v3.26.1
Derivative Instruments
 6 Months Ended
Jun. 30, 2026
Derivative Instruments [Abstract]  
Derivative Instruments
Note 7 — Derivative Instruments

Interest Rate Swap Agreements, Swaptions, 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 8.


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

Derivatives
  
June 30, 2026
    
December 31, 2025
  
Notional amount of interest rate swaps
  
$
767,300
    
$
828,700
  
Notional amount of TBAs, net
    
(266,935
)
    
(409,475
)
Notional amount of U.S. treasury futures
    
28,400
      
19,500
  
Notional amount of Eris SOFR swap futures
     (82,000 )     (16,800 )
Total notional amount
  
$
446,765
    
$
421,925
  


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
 
June 30, 2026
  
$
767,300
    
$
-
      
1.72
%
    
3.79
%
    
3.2
  
December 31, 2025
  
$
828,700
    
$
12,154
      
1.76
%
    
3.95
%
    
3.1
  

(A)
Includes $651.3 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 3.4 years and 2.0 years, respectively, as of June 30, 2026. 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.

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

As of June 30, 2026

Maturity
  
Notional Amount - Long
    
Notional Amount - Short
    
Fair Value
  
5 years
  
$
-
     $ (19,000 )  
$
(71
)
7 years
    
-
      
(59,400
)
    
(410
)
10 years     -       (3,600 )     (24 )
Total
  
$
-
    
$
(82,000
)
  
$
(505
)

As of December 31, 2025

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


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


As of June 30, 2026

Purchase and sale contracts for derivative TBAs
 
Notional
    
Cost Basis
    
Fair Value
    
Net Carrying Value
  
Purchase contracts
  
$
431,125
    
$
429,155
    
$
430,279
    
$
1,124
  
Sale contracts
    
(698,060
)
    
(691,443
)
    
(693,288
)
    
(1,845
)
Net TBA derivatives
  
$
(266,935
)
  
$
(262,288
)
  
$
(263,009
)
  
$
(721
)

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
)


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

As of June 30, 2026

Maturity
  
Notional Amount - Long
    
Notional Amount - Short
    
Fair Value
  
5 years   $
111,500     $ -     $ 59  
10 years (A)
    
16,600
      
(99,700
)
    
(950
)
Total
  
$
128,100
    
$
(99,700
)
  
$
(891
)

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
  

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


The Company did not have any U.S. Treasury futures options at June 30, 2026 and December 31, 2025.


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):

 
  
Three Months Ended June 30,
    
Six Months Ended June 30,
  
Derivatives
  
2026
    
2025
    
2026
    
2025
  
Interest rate swaps(A)   $ -     $ (1,167 )   $ -     $ (1,167 )
TBAs
    
5,050
      
7,321
      
2,034
      
7,295
  
U.S. Treasury futures
    
1,824
      
4,072
      
1,030
      
2,227
  
U.S. Treasury futures options     -       -       -       33  
Eris SOFR swap futures
     1,525       -       1,456       -  
Total
  
$
8,399
    
$
10,226
    
$
4,520
    
$
8,388
  

(A)
Excludes interest rate swap periodic interest income of $3.7 million and $4.6 million, for the three-month periods ended June 30, 2026 and June 30, 2025, respectively and $7.5 million and $11.1 million, for the six-month periods ended June 30, 2026 and June 30, 2025, 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):


 
Three Months Ended June 30,
     Six Months Ended June 30,  
Derivatives
  
2026
    
2025
     2026
     2025
  
Interest rate swaps
  
$
22
    
$
(6,072
)
   $ (717 )   $ (19,714 )
TBAs
    
(6,100
)
    
(9,622
)
     356       (18,140 )
U.S. Treasury futures
    
(2,389
)
    
(3,453
)
     (2,260 )     (4,001 )
U.S. Treasury futures options
     -       -       -       (33 )
Eris SOFR swap futures
     (832 )     -       (557 )     -  
Total
  
$
(9,299
)
  
$
(19,147
)
   $ (3,178 )   $ (41,888 )

Offsetting Assets and Liabilities


Certain of the Company’s repurchase agreements are governed by underlying agreements that provide for a right of setoff in the event of default by either party to the agreement. The Company presents repurchase transactions in this section even though they are not derivatives because they are subject to master netting arrangements. The Company also 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. We present our assets and liabilities subject to such arrangements on a gross basis in our consolidated balance sheets.


Under U.S. GAAP, if the Company has a valid right of setoff, it may offset the related asset and liability and report the net amount. The Company’s centrally cleared interest rate swaps require that the Company post an “initial margin” amount determined by the clearing exchange, which is generally intended to be set at a level sufficient to protect the exchange from the interest rate swap’s maximum estimated single-day price movement. The Company also exchanges “variation margin” based upon daily changes in fair value, as measured by the exchange. As a result of amendments to rules governing certain central clearing activities, the exchange of variation margin is a settlement of the interest rate swap, as opposed to pledged collateral. The Company has accounted for the receipt or payment of variation margin on interest rate swaps as a direct reduction or increase to the carrying value of the interest rate swap asset or liability. The receipt or payment of initial margin is accounted for separate from the derivative asset or liability.


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 June 30, 2026

             
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
                                    
TBAs
  
$
1,490
    
$
-
    
$
1,490
    
$
(1,490
)
  
$
-
    
$
-
  
U.S. treasury futures
     132       -       132       (132 )     -       -  
Total Assets
  
$
1,622
    
$
-
    
$
1,622
    
$
(1,622
)
  
$
-
    
$
-
  
                                                 
Liabilities
                                               
Repurchase agreements
   $ (1,008,738 )   $ -     $ (1,008,738 )   $ 1,008,738     $ -     $ -  
TBAs 
    (2,211 )     -       (2,211 )     1,490       701       (20 )
Eris SOFR swap futures
    (505 )     -       (505 )     -       -       (505 )
U.S. treasury futures
     (1,023 )     -       (1,023 )     132       891       -  
Total Liabilities
   $ (1,012,477 )   $ -     $ (1,012,477 )   $ 1,010,360     $ 1,592     $ (525 )

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 )

(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.