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Note 5 - Derivative and Other Hedging Instruments | 12 Months Ended
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Dec. 31, 2025
Notes to Financial Statements |
Derivative Instruments and Hedging Activities Disclosure [Text Block] | NOTE 5. DERIVATIVE AND OTHER HEDGING INSTRUMENTS The table below summarizes fair value information about the Company's derivative and other hedging instruments assets and liabilities as of December 31, 2025 and 2024.
(in thousands) |  |  |  |  |  |  |  |  |
Derivative and Other Hedging Instruments | Balance Sheet Location |  | December 31, 2025 |  |  | December 31, 2024 |
Assets |  |  |  |  |  |  |  |  |
Interest rate swaps | Derivative assets, at fair value |  | $ | 8,237 |  |  | $ | 4,574 |
TBA securities | Derivative assets, at fair value |  |  | 1,015 |  |  |  | 4,703 |
Total derivative assets, at fair value |  | $ | 9,252 |  |  | $ | 9,277 |
Liabilities |  |  |  |  |  |  |  |  |
TBA securities | Derivative liabilities, at fair value |  | $ | 1,846 |  |  | $ | 332 |
Total derivative liabilities, at fair value |  | $ | 1,846 |  |  | $ | 332 |
Margin Balances Posted to (from) Counterparties |  |  |  |  |  |  |  |  |
Futures contracts | Restricted cash |  | $ | 5,131 |  |  | $ | 2,625 |
TBA securities | Restricted cash |  |  | 2,394 |  |  |  | 280 |
TBA securities | Other liabilities |  |  | (360 | ) |  |  | (4,282 | )
Total margin balances on derivative contracts |  | $ | 7,165 |  |  | $ | (1,377 | )
T-Note and SOFR futures are cash and securities settled futures contracts on their respective underlying or delivery eligible underlying U.S. Treasury security, with gains and losses credited or charged to the Company’s cash accounts on a daily basis. A minimum balance, or “margin”, is required to be maintained in the account on a daily basis. The tables below present information related to the Company’s T-Note and SOFR futures positions as of December 31, 2025 and 2024.
($ in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | December 31, 2025 |
|  | Average |  |  | Weighted |  |  | Weighted |  |  |  |  |
|  | Contract |  |  | Average |  |  | Average |  |  |  |  |
|  | Notional |  |  | Entry |  |  | Effective |  |  | Open |
Expiration Year |  | Amount |  |  | Rate |  |  | Rate |  |  | Equity(1) |
U.S. Treasury Note Futures Contracts (Short Positions)(2) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
March 2026 5-year T-Note futures (Mar 2026 - Mar 2031 Hedge Period) |  | $ | 122,500 |  |  |  | 3.65 | % |  |  | 3.65 | % |  | $ | 10 |
March 2026 10-year T-Note futures (Mar 2026 - Mar 2036 Hedge Period) |  |  | 90,000 |  |  |  | 3.79 | % |  |  | 3.91 | % |  |  | 739 |
March 2026 10-year Ultra futures (Mar 2026 - Mar 2036 Hedge Period) |  |  | 60,000 |  |  |  | 4.03 | % |  |  | 4.14 | % |  |  | 575 |
SOFR Futures Contracts (Short Positions) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
March 2026 3-Month SOFR futures (Dec 2025 - Mar 2026 Hedge Period) |  | $ | 97,500 |  |  |  | 3.73 | % |  |  | 3.69 | % |  | $ | (44 | )
June 2026 3-Month SOFR futures (Mar 2026 - Jun 2026 Hedge Period) |  |  | 97,500 |  |  |  | 3.55 | % |  |  | 3.52 | % |  |  | (33 | )
September 2026 3-Month SOFR futures (Jun 2026 - Sep 2026 Hedge Period) |  |  | 97,500 |  |  |  | 3.38 | % |  |  | 3.31 | % |  |  | (66 | )
December 2026 3-Month SOFR futures (Sep 2026 - Dec 2026 Hedge Period) |  |  | 97,500 |  |  |  | 3.27 | % |  |  | 3.16 | % |  |  | (111 | )
March 2027 3-Month SOFR futures (Dec 2026 - Mar 2027 Hedge Period) |  |  | 97,500 |  |  |  | 3.22 | % |  |  | 3.11 | % |  |  | (105 | )
June 2027 3-Month SOFR futures (Mar 2027 - Jun 2027 Hedge Period) |  |  | 97,500 |  |  |  | 3.21 | % |  |  | 3.11 | % |  |  | (90 | )
ERIS SOFR Swap Futures Contracts (Short Positions)(3) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
March 2026 5-Year Term, 3.75% fixed rate (Mar 2026 - Mar 2031 Hedge Period) |  | $ | 10,000 |  |  |  | 3.48 | % |  |  | 3.45 | % |  | $ | (13 | )
($ in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | December 31, 2024 |
|  | Average |  |  | Weighted |  |  | Weighted |  |  |  |  |
|  | Contract |  |  | Average |  |  | Average |  |  |  |  |
|  | Notional |  |  | Entry |  |  | Effective |  |  | Open |
Expiration Year |  | Amount |  |  | Rate |  |  | Rate |  |  | Equity(1) |
U.S. Treasury Note Futures Contracts (Short Positions)(2) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
March 2025 5-year T-Note futures (Mar 2025 - Mar 2030 Hedge Period) |  | $ | 312,500 |  |  |  | 4.22 | % |  |  | 4.37 | % |  | $ | 1,890 |
March 2025 10-year T-Note futures (Mar 2025 - Mar 2035 Hedge Period) |  |  | 93,500 |  |  |  | 4.30 | % |  |  | 4.49 | % |  |  | 1,119 |
March 2024 10-year Ultra futures (Mar 2025 - Mar 2035 Hedge Period) |  |  | 32,500 |  |  |  | 4.25 | % |  |  | 4.58 | % |  |  | 914 |
(1) | Open equity represents the cumulative gains (losses) recorded on open futures positions from inception.
(2) | 5-Year T-Note futures contracts were valued at a price of $109.30 as of December 31, 2025 and $106.30 as of December 31, 2024. The contract values of the short positions were $133.9 million and $332.2 million as of December 31, 2025 and 2024, respectively. 10-Year T-Note futures contracts were valued at a price of $112.44 as of December 31, 2025 and $108.75 as of December 31, 2024.. The contract values of the short positions were $101.2 million and $101.7 million as of December 31, 2025 and 2024, respectively. 10-Year Ultra futures contracts were valued at price of $115.02 as of December 31, 2025 and $111.31 as of December 31, 2024. The contract value of the short positions was $69.0 million and $36.2 million as of December 31, 2025 and 2024, respectively.
(3) | ERIS swap futures are exchange traded futures that replicate the cash flows of an underlying swap position.
Under its interest rate swap agreements, the Company typically pays a fixed rate and receives a floating rate ("payer swaps") based on an index, such as SOFR. The floating rate the Company receives under its swap agreements has the effect of offsetting the repricing characteristics of its repurchase agreements and cash flows on such liabilities. The Company is typically required to post margin on its interest rate swap agreements. The table below presents information related to the Company’s interest rate swap positions as of December 31, 2025 and 2024.
($ in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  |  |  |  |  | Average |  |  |  |  |  |  |  |  |
|  |  |  |  |  | Fixed |  |  | Average |  |  | Average |
|  | Notional |  |  | Pay |  |  | Receive |  |  | Maturity |
|  | Amount |  |  | Rate |  |  | Rate |  |  | (Years) |
December 31, 2025 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Expiration > 1 to ≤ 5 years |  | $ | 4,162,500 |  |  |  | 3.38 | % |  |  | 3.87 | % |  |  | 3.2 |
Expiration > 5 years |  |  | 1,695,800 |  |  |  | 3.87 | % |  |  | 3.87 | % |  |  | 7.1 |
|  | $ | 5,858,300 |  |  |  | 3.53 | % |  |  | 3.87 | % |  |  | 4.3 |
December 31, 2024 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Expiration > 1 to ≤ 5 years |  | $ | 1,450,000 |  |  |  | 1.69 | % |  |  | 4.58 | % |  |  | 3.4 |
Expiration > 5 years |  |  | 2,066,800 |  |  |  | 3.55 | % |  |  | 4.52 | % |  |  | 7.0 |
|  | $ | 3,516,800 |  |  |  | 2.78 | % |  |  | 4.54 | % |  |  | 5.5 |
Our interest rate swaps are centrally cleared through two registered commodities exchanges, the Chicago Mercantile Exchange ("CME") and the London Clearing House (“LCH”). The clearing exchanges require that we post an "initial margin" amount determined by the exchanges. The initial margin amount is intended to be set at a level sufficient to protect the exchange from the interest rate swap's maximum estimated single-day price movement and is subject to adjustment based on changes in market volatility and other factors. We also exchange daily settlements of "variation margin" based upon changes in fair value, as measured by the exchanges. The following table summarizes the Company's contracts to purchase and sell TBA securities as of December 31, 2025 and 2024.
($ in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Notional |  |  |  |  |  |  |  |  |  |  |  |
|  | Amount |  |  |  |  |  |  |  |  |  |  | Net |
|  | Long |  |  | Cost |  |  | Market |  |  | Carrying |
|  | (Short)(1) |  |  | Basis(2) |  |  | Value(3) |  |  | Value(4) |
December 31, 2025 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
15-Year TBA securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
4.5% |  | $ | 250,000 |  |  | $ | 249,998 |  |  | $ | 250,186 |  |  | $ | 188 |
30-Year TBA securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
3%(5) |  |  | - |  |  |  | (343 | ) |  |  | - |  |  |  | 343 |
3.5%(5) |  |  | - |  |  |  | 34 |  |  |  | - |  |  |  | (34 | )
4%(5) |  |  | - |  |  |  | (215 | ) |  |  | - |  |  |  | 215 |
5%(5) |  |  | - |  |  |  | 218 |  |  |  | - |  |  |  | (218 | )
5.5% |  |  | (275,000 | ) |  |  | (277,696 | ) |  |  | (278,996 | ) |  |  | (1,300 | )
6.5% |  |  | (155,000 | ) |  |  | (161,103 | ) |  |  | (161,127 | ) |  |  | (24 | )
Total |  | $ | (180,000 | ) |  | $ | (189,107 | ) |  | $ | (189,937 | ) |  | $ | (830 | )
December 31, 2024 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
15-Year TBA securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
5.0% |  | $ | 50,000 |  |  | $ | 50,074 |  |  | $ | 49,742 |  |  | $ | (332 | )
30-Year TBA securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
3.0% |  |  | (200,000 | ) |  |  | (174,406 | ) |  |  | (169,703 | ) |  |  | 4,703 |
Total |  | $ | (150,000 | ) |  | $ | (124,332 | ) |  | $ | (119,961 | ) |  | $ | 4,371 |
(1) | Notional amount represents the par value (or principal balance) of the underlying Agency RMBS.
(2) | Cost basis represents the forward price to be paid (received) for the underlying Agency RMBS.
(3) | Market value represents the current market value of the TBA securities (or of the underlying Agency RMBS) as of period-end.
(4) | Net carrying value represents the difference between the market value and the cost basis of the TBA securities as of period-end and is reported in derivative assets (liabilities), at fair value in the balance sheets.
(5) | The Company has entered into offsetting long and short positions for these coupons.
Gain (Loss) From Derivative and Other Hedging Instruments, Net The table below presents the effect of the Company’s derivative and other hedging instruments on the statements of comprehensive income (loss) for the years ended December 31, 2025, 2024 and 2023.
(in thousands) |  |  |  |  |  |  |  |  |  |  |  |
|  | 2025 |  |  | 2024 |  |  | 2023 |
Futures contracts (short positions) |  | $ | (30,282 | ) |  |  | 26,638 |  |  |  | 32,650 |
Interest rate swaps |  |  | (81,687 | ) |  |  | 101,151 |  |  |  | 19,657 |
Payer swaptions (long positions) |  |  | - |  |  |  | (72 | ) |  |  | (8,734 | )
Payer swaptions (short positions) |  |  | - |  |  |  | - |  |  |  | 4,113 |
Interest rate caps |  |  | - |  |  |  | - |  |  |  | (219 | )
Dual digital option |  |  | - |  |  |  | (500 | ) |  |  | - |
Interest rate floors (long positions) |  |  | - |  |  |  | - |  |  |  | 1,785 |
Interest rate floors (short positions) |  |  | - |  |  |  | - |  |  |  | (525 | )
TBA securities (short positions) |  |  | (12,289 | ) |  |  | 6,567 |  |  |  | 1,370 |
TBA securities (long positions) |  |  | 1,687 |  |  |  | (230 | ) |  |  | (4,860 | )
U.S. Treasury securities (short positions) |  |  | (98 | ) |  |  | - |  |  |  | - |
Total |  | $ | (122,669 | ) |  | $ | 133,554 |  |  | $ | 45,237 |
Credit Risk-Related Contingent Features The use of derivatives and other hedging instruments creates exposure to credit risk relating to potential losses that could be recognized in the event that the counterparties to these instruments fail to perform their obligations under the contracts. The Company attempts to minimize this risk by limiting its counterparties for instruments which are not centrally cleared on a registered exchange to major financial institutions with acceptable credit ratings and monitoring positions with individual counterparties. In addition, the Company may be required to pledge assets as collateral for its derivatives, whose amounts vary over time based on the market value, notional amount and remaining term of the derivative contract. In the event of a default by a counterparty, the Company may not receive payments provided for under the terms of its derivative agreements, and may have difficulty obtaining its assets pledged as collateral for its derivatives. The cash and cash equivalents pledged as collateral for the Company's derivative instruments are included in restricted cash on its balance sheets. It is the Company's policy not to offset assets and liabilities associated with open derivative contracts. However, CME and LCH rules characterize variation margin transfers as settlement payments, as opposed to adjustments to collateral. As a result, derivative assets and liabilities associated with centrally cleared derivatives for which the CME or LCH serves as the central clearing party are presented as if these derivatives had been settled as of the reporting date.

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