneficiary of a VIE in which it holds a variable interest if it both (i) holds the power to direct the activities that most significantly impact the VIE’s economic performance and (ii) has the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE.  The economic performance of the trusts that issue the Company’s investments in securitized mortgage assets is most significantly impacted by the performance of the mortgage loans that are held by the trusts.  The party that is determined to have the most power to direct the loss mitigation actions that are taken with respect to delinquent or otherwise troubled mortgage loans held

9


 

by the trust is, therefore, deemed to hold the most power to direct the activities that most significantly impact the trust’s economic performance.  As a passive investor, the Company does not have the power to direct the loss mitigation activities of most of the trusts that have issued its securitized mortgage assets.  

 

On September 30, 2020, the Company acquired for $10,693 an investment that represents a majority interest in the first loss position of a securitized pool of business purpose residential mortgage loans. As majority holder of the first loss position, the Company is required to approve any material loss mitigation action proposed by the servicer with respect to a troubled loan.  The Company also has the option (but not the obligation) to purchase delinquent loans from the trust.  As a result of these contractual rights, the Company determined that it is the party with the most power to direct the loss mitigation activities and, therefore, the economic performance of the trust.  As holder of the majority of the first loss position issued by the trust, the Company has the obligation to absorb losses or the right to receive benefits that could potentially be significant to the trust.  Accordingly, the Company determined that it is the primary beneficiary of the trust and consolidated the trust’s assets and liabilities owed to third parties onto its consolidated balance sheets.  The carrying values of the assets and liabilities of the consolidated VIE, net of elimination entries, are as follows as of the dates indicated:

 

 

 

March 31, 2021

 

 

December 31, 2020

 

Restricted cash of consolidated VIE (1)

 

$

12,557

 

 

$

11,169

 

Mortgage loans of consolidated VIE, at fair value

 

 

57,467

 

 

 

93,283

 

Interest receivable of consolidated VIE

 

 

309

 

 

 

545

 

Secured debt of consolidated VIE, at fair value

 

 

(58,654

)

 

 

(93,627

)

Interest payable of consolidated VIE

 

 

(201

)

 

 

(321

)

Investment in consolidated VIE

 

$

11,478

 

 

$

11,049

 

 

 

(1)

Restricted cash represents cash collected by the trust that must be used solely to satisfy the liabilities of the VIE in the month following collection.

 

The pool of mortgage loans and the third-party held debt obligations of the consolidated VIE had aggregate unpaid principal balances of $59,519 and $58,838, respectively, as of March 31, 2021.  The trust is contractually entitled to receive monthly interest payments on each underlying mortgage loan net of a loan-specific servicing and asset management fee that is not remitted to the trust but is, rather, retained by the servicer.  As of March 31, 2021, the weighted average net note rate to which the VIE was entitled and the weighted average coupon rate of the debt obligations of the consolidated VIE were 6.03% and 4.01%, respectively.  The debt of the consolidated VIE has recourse solely to the assets of the VIE; it has no recourse to the general credit of the Company.

 

The pool of business purpose residential mortgage loans held by the consolidated VIE consists of fixed-rate, short-term, interest-only mortgage loans (with the full amount of principal due at maturity) made to professional real estate investors and are secured by first lien positions in non-owner occupied residential real estate.  The properties that secure these mortgage loans often require construction, repair or rehabilitation.  The repayment of the mortgage loans is often largely based on the ability of the borrower to sell the mortgaged property or to convert the property for rental purposes and obtain refinancing in the form of a longer-term loan.  Pursuant to the terms of certain of the mortgage loans, the borrower may draw upon a specified amount of additional funds as needed in order to finance construction on, or the repair or rehabilitation of, the mortgaged property (referred to as a “construction draw”).  Pursuant to the terms of the securitization transaction, if the monthly principal repayments collected from the mortgage loan pool are insufficient to fund that month’s construction draws, such shortfall is to be funded by the holders of the first loss position on a pro rata basis.  Any construction draws funded by holders of the first loss position accrue interest at the net note rate of the mortgage loan.  The repayment of any construction draws funded by holders of the first loss position takes priority over the senior debt securities with respect to the cash flows collected from the mortgage loan pool in the following month.  As of March 31, 2021, the aggregate unfunded construction draw balance commitment attributable to the Company’s subordinate debt security investment was $6,352.

 

The Company has elected to account for the mortgage loans and debt of the consolidated VIE at fair value with changes in fair value that are not attributed to interest income or interest expense, respectively, recognized as a component of “investment gain (loss), net” in the accompanying consolidated statements of comprehensive income.

 

As described in further detail in “Note 2. Summary of Significant Accounting Policies,” the Company recognizes interest income for the mortgage loans of the consolidated VIE by applying the “interest method” permitted by GAAP, whereby the discount recognized at the initial recognition of each loan is accreted as an adjustment to contractual interest income accrued at the loan’s stated interest rate. The Company ceases the accrual of interest income for a mortgage loan (i.e., places the loan in non-accrual status) when it believes collectability of principal and interest in full is not reasonably assured, which generally occurs when a loan is three or more monthly payments past due, unless the loan is well secured and in the process of collection based upon an individual loan

10


 

assessment.  Upon placing a loan in non-accrual status, any previously accrued but uncollected interest is derecognized and a corresponding reduction to current period interest income is recorded.  The following table presents information about the accrual status of the mortgage loans of the consolidated VIE as of March 31, 2021:

 

 

 

Aggregate Fair Value

 

 

Aggregate Unpaid Principal Balance

 

 

Difference

 

Less than 90 days past due and in accrual status

 

$

50,957

 

 

$

52,777

 

 

$

(1,820

)

90 days or more past due and in non-accrual status

 

 

6,510

 

 

 

6,742

 

 

 

(232

)

Total mortgage loans of consolidated VIE

 

$

57,467

 

 

$

59,519

 

 

$

(2,052

)

 

 

Note 8. Borrowings

Repurchase Agreements

The Company finances the purchase of mortgage investments through repurchase agreements, which are accounted for as collateralized borrowing arrangements. In a repurchase transaction, the Company sells a mortgage investment to a counterparty under a master repurchase agreement in exchange for cash and concurrently agrees to repurchase the same asset at a future date in an amount equal to the cash initially exchanged plus an agreed-upon amount of interest. Mortgage investments sold under agreements to repurchase remain on the Company’s consolidated balance sheets because the Company maintains effective control over such assets throughout the duration of the arrangement. Throughout the contractual term of a repurchase agreement, the Company recognizes a “repurchase agreement” liability on its consolidated balance sheets to reflect the obligation to repay to the counterparty the proceeds received upon the initial transfer of the mortgage investment. The difference between the proceeds received by the Company upon the initial transfer of the mortgage investment and the contractually agreed-upon repurchase price is recognized as interest expense ratably over the term of the repurchase arrangement.

Amounts borrowed pursuant to repurchase agreements are equal in value to a specified percentage of the fair value of the pledged collateral. The Company retains beneficial ownership of the pledged collateral throughout the term of the repurchase agreement. The counterparty to the repurchase agreements may require that the Company pledge additional securities or cash as additional collateral to secure borrowings when the value of the collateral declines.

The Company’s MBS repurchase agreement arrangements generally carry a fixed rate of interest and are short-term in nature with contract durations generally ranging from 30 to 60 days, but may be as short as one day or as long as one year.  The Company’s mortgage loan repurchase agreement arrangement has a maturity date of November 11, 2021 and an interest rate that resets monthly at a rate equal to one-month LIBOR plus 2.00% with a LIBOR floor of 1.00%.  Under the terms of the Company’s mortgage loan repurchase agreement, the Company may request extensions of the maturity date of the agreement for up to 364 days, subject to the lender’s approval.

11


 

As of March 31, 2021 and December 31, 2020, the Company had no amount at risk with a single repurchase agreement counterparty or lender greater than 10% of equity. The following table provides information regarding the Company’s outstanding repurchase agreement borrowings as of the dates indicated:

 

 

 

March 31, 2021

 

 

December 31, 2020

 

Agency MBS repurchase financing:

 

 

 

 

 

 

 

 

Repurchase agreements outstanding

 

$

474,050

 

 

$

623,712

 

Agency MBS collateral, at fair value (1)

 

 

491,811

 

 

 

656,154

 

Net amount (2)

 

 

17,761

 

 

 

32,442

 

Weighted-average rate

 

 

0.15

%

 

 

0.21

%

Weighted-average term to maturity

 

14.0 days

 

 

14.0 days

 

Mortgage loans repurchase financing:

 

 

 

 

 

 

 

 

Repurchase agreements outstanding

 

$

31,500

 

 

$

31,500

 

Mortgage loans collateral, at fair value

 

 

44,914

 

 

 

45,000

 

Net amount (2)

 

 

13,414

 

 

 

13,500

 

Weighted-average rate

 

 

3.00

%

 

 

3.00

%

Weighted-average term to maturity

 

225.0 days

 

 

315.0 days

 

Total mortgage investments repurchase financing:

 

 

 

 

 

 

 

 

Repurchase agreements outstanding

 

$

505,550

 

 

$

655,212

 

Mortgage investments collateral, at fair value

 

 

536,725