The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company enters into derivative financial instruments in connection with its risk management activities. These derivative instruments may include interest rate swaps, interest rate caps, futures and options contracts such as options on credit default swap indices, equity index options, swaptions and options on futures. The Company may also pursue forward-settling purchases or sales of Agency RMBS where the underlying pools of mortgage loans are “To-Be-Announced,” or TBAs, purchase options on U.S. Treasury futures or invest in other types of mortgage derivative securities. The Company elected not to apply hedge accounting for its derivative instruments.

The Company and the entities that own multi-family properties in which the Company owns joint venture equity investments are required by lenders on certain repurchase agreement financing and variable-rate mortgages payable on real estate to enter into interest rate cap contracts. See Notes 12 and 14 for information regarding these interest rate cap contracts.

The Company uses interest rate swaps to hedge the variable cash flows associated with our variable-rate borrowings. Interest rate swaps generally involve the receipt of variable-rate amounts from a counterparty, based on SOFR, in exchange for the Company making fixed-rate payments over the life of the interest rate swap without exchange of the underlying notional amount. Notwithstanding the foregoing, in order to manage its position with regard to its liabilities, the Company may enter into interest rate swaps which involve the receipt of fixed-rate amounts from a counterparty in exchange for the Company making variable-rate payments, based on SOFR, over the life of the interest rate swap without exchange of the underlying notional amount. The variable rate the Company pays or receives under its swap agreements has the effect of offsetting the repricing characteristics and cash flows of the Company's financing arrangements.

The Company has credit default swap index options that allow the Company to enter into a fixed rate payer position in the underlying credit default swap index at the agreed strike level, as well as equity index put options that gives the Company the right to sell the underlying index at a specified strike price.


		Fair Value
Type of Derivative Instrument	Consolidated Balance Sheet Location	March 31, 2023		December 31, 2022
Interest rate caps (1)	Other assets	$	2,002	$	2,473
Options	Other assets	1,120		—
Total derivative assets		$	3,122	$	2,473

Interest rate swaps	Other liabilities	$	—	$	—
Total derivative liabilities		$	—	$	—

The Company elects to net the fair value of its derivative contracts by counterparty when appropriate. These contracts contain legally enforceable provisions that allow for netting or setting off of all individual derivative receivables and payables with each counterparty and therefore, the fair values of those derivative contracts are reported net by counterparty. All of the Company’s interest rate swaps are cleared through a central clearing house, CME Group Inc. ("CME Clearing") which is the parent company of the Chicago Mercantile Exchange Inc. CME Clearing serves as the counterparty to every cleared transaction, becoming the buyer to each seller and the seller to each buyer, limiting the credit risk by guaranteeing the financial performance of both parties and netting down exposures. The following table presents a reconciliation of gross derivative assets and liabilities to net amounts presented in the accompanying condensed consolidated balance sheets as of March 31, 2023 and December 31, 2022, respectively (dollar amounts in thousands):


	March 31, 2023
	Gross Amount of Recognized Assets (Liabilities)		Gross Amounts Offset in Balance Sheets		Variation Margin		Net Amounts of Assets (Liabilities) Presented in Balance Sheets
Derivative assets
Interest rate caps	$	2,002	$	—	$	—	$	2,002
Options	1,120		—		—		1,120
Interest rate swaps	412		(412)		—		—
Total derivative assets	$	3,534	$	(412)	$	—	$	3,122

Derivative liabilities
Interest rate swaps	$	(2,899)	$	412	$	2,487	$	—
Total derivative liabilities	$	(2,899)	$	412	$	2,487	$	—


	December 31, 2022
	Gross Amount of Recognized Assets (Liabilities)		Gross Amounts Offset in Balance Sheets		Variation Margin		Net Amounts of Assets (Liabilities) Presented in Balance Sheets
Derivative assets
Interest rate caps	$	2,473	$	—	$	—	$	2,473
Total derivative assets	$	2,473	$	—	$	—	$	2,473

The use of derivatives exposes the Company to counterparty credit risks in the event of a default by a counterparty. If a counterparty defaults under the applicable derivative agreement, the Company may be unable to collect payments to which it is entitled under its derivative agreements and may have difficulty collecting the assets it pledged as collateral against such derivatives.

The Company is required to post an initial margin amount for its interest rate swaps determined by CME Clearing, which is generally intended to be set at a level sufficient to protect the exchange from the derivative financial instrument’s maximum estimated single-day price movement. As of March 31, 2023, an initial margin account balance of approximately $5.3 million and excess margin in the amount of approximately $2.6 million are included in other assets on the accompanying condensed consolidated balance sheets.


	Notional Amount For the Three Months Ended March 31, 2023
Type of Derivative Instrument	December 31, 2022		Additions		Terminations		March 31, 2023

Options	$	—	$	500,053	$	—	$	500,053
Interest rate swaps	—		341,300		—		341,300

The following table presents the components of realized gains (losses), net and unrealized gains (losses), net related to our derivative instruments that were not designated as hedging instruments, which are included in non-interest income (loss) in our condensed consolidated statements of operations for the three months ended March 31, 2023 (dollar amounts in thousands):


	March 31, 2023
Swap Maturities	Notional Amount		Weighted Average Fixed Interest Rate		Weighted Average Variable Interest Rate
2025	$	255,700	4.31	%	4.71	%
2028	28,900		3.87	%	4.66	%
2033	32,700		3.60	%	4.65	%
Total	$	317,300	4.20	%	4.70	%

Certain of the Company’s derivative contracts are subject to International Swaps and Derivatives Association Master Agreements or other similar agreements which may contain provisions that grant counterparties certain rights with respect to the applicable agreement upon the occurrence of certain events including a decline in Company's stockholders’ equity (as defined in the respective agreements) in excess of specified thresholds or dollar amounts over set periods of time, the Company’s failure to maintain its REIT status, the Company’s failure to comply with limits on the amount of leverage and the Company’s stock being delisted from Nasdaq.

Cash flow activity related to derivative instruments is reflected within the operating activities and investing activities sections of the Company's condensed consolidated statements of cash flows. Realized gains or losses, if any, and unrealized gains or losses, if any, on the Company's derivative instruments are included in the realized (gains) losses, net and unrealized (gains) losses, net line items within the operating activities section of the condensed consolidated statements of cash flows. Additionally, any changes in excess margin amounts due from or due to counterparties in connection with the Company's interest rate swaps are included in the changes in operating assets and liabilities line item of the condensed consolidated statements of cash flows. The remaining cash flow activity related to derivative instruments is reflected within the net payments received from (made on) derivative instruments line item within the investing activities section of the condensed consolidated statements of cash flows.