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 ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ such files)~~.Yes~~ . Yes☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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.

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 ☒

Number of shares outstanding of each of the registrant’s classes of common stock, as of ~~October 31, 2017:~~April 28, 2023:

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 ~~acquires~~focuses primarily on investing in mortgage related assets and ~~holds~~ residential ~~mortgage-related~~real estate. The Company’s investment capital is currently allocated between mortgage servicing rights (“MSR”) related assets, ~~primarily comprised of residential~~credit investments and agency mortgage-backed securities (“MBS”).

The Company’s MSR related assets represent investments for which the return is based on the economic performance of a pool of specific MSRs. The Company’s credit investments generally include investments in mortgage loans secured by either residential or commercial real property or MBS ~~include (i)~~collateralized by residential or commercial mortgage loans (“non-agency MBS”) or asset-backed securities (“ABS”) collateralized by residential solar panel loans. The Company’s agency MBS consist of residential mortgage pass-through certificates for which the principal and interest payments are guaranteed by a ~~government-sponsored~~U.S. government sponsored enterprise (“GSE”), such as the Federal National Mortgage Association (“Fannie Mae”) orand the Federal Home Loan Mortgage Corporation (“Freddie Mac”),.

The Company also previously allocated investment capital to a strategy of investing in single-family residential ("SFR") properties that consisted of acquiring, leasing and operating single-family residential homes as rental properties. During 2022, the Company sold its portfolio of SFR properties and is currently no longer anticipating allocating capital to its SFR investment strategy.

The Company 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 ~~are collectively referred to as “agency MBS,” and (ii) residential MBS issued by private institutions for which~~may extend into the ~~principal and interest payments are not guaranteed by a GSE, which are referred to as “private-label MBS” or “non-agency MBS.”~~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, ~~2016.~~ 2022.

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 materially from these estimates.

Certain prior period amounts in the consolidated financial statements and the accompanying notes ~~for prior periods~~may have been reclassified to conform to the current year’s presentation. These reclassifications had no impact on the previously reported net income, ~~other comprehensive 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 ~~September 30, 2017~~March 31, 2023 and December 31, ~~2016,~~2022, approximately ~~98%~~68% and ~~99%~~84%, respectively, of the Company’s cash 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, Mortgage Loans of Consolidated VIEs and Credit Securities of High Credit Quality

The Company recognizes interest income for its investments in agency MBS, mortgage loans of consolidated variable interest entities (“VIEs”) and credit securities that are considered to be of high credit quality (that is, those with a Standard & Poor's rating of AA or higher or an equivalent rating from another rating agency) 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 ~~security’s~~investment’s stated ~~coupon~~interest rate. The interest method is applied at the individual ~~security~~instrument level based upon each ~~security’s~~instrument’s effective interest rate. The Company calculates each ~~security’s~~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 ~~security's~~instrument's remaining contractual cash flows (assuming no principal prepayments) to its purchase ~~price.~~cost. Because each ~~security’s~~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,~~ 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 ~~the~~any remaining security or loan balance is unaffected.

For mortgage loans of consolidated VIEs, 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. 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. While a loan is in non-accrual status, the Company recognizes interest income only when interest payments occur.

Interest Income Recognition for Investments in ~~Private-Label MBS~~Other Credit Securities and MSR Financing Receivables

The ~~Company’s~~Company recognizes interest income for its investments in ~~private-label MBS were generally acquired~~credit securities (other than those considered to be of high credit quality) 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 ~~significant discounts to their par values due~~the time of acquisition or can be contractually prepaid or otherwise settled in ~~large part to an expectation~~such a way that the Company ~~will be unable to collect~~would not recover substantially all of the contractual cash flows of the securities. Investments in private-label MBS acquired prior to 2015 were classified as available-for-sale, all of which had been sold as of December 31, 2016. The Company has elected to classify its investments in private-label MBS acquired in 2015 or later as trading securities. Interest income from investments in private-label MBS is recognized using a prospective level-yield methodology which is based upon each security’s effective interest rate.recorded investment. The amount of periodic interest income recognized is determined by applying the ~~security’s~~investment’s effective interest rate to its amortized cost basis ~~or reference amount.~~(or “reference amount”). At the time of acquisition, the ~~security’s~~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 ~~security~~investment to its purchase ~~price.~~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.

For investments in MSR financing receivables, the Company's estimate of cash flows expected to be collected reflects all components of its mortgage servicing counterparty's payment obligation, which is comprised of cash flows referenced to the monthly net cash flows of the underlying reference pool of MSRs net of (i) the counterparty's periodic interest payments and principal repayments related to advances obtained via its third-party secured financing facility collateralized by MSRs to which the Company's MSR financing receivables are referenced and (ii) fees payable to the counterparty. In each subsequent quarterly reporting period, the amount and timing of cash flows expected to be collected from the ~~security~~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 ~~private-label MBS that are classified as available-for-sale~~credit securities and ~~trading securities, respectively:~~MSR financing receivables:


Scenario:			Effect on Interest Income Recognition for Investments in ~~Private-Label MBS~~ ~~Classified as:~~Credit Securities and MSR Financing Receivables:
Scenario:	~~Scenario:~~			~~Available-for-Sale~~		~~Trading~~
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.		If the positive change in cash flows is deemed significant, a revised effective interest rate is calculated and applied prospectively such that the positive change is recognized as incremental interest income over the remaining life of the security. This revised effective interest rate is also used in subsequent periods to determine if any declines in the fair value of that security are other-than-temporary.		A revised effective interest rate is calculated and applied prospectively such that the positive change in cash flows is recognized as incremental interest income over the remaining life of the ~~security.~~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.		The security’s effective interest rate is unaffected. If an adverse change in cash flows occurs for a security that is impaired (that is, its fair value is less than its amortized cost basis), the impairment is considered other-than-temporary due to the occurrence of a credit loss. If a credit loss occurs, the Company writes-down the amortized cost basis of the security to an amount equal to the present value of cash flows expected to be collected, discounted at the security’s existing effective interest rate, and recognizes a corresponding other-than-temporary impairment charge in earnings as a component of “investment gain (loss), net.”			The amount of periodic interest income recognized over the remaining life of the security will be reduced accordingly. Specifically, if an adverse change in cash flows occurs for a security that is impaired (that is, its fair value is less than its reference amount), the reference amount to which the security’s existing effective interest rate will be prospectively applied will be reduced to the present value of cash flows expected to be collected, discounted at the security’s existing effective interest rate. If an adverse change in cash flows occurs for a security that is not impaired, the security’s effective interest rate will be reduced accordingly and applied on a prospective basis.

~~Other Comprehensive Income~~

Comprehensive income includes net income as currently reported by the Company on the consolidated statements of comprehensive income adjusted for other comprehensive income. Other comprehensive income for the Company represents periodic unrealized holding gains and losses related to the Company’s investments in MBS classified as available-for-sale. Accumulated unrealized holding gains and losses for available-for-sale MBS are reclassified into net income as a component of “investment gain

(loss), net” upon (i) sale or realization, or (ii) the occurrence of an other-than-temporary impairment. As of December 31, 2016 all of the Company’s investments in MBS are classified as trading securities. Accordingly, all unrealized gains and losses related to the Company’s investments in MBS during 2017 have been recognized in net income.

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 ~~private-label MBS,~~credit securities, subsequent measurement Loans held for investment, subsequent measurement Investments in MSR financing receivables, subsequent measurement Investments in SFR properties	Note 4 Note 5 Note 6 Note 7
Consolidation of variable interest entities Borrowings	Note 58 Note 9
To-be-announced agency MBS transactions, including “dollar rolls”	Note 610
Derivative instruments	Note 610
Balance sheet offsetting	Note 711
Fair value measurements Income taxes	Note 812 Note 13
Stock-based compensation	Note 16

Refer to the Company’s ~~2016~~2022 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 Adopted Accounting Guidance~~
~~ASU No. 2016-07,~~ ~~Simplifying the Transition to the Equity Method of Accounting (Topic 323)~~	This amendment eliminates the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held.	~~January 1, 2017~~	~~The adoption of ASU No. 2016-07 did not impact the Company’s consolidated financial statements.~~

~~ASU No. 2016-09,~~ ~~Improvements to Employee Share-Based Payment Accounting (Topic 718)~~	This amendment was issued with the objective of simplifying several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Some of the areas for simplification apply only to nonpublic entities.	~~January 1, 2017~~	~~The adoption of ASU No. 2016-07 did not have a material impact on the Company’s consolidated financial statements.~~

Recently Issued Accounting Guidance Not Yet Adopted
ASU ~~No. 2015-14,~~ ~~Revenue from Contracts with Customers~~Nos. 2020-04, 2021-01, and 2022-06, Reference Rate Reform (Topic ~~606): Deferral of the Effective Date~~848)	~~This amendment defers~~The amendments in these updates provide optional practical expedients and exceptions for applying GAAP to the ~~effective date~~modification of ~~ASU No. 2014-09 for all entities by one year.~~ ~~ASU No. 2014-09 requires entities to recognize revenue to depict~~receivables, debt or lease contracts as well as cash flow and fair value hedge accounting relationships that reference a rate, such as the ~~transfer of promised goods or services to customers in amounts~~London Interbank Offered Rate (“LIBOR”), that ~~reflect the consideration to which the entity expects~~is expected to be ~~entitled in exchange for those goods or services. Revenue recognition with respect to financial instruments is not within the scope~~discontinued because of ~~ASU No. 2014-09.~~reference rate reform.	~~January 1, 2018~~Not yet adopted.	To date, any modifications due to reference rate reform have

The practical expedients and exceptions provided by these updates are effective from March 12, 2020 through December 31, 2024.

not had a material impact to the Company.

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

The Company does not ~~expect that the adoption of ASU No. 2015-14 will have a material impact on its consolidated financial statements.~~

~~Standard~~	~~Description~~	~~Date of~~ ~~Adoption~~	~~Effect on the Consolidated~~ ~~Financial Statements~~

~~ASU No. 2016-01,~~ ~~Recognition and Measurement of Financial Assets and Financial Liabilities (Subtopic 825-10)~~	This amendment makes targeted changes to certain aspects of guidance applicable to financial assets and financial liabilities. The amendment primarily affects accounting for certain equity investments, financial liabilities measured under the fair value option, and certain financial instrument presentation and disclosure requirements. Accounting for investments in debt securities and financial liabilities not measured under the fair value option is largely unaffected by this amendment.	~~January 1, 2018~~	ASU No. 2016-01 requires entities to measure investments in equity securities at fair value, unless fair value measurement is impractical, with changes in fair value recognized in current period earnings. Upon the adoption of ASU No. 2016-01, the Company will recognize the difference between the fair value of its investments in equity securities currently carried at their historical cost (net of impairments) and the securities’ fair value in net income. As of September 30, 2017, the Company’s investments in equity securities measured at cost have a balance sheet carrying value of $1,257 and an estimated fair value of $5,761.

~~ASU No. 2016-02,~~ ~~Leases (Topic 842)~~	This amendment replaces the existing lease accounting model with a revised model. The primary change effectuated by the revised lease accounting model is the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases.	~~January 1, 2019~~	~~The Company is currently evaluating the impact of this amendment on its consolidated financial statements.~~

~~Standard~~	~~Description~~	~~Date of~~ ~~Adoption~~	~~Effect on the Consolidated~~ ~~Financial Statements~~
~~ASU No. 2016-13,~~ ~~Financial Instruments - Credit Losses (Topic 606)~~	The amendments in this update require financial assets measured at amortized cost as well as available-for-sale debt securities to be measured for impairment on the basis of the net amount expected to be collected. Credit losses are to be recognized through an allowance for credit losses, which differs from the direct write-down of the amortized cost basis currently required for other-than-temporary impairments of investments in debt securities. This update also makes substantial changes to the manner in which interest income is to be recognized for financial assets acquired with a more-than-insignificant amount of credit deterioration since origination. ~~This update will not affect the accounting for investments in debt securities that are classified as trading securities.~~	~~January 1, 2019~~	As of September 30, 2017, all of the Company’s investments in debt securities are classified as trading securities. Accordingly, the Company does not expect ASU No. 2016-13 to have a material impact on its consolidated financial statements.
~~ASU No. 2016-15,~~ ~~Classification of Certain Cash Receipts and Cash Payments (Topic 230)~~	This amendment was issued to reduce diversity in practice with respect to eight various statement of cash flow reporting issues for which existing GAAP is either unclear or does not provide specific guidance.	~~January 1, 2018~~	~~The Company does not expect that the adoption of ASU No. 2016-15 will have a material impact on the classification of cash inflows or outflows within its consolidated statement of cash flows.~~
~~ASU No. 2017-08,~~ ~~Premium Amortization of Purchased Callable Debt Securities (Subtopic 310-20)~~	This amendment requires purchase premiums for investments in debt securities that are noncontingently callable by the issuer (at a fixed price and preset date) to be amortized to the earliest call date. Previously, purchase premiums for such investments were permitted to be amortized to the instrument’s maturity date.	~~January 1, 2020~~	Investments in prepayable financial assets, such as residential MBS, for which the embedded call options are not held by the issuer are not within the scope of ASU No. 2017-08. Accordingly, the Company does not expect the adoption of ASU ~~No. 2017-08~~Nos. 2020-04, 2021-01 and 2022-06 to have a material effect on its consolidated financial statements.

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 ~~September 30, 2017~~March 31, 2023 and December 31, ~~2016,~~2022, the ~~Company had $3,994,515 and $3,911,375, respectively,~~fair value of ~~fair value~~the Company’s investments in agency MBS ~~classified as trading securities.~~

was $460,984 and $443,540, respectively.As of ~~September 30, 2017~~March 31, 2023, all of the Company’s investments in agency MBS represent undivided (or “pass-through”) beneficial interests in specified pools of fixed-rate mortgage loans. As of December 31, 2016, the Company’s portfolio of investments in agency MBS also included investments in inverse interest-only agency MBS with an aggregate fair value of $1,923. The Company’s investments in inverse interest-only agency MBS represented beneficial interests in a portion of the interest cash flows of an underlying pool of pass-through agency MBS collateralized by adjustable-rate mortgage loans.

All periodic changes in the fair value of ~~trading~~ agency MBS that are not attributed to interest income are recognized as a component of “investment and derivative 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 and derivative gain (loss), net” in the Company’s consolidated statements of comprehensive income for the periods indicated with respect to investments in agency ~~MBS classified as trading securities:~~MBS:


	Three Months Ended March 31,
	2023			2022
Net gains (losses) recognized in earnings for:
Agency MBS still held at period end	$	7,028		$	(17,414	)
Agency MBS sold during the period		(245	)		(8,543	)
Total	$	6,783		$	(25,957	)

Three Months Ended September 30,

Nine Months Ended September 30,

2017

2016

2017

2016

Net gains (losses) recognized in earnings for:

Agency MBS still held at period end

$
12,715

$
2,960

$
22,178

$
56,079

Agency MBS sold during the period

1,296

(428
)

3,421

25,195

Total

$
14,011

$
2,532

$
25,599

$
81,274

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 6.10. Derivative Instruments” for further information about dollar rolls.

Note 4. Investments in ~~Private-Label MBS~~Credit Securities

The Company has elected to classify its investments in credit securities as trading securities. Accordingly, the Company’s investments in ~~private-label MBS~~credit securities are reported in the accompanying consolidated balance sheets at fair value. Investments in private-label MBS acquired prior to 2015 were classified as available-for-sale, all of which had been sold as of December 31, 2016. The Company has elected to classify its investments in private-label MBS acquired in 2015 or later as trading securities. As of ~~September 30, 2017~~March 31, 2023 and December 31, ~~2016,~~2022, the ~~Company held investments in private-label MBS with a~~ fair value of ~~$54~~the Company’s investments in credit securities was $102,564 and ~~$1,266, respectively, all~~$104,437, respectively. As of ~~which were classified as trading securities.~~March 31, 2023, the Company’s investments in credit securities primarily consist of non-agency MBS collateralized by pools of business purpose residential mortgage loans or commercial mortgage loans and ABS collateralized by pools of residential solar panel loans.

~~Available-for-Sale Private-Label MBS~~

~~Periodic~~All periodic changes in the fair value of ~~the Company’s available-for-sale private-label MBS~~credit securities that are not attributed to interest income or other-than-temporary impairments represent unrealized holding gains and losses. Unrealized holding gains and losses are accumulated in other comprehensive income until the securities are sold. As of September 30, 2017 and December 31, 2016, the Company had no available-for-sale private-label MBS.

Upon the sale of available-for-sale private-label MBS, any gains or losses accumulated in other comprehensive income are recognized in earnings as a component of “investment gain (loss), net.” The Company uses the specific identification method to determine the realized gain or loss that is recognized in earnings upon the sale of an available-for-sale private-label MBS.

~~The following table presents the results of sales of available-for-sale private-label MBS for the periods indicated:~~

Three Months Ended September 30,

Nine Months Ended September 30,

2017

2016

2017

2016

Proceeds from sales
$
—

$
67,761

$
—

$
96,171

Gross realized gains

—

2,440

—

2,466

Gross realized losses

—

1

—

620

~~Accretable Yield~~

The excess of the Company’s estimate of undiscounted future cash flows expected to be collected over the security’s amortized cost basis represents that security’s accretable yield. The accretable yield is expected to be recognized as interest income over the remaining life of the security on a level-yield basis. The difference between undiscounted future contractual cash flows and undiscounted future expected cash flows represents the non-accretable difference. Based on actual payments received and/or changes in the estimate of future cash flows expected to be collected, the accretable yield and the non-accretable difference can change over time. Actual cash collections that exceed prior estimates and/or positive changes in the Company’s periodic estimate of expected future cash flows result in a reclassification of non-accretable difference to accretable yield. Conversely, actual cash collections that fall short of prior estimates and/or adverse changes in the Company’s periodic estimate of expected future cash flows result in a reclassification of accretable yield to non-accretable difference.

~~The following table presents the changes in the accretable yield solely for available-for-sale private-label MBS for the periods indicated:~~

Three Months Ended September 30,

Nine Months Ended September 30,

2017

2016

2017

2016

Beginning balance

$
—

$
48,199

$
—

$
85,052

Accretion

—

(1,449
)

—

(6,470
)
Reclassifications, net

—

24

—

(11,853
)
Eliminations in consolidation

—

—

—

(3,515
)
Sales

—

(37,346
)

—

(53,786
)
Ending balance

$
—

$
9,428

$
—

$
9,428

~~Other-than-Temporary Impairments~~

The Company evaluates available-for-sale MBS for other-than-temporary impairment on a quarterly basis. When the fair value of an available-for-sale security is less than its amortized cost at the quarterly reporting date, the security is considered impaired. Impairments determined to be other-than-temporary are recognized as a direct write-down to the security’s amortized cost basis with a corresponding charge recognized in earnings as a component of “investment gain (loss), net.” An impairment is considered other-than-temporary when (i) the Company intends to sell the impaired security, (ii) the Company more-likely-than not will be required to sell the impaired security prior to the recovery of its amortized cost basis, or (iii) a credit loss exists. A credit loss exists when the present value of the Company’s estimate of the cash flows expected to be collected from the security, discounted at the security’s existing effective interest rate, is less than the security’s amortized cost basis.

If the Company intends to sell an impaired security or it more-likely-than-not will be required to sell an impaired security before recovery of its amortized cost basis, the Company writes-down the amortized cost basis of the security to an amount equal to the security’s fair value and recognizes a corresponding other-than-temporary impairment charge in earnings as a component of “investment gain (loss), net.” If a credit loss exists for an impaired security that the Company does not intend to sell nor will it likely be required to sell prior to recovery, the Company writes-down the amortized cost basis of the security to an amount equal to the present value of cash flows expected to be collected, discounted at the security’s existing effective interest rate, and recognizes a corresponding other-than-temporary impairment charge in earnings as a component of “investment gain (loss), net.”

For the three and nine months ended September 30, 2016, the Company recorded credit related other-than-temporary impairment charges of $-0- and $1,737 as a component of “investment gain (loss), net” on the consolidated statements of comprehensive income on certain available-for-sale private-label MBS. The Company recorded no other-than-temporary impairment charges on available-for-sale private-label MBS during the three and nine months ended September 30, 2017. The following table presents a summary of cumulative credit related other-than-temporary impairment charges recognized on the available-for-sale private-label MBS held as of the dates indicated:

Three Months Ended September 30,

Nine Months Ended September 30,

2017

2016

2017

2016

Cumulative credit related other-than-temporary
   impairments, beginning balance

$
—

$
15,754

$
—

$
14,017

Additions for:

Securities for which other-than-temporary
   impairments have not previously occurred

—

—

—

1,737

Securities with previously recognized other-than-
   temporary impairments

—

—

—

—

Reductions for sold or matured securities

—

(2,035
)

—

(2,035
)
Cumulative credit related other-than-temporary
   impairments, ending balance

$
—

$
13,719

$
—

$
13,719

~~Trading Private-Label MBS~~

~~Periodic changes in the fair value of investments in trading private-label MBS that are not attributable~~ to interest income are recognized as a component of “investment and derivative 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 and derivative gain (loss), net” in the Company’s consolidated statements of comprehensive ~~income. The following table provides additional information about the net gains and losses recognized as a component of “investment gain (loss), net”~~income for the periods indicated with respect to investments in ~~private-label MBS~~credit securities:


	Three Months Ended March 31,
	2023			2022
Net gains (losses) recognized in earnings for:
Credit securities still held at period end	$	(689	)	$	(842	)
Credit securities sold during the period		—			—
Total	$	(689	)	$	(842	)

Note 5. Loans Held for Investment

As of March 31, 2023 and December 31, 2022, the Company held a position in a syndicated loan secured by a first lien position in healthcare facilities and guaranteed by the operator of the facilities. As of March 31, 2023 and December 31, 2022, the total outstanding principal balance was $82,243 and $86,579, respectively, of which the Company held a pari-passu position of $27,798 and $29,264, respectively.The loan bears interest at a floating note rate equal to SOFR plus 5.61%. The loan had a maturity date of March 23, 2023. On March 23, 2023, the loan was amended to grant the borrower a three-month extension of the maturity date to June 23, 2023 and to grant the borrower an option for an additional three-month extension of the maturity date to September 23, 2023. The loan has monthly principal amortization based upon a 30-year amortization schedule with the remaining principal balance due at loan maturity.

As of December 31, 2022, the Company was party to a participation agreement pursuant to which the Company had committed to fund up to $30,000 of a $130,000 revolving credit facility that matures on July 7, 2024. Under the terms of the participation agreement, the Company was required to fund the last $30,000 of advances under the revolving credit facility. Any draws under the revolving credit facility bore interest at SOFR plus 3.86% with a SOFR floor of 1.00% and are secured by a first lien on all accounts receivable and a second lien on all other assets of the borrower. The borrower was also required to pay an unused commitment fee of 0.50%. As of December 31, 2022, the Company’s funded loan advances were $4,914, which is included in the line item "other assets" in the accompanying consolidated balance sheets. On February 27, 2023, our $30,000 commitment was terminated.

The Company has elected to account for its loans held for investment at fair value on a recurring basis with periodic changes in fair value recognized as a component of “investment and derivative gain (loss), net” in the accompanying consolidated statements of comprehensive income. As of March 31, 2023 and December 31, 2022, the Company’s investment was $27,798 and $34,178, respectively, at fair value. The Company recognizes interest income on its loans held for investment based upon the effective interest rate of the loans which is equal to the contractual note rate of each 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. The Company has committed to invest a total minimum of $50,000 in capital with the counterparty with $25,000 of the minimum commitment expiring on December 31, 2023 and $25,000 of the minimum commitment expiring on April 1, 2024. As of March 31, 2023, the Company has fully funded its minimum capital commitment.

Under the arrangement, the Company is obligated to provide funds to the mortgage servicing counterparty to fund the counterparty’s advances of payments on the serviced pool of mortgage loans. The mortgage servicing counterparty is required to return to the Company subsequent servicing advances collected from the underlying borrowers. The mortgage servicing counterparty is entitled to reimbursement from the GSEs of any servicing advances that are not subsequently collected from the underlying borrowers. As of March 31, 2023 and December 31, 2022, the Company had provided funds of $4,202 and $6,046, respectively, to its mortgage servicing counterparty related to the counterparty’s servicing advances made pursuant to the MSRs to which the Company’s MSR financing receivables are referenced.

As a means to increase potential returns to the Company, at the Company’s election, it can request the mortgage servicing counterparty utilize leverage on the MSRs to which the Company’s MSR financing receivables are referenced to finance the purchase of additional MSRs. As of March 31, 2023 and December 31, 2022, the Company’s counterparty had drawn $1,010 and $7,863, respectively, of financing secured by the MSRs to which the Company’s MSR financing receivables are referenced.

The Company accounts for transactions executed under its arrangement with the mortgage servicing counterparty 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 and derivative 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, 2023 and December 31, 2022, the fair value of the Company’s investments in MSR financing receivables was $183,058 and $180,365, respectively. The following table presents activity related to the carrying value of the Company’s investments in MSR financing receivables for the periods indicated:


	Three Months Ended March 31,
	2023			2022
Balance at period beginning	$	180,365		$	125,018
Capital investments		6,075			3,187
Capital distributions		(4,932	)		(15,120	)
Accretion of interest income		4,685			3,382
Changes in valuation inputs and assumptions		(3,135	)		22,758
Balance at period end	$	183,058		$	139,225

Note 7. Investments in SFR Properties

The Company previously allocated investment capital to a strategy of investing in SFR properties that consisted of acquiring, leasing and operating single-family residential homes as rental properties. During 2022, the Company sold its portfolio of SFR properties and is currently no longer anticipating allocating capital to an SFR investment strategy. The Company conducted its SFR investment strategy through a wholly-owned subsidiary, McLean SFR Investment, LLC ("McLean SFR").

To execute its strategy of investing in SFR properties, the Company entered into an agreement with a third-party investment advisory firm to identify, acquire and manage investments in SFR properties on behalf of the Company. Under the terms of the agreement, the Company had committed to fund up to $55,000 of capital to fund the acquisition of SFR properties. On January 18, 2023, the Company's capital commitment amount was reduced to zero as a result of its sale of its remaining portfolio of SFR properties on December 1, 2022. Under the terms of the advisory agreement, the Company was obligated to pay the third-party firm a minimum fee plus an incentive fee equal to a percentage of the total investment return in excess of a hurdle rate of return. The Company terminated its agreement with the third-party investment advisory firm on April 28, 2023. Upon the termination of the agreement, the Company paid a termination fee equal to a fixed amount less inception to date minimum fees paid to the third-party firm as well as the incentive fee earned. The Company accrued the termination fee and incentive fees earned as of March 31, 2023 and December 31, 2022.

The Company’s investments in SFR properties were initially recognized on the settlement date of their acquisition at cost. The Company allocated the initial acquisition cost of each property to land and building on the basis of their relative fair values at the time of acquisition. To determine the relative fair value of land and building at the time of acquisition, the Company used available market data, such as property specific county tax assessment records.

Subsequent to the acquisition of a property, expenditures which improved or extended the life of the property were capitalized as a component of the property’s cost basis. Expenditures for ordinary maintenance and repairs were recognized as an expense as incurred and were reported as a component of “single-family property operating expenses” in the Company’s consolidated statements of comprehensive income.

The Company subsequently recognized depreciation of each property’s buildings and capitalized improvements over the expected useful lives of those assets. The Company calculated depreciation on a straight-line basis over a useful life of 27.5 years for buildings and useful lives ranging from five to 27.5 years for capitalized improvements. The Company reported depreciation expense as a component of “single-family property operating expenses” in the Company’s consolidated statements of comprehensive income.

Pursuant to its SFR investment strategy, the Company leased its SFR properties to tenants who occupied the properties. The leases generally had terms of one year or more and were classified as ~~trading securities:~~operating leases. Rental revenue, net of any concessions, was recognized over the term of each lease on a straight-line basis. If the Company determined that collectability of lease payments was not probable, any lease receivables previously recognized were reversed and rental revenue was limited to cash received.

Costs directly associated with the origination of a lease, such as a commission paid to a property manager when a lease agreement was obtained, were deferred at the commencement of the lease and subsequently recognized ratably as an expense over the lease term, consistent with the recognition of rental revenue from the lease. The ratable expense recognition of lease direct costs was reported as a component of “single-family property operating expenses” in the Company’s consolidated statements of comprehensive income. In addition to the expense items previously mentioned, “single-family property operating expenses” also included accruals for, but not limited to, third-party property management fees, local real estate tax assessments, utilities, homeowners’ association dues and property insurance.

The Company evaluated its SFR properties for impairment whenever circumstances indicated that their carrying amounts may not be recoverable. Significant indicators of potential impairment included, but were not limited to, declines in home values, adverse changes in rental or occupancy rates and relevant unfavorable changes in the broader economy. If indicators of potential impairment existed, the Company performed a recoverability test by comparing the property’s net carrying amount to its estimate of the undiscounted future net cash flows expected to be obtained from the use and eventual disposition of the property. If the property’s carrying amount exceeded the Company’s estimate of the undiscounted future net cash flows expected to be obtained from the property, the Company would have recognized an impairment loss equal to the amount that the property’s net carrying amount exceeded the property’s estimated fair value.

From time to time, the Company identified SFR properties to be sold. At the time that any such properties were identified, the Company performed an evaluation to determine whether or not such properties should be classified as held for sale. Factors considered as part of the Company's held for sale evaluation process included whether the following conditions had been met: (i) the Company had committed to a plan to sell a property; (ii) the property was immediately available for sale in its present condition; (iii) an active program to locate a buyer and other actions required to complete the plan to sell a property had been initiated; (iv) the sale of a property was probable within one year (generally determined based upon listing for sale); (v) the property was being actively marketed for sale at a price that was reasonable in relation to its current fair value; and (vi) actions required to complete the plan indicated that it is unlikely that significant changes to the plan would be made or that the plan would be withdrawn. To the extent that these factors were all present, the Company ceased depreciating the property, measured the property at the lower of its carrying amount or its fair value less estimated costs to sell, and presented the property separately on its consolidated balance sheets.

On August 19, 2022, the Company completed a sale of 371 SFR properties for a gross sale price of $130,026 for a gain of $14,391 that is net of accrued incentive fees to the Company's third-party investment firm.

On December 1, 2022, the Company completed a sale of McLean SFR, which included all of the Company's remaining investments in SFR properties and its long-term debt facility secured by SFR properties, for a gross sale price of $87,050, including the assumption of the debt liability (see Note 9 "Borrowings"), for a gain of $1,789 that is net of accrued incentive fees and termination fees to the Company's third-party investment advisory firm.

During the three months ended March 31, 2022, the Company recognized $715 of depreciation expense related to its SFR properties.

Note 8. Consolidation of Variable Interest Entities

Three Months Ended September 30,

Nine Months Ended September 30,

2017

2016

2017

2016

Net gains (losses) recognized in earnings for:

Private-label MBS still held at period end

$
(15
)

$
(64
)

$
(24
)

$
(280
)
Private-label MBS sold during the period

—

—

57

89

Total

$
(15
)

$
(64
)

$
33

$
(191
)

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 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.

On February 3, 2022, the Company acquired for $20,585 investments in the first loss position and the excess interest-only strip of a securitized pool of recently originated, performing “non-qualified” residential mortgage loans. The Company’s investment in the excess interest-only strip provided it with the option (but not the obligation) to purchase delinquent loans from the trust. As a result of this contractual right, the Company determined that it had the power to circumvent the loss mitigation activities that would otherwise be performed by the servicer and, therefore, was the party with the most power to impact the economic performance of the trust. As a result of its investments, the Company also had 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 was the primary beneficiary of the trust and consolidated the trust’s assets and liabilities owed to third parties onto its consolidated balance sheets. On March 7, 2023, the Company sold all of its investments in the securitized pool of "non-qualified" residential mortgage loans and, as a result, deconsolidated the issuing securitization trust.

The carrying values of the assets and liabilities of the consolidated VIEs, net of elimination entries, are as follows as of the dates indicated:


	March 31, 2023
	VIE of Business Purpose Residential Mortgage Loans			VIE of Residential Mortgage Loans		Total
Cash of consolidated VIEs	$	—		$	—	$	—
Restricted cash of consolidated VIEs (1)		—			—		—
Mortgage loans of consolidated VIEs, at fair value		1,344			—		1,344
Other assets of consolidated VIEs		1,850			—		1,850
Secured debt of consolidated VIEs, at fair value		(160	)		—		(160	)
Other liabilities of consolidated VIEs		—			—		—
Net investment in consolidated VIEs	$	3,034		$	—	$	3,034

(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.


	December 31, 2022
	VIE of Business Purpose Residential Mortgage Loans			VIE of Residential Mortgage Loans			Total
Cash of consolidated VIEs	$	296		$	—		$	296
Restricted cash of consolidated VIEs (1)		16			2,175			2,191
Mortgage loans of consolidated VIEs, at fair value		2,320			191,637			193,957
Other assets of consolidated VIEs		1,389			678			2,067
Secured debt of consolidated VIEs, at fair value		(200	)		(169,145	)		(169,345	)
Other liabilities of consolidated VIEs		(1	)		(261	)		(262	)
Net investment in consolidated VIEs	$	3,820		$	25,084		$	28,904

(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 debt of the Company’s consolidated VIEs have recourse solely to the assets of the respective VIE; it has no recourse to the general credit of the Company.

Consolidated VIE of Business Purpose Residential Mortgage Loans

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.

Consolidated VIE of Residential Mortgage Loans

On March 7, 2023, the Company sold all of its investments in the securitized pool of residential mortgage loans and, as a result, deconsolidated the issuing securitization trust. The pool of mortgage loans of the previously consolidated VIE consisted of performing, first lien “non-qualified” residential mortgage loans. “Non-qualified” residential mortgage loans are loans that do not fully comply with the “ability-to-repay” rule and related guidelines of the Truth-in-Lending Act established by the Consumer Finance Protection Bureau pursuant to the authority granted under the Dodd-Frank Act. A “qualified” residential mortgage loan (i.e., a residential mortgage loan that fully complies with the “ability-to-repay” rule of the Truth-in-Lending Act) must meet certain debt-to-income ratio requirements and cannot have certain features, such as an interest-only period, negative amortization, balloon payments or terms longer than 30 years. Qualified mortgage loans have limited upfront fees and points and, generally, cannot have prepayment penalties except for limited circumstances. Lenders of qualified mortgage loans are afforded certain legal protections not available to non-qualified mortgage loan lenders.

Accounting for Consolidated VIEs

The Company has elected to account for the mortgage loans and debt of its consolidated VIEs 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 and derivative 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 its consolidated VIEs by applying the “interest method” permitted by GAAP, whereby the premium or discount recognized at the initial recognition of each loan is amortized or accreted as an adjustment to contractual interest income accrued at the loan’s contractual 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 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 loans of the Company’s consolidated VIE of business purpose residential mortgage loans as of March 31, 2023:


	Aggregate Fair Value		Aggregate Unpaid Principal Balance		Difference
Less than 90 days past due and in accrual status	$	—	$	—	$	—
90 days or more past due and in non-accrual status		1,344		1,371		(27	)
Total mortgage loans of consolidated VIE	$	1,344	$	1,371	$	(27	)

Note 5.9. Borrowings

Repurchase Agreements

The Company finances the purchase of ~~MBS~~mortgage investments through repurchase agreements, which are accounted for as collateralized borrowing arrangements. In a repurchase transaction, the Company sells ~~MBS~~a mortgage investment to a counterparty under a master repurchase agreement in exchange for cash and concurrently agrees to repurchase the same ~~security~~asset at a future date in an amount equal to the cash initially exchanged plus an agreed-upon amount of interest. ~~MBS~~Mortgage investments sold under agreements to repurchase remain on the Company’s consolidated balance sheets because the Company maintains effective control over such ~~securities~~assets throughout the duration of the arrangement. Throughout the contractual term of a repurchase agreement, the Company recognizes a ~~“repurchase~~

“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 ~~MBS.~~mortgage investment. The difference between the proceeds received by the Company upon the initial transfer of the ~~MBS~~mortgage investment and the contractually agreed-upon repurchase price is recognized as interest expense ratably over the term of the repurchase arrangement ~~on a level-yield basis.~~.

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 October 23, 2023 and an interest rate that resets monthly at a rate equal to SOFR plus 2.61%. 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.

As of ~~September 30, 2017~~March 31, 2023 and December 31, ~~2016,~~2022, 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, 2023			December 31, 2022
Agency MBS repurchase financing:
Repurchase agreements outstanding	$	385,923		$	406,072
Agency MBS collateral, at fair value		413,190			425,023
Net amount (1)		27,267			18,951
Weighted-average rate		4.94	%		4.47	%
Weighted-average term to maturity	13.0 days			12.0 days
Non-agency MBS repurchase financing:
Repurchase agreements outstanding	$	79,372		$	88,953
MBS collateral, at fair value		88,015			98,933
Net amount (1)		8,643			9,980
Weighted-average rate		5.53	%		5.02	%
Weighted-average term to maturity	20.0 days			20.0 days
Mortgage loans repurchase financing:
Repurchase agreements outstanding	$	19,053		$	20,485
Mortgage loans collateral, at fair value		27,798			29,264
Net amount (1)		8,745			8,779
Weighted-average rate		7.34	%		6.84	%
Weighted-average term to maturity	206.0 days			235.0 days
Total mortgage investments repurchase financing:
Repurchase agreements outstanding	$	484,348		$	515,510
Mortgage investments collateral, at fair value		529,003			553,220
Net amount (1)		44,655			37,710
Weighted-average rate		5.13	%		4.66	%
Weighted-average term to maturity	21.7 days			22.2 days

(1)

Net amount represents the value of collateral in excess of corresponding repurchase obligation. The amount of collateral at-risk is limited to the outstanding repurchase obligation and not the entire collateral balance.

September 30, 2017

December 31, 2016

Pledged with agency MBS:

Repurchase agreements outstanding

$
3,694,838

$
3,649,102

Agency MBS collateral, at fair value

3,873,154

3,851,269

Net amount ⁽¹⁾

178,316

202,167

Weighted-average rate

1.33
%

0.96
%
Weighted-average term to maturity

11.9 days

19.3 days

⁽¹⁾	Net amount represents the value of collateral in excess of corresponding repurchase obligation. The amount of collateral at-risk is limited to the outstanding repurchase obligation and not the entire collateral balance.

The following table provides information regarding the Company’s outstanding repurchase agreement borrowings during the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2023 and ~~2016:~~2022:


	September 30, 2017			September 30, 2016			March 31, 2023			March 31, 2022
Weighted-average outstanding balance during the three months ended	$	3,819,095		$	3,519,719		$	505,369		$	342,364
Weighted-average rate during the three months ended		1.31	%		0.69	%		4.85	%		0.32	%
Weighted-average outstanding balance during the nine months ended	$	3,956,579		$	3,345,259
Weighted-average rate during the nine months ended		1.10	%		0.67	%

Long-Term Unsecured Debt

As of ~~September 30, 2017~~March 31, 2023 and December 31, ~~2016,~~2022, the Company had ~~$73,824~~$86,508 and ~~$73,656,~~$86,405, respectively, of outstanding long-term unsecured debentures, net of unamortized debt issuance costs of ~~$1,476~~$1,173 and ~~$1,644,~~$1,276, respectively. The Company’s long-term unsecured debentures consisted of the following as of the dates indicated:

September 30, 2017

December 31, 2016

Senior
Notes Due 2025

Senior
Notes Due 2023

Trust
Preferred Debt

Senior
Notes Due 2025

Senior
Notes Due 2023

Trust
Preferred Debt

Outstanding Principal

$
35,300

$
25,000

$
15,000

$
35,300

$
25,000

$
15,000

Annual Interest Rate

6.75
%

6.625
%

LIBOR+
2.25 - 3.00 %

6.75
%

6.625
%

LIBOR+
2.25 - 3.00 %

Interest Payment Frequency

Quarterly

Quarterly

Quarterly

Quarterly

Quarterly

Quarterly

Weighted-Average Interest Rate

6.75
%

6.625
%

4.05
%

6.75
%

6.625
%

3.63
%
Maturity

March 15, 2025

May 1, 2023

2033 - 2035

March 15, 2025

May 1, 2023

2033 - 2035

Early Redemption Date

March 15, 2018

May 1, 2016

2008 - 2010

March 15, 2018

May 1, 2016

2008 - 2010


	March 31, 2023									December 31, 2022
	Senior Notes Due 2025			Senior Notes Due 2026			Trust Preferred Debt			Senior Notes Due 2025			Senior Notes Due 2026			Trust Preferred Debt
Outstanding Principal	$	34,931		$	37,750		$	15,000		$	34,931		$	37,750		$	15,000
Annual Interest Rate		6.75	%		6.000	%	LIBOR+ 2.25 - 3.00 %				6.75	%		6.000	%	LIBOR+ 2.25 - 3.00 %
Interest Payment Frequency	Quarterly			Quarterly			Quarterly			Quarterly			Quarterly			Quarterly
Weighted- Average Interest Rate		6.75	%		6.000	%		7.58	%		6.75	%		6.000	%		6.83	%
Maturity	March 15, 2025			August 1, 2026			2033 - 2035			March 15, 2025			August 1, 2026			2033 - 2035

The Senior Notes due ~~2023~~2025 and the Senior Notes due ~~2025~~2026 are publicly traded on the New York Stock Exchange under the ticker symbols ~~“AIW”~~“AIC” and ~~“AIC,~~“AAIN,” respectively. The Senior Notes due ~~2023~~2025 and Trust Preferred Debt may be redeemed in whole or in part at any time and from time to time at the Company’s option at a redemption price equal to the principal amount plus accrued and unpaid interest. The Senior Notes due ~~2025~~2026 may be redeemed in whole or in part at any time and from time to time at the Company’s option on or after ~~May~~August 1, ~~2016 and March 15, 2018, respectively,~~2023 at a redemption price equal to the principal amount plus accrued and unpaid interest. The indenture governing ~~these~~the Senior Notes contains certain covenants, including limitations on the Company’s ability to merge or consolidate with other entities or sell or otherwise dispose of all or substantially all of the Company’s assets.

Long-Term Debt Secured by Single-family Properties

On September 28, 2021, McLean SFR, a wholly-owned subsidiary of Arlington Asset, entered into a loan agreement with a third-party lender to fund McLean SFR’s purchases of SFR properties. As a result of the sale of McLean SFR on December 1, 2022, the obligations under the loan agreement were assumed by the acquiror of McLean SFR (see Note 7 "Investments in Single-Family Residential Properties").

Under the terms of the loan agreement, loan advances were available to be drawn up to 74% of the fair value of eligible SFR properties up to a maximum loan amount of $150,000. Advances under the loan agreement were able to be drawn during the advance period, which would end on the earlier of the date the outstanding principal balance equals the maximum loan amount or March 28, 2023. The outstanding principal balance was due on October 9, 2026 and advances under the loan agreement bore interest at a fixed rate of 2.76%. The loan was secured by a first priority interest in all the assets of McLean SFR and a first priority pledge of the equity interest of McLean SFR.

Note 6.10. Derivative Instruments

In the normal course of its operations, the Company is a party to financial instruments that are accounted for as derivative instruments. Derivative instruments are recorded at fair value as either ~~“derivative~~“other assets” or ~~“derivative~~“other liabilities” in the consolidated balance sheets, with all periodic changes in fair value reflected as a component of “investment and derivative gain (loss), net” in the consolidated statements of comprehensive income. Cash receipts or payments related to derivative instruments are classified as investing activities within the consolidated statements of cash flows.

Types and Uses of Derivative Instruments

Interest Rate ~~Derivatives~~Hedging Instruments

~~Most of the Company’s derivative instruments are~~The Company is party to interest rate ~~derivatives~~hedging instruments that are intended to economically hedge changes, attributable to changes in benchmark interest rates, in ~~certain~~agency MBS and MSR financing receivable fair values and future interest cash flows on the

Company’s short-term financing arrangements. Interest rate ~~derivatives~~hedging instruments may include centrally cleared interest rate swaps, exchange-traded instruments, such as U.S. Treasury note futures, Eurodollar futures, interest rate swap futures ~~U.S. Treasury note futures~~ and options on futures, and ~~nonexchange-traded~~non-exchange-traded instruments such as options on agency MBS. While the Company uses its interest rate ~~derivatives~~hedging instruments to economically hedge a portion of its interest rate risk, it has not designated such contracts as hedging instruments for financial reporting purposes.

The Company exchanges cash “variation margin” with the counterparties to its interest rate ~~derivative~~hedging instruments ~~at least~~ on a daily basis based upon daily changes in fair value as measured by the Chicago Mercantile Exchange (“CME”), the central clearinghouse through which those ~~derivatives~~instruments are cleared. In addition, the CME requires market participants to deposit and maintain an “initial margin” amount which is determined by the CME and is generally intended to be set at a level sufficient to protect the CME from the maximum estimated single-day price movement in that market participant’s contracts.

However, futures commission merchants may require “initial margin” in excess of the CME’s requirement. Receivables recognized for the right to reclaim cash initial margin posted in respect of interest rate ~~derivative~~hedging instruments are included in the line item ~~“deposits, net”~~“deposits” in the accompanying consolidated balance sheets. Prior to January 1, 2017, the daily exchange of variation margin associated with centrally cleared derivative instruments was considered a pledge of collateral. For these prior periods, receivables recognized for the right to reclaim cash variation margin posted in respect of interest rate derivative instruments are included in the line item “deposits, net” in the accompanying consolidated balance sheets.

The Company elected to offset any payables recognized for the obligation to return cash variation margin received from an interest rate derivative instrument counterparty against receivables recognized for the right to reclaim cash initial margin posted by the Company to that same counterparty.

~~Beginning on January 1, 2017, as a result of a CME amendment to their rule book which governs their central clearing activities, the~~ daily exchange of variation margin associated with a centrally cleared ~~derivative~~or exchange-traded hedging instrument is legally characterized as the daily settlement of the ~~derivative~~ instrument itself, as opposed to a pledge of collateral. Accordingly, ~~beginning in 2017,~~ the Company accounts for the daily receipt or payment of variation margin associated with its ~~centrally cleared~~ interest rate swaps and futures as a direct reduction to the carrying value of the ~~interest rate swap~~ derivative asset or liability, respectively. ~~Beginning in 2017, the~~The carrying amount of ~~centrally cleared~~ interest rate swaps and futures reflected in the Company’s consolidated balance sheets is equal to the unsettled fair value of such instruments; because variation margin is exchanged on a one-day lag, the unsettled fair value of such instruments generally represents the change in fair value that occurred on the last trading day of the reporting period.

To-Be-Announced Agency MBS Transactions, Including “Dollar Rolls”

In addition to interest rate ~~derivatives~~hedging instruments that are used for interest rate risk management, the Company is a party to derivative instruments that economically serve as investments, such as forward ~~contracts~~commitments to purchase fixed-rate “pass-through” agency MBS on a non-specified pool basis, which are known as to-be-announced (“TBA”) ~~contracts.~~securities. A TBA ~~contract~~security is a forward ~~contract~~commitment for the purchase or sale of a fixed-rate agency MBS at a predetermined price, face amount, issuer, coupon, and stated maturity for settlement on an agreed upon future date. The specific agency MBS that will be delivered to satisfy the TBA trade is not known at the inception of the trade. The specific agency MBS to be delivered is determined 48 hours prior to the settlement date. The Company accounts for TBA ~~contracts~~securities as derivative instruments because the Company cannot assert that it is probable at inception and throughout the term of an individual TBA ~~contract~~commitment that its settlement will result in physical delivery of the underlying agency MBS, or the individual TBA ~~contract~~commitment will not settle in the shortest time period possible.

The Company’s agency MBS investment portfolio ~~includes~~may include net purchase (or “net long”) positions in TBA securities, which are primarily the result of executing sequential series of “dollar roll” transactions. The Company executes dollar roll transactions as a means of investing in and financing non-specified fixed-rate agency MBS. Such transactions involve effectively delaying (or “rolling”) the settlement of a forward purchase of a TBA agency MBS by entering into an offsetting sale with the same counterparty prior to the settlement date, net settling the “paired-off” positions in cash, and contemporaneously entering, with the same counterparty, another forward purchase of a TBA agency MBS of the same characteristics for a later settlement date. TBA securities purchased for a forward settlement month are generally priced at a discount relative to TBA securities sold for settlement in the current month. This discount, often referred to as the dollar roll “price drop,” reflects compensation for the net interest income (interest income less financing costs) that is foregone as a result of economically relinquishing beneficial ownership of the MBS for the duration of the dollar roll (also known as “dollar roll income”). By executing a sequential series of dollar roll transactions, the Company is able to create the economic experience of investing in an agency MBS, financed with a repurchase agreement, over a period of time. Forward purchases and sales of TBA securities are accounted for as derivative instruments in the Company’s financial statements. Accordingly, dollar roll income is recognized as a component of “investment and derivative gain (loss), net” along with all other periodic changes in the fair value of TBA commitments.

In addition to transacting in net long positions in TBA securities for investment purposes, the Company may also, from time to time, transact in net sale (or “net short”) positions in TBA securities for the purpose of economically hedging a portion of the sensitivity of the fair value of the Company’s investments in agency MBS to changes in interest rates.

Receivables recognized for the right to reclaim cash collateral posted by the Company in respect of TBA transactions is included in the line item “deposits, net” in the accompanying consolidated balance sheets. Liabilities recognized for the obligation to return cash collateral received by the Company in respect of TBA transactions is included in the line item “other liabilities” in the accompanying consolidated balance sheets.

In addition to TBA transactions, the Company may, from time to time, enter into commitments to purchase or sell specified agency MBS that do not qualify as regular-way security trades. Such commitments are also accounted for as derivative instruments.

Under the terms of commitments to purchase or sell TBAs or specified agency MBS, the daily exchange of variation margin may occur based on changes in the fair value of the underlying agency MBS if a party to the transaction demands it. Receivables

recognized for the right to reclaim cash collateral posted by the Company in respect of agency MBS purchase or sale commitments is included in the line item “deposits” in the accompanying consolidated balance sheets. Liabilities recognized for the obligation to return cash collateral received by the Company in respect of agency MBS purchase or sale commitments is included in the line item “other liabilities” in the accompanying consolidated balance sheets.

Derivative Instrument Population and Fair Value

The following table presents the fair value of the Company’s derivative instruments as of the dates indicated:


	September 30, 2017					December 31, 2016					March 31, 2023					December 31, 2022
	Assets		Liabilities			Assets		Liabilities			Assets		Liabilities			Assets		Liabilities
Interest rate swaps	$	3,348	$	—		$	63,315	$	(1,949	)	$	117	$	(11	)	$	8	$	—
10-year U.S. Treasury note futures		820		—			—		—
Options on 10-year U.S. Treasury note futures		1		—			4,289		(3,906	)
Options on agency MBS		8		—			—		—
TBA commitments		—		(7,146	)		7,285		(3,699	)		23		(10,637	)		5,652		(22	)
Total	$	4,177	$	(7,146	)	$	74,889	$	(9,554	)	$	140	$	(10,648	)	$	5,660	$	(22	)

Interest Rate Swaps

The Company’s Secured Overnight Financing Rate (“SOFR”) based interest rate swap agreements represent agreements to make ~~semiannual~~(or receive) annual interest payments based upon a fixed interest rate and receive ~~quarterly~~(or make) annual variable interest payments based upon the ~~prevailing three-month LIBOR on~~daily SOFR over the ~~date of reset.~~preceding annual period.

The following table presents information about the Company’s interest rate swap agreements that were in effect as of ~~September 30, 2017:~~March 31, 2023:

Weighted-average:

Notional Amount

Fixed Pay Rate

Variable Receive Rate

Net Receive (Pay) Rate

Remaining Life (Years)

Fair Value

Years to maturity:

Less than 3 years

$
1,300,000

1.26
%

1.32
%

0.06
%

1.7

$
447

3 to less than 7 years

700,000

1.87
%

1.32
%

(0.55
)%

4.1

844

7 to 10 years

1,600,000

1.90
%

1.32
%

(0.58
)%

8.5

1,963

Total / weighted-average

$
3,600,000

1.66
%

1.32
%

(0.34
)%

5.2

$
3,254


			Weighted-average:
	Notional Amount		Fixed Receive (Pay) Rate			Variable (Pay) Receive Rate			Net (Pay) Receive Rate			Remaining Life (Years)		Fair Value
Receive-fixed	$	60,000		3.58	%		(4.82	)%		(1.24	)%		5.7	$	117
Pay-fixed		25,000		(4.20	)%		4.82	%		0.62	%		2.8		(11	)
Total / weighted-average	$	85,000		1.29	%		(1.98	)%		(0.69	)%		4.9	$	106

~~The following table presents information about the Company’s forward-starting interest rate swap agreements that had yet to take effect as of September 30, 2017:~~

Weighted-average:

Notional Amount

Fixed Pay Rate

Term After Effective Date (Years)

Fair Value

Effective in October 2017

$
250,000

1.12
%

2.0

$
94

The following table presents information about the Company’s interest rate swap agreements that were in effect as of December 31, ~~2016:~~2022:

Weighted-average:

Notional Amount

Fixed Pay Rate

Variable Receive Rate

Net (Pay) Rate

Remaining Life (Years)

Fair Value

Years to maturity:

Less than 3 years

$
1,375,000

1.10
%

0.97
%

(0.13
)%

1.7

$
6,470

3 to less than 7 years

350,000

1.84
%

1.00
%

(0.84
)%

3.7

(769
)
7 to 10 years

1,600,000

1.93
%

0.96
%

(0.97
)%

9.2

50,511

Total / weighted-average

$
3,325,000

1.58
%

0.97
%

(0.61
)%

5.5

$
56,212


			Weighted-average:
	Notional Amount		Fixed Receive (Pay) Rate			Variable (Pay) Receive Rate			Net (Pay) Receive Rate			Remaining Life (Years)		Fair Value
Receive-fixed	$	60,000		3.58	%		(4.30	)%		(0.72	)%		4.9	$	8

~~The following table presents information about the Company’s forward-starting interest rate swap agreements that had yet to take effect as of December 31, 2016:~~

Weighted-average:

Notional Amount

Fixed Pay Rate

Term After Effective Date (Years)

Fair Value

Effective in September / October 2017

$
375,000

1.13
%

2.0

$
5,154

~~10-year U.S. Treasury Note Futures~~

The Company’s 10-year U.S. Treasury note futures held as of September 30, 2017, are short positions with an aggregate notional amount of $350,000 that mature in December 2017. Upon the maturity date of these futures contracts, the Company has the option to either net settle each contract in cash in an amount equal to the difference between the then-current fair value of the

~~underlying 10-year U.S. Treasury note and the contractual sale price inherent to the futures contract, or to physically settle the contract by delivering the underlying 10-year U.S. Treasury note.~~

~~Options on 10-year U.S. Treasury Note Futures~~

The Company purchases and sells exchange-traded options on 10-year U.S. Treasury note futures contracts with the objective of economically hedging a portion of the sensitivity of its investments in agency MBS to significant changes in interest rates. The Company may purchase put options which provide the Company with the right to sell 10-year U.S. Treasury note futures to a counterparty, and the Company may also write call options that provide a counterparty with the option to buy 10-year U.S. Treasury note futures from the Company. In order to limit its exposure on its interest rate derivative instruments from a significant decline in long-term interest rates, the Company may also purchase contracts that provide the Company with the option to buy, or call, 10-year U.S. Treasury note futures from a counterparty. The options may be exercised at any time prior to their expiry, and if exercised, may be net settled in cash or through physical receipt or delivery of the underlying futures contracts. Information about the Company’s outstanding options on 10-year U.S. Treasury note futures contracts as of September 30, 2017 is as follows:

Notional Amount

Weighted-average Strike Price

Implied Strike
Rate ⁽¹⁾

Net Fair Value

Purchased call options:

October 2017 expiration

$
150,000

133.0

1.49
%

$
1

~~(1)~~

~~The implied strike rate is estimated based upon the weighted average strike price per contract and the price of an equivalent 10-year U.S. Treasury note futures contract.~~

~~Information about the Company’s outstanding options on 10-year U.S. Treasury note futures contracts as of December 31, 2016 is as follows:~~

Notional Amount

Weighted-average Strike Price

Implied Strike
Rate ⁽¹⁾

Net Fair Value

Purchased put options:

January 2017 expiration

$
950,000

120.8

2.87
%

$
539

February 2017 expiration

700,000

122.6

2.64
%

3,281

Total / weighted average for purchased put options

$
1,650,000

121.6

2.77
%

$
3,820

Sold call options:

January 2017 expiration

$
(100,000
)

126.0

2.25
%

$
(141
)
February 2017 expiration

(900,000
)

126.0

2.24
%

(3,765
)
Total / weighted average for sold call options

$
(1,000,000
)

126.0

2.24
%

$
(3,906
)
Purchased call options:

January 2017 expiration

$
1,000,000

127.1

2.12
%

$
469

$
383

~~(1)~~

~~The implied strike rate is estimated based upon the weighted average strike price per contract and the price of an equivalent 10-year U.S. Treasury note futures contract.~~

~~Options on Agency MBS~~

The Company may purchase put options which provide the Company with the right to sell TBA-eligible agency MBS to a counterparty at a fixed price in the event that agency MBS prices decline. The options can only be exercised at their expiry, and if exercised, may be net settled in cash or through physical delivery of the underlying agency MBS. Information about the Company’s outstanding options on agency MBS as of September 30, 2017 is as follows:

Notional Amount

Weighted-average Strike Price

Underlying Agency MBS Coupon

Net Fair Value

Purchased put options:

October 2017 expiration

$
500,000

102.5

4.00
%

$
-

November 2017 expiration

200,000

103.5

4.00
%

8

Total / weighted average for purchased put options

$
700,000

102.8

4.00
%

$
8

TBA Commitments

The following tables present information about the Company’s TBA commitments as of the dates indicated:

September 30, 2017

Notional Amount:
Net Purchase (Sale)
Commitment

Contractual Forward Price

Market Price

Fair Value

Dollar roll positions:

3.0% coupon purchase commitments

$
200,000

$
202,258

$
200,563

$
(1,695
)
3.5% coupon purchase commitments

1,005,000

1,040,762

1,036,092

(4,670
)
4.0% coupon purchase commitments

250,000

263,929

263,164

(765
)
4.0% coupon sale commitments

(100,000
)

(105,250
)

(105,266
)

(16
)
Total TBA commitments, net

$
1,355,000

$
1,401,699

$
1,394,553

$
(7,146
)


	March 31, 2023
	Notional Amount: Net Purchase (Sale) Commitment			Contractual Forward Price			Market Price			Fair Value
3.0% 30-year MBS sale commitments	$	(70,000	)	$	(61,009	)	$	(62,725	)	$	(1,716	)
4.0% 30-year MBS purchase commitments		50,000			47,957			47,781			(176	)
4.0% 30-year MBS sale commitments		(140,000	)		(130,665	)		(133,788	)		(3,123	)
4.5% 30-year MBS sale commitments		(229,000	)		(218,642	)		(224,241	)		(5,599	)
Total TBA commitments, net	$	(389,000	)	$	(362,359	)	$	(372,973	)	$	(10,614	)


	December 31, 2022
	Notional Amount: Net Purchase (Sale) Commitment			Contractual Forward Price			Market Price			Fair Value
3.0% 30-year MBS sale commitments	$	(70,000	)	$	(62,828	)	$	(61,516	)	$	1,312
4.0% 30-year MBS sale commitments		(150,000	)		(142,255	)		(140,830	)		1,425
4.5% 30-year MBS sale commitments		(205,000	)		(200,365	)		(197,472	)		2,893
Total TBA commitments, net	$	(425,000	)	$	(405,448	)	$	(399,818	)	$	5,630

December 31, 2016

Notional Amount:
Net Purchase (Sale)
Commitment

Contractual Forward Price

Market Price

Fair Value

Dollar roll positions:

3.0% coupon purchase commitments

$
725,000

$
718,887

$
720,027

$
1,140

3.5% coupon purchase commitments

25,000

25,586

25,613

27

3.5% coupon sale commitments

(25,000
)

(25,602
)

(25,613
)

(11
)
Total dollar roll positions, net

725,000

718,871

720,027

1,156

TBA commitments serving as economic hedges:

3.5% coupon purchase commitments

600,000

608,601

614,719

6,118

3.5% coupon sale commitments

(600,000
)

(611,031
)

(614,719
)

(3,688
)
Total economic hedges, net

—

(2,430
)

—

2,430

Total TBA commitments, net

$
725,000

$
716,441

$
720,027

$
3,586

Derivative Instrument Gains and Losses

The following tables provide information about the derivative gains and losses recognized within the periods indicated:


	Three Months Ended March 31,
	2023			2022
Interest rate derivatives:
Interest rate swaps:
Net interest expense (1)	$	(118	)	$	(291	)
Unrealized gains, net		792			3,466
Gains realized upon early termination, net		385			3,161
Total interest rate swap gains, net		1,059			6,336
U.S. Treasury note futures, net		—			(782	)
Options on U.S. Treasury note futures, net		—			(4	)
Total interest rate derivative gains, net		1,059			5,550
TBA commitments:
TBA dollar roll income (2)		74			823
Other losses on TBA commitments, net		(6,543	)		(4,706	)
Total losses on TBA commitments, net		(6,469	)		(3,883	)
Total derivative (losses) gains, net	$	(5,410	)	$	1,667

Three Months Ended September 30,

Nine Months Ended September 30,

2017

2016

2017

2016

Interest rate derivatives:

Interest rate swaps:

Net interest expense ⁽¹⁾
$
(4,198
)

$
(5,126
)

$
(14,900
)

$
(13,499
)
Unrealized gains (losses), net

10,833

15,426

(7,991
)

(65,519
)
Losses realized upon early termination

(14,137
)

(300
)

(13,441
)

(300
)
Total interest rate swap (losses) gains, net

(7,502
)

10,000

(36,332
)

(79,318
)
U.S. Treasury note futures, net

(133
)

—

(2,174
)

(63,285
)
Options on U.S. Treasury note futures, net

(147
)

(1,631
)

(6,300
)

(7,880
)
Other, net

(221
)

—

(221
)

(25
)
Total interest rate derivative (losses) gains, net

(8,003
)

8,369

(45,027
)

(150,508
)
TBA and specified agency MBS commitments:

TBA dollar roll income ⁽²⁾

6,424

5,321

14,120

12,835

Other gains on agency MBS commitments, net

1,007

1,506

962

17,728

Total gains on agency MBS commitments, net

7,431

6,827

15,082

30,563

Total derivative (losses) gains, net
$
(572
)

$
15,196

$
(29,945
)

$
(119,945
)
(1)

Represents the periodic net interest settlement incurred during the period (often referred to as “net interest carry”). Also includes “price alignment interest” income earned or expense incurred on cumulative variation margin paid or received, respectively, associated with centrally cleared interest rate swap agreements.

(2)

Represents the price discount of forward-settling TBA purchases (sales) relative to a contemporaneously executed “spot” TBA sale (purchase), which economically equates to net interest income (expense) that is earned (incurred) ratably over the period beginning on the settlement date of the sale (purchase) and ending on the settlement date of the forward-settling purchase (sale).

~~(1)~~

Represents the periodic net interest settlement incurred during the period (often referred to as “net interest carry”). Beginning in 2017, also includes “price alignment interest” income earned or expense incurred on cumulative variation margin paid or received, respectively, associated with centrally cleared interest rate swap agreements.

~~(2)~~

Represents the price discount of forward-settling TBA purchases relative to a contemporaneously executed “spot” TBA sale, which economically equates to net interest income that is earned ratably over the period beginning on the settlement date of the sale and ending on the settlement date of the forward-settling purchase.

Derivative Instrument Activity

The following tables summarize the volume of activity, in terms of notional amount, related to derivative instruments for the periods indicated:

For the Three Months Ended September 30, 2017

Beginning of
Period

Additions

Scheduled
Settlements

Early
Terminations

End of Period

Interest rate swaps

$
3,850,000

$
500,000

$
—

$
(500,000
)

$
3,850,000

10-year U.S. Treasury note futures

350,000

351,000

(351,000
)

—

350,000

Purchased call options on 10-year U.S. Treasury note
futures

700,000

950,000

(1,500,000
)

—

150,000

Purchased put options on agency MBS

—

700,000

—

—

700,000

Commitments to purchase (sell) MBS, net

1,110,000

4,160,000

(3,915,000
)

—

1,355,000


	For the Three Months Ended March 31, 2023
	Beginning of Period		Additions		Scheduled Settlements			Early Terminations			End of Period
Interest rate swaps	$	60,000	$	50,000	$	—		$	(25,000	)	$	85,000
TBA commitments, net		425,000		1,353,000		(1,389,000	)		—			389,000


	For the Three Months Ended March 31, 2022
	Beginning of Period		Additions		Scheduled Settlements			Early Terminations			End of Period
Interest rate swaps	$	150,000	$	70,000	$	—		$	(45,000	)	$	175,000
10-year U.S. Treasury note futures		25,000		50,000		(50,000	)		(25,000	)		—
Purchased call options on 10-year U.S. Treasury note futures		25,000		—		(25,000	)		—			—
TBA commitments, net		—		325,000		(325,000	)		—			—

For the Three Months Ended September 30, 2016

Beginning of
Period

Additions

Scheduled Settlements

Early
Terminations

End of Period

Interest rate swaps

$
2,250,000

$
1,250,000

$
—

$
(375,000
)

$
3,125,000

10-year U.S. Treasury note futures

—

15,000

(15,000
)

—

—

Purchased put options on 10-year U.S. Treasury note
futures

2,000,000

2,100,000

(3,500,000
)

—

600,000

Sold call options on 10-year U.S. Treasury note futures

—

1,000,000

(400,000
)

—

600,000

Purchased call options on 10-year U.S. Treasury note
futures

—

500,000

(200,000
)

—

300,000

Commitments to purchase (sell) MBS, net

875,441

2,675,000

(2,425,441
)

—

1,125,000

For the Nine Months Ended September 30, 2017

Beginning of
Period

Additions

Scheduled
Settlements

Early
Terminations

End of Period

Interest rate swaps

$
3,700,000

$
1,275,000

$
—

$
(1,125,000
)

$
3,850,000

10-year U.S. Treasury note futures

—

1,196,100

(846,100
)

—

350,000

Purchased put options on 10-year U.S. Treasury note
futures

1,650,000

2,540,000

(4,190,000
)

—

—

Sold call options on 10-year U.S. Treasury note futures

1,000,000

2,450,000

(3,450,000
)

—

—

Purchased call options on 10-year U.S. Treasury note
futures

1,000,000

3,350,000

(4,200,000
)

—

150,000

Purchased put options on agency MBS

—

700,000

—

—

700,000

Commitments to purchase (sell) MBS, net

725,000

8,475,000

(7,845,000
)

—

1,355,000

For the Nine Months Ended September 30, 2016

Beginning of
Period

Additions

Scheduled Settlements

Early
Terminations

End of Period

Interest rate swaps

$
1,500,000

$
2,000,000

$
—

$
(375,000
)

$
3,125,000

10-year U.S. Treasury note futures

1,335,000

1,386,000

(2,133,500
)

(587,500
)

—

Purchased put options on 10-year U.S. Treasury note
futures

—

8,100,000

(7,500,000
)

—

600,000

Sold call options on 10-year U.S. Treasury note futures

—

1,000,000

(400,000
)

—

600,000

Purchased call options on 10-year U.S. Treasury note
futures

—

500,000

(200,000
)

—

300,000

Put options on Eurodollar futures

4,000,000

—

(4,000,000
)

—

—

Commitments to purchase (sell) MBS, net

375,000

6,225,441

(5,475,441
)

—

1,125,000

Cash Collateral Posted and Received for Derivative and Other Financial Instruments

The following table presents information about the cash collateral posted ~~and received~~ by the Company in respect of its derivative and other financial instruments, which is included in the line item ~~“deposits, net”~~“deposits” in the accompanying consolidated balance sheets, for the dates indicated:


	March 31, 2023		December 31, 2022
Cash collateral posted for:
Interest rate swaps (cash initial margin)	$	1,690	$	1,823
TBA commitments, net		9,481		—
Total cash collateral posted, net	$	11,171	$	1,823

September 30, 2017

December 31, 2016

Cash collateral posted for:

Interest rate swaps (cash initial margin)

$
49,518

$
65,728

U.S. Treasury note futures and options on U.S. Treasury note
futures (cash initial margin)

4,035

5,314

Unsettled MBS trades and TBA commitments, net

5,764

1,474

Total cash collateral posted

59,317

72,516

Cash collateral received for interest rate swaps ⁽¹⁾

—

(61,367
)
Total cash collateral posted, net

$
59,317

$
11,149

~~(1)~~

Beginning in 2017, the Company accounts for the daily receipt or payment of cash variation margin associated with centrally cleared interest rate swaps as a legal settlement of the derivative instrument itself, as opposed to a pledge of collateral.

Note 7.11. Offsetting of Financial Assets and Liabilities

The agreements that govern certain of the Company’s derivative instruments and collateralized short-term financing arrangements provide for a right of setoff in the event of default or bankruptcy with respect to either party to such transactions. The Company presents derivative assets and liabilities as well as collateralized short-term financing arrangements on a gross basis.

Receivables recognized for the right to reclaim cash initial margin posted in respect of interest rate derivative instruments are included in the line item ~~“deposits, net”~~“deposits” in the accompanying consolidated balance sheets. ~~Prior to January 1, 2017, the daily exchange~~

of variation margin associated with centrally cleared derivative instruments was considered a pledge of collateral. For these prior periods, receivables recognized for the right to reclaim cash variation margin posted in respect of interest rate derivative instruments are included in the line item “deposits, net” in the accompanying consolidated balance sheets. The Company elected to offset any payables recognized for the obligation to return cash variation margin received from an interest rate derivative instrument counterparty against receivables recognized for the right to reclaim cash initial margin posted by the Company to that same counterparty.

~~Beginning on January 1, 2017, as a result of a CME amendment to their rule book which governs their central clearing activities, the~~The daily exchange of variation margin associated with a centrally cleared or exchange-traded derivative instrument is legally characterized as the daily settlement of the derivative instrument itself, as opposed to a pledge of collateral. Accordingly, ~~beginning in 2017,~~ the Company accounts for the daily receipt or payment of variation margin associated with its ~~centrally cleared~~ interest rate swaps and futures as a direct reduction to the carrying value of ~~the interest rate swap~~ derivative asset or liability, respectively. ~~Beginning in 2017, the~~The carrying amount of ~~centrally cleared~~ interest rate swaps and futures reflected in the Company’s consolidated balance sheets is equal to the unsettled fair value of such instruments; because variation margin is exchanged on a one-day lag, the unsettled fair value of such instruments generally represents the change in fair value that occurred on the last day of the reporting period.

The following tables present information, as of the dates indicated, about the Company’s derivative instruments, short-term borrowing arrangements, and associated collateral, including those subject to master netting (or similar) arrangements:


	As of March 31, 2023
	Gross Amount Recognized		Amount Offset in the Consolidated Balance Sheets		Net Amount Presented in the Consolidated Balance Sheets		Gross Amount Not Offset in the Consolidated Balance Sheets						Net Amount
							Financial Instruments (1)			Cash Collateral (2)
Assets:
Derivative instruments:
Interest rate swaps	$	117	$	—	$	117	$	(11	)	$	—		$	106
TBA commitments		23		—		23		(23	)		—			—
Total derivative instruments		140		—		140		(34	)		—			106
Total assets	$	140	$	—	$	140	$	(34	)	$	—		$	106
Liabilities:
Derivative instruments:
Interest rate swaps	$	11	$	—	$	11	$	(11	)	$	—		$	—
TBA commitments		10,637		—		10,637		(23	)		(9,481	)		1,133
Total derivative instruments		10,648		—		10,648		(34	)		(9,481	)		1,133
Repurchase agreements		484,348		—		484,348		(484,348	)		—			—
Total liabilities	$	494,996	$	—	$	494,996	$	(484,382	)	$	(9,481	)	$	1,133


	As of December 31, 2022
	Gross Amount Recognized		Amount Offset in the Consolidated Balance Sheets		Net Amount Presented in the Consolidated Balance Sheets		Gross Amount Not Offset in the Consolidated Balance Sheets					Net Amount
							Financial Instruments (1)			Cash Collateral (2)
Assets:
Derivative instruments:
TBA commitments	$	5,652	$	—	$	5,652	$	(22	)	$	—	$	5,630
Interest rate swaps		8		—		8		—			—		8
Total derivative instruments		5,660		—		5,660		(22	)		—		5,638
Total assets	$	5,660	$	—	$	5,660	$	(22	)	$	—	$	5,638
Liabilities:
Derivative instruments:
TBA commitments	$	22	$	—	$	22	$	(22	)	$	—	$	—
Total derivative instruments		22		—		22		(22	)		—		—
Repurchase agreements		515,510		—		515,510		(515,510	)		—		—
Total liabilities	$	515,532	$	—	$	515,532	$	(515,532	)	$	—	$	—

As of September 30, 2017

Gross Amount
Recognized

Amount Offset
in the
Consolidated
Balance Sheets

Net Amount
Presented in the
Consolidated
Balance Sheets

Gross Amount Not Offset in the
Consolidated Balance Sheets

Net
Amount

Financial
Instruments ⁽¹⁾

Cash
Collateral ⁽²⁾

Assets:

Derivative instruments:

Options on U.S. Treasury note futures

$
1

$
—

$
1

$
—

$
—

$
1

U.S. Treasury note futures

820

—

820

—

(820
)

—

Interest rate swaps

3,348

—

3,348

—

(3,348
)

—

Options on agency MBS

8

—

8

—

—

8

Total derivative instruments

4,177

—

4,177

—

(4,168
)

9

Total assets

$
4,177

$
—

$
4,177

$
—

$
(4,168
)

$
9

Liabilities:

Unsettled MBS trades and TBA
commitments, net ⁽³⁾

$
7,146

$
—

$
7,146

$
—

$
(5,764
)

$
1,382

Repurchase agreements

3,694,838

—

3,694,838

(3,694,838
)

—

—

Total liabilities

$
3,701,984

$
—

$
3,701,984

$
(3,694,838
)

$
(5,764
)

$
1,382

(1)

Does not include the fair value amount of financial instrument collateral pledged in respect of repurchase agreements that exceeds the associated liability presented in the consolidated balance sheets.

(2)

Does not include the amount of cash collateral pledged in respect of derivative instruments and repurchase agreements that exceeds the associated liability presented in the consolidated balance sheets.

As of December 31, 2016

Gross Amount
Recognized

Amount Offset
in the
Consolidated
Balance Sheets

Net Amount
Presented in the
Consolidated
Balance Sheets

Gross Amount Not Offset in the
Consolidated Balance Sheets

Net
Amount

Financial
Instruments ⁽¹⁾

Cash
Collateral ⁽²⁾

Assets:

Derivative instruments:

Options on U.S. Treasury note futures

$
4,289

$
—

$
4,289

$
(3,906
)

$
—

$
383

Interest rate swaps

63,315

—

63,315

(1,949
)

(61,366
)

—

TBA commitments

7,285

—

7,285

—

—

7,285

Total derivative instruments

74,889

—

74,889

(5,855
)

(61,366
)

7,668

Deposits, net

72,516

(61,367
)

11,149

—

—

11,149

Total assets

$
147,405

$
(61,367
)

$
86,038

$
(5,855
)

$
(61,366
)

$
18,817

Liabilities:

Derivative instruments:

Options on U.S. Treasury note futures

$
3,906

$
—

$
3,906

$
(3,906
)

$
—

$
—

Interest rate swaps

1,949

—

1,949

(1,949
)

—

—

TBA commitments

3,699

—

3,699

—

(1,474
)

2,225

Total derivative instruments

9,554

—

9,554

(5,855
)

(1,474
)

2,225

Deposits, net

61,367

(61,367
)

—

—

—

—

Repurchase agreements

3,649,102

—

3,649,102

(3,649,102
)

—

—

Total liabilities

$
3,720,023

$
(61,367
)

$
3,658,656

$
(3,654,957
)

$
(1,474
)

$
2,225

⁽¹⁾	Does not include the fair value amount of financial instrument collateral pledged in respect of repurchase agreements that exceeds the associated liability presented in the consolidated balance sheets.

⁽²⁾	~~Does not include the amount of cash collateral pledged in respect of derivative instruments that exceeds the associated derivative liability presented in the consolidated balance sheets.~~

⁽³⁾	The “Gross Amount Recognized” and “Net Amount Presented in the Consolidated Balances Sheets” excludes the fair value of unsettled agency MBS purchases and sales recognized on their respective trade dates.

Note 8.12. Fair Value Measurements

Fair Value of Financial Instruments

The accounting principles related to fair value measurements define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial Accounting Standards Board Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosures, establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels, giving the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3) as described below:


	Level 1 Inputs -	Unadjusted quoted prices in active markets for identical assets or liabilities that are accessible by the Company at the measurement date;


	Level 2 Inputs -	Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly; and


	Level 3 Inputs -	Unobservable inputs for the asset or liability, including significant judgments made by the Company about the assumptions that a market participant would use.

The Company measures the fair value of the following assets and liabilities:

Investments in Financial Assets

~~Mortgage-backed securities~~

Agency MBS - – The Company’s investments in agency MBS are classified within Level 2 of the fair value hierarchy. Inputs to fair value measurements of the Company’s investments in agency MBS include price estimates obtained from third-party pricing services. In determining fair value, third-party pricing services use a market approach. The inputs used in the fair value measurements performed by the third-party pricing services are based upon readily observable transactions for securities with similar characteristics (such as issuer/guarantor, coupon rate, stated maturity, and collateral pool characteristics) occurring on the measurement date. The Company makes inquiries of the third-party pricing sources and reviews their documented valuation methodologies to understand the significant inputs and assumptions used to determine prices. The Company reviews the various third-party fair value estimates and performs procedures to validate their reasonableness, including comparison to recent trading activity for similar securities and an overall review for consistency with market conditions observed as of the measurement date.

~~Private-label~~20

Credit securities – The Company's investments in commercial MBS - are classified within Level 2 of the fair value hierarchy. Inputs to fair value measurements of the Company's investments in commercial MBS include quoted prices for similar assets in recent market transactions and estimates obtained from third-party sources including pricing services and dealers. In determining fair value, third-party pricing sources use a market approach. The inputs used in the fair value measurements performed by third-party pricing sources are based upon observable transactions for securities with similar characteristics. The Company reviews the third-party fair value estimates and performs procedures to validate their reasonableness, including comparisons to recent trading activity observed for similar securities as well as an internally derived discounted future cash flow measurement. The Company’s investments in ~~private-label~~non-agency MBS collateralized by a pool of business purpose residential mortgage loans and ABS collateralized by residential solar panel loans are classified within Level 3 of the fair value ~~hierarchy~~hierarchy.

To measure the fair value of the Company’s non-agency MBS investment secured by a pool of business purpose residential mortgage loans, the Company uses an income approach by preparing an estimate of the present value of the amount and timing of the cash flows expected to be collected from the security over its expected remaining life. To prepare the estimate of cash flows expected to be collected, the Company uses significant judgment to develop assumptions about the future performance of the pool of business purpose residential mortgage loans that serve as ~~private-label~~collateral, including loan-level probabilities of default and loss-given-default. As of March 31, 2023 and December 31, 2022, the remaining population of business purpose residential mortgage loans serving as collateral to the Company's non-agency MBS ~~trade infrequently~~investment represented less than 5% of the original collateral pool. Because the repayment of business purpose residential 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 ~~therefore,~~obtain refinancing in the form of a longer-term loan, relatively high delinquency and default rates are common and expected attributes of this asset class. The following table presents the weighted-average of the significant inputs to the fair value measurement of ~~their~~the Company’s non-agency MBS secured by business purpose residential mortgage loans as of dates indicated:


	March 31, 2023			December 31, 2022
Probability of default		69.8	%		27.8	%
Loss-given-default		33.2	%		18.3	%

Inputs to fair value ~~requires~~measurements of the ~~use of significant unobservable inputs.~~Company’s investments in ABS collateralized by residential solar panel loans includes quoted prices obtained from dealers and, when available, observable market information for the same or similar securities. In determining fair value, dealers may use a market approach or an income approach, depending upon the type and level of relevant market information available as of the measurement date. The significant inputs used in the fair value measurements performed by dealers are often unobservable as ABS collateralized by residential solar panel loans trade infrequently. The Company reviews the fair value estimates obtained from dealers and performs procedures to validate their reasonableness, including comparisons to an internally derived discounted future cash flow measurement and, when available, recent trading activity observed for similar securities.

Loans – The Company’s commercial mortgage loan investment is classified within Level 3 of the fair value hierarchy. To measure the fair value of its mortgage loan investment, the Company ~~primarily~~ uses an income approach ~~as well as market approaches. The Company utilizes~~by preparing an estimate of the present value ~~techniques based on~~of the ~~estimated~~expected future cash flows of the ~~instrument taking into consideration various assumptions derived by management~~loan over its expected remaining life, discounted at a current market rate. The significant unobservable inputs to the fair value measurement of the Company’s mortgage loan investment are the estimated probability of default and the discount rate, which is based on ~~their observations~~current market yields and interest rate spreads for a similar loan. As of March 31, 2023, the estimated probability of default and discount rate for the Company’s mortgage loan investment were 0% and 10.4%, respectively. As of December 31, 2022, the estimated probability of default and discount rate for the Company’s mortgage loan investment were 0% and 10.0%, respectively.

Mortgage loans and secured debt of consolidated VIEs – The Company has elected to apply a fair value measurement practical expedient permitted by GAAP to measure the fair value of the mortgage loans and debt obligations of its consolidated VIEs. The fair value measurement practical expedient is permitted to be applied to consolidated “collateralized financing entities,” which are VIEs for which the financial liabilities of the VIE have contractual recourse solely to the financial assets of the VIE.

As of March 31, 2023 and December 31, 2022, pursuant to the practical expedient, the Company measured the fair value of both the mortgage loans and the debt obligations of its consolidated VIE of business purpose residential mortgage loans based upon the fair value of the mortgage loans of the VIE. As of December 31, 2022, the senior debt obligations of the consolidated VIE had been fully extinguished and only the subordinate debt obligation of the consolidated VIE remained. The business purpose residential mortgage loans and subordinate debt obligation of the consolidated VIE are classified within Level 3 of the fair value hierarchy. To measure the fair value of the business purpose residential mortgage loans of the consolidated VIE as of March 31, 2023 and December 31, 2022, the Company used significant judgment to develop assumptions ~~used by market participants. These assumptions~~about the future performance of each business purpose residential mortgage loan, which included determining loan-level probabilities of default and loss-given-default. As of March 31, 2023 and December 31, 2022, the remaining population of business purpose residential mortgage loans represented less than 5% of the original

collateral pool. Because the repayment of business purpose residential 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, relatively high delinquency and default rates are ~~corroborated by evidence such as historical collateral performance data, evaluation~~common and expected attributes of ~~historical collateral performance data for other securities with comparable or similar risk characteristics, and observed completed or pending transactions in similar instruments, when available.~~ this asset class. The following table presents the weighted-average of the significant inputs to the fair value measurement of the business purpose residential mortgage loans of the Company’s ~~valuation process include collateral default, loss severity, prepayment, and discount rates (i.e., the rate of return demanded by market participants~~consolidated VIE as of the ~~measurement date). In general, significant increases (decreases)~~periods indicated:


	March 31, 2023			December 31, 2022
Probability of default		63.7	%		44.1	%
Loss-given-default		7.9	%		11.3	%

On March 7, 2023, the Company sold all of its investments in ~~default, loss severity, or discount rate assumptions, in isolation, would~~its previously consolidated VIE of residential mortgage loans and, as a result, ~~in a significantly lower (higher)~~deconsolidated the VIE. As of December 31, 2022, the Company measured the fair value ~~measurement. However, significant increases (decreases) in prepayment rate assumptions, in isolation, may result in a significantly higher (lower)~~of both the residential mortgage loans and the debt obligations of its consolidated VIE of residential mortgage loans based upon the fair value ~~measurement depending~~of the debt obligations as the fair value of the debt securities issued by the VIE were more observable to the Company than the fair value of the underlying mortgage loans.

The senior and mezzanine debt obligations of the consolidated VIE of residential mortgage loans were classified within Level 2 of the fair value hierarchy. Inputs to the fair value measurements of the senior and mezzanine debt obligations of the consolidated VIE included quoted prices for similar assets in recent market transactions and estimates obtained from third-party pricing sources, including pricing services and dealers. In determining fair value, third-party pricing sources use a market approach. The inputs used in the fair value measurements performed by third-party pricing sources were based upon ~~the instrument’s specific characteristics~~observable transactions for securities with similar characteristics.

The residential mortgage loans and the ~~overall payment structure~~subordinate and excess interest-only debt obligations of the ~~issuing securitization vehicle. It is difficult to generalize~~consolidated VIE of residential mortgage loans (held by the ~~interrelationships between these significant inputs~~Company as investments and eliminated against the ~~actual results could differ considerably on an individual security basis. Therefore, each significant input is closely analyzed to ascertain its reasonableness for~~associated debt of the ~~Company’s purposes~~VIE in consolidation) were classified within Level 3 of the fair value ~~measurement.~~

~~Measuring~~hierarchy. To measure the fair value ~~is inherently subjective given~~of the ~~volatile~~subordinate and ~~sometimes illiquid markets for these private-label MBS~~excess interest-only debt obligations of the consolidated VIE of residential mortgage loans, the Company used an income approach by preparing an estimate of the present value of the amount and ~~requires management~~timing of the cash flows expected to ~~make a number~~be collected from each security over its expected remaining life. To prepare the estimate of ~~judgments~~cash flows expected to be collected, the Company used significant judgment to develop assumptions about the ~~assumptions~~future performance of the pool of residential mortgage loans that ~~a market participant would use,~~served as collateral, including assumptions about the timing and amount of ~~future cash flows~~credit losses and prepayments. The significant unobservable inputs to the fair value measurement included the estimated rate of prepayment, rate of default and loss-given-default for the underlying pool of mortgage loans as well as the discount rate, which represented a market participant’s current required rate of return ~~required by market participants.~~for a similar instrument. The ~~assumptions~~following table presents the weighted-average of the significant inputs to the fair value measurement of the subordinate and excess interest-only debt obligations of its consolidated VIE of residential mortgage loans as of December 31, 2022:


	Subordinate Debt Obligation			Excess Interest-Only Debt Obligations
Annualized voluntary prepayment rate		10.0	%		10.0	%
Annualized default rate		0.5	%		0.5	%
Loss-given-default		17.5	%		17.5	%
Discount rate		7.8	%		17.7	%

MSR financing receivables – The Company’s MSR financing receivables are classified within Level 3 of the fair value hierarchy. The Company ~~applies are specific to each security. Although the Company relies on its internal calculations~~uses a nationally recognized, independent third-party mortgage analytics and valuation firm to estimate the fair value of ~~these private-label MBS,~~the underlying MSRs from which the Company’s MSR financing receivables primarily derive their value. The third-party valuation firm estimates the fair value of the underlying MSRs using a discounted cash flow analysis using their proprietary prepayment models and market analysis. The Company corroborates the third-party valuation firm’s estimate of the fair value of the underlying MSRs and evaluates the estimate for reasonableness. The significant unobservable inputs to the fair value measurement of the underlying MSRs include the following:

•

the discount rate, which represents a market participant’s current required rate of return for similar MSRs;

•

expected rates of prepayment within the serviced pools of mortgage loans; and

•

annual per-loan cost of servicing.

The following table presents the significant unobservable inputs to the fair value measurement of the MSRs underlying the Company’s MSR financing receivables as of the periods indicated:


	March 31, 2023			December 31, 2022
Discount rate		9.0	%		8.5	%
Annualized prepayment rate		6.6	%		7.0	%
Annual per-loan cost of servicing (current loans)	$	60.00		$	65.00

Pursuant to the Company’s MSR financing receivable arrangements, upon the consummation of three-year performance periods ending December 31, 2023 and April 1, 2024, the Company’s mortgage servicing counterparty is entitled to an incentive fee payment equal to a percentage of the total return of the underlying MSRs in excess of a hurdle rate of return. Accordingly, the fair value of the Company’s MSR financing receivables reflects the present value of any expected incentive fee payment that would be owed to its counterparty. The present value of the expected incentive fee payment is estimated based upon the timing and amount of capital contributions from (and cash distributions to) the Company ~~considers indications~~to (from) its mortgage servicing counterparty to date as well as the future expected cash flows from the MSR financing receivables over the remaining performance periods, which is derived from the current fair value of the underlying reference MSRs. As of March 31, 2023 and December 31, 2022, the present value ~~from actual sales~~ of ~~similar private-label MBS to assist~~expected future incentive fee payments reflected in ~~the valuation process and to calibrate~~fair value of the Company’s ~~models.~~MSR financing receivables was $11,293 and $12,568, respectively. During the three months ended March 31, 2023, the Company paid $1,144 in incentive fee payments to the Company's mortgage servicing counterparty.

Derivative instruments

Exchange-traded derivative instruments - – Exchange-traded derivative instruments, which include ~~Eurodollar futures,~~ U.S. Treasury note futures, Eurodollar futures, interest rate swap futures, and options on futures, are classified within Level 1 of the fair value hierarchy as they are measured using quoted prices for identical instruments in liquid markets.

Interest rate swaps - – Interest rate swaps are classified within Level 2 of the fair value hierarchy. The fair values of the Company’s centrally cleared interest rate swaps are measured using the daily valuations reported by the clearinghouse through which the instrument was cleared. In performing its end-of-day valuations, the clearinghouse constructs forward interest rate curves (for example, three-month LIBOR or SOFR forward rates) from its specific observations of that day’s trading activity. The clearinghouse uses the applicable forward interest rate curve to develop a market-based forecast of future remaining contractually required cash flows for each interest rate swap. Each market-based cash flow forecast is then discounted using the ~~overnight index swap rate~~SOFR curve (sourced from the Federal Reserve Bank of New York) to determine a net present value amount which represents the instrument’s fair value. ~~The Company reviews the valuations reported by the clearinghouse on an ongoing basis and performs procedures using readily available market data to independently verify their reasonableness.~~

Forward-settling purchases and sales of TBA securities – Forward-settling purchases and sales of TBA securities are classified within Level 2 of the fair value hierarchy. The fair value of each forward-settling TBA contract is measured using price estimates obtained from a third-party pricing service, which are based upon readily observable transaction prices occurring on the measurement date for forward-settling contracts to buy or sell TBA securities with the same guarantor, contractual maturity, and coupon rate for delivery on the same forward settlement date as the ~~contract~~commitment under measurement.

~~Other~~

Other

Long-term unsecured debt - As of ~~September 30, 2017~~March 31, 2023 and December 31, ~~2016,~~2022, the carrying value of the Company’s long-term unsecured debt was ~~$73,824~~$86,508 and ~~$73,656,~~$86,405, respectively, net of unamortized debt issuance costs, and consists of Senior Notes and trust preferred debt issued by the Company. The Company’s estimate of the fair value of long-term unsecured debt is ~~$71,152~~$79,124 and ~~$66,489~~$79,900 as of ~~September 30, 2017~~March 31, 2023 and December 31, ~~2016,~~2022, respectively. The Company’s Senior Notes, which are publicly traded on the New York Stock Exchange, are classified within Level 1 of the fair value hierarchy. Trust preferred debt is classified within Level 2 of the fair value hierarchy as the fair value is estimated based on the quoted prices of the Company’s publicly traded Senior Notes.

Investments in equity securities of publicly-traded companies –As of March 31, 2023 and December 31, 2022, the Company had investments in equity securities of publicly-traded companies at fair value of $174 and $234, respectively, which is included in the line item “other assets” in the accompanying consolidated balance sheets. Investments in publicly traded stock are classified within Level 1 of the fair value hierarchy as their fair value is measured based on unadjusted quoted prices in active exchange markets for identical assets.

Investments in equity securities of non-public companies and investment funds - – As of ~~September 30, 2017~~March 31, 2023 and December 31, ~~2016,~~2022, the Company had investments in equity securities of non-public companies and investment funds ~~with a carrying amount~~measured at fair value of ~~$1,701~~$2,999 and ~~$1,918,~~$2,964, respectively, which are included in the line item “other assets” in the accompanying consolidated balance sheets. As of September 30, 2017 and December 31, 2016, $444 and $533, respectively, of these investments represent securities for which the Company elected the “fair value option” at the time that the securities were initially recognized on the Company’s consolidated balance sheets; the Company measures the fair value of these securities on a recurring basis, recognizing the periodic change in fair value in earnings. The remaining $1,257 and $1,385 in investments

Investments in equity securities of non-public companies and investment funds as of September 30, 2017 and December 31, 2016, respectively, were measured at cost, net of impairments. The Company’s estimate of the fair value of investments in equity securities and investment funds is $6,205 and $6,034 as of September 30, 2017 and December 31, 2016, respectively. Investments in equity securities and investment funds are classified within Level 3 of the fair value hierarchy. The fair values of the Company’s investments in equity securities of non-public companies and investment funds are not readily determinable. Accordingly, ~~for its investments in equity securities,~~ the Company estimates fair value by estimating the enterprise value of the investee ~~and~~which it then ~~waterfalls the enterprise value over~~allocates to the investee’s securities in the order of their preference relative to one another. To estimate the enterprise value of the investee, the Company uses traditional valuation methodologies based on income and market approaches, including the consideration of recent investments in, or tender offers for, the equity securities of the ~~investee. For its investments~~investee, a discounted cash flow analysis and a comparable guideline public company valuation. The primary unobservable inputs used in ~~investment funds,~~estimating the ~~Company estimates~~ fair value ~~based upon the investee’s~~of an equity security of a non-public company include (i) a stock price to net asset multiple for similar public companies that is applied to the entity’s net assets, (ii) a discount factor for lack of marketability and control, and (iii) a cost of equity discount rate, used to discount to present value ~~per share.~~the equity cash flows available for distribution and the terminal value of the entity. As of March 31, 2023, the stock price to net asset multiple for similar public companies, the discount factor for lack of marketability and control, and the cost of equity discount rate used as inputs were 100 percent, 20 percent, and 17 percent, respectively. As of December 31, 2022, the stock price to net asset multiple for similar public companies, the discount factor for lack of marketability and control, and the cost of equity discount rate used as inputs were 97 percent, 15 percent, and 16 percent, respectively.

Financial assets and liabilities for which carrying value approximates fair value - Cash and cash equivalents, restricted cash, deposits, receivables, repurchase agreements, payables, and other assets (aside from those previously discussed) and liabilities are generally reflected in the consolidated balance sheets at their cost, which, due to the short-term nature of these instruments and their limited inherent credit risk, approximates fair value.

Fair Value Hierarchy

Financial Instruments Measured at Fair Value on a Recurring Basis

The following tables set forth financial instruments measured at fair value by level within the fair value hierarchy as of ~~September 30, 2017~~March 31, 2023 and December 31, ~~2016.~~2022. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

September 30, 2017

Total

Level 1

Level 2

Level 3

MBS

Trading:

Agency MBS

$
3,994,515

$
—

$
3,994,515

$
—

Private-label MBS

54

—

—

54

Total MBS

3,994,569

—

3,994,515

54

Derivative assets

4,177

821

3,356

—

Derivative liabilities

(7,146
)

—

(7,146
)

—

Other assets

444

—

—

444

Total

$
3,992,044

$
821

$
3,990,725

$
498


	March 31, 2023
	Total		Level 1		Level 2		Level 3
Financial assets:
Agency MBS	$	460,984	$	—	$	460,984	$	—
MSR financing receivables		183,058		—		—		183,058
Loans		27,798		—		—		27,798
Credit securities		102,564		—		98,933		3,631
Mortgage loans of consolidated VIEs		1,344		—		—		1,344
Derivative assets		140		—		140		—
Other assets		3,173		174		—		2,999
Financial liabilities:
Secured debt of consolidated VIEs		160		—		—		160
Derivative liabilities		10,648		—		10,648		—


	December 31, 2022
	Total		Level 1		Level 2		Level 3
Financial assets:
Agency MBS	$	443,540	$	—	$	443,540	$	—
MSR financing receivables		180,365		—		—		180,365
Loans		29,264		—		—		29,264
Credit securities		104,437		—		98,933		5,504
Mortgage loans of consolidated VIE		193,957		—		—		193,957
Derivative assets		5,660		—		5,660		—
Other assets		3,198		234		—		2,964
Financial liabilities:
Secured debt of consolidated VIE		169,345		—		159,464		9,881
Derivative liabilities		22		—		22		—

December 31, 2016

Total

Level 1

Level 2

Level 3

MBS

Trading:

Agency MBS

$
3,911,375

$
—

$
3,911,375

$
—

Private-label MBS

1,266

—

—

1,266

Total MBS

3,912,641

—

3,911,375

1,266

Derivative assets

74,889

4,289

70,600

—

Derivative liabilities

(9,554
)

(3,906
)

(5,648
)

—

Other assets

533

—

—

533

Total

$
3,978,509

$
383

$
3,976,327

$
1,799

~~There were no transfers of financial instruments into or out of Levels 1, 2 or 3 during the three and nine months ended September 30, 2017 or the year ended December 31, 2016.~~24

Level 3 Financial Assets and Liabilities

~~The following table provides information about the significant unobservable inputs used to measure the fair value of the Company’s private-label MBS as of the dates indicated:~~

~~September 30, 2017~~

~~December 31, 2016~~

~~Weighted-~~

~~average~~ ⁽¹⁾

~~Range~~

~~Weighted-~~

~~average~~ ⁽¹⁾

~~Range~~

~~Discount rate~~

—

~~6.50~~

~~6.50 - 6.50 %~~

~~Default rate~~

—

~~2.25~~

~~2.25 - 2.25 %~~

~~Loss severity rate~~

—

~~45.00~~

~~45.00 - 45.00 %~~

~~Total prepayment rate (including defaults)~~

—

~~10.25~~

~~10.25 - 10.25 %~~

⁽¹⁾~~Based on face value.~~

The table below sets forth an attribution of the change in the fair value of the Company’s Level 3 ~~investments~~financial assets that are measured at fair value on a recurring basis for the periods indicated:


	Three Months Ended March 31,
	2023			2022
Beginning balance	$	412,054		$	195,767
Net (loss) gain included in "Investment and derivative gain (loss), net"		(4,296	)		15,215
Additions from consolidation of VIEs		—			276,594
Transfers to real estate owned by consolidated VIE		(659	)		—
Purchases		6,075			3,187
Sales		—			—
Payments, net		(12,836	)		(30,618	)
Subtractions from deconsolidation of VIEs		(185,820	)		—
Accretion of discount, net		4,312			3,173
Ending balance	$	218,830		$	463,318
Net unrealized (losses) gains included in earnings for the period for Level 3 assets still held at the reporting date	$	(3,609	)	$	15,215

The table below sets forth an attribution of the change in the fair value of the Company’s Level 3 financial liabilities that are measured at fair value on a recurring basis for the periods indicated:


	Three Months Ended March 31,
	2023			2022
Beginning balance	$	9,881		$	508
Net loss (gain) included in "Investment and derivative gain (loss), net"		53			(251	)
Additions from consolidation of VIEs		—			14,278
Payments, net		(277	)		(860	)
Subtractions from deconsolidation of VIEs		(9,481	)		—
Amortization of premium, net		(16	)		(60	)
Ending balance	$	160		$	13,615
Net unrealized losses (gains) included in earnings for the period for Level 3 liabilities still held at the reporting date	$	1		$	(251	)

Three Months Ended September 30,

Nine Months Ended September 30,

2017

2016

2017

2016

Beginning balance
$
618

$
89,186

$
1,799

$
130,553

Total net gains (losses)

Included in investment gain (loss), net

(116
)

2,994

(55
)

537

Included in other comprehensive income

—

(3,325
)

—

(11,739
)
Purchases

—

—

—

5,357

Sales

—

(67,761
)

(1,268
)

(106,052
)
Payments, net

(6
)

(826
)

(60
)

(4,170
)
Accretion of discount

2

1,655

82

7,437

Ending balance
$
498

$
21,923

$
498

$
21,923

Net unrealized gains (losses) included in earnings for the
period for Level 3 assets still held at the reporting date
$
(116
)

$
(64
)

$
(113
)

$
(280
)

Note 9.13. Income Taxes

~~Arlington Asset is subject~~The Company has elected to ~~taxation~~be taxed as a ~~corporation~~REIT under ~~Subchapter C of~~ the Internal Revenue Code commencing upon filing its tax return for its taxable year ended December 31, 2019. As a REIT, the Company is required to distribute annually 90% of ~~1986,~~its REIT taxable income. So long as ~~amended (the “Code”).~~ 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 to the extent that it distributes all of its annual taxable income 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 REIT taxable income within the time limits prescribed by the Internal Revenue Code, which may extend into the subsequent taxable year. Accordingly, the Company does not expect to incur an income tax liability on its REIT taxable income.

As of ~~September 30, 2017,~~March 31, 2023, the Company had estimated federal net operating loss (“NOL”) ~~carry-forwards~~carryforwards of ~~$69,720~~$163,963 that can be used to offset future taxable ordinary ~~income. The Company’s~~income and reduce its REIT distribution requirements. NOL ~~carry-forwards begin to~~carryforwards totaling $14,450 expire in ~~2027.~~2028 and NOL carryforwards totaling $149,513 have no expiration period. For the NOL carryforwards that have no expiration period, the Company is limited to utilizing NOL carryforwards to 80% of the taxable income in any one year. As of ~~September 30, 2017,~~March 31, 2023, the Company had estimated federal net capital loss (“NCL”) ~~carry-forwards~~carryforwards of ~~$309,751~~$136,225 that can be used to offset future net capital gains. The scheduled expirations of the Company’s NCL ~~carry-forwards~~carryforwards are ~~$136,505~~$105,155 in ~~2019, $102,927~~2023, $14,187 in ~~2020,~~2026 and ~~$70,319~~$16,883 in ~~2021.~~ 2027. The Company’s estimated NOL and NCL carryforwards as of March 31, 2023 are subject to potential adjustments up to the time of filing of the Company’s income tax returns.

The Company and subsidiaries have made joint elections to treat such subsidiaries as taxable REIT subsidiaries (“TRSs”). In general, a TRS may hold assets and engage in activities that the Company cannot hold or engage in directly and generally may engage in any real estate or non-real estate related business. As such, each of these TRSs is taxable as a C corporation and subject to federal, state and local income taxes based upon their taxable income. For the three months ended March 31, 2023 and 2022, the Company recognized a provision for income taxes of $109 and $2,287, respectively, on the pre-tax net income of its TRSs.

The Company recognizes uncertain tax positions in the financial statements only when it is more-likely-than-not that the position will be sustained upon examination by the relevant taxing authority based on the technical merits of the position. A position that meets this standard is measured at the largest amount of benefit that will more-likely-than-not be realized upon settlement. A liability is established for differences between positions taken in a tax return and the financial statements. As of March 31, 2023 and December 31, 2022, the Company assessed the need for recording a provision for any uncertain tax position and has made the determination that such provision is not necessary. If the Company were to incur income tax related interest and penalties, the Company’s policy is to classify them as a component of provision for income taxes.

The Company is subject to ~~federal alternative minimum tax~~examination by the Internal Revenue Service (“~~AMT”~~IRS”) and state and local ~~taxes on its taxable income and gains~~

~~that are not offset by its NOL and NCL carry-forwards. As of September 30, 2017,~~authorities in jurisdictions where the Company ~~had estimated AMT credit carry-forwards of $8,952 that can be used~~has significant business operations. The Company’s federal tax returns for 2019 and forward remain subject to ~~offset future taxable ordinary income. The AMT credit carry-forwards do not expire.~~

~~Income taxes are provided for using~~examination by the asset and liability method. Deferred tax assets and liabilities reflect the impact of temporary differences between the carrying amount of assets and liabilities pursuant to the application of GAAP and their respective tax bases and are stated at tax rates expected to be in effect when the taxes are actually paid or recovered. Deferred tax assets are also recognized for NOL carry-forwards, NCL carry-forwards and any tax credit carry-forwards. IRS.

A valuation allowance is provided against the deferred tax asset if, based upon the Company’s evaluation, it is more-likely-than-not that some or all of the deferred tax assets will not be realized. All available evidence, both positive and negative, is incorporated into the determination of whether a valuation allowance for deferred tax assets is appropriate. Items considered in the valuation allowance determination include expectations of future earnings of the appropriate tax character, recent historical financial results, tax planning strategies, the length of statutory carry-forward periods and the expected timing of the reversal of temporary differences. As of September 30, 2017, the Company determined that it should record a full valuation allowance against its deferred tax assets that are capital in nature, which consists of its NCL carry-forwards and temporary GAAP to tax differences that are expected to result in capital losses in future periods. As of September 30, 2017, the Company determined that it should not record any valuation allowance against its deferred tax assets that are ordinary in nature, which consists of its NOL carry-forwards, tax credit carry-forwards and temporary GAAP to tax differences that are expected to result in deductions from ordinary income in future periods. For the three months ended September 30, 2017, the Company recorded a decrease to its valuation allowance of $8,417, and for the nine months ended September 30, 2017, the Company recorded an increase to its valuation allowance of $11,541.

~~Deferred tax assets and liabilities consisted of the following as of the dates indicated:~~

September 30, 2017

December 31, 2016

Ordinary deferred tax assets:

NOL carry-forward
$
27,121

$
37,238

AMT credit carry-forward

8,952

8,427

Deferred net loss on designated derivatives

6,717

1,386

Stock-based compensation

2,563

2,426

Other, net

137

208

Total ordinary deferred tax assets

45,490

49,685

Ordinary deferred tax liabilities:

Net unrealized gain on designated derivatives

(22,037
)

(25,145
)
Ordinary deferred tax assets, net

23,453

24,540

Capital deferred tax assets:

NCL carry-forward

120,493

120,939

Net unrealized loss on investments

31,951

44,253

Valuation allowance

(152,444
)

(140,903
)
Total capital deferred tax assets, net

—

24,289

Total deferred tax assets, net
$
23,453

$
48,829

Note ~~10.~~14. Earnings (Loss) Per Share

Basic earnings (loss) per share includes no dilution and is computed by dividing net income or loss applicable to common stock by the weighted-average number of common shares outstanding for the respective period. Diluted earnings per share includes the impact of dilutive securities such as unvested shares of restricted stock, restricted stock units, and performance share units. The following ~~tables present~~table presents the computations of basic and diluted earnings (loss) per share for the periods indicated:


	Three Months Ended March 31,
(Shares in thousands)	2023			2022
Basic weighted-average common shares outstanding		28,004			29,832
Performance share units, unvested restricted stock units, and unvested restricted stock		—			—
Diluted weighted-average common shares outstanding		28,004			29,832
Net loss attributable to common stock	$	(2,878	)	$	(3,443	)
Basic loss per common share	$	(0.10	)	$	(0.12	)
Diluted loss per common share	$	(0.10	)	$	(0.12	)

The diluted loss per share for the three months ended March 31, 2023 and 2022 did not include the antidilutive effect of 473,904 and 482,445 shares of unvested shares of restricted stock, restricted stock units, and performance share units, respectively.

Three Months Ended September 30,

Nine Months Ended September 30,

(Shares in thousands)
2017

2016

2017

2016

Basic weighted-average common shares outstanding

26,377

23,038

24,793

23,011

Performance share units and unvested restricted stock

479

311

350

143

Diluted weighted-average common shares outstanding

26,856

23,349

25,143

23,154

Net income attributable to common stock
$
22,785

$
18,813

$
10,076

$
89

Basic earnings per common share
$
0.86

$
0.82

$
0.41

$
-

Diluted earnings per common share
$
0.85

$
0.81

$
0.40

$
-

Note ~~11.~~15. Stockholders’ Equity

Common Stock

The Company has authorized common share capital of 450,000,000 shares of Class A common stock, par value ~~$0.01~~$0.01 per share, and 100,000,000 shares of Class B common stock, par value ~~$0.01~~$0.01 per share. Holders of the Class A and Class B common stock are entitled to one vote and three votes per share, respectively, on all matters voted upon by the shareholders. Shares of Class B common stock are convertible into shares of Class A common stock on a one-for-one basis at the option of the Company in certain circumstances including either (i) upon sale or other transfer, or (ii) at the time the holder of such shares of Class B common stock ceases to be employed by the Company.

~~During the nine months ended September 30, 2017~~As of March 31, 2023 and ~~during the year ended~~ December 31, ~~2016, holders of the Company's Class B common stock converted an aggregate of 20,256 and 81,960~~2022, there were no outstanding shares of Class B common ~~stock into 20,256 and 81,960 shares of~~stock. The Class A common stock ~~respectively. As of September 30, 2017, all remaining shares of Class B common stock had been exchanged for shares of the Company’s Class A common stock.~~

~~Preferred Stock~~

The Company has authorized share capital of 2,000,000 shares of 7.00% Series B Cumulative Perpetual Redeemable Preferred Stock (the “Series B Preferred Stock”), par value of $.01 per share, and 100,000 authorized and unissued shares designated as Series A Preferred Stock, and 22,900,000 shares of undesignated preferred stock. The Company’s Board of Directors has the authority, without further action by the shareholders, to issue additional preferred stock in one or more series and to fix the terms and rights of the preferred stock.

In May 2017, the Company completed a public offering in which 135,000 shares of its Series B Preferred Stock were issued to the public at a public offering price of $24.00 per share for proceeds net of underwriting discounts and commissions and expenses of $3,018. The Series B Preferred Stock is publicly traded on the New York Stock Exchange under the ticker symbol ~~“AI PrB.~~“AAIC.”

~~The Series B Preferred Stock~~ has no stated maturity, is not subject to any sinking fund and will remain outstanding indefinitely unless repurchased or redeemed by the Company. Holders of Series B Preferred Stock have no voting rights, except under limited conditions, and are entitled to receive a cumulative cash dividend at a rate of 7.00% per annum of their $25.00 per share liquidation preference before holders of common stock are entitled to receive any dividends. Shares of Series B Preferred Stock are redeemable at $25.00 per share, plus accumulated and unpaid dividends (whether or not authorized or declared) exclusively at our option commencing on May 12, 2022 or earlier upon the occurrence of a change in control. Dividends are payable quarterly in arrears on the 30th day of each December, March, June and September. As of September 30, 2017, we had declared and paid all required quarterly dividends on our Series B Preferred Stock.

Common ~~Stock Dividends~~

Pursuant to the Company’s variable dividend policy for its common stock, the Board of Directors evaluates common stock dividends on a quarterly basis and, in its sole discretion, approves the payment of dividends. The Company’s common stock dividend payments, if any, may vary significantly from quarter to quarter. The Board of Directors has approved and the Company has declared and paid the following dividends on its common stock to date in 2017:

Quarter Ended

Dividend
Amount

Declaration Date

Record Date

Pay Date
September 30

$
0.550

September 14

September 29

October 31
June 30

0.550

June 16

June 30

July 31
March 31

0.625

March 14

March 31

April 28

~~The Board of Directors approved and the Company declared and paid the following dividends for 2016:~~

Quarter Ended

Dividend
Amount

Declaration Date

Record Date

Pay Date
December 31

$
0.625

December 16

December 30

January 31, 2017
September 30

0.625

September 15

September 30

October 31
June 30

0.625

June 17

June 30

July 29
March 31

0.625

March 15

March 31

April 29

Equity Distribution Agreements

On ~~May 24, 2013,~~August 10, 2018, the Company entered into separate common equity distribution agreements ~~(the “Prior Equity Distribution Agreements”)~~ with ~~each of RBC Capital Markets, LLC,~~equity sales agents JMP Securities LLC, B. Riley FBR, Inc., JonesTrading Institutional Services LLC and Ladenburg Thalmann & Co. Inc. ~~and MLV & Co. LLC (the “Prior Equity Sales Agents”),~~ pursuant to which the Company may offer and sell, from time to time, up to ~~1,750,000~~12,597,423 shares of the Company’s Class A common stock.

Pursuant to the ~~Prior Equity Distribution Agreements,~~common equity distribution agreements, shares of the Company’s common stock may be offered and sold through the ~~Prior Equity Sales Agents~~equity sales agents in transactions that are deemed to be “at the market” offerings as defined in Rule 415 under the Securities Act of 1933, including sales made directly on the NYSE or sales made to or through a market maker other than on an exchange or, subject to the terms of a written notice from the Company, in privately negotiated transactions.

During the three months ended March 31, ~~2017,~~2023 and the Company issued 800 shares of Class A common stock at a weighted average public offering price of $15.16 per share for proceeds net of underwriting discounts and commissions and expenses of $12 under the Prior Equity Distribution Agreements. On February 23, 2017, the Company terminated the Prior Equity Distribution Agreements.

On February 22, 2017, the Company entered into new separate equity distribution agreements (the “New Equity Distribution Agreements”) with each of JMP Securities LLC, FBR Capital Markets & Co., JonesTrading Institutional Services LLC and Ladenburg Thalmann & Co. Inc. (the “New Equity Sales Agents”), pursuant to which the Company may offer and sell, from time to time, up to 6,000,000 shares of the Company’s Class A common stock. Pursuant to the New Equity Distribution Agreements, shares of the Company’s common stock may be offered and sold through the New Equity Sales Agents in transactions that are deemed to be “at the market” offerings as defined in Rule 415 under the Securities Act of 1933, including sales made directly on the NYSE or sales made to or through a market maker other than on an exchange or, subject to the terms of a written notice from the Company, in privately negotiated transactions.

~~The following table provides information about the~~year ended December 31, 2022, there were no issuances of common stock under the ~~New Equity Distribution Agreements:~~common equity distribution agreements.

Class A Common Stock Issuances

Three Months Ended September 30, 2017

Nine Months Ended September 30, 2017

Shares issued

2,037,348

4,368,837

Weighted average public offering price

$
13.21

$
13.90

Net proceeds ⁽¹⁾

$
26,567

$
59,901

~~(1)~~

~~Net of selling commissions and expenses.~~

As of ~~September 30, 2017,~~March 31, 2023, the Company had ~~1,631,163~~11,302,160 shares of Class A common stock available for sale under the ~~New Equity Distribution Agreements.~~common equity distribution agreements.

Common Share Repurchase Program

On ~~May 16, 2017,~~July 31, 2020, the Company entered into an equity distribution agreement (the “Series B Preferred Equity Distribution Agreement”) with JonesTrading Institutional Services LLC (the “Series B Preferred Equity Agent”), pursuant to which the Company may offer and sell, from time to time, up to 1,865,000 shares of the Company’s Series B Preferred Stock. Pursuant to the Series B Preferred Equity Distribution Agreement, shares of the Company’s Series B Preferred stock may be offered and sold through the Series B Preferred Equity Sales Agent in transactionsannounced that are deemed to be “at the market” offerings as defined in Rule 415 under the Securities Act of 1933, including sales made directly on the NYSE or sales made to or through a market maker other than on an exchange or, subject to the terms of a written notice from the Company, in privately negotiated transactions.

~~The following table provides information about the issuances of preferred stock under the Series B Preferred Equity Distribution Agreement:~~

Series B Preferred Stock Issuances

Three Months Ended September 30, 2017

Nine Months Ended September 30, 2017

Shares issued

138,683

159,993

Weighted average public offering price

$
25.03

$
24.95

Net proceeds ⁽¹⁾

$
3,404

$
3,886

~~(1)~~

~~Net of selling commissions and expenses.~~

~~As of September 30, 2017, the Company had 1,705,007 shares of Series B Preferred stock available for sale under the Series B Preferred Equity Distribution Agreement.~~

~~Share Repurchase Program~~

~~The Company’s~~its Board of Directors authorized a share repurchase program pursuant to which the Company may repurchase up to ~~2,000,000~~18,000,000 shares of Class A common stock (the ~~“Repurchase Program”~~"Repurchase Program"). Repurchases under the Repurchase Program may be made from time to time on the open market and in private transactions at management’s discretion in accordance with applicable federal securities laws. The timing of repurchases and the exact number of shares of Class A common stock to be repurchased will depend upon market conditions and other factors. The Repurchase Program is funded using the Company’s cash on hand and cash generated from operations. The Repurchase Program has no expiration date and may be suspended or terminated at any time without prior notice.

There were no shares of Class A common stock repurchased by the Company during the three months ended March 31, 2023. During the year ended December 31, 2022, the Company repurchased 2,794,574 shares of Class A common stock for a total purchase price of $9,316. As of ~~September 30, 2017,~~March 31, 2023, there remain available for repurchase ~~1,951,305~~10,195,704 shares of Class A common stock under the Repurchase Program.

Preferred Stock

~~Shareholder Rights Agreement~~

The Company has authorized preferred share capital of (i) 100,000 shares designated as Series A Preferred Stock that is unissued; (ii) 2,000,000 shares designated as 7.00% Series B Cumulative Perpetual Redeemable Preferred Stock (the “Series B Preferred Stock”), par value of $0.01 per share; (iii) 2,500,000 shares designated as 8.250% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock (the “Series C Preferred Stock”), par value of $0.01 per share; and (iv) 20,400,000 shares of undesignated preferred stock. The Company’s Board of Directors ~~adopted~~has the authority, without further action by the shareholders, to issue additional preferred stock in one or more series and to fix the terms and rights of the preferred stock. The Company’s preferred stock ranks senior to its common stock with respect to the payment of dividends and the distribution of assets upon a voluntary or involuntary liquidation, dissolution, or winding up of the Company. The Company’s ~~shareholders~~preferred stock ranks on parity with each other. The Series B Preferred Stock and Series C Preferred Stock are publicly traded on the New York Stock Exchange under the ticker symbols “AAIC PrB” and “AAIC PrC,” respectively.

The Series B Preferred Stock has no stated maturity, is not subject to any sinking fund and will remain outstanding indefinitely unless repurchased or redeemed by the Company. Holders of Series B Preferred Stock have no voting rights, except under limited conditions, and are entitled to receive a cumulative cash dividend at a rate of 7.00% per annum of their $25.00 per share liquidation preference (equivalent to $1.75 per annum per share). Shares of Series B Preferred Stock are redeemable at $25.00 per share, plus accumulated and unpaid dividends (whether or not authorized or declared), exclusively at the Company’s option. Dividends are payable quarterly in arrears on the 30th day of March, June, September and December of each year, when and as declared. The Company has declared and paid all required quarterly dividends on the Company’s Series B Preferred Stock to date in 2023.

The Series C Preferred Stock has no stated maturity, is not subject to any sinking fund and will remain outstanding indefinitely unless repurchased or redeemed by the Company. Holders of Series C Preferred Stock have no voting rights, except under limited conditions, and are entitled to receive a cumulative cash dividend (i) from and including the original issue date to, but excluding, March 30, 2024 at a fixed rate equal to 8.250% per annum of the $25.00 per share liquidation preference (equivalent to $2.0625 per annum per share) and (ii) from and including March 30, 2024, at a floating rate equal to three-month LIBOR plus a spread of 5.664% per annum of the $25.00 per share liquidation preference. Shares of Series C Preferred Stock are redeemable at $25.00 per share, plus accumulated and unpaid dividends (whether or not authorized or declared), exclusively at the Company’s option commencing on March 30, 2024 or earlier upon the occurrence of a change in control or under circumstances where it is necessary to preserve the Company’s qualification as a REIT. Dividends are payable quarterly in arrears on the 30th day of March, June, September and December of each year, when and as declared. The Company has declared and paid all required quarterly dividends on the Company’s Series C Preferred Stock to date in 2023.

Preferred Equity Distribution Agreements

The Company is party to an amended and restated equity distribution agreement with JonesTrading Institutional Services LLC and Ladenburg Thalmann & Co. Inc., pursuant to which the Company may offer and sell, from time to time, up to 1,647,370 shares of the Company’s Series B Preferred Stock. Pursuant to the Series B preferred equity distribution agreement, shares of the Company’s Series B Preferred Stock may be offered and sold through the preferred equity sales agents in transactions that are deemed to be “at the market” offerings as defined in Rule 415 under the Securities Act of 1933, including sales made directly on the NYSE or sales made to or through a market maker other than on an exchange or, subject to the terms of a written notice from the Company, in privately negotiated transactions.

There were no issuances of Series B Preferred Stock during the three months ended March 31, 2023. During the year ended December 31, 2022, the Company issued 6,058 shares of Series B Preferred Stock at a weighted average public offering price of $24.87 per share for proceeds net of selling commissions and expenses of $149 under the Series B preferred equity distribution agreement. As of March 31, 2023, the Company had 1,602,566 shares of Series B Preferred Stock available for sale under the preferred equity distribution agreement.

Shareholder Rights Agreement

On June 1, 2009, the Board of Directors approved a shareholder rights agreement (“Rights Plan”) and the Company’s shareholders approved the Rights Plan at its annual meeting of shareholders on June 2, 2010. On April 9, 2018, the Board of Directors approved a first amendment to the Rights Plan (“First Amendment”) to extend the term for an additional three years and the Company’s shareholders approved the First Amendment at its annual meeting of shareholders on June 14, 2018. On April 11, 2022, the Board of Directors approved a second amendment to the Rights Plan (“Second Amendment”) to further extend the term until June 4, 2025 and the Company's shareholders approved the Second Amendment at its annual meeting of shareholders on June 16, 2022. The Second Amendment also decreased the Purchase Price (as defined under the Rights Plan) from $70.00 to $21.30.

Under the terms of the Rights Plan, in general, if a person or group acquires or commences a tender or exchange offer for beneficial ownership of ~~4.9%~~4.9% or more of the outstanding shares of our Class A common stock upon a determination by our Board of Directors (an “Acquiring Person”), all of our other Class A and Class B common shareholders will have the right to purchase securities from us at a discount to such securities’ fair market value, thus causing substantial dilution to the Acquiring Person.

The Board of Directors adopted the Rights Plan in an effort to protect against a possible limitation on the Company’s ability to use its NOL ~~carry-forwards,~~carryforwards, NCL ~~carry-forwards,~~carryforwards, and built-in losses under Sections 382 and 383 of the Internal Revenue Code. The Company’s ability to use its NOLs, NCLs and built-in losses would be limited if it experienced an “ownership change” under Section 382 of the Internal Revenue Code. In general, an “ownership change” would occur if there is a cumulative change in the ownership of the Company’s common stock of more than 50% by one or more “5% shareholders” during a three-year period. The Rights Plan was adopted to dissuade any person or group from acquiring 4.9% or more of the Company’s outstanding Class A common stock, each, an Acquiring Person, without the approval of the Board of Directors and triggering an “ownership change” as defined by Section 382.

The Rights Plan, as amended by the Second Amendment, and any outstanding rights will expire at the earliest of (i) June 4, ~~2019,~~2025, (ii) the time at which the rights are redeemed or exchanged pursuant to the Rights Plan, (iii) the repeal of Section 382 and 383 of the Internal Revenue Code or any successor statute if the

Board of Directors determines that the Rights Plan is no longer necessary for the preservation of the applicable tax benefits, ~~and~~or (iv) the beginning of a taxable year to which the Board of Directors determines that no applicable tax benefits may be carried forward.

Note 16. Long-Term Incentive Plan

The Company provides its employees and its non-employee directors with long-term incentive compensation in the form of stock-based awards. On April 29, 2021, the Board of Directors adopted the Arlington Asset Investment Corp. 2021 Long-Term Incentive Plan (the “2021 Plan”), which was approved by the Company’s shareholders and became effective on July 15, 2021. The 2021 Plan replaced the Arlington Asset Investment Corp. 2014 Long-Term Incentive Plan (the “2014 Plan”). No additional grants will be made under the 2014 Plan. However, previous grants under the 2014 Plan and any long-term incentive plans prior to the 2014 Plan (collectively, the “Prior Plans”) will remain in effect subject to the terms of the Prior Plans and the applicable award agreement.

~~Note 12. Revisions~~Under the 2021 Plan, a maximum number of 5,256,076 shares of Class A common stock of the Company, subject to ~~Previously Reported Financial Statements~~adjustment as set forth in the 2021 Plan, were authorized for issuance and may be issued to employees, directors, consultants, advisors and independent contractors who provide bona fide services to the Company and its affiliates. If an award under the 2021 Plan or Prior

Plans is canceled, terminated, forfeited or otherwise settled without the issuance of shares subject to such award, those shares will be available for future grants under the 2021 Plan. In addition, shares delivered or withheld for tax obligations arising from an award, other than a stock option or stock appreciation right (“SAR”), will be available for future grants under the 2021 Plan. As of March 31, 2023, 4,265,184 shares remained available for issuance under the 2021 Plan; however, the shares remaining available for issuance would be reduced by the potential future issuance of shares of common stock for the settlement of outstanding performance-based stock awards and dividend equivalents for such awards. If these outstanding performance-based stock awards are earned at “target” level performance, an additional 1,625,783 shares would be issued resulting in 2,639,401 shares remaining available for issuance under the 2021 Plan as of March 31, 2023.

Under the 2021 Plan, the Compensation Committee of the Company’s Board of Directors may grant restricted stock, restricted stock units (“RSUs”), stock options, SARs and/or other stock-based awards. Under the 2021 Plan, shares issued upon the exercise of a stock option or SAR or shares subject to a restricted stock award and any shares issued in settlement of restricted stock unit award, reduced by the number of any shares withheld to satisfy withholding taxes, may not be sold or transferred before the earlier of (i) the first anniversary of the exercise of the option or SAR or vesting of the restricted stock award or the settlement of restricted stock unit award, or (ii) the date the participant is no longer employed by or providing services to the Company or an affiliate. Non-employee members of the Board of Directors may not be granted awards under the 2021 Plan during any twelve-month period with respect to the number of shares that have a fair market value on the date of grant that exceeds $160. The 2021 Plan will terminate on the tenth anniversary of its effective date unless sooner terminated by the Board of Directors.

Stock-based compensation costs are initially measured at the estimated fair value of the awards on the grant date developed using appropriate valuation methodologies, as adjusted for estimates of future award forfeitures. Valuation methodologies used and subsequent expense recognition is dependent upon each award’s service and performance conditions.

Performance-based Stock Awards

The Company has granted performance-based RSUs and performance stock units (collectively, “Performance-based Stock Awards”) to employees of the Company that are convertible into shares of Class A common stock following the achievement of performance goals over the applicable performance periods. Compensation costs for Performance-based Stock Awards subject to nonmarket-based performance conditions (i.e., performance not predicated on changes in the Company’s stock price) are measured at the closing stock price on the dates of grant, adjusted for the probability of achieving certain benchmarks included in the performance metrics. These initial cost estimates are recognized as expense over the requisite performance periods, as adjusted for changes in estimated, and ultimately actual, performance and forfeitures. Compensation costs for components of Performance-based Stock Awards subject to market-based performance conditions (i.e., performance predicated on changes in the Company’s stock price) are measured at the dates of grant using a Monte Carlo simulation model which incorporates into the valuation the inherent uncertainty regarding the achievement of the market-based performance metrics. These initial valuation amounts are recognized as expense over the requisite performance periods, subject only to adjustments for changes in estimated, and ultimately actual, forfeitures.

The Compensation Committee has granted Performance-based Stock Awards with performance goals based on (i) the compound annualized total shareholder return (i.e., share price change plus dividends on a reinvested basis) during the applicable performance period (“Absolute TSR Awards”), (ii) the compound annualized total shareholder return relative to a peer index during the applicable performance period (“Relative TSR Awards”), (iii) the compound annualized growth in the Company’s book value per share (i.e., book value change with such adjustments as determined and approved by the Compensation Committee plus dividends on a reinvested basis) during the applicable performance period (“Book Value Awards”), and (iv) the share price of the Company's common stock during the applicable performance period ("Stock Price Awards").

The Compensation Committee of the Board of Directors of the Company approved the following Performance-based Stock Award grants for the periods indicated:


	Three Months Ended March 31, 2023		Three Months Ended March 31, 2022
Absolute TSR Awards granted		—		174,581
Absolute TSR Award grant date fair value per share	$	—	$	6.03
Relative TSR Awards granted		—		87,291
Relative TSR Award grant date fair value per share	$	—	$	5.83
Book Value Awards granted		—		103,000
Book Value Award grant date fair value per share	$	—	$	3.37

For the Company’s Book Value Awards, the grant date fair value per share is based on the close price on the date of grant. For the Company’s Absolute TSR Awards and Relative TSR Awards, the grant date fair value per share is based on a Monte Carlo simulation model. The following assumptions, determined as of the date of grant, were used in the Monte Carlo simulation model to measure the grant date fair value per share of the Company’s Absolute TSR Awards and Relative TSR Awards for the periods indicated:


	Absolute TSR Awards Granted in:					Relative TSR Awards Granted in:
	2023		2022			2023		2022
Closing stock price on date of grant	$	—	$	3.58		$	—	$	3.58
Beginning average stock price on date of grant (1)	$	—	$	3.60		$	—	$	3.60
Expected volatility (2)		—		69.20	%		—		69.20	%
Dividend yield (3)		—		0.00	%		—		0.00	%
Risk-free rate (4)		—		1.01	%		—		1.01	%

(1)

Based upon the 30 trading days prior to and including the date of grant.

(2)

Based upon the most recent three-year volatility as of the date of grant.

(3)

Dividend equivalents are accrued during the performance period and deemed reinvested in additional stock units, which are to be paid out at the end of the performance period to the extent the underlying Performance-based Stock Award is earned. Applying dividend yield assumption of 0.00% in the Monte Carlo simulation is mathematically equivalent to reinvesting dividends on a continuous basis and including the value of the dividends in the final payout.

(4)

Based upon the yield of a U.S. Treasury bond with a three-year maturity as of the date of grant.

The vesting of the Performance-based Stock Awards is subject to both continued employment under the terms of the award agreement and the achievement of the Company performance goals established by the Compensation Committee.

For Absolute TSR Awards and Relative TSR Awards granted, the Compensation Committee established a three-year performance period. The actual number of shares of Class A common stock that will be issued to each participant at the end of the applicable performance period will vary between 0% and 250% of the number of the Absolute TSR Awards and Relative TSR Awards granted, depending on performance results. If the minimum threshold level of performance goals is not achieved, no awards are earned. To the extent the performance results are between the minimum threshold level and maximum level of performance goals, between 50% to 250% of the number of Absolute TSR Awards and Relative TSR Awards are earned. Upon settlement, vested Absolute TSR Awards and Relative TSR Awards are converted into shares of the Company’s Class A common stock on a one-for-one basis. As of March 31, 2023, there are a total 400,293 Absolute TSR Awards and Relative TSR Awards outstanding.

For Book Value Awards granted during the year ended December 31, 2022, the Compensation Committee established a one-year performance period that ended on December 31, 2022. The actual number of shares of Class A common stock that could be issued to each participant at the end of the performance period varied between 0% and 100% of the number of Book Value Awards granted, depending on performance results. Based on the actual performance measurements, 41,410 shares of the 103,000 Book Value Awards granted were earned and were converted into an equal number of shares of restricted stock in February 2023 that will vest on the third anniversary of the original Book Value Award grant date subject to continued employment under the terms of the award agreement. As of March 31, 2023, there are no remaining outstanding Book Value Awards.

For Stock Price Awards granted, the Compensation Committee established a three-year performance period. If the market price of the Company's common stock is equal to or greater than a stock price performance goal for 45 consecutive trading days at any time during the performance period, between 75% to 300% of the number of Stock Price Awards are earned and become restricted stock units that will vest ratably over a three-year period beginning on the third anniversary of the date of grant subject to continued employment under the terms of the award agreement. If the minimum threshold level of stock price performance goals are never achieved, no awards are earned. As of March 31, 2023, the market price of the Company's common stock had not met any of the price performance goals for 45 consecutive trading days. As of March 31, 2023, there are 1,225,490 Stock Price Awards outstanding.

Performance-based Stock Awards do not have any voting rights. No dividends are paid on outstanding Performance-based Stock Awards during the applicable performance period. Instead, dividend equivalents are accrued on outstanding Performance-based Stock Awards during the applicable performance period, deemed invested in shares of Class A common stock and are paid out in shares of Class A common stock at the end of the performance period to the extent that the underlying Performance-based Stock Awards vest.

For the three months ended March 31, 2023 and 2022, the Company recognized $334 and $195, respectively, of compensation expense related to Performance-based Stock Awards. As of March 31, 2023, the Company had 1,625,783 Performance-based Stock

Awards outstanding. As disclosed above, the actual number of shares of common stock that could be issued for settlement of the Performance-based Stock Awards can be greater or less than the amount of Performance-based Stock Awards outstanding depending upon the actual results compared to the performance goals. As of March 31, 2023 and December 31, 2022, the Company had unrecognized compensation expense related to Performance-based Stock Awards of $2,990 and $3,314, respectively. The unrecognized compensation expense as of March 31, 2023 is expected to be recognized over a weighted average period of 3.0 years.

During the ~~second quarter~~three months ended March 31, 2023, Relative TSR Awards that had a performance period ending in that period were earned at 60% of ~~2017,~~target resulting in the issuance of 19,914 shares of Class A common stock at an intrinsic value of $60. Also during the three months ended March 31, 2023, Book Value Awards that had a performance period ending on December 31, 2022 were earned at 40% of target resulting in the issuance of 41,410 shares of restricted stock that will vest on the third anniversary of the original Book Value Award grant date. During the three months ended March 31, 2022, there were no Performance-based Stock Awards that had performance periods ending in that period.

Employee Restricted Stock Awards

Compensation costs for restricted stock awards subject only to service conditions are measured at the closing stock price on the dates of grant and are recognized as expense on a straight-line basis over the requisite service periods for the awards, as adjusted for changes in estimated, and ultimately actual, forfeitures.

The Company grants restricted common shares to employees that either vest ratably over a three-year period or cliff vest at the end of a three-year period based on continued employment over these specified periods. A summary of these unvested restricted stock awards is presented below:


	Number of Shares			Weighted-average Grant-date Fair Value		Weighted- average Remaining Vested Period
Share Balance as of December 31, 2021		759,035		$	4.16		1.5
Granted		384,291			3.42		—
Forfeitures		(12,167	)		3.57		—
Vestitures		(300,317	)		4.44
Share Balance as of December 31, 2022		830,842			3.72		1.2
Granted		137,000			2.95		—
Conversion of Book Value Awards		41,410			3.37		—
Vestitures		(181,125	)		4.40		—
Share Balance as of March 31, 2023		828,127		$	3.43		1.3

For the three months ended March 31, 2023 and 2022, the Company ~~concluded~~recognized $323 and $466, respectively, of compensation expense related to restricted stock awards. As of March 31, 2023 and December 31, 2022, the Company had unrecognized compensation expense related to restricted stock awards of $1,343 and $1,262, respectively. The unrecognized compensation expense as of March 31, 2023 is expected to be recognized over a weighted average period of 1.3 years. For the three months ended March 31, 2023 and 2022, the intrinsic value of restricted stock awards that vested were $547 and $0 respectively.

Director Restricted Stock Units

Compensation costs for RSU awards subject only to service conditions are measured at the ~~previously reported deferred tax assets, net,~~closing stock price on the dates of grant and ~~accumulated deficit~~are recognized as expense on a straight-line basis over the requisite service periods for the awards, as adjusted for changes in estimated, and ultimately actual, forfeitures. Compensation costs for RSUs that do not require future service conditions are expensed immediately.

The Company’s non-employee directors are compensated in both cash and RSUs. RSUs awarded to non-employee directors vest immediately on the award grant date and are convertible into shares of Class A common stock. For RSUs granted under the Company’s 2021 Plan, 2014 Plan, and certain of the Prior Plans, the RSUs are convertible into shares of Class A common stock at the later of the date the non-employee director ceases to be a member of the Company’s Board or the first anniversary of the grant date. For RSUs granted under certain Prior Plans, the RSUs are convertible into shares of Class A common stock one year after the non-employee director ceases to be a member of the Company’s Board. The non-employee director RSUs do not have any voting rights but are entitled to cash dividend equivalent payments. As of March 31, 2023 and December 31, 2022, the Company had 548,272 of non-employee director RSUs outstanding. There were ~~incorrect~~no non-employee director RSUs grants during the three months ended March 31, 2023 and 2022.

The grant date fair value of a non-employee director RSU grant is based on the closing price of the Class A common stock on the New York Stock Exchange on the date of grant. For the three months ended March 31, 2023 and 2022, the Company recognized $100 and $100, respectively, of director fees related to non-employee director RSUs. There were no non-employee director RSUs that were converted into shares of Class A common stock for the three months ended March 31, ~~2017~~2023 and for the five fiscal years ended December 31, 2016 with a corresponding effect on the previously reported income tax benefit and net income for the fiscal year ended December 31, 2012. Although the impact of this change was not material to the consolidated financial statements for the five fiscal years ended December 31, 2016 and for the three months ended March 31, 2017, the Company has revised its previously reported consolidated financial statements for those periods to reflect the cumulative impact of the errors. The following tables set forth the affected line items within the Company’s previously reported consolidated financial statements for the periods indicated:2022.

As of March 31, 2017

As Previously Reported

Adjustment

As Revised

Consolidated Balance Sheets:

Deferred tax assets, net

$
65,149

$
(24,603
)

$
40,546

Total assets

4,720,492

(24,603
)

4,695,889

Accumulated deficit

(1,536,949
)

(24,603
)

(1,561,552
)
Total stockholders' equity

374,481

(24,603
)

349,878

Total liabilities and stockholders' equity

4,720,492

(24,603
)

4,695,889

As of December 31, 2016

As Previously Reported

Adjustment

As Revised

Consolidated Balance Sheets:

Deferred tax assets, net

$
73,432

$
(24,603
)

$
48,829

Total assets

4,141,554

(24,603
)

4,116,951

Accumulated deficit

(1,527,104
)

(24,603
)

(1,551,707
)
Total stockholders' equity

383,416

(24,603
)

358,813

Total liabilities and stockholders' equity

4,141,554

(24,603
)

4,116,951

As of December 31, 2015

As Previously Reported

Adjustment

As Revised

Consolidated Balance Sheets:

Deferred tax assets, net

$
97,530

$
(24,603
)

$
72,927

Total assets

4,202,939

(24,603
)

4,178,336

Accumulated deficit

(1,426,655
)

(24,603
)

(1,451,258
)
Total stockholders' equity

484,031

(24,603
)

459,428

Total liabilities and stockholders' equity

4,202,939

(24,603
)

4,178,336

Item 2. Management’s Discussion and Analysis ofof Financial Condition and Results of Operations

Unless the context otherwise requires or provides, references in this Quarterly Report on Form 10-Q to “we,” “us,” “our” and the “Company” refer to Arlington Asset Investment Corp. (“Arlington Asset”) and its subsidiaries. This discussion and analysis should be read in conjunction with our financial statements and accompanying notes included in Item 1 of this Quarterly Report on Form 10-Q, as well as our audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2022.

The discussion of our consolidated financial condition and results of operations below may contain forward-looking statements. These statements, which reflect management’s beliefs and expectations, are subject to risks and uncertainties that may cause actual results to differ materially. For a discussion of the risks and uncertainties that may affect our future results, please see “Cautionary Statement About Forward-Looking Information” in Item 3 of Part I of this Quarterly Report on Form 10-Q and the risk factors included in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2022 and our subsequent Quarterly Reports on Form 10-Q.

Our Company

We are ~~a principal~~an investment firm that currently ~~acquires and holds a levered portfolio of residential~~focuses primarily on investing in mortgage related assets. Our investment capital is currently allocated between the following asset classes:

•

mortgage servicing right (“MSR”) related assets

•

credit investments

•

agency mortgage-backed securities (“MBS”)~~, consisting~~

Our MSR related assets represent investments for which the return is based on the economic performance of a pool of specific MSRs. Our 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”) or asset-backed securities (“ABS”) collateralized by residential solar panel loans. Our agency MBS ~~and private-label MBS. Agency MBS include~~consist of residential mortgage pass-through certificates for which the principal and interest payments are guaranteed by a U.S. ~~government agency or~~ government sponsored enterprise (“GSE”), such as the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”). ~~Private-label MBS, or non-agency MBS, include residential MBS that are not guaranteed by a GSE or the U.S. government. As of September 30, 2017, nearly all of our~~

We also previously allocated investment capital ~~was allocated~~ to ~~agency MBS.~~ a strategy of investing in single-family residential ("SFR") properties that consisted of acquiring, leasing and operating single-family residential homes as rental properties. During 2022, we sold our portfolio of SFR properties and are currently no longer anticipating allocating capital to an SFR investment strategy.

We may also invest in other asset classes that our management team believes may offer attractive risk adjusted returns outside the real estate or mortgage asset classes.

We leverage prudently our investment portfolio so as to increase potential returns to our shareholders. We fund our investments primarily through short-term financing arrangements, principally through repurchase agreements. We enter into various hedging transactions to mitigate the interest rate sensitivity of our cost of borrowing and the value of our MBS portfolio.

We are ~~a Virginia corporation and taxed as a C corporation for U.S. federal tax purposes. We are an~~ internally managed ~~company~~ and do not have an external investment advisor.

Factors that Affect our Results of Operations and Financial Condition

Our business is materially affected by a variety of industry and economic factors, including:

•

conditions in the global financial markets and economic conditions generally;

•

changes in interest rates and prepayment rates;

•

conditions in the ~~residential~~ real estate and mortgage markets;

•

actions taken by the U.S. government, U.S. Federal Reserve, the U.S. Treasury and foreign central banks;

•

changes in laws and regulations and industry practices; and

•

other market developments.

Current Market Conditions and Trends

Up until mid-September 2017, weakening inflation expectations, waning likelihood of potential pro-economic growth policies, rising geopolitical risks from North Korea and uncertainty of the economic impact from hurricane damage contributed to market participants lowering their expectations that the Federal Reserve would be able to raise interest rates one more time this calendar year, which collectively led to a bond market rally. Although the Federal Reserve kept the target federal funds rate unchanged following its September 20 meeting, the markets generally viewed the Federal Reserve’s commentary as hawkish based on the Federal Reserve’s commitment to raising the target federal funds rate in the near future and beginning its balance sheet normalization policy in October, which drove interest rates higher following the meeting with significantly increased expectations for an additional rate hike. Subsequent to September 30, 2017, a U.S. congressional path towards potential income tax reform has raised economic growth expectations driving interest rates higher.

~~During the third quarter of 2017, the~~The 10-year U.S. Treasury rate ~~rallied to a low of 2.04% in early September before ending at 2.33%~~was 3.47% as of ~~September 30, 2017,~~March 31, 2023, a ~~two~~40 basis point ~~increase~~decrease from ~~June 30, 2017.~~the prior quarter end. The ~~U.S. Treasury~~interest rate curve, ~~continued to flatten during the third quarter~~measured as the spread between the 2-year and 10-year U.S. Treasury, ~~rate narrowed eight~~continued to be inverted at a negative 56 basis ~~points. The spread~~

~~between~~points as of March 31, 2023. With the decline in the 10-year U.S. Treasury rate, residential mortgage rates ~~and interest rate swaps tightened~~decreased modestly ~~by one basis point~~ during the ~~third~~first quarter of ~~2017 with~~2023 evidenced by the Fannie Mae average primary mortgage rate decreasing by 10 basis points to 6.32% as of March 31, 2023. The spread between the current coupon agency MBS and the 10-year swap rate widened slightly by three basis

points during the first quarter of 2023. The rate of inflation began to decline from its peak reached during 2022 with the Consumer Price Index declining to 5.0% for the twelve-month period ending ~~at 2.29% on September 30, 2017.~~ March 31, 2023.

In ~~this environment,~~order to address the ~~price~~persistently high inflation, the U.S. Federal Reserve has continued to take actions with the objective of ~~agency MBS outperformed U.S. Treasuries and~~lowering inflation by significantly raising interest ~~rate swaps resulting in spread tightening.~~

~~On September 20, 2017,~~rates. During the first quarter of 2023, the Federal Open Market Committee (“FOMC”) ~~announced that it was maintaining the~~raised its target ~~federal funds rate~~ range at 1.00% to 1.25%. The FOMC commented that recent storm-related disruptions and rebuilding will affect economic activity in the near term, but past experiences suggest that the storms are unlikely to materially alter the course of the national economy over the medium term. In its September 20, 2017 statement, the FOMC stated that it continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, and labor market conditions will strengthen somewhat further. The FOMC also stated that it continues to expect inflation to remain somewhat below 2% in the near term but to stabilize around 2% over the medium term. The FOMC commented further that it expects that economic conditions will evolve in a manner that will warrant only gradual increases infor the federal funds rate ~~and will likely remain,~~at each of its two scheduled meetings for ~~some time, below levels that are expected~~a total increase of 50 basis points to ~~prevail in the longer run. Based~~a target range of 4.75% to 5.00% at its last meeting on ~~federal fund futures prices, market participants currently believe that there is a greater than 80% chance that~~March 22, 2023. In addition, the FOMC ~~will raise the targeted federal funds rate by 25 basis points in December 2017. In its September 20, 2017 statement, the FOMC also commented~~announced that ~~beginning in October 2017~~ it will ~~initiate its previously announced balance sheet normalization program of gradually~~continue reducing its ~~reinvestment~~holdings of ~~principal payments of U.S.~~ Treasury securities and agency debt and agency MBS. ~~Under its balance sheet normalization policy, principal payments received by~~As of March 31, 2023, the ~~Federal Reserve would be reinvested only to the extent they exceed gradually rising caps until~~market is projecting an approximately 50% likelihood that the FOMC ~~determines that~~could have one additional 25 basis point increase in the ~~Federal Reserve is holding no more securities than necessary to implement monetary policy efficiently and effectively.~~ next three months followed by rate cuts over the subsequent nine months of approximately 75 basis points based on federal funds futures.

The Chair of the Board of Governors of the Federal Reserve System has significant influence over monetary policy and is appointed by the U.S. President subject to confirmation by the U.S. Senate. The four-year term of the current Chair, Janet L. Yellen, ends on February 3, 2018. By the end of the calendar year, President Trump is expected to nominate a Chair for a new four-year term and is considering several candidates, including Ms. Yellen. The selection of the Chair is being carefully watched by the market, particularly as it relates to policy rate path and balance sheet normalization pace.

Prepayment speeds in the fixed-rate residential mortgage market continued to decline during the ~~third~~first quarter ~~increased from the prior quarter driven by several periods~~ of ~~interest rate rallies over the last couple of quarters as well as continued home price appreciation and wage growth. Looking forward, near term prepayment speeds are expected to moderate~~2023 primarily due to the ~~current interest~~rise in the primary mortgage rate ~~environment and normal seasonal impact.~~ driven by the increase in the 10-year U.S. Treasury rate over recent periods. Pay-up premiums on agency MBS, which represent the price premium of agency MBS backed by specified pools over a TBA security, remained relatively unchanged during the first quarter of 2023. Valuation multiples of MSRs remained relatively consistent during the first quarter of 2023.

~~Housing prices continue to improve as~~The recent trend of declining housing price gains continued in 2023, evidenced by the ~~S&P~~Standard & Poor’s CoreLogic Case-Shiller U.S. National Home Price NSA index reporting a ~~5.9%~~3.8% annual gain in ~~July 2017 and~~January 2023, the ~~overall index reaching~~seventh consecutive month of declining home price gains. If the Federal Reserve continues to increase interest rates, more expensive mortgage financing along with a ~~historical high. Housing prices~~challenging macroeconomic environment may cause housing price gains to continue to rise faster than inflation as the demand for homes has exceeded the supply of homes driven by low inventories of new or existing homes for sale as well as affordable available financing from historically low mortgage rates. Looking forward, housing prices are expected to face two contradicting challengesdecelerate in the near future. Rebuilding following hurricanes across Texas, Florida and other parts of the south are expected to lead to further housing supply pressures while Federal Reserve balance sheet normalization policies may push mortgage rates upwards.

The following table presents certain key market data as of the dates indicated:


	March 31, 2022			June 30, 2022			September 30, 2022			December 31, 2022			March 31, 2023			Change - First Quarter 2023
30-Year FNMA Fixed Rate MBS (1)
3.0%	$	97.55		$	93.11		$	86.81		$	87.71		$	89.59		$	1.88
3.5%		99.75			96.17			89.83			90.82			92.80			1.98
4.0%		101.58			98.62			92.68			93.77			95.56			1.79
4.5%		103.25			100.39			95.18			96.31			97.92			1.61
5.0%		105.16			102.07			97.34			98.52			99.69			1.17
Investment Spreads
FNMA Current Coupon vs. 10-year Swap Rate	108 bps			129 bps			180 bps			155 bps			158 bps			3 bps
30 Year Fixed Mortgage Rate
Freddie Mac Average Primary Mortgage Rate		4.67	%		5.70	%		6.70	%		6.42	%		6.32	%	-10 bps
U.S. Treasury Rates ("UST")
2-year UST		2.33	%		2.95	%		4.28	%		4.43	%		4.03	%	-40 bps
5-year UST		2.46	%		3.04	%		4.09	%		4.00	%		3.57	%	-43 bps
10-year UST		2.34	%		3.01	%		3.83	%		3.87	%		3.47	%	-40 bps
2-year UST to 10-year UST spread	1 bps			6 bps			-45 bps			-56 bps			-56 bps			0 bps
Interest Rate Swap Rates
2-year swap		2.55	%		3.28	%		4.55	%		4.71	%		4.36	%	-35 bps
5-year swap		2.52	%		3.08	%		4.14	%		4.02	%		3.63	%	-39 bps
10-year swap		2.41	%		3.09	%		3.88	%		3.84	%		3.46	%	-38 bps
2-year swap to 2-year UST spread	22 bps			33 bps			27 bps			28 bps			33 bps			5 bps
10-year swap to 10-year UST spread	7 bps			8 bps			5 bps			-3 bps			-1 bps			2 bps
London Interbank Offered Rates ("LIBOR") and Secured Overnight Financing Rate ("SOFR")
1-month LIBOR		0.45	%		1.79	%		3.14	%		4.39	%		4.86	%	47 bps
3-month LIBOR		0.96	%		2.29	%		3.75	%		4.77	%		5.19	%	42 bps
SOFR		0.30	%		1.69	%		3.04	%		4.36	%		4.80	%	44 bps
Twelve Month Percent Change in Consumer Price Index ("CPI")
1-month LIBOR		8.50	%		9.10	%		8.20	%		6.50	%		5.00	%	-150 bps

(1)

Generic 30-year FNMA TBA price information, sourced from Bloomberg, is provided for illustrative purposes only and is not meant to be reflective of the fair value of securities held by the Company.

September 30,
2016

December 31,
2016

March 31,
2017

June 30,
2017

September 30,
2017

Change - Third Quarter 2017

30-Year FNMA Fixed Rate MBS ⁽¹⁾

3.0%

$
103.98

$
99.20

$
99.23

$
99.83

$
100.27

$
0.44

3.5%

105.55

102.33

102.36

102.67

103.05

0.38

4.0%

107.42

104.98

104.95

105.14

105.27

0.13

4.5%

109.55

107.39

107.30

107.27

107.33

0.06

U.S. Treasury Rates (UST)

2-year UST

0.76
%

1.19
%

1.26
%

1.38
%

1.48
%

0.10
%
3-year UST

0.88
%

1.45
%

1.49
%

1.55
%

1.62
%

0.07
%
5-year UST

1.15
%

1.93
%

1.92
%

1.89
%

1.94
%

0.05
%
7-year UST

1.42
%

2.25
%

2.21
%

2.14
%

2.17
%

0.03
%
10-year UST

1.60
%

2.45
%

2.39
%

2.31
%

2.33
%

0.02
%
2-year UST to 10-year UST spread

0.84
%

1.26
%

1.13
%

0.93
%

0.85
%

(0.08
)%

Interest Rate Swap Rates

2-year swap

1.01
%

1.45
%

1.62
%

1.62
%

1.74
%

0.12
%
3-year swap

1.07
%

1.69
%

1.81
%

1.75
%

1.86
%

0.11
%
5-year swap

1.18
%

1.98
%

2.05
%

1.96
%

2.00
%

0.04
%
7-year swap

1.30
%

2.16
%

2.22
%

2.11
%

2.14
%

0.03
%
10-year swap

1.46
%

2.34
%

2.38
%

2.28
%

2.29
%

0.01
%
2-year swap to 2-year UST spread

0.25
%

0.26
%

0.36
%

0.24
%

0.26
%

0.02
%
10-year swap to 10-year UST spread

(0.14
)%

(0.11
)%

(0.01
)%

(0.03
)%

(0.04
)%

(0.01
)%

London Interbank Offered Rates (LIBOR)

1-month LIBOR

0.53
%

0.77
%

0.98
%

1.22
%

1.23
%

0.01
%
3-month LIBOR

0.85
%

1.00
%

1.15
%

1.30
%

1.33
%

0.03
%

⁽¹⁾	~~Generic 30-year FNMA TBA price information, sourced from Bloomberg, provided for illustrative purposes only and is not meant to be reflective of the fair value of securities held by the Company.~~

Recent ~~Government~~Regulatory Activity

~~Uncertainty over~~Elimination of LIBOR

On March 5, 2021, the ~~new administration’s policies, together with questions regarding the administration’s ability~~Financial Conduct Authority ("FCA"), which regulates LIBOR, announced that all LIBOR tenors relevant to ~~work with Congress in order~~us will cease to implement such policies, are likely to increase market and credit volatility over the remainder of 2017 and into 2018. We expect vigorous debate and discussion in a number of areas, including residential housing and mortgage reform, taxation, fiscal policy, monetary policy and healthcare, to continue over the next few years; however, we cannot be ~~certain if~~published or ~~when any specific proposal or policy might~~will no longer be ~~announced, emerge from committee or be approved by Congress, and if so, what the effects on us may be.~~

~~Executive Summary~~

~~As of September 30, 2017, the Company’s book value was $13.71 per common share, an increase of 1.7% from $13.48 per common share as of~~representative after June 30, ~~2017.~~2023. The ~~Company’s tangible book value, which is calculated~~FCA's announcement coincides with the March 5, 2021 announcement of LIBOR's administrator, ICE Benchmark Administration ("IBA"), indicating that, as ~~shareholders’ equity less~~a result of not having access to input data necessary to calculate LIBOR tenors relevant to us on a representative basis after June 30, 2023, IBA would have to cease publication of such LIBOR tenors immediately after the ~~Company’s net deferred tax asset~~last publication on June 30, 2023. These announcements mean that any of our LIBOR-based financial instruments that extend beyond June 30, 2023 will need to be converted to a replacement rate.

The U.S. Federal Reserve and the ~~liquidation preference~~Federal Reserve Bank of ~~all issued~~New York jointly convened the ARRC, a steering committee comprised of private sector entities, each with an important presence in markets effected by LIBOR, and ~~outstanding shares of preferred stock, was $12.88 per common share~~official-sector entities, including banking and financial sector regulators. The ARCC’s initial objectives were to identify risk-free alternative reference rates for USD LIBOR, identify best practices for contract robustness and create an implementation plan. The ARRC has recommended SOFR and, in some cases, the forward-looking term rate based on SOFR published by CME Group Benchmark Administration Limited ("CME Term SOFR") plus, in each case, a recommended spread adjustment, as ~~of September 30, 2017, an increase of 2.6% from $12.55 per common share as of~~LIBOR's replacement.

The U.S. federal government enacted the Adjustable Interest Rate (LIBOR) Act ("LIBOR Act") to provide for uniform nationwide solution for certain contracts that do not have clear and practical provisions for replacing LIBOR after June 30, ~~2017. For~~2023. On December 16, 2022, the ~~quarter ended September 30, 2017,~~Federal Reserve Board implemented a final rule that implements the ~~Company declared~~LIBOR Act and identifies replacement benchmark rates based on SOFR to replace overnight, one-month, three-month, six-month and 12-month LIBOR in U.S. contracts that do not mature before LIBOR ends and that lack adequate fallback provisions that would replace LIBOR with a ~~dividend of $0.55 per common share, resulting in an annualized economic return of 28.0% measured as~~practicable replacement benchmark rate. The final rule also restates the ~~change in tangible book value plus dividends declared during the quarter.~~

~~For the third quarter of 2017, the Company had net income of $0.85 per diluted common share compared to a net loss of $0.74 per diluted common share~~safe harbor protections contained in the ~~prior quarter. The Company had non-GAAP core operating income of $0.52 per diluted common share~~LIBOR Act for the third quarter of 2017 compared to $0.58 per diluted common share in the prior quarter. The third quarter 2017 net interest income and non-GAAP core operating income were impacted by higher prepayment speeds resulting in lower asset yields, lower weighted-average leverage and investment volumes and higher net funding costs. For further information on theselection or use of ~~non-GAAP core operating income, see “Management’s Discussion and Analysis of Financial Condition and Results of Operation – Non-GAAP Core Operating Income.”~~

~~Since~~ the Company’s fixed-rate agency MBS have generally been purchased at a premium to par value, high prepayments can have a negative impact on the Company’s asset yields and interest income, while slow prepayments can have a positive impact. The actual constant prepaymentreplacement benchmark rate ~~(“CPR”) for the Company’s agency MBS increased to 10.29% for the third quarter of 2017 from~~

~~9.03% in the prior quarter. The average agency MBS yield was 2.80% for the third quarter of 2017 compared to 2.85% for the second quarter of 2017.~~

The Company’s average cost of repurchase agreement funding during the quarter ended September 30, 2017 was 1.31%, an increase of 23 basis points from the prior quarter attributable primarily to the increase in benchmark short-term rates drivenselected by the Federal Reserve ~~25 basis point~~Board and clarifies who would be considered a determining person able to choose to use the replacement benchmark rate ~~increase in~~selected by the Federal Reserve Board for certain LIBOR contracts.

Any of our LIBOR-based borrowings that extend beyond June ~~2017.~~

30, 2023 will need to be converted to a replacement rate. We are party to various financial instruments which include LIBOR as a reference rate that mature or expire after June 30, 2023. As of ~~September 30, 2017, the Company’s agency investment portfolio totaled $5,389 million, comprised~~March 31, 2023, these financial instruments include preferred stock and unsecured notes issued by us.

As of ~~$3,994~~March 31, 2023, we had $15.0 million of ~~specified agency MBS~~junior subordinated debt outstanding that require quarterly interest payments at three-month LIBOR plus a spread of 2.25% to 3.00% and ~~$1,395 million~~matures between 2033 and 2035. Under the terms of ~~net long TBA agency MBS. During~~ the third quarter of 2017, the Company increased its net long TBA agency MBS position while reducing its specified agency MBS position as the implied net interest rate spread return opportunity of TBA dollar rolls was moderately higher than the net spread returns of specified agency MBS financed with repurchase agreements. During the third quarter of 2017, the Company lowered its allocation of agency MBS investments in 4.0% coupon securities while increasing its allocation towards lower 3.0% and 3.5% coupon securities to take advantage of higher expected return opportunities.

The Company continues to maintain a substantial hedge position with the intent to protect the Company’s capital and earnings potential against increased interest rates over the long-term. As of September 30, 2017, the Company’s interest rate hedge position consisted primarily of interest rate swaps along with 10-year U.S. Treasury note futures. The Company’s average notional of its interest rate swaps and 10-year U.S. Treasury futures as a percentage of its average repurchaseindenture agreement ~~financing and TBA commitments increased to 78%~~ for the ~~quarter ended September 30, 3017 compared to 74%~~notes, if the publication of LIBOR is not available, the current fallback is for the ~~quarter ended June 30, 2017.~~independent calculation agent to obtain quotations for what LIBOR should be from major banks in the interbank market. If the calculation agent is unable to obtain such quotations, then the LIBOR in effect for future interest payments would be LIBOR in effect for the immediately preceding interest payment period. The ~~Company’s weighted average net pay rate~~calculation agent has informed us that they believe the LIBOR Act will nullify these fallback provisions and therefore the application of ~~its interest rate swap agreements was 0.47% during~~ the ~~third quarter of 2017 compared to 0.62% during the second quarter of 2017.~~

We believe our hedging strategy will continue to enable the Company to maintain an attractive return on its agency MBS portfolio in order to produce resilient and predictable net interest income and non-GAAP core operating income that supports attractive dividends to our shareholders. In a volatile interest rate and wider spread environment, this hedging strategy will likelyLIBOR Act would result in a ~~temporary decline~~benchmark replacement of the applicable spread-adjusted CME Term SOFR.

As of March 31, 2023, we had 957,133 shares of Series C Preferred Stock outstanding with a liquidation preference of $23.9 million. The Series C Preferred Stock is entitled to receive a cumulative cash dividend (i) from and including the original issue to, but excluding, March 30, 2024 at a fixed rate of 8.250% per annum of the $25.00 per share liquidation preference, and (ii) from and including March 30, 2024, at a floating rate equal to three-month LIBOR plus a spread of 5.664% per annum of the $25.00 liquidation preference. Under the terms of our Articles of Incorporation, if the publication of LIBOR is not available, the current fallback is for us to obtain quotations for what LIBOR should be from major banks in ~~book value. However,~~ the ~~Company~~interbank market. If we are unable to obtain such quotations, we are required to appoint an independent calculation agent, which will determine LIBOR based on sources it deems reasonable in its sole discretion. If the calculation agent is unable or unwilling to determine LIBOR, then the LIBOR in effect for future dividend payments would be LIBOR in effect for the immediately preceding dividend payment period. We expect ~~temporary declines in book value~~all of these provisions to be ~~recovered over time either through higher future spread earnings if spreads remain wide,~~invalidated by the LIBOR Act. We expect to appoint an independent calculation agent to determine whether there is an industry accepted substitute or ~~through a reversal of temporary declines~~successor base rate to three-month LIBOR. If the calculation agent determines that there is an industry accepted substitute or successor base rate, the calculation agent shall use such substitute or successor base rate. We expect that the calculation agent will select the SOFR-based rate selected by Federal Reserve in book value if future interest rate volatility is low and spreads narrow. The consistent execution of our hedging strategy may also result in an increase in leverage during periods of temporary declines in book value or decreases in leverage during periods of temporary increases in book value.its final rule.

The Company continues to utilize its tax benefits afforded to it as a C-corporation that allow it to shield substantially all of its income from the payment of cash taxes. As of September 30, 2017, the Company had estimated NOL carry-forwards of $69.7 million, NCL carry-forwards of $309.8 million and alternative minimum tax (“AMT”) credit carry-forwards of $9.0 million. From a GAAP accounting perspective, the Company had a net deferred tax asset of $23.5 million, or $0.83 per share, as of September 30, 2017. As of September 30, 2017, the valuation allowance reflects a full valuation allowance against its deferred tax assets that are expected to be capital in tax nature while its remaining unreserved net deferred tax asset represents its deferred tax assets that are expected to be ordinary in tax nature.

Portfolio Overview

The following table summarizes our asset and capital allocation of our investment strategies as of March 31, 2023 (dollars in thousands):


	March 31, 2023
	Assets		Invested Capital Allocation (1)		Invested Capital Allocation (%)			Leverage (2)
MSR financing receivables	$	183,058	$	183,058		62	%		—
Credit investments (3)		133,396		35,349		12	%		2.8
Agency MBS (4)		88,011		76,358		26	%		0.3
Total invested capital	$	404,465		294,765		100	%
Cash and other corporate capital, net				6,888
Total investable capital			$	301,653				0.4

(1)

Our investable capital is calculated as the sum of our shareholders’ equity capital and long-term unsecured debt.

(2)

Our leverage is measured as the ratio of the sum of our repurchase agreement financing, net payable or receivable for unsettled securities, net contractual forward purchase or sale price of our TBA commitments and leverage within our MSR financing receivables less our cash and cash equivalents compared to our investable capital.

(3)

Includes our net investment of $3,034 in a VIE with gross assets and liabilities of $3,194 and $160, respectively, that is consolidated for GAAP financial reporting purposes.

(4)

Agency MBS ~~investment portfolio~~assets include the fair value of the agency MBS which underlie the Company's TBA forward purchase and sale commitments. In accordance with GAAP, the Company's TBA forward commitments are reflected on the consolidated balance sheets as derivative assets and liabilities at fair value in the financial statement line items "other assets" and "other liabilities". As of March 31, 2023, the fair value of the underlying agency MBS that underlie the Company's net short position in TBA commitments had a fair value of $(372,973) with a net carrying value of $(10,614).

MSR Financing Receivables

As of March 31, 2023, we had $183.1 million of MSR financing receivable investments at fair value. We are party to agreements with a licensed, GSE approved residential mortgage loan servicer that enable us to garner the economic return of an investment in an MSR purchased by the mortgage servicing counterparty. The arrangement allows us to participate in the economic benefits of investing in an MSR without holding the requisite licenses to purchase or hold MSRs directly. The transactions are accounted for as a financing receivable in our consolidated financial statements. The following tables present further information about our MSR financing receivable investments as of ~~September 30, 2017 and December~~March 31, ~~2016~~2023 (dollars in thousands):


Amortized Cost Basis (1)		Unrealized Gain		Fair Value
$	139,153	$	43,905	$	183,058

September 30, 2017

December 31, 2016

Specified agency MBS

$
3,994,515

$
3,909,452

Inverse interest-only agency MBS

—

1,923

Total agency MBS

3,994,515

3,911,375

Net long agency TBA dollar roll positions ⁽¹⁾

1,394,553

720,027

Total agency investment portfolio

5,389,068

4,631,402

Private-label MBS

—

1,173

Private-label interest-only MBS

54

93

Total private-label investment portfolio

54

1,266

Total MBS investment portfolio

$
5,389,122

$
4,632,668

(1)

Represents capital investments plus accretion of interest income net of cash distributions.


MSR Financing Receivable Underlying Reference Amounts:
MSRs		Financing			Advances Receivable		Cash and Other Net Receivables		Counterparty Incentive Fee Accrual			MSR Financing Receivables		Implicit Leverage
$	178,180	$	(1,010	)	$	4,202	$	12,979	$	(11,293	)	$	183,058		0.0


Underlying Reference MSRs:
Holder of Loans	Unpaid Principal Balance		Weighted-Average Note Rate			Weighted-Average Servicing Fee			Weighted-Average Loan Age	Price			Multiple (1)		Fair Value
Fannie Mae	$	12,343,228		3.09	%		0.25	%	29 months		1.33	%		5.33	$	164,564
Freddie Mac		1,006,719		3.72	%		0.25	%	25 months		1.35	%		5.41		13,616
Total/weighted-average	$	13,349,947		3.14	%		0.25	%	29 months		1.33	%		5.33	$	178,180

⁽¹⁾	Represents the fair value of the agency MBS which underlie our TBA forward purchase and sale commitments executed as dollar roll transactions. In accordance with GAAP, our TBA forward purchase and sale commitments are reflected on the

(1)

Calculated as the underlying MSR price divided by the weighted-average servicing fee.

Credit Investment Portfolio

The following table presents information about our credit investments as of March 31, 2023 (dollars in thousands):


	Market Price		Fair Value (1)		Financing		Invested Capital (2)		Leverage
AAA rated commercial MBS	$	98.93	$	98,933	$	79,372	$	19,780		4.0
Commercial mortgage loan		100.00		27,798		19,053		8,904		2.1
Business purpose residential MBS (3)		79.80		4,780		—		4,780		—
Solar ABS		37.25		1,885		—		1,885		—
Total/weighted-average			$	133,396	$	98,425	$	35,349		2.8

(1)

For non-commercial credit investments in securities, includes contractual accrued interest receivable.

(2)

Invested capital includes investment accrued interest receivable and financing accrued interest payable.

consolidated balance sheets as a component of “derivative assets, at fair value” and “derivative liabilities, at fair value,” with a collective net liability carrying value of $7,146 and a net asset carrying value of $1,156 as of September 30, 2017 and December 31, 2016, respectively.

(3)

Includes our net investment of $3,034 in a VIE with gross assets and liabilities of $3,194 and $160, respectively, that is consolidated for GAAP financial reporting purposes.

Our classes of credit investments as of March 31, 2023 are summarized as follows:

Commercial MBS - We hold two AAA rated senior position commercial MBS which are summarized as follows:

•

A senior position commercial MBS with a fair value of $49.6 million and an unpaid principal balance of $50.0 million. The investment has 30.9% in subordinated credit support and is secured primarily by a first lien mortgage loan on a 153 room full-service hotel ("The Mark Hotel") located in New York, New York. The security carries a variable coupon rate of one-month term SOFR plus 2.70%.

•

A senior position commercial MBS with a fair value of $49.3 million and an unpaid principal balance of $50.0 million. The investment has 43.7% in subordinated credit support and is secured primarily by a first lien mortgage loan on a super-regional mall ("The Streets at Southpoint") located in Durham, North Carolina. The security carries a variable coupon rate of one-month term SOFR plus 3.00%.

Commercial mortgage loan - Our commercial mortgage loan investment is a $27.8 million participation in an unrated $82.2 million syndicated mortgage loan secured by a first lien position in 42 midwestern health care facilities. The mortgage loan is guaranteed by the parent operating company. The loan carries a variable note rate of one-month term SOFR plus 5.61% and matures on June 23, 2023.

Business purpose residential MBS - We hold residual interests in two securitized pools of business purpose residential mortgage loans with a combined fair value of $4.8 million. As of March 31, 2023, the underlying collateral pools are comprised of 20 first lien mortgage loans or foreclosed real estate with an unpaid principal balance of $5.8 million. The underlying collateral pools as of March 31, 2023 represented less than 5% of the original collateral pools. We expect substantial realization of the remaining value to occur within the next several quarters.

Solar ABS - We hold a first loss position in a securitized pool of loans for the purchase and installation of solar panels on residential real estate with a fair value of $1.9 million and unpaid principal balance of $5.1 million. As of March 31, 2023, the underlying collateral pool was comprised of 9,485 loans with an unpaid principal balance of $347 million and a delinquency rate of 1.9%.

Agency MBS Investment Portfolio

Our ~~specified~~agency MBS investment portfolio consisted of the following as of March 31, 2023 (dollars in thousands):


	Fair Value
Agency MBS	$	460,984
Net short TBA Position		(372,973	)
Total agency MBS investment portfolio	$	88,011

Our agency MBS consisted of the following as of ~~September 30, 2017~~March 31, 2023 (dollars in thousands):


	Unpaid Principal Balance		Net Unamortized Purchase Premiums		Amortized Cost Basis		Net Unrealized Gain (Loss)			Fair Value		Market Price		Coupon			Weighted Average Expected Remaining Life		Unpaid Principal Balance		Net Unamortized Purchase Premiums (Discounts)			Amortized Cost Basis		Net Unrealized Gain (Loss)			Fair Value		Market Price		Coupon			Weighted Average Expected Remaining Life
30-year fixed rate:
3.5%	$	1,276,307	$	61,850	$	1,338,157	$	(17,101	)	$	1,321,056	$	103.51		3.50	%		6.9
3.0%																			$	68,297	$	(2,443	)	$	65,854	$	(4,466	)	$	61,388	$	89.88		3.00	%		10.1
4.0%		2,379,630		137,540		2,517,170		6,242			2,523,412		106.04		4.00	%		6.1		184,901		191			185,092		(8,148	)		176,944		95.70		4.00	%		9.5
4.5%		139,128		10,668		149,796		230			150,026		107.83		4.50	%		4.5		227,337		(4,718	)		222,619		26			222,645		97.94		4.50	%		9.7
5.5%		20		—		20		1			21		111.73		5.50	%		5.6		7		—			7		—			7		104.71		5.50	%		6.0
Total/weighted-average	$	3,795,085	$	210,058	$	4,005,143	$	(10,628	)	$	3,994,515		105.25		3.85	%		6.3	$	480,542	$	(6,970	)	$	473,572	$	(12,588	)	$	460,984	$	95.93		4.09	%		9.7

Unpaid Principal Balance

Net Unamortized Purchase Premiums

Amortized Cost Basis

Net Unrealized Gain (Loss)

Fair Value

Market
Price

Coupon

Weighted
Average
Expected
Remaining
Life
Fannie Mae

$
1,853,391

$
102,395

$
1,955,786

$
(9,994
)

$
1,945,792

$
104.99

3.80
%

6.3
Freddie Mac

1,941,694

107,663

2,049,357

(634
)

2,048,723

105.51

3.90
%

6.3
Total/weighted-average

$
3,795,085

$
210,058

$
4,005,143

$
(10,628
)

$
3,994,515

105.25

3.85
%

6.3


	Unpaid Principal Balance		Net Unamortized Purchase Premiums (Discounts)			Amortized Cost Basis		Net Unrealized Gain (Loss)			Fair Value		Market Price		Coupon			Weighted Average Expected Remaining Life
Fannie Mae	$	221,765	$	(4,069	)	$	217,696	$	(4,942	)	$	212,754	$	95.94		4.09	%		9.5
Freddie Mac		258,777		(2,901	)		255,876		(7,646	)		248,230		95.92		4.09	%		9.9
Total/weighted-average	$	480,542	$	(6,970	)	$	473,572	$	(12,588	)	$	460,984	$	95.93		4.09	%		9.7

The ~~actual CPR~~annualized prepayment rate for ~~the Company’s~~our agency MBS was ~~10.29%~~3.52% for the three months ended ~~September 30, 2017.~~March 31, 2023. As of ~~September 30, 2017, the Company’s~~March 31, 2023, our agency MBS was comprised of securities specifically selected for their relatively lower propensity for prepayment, which includes approximately ~~90%~~28% and 15% in specified pools of high loan-to-value and low balance loans, respectively, while the remainder includes specified pools of loans originated in certain geographical ~~areas, loans refinanced through~~areas. Weighted average pay-up premiums on our agency MBS portfolio, which represent the ~~U.S. Government sponsored Home Affordable Refinance Program (“HARP”) or with other characteristics selected for their relatively lower propensity for prepayment.~~estimated price premium of agency MBS backed by specified pools over a TBA agency MBS, were approximately 0.11 of a percentage point as of March 31, 2023.

~~Our~~As of March 31, 2023, our agency MBS investment portfolio also ~~includes net long TBA positions, which are primarily the result of executing sequential series of “dollar roll” transactions that are settled on~~included a net ~~basis.~~short TBA position. In accordance with GAAP, we account for our ~~net long~~ TBA positions as derivative instruments. Information about ~~the Company’s~~our net ~~long~~short TBA positions as of ~~September 30, 2017~~March 31, 2023 is as follows (dollars in thousands):


	Notional Amount:
	Net Long (Short)			Implied			Implied			Net Carrying
	Position (1)			Cost Basis (2)			Fair Value (3)			Amount (4)
3.0% 30-year MBS sale commitments	$	(70,000	)	$	(61,009	)	$	(62,725	)	$	(1,716	)
4.0% 30-year MBS purchase commitments		50,000			47,957			47,781			(176	)
4.0% 30-year MBS sale commitments		(140,000	)		(130,665	)		(133,788	)		(3,123	)
4.5% 30-year MBS sale commitments		(229,000	)		(218,642	)		(224,241	)		(5,599	)
Total net long (short) agency TBA positions	$	(389,000	)	$	(362,359	)	$	(372,973	)	$	(10,614	)

Notional Amount:

Net Long (Short)

Implied

Implied

Net Carrying

Position ⁽¹⁾

Cost Basis ⁽²⁾

Fair Value ⁽³⁾

Amount ⁽⁴⁾

3.0% coupon purchase commitments

$
200,000

$
202,258

$
200,563

$
(1,695
)
3.5% coupon purchase commitments

1,005,000

1,040,762

1,036,092

(4,670
)
4.0% coupon purchase commitments

250,000

263,929

263,164

(765
)
4.0% coupon sale commitments

(100,000
)

(105,250
)

(105,266
)

(16
)
Total net long agency TBA dollar roll positions

$
1,355,000

$
1,401,699

$
1,394,553

$
(7,146
)

(1)

⁽¹⁾	~~“Notional amount”~~Notional amount represents the unpaid principal balance of the underlying ~~agency MBS.~~

⁽²⁾	~~“Implied cost basis” represents the contractual forward price for the underlying agency MBS.~~

⁽³⁾	~~“Implied fair value” represents the current fair value of the underlying agency MBS.~~

⁽⁴⁾	“Net carrying amount” represents the difference between the implied cost basis and the current fair value of the underlying MBS. This amount is reflected on the Company’s consolidated balance sheets as a component of “derivative assets, at fair value” and “derivative liabilities, at fair value.”

~~Economic Hedging Instruments~~

The Company attempts to hedge a portion of its exposure to interest rate fluctuations associated with its agency MBS primarily through the use of interest rate derivatives. Specifically, these interest rate derivatives are intended to economically hedge changes, attributable to changes in benchmark interest rates, in agency MBS fair values and future interest cash flows on the Company’s short-term financing arrangements. As of September 30, 2017, the interest rate derivative instruments primarily used by the Company were centrally cleared interest rate swap agreements, exchange-traded 10-year U.S. Treasury note futures and options on 10-year U.S. Treasury note futures, and options on agency MBS.

~~The Company’s interest rate swap agreements represent agreements to make semiannual interest payments based upon a fixed interest rate and receive quarterly variable interest payments based upon~~

The Company also has forward-starting interest rate swap agreements as of September 30, 2017 which have effective dates in early October 2017 and mature two years from their respective effective dates. The effective dates of these forward-starting interest rate swap agreements were set to occur within reasonable proximity to the maturity dates of certain of the Company’s existing interest rate swap agreements, economically extending the life of the maturing instruments. Information about the Company’s forward-starting interest rate swap agreements as of September 30, 2017 is as follows (dollars in thousands):

In addition to interest rate swap agreements, the Company also has exchange-traded 10-year U.S. Treasury note futures that are short positions that mature on a quarterly basis. Upon the maturity date of these futures contracts in December 2017, the Company has the option to either net settle each contract in cash in an amount equal to the difference betweenImplied fair value represents the current fair value of the underlying ~~10-year U.S. Treasury note~~agency MBS.

Net ~~interest~~operating income ~~determined in accordance with GAAP~~ primarily represents the interest and other income recognized from our investments in ~~specified agency MBS~~financial assets and ~~private-label MBS (including the amortization of purchase premiums and accretion of purchase discounts),~~rent revenues recognized from SFR properties net of the interest expense incurred from repurchase agreement financing arrangements or other ~~short-~~short and long-term borrowing ~~transactions.~~ transactions and SFR property operating expenses.

Net ~~interest~~operating income ~~determined in accordance with GAAP~~ does not include TBA agency MBS dollar roll income (expense), which we believe represents the economic equivalent of net interest income ~~generated~~(expense) earned (incurred) from our investments in non-specified fixed-rate agency MBS, nor does it include the ~~implied~~ net interest income or expense of our interest rate swap agreements, which are not designated as hedging instruments for financial reporting purposes. In our consolidated statements of comprehensive income, ~~prepared in accordance with GAAP,~~ TBA agency MBS dollar roll income (expense) and the ~~implied~~ net interest income or expense ~~incurred~~ from our interest rate swap agreements are reported as a component of the overall periodic change in the fair value of derivative instruments within the line item ~~“gain (loss) from~~“investment and derivative ~~instruments, net” of the “investment~~ gain (loss), ~~net” section.~~net.”

“Investment and derivative gain (loss), net” primarily consists of periodic changes in the fair value (whether realized or unrealized) of our investments in ~~MBS classified as trading securities,~~financial assets, periodic changes in the fair value (whether realized or unrealized) of derivative instruments ~~gains (losses)~~and realized ~~upon the~~gain (loss) on sale of ~~investments in MBS classified as available-for-sale, and other-than-temporary impairment charges for investments in MBS classified as available-for-sale.~~SFR properties.

“Compensation and benefits expense” includes base salaries, annual cash incentive compensation, and non-cash stock-based compensation. Annual cash incentive compensation is based on meeting estimated annual performance measures and discretionary

components. Non-cash stock-based compensation includes expenses associated with stock-based awards granted to employees, including ~~the Company’s~~ performance share units ~~to named executive officers~~ that are earned only upon the attainment of Company performance measures over the relevant measurement period.

“Other general and administrative expenses” primarily consists of the following:

Three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2023 compared to the three ~~and nine~~ months ended ~~September 30, 2016~~March 31, 2022

The following table presents the ~~net income available to common stock reported~~summary financial information for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2023 and ~~2016,~~2022, respectively (dollars in thousands, except per share amounts):

~~Net interest~~Interest and other income ~~determined in accordance with GAAP (“GAAP net interest income”) decreased $3.4~~increased $6.6 million, or ~~18.6%~~89.2%, from ~~$18.3~~$7.4 million for the three months ended ~~September 30, 2016~~March 31, 2022 to ~~$14.9~~$14.0 million for the three months ended ~~September 30, 2017 and decreased $5.9 million, or 9.8%, from $60.0 million for the nine months ended September 30, 2016 to $54.1 million for the nine months ended September 30, 2017.~~March 31, 2023. The ~~decrease~~increase from the comparative ~~periods~~period is primarily ~~attributable to 62~~the result of higher average investment yields on our agency MBS and ~~43 basis point increases for the three~~higher average investment balances in higher yielding MSR financing receivables and nine months ended September 30, 2017, respectively, in the average interest costs of our short-term secured financing arrangements due primarily to an increase in prevailing benchmark short-term interest rates, partially offset by an increase in the average balance and asset yields of our specified agency MBS.credit investments.

The components of ~~GAAP net~~ interest ~~income from our MBS portfolio, excluding interest expense on long-term unsecured debt, are summarized in the following tables for the periods indicated (dollars in thousands):~~

~~The effects of changes in the composition of our investments on our GAAP net interest income from our MBS investment activities are summarized below (dollars in thousands):~~

Economic net interest income, a non-GAAP financial measure, represents the interest income earned net of the interest expense incurred from all of our interest bearing financial instruments as well as the agency MBS which underlie, and are implicitly financed through, our TBA dollar roll transactions. Economic net interest income is comprised of the following: (i) net interest income determined in accordance with GAAP, (ii) TBA agency MBS “dollar roll” income, and (iii) net interest income or expense incurred from interest rate swap agreements. We believe that economic net interest income assists investors in understanding and evaluating the financial performance of the Company’s long-term-focused, net interest spread-based investment strategy, prior to the deduction of core general and administrative expenses. A full description of each of the three aforementioned components of economic net interest income is included within the “Non-GAAP Core Operating Income” section of this document.

~~The components of our economic net interest~~other income are summarized in the following tables for the periods indicated (dollars in thousands):

The effects of changes in the composition of our investments in financial assets on ~~our economic net~~ interest ~~income from our MBS investment~~ and ~~related funding and hedging activities~~other income are summarized below (dollars in thousands):

We began to acquire SFR properties pursuant to our SFR property rental investment strategy in September 2021. The homes we purchased may have required minor refurbishment prior to a tenant occupying the property. In addition, there was typically a lease marketing period prior to a new tenant occupying the home. In general, the time period between the date of settlement of the home purchase and the date the house was occupied by a tenant averaged between 30 to 60 days. Accordingly, the timing of the earnings benefit to us was dictated by the pace of home purchases, the level of any property level refurbishments and the length of the lease marketing period.

During the year ended December 31, 2022, we sold all our SFR rental properties in two separate transactions in August 2022 and December 2022. Going forward, we do not anticipate allocating capital to an SFR investment strategy.

For the three months ended March 31, 2022, we had rental income of $1.1 million.

Interest expense increased $5.1 million, or 159.4%, from $3.2 million for the three ~~and nine~~ months ended ~~September 30, 2017 decreased relative~~March 31, 2022 to $8.3 million for the three months ended March 31, 2023. The increase from the comparative ~~periods from~~period is primarily the ~~prior year due primarily to:~~

As prevailing longer-term interest rates increase (decrease), the fair value of ~~our investments in fixed rate agency MBS~~and MSR financing receivables and TBA sale commitments generally ~~decreases (increases)~~increase (decrease). Conversely, the fair value of our ~~interest rate derivative hedging instruments increases (decreases)~~investments in fixed-rate agency MBS and TBA purchase commitments generally decreases (increases) in response to increases (decreases) in prevailing interest rates. We may enter into interest rate derivative hedging instruments intended to economically hedge changes attributable to changes in benchmark interest rates to either our agency MBS or MSR financing receivables. While our interest rate derivative hedging instruments are designed to mitigate the sensitivity of the fair value of either our agency MBS ~~portfolio~~or MSR financing receivables to fluctuations in interest rates, they are not generally designed to mitigate the sensitivity of our net book value to spread risk, which is the risk of an increase of the market spread between

the market yield on our agency MBS and MSR financing receivables and the benchmark yield on U.S. Treasury securities or interest rate swaps. Accordingly, ~~irrespective of fluctuations in interest rates, an increase (decrease) in MBS spreads will generally result~~changes in the ~~underperformance (outperformance)~~spread between the market yields of agency MBS ~~relative to~~or MSR financing receivables and benchmark interest rates may result in a net gain or loss in the fair value of our investments and interest rate hedging instruments.

The following table presents information about the gains and losses recognized due to the changes in the fair value of our ~~agency MBS, TBA transactions,~~investments and interest rate ~~derivative~~hedging instruments for the periods indicated (dollars in thousands):

During the three months ended September 30, 2017 and 2016, MBS spreads narrowed which resulted in the outperformance of our investments in agency MBS and TBA commitments relative to our interest rate hedging instruments. During the nine months ended September 30, 2017 and 2016, MBS spreads widened which resulted in the underperformance of our investments in agency MBS and TBA commitments relative to our interest rate hedging instruments.

General and administrative expenses ~~decreased~~increased by ~~$0.1~~$0.6 million ~~or 2.2%,~~ from ~~$4.6~~$3.3 million for the three months ended September 30, 2016 to $4.5 million for the three months ended September 30, 2017. General and administrative expenses decreased by $3.0 million, or 18.1%, from $16.6 million for the nine months ended September 30, 2016 to $13.6 million for the nine months ended September 30, 2017.

Compensation and benefits expenses remained unchanged at $3.4 million for both the three months ended September 30, 2016 and 2017. Compensation and benefits expenses increased by $0.9 million, or 10.3%, from $8.8 million for the nine months ended September 30, 2016, to $9.7 million for the nine months ended September 30, 2017. The increase in compensation and benefits expenses for the nine months ended September 30, 2017 is mostly attributable to an increase in long-term performance oriented stock-based compensation.

Other general and administrative expenses decreased by $0.1 million, or 8.3%, from $1.2 million for the three months ended September 30, 2016 to $1.1 million for the three months ended September 30, 2017. Other general and administrative expenses decreased by $4.0 million, or 50.6%, from $7.9 million for the nine months ended September 30, 2016March 31, 2022 to $3.9 million for ~~the nine~~three months ended ~~September 30, 2017.~~March 31, 2023 . The ~~decrease~~increase in ~~other~~ general and administrative expenses for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2023 is ~~attributable~~ primarily due to ~~$4.0 million of non-recurring expenses incurred during the nine months ended September 30, 2016 stemming from the 2016 proxy contest that were~~increases in ~~excess of the level of expenses normally incurred for an annual meeting of shareholders.~~professional services expense.

~~We recognized an~~Our TRSs are subject to U.S. federal and state corporate income ~~tax provision of $0.8 million and $15.5 million~~taxes. As a result, for the three months ended ~~September 30, 2017~~March 31, 2023 and ~~2016, respectively. The~~2022, we recognized a provision for income taxes of $0.1 million and $2.3 million, respectively, on the pre-tax net income of our TRSs. As noted in “Non-GAAP Earnings Available for Distribution” below, our computation of non-GAAP earnings available for distribution includes a provision for income taxes on the earnings available for distribution of our TRSs. TRS earnings available for distribution is comprised of net interest income generated by TRSs net of the TRSs’ general and administrative expenses. In our consolidated financial consolidated statements of comprehensive income prepared in accordance with GAAP, the “income tax provision (benefit)” includes (i) the income tax provision for ~~the three months ended September 30, 2017 includes the effect of a decrease in the valuation allowance against the deferred tax assets of $8.4 million. We recognized~~TRS earnings available for distribution and (ii) an income tax provision for (or benefit from) periodic increases (or decreases) in the fair value of ~~$25.9 million~~the investments of our TRSs, which are recognized in net income as a component of “investment and ~~$5.1 million for~~derivative gain (loss) net.” Below is a reconciliation of the ~~nine months ended September 30, 2017 and 2016, respectively. The~~ income tax provision for TRS earnings available for distribution, a non-GAAP financial measure, to the ~~nine months ended~~

~~September 30, 2017 includes~~income tax provision determined in accordance with GAAP for the ~~effect of an increase~~periods indicated (dollars in the valuation allowance against the deferred tax assets of $11.5 million. As of September 30, 2017, the Company determined that it should record a full valuation allowance against its deferred tax assets that are capital in nature consisting of its NCL carry-forwards and temporary GAAP to tax differences that are expected to result in capital losses in future periods.thousands):

A valuation allowance is provided against the deferred tax asset if, based on our evaluation, it is more-likely-than-not that some or all of the deferred tax assets will not be realized. All available evidence, both positive and negative, is considered in our determination

Non-GAAP Earnings Available for whether a valuation allowance for deferred tax assets is needed. Items considered in determining our valuation allowance include expectations of future earnings of the appropriate tax character, recent historical financial results, tax planning strategies, the length of statutory carry-forward periods and the expected timing of the reversal of temporary differences.Distribution

In addition to the results of operations determined in accordance with ~~generally accepted accounting principles as consistently applied in the United States (“GAAP”),~~GAAP, we ~~reported “non-GAAP core operating income.” We define core operating income as “economic net interest income” less “core general and administrative expenses.”~~

~~Economic net interest income,~~also report a non-GAAP financial measure ~~represents the interest~~"earnings available for distribution". We define earnings available for distribution as net income earned net of the interest expense incurred from all of our interest bearing financial instruments as well as the agency MBS which underlie, and are implicitly financed through, our TBA dollar roll transactions. Economic net interest income is comprised of the following: periodic (i) net interest incomeavailable to common stock determined in accordance with GAAP ~~(ii)~~adjusted for the following items:

Realized and unrealized gains and losses recognized with respect to our mortgage related investments and economic hedging instruments, which are reported in line item “investment and derivative gain (loss), net” of our consolidated statements of comprehensive income, other than TBA dollar roll income and ~~(iii)~~interest rate swap net interest income or expense, ~~incurred~~are excluded from ~~interest rate swap agreements.~~

~~We believe that~~the computation of earnings available for distribution as such gains on losses are not reflective of the economic ~~net~~ interest income assists investors in understanding and evaluating the financial performance of the Company’s long-term-focused, net interest spread-based investment strategy, prior to the deduction of core general and administrative expenses.

~~Core general and administrative expenses are non-interest expenses reported within the line item “total general and administrative expenses” of the~~ consolidated statements of comprehensive income ~~less stock-based compensation expense. For~~prepared in accordance with GAAP, the ~~nine months ended September 30, 2016, core general~~net interest income earned or expense incurred from interest rate swap agreements is reported as a component of the overall periodic change in the fair value of derivative instruments within the line item “investment and ~~administrative expenses also exclude non-recurring expenses related to the 2016 proxy contest that are in excess of those normally incurred for an annual meeting of shareholders.~~derivative gain (loss), net.”

~~The following table presents our computation of non-GAAP core operating income for the three and nine months ended September 30, 2017 and 2016 (amounts in thousands, except per share amounts):~~

The following table provides a reconciliation of GAAP ~~pre-tax~~ net income (loss) available (attributable) to common stock to non-GAAP ~~core operating income~~earnings available for distribution for the ~~three and nine months ended September 30, 2017 and 2016~~periods indicated (amounts in thousands):

Earnings available for distribution is used by management to evaluate the financial performance of ~~the Company’s~~our long-term-focused, net interest spread-based investment strategy and core business activities over periods of time as well as assist with the determination of the appropriate level of periodic dividends to common stockholders. In addition, we believe that ~~non-GAAP core operating income~~earnings available for distribution assists investors in understanding and evaluating the financial performance of ~~the Company’s~~our long-term-focused, net interest spread-based investment strategy and core business activities over periods of time as well as ~~its~~our earnings capacity.

Periodic fair value gains and losses recognized with respect to our investments in MBS and our economic hedging instruments, which are reported in line item “total investment gain (loss), net” of our consolidated statements of comprehensive income, are excluded from the computation of non-GAAP core operating income as such gains on losses are not reflective of the economic interest income earned or interest expense incurred from our interest-bearing financial assets and liabilities during the indicated reporting period. Because our long-term-focused investment strategy for our agency MBS investment portfolio is to generate a net interest

spread on the leveraged assets while prudently hedging periodic changes in the fair value of those assets attributable to changes in benchmark interest rates, we generally expect the fluctuations in the fair value of our agency MBS investments and our economic hedging instruments to largely offset one another over time.

A limitation of utilizing this non-GAAP financial measure is that the effect of accounting for ~~“non-core”~~all events or transactions in accordance with GAAP does, in fact, reflect the financial results of our business and these effects should not be ignored when evaluating and analyzing our financial results. ~~For example, the economic cost or benefit~~In addition, our calculation of ~~hedging instruments~~earnings available for distribution may not be comparable to other ~~than interest rate swap agreements, such as U.S. Treasury note futures or options, do not affect the computation~~similarly titled measures of ~~non-GAAP core operating income.~~other companies. Therefore, we believe that ~~non-GAAP core operating income~~earnings available for distribution should be considered as a supplement to, and in conjunction with, net income and comprehensive income determined in accordance with GAAP. Furthermore, there may be differences between earnings available for distribution and taxable income determined in accordance with the Internal Revenue Code. As a REIT, we are required to distribute at least 90% of our REIT taxable income (subject to certain adjustments) to qualify as a REIT and all of our taxable income in order to not be subject to any U.S. federal or state corporate income taxes. Accordingly, earnings available for distribution may not equal our distribution requirements as a REIT.

Liquidity is a measurement of our ability to meet potential cash requirements including ongoing commitments to repay borrowings, fund investments, meet margin calls on our short-term borrowings and hedging instruments, and for other general business purposes. Our primary sources of funds for liquidity consist of existing cash balances, short-term borrowings (for example, repurchase agreements), principal and interest payments from our mortgage investments ~~in MBS,~~ and proceeds from sales of ~~MBS.~~mortgage investments. Other sources of liquidity include proceeds from the offering of common stock, preferred stock, debt securities, or other securities registered pursuant to our effective shelf registration statement filed with the Securities and Exchange Commission (“SEC”).

Liquidity, or ready access to funds, is essential to our business. Perceived liquidity issues may affect our counterparties’ willingness to engage in transactions with us. Our liquidity could be impaired due to circumstances that we may be unable to control, such as a general market disruption or an operational problem that affects us or third parties. Further, our ability to sell assets may be impaired if other market participants are seeking to sell similar assets at the same time. If we cannot obtain funding from third parties ~~or from our subsidiaries,~~ our results of operations could be negatively impacted.

As of ~~September 30, 2017,~~March 31, 2023, our debt-to-equity leverage ratio was ~~9.6~~2.7 to 1 measured as the ratio of the sum of our total debt to our ~~shareholders’~~stockholders’ equity as reported on our consolidated balance sheet. In evaluating our liquidity and leverage ratios, we also monitor our “at risk” ~~short-term financing to investable capital~~leverage ratio. Our “at risk” ~~short-term financing to investable capital~~leverage ratio is measured as the ratio of the sum of our ~~short-term recourse financing (i.e.~~ repurchase agreement ~~financing),~~financing, net payable or receivable for unsettled securities, net contractual forward price of our TBA commitments, leverage within our MSR financing receivable less our cash and cash equivalents compared to our investable capital. Our investable capital is calculated as the sum of our ~~tangible~~ stockholders’ equity and long-term unsecured debt. Tangible stockholders’ equity is measured as our stockholders’ equity less our net deferred tax asset, and our long-term unsecured debt is measured as our long-term unsecured debt excluding any unamortized issuance costs. As of ~~September 30, 2017,~~March 31, 2023, our “at risk” ~~short-term recourse financing to investable capital~~leverage ratio was ~~11.2~~0.4 to 1.

As of ~~September 30, 2017,~~March 31, 2023, our liquid assets totaled $60.6 million consisting of cash and cash equivalents ~~totaled $26.4~~of $12.8 million representing a net decrease of $28.4 million from $54.8 million as of December 31, 2016. Cash provided by operating activities of $64.9 million during the nine months ended September 30, 2017 was attributable primarily to net interest income less our general and ~~administrative expenses. Cash used in investing activities of $161.6 million during the nine months ended September 30, 2017 was primarily generated by purchases of new~~settled unencumbered agency MBS ~~and payments for settlements and deposits for margin calls on our interest rate derivative instruments, partially offset by sales~~ of ~~agency MBS and the receipt of principal payments from agency MBS. Cash provided by financing activities of $68.3~~$47.8 million during the nine months ended September 30, 2017 relates primarily to net proceeds obtained from repurchase agreements used to finance a portion of our MBS investment portfolio and proceeds received from issuance of common and preferred stock, partially offset by dividend payments to stockholders.at fair value.

We believe that our existing cash balances, net investments in ~~MBS,~~mortgage investments, cash flows from operations, borrowing capacity, and other sources of liquidity will be sufficient to meet our cash requirements for at least the next twelve months. We may, however, seek debt or equity financings, in public or private transactions, to provide capital for corporate purposes and/or strategic business opportunities, including possible acquisitions, joint ventures, alliances or other business arrangements which could require substantial capital outlays. Our policy is to evaluate strategic business opportunities, including acquisitions and divestitures, as they arise. There can be no assurance that we will be able to generate sufficient funds from future operations, or raise sufficient debt or equity on acceptable terms, to take advantage of investment opportunities that become available. Should our needs ever exceed these sources of liquidity,

we believe that most of our investments could be sold, in most circumstances, to provide cash. However, we may be required to sell our assets in such instances at depressed prices.

As of ~~September 30, 2017, liquid assets consisted primarily~~March 31, 2023, our cash totaled $12.8 million, representing a net decrease of ~~cash and cash equivalents of $26.4~~$17.4 million and net investments in MBS of $370.7 million. Cash equivalents consist primarily of money market funds invested in debt obligations of the U.S. government. The Company’s net investments in MBS is calculated as the sum of the Company’s total MBS investments at fair value and receivable for sold MBS, less the sum of the repurchase agreements outstanding and payable for purchased MBS.

~~As of September 30, 2017, we had $73.8~~from $30.2 million ~~of total long-term unsecured debt, net of unamortized debt issuance costs of $1.5 million. Our trust preferred debt obligations with an aggregate principal amount of $15.0 million outstanding~~ as of ~~September 30, 2017 accrue~~December 31, 2022. Cash used in operating activities of $4.4 million during the three months ended March 31, 2023 was attributable primarily to net interest income less our general and ~~require~~administrative expenses. Cash provided by investing activities of $22.3 million during the ~~payment~~three months ended March 31, 2023 was primarily generated by sales of ~~interest quarterly at three-month LIBOR plus 2.25% to 3.00%~~agency MBS and ~~mature between 2033~~credit securities, distributions received on our MSR financing receivables, receipt of principal payments from agency MBS and ~~2035. Our 6.625% Senior Notes due 2023 with a~~credit securities and principal ~~amount~~receipts on loans and mortgage loans of ~~$25.0 million outstanding as~~consolidated VIEs, partially offset by purchases of ~~September 30, 2017 accrue and require payment of interest quarterly at an annual rate of 6.625% and mature on May 1, 2023. Our 6.75% Senior Notes due 2025 with a principal amount~~new agency MBS, MSR financing receivables. Cash used in financing activities of $35.3 million ~~outstanding as~~during the three months ended March 31, 2023 was primarily from repayments of ~~September 30, 2017 accrue~~repurchase agreements, net repayments of secured debt of consolidated VIEs and ~~require payment of interest quarterly at an annual rate of 6.75% and mature on March 15, 2025.~~dividend payments to preferred stockholders.

We have short-term financing facilities that are structured as repurchase agreements with various financial institutions to fund our ~~investments in MBS.~~mortgage investments. We have obtained, and believe we will be able to continue to obtain, short-term financing in amounts and at interest rates consistent with our financing objectives. Funding for ~~MBS~~mortgage investments through repurchase agreements continues to be available to us at rates we consider to be attractive from multiple counterparties.

Our repurchase agreements to finance our acquisition of MBS include provisions contained in the standard master repurchase agreement as published by the Securities Industry and Financial Markets Association (“SIFMA”) and may be amended and supplemented in accordance with industry standards for repurchase facilities. ~~Our~~Certain of our repurchase agreements include financial covenants, with which the failure to comply would constitute an event of ~~default under the applicable repurchase agreement.~~default. Similarly, each repurchase agreement includes events of insolvency and events of default on other indebtedness as similar financial covenants. As provided in the standard master repurchase agreement as typically amended, upon the occurrence of an event of default or termination, the applicable counterparty has the option to terminate all repurchase transactions under such counterparty’s repurchase agreement and to demand immediate payment of any amount due from us.

Our repurchase agreement to finance our acquisition of mortgage loans is subject to a master repurchase agreement between our wholly-owned subsidiary, for which we provide a full guarantee of performance, and a third party lender. The agreement contains financial covenants including our maintenance of a minimum level of net worth, liquidity and profitability, with which the failure to comply would constitute an event of default. Similarly, the agreement includes events of insolvency and events of default on other indebtedness as similar financial covenants. Upon the occurrence of an event of default or termination, the counterparty has the option to terminate all other indebtedness arrangements with us and to ~~the counterparty.~~demand immediate payment of any amount due from us.

Under our repurchase agreements, we may be required to pledge additional assets to our repurchase agreement counterparties in the event the estimated fair value of the existing pledged collateral under such agreements declines and such lenders demand additional collateral (commonly referred to as a “margin call”), which may take the form of additional securities or cash. Margin calls on repurchase agreements collateralized by our ~~MBS~~mortgage investments primarily result from events such as declines in the value of the underlying mortgage collateral caused by factors such as rising interest rates, higher prepayments or ~~prepayments.~~higher actual or expected credit losses. Our repurchase agreements generally provide that valuations for ~~MBS~~mortgage investments securing our repurchase agreements are to be obtained from a generally recognized source agreed to by both parties. However, in certain circumstances and under certain of our repurchase agreements, our lenders have the sole discretion to determine the value of the ~~MBS~~mortgage investments securing our repurchase agreements. In such instances, our lenders are required to act in good faith in making determinations of value. Our repurchase agreements generally provide that in the event of a margin call, we must provide cash or additional securities ~~or cash~~ on the same business day that the margin call is made if the lender provides us notice prior to the margin notice deadline on such day.

To date, we have not had any margin calls on our repurchase agreements that we were not able to satisfy with either cash or additional pledged collateral. However, should we encounter increases in interest rates, prepayments or ~~prepayments,~~expected credit losses, margin calls on our repurchase agreements could result in a material adverse change in our liquidity position.

Our repurchase agreement counterparties apply a “haircut” to the value of the pledged collateral, which means the collateral is valued, for the purposes of the repurchase agreement transaction, at less than fair value. Upon the renewal of a repurchase agreement financing at maturity, a lender could increase the “haircut” percentage applied to the value of the pledged collateral, thus reducing our liquidity.

Our repurchase agreements generally mature within 30 to 60 days, but may have maturities as short as one day and as long as one year. In the event that market conditions are such that we are unable to continue to obtain repurchase agreement financing for our mortgage investments ~~in MBS~~ in amounts and at interest rates consistent with our financing objectives, we may liquidate such investments and may incur significant losses on any such sales of ~~MBS.~~mortgage investments.

In the event that market conditions are such that we are unable to obtain financing for our investments in MBS in amounts and at interest rates consistent with our financing objectives, to the extent deemed appropriate, we may use cash to finance our investments

~~or we may liquidate such investments. Accordingly, depending upon market conditions, we may incur significant losses on any such sales of MBS.~~

The following table provides information regarding our outstanding repurchase agreement borrowings as of ~~dates~~the date and ~~periods~~period indicated (dollars in thousands):

To limit our exposure to counterparty risk, we diversify our repurchase agreement funding across multiple ~~counterparties and by counterparty region.~~counterparties. As of ~~September 30, 2017,~~March 31, 2023, we had outstanding repurchase agreement balances with 16eight counterparties and have master repurchase agreements in place with a total of 1914 counterparties located throughout North America, Europe and Asia. As of ~~September 30, 2017,~~March 31, 2023, no more than ~~5.3%~~4.1% of our stockholders’ equity was at risk with any one counterparty, with the top five counterparties representing approximately ~~21.6%~~17.2% of our stockholders’ equity. ~~The table below includes~~

As of March 31, 2023, we had $86.5 million of total long-term unsecured debt, net of unamortized debt issuance costs of $1.2 million. Our 6.75% Senior Notes due 2025 with a ~~summary~~principal amount of ~~our repurchase agreement funding by number of counterparties and counterparty region~~$34.9 million outstanding as of ~~September 30, 2017 (dollars~~March 31, 2023 accrue and require payment of interest quarterly at an annual rate of 6.75% and mature on March 15, 2025. Our 6.00% Senior Notes due 2026 with a principal amount of $37.8 million outstanding as of March 31, 2023 accrue and require payment of interest quarterly at an annual rate of 6.00% and mature on August 1, 2026. Our trust preferred debt with a principal amount of $15.0 million outstanding as of March 31, 2023 accrue and require the payment of interest quarterly at three-month LIBOR plus 2.25% to 3.00% and mature

between 2033 and 2035. Our Senior Notes due 2025 and trust preferred debt may be redeemed in ~~thousands):~~whole or part at any time and from time to time at our option at a redemption price equal to the principal amount plus accrued and unpaid interest. Our Senior Notes due 2026 may be redeemed in whole or in part at any time and from time to time at our option on or after August 1, 2023 at a redemption price equal to the principal amount plus accrued and unpaid interest.

In the normal course of our operations, we are a party to financial instruments that are accounted for as derivative financial instruments including (i) interest rate ~~derivative~~hedging instruments such as interest rate swaps, ~~Eurodollar futures, interest rate swap futures,~~ U.S. Treasury note futures, put and call options on U.S. Treasury note futures, ~~and~~Eurodollar futures, interest rate swap futures, options on agency MBS, and TBA sale commitments and (ii) derivative instruments that economically serve as investments such as TBA ~~contracts.~~purchase commitments.

We exchange cash variation margin with the counterparties to our interest rate ~~derivative~~hedging instruments at least on a daily basis based upon daily changes in fair value as measured by the central clearinghouse through which those derivatives are cleared. In addition, the central clearinghouse requires market participants to deposit and maintain an “initial margin” amount which is determined by the clearinghouse and is generally intended to be set at a level sufficient to protect the clearinghouse from the maximum estimated single-day price movement in that market participant’s contracts. However, the futures commission merchants (“FCMs”) through which we conduct trading of our cleared and exchanged-traded hedging instruments may require incremental initial margin in excess of the clearinghouse’s requirement. The clearing exchanges have the sole discretion to determine the value of ~~derivative instruments.~~our hedging instruments for the purpose of setting initial and variation margin requirements or otherwise. In the event of a margin call, we must generally provide additional collateral on the same business day. To date, we have not had any margin calls on our ~~derivative~~hedging agreements that we were not able to satisfy. However, if we encounter significant ~~decreases~~changes in long-term interest rates, margin calls on our ~~derivative~~hedging agreements could result in a material adverse change in our liquidity position.

As of ~~September 30, 2017,~~March 31, 2023, we had outstanding interest rate swaps ~~10-year U.S. Treasury note futures, and options on 10-year U.S. Treasury note futures~~ with the following aggregate notional amount ~~net fair value~~ and corresponding initial margin held in collateral deposit with the ~~custodian (in~~FCM (dollars in thousands):

The FCMs through which we conduct trading of our hedging instruments may limit their exposure to us (due to an inherent one business day lag in the variation margin exchange process) by applying a maximum “ceiling” on their level of risk, either overall and/or by instrument type. The FCMs generally use the amount of initial margin that we have posted with them as a measure of their level of risk exposure to us. We currently have FCM relationships with two large financial institutions. To date, among our two FCM arrangements, we have had sufficient excess capacity above and beyond what we believe to be a sufficient and appropriate hedge position. However, if our FCMs substantially lowered their risk exposure thresholds, we could experience a material adverse change in our liquidity position and our ability to hedge appropriately.

TBA dollar roll transactions represent a form of off-balance sheet financing accounted for as derivative instruments. In a TBA dollar roll transaction, we do not intend to take physical delivery of the underlying agency MBS and will generally enter into an offsetting position and net settle the ~~paired off position~~paired-off positions in cash. However, under certain market conditions, it may be uneconomical for us to roll our TBA ~~contracts~~positions into future months and we may need to take or make physical delivery of the underlying securities. If we were required to take physical delivery to settle a long TBA ~~contract,~~position, we would have to fund our total purchase commitment with cash or other financing sources and our liquidity position could be negatively ~~impacted~~.impacted. If we were required to make physical delivery to settle a short TBA position, we could be required to delivery agency MBS from our balance that has a value in excess of the short TBA positon which would result in us incurring a loss.

~~Our TBA contracts~~Margin Requirements for Agency MBS Purchase and ~~beginning in the latter half of 2017 as a result of amended regulatory requirements provided by the Financial Industry Regulatory Authority, our~~Sale Commitments

Our commitments to purchase and sell ~~specified~~ agency MBS, including TBA commitments, are subject to master securities forward transaction agreements published by SIFMA as well as supplemental terms and conditions with each counterparty. Under the terms of these agreements, we may be required to pledge collateral to our counterparty in the event the fair value of ~~our~~the agency MBS underlying our purchase and sale commitments ~~decline~~change and such counterparty demands collateral through a margin call. Margin calls on agency MBS commitments are generally caused by factors such as ~~rising~~changing interest rates or prepayments. Our agency MBS commitments provide that valuations for our commitments and any pledged collateral are to be obtained from a generally recognized

source agreed to by both parties. However, in certain circumstances, our counterparties have the sole discretion to determine the value of the agency MBS commitment and any pledged collateral. In such instances, our counterparties are required to act in good faith in making determinations of value. In the event of a margin call, we must generally provide additional collateral on the same business ~~day~~.day.

~~In May 2017,~~We are party to agreements with a licensed, GSE approved residential mortgage loan servicer that enables us to garner the ~~Company completed~~economic return of an investment in an MSR purchased by the mortgage servicing counterparty through an MSR financing transaction. We have committed to invest a ~~public offering in which 135,000 shares~~total minimum of ~~its~~ ~~7.00% Series B Cumulative Perpetual Redeemable Preferred Stock (the “Series B Preferred Stock”)~~ ~~were issued~~$50 million of capital with the counterparty with $25 million of the minimum commitment expiring on December 31, 2023 and $25 million of the minimum commitment expiring on April 1, 2024. As of March 31, 2023, we have fully funded the total minimum commitment. At any time prior to the ~~public at~~minimum commitment expiration dates, we have the option to request the mortgage servicing counterparty to sell the related MSR investments and repay us amounts owed to us under the MSR financing transaction less a ~~public offering price of $24.00 per share~~minimum fee the mortgage servicing counterparty would have earned over the remaining original commitment periods.

~~for proceeds net of underwriting discounts and commissions and expenses of $3.0 million. The Series B Preferred Stock is publicly traded~~At our election, we can request the mortgage servicing counterparty utilize leverage on the ~~New York Stock Exchange~~MSRs to which our MSR financing receivables are referenced to finance the purchase of additional MSRs to increase potential returns to us. As of March 31, 2023, our mortgage servicing counterparty has a $100 million credit facility that is secured by its MSRs including MSRs to which our MSR financing receivables are referenced. As of March 31, 2023, our mortgage servicing counterparty had drawn $58.4 million and had $41.6 million of availability under its credit facility. As of March 31, 2023, we had the ability to utilize approximately 68% of our mortgage servicing counterparty’s available undrawn capacity under its credit facility. In general, our mortgage servicing counterparty can obtain advances of up to 60% of the fair value of the MSR collateral value pledged. Under our mortgage servicing counterparty’s credit facility, if the fair value of our pledged MSR collateral declines and the lender demands additional collateral from our mortgage servicing counterparty through a margin call, we would be required to provide the mortgage servicing counterparty with additional funds to meet such margin call. If we were unable to satisfy such margin call, the lender could liquidate the MSR collateral position to which our MSR financing receivables are referenced to satisfy the loan obligation, thereby reducing the value of our MSR financing receivables. Draws under the ~~ticker symbol “AI PrB”.~~facility bear interest at term SOFR plus 2.90% with a SOFR floor of 1.60% and a maturity date of April 28, 2023 with a one-year borrower extension option.

Under the arrangement, we are obligated to provide funds to the mortgage servicing counterparty to fund its advances of payments on the serviced pool of mortgage loans within the referenced MSR. The ~~Series B Preferred Stock~~ ~~has no stated maturity,~~mortgage servicing counterparty is ~~not~~required to return to us any subsequent servicing advances collected or reimbursed by the GSEs. At our option, we could request the mortgage servicing counterparty to fund any servicing advances with draws under its credit facility, subject to ~~any sinking~~available borrowing capacity, while we would be required to fund and will remain outstanding indefinitely unless repurchased or redeemed by the Company. Holders of Series B Preferred Stock have no voting rights, except under limited conditions, and are entitled to receive a cumulative cash dividend at a rate of 7.00% per annum of their $25.00 per share liquidation preference before holders of common stock are entitled to receive any dividends. Shares of Series B Preferred Stock are redeemable at $25.00 per share, plus accumulated and unpaid dividends (whether or not authorized or declared) exclusively at our option commencing on May 12, 2022 or earlier upon the occurrence of a change in control. Dividends are payable quarterly in arrears on the 30th day of each December, March, June and September. such financing costs.

As of ~~September 30, 2017, we had declared~~March 31, 2023, our mortgage servicing counterparty has drawn $58.4 million of financing under its credit facility, including $1.0 million attributable to us, collateralized by an estimated $327.7 million of MSRs, including $4.9 million attributable to us, and ~~paid all required quarterly dividends on our Series B Preferred Stock.~~$6.1 million of servicer advances, including $0.2 million attributable to us.

~~On May 24, 2013, we entered into~~We are party to separate common equity distribution agreements ~~(the “Prior Equity Distribution Agreements”)~~ with ~~each of RBC Capital Markets, LLC,~~equity sales agents JMP Securities LLC, B. Riley FBR, Inc., JonesTrading Institutional Services LLC and Ladenburg Thalmann & Co. Inc. ~~and MLV & Co. LLC (the “Prior Equity Sales Agents”),~~ pursuant to which we may offer and sell, from time to time, ~~up to 1,750,000~~ shares of our ~~Class A~~ common stock. Pursuant to the ~~Prior Equity Distribution Agreements,~~common equity distribution agreements, shares of our common stock may be offered and sold through the ~~Prior Equity Sales Agents in transactions that are deemed to be “at the market” offerings as defined in Rule 415 under the Securities Act of 1933 as amended (the “Securities Act”), including~~equity sales ~~made directly on the NYSE or sales made to or through a market maker other than on an exchange or, subject to the terms of a written notice from us, in privately negotiated transactions.~~

During the three months ended March 31, 2017, we issued 800 shares of Class A common stock at a weighted average public offering price of $15.16 per share for proceeds net of underwriting discounts and commissions and expenses of $12 thousand under the Prior Equity Distribution Agreements. On February 23, 2017, we terminated the Prior Equity Distribution Agreements.

On February 22, 2017, we entered into new separate equity distribution agreements (the “New Equity Distribution Agreements”) with each of JMP Securities LLC, FBR Capital Markets & Co., JonesTrading Institutional Services LLC and Ladenburg Thalmann & Co. Inc. (the “New Equity Sales Agents”), pursuant to which we may offer and sell, from time to time, up to 6,000,000 shares of our Class A common stock. Pursuant to the New Equity Distribution Agreements, shares of our common stock may be offered and sold through the New Equity Sales Agents in transactions that are deemed to be “at the market” offerings as defined in Rule 415 under the Securities Act, including sales made directly on the NYSE or sales made to or through a market maker other than on an exchange or, subject to the terms of a written notice from us, in privately negotiated transactions. During the nine months ended September 30, 2017, we issued 4,368,837 shares of Class A common stock at a weighted average public offering price of $13.90 per share for proceeds net of selling commissions and expenses of $59.9 million under the New Equity Distribution Agreements.

~~As of September 30, 2017, we had 1,631,163 shares of Class A common stock available for sale under the New Equity Distribution Agreements.~~

On May 16, 2017, we entered into a new separate equity distribution agreement (the “Series B Preferred Equity Distribution Agreement”) with JonesTrading Institutional Services LLC (the “Series B Preferred Equity Agent”), pursuant to which we may offer and sell, from time to time, up to 1,865,000 shares of our Series B Preferred Stock. Pursuant to the Series B Preferred Equity Distribution Agreement, shares of our Series B Preferred stock may be offered and sold through the Series B Preferred Equity Sales Agentagents in transactions that are deemed to be “at the market” offerings as defined in Rule 415 under the Securities Act of 1933, including sales made directly on the NYSE or sales made to or through a market maker other than on an exchange or, subject to the terms of a written notice from us, in privately negotiated transactions. ~~During~~As of March 31, 2023, we had 11,302,160 shares of Class A common stock available for sale under the ~~nine months ended~~common equity distribution agreements.

As of March 31, 2023, we had Series B Preferred Stock outstanding with a liquidation preference of $9.5 million. The Series B Preferred Stock is publicly traded on the New York Stock Exchange under the ticker symbol “AAIC PrB.” The Series B Preferred Stock has no stated maturity, is not subject to any sinking fund and will remain outstanding indefinitely unless repurchased or redeemed by us. Holders of Series B Preferred Stock have no voting rights, except under limited conditions and are entitled to receive a cumulative cash dividend at a rate of 7.00% per annum of their $25.00 per share liquidation preference (equivalent to $1.75 per annum per share). Shares of Series B Preferred Stock are redeemable at $25.00 per share, plus accumulated and unpaid dividends (whether or not authorized or declared) exclusively at our option. Dividends are payable quarterly in arrears on the 30th day of each

December, March, June and September, when and as declared. We have declared and paid all required quarterly dividends on our Series B Preferred Stock to date.

As of March 31, 2023, we had Series C Preferred Stock outstanding with a liquidation preference of $23.9 million. The Series C Preferred Stock is publicly traded on the New York Stock Exchange under the ticker symbol “AAIC PrC.” The Series C Preferred Stock has no stated maturity, is not subject to any sinking fund and will remain outstanding indefinitely unless repurchased or redeemed by us. Holders of Series C Preferred Stock have no voting rights except under limited conditions and will be entitled to receive cumulative cash dividends (i) from and including the original issue date to, but excluding, March 30, ~~2017,~~2024 at a fixed rate equal to 8.250% per annum of the $25.00 per share liquidation preference (equivalent to $2.0625 per annum per share) and (ii) from and including March 30, 2024, at a floating rate equal to three-month LIBOR plus a spread of 5.664% per annum. Shares of Series C Preferred Stock are redeemable at $25.00 per share, plus accumulated and unpaid dividends (whether or not authorized or declared) exclusively at our option commencing on March 30, 2024 or earlier upon the occurrence of a change in control or under circumstances where it is necessary to preserve our qualification as a REIT. Under certain circumstances upon a change of control, the Series C Preferred Stock is convertible into shares of our common stock. Dividends are payable quarterly in arrears on the 30th day of March, June, September and December of each year, when and as declared. We have declared and paid all required quarterly dividends on our Series C Preferred Stock to date.

We are party to an amended and restated equity distribution agreement with JonesTrading Institutional Services LLC and Ladenburg Thalmann & Co. Inc., pursuant to which we ~~issued 159,993~~may offer and sell, from time to time, shares of our Series B Preferred Stock. Pursuant to the Series B preferred equity distribution agreement, shares of our Series B Preferred Stock may be offered and sold through the preferred equity sales agents in transactions that are deemed to be “at the market” offerings as defined in Rule 415 under the Securities Act of 1933, including sales made directly on the NYSE or sales made to or through a market maker other than on an exchange or, subject to the terms of a written notice from us, in privately negotiated transactions.

As of March 31, 2023, we had 1,602,566 shares of Series B Preferred ~~stock at a weighted average public offering price of $24.95 per share for proceeds net of selling commissions and expenses of $3.9 million under the Series B Preferred Equity Distribution Agreement.~~

~~As of September 30, 2017, we had 1,705,007 shares of Series B Preferred stock~~Stock available for sale under the Series B ~~Preferred Equity~~preferred equity distribution agreement.

~~Share Repurchase Program~~We have elected to be taxed as a REIT under the Internal Revenue Code. As a REIT, we are required to distribute annually 90% of our REIT taxable income (subject to certain adjustments) to our shareholders. So long as we continue to qualify as a REIT, we will generally not be subject to U.S. federal or state corporate income taxes on our taxable income that we distribute to our shareholders on a timely basis. At present, it is our intention to distribute 100% of our taxable income, although we will not be required to do so. We intend to make distributions of our taxable income within the time limits prescribed by the Internal Revenue Code, which may extend into the subsequent taxable year.

~~The Company’s Board of Directors authorized a share repurchase program pursuant to which the Company may repurchase up to 2.0 million shares of its Class A common stock.~~ As of ~~September 30, 2017, 1,951,305 shares~~March 31, 2023, we had estimated NOL carryforwards of ~~Class A common stock remained available for repurchase under the repurchase program.~~ $164.0 million that can be used to offset future taxable ordinary income and reduce our future distribution requirements. As of March 31, 2023, we also had estimated NCL carryforwards of $136.2 million that can be used to offset future net capital gains.

As of ~~September 30, 2017~~March 31, 2023 and December 31, ~~2016,~~2022, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance, or special purpose entities or ~~variable interest entities (“VIEs”),~~

VIEs, established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited ~~purposes.~~purposes that have, or are reasonably likely to have, a material current or future effect on our financial condition. Our economic interests held in unconsolidated VIEs are generally limited in nature to those of a passive holder of ~~MBS issued by a securitization trust.~~beneficial interests in securitized financial assets. As of ~~September 30, 2017~~March 31, 2023 and December 31, ~~2016,~~2022, we had ~~not~~ consolidated for financial reporting purposes ~~any~~one and two, respectively, securitization trusts for which we determined that our investments provided us with both (i) the power to direct the activities that most significantly impact the economic performance of the VIE and (ii) the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. We were not required to consolidate for financial reporting purposes any other VIEs as of March 31, 2023 and December 31, 2022, as we dodid not have the power to direct the activities that most significantly impact the economic performance of such entities. ~~Further, as~~For further information about our consolidated VIEs, refer to "Note 8. Consolidation of ~~September 30, 2017~~Variable Interest Entities" under Item 1 of this Quarterly Report on Form 10-Q.

As of March 31, 2023 and December 31, ~~2016,~~2022, we had not guaranteed any obligations of unconsolidated ~~entities or~~entities. As of March 31, 2023 and December 31, 2022, we had not entered into any commitment or intent to provide funding to ~~any such entities.~~unconsolidated entities other than the aforementioned asset-backed revolving credit facility funding commitment.

Refer to the heading titled “Critical Accounting Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2022 for a discussion of our critical accounting estimates.

Market risk is the exposure to loss resulting from changes in market factors such as interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market risk sensitive instruments. The primary market risks that we are exposed to are interest rate risk, prepayment risk, extension risk, ~~credit~~spread risk, ~~spread~~credit risk, liquidity risk and regulatory risk. See “Item 1 — Business” in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2022 for ~~a description~~discussion of our risk management ~~strategies.~~strategies related to these market risks. The following is additional information regarding certain of these market risks.

We are exposed to interest rate risk in our agency MBS ~~portfolio.~~and MSR related assets. Our investments in ~~MBS~~mortgage investments are also financed with short-term borrowing facilities, such as repurchase agreements, which are interest rate sensitive financial instruments. Our exposure to interest rate risk fluctuates based upon changes in the level and volatility of interest rates, mortgage prepayments, and in the shape and slope of the yield curve, among other factors. Through the use of interest rate ~~derivative~~hedging instruments, we attempt to economically hedge a portion of our exposure to changes, attributable to changes in benchmark interest rates, in ~~certain~~agency MBS fair values and future interest cash flows on our short-term financing arrangements. Our primary interest rate ~~derivatives~~hedging instruments include interest rate swaps as well as U.S. Treasury note futures, options on U.S. Treasury note futures, ~~and~~ options on agency ~~MBS. Historically, we have also utilized Eurodollar futures~~MBS and ~~interest rate swap futures.~~TBA sale commitments.

Changes in both short- and long-term interest rates affect us in several ways, including our financial position. As interest rates ~~increase,~~rise, the ~~fair~~ value of fixed-rate agency MBS may be expected to decline, prepayment rates may be expected to decrease and duration may be expected to ~~extend. However, an increase in interest rates results in an increase in~~extend, while the ~~fair value~~values of our interest rate ~~derivative instruments.~~hedging instruments and MSR financing receivables are generally expected to increase due to lower expectations of prepayments in the referenced pools of mortgage loans. Conversely, if interest rates decline, the ~~fair~~ value of fixed-rate agency MBS is generally expected to increase while the ~~fair~~ value of our interest rate ~~derivatives is~~hedging instruments and MSR related assets are expected to decline. We manage our interest rate risk through investment allocation between our agency MBS and MSR related assets and the utilization of interest rate hedging instruments.

The tables that follow illustrate the estimated change in fair value for our current investments in agency MBS, MSR financing receivable and derivative instruments under several hypothetical scenarios of interest rate movements. For the purposes of this illustration, interest rates are defined by the U.S. Treasury yield curve. Changes in fair value are measured as percentage changes from their respective fair values presented in the column labeled “Value.” Our estimate of the change in the fair value of agency MBS is based upon the same assumptions we use to manage the impact of interest rates on the portfolio. The interest rate sensitivity of our agency MBS and TBA commitments is derived from The Yield Book, a third-party model. The interest rate sensitivity of our MSR financing receivable is derived from an internal model. Actual results could differ significantly from these estimates. The effective durations are based on observed fair value changes, as well as our own estimate of the effect of interest rate changes on the fair value of the investments, including assumptions regarding prepayments based, in part, on age and interest rate of the mortgages underlying the agency MBS, prior exposure to refinancing opportunities, and an overall analysis of historical prepayment patterns under a variety of historical interest rate conditions.

The interest rate sensitivity analyses illustrated by the tables that follow have certain limitations, most notably the following:

These analyses are not intended to provide a precise forecast. Actual results could differ materially from these estimates (dollars in thousands, except per share amounts):

Our mortgage investments ~~in MBS~~ expose us to “spread risk.” Spread risk, also known as “basis risk,” is the risk of an increase in the spread between market participants’ required rate of return (or “market yield”) on our ~~MBS~~mortgage investments and prevailing benchmark interest rates, such as the U.S. Treasury or interest rate swap rates.

The spread risk inherent to our investments in agency MBS and the resulting fluctuations in fair value of these securities can occur independent of changes in prevailing benchmark interest rates and may relate to other factors impacting the mortgage and fixed income markets, such as actual or anticipated monetary policy actions by the U. S. Federal Reserve, liquidity, or changes in market participants’ required rates of return on different assets. While we use interest rate ~~derivative~~hedging instruments to attempt to mitigate the sensitivity of our net book value to changes in prevailing benchmark interest rates, such instruments are generally not designed to mitigate spread risk inherent to our investment in agency MBS. Consequently, the value of our agency MBS and, in turn, our net book value, could decline independent of changes in interest rates.

The tables that follow illustrate the estimated change in fair value for our investments in agency MBS and TBA commitments under several hypothetical scenarios of agency MBS spread movements. Changes in fair value are measured as percentage changes from their respective fair values presented in the column labeled “Value.” The sensitivity of our agency MBS and TBA commitments to changes in MBS spreads is derived from The Yield Book, a third-party model. The analysis to follow reflects an assumed spread duration for our investment in agency MBS of ~~5.4~~4.8 years, which is a model-based assumption that is dependent upon the size and composition of our investment portfolio as well as economic conditions present as of ~~September 30, 2017.~~March 31, 2023.

These analyses are not intended to provide a precise forecast. Actual results could differ materially from these estimates (dollars in thousands, except per share amounts).:

~~Virtually all~~Unlike our agency MBS investments, our credit investments do not carry a credit guarantee from a GSE or government agency. Accordingly, our credit investments expose us to credit risk. Credit risk, sometimes referred to as non-performance or non-payment risk, is the risk that we will not receive, in full, the contractually required principal or interest cash flows stemming from our investments due to an underlying borrower’s or issuer’s default on their obligation. Upon a mortgage loan borrower’s default, a foreclosure sale or other liquidation of the underlying mortgaged property will result in a credit loss if the liquidation proceeds fall short of the mortgage loan’s unpaid principal balance and unpaid accrued interest.

Some of our ~~assets and liabilities~~credit investments have credit enhancements that mitigate our exposure to the credit risk of the underlying mortgage loans. Credit losses incurred on the underlying mortgage loans collateralizing our investments in non-agency MBS are ~~interest rate sensitive in nature. As~~allocated on a ~~result, interest rates and other factors influence~~“reverse sequential” basis. Accordingly, any credit losses realized on the underlying mortgage loans are first absorbed by the beneficial interests subordinate to our ~~performance far~~non-agency MBS, if any, to the extent of their respective principal balance, prior to being allocated to our investments.

Other of our non-agency MBS investments represent “first loss” positions. Accordingly, for such investments, credit losses realized on the underlying pool of mortgage loans are first allocated to our security, to the extent of its principal balance, prior to being allocated to the respective securitization’s more ~~than inflation. Changes in interest rates do not necessarily correlate with inflation rates or changes in inflation rates. Our financial statements are prepared in accordance with GAAP~~senior credit positions.

We accept exposure to credit risk at levels we deem prudent within our overall investment strategy and our ~~distributions~~evaluation of the potential risk-adjusted returns. We attempt to manage our exposure to credit risk through prudent asset selection resulting from pre-acquisition due diligence, on-going performance monitoring subsequent to acquisition, and the disposition of assets for which we identify negative credit trends.

There is no guarantee that our attempts to manage our credit risk will be successful. We could experience substantial losses if the credit performance of the mortgage loans to which we are ~~determined by~~exposed falls short of our Board of Directors in its sole discretion pursuant to our variable dividend policy; in each case, our activities and balance sheet are measured with reference to fair value without considering inflation.expectations.

When used in this Quarterly Report on Form 10-Q, in future filings with the ~~Securities and Exchange Commission (“SEC”)~~SEC or in press releases or other written or oral communications, statements which are not historical in nature, including those containing words such as “believe,” “expect,” “anticipate,” “estimate,” “plan,” “continue,” “intend,” “should,” “may” or similar expressions, are intended to identify “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and, as such, may involve known and unknown risks, uncertainties and assumptions. The forward-looking statements we make in this Quarterly Report on Form 10-Q include, but are not limited to, statements about the following:

Forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account information currently in our possession. These beliefs, assumptions and expectations may change as a result of many possible events or factors, not all of which are known to us or are within our control. If a change occurs, the performance of our portfolio and our business, financial condition, liquidity and results of operations may vary materially from those expressed, anticipated or contemplated in our forward-looking statements. You should carefully consider these risks, along with the following factors that could cause actual results to vary from our forward-looking statements, before making an investment in our securities:

These and other risks, uncertainties and factors, including those described elsewhere in this ~~Quarterly~~Annual Report on Form ~~10-Q,~~10-K, could cause our actual results to differ materially from those projected in any forward-looking statements we make. All forward-looking statements speak only as of the date on which they are made. New risks and uncertainties arise over time and it is not possible to predict those events or how they may affect us. Except as required by law, we are not obligated to, and do not intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

As of the end of the period covered by this Quarterly Report on Form 10-Q, our management, with the participation of our Chief Executive Officer, J. Rock Tonkel, Jr., and our Chief Financial Officer, Richard E. Konzmann, carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined under Rule 13a-15(e) under the ~~Securities~~ Exchange ~~Act of 1934, as amended (the “Exchange Act”))~~Act) pursuant to Rule 13a-15(b) of the Exchange Act. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding disclosure.

There have been no changes in our internal control over financial reporting that occurred during the quarter ended ~~September 30, 2017~~March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

We are from time to time involved in civil lawsuits, legal proceedings and arbitration matters that we consider to be in the ordinary course of our business. There can be no assurance that these matters individually or in the aggregate will not have a material adverse effect on our financial condition or results of operations in a future period. We are also subject to the risk of litigation, including litigation that may be without merit. As we intend to actively defend such litigation, significant legal expenses could be incurred. An adverse resolution of any future litigation against us could materially affect our financial condition, results of operations and liquidity. Furthermore, we operate in highly-regulated markets that currently are under intense regulatory scrutiny, and we have received, and we expect in the future that we may receive, inquiries and requests for documents and information from various federal, state and foreign regulators. ~~In addition, one or more of our subsidiaries have received requests to repurchase loans from various parties in connection with the former securitization business conducted by a subsidiary.~~ We believe that the continued scrutiny of MBS, structured finance, and derivative market participants increases the risk of additional inquiries and requests from regulatory or enforcement agencies and other parties. We cannot provide any assurance that these inquiries and requests will not result in further investigation of or the initiation of a proceeding against us or that, if any such investigation or proceeding were to arise, it would not materially adversely affect our Company.

~~None.~~There have been no material changes to the risk factors disclosed in Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2022. The materialization of any risks and uncertainties identified in our Cautionary Statement About Forward-Looking Information contained in this report together with those previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022 or those that are presently unforeseen could result in significant adverse effects on our financial condition, results of operations and cash flows. See “Cautionary Statement About Forward-Looking Information” in Part I, Item 3 of this report or our Annual Report on Form 10-K for the year ended December 31, 2022.

*** Submitted electronically herewith. Attached as Exhibit 101 are the following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets at March 31, 2023 and December 31, 2022; (ii) Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2023 and 2022; (iii) Consolidated Statements of Changes in Equity for the Three Months Ended March 31, 2023 and 2022; and (iv) Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023 and 2022.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


			Page
PART I — FINANCIAL INFORMATION
	Item 1.	Consolidated Financial Statements and Notes — (unaudited)	1
		Consolidated Balance Sheets ~~— September 30, 2017 and December 31, 2016~~	1
		Consolidated Statements of Comprehensive Income ~~— Three and Nine Months Ended September 30, 2017 and 2016~~	2
		Consolidated Statements of Changes in Equity ~~— Nine Months Ended September 30, 2017 and Year Ended December 31, 2016~~	3
		Consolidated Statements of Cash Flows ~~— Nine Months Ended September 30, 2017 and 2016~~	4
		Notes to Consolidated Financial Statements	5
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3033
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	4850
	Item 4.	Controls and Procedures	5254
PART II — OTHER INFORMATION
	Item 1.	Legal Proceedings	5355
	Item 1A.	Risk Factors	5355
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5355
	Item 3.	Defaults Upon Senior Securities	5355
	Item 4.	Mine Safety Disclosures	5355
	Item 5.	Other Information	5355
	Item 6.	Exhibits	5355
		Signatures	5658

	September 30, 2017			December 31, 2016
ASSETS
Cash and cash equivalents	$	26,368		$	54,794
Interest receivable		12,428			11,646
Sold securities receivable		92,882			—
Mortgage-backed securities, at fair value
Agency		3,994,515			3,911,375
Private-label		54			1,266
Derivative assets, at fair value		4,177			74,889
Deferred tax assets, net		23,453			48,829
Deposits, net		59,317			11,149
Other assets		2,405			3,003
Total assets	$	4,215,599		$	4,116,951
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Repurchase agreements	$	3,694,838		$	3,649,102
Interest payable		2,813			3,434
Accrued compensation and benefits		4,210			5,406
Dividend payable		17,044			15,739
Derivative liabilities, at fair value		7,146			9,554
Purchased securities payable		21,962			—
Other liabilities		1,190			1,247
Long-term unsecured debt		73,824			73,656
Total liabilities		3,823,027			3,758,138
Commitments and contingencies
Stockholders’ Equity:
Preferred stock, $0.01 par value, 25,000,000 shares authorized, 294,993 and -0- shares issued and outstanding, respectively (liquidation preference of $7,375 and $-0-, respectively)		6,904			—
Class A common stock, $0.01 par value, 450,000,000 shares authorized, 28,038,275 and 23,607,111 shares issued and outstanding, respectively		280			236
Class B common stock, $0.01 par value, 100,000,000 shares authorized, -0- and 20,256 shares issued and outstanding, respectively		—			—
Additional paid-in capital		1,972,463			1,910,284
Accumulated deficit		(1,587,075	)		(1,551,707	)
Total stockholders’ equity		392,572			358,813
Total liabilities and stockholders’ equity	$	4,215,599		$	4,116,951

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Interest income
Agency mortgage-backed securities	$	28,771		$	23,917		$	90,454		$	72,980
Private-label mortgage-backed securities		2			1,655			82			7,437
Other		62			82			103			342
Total interest income		28,835			25,654			90,639			80,759
Interest expense
Short-term secured debt		12,748			6,193			32,921			17,202
Long-term unsecured debt		1,220			1,197			3,641			3,584
Total interest expense		13,968			7,390			36,562			20,786
Net interest income		14,867			18,264			54,077			59,973
Investment gain (loss), net
Gain on trading investments, net		13,996			2,468			25,632			81,083
(Loss) gain from derivative instruments, net		(572	)		15,196			(29,945	)		(119,945	)
Realized gain on sale of available-for-sale investments, net		—			2,439			—			1,846
Other-than-temporary impairment charges		—			—			—			(1,737	)
Other, net		(56	)		619			(51	)		638
Total investment gain (loss), net		13,368			20,722			(4,364	)		(38,115	)
General and administrative expenses
Compensation and benefits		3,449			3,430			9,698			8,750
Other general and administrative expenses		1,095			1,200			3,925			7,887
Total general and administrative expenses		4,544			4,630			13,623			16,637
Income before income taxes		23,691			34,356			36,090			5,221
Income tax provision		823			15,543			25,896			5,132
Net income		22,868			18,813			10,194			89
Dividend on preferred stock		(83	)		—			(118	)		—
Net income available to common stock	$	22,785		$	18,813		$	10,076		$	89
Basic earnings per common share	$	0.86		$	0.82		$	0.41		$	—
Diluted earnings per common share	$	0.85		$	0.81		$	0.40		$	—
Weighted-average common shares outstanding (in thousands)
Basic		26,377			23,038			24,793			23,011
Diluted		26,856			23,349			25,143			23,154
Other comprehensive income (loss), net of taxes
Unrealized losses on available-for-sale securities (net of taxes of $-0-, $(141), $-0- and $(3,946), respectively)	$	—		$	(221	)	$	—		$	(6,197	)
Reclassification
Included in investment gain (loss), net, related to sales of available-for-sale securities (net of taxes of $-0-, $(639), $-0-, and $(783), respectively)		—			(2,324	)		—			(2,550	)
Included in investment gain (loss), net, related to other-than-temporary impairment charges on available-for-sale securities (net of taxes of $-0-, $-0-, $-0- and $676, respectively)		—			—			—			1,061
Comprehensive income (loss)	$	22,868		$	16,268		$	10,194		$	(7,597	)


	Three Months Ended March 31,
	2023			2022
Interest income
MSR financing receivables	$	4,685		$	3,382
Agency mortgage-backed securities		4,976			1,492
Credit securities and loans		2,762			853
Mortgage loans of consolidated VIEs		1,398			1,354
Other		179			325
Total interest and other income		14,000			7,406
Rent revenues from single-family properties		—			1,064
Interest expense
Repurchase agreements		6,125			276
Long-term debt secured by single-family properties		—			408
Long-term unsecured debt		1,541			1,370
Secured debt of consolidated VIEs		681			1,188
Total interest expense		8,347			3,242
Single-family property operating expenses		—			1,531
Net operating income		5,653			3,697
Investment and derivative loss, net		(3,851	)		(827	)
General and administrative expenses
Compensation and benefits		2,255			2,065
Other general and administrative expenses		1,656			1,219
Total general and administrative expenses		3,911			3,284
Loss before income taxes		(2,109	)		(414	)
Income tax provision		109			2,287
Net loss		(2,218	)		(2,701	)
Dividend on preferred stock		(660	)		(742	)
Net loss attributable to common stock	$	(2,878	)	$	(3,443	)
Basic loss per common share	$	(0.10	)	$	(0.12	)
Diluted loss per common share	$	(0.10	)	$	(0.12	)
Weighted-average common shares outstanding (in thousands)
Basic		28,004			29,832
Diluted		28,004			29,832


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


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


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
6.000% Senior Notes due 2026	AAIN	NYSE
6.75% Senior Notes due 2025	AIC	NYSE


Title		Outstanding
Class A Common Stock		~~28,140,721~~28,360,447 shares

	Preferred Stock (#)		Preferred Amount ($)		Class A Common Stock (#)			Class A Amount ($)		Class B Common Stock (#)			Class B Amount ($)			Additional Paid-In Capital			Accumulated Other Comprehensive Income			Accumulated Deficit			Total
Balances, December 31, 2015		—	$	—		22,874,819		$	229		102,216		$	1		$	1,898,085		$	12,371		$	(1,451,258	)	$	459,428
Net loss		—		—		—			—		—			—			—			—			(41,347	)		(41,347	)
Conversion of Class B common stock to Class A common stock		—		—		81,960			1		(81,960	)		(1	)		—			—			—			—
Issuance of Class A common stock		—		—		595,342			6		—			—			9,669			—			—			9,675
Issuance of Class A common stock under stock-based compensation plans		—		—		73,457			—		—			—			—			—			—			—
Repurchase of Class A common stock under stock-based compensation plans		—		—		(18,467	)		—		—			—			(269	)		—			—			(269	)
Stock-based compensation		—		—		—			—		—			—			2,974			—			—			2,974
Income tax provision from stock-based compensation		—		—		—			—		—			—			(175	)		—			—			(175	)
Other comprehensive loss		—		—		—			—		—			—			—			(12,371	)		—			(12,371	)
Dividends declared		—		—		—			—		—			—			—			—			(59,102	)		(59,102	)
Balances, December 31, 2016		—		—		23,607,111			236		20,256			—			1,910,284			—			(1,551,707	)		358,813
Net income		—		—		—			—		—			—			—			—			10,194			10,194
Conversion of Class B common stock to Class A common stock		—		—		20,256			—		(20,256	)		—			—			—			—			—
Issuance of Class A common stock		—		—		4,369,637			44		—			—			59,869			—			—			59,913
Issuance of Class A common stock under stock-based compensation plans		—		—		74,000			—		—			—			—			—			—			—
Issuance of Series B preferred stock		294,993		6,904		—			—		—			—			—			—			—			6,904
Repurchase of Class A common stock under stock-based compensation plans		—		—		(32,729	)		—		—			—			(437	)		—			—			(437	)
Stock-based compensation		—		—		—			—		—			—			2,747			—			—			2,747
Dividends declared		—		—		—			—		—			—			—			—			(45,562	)		(45,562	)
Balances, September 30, 2017		294,993	$	6,904		28,038,275		$	280	$	—		$	—		$	1,972,463		$	—		$	(1,587,075	)	$	392,572


	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, 2021		373,610	$	8,852		1,117,034	$	27,356		30,676,931		$	307		$	2,030,315		$	(1,842,703	)	$	224,127
Net loss		—		—		—		—		—			—			—			(2,701	)		(2,701	)
Issuance of Class A common stock under stock-based compensation plans		—		—		—		—		404,746			4			(4	)		—			—
Forfeiture of Class A common stock under stock-based compensation plans		—		—		—		—		(12,167	)		—			—			—			—
Repurchase of Class A common stock		—		—		—		—		(1,009,566	)		(10	)		(3,487	)		—			(3,497	)
Issuance of preferred stock		6,058		149		—		—		—			—			—			—			149
Stock-based compensation		—		—		—		—		—			—			761			—			761
Dividends declared		—		—		—		—		—			—			—			(742	)		(742	)
Balances, March 31, 2022		379,668	$	9,001		1,117,034	$	27,356		30,059,944		$	301		$	2,027,585		$	(1,846,146	)	$	218,097

	September 30, 2017			December 31, 2016
Pledged with agency MBS:
Repurchase agreements outstanding	$	3,694,838		$	3,649,102
Agency MBS collateral, at fair value		3,873,154			3,851,269
Net amount ⁽¹⁾		178,316			202,167
Weighted-average rate		1.33	%		0.96	%
Weighted-average term to maturity	11.9 days			19.3 days

			Weighted-average:
	Notional Amount		Fixed Pay Rate			Variable Receive Rate			Net Receive (Pay) Rate			Remaining Life (Years)		Fair Value
Years to maturity:
Less than 3 years	$	1,300,000		1.26	%		1.32	%		0.06	%		1.7	$	447
3 to less than 7 years		700,000		1.87	%		1.32	%		(0.55	)%		4.1		844
7 to 10 years		1,600,000		1.90	%		1.32	%		(0.58	)%		8.5		1,963
Total / weighted-average	$	3,600,000		1.66	%		1.32	%		(0.34	)%		5.2	$	3,254

	Notional Amount			Weighted-average Strike Price		Implied Strike Rate ⁽¹⁾			Net Fair Value
Purchased put options:
January 2017 expiration	$	950,000			120.8		2.87	%	$	539
February 2017 expiration		700,000			122.6		2.64	%		3,281
Total / weighted average for purchased put options	$	1,650,000			121.6		2.77	%	$	3,820
Sold call options:
January 2017 expiration	$	(100,000	)		126.0		2.25	%	$	(141	)
February 2017 expiration		(900,000	)		126.0		2.24	%		(3,765	)
Total / weighted average for sold call options	$	(1,000,000	)		126.0		2.24	%	$	(3,906	)
Purchased call options:
January 2017 expiration	$	1,000,000			127.1		2.12	%	$	469
									$	383

	Notional Amount		Weighted-average Strike Price		Underlying Agency MBS Coupon			Net Fair Value
Purchased put options:
October 2017 expiration	$	500,000		102.5		4.00	%	$	-
November 2017 expiration		200,000		103.5		4.00	%		8
Total / weighted average for purchased put options	$	700,000		102.8		4.00	%	$	8

	As of September 30, 2017
	Gross Amount Recognized		Amount Offset in the Consolidated Balance Sheets		Net Amount Presented in the Consolidated Balance Sheets		Gross Amount Not Offset in the Consolidated Balance Sheets						Net Amount
							Financial Instruments ⁽¹⁾			Cash Collateral ⁽²⁾
Assets:
Derivative instruments:
Options on U.S. Treasury note futures	$	1	$	—	$	1	$	—		$	—		$	1
U.S. Treasury note futures		820		—		820		—			(820	)		—
Interest rate swaps		3,348		—		3,348		—			(3,348	)		—
Options on agency MBS		8		—		8		—			—			8
Total derivative instruments		4,177		—		4,177		—			(4,168	)		9
Total assets	$	4,177	$	—	$	4,177	$	—		$	(4,168	)	$	9
Liabilities:
Unsettled MBS trades and TBA commitments, net ⁽³⁾	$	7,146	$	—	$	7,146	$	—		$	(5,764	)	$	1,382
Repurchase agreements		3,694,838		—		3,694,838		(3,694,838	)		—			—
Total liabilities	$	3,701,984	$	—	$	3,701,984	$	(3,694,838	)	$	(5,764	)	$	1,382

	As of December 31, 2016
	Gross Amount Recognized		Amount Offset in the Consolidated Balance Sheets			Net Amount Presented in the Consolidated Balance Sheets		Gross Amount Not Offset in the Consolidated Balance Sheets						Net Amount
								Financial Instruments ⁽¹⁾			Cash Collateral ⁽²⁾
Assets:
Derivative instruments:
Options on U.S. Treasury note futures	$	4,289	$	—		$	4,289	$	(3,906	)	$	—		$	383
Interest rate swaps		63,315		—			63,315		(1,949	)		(61,366	)		—
TBA commitments		7,285		—			7,285		—			—			7,285
Total derivative instruments		74,889		—			74,889		(5,855	)		(61,366	)		7,668
Deposits, net		72,516		(61,367	)		11,149		—			—			11,149
Total assets	$	147,405	$	(61,367	)	$	86,038	$	(5,855	)	$	(61,366	)	$	18,817
Liabilities:
Derivative instruments:
Options on U.S. Treasury note futures	$	3,906	$	—		$	3,906	$	(3,906	)	$	—		$	—
Interest rate swaps		1,949		—			1,949		(1,949	)		—			—
TBA commitments		3,699		—			3,699		—			(1,474	)		2,225
Total derivative instruments		9,554		—			9,554		(5,855	)		(1,474	)		2,225
Deposits, net		61,367		(61,367	)		—		—			—			—
Repurchase agreements		3,649,102		—			3,649,102		(3,649,102	)		—			—
Total liabilities	$	3,720,023	$	(61,367	)	$	3,658,656	$	(3,654,957	)	$	(1,474	)	$	2,225

	September 30, 2017			December 31, 2016
Ordinary deferred tax assets:
NOL carry-forward	$	27,121		$	37,238
AMT credit carry-forward		8,952			8,427
Deferred net loss on designated derivatives		6,717			1,386
Stock-based compensation		2,563			2,426
Other, net		137			208
Total ordinary deferred tax assets		45,490			49,685
Ordinary deferred tax liabilities:
Net unrealized gain on designated derivatives		(22,037	)		(25,145	)
Ordinary deferred tax assets, net		23,453			24,540

Capital deferred tax assets:
NCL carry-forward		120,493			120,939
Net unrealized loss on investments		31,951			44,253
Valuation allowance		(152,444	)		(140,903	)
Total capital deferred tax assets, net		—			24,289
Total deferred tax assets, net	$	23,453		$	48,829

Quarter Ended	Dividend Amount		Declaration Date	Record Date	Pay Date
September 30	$	0.550	September 14	September 29	October 31
June 30		0.550	June 16	June 30	July 31
March 31		0.625	March 14	March 31	April 28

Class A Common Stock Issuances	Three Months Ended September 30, 2017		Nine Months Ended September 30, 2017
Shares issued		2,037,348		4,368,837
Weighted average public offering price	$	13.21	$	13.90
Net proceeds ⁽¹⁾	$	26,567	$	59,901

Series B Preferred Stock Issuances	Three Months Ended September 30, 2017		Nine Months Ended September 30, 2017
Shares issued		138,683		159,993
Weighted average public offering price	$	25.03	$	24.95
Net proceeds ⁽¹⁾	$	3,404	$	3,886

	As of March 31, 2017
	As Previously Reported			Adjustment			As Revised
Consolidated Balance Sheets:
Deferred tax assets, net	$	65,149		$	(24,603	)	$	40,546
Total assets		4,720,492			(24,603	)		4,695,889
Accumulated deficit		(1,536,949	)		(24,603	)		(1,561,552	)
Total stockholders' equity		374,481			(24,603	)		349,878
Total liabilities and stockholders' equity		4,720,492			(24,603	)		4,695,889

	As of December 31, 2015
	As Previously Reported			Adjustment			As Revised
Consolidated Balance Sheets:
Deferred tax assets, net	$	97,530		$	(24,603	)	$	72,927
Total assets		4,202,939			(24,603	)		4,178,336
Accumulated deficit		(1,426,655	)		(24,603	)		(1,451,258	)
Total stockholders' equity		484,031			(24,603	)		459,428
Total liabilities and stockholders' equity		4,202,939			(24,603	)		4,178,336

		September 30, 2016			December 31, 2016			March 31, 2017			June 30, 2017			September 30, 2017			Change - Third Quarter 2017

30-Year FNMA Fixed Rate MBS ⁽¹⁾
	3.0%	$	103.98		$	99.20		$	99.23		$	99.83		$	100.27		$	0.44
	3.5%		105.55			102.33			102.36			102.67			103.05			0.38
	4.0%		107.42			104.98			104.95			105.14			105.27			0.13
	4.5%		109.55			107.39			107.30			107.27			107.33			0.06

U.S. Treasury Rates (UST)
2-year UST			0.76	%		1.19	%		1.26	%		1.38	%		1.48	%		0.10	%
3-year UST			0.88	%		1.45	%		1.49	%		1.55	%		1.62	%		0.07	%
5-year UST			1.15	%		1.93	%		1.92	%		1.89	%		1.94	%		0.05	%
7-year UST			1.42	%		2.25	%		2.21	%		2.14	%		2.17	%		0.03	%
10-year UST			1.60	%		2.45	%		2.39	%		2.31	%		2.33	%		0.02	%
2-year UST to 10-year UST spread			0.84	%		1.26	%		1.13	%		0.93	%		0.85	%		(0.08	)%

Interest Rate Swap Rates
2-year swap			1.01	%		1.45	%		1.62	%		1.62	%		1.74	%		0.12	%
3-year swap			1.07	%		1.69	%		1.81	%		1.75	%		1.86	%		0.11	%
5-year swap			1.18	%		1.98	%		2.05	%		1.96	%		2.00	%		0.04	%
7-year swap			1.30	%		2.16	%		2.22	%		2.11	%		2.14	%		0.03	%
10-year swap			1.46	%		2.34	%		2.38	%		2.28	%		2.29	%		0.01	%
2-year swap to 2-year UST spread			0.25	%		0.26	%		0.36	%		0.24	%		0.26	%		0.02	%
10-year swap to 10-year UST spread			(0.14	)%		(0.11	)%		(0.01	)%		(0.03	)%		(0.04	)%		(0.01	)%

London Interbank Offered Rates (LIBOR)
1-month LIBOR			0.53	%		0.77	%		0.98	%		1.22	%		1.23	%		0.01	%
3-month LIBOR			0.85	%		1.00	%		1.15	%		1.30	%		1.33	%		0.03	%

	September 30, 2017		December 31, 2016
Specified agency MBS	$	3,994,515	$	3,909,452
Inverse interest-only agency MBS		—		1,923
Total agency MBS		3,994,515		3,911,375
Net long agency TBA dollar roll positions ⁽¹⁾		1,394,553		720,027
Total agency investment portfolio		5,389,068		4,631,402
Private-label MBS		—		1,173
Private-label interest-only MBS		54		93
Total private-label investment portfolio		54		1,266
Total MBS investment portfolio	$	5,389,122	$	4,632,668

Maturity Date		Notional Amount				Net Fair Value
December 2017		$	350,000			$	820

	Three Months Ended September 30, 2017									Nine Months Ended September 30, 2017
	vs.									vs.
	Three Months Ended September 30, 2016									Nine Months Ended September 30, 2016
	Rate			Volume			Total Change			Rate			Volume			Total Change
Agency MBS	$	2,123		$	2,731		$	4,854		$	2,700		$	14,774		$	17,474
Private-label MBS		(2	)		(1,651	)		(1,653	)		4			(7,359	)		(7,355	)
Other		(20	)		—			(20	)		(239	)		—			(239	)
Short-term secured debt		(6,028	)		(527	)		(6,555	)		(12,856	)		(2,863	)		(15,719	)
	$	(3,927	)	$	553		$	(3,374	)	$	(10,391	)	$	4,552		$	(5,839	)


	Three Months Ended March 31, 2023
	vs.
	Three Months Ended March 31, 2022
	Rate		Volume			Total Change
Agency MBS	$	3,188	$	296		$	3,484
Credit investments		338		1,571			1,909
Mortgage loans of consolidated VIEs		146		(102	)		44
MSR financing receivables		437		866			1,303
Other		—		(146	)		(146	)
Total	$	4,109	$	2,485		$	6,594

	Number of		Percentage of Repurchase
	Counterparties		Agreement Funding
North America		11		71.8	%
Europe		1		7.9	%
Asia		4		20.3	%
		16		100.0	%

	September 30, 2017
	Notional		Net Fair		Collateral
	Amount		Value		Deposit
Interest rate swaps ⁽¹⁾	$	3,850,000	$	3,348	$	49,518
U.S. Treasury note futures and options on U.S. Treasury note futures		500,000		821		4,035


	March 31, 2023
				Value with			Value with
				10 Basis Point			10 Basis Point
				Increase in			Decrease In
				Agency MBS			Agency MBS
	Value			Spreads			Spreads
Agency MBS	$	460,984		$	458,317		$	463,651
TBA commitments		(10,614	)		(8,369	)		(12,860	)
Equity available to common stock (1)		181,725			181,304			182,146
Equity available to common stock percent change					(0.23	)%		0.23	%


Exhibit Number		Exhibit Title

3.01		Amended and Restated Articles of Incorporation, as amended (incorporated by reference to Exhibit 3.1 to the ~~Registrant’s~~Company’s Quarterly Report on Form 10-Q filed on November 9, 2009).

3.02		Articles of Amendment to the Amended and Restated Articles of Incorporation designating the shares of 7.00% Series B Cumulative Perpetual Redeemable Preferred Stock, $0.01 par value per share (incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form 8-A filed on May 9, 2017).

3.03		Articles of Amendment to the Amended and Restated ~~Bylaws, as amended~~Articles of Incorporation of Arlington Asset Investment Corp. designating the Company’s 8.250% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, par value $0.01 per share (incorporated by reference to Exhibit 3.3 to the Company’s Registration Statement on Form 8-A filed on March 11, 2019).



3.04		Articles of Amendment to the Amended and Restated Articles of Incorporation of Arlington Asset Investment Corp. (incorporated by reference to Exhibit 3.1 to the ~~Registrant’s~~Company’s Current Report on Form 8-K filed on ~~July 28, 2011)~~June 25, 2019).

~~3.04~~3.05		~~Amendment No. 1 to the~~ Amended and Restated Bylaws (incorporated by reference to Exhibit ~~3.1~~3.05 to the ~~Registrant’s Current~~Company's Quarterly Report on Form ~~8-K~~10-Q filed on ~~February 4, 2015)~~November 14, 2022).

~~3.05~~4.01		~~Amendment No. 2 to the Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on October 26, 2016).~~

Exhibit Number		~~Exhibit Title~~
~~4.01~~		~~Form of~~ Indenture governing the Senior Debt Securities by and between the Company and The Bank of New York Mellon, as Trustee (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-3 (File No. ~~333-215384)~~333-235885) filed on ~~December 30, 2016)~~January 10, 2020).

4.02		~~Form of~~ Indenture governing the Subordinated Debt Securities by and between the Company and The Bank of New York Mellon, as Trustee (incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on Form S-3 (File No. ~~333-215384)~~333-235885) filed on ~~December 30, 2016)~~January 10, 2020).

4.03		Indenture dated as of May 1, 2013 between the Company and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed on May 1, 2013).

4.04		First Supplemental Indenture dated as of May 1, 2013 between the Company and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.2 of the Company’s Current Report on Form 8-K filed on May 1, 2013).

4.05		Form of Senior ~~Note (incorporated by reference to Exhibit 4.5 to the Company’s Registration Statement on Form S-3 (File No. 333-215384) filed on December 30, 2016).~~

~~4.06~~		~~Form of Subordinated Note~~Note. (incorporated by reference to Exhibit 4.6 to the Company’s Registration Statement on Form S-3 (File No. ~~333-215384)~~333-235885) filed on ~~December 30, 2016)~~January 10, 2020).

~~4.07~~4.06		Form of ~~6.625% Senior Notes due 2023~~Subordinated Note. (incorporated by reference to Exhibit ~~4.3~~4.7 to ~~Current Report~~the Company’s Registration Statement on Form ~~8-K~~S-3 (File No. 333-235885) filed ~~by the Company~~ on ~~May 1, 2013)~~January 10, 2020).

~~4.08~~4.07		Form of Certificate for Class A common stock (incorporated by reference to Exhibit 4.01 of the Annual Report on Form 10-K filed with the SEC on February 24, 2010).

~~4.09~~4.08		Shareholder Rights Agreement, dated June 5, 2009 (incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K filed with the SEC on June 5, 2009).

4.09		First Amendment to Shareholder Rights Agreement, dated as of April 13, 2018 (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed on April 13, 2018).

4.10		Second Supplemental Indenture, dated as of March 18, 2015, between the Company, Wells Fargo Bank, National Association, as Trustee and The Bank of New York Mellon, as Series Trustee (incorporated by reference to Exhibit 4.3 to the Company’s Form 8-A filed on March 18, 2015).

4.11		Form of 6.750% Notes due 2025 (incorporated by reference to Exhibit 4.3 to the Current Report on Form 8-K filed by the Company on March 17, 2015).

4.12		Form of specimen certificate representing the shares of 7.00% Series B Perpetual Redeemable Preferred Stock (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement ofon Form 8-A filed on May 9, 2017).

~~10.01~~4.13		~~Equity Distribution Agreement, dated May 16, 2017, by and between~~Form of specimen certificate representing the ~~Company and JonesTrading Institutional Services LLC~~shares of 8.250% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock (incorporated by reference to Exhibit ~~1.1~~4.1 to the Company’s Registration Statement on Form 8-A filed on March 11, 2019).

4.14		First Supplemental Indenture dated as of July 15, 2021 between the Company and The Bank of New York Mellon, as trustee (incorporated by reference to Exhibit 4.5 to the Company’s Registration Statement on Form 8-A filed on July 15, 2021).

4.15		Form of 6.000% Senior Notes Due 2026 (incorporated by reference to Exhibit 4.6 to the Company’s Registration Statement on Form 8-A filed on July 15, 2021).

4.16		Second Amendment to Shareholder Rights Agreement, dated as of April 11, 2022 (incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K filed on ~~May 17, 2017)~~April 12, 2022).

~~12.01~~ 31.01		Computation of Ratio of Earnings to Fixed Charges and Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends.*

~~31.01~~		Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

31.02		Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*


32.01		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**

32.02		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**

101.INS		INSTANCE DOCUMENTInline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.**

101.SCH		SCHEMA DOCUMENTInline XBRL Taxonomy Extension Schema Document**

101.CAL		CALCULATION LINKBASE DOCUMENTInline XBRL Taxonomy Extension Calculation Linkbase Document**

~~101.LAB~~101.DEF		LABELS LINKBASE DOCUMENTInline XBRL Taxonomy Extension Definition Linkbase Document**

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