v3.25.4
Derivative Instruments
 12 Months Ended
Dec. 31, 2025
Derivative Instruments [Abstract]  
Derivative Instruments
Note 8 — Derivative Instruments

Interest Rate Swap Agreements, Swaptions, Eris SOFR swap futures, TBAs and U.S. Treasury Futures


In order to help mitigate exposure to higher short-term interest rates in connection with borrowings under its repurchase agreements, the Company enters into interest rate swap agreements, Eris SOFR swap futures and swaption agreements. Interest rate swap agreements establish an economic fixed rate on related borrowings because the variable-rate payments received on the interest rate swap agreements largely offset interest accruing on the related borrowings, leaving the fixed-rate payments to be paid on the interest rate swap agreements as the Company’s effective borrowing rate, subject to certain adjustments including changes in spreads between variable rates on the interest rate swap agreements and actual borrowing rates. A swaption is an option granting its owner the right but not the obligation to enter into an underlying swap. Eris SOFR swap futures are exchange-traded contracts that mirror the economics of an interest rate swap, where one party pays a fixed rate and the other pays a floating rate based on the SOFR. Eris SOFR swap futures are marked-to-market daily, with prices published by the CME Group. The Company’s interest rate swap agreements, Eris SOFR swap futures, TBAs and swaptions have not been designated as qualifying hedging instruments for GAAP purposes.


In order to help mitigate duration risk and manage basis risk and the pricing risk under the Company’s financing facilities, the Company utilizes U.S. Treasury futures and forward-settling purchases and sales of RMBS where the underlying pools of mortgage loans are TBAs. Pursuant to these TBA transactions, the Company agrees to purchase or sell, for future delivery, Agency RMBS with certain principal and interest terms and certain types of underlying collateral, but the particular Agency RMBS to be delivered is not identified until shortly before the TBA settlement date. Unless otherwise indicated, references to U.S. Treasury futures include options on U.S. Treasury futures.



For discussion on the fair value measurements of the derivative instruments, see Note 9.



The following table summarizes the outstanding notional amounts of derivative instruments as of the dates indicated (dollars in thousands):

Derivatives
  
December 31, 2025
    
December 31, 2024
  
Notional amount of interest rate swaps
  
$
828,700
    
$
1,171,750
  
Notional amount of TBAs, net
    
(409,475
)
    
(435,575
)
Notional amount of U.S. treasury futures
    
19,500
      
73,100
  
Notional amount of Eris SOFR swap futures
     (16,800 )     -  
Total notional amount
  
$
421,925
    
$
809,275
  


Cash flow activity related to derivative instruments is reflected within the operating activities, investing activities and financing activities sections of the consolidated statements of cash flows. Realized gains and losses are reflected within the realized gain (loss) on derivatives, net line item and derivative fair value adjustments are reflected within the unrealized (gain) loss on derivatives, net line item within the operating activities section of the consolidated statements of cash flows. The remaining cash flow activity related to derivative instruments is reflected within the proceeds from (payments for) settlement of derivatives line item of the investing activities section and the proceeds from derivative financing line item within the financing activities section of the consolidated statements of cash flows.


The following table presents information about the Company’s interest rate swap agreements as of the dates indicated (dollars in thousands):

 
Notional Amount(A)
    
Fair Value
    
Weighted Average
Pay Rate
    
Weighted Average
Receive Rate
    
Weighted Average
Years to Maturity
  
December 31, 2025
  
$
828,700
     $
12,154
      
1.76
%
    
3.95
%
    
3.1
  
December 31, 2024
   $
1,171,750
     $
13,375
      
1.84
%
    
4.64
%
    
3.1
  
 
(A)
Includes $712.7 million notional of receive SOFR and pay fixed of 1.4% and $116.0 million notional of receive fixed of 3.4% and pay SOFR with weighted average maturities of 3.2 years and 2.5 years, respectively, as of December 31, 2025. Includes $907.8 million notional of receive SOFR and pay fixed of 1.1% and $264.0 million notional of receive fixed of 4.5% and pay SOFR with weighted average maturities of 3.6 years and 1.6 years, respectively, as of December 31, 2024.


The following table presents information about the Company’s Eris SOFR swap futures as of the dates indicated (dollars in thousands):

Maturity
  
Notional Amount - Long
   
Notional Amount - Short
   
Fair Value
  
7 years   $ -     $ (16,800 )   $ 36  
Total
  
$
-
    
$
(16,800
)
   $ 36  

The Company did not have any Eris SOFR swap futures at December 31, 2024.


The following tables present information about the Company’s TBA derivatives as of the dates indicated (dollars in thousands):

As of December 31, 2025

Purchase and sale contracts for derivative TBAs
 
Notional
    
Cost Basis
    
Fair Value
    
Net Carrying Value
  
Purchase contracts
  
$
193,125
    
$
193,318
    
$
193,942
    
$
624
  
Sale contracts
     (602,600 )
    
(600,954
)
    
(602,654
)
    
(1,700
)
Net TBA derivatives
   $ (409,475 )
  
$
(407,636
)
  
$
(408,712
)
  
$
(1,076
)

As of December 31, 2024

Purchase and sale contracts for derivative TBAs
  
Notional
    
Cost Basis
    
Fair Value
    
Net Carrying Value
  
Purchase contracts
  
$
234,625
    
$
238,096
    
$
237,021
    
$
(1,074
)
Sale contracts
    
(670,200
)
    
(647,844
)
    
(636,337
)
    
11,508
  
Net TBA derivatives
  
$
(435,575
)
  
$
(409,748
)
  
$
(399,316
)
  
$
10,434
  


The following tables present information about the Company’s U.S. Treasury futures agreements as of the dates indicated (dollars in thousands):

As of December 31, 2025

Maturity
  
Notional Amount - Long
   
Notional Amount - Short
    
Fair Value
  
5 years   $ 171,200     $ -     $ (655 )
10 years (A)     -       (151,700 )
    2,023  
Total
  
$
171,200
    
$
(151,700
 )
 
$
1,368
  

As of December 31, 2024

Maturity
  
Notional Amount - Long
   
Notional Amount - Short
    
Fair Value
  
2 years
  
$
108,600
    
$
-
    
$
(78
)
5 years
    169,500       -       (1,226 )
10 years (A)
    -       (205,000 )     3,641  
Total
  
$
278,100
    
$
(205,000
)
  
$
2,337
  

(A)
Includes 10-year Ultra futures and Long Bond futures contracts.


The Company did not have any U.S. Treasury futures options at December 31, 2025. The following table present information about the Company’s U.S. Treasury future options as of the dates indicated (dollars in thousands):

As of December 31, 2024
 
Maturity
  
Notional Amount - Long
   
Notional Amount - Short
   
Fair Value
  
10 years
  
$
60,000
    
$
(60,000
)
  
$
33
  
Total
  
$
60,000
    
$
(60,000
)
  
$
33
  


The following table presents information about realized gain (loss) on derivatives, which is included on the consolidated statements of income (loss) for the periods indicated (dollars in thousands):
 
 
Year Ended December 31,
  
Derivatives
  
2025
    
2024
    
2023
  
Interest rate swaps (A)
  
$
(1,160
)
  
$
4,325
    
$
(4,896
)
TBAs
    
(9,825
)
    
(11,615
)
    
13,059
  
U.S. Treasury futures
    
(2,238
)
    
(4,953
)
    
(8,992
)
U.S. Treasury futures options
    
(43
)
    
(56
)
    
(337
)
Eris SOFR swap futures
     68       -       -  
Total
  
$
(13,198
)
  
$
(12,299
)
  
$
(1,166
)

(A)
Excludes interest rate swap periodic interest income of $20.2 million, $33.6 million and $35.0 million, for the years ended December 31, 2025, December 31, 2024 and December 31, 2023, respectively.


The following table presents information about unrealized gain (loss) on derivatives, which is included on the consolidated statements of income (loss) for the periods indicated (dollars in thousands):


  
Year Ended December 31,
  
Derivatives
  
2025
    
2024
    
2023
  
Interest rate swaps
  
$
(27,291
)
  
$
(16,811
)
  
$
(24,186
)
TBAs
    
(11,510
)
    
22,600
      
(16,382
)
U.S. Treasury futures
    
(968
)
    
3,988
      
(2,269
)
U.S. Treasury futures options
    
(33
)
    
32
      
(234
)
Eris SOFR swap futures
     35       -       -  
Total
  
$
(39,767
)
  
$
9,809
    
$
(43,071
)

Offsetting Assets and Liabilities


The Company has netting arrangements in place with all of its derivative counterparties pursuant to standard documentation developed by the International Swaps and Derivatives Association and the SIFMA. Under GAAP, if the Company has a valid right of offset, it may offset the related asset and liability and report the net amount. The Company presents interest rate swaps assets and liabilities on a gross basis in its consolidated balance sheets, net of variation margin. The Company presents TBA, Eris SOFR swap futures and U.S. Treasury futures assets and liabilities on a net basis in its consolidated balance sheets. The Company presents repurchase agreements in this section even though they are not derivatives because they are subject to master netting arrangements. However, repurchase agreements are presented on a gross basis. Additionally, the Company does not offset financial assets and liabilities with the associated cash collateral on the consolidated balance sheets.


The following tables present information about the Company’s assets and liabilities that are subject to master netting arrangements or similar agreements and can potentially be offset on the Company’s consolidated balance sheets as of the dates indicated (dollars in thousands):


Offsetting Assets and Liabilities

As of December 31, 2025

               
Net Amounts
of Assets and
    
Gross Amounts Not Offset in the
Consolidated Balance Sheet
        
 
 
  
Gross
Amounts of
Recognized
Assets or
Liabilities
    
Gross
Amounts
Offset in the
Consolidated
Balance Sheet
    
Liabilities
Presented in
the
Consolidated
Balance Sheet
    
Financial
Instruments
    
Cash
Collateral
Received/
Pledged (A)
    
Net Amount
  
Assets
                                    
Interest rate swaps
  
$
47,642
    
$
(34,289
)
  
$
13,353
    
$
(1,199
)
  
$
-
    
$
12,154
  
TBAs
    
650
      
(650
)
    
-
      
-
      
-
      
-
  
U.S. treasury futures
    
1,368
      
-
      
1,368
      
-
      
(1,368
 )
    -  
Eris SOFR swap futures
     36       -       36       -       -       36  
Total Assets
  
$
49,696
    
$
(34,939
)
  
$
14,757
    
$
(1,199
)
  
$
(1,368
 )
 
$
12,190
  

Liabilities
                                    
Repurchase agreements
  
$
(1,137,200
)
  
$
-
    
$
(1,137,200
)
  
$
1,137,200
     $ -    
$
-
  
Interest rate swaps
    
(1,199
)
    
-
      
(1,199
)
    
1,199
      
-
      
-
  
TBAs
    
(1,726
)
    
650
      
(1,076
)
    
-
      
312
      
(764
)
Total Liabilities
  
$
(1,140,125
)
  
$
650
    
$
(1,139,475
)
  
$
1,138,399
    
$
312
    
$
(764
)

As of December 31, 2024

             
Net Amounts
of Assets and
    
Gross Amounts Not Offset in the
Consolidated Balance Sheet
        
 
 
  
Gross
Amounts of
Recognized
Assets or
Liabilities
    
Gross
Amounts
Offset in the
Consolidated
Balance Sheet
    
Liabilities
Presented in
the
Consolidated
Balance Sheet
    
Financial
Instruments
    
Cash
Collateral
Received/
Pledged (A)
    
Net Amount
  
Assets
                                    
Interest rate swaps
  
$
17,244
    
$
-
    
$
17,244
    
$
(17,244
 )  
$
-
    
$
-
  
TBAs
    
11,508
      
(1,074
 )    
10,434
      
(1,125
 )    
(9,309
 )    
-
  
U.S. Treasury futures
     3,641       (1,304 )     2,337       (6,683 )     4,346       -  
U.S. Treasury futures options
     33       -       33       (33 )     -       -  
Total Assets
  
$
32,426
    
$
(2,378
 )  
$
30,048
    
$
(25,085
 )  
$
(4,963
 )  
$
-
  

Liabilities
                                    
Repurchase agreements
  
$
(1,077,257
 )
 
$
-
    
$
(1,077,257
 )  
$
1,057,157
     $ 20,100    
$
-
  
Interest rate swaps
    
(3,869
 )
   
-
      
(3,869
 )    
3,869
      
-
      
-
  
TBAs
    
(1,074
 )
   
1,074
      
-
      
-
      
-
      
-
  
U.S. Treasury futures
    (1,304 )
    1,304       -       -       -       -  
Total Liabilities
  
$
(1,083,504
 )  
$
2,378
    
$
(1,081,126
 )  
$
1,061,026
    
$
20,100
    
$
-
  
 
(A)
Includes cash pledged / received as collateral. Amounts presented are limited to collateral pledged sufficient to reduce the net amount to zero for individual counterparties, as applicable. Excess cash collateral or financial assets that are pledged to counterparties may exceed the financial liabilities subject to a master netting arrangement or similar agreement, or counterparties may have pledged excess cash collateral to the Company that exceed the corresponding financial assets. These excess amounts are excluded from the table above, although separately reported within restricted cash or accrued expenses and other liabilities in the Company’s consolidated balance sheets.