Derivative Instruments

6 Months Ended

Jun. 30, 2023

Derivative Instrument Detail [Abstract]

Derivative Instruments and Hedging Activities Disclosure [Text Block]

Financial DerivativesThe Company is exposed to certain risks arising from both its business operations and economic conditions. Specifically, the Company's primary source of financing is repurchase agreements and the Company enters into financial derivative and other instruments to manage exposure to variable cash flows on portions of its borrowings under those repurchase agreements. Since the interest rates on repurchase agreements typically change with market interest rates such as the Secured Overnight Financing Rate, or "SOFR," the Company is constantly exposed to changing interest rates, which accordingly affects cash flows associated with the Company's borrowings. To mitigate the effect of changes in these interest rates and their related cash flows, the Company may enter into a variety of derivative contracts, including interest rate swaps, futures, swaptions, and TBAs. Additionally, from time to time, the Company may use short positions in U.S. Treasury securities to mitigate its interest rate risk.

The following table details the fair value of the Company's holdings of financial derivatives as of June 30, 2023 and December 31, 2022:


	June 30, 2023		December 31, 2022
	(In thousands)
Financial derivatives–assets, at fair value:
TBA securities purchase contracts	$	11	$	—
TBA securities sale contracts	782		3,568
Fixed payer interest rate swaps	69,395		65,202
Fixed receiver interest rate swaps	241		—
Futures	89		—
Total financial derivatives–assets, at fair value	70,518		68,770
Financial derivatives–liabilities, at fair value:
TBA securities purchase contracts	(501)		(664)

Fixed payer interest rate swaps	(8)		—
Fixed receiver interest rate swaps	(934)		(2,373)
Futures	(657)		(82)
Credit default swaps	(381)		—
Total financial derivatives–liabilities, at fair value	(2,481)		(3,119)
Total, net	$	68,037	$	65,651

Interest Rate Swaps

The following tables provide information about the Company's fixed payer interest rate swaps as of June 30, 2023 and December 31, 2022:

June 30, 2023:


					Weighted Average
Maturity	Notional Amount		Fair Value		Pay Rate		Receive Rate		Remaining Years to Maturity
	(In thousands)
2024	$	73,693	$	2,106	2.27	%	5.09	%	0.84
2025	60,367		4,678		0.75		5.07		1.81
2026	7,500		97		3.96		5.09		2.94
2027	40,545		1,981		3.01		5.09		4.22
2028	95,147		7,845		2.24		5.08		4.98
2029	49,735		4,532		2.17		5.09		5.76
2030	97,200		7,325		2.50		5.09		6.92
2031	123,515		15,889		1.81		5.08		7.98
2032	104,377		15,516		1.74		5.09		8.63
2033	11,800		15		3.55		5.09		10.01
2037	35,000		2,902		2.85		5.09		14.07
2040	500		176		0.90		5.08		17.32
2041	10,961		3,150		1.33		5.06		18.11
2049	3,564		1,032		1.63		5.06		26.34
2050	780		364		0.64		5.06		27.05
2052	10,000		1,779		2.28		5.09		28.81
Total	$	724,684	$	69,387	2.10	%	5.08	%	6.77

December 31, 2022:


					Weighted Average
Maturity	Notional Amount		Fair Value		Pay Rate		Receive Rate		Remaining Years to Maturity
	(In thousands)
2024	$	76,575	$	2,483	2.23	%	4.37	%	1.33
2025	59,505		4,914		0.82		4.65		2.30
2027	40,545		1,313		3.01		4.30		4.71
2028	56,338		6,210		1.64		4.42		5.60
2029	49,735		4,128		2.17		4.30		6.25
2030	97,200		6,816		2.50		4.30		7.42
2031	124,124		15,689		1.94		4.47		8.48
2032	104,377		14,525		1.74		4.30		9.13
2037	35,000		2,577		2.85		4.30		14.56
2040	500		171		0.90		4.33		17.82
2041	11,227		3,246		1.59		4.46		18.60
2049	3,633		1,058		1.89		4.32		26.83
2050	792		371		0.90		3.91		27.54
2052	10,000		1,701		2.28		4.30		29.31
Total	$	669,551	$	65,202	2.03	%	4.38	%	7.35

The following tables provide information about the Company's fixed receiver interest rate swaps as of June 30, 2023 and December 31, 2022.

June 30, 2023:


					Weighted Average
Maturity	Notional Amount		Fair Value		Pay Rate		Receive Rate		Remaining Years to Maturity
	(In thousands)
2025	$	1,500	$	(9)	5.06	%	4.54	%	1.96
2026	7,500		(75)		5.06		4.06		2.96
2028	70		(2)		5.09		3.45		4.85
2030	13,000		(378)		5.09		3.31		6.76
2032	250		(17)		5.09		2.75		8.85
2033	44,151		(30)		5.09		3.61		9.72
2040	500		(182)		5.09		0.84		17.32
Total	$	66,971	$	(693)	5.09	%	3.60	%	8.26

December 31, 2022:


					Weighted Average
Maturity	Notional Amount		Fair Value		Pay Rate		Receive Rate		Remaining Years to Maturity
	(In thousands)
2032	$	37,009	$	(2,198)	4.30	%	2.79	%	9.56
2040	500		(175)		4.30		0.84		17.82
Total	$	37,509	$	(2,373)	4.30	%	2.77	%	9.67

Futures

The following tables provide information about the Company's futures as of June 30, 2023 and December 31, 2022.

June 30, 2023:


Description	Notional Amount		Fair Value		Remaining Months to Expiration
($ in thousands)
Assets:
Long Contracts:
U.S. Treasury Futures	$	3,300	$	35	2.73
Short Contracts:
U.S. Treasury Futures	(5,400)		54		3.03
Liabilities:


Long Contracts:
U.S. Treasury Futures	55,700		(657)		2.82
Total, net	$	53,600	$	(568)	2.83

December 31, 2022:


Description	Notional Amount		Fair Value		Remaining Months to Expiration
($ in thousands)
Liabilities:
Long Contracts:
U.S. Treasury Futures	$	64,300	$	(79)	2.80
Short Contracts:
U.S. Treasury Futures	(5,400)		(3)		3.00
Total, net	$	58,900	$	(82)	2.81

TBAs

The Company transacts in the forward settling TBA market. 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. TBAs are generally liquid, have quoted market prices, and represent the most actively traded class of MBS. The Company uses TBAs to mitigate interest rate risk, usually by taking short positions. The Company also invests in TBAs as a means of acquiring additional exposure to Agency RMBS, or for speculative purposes, including holding long positions.

The Company does not generally take delivery of TBAs; rather, it settles the associated receivable and payable with its trading counterparties on a net basis. Transactions with the same counterparty for the same TBA that result in a reduction of the position are treated as extinguished.

As of June 30, 2023 and December 31, 2022, the Company had outstanding contracts to purchase ("long positions") and sell ("short positions") TBA securities as follows:


	June 30, 2023								December 31, 2022
TBA Securities	Notional Amount(1)		Cost Basis(2)		Market Value(3)		Net Carrying Value(4)		Notional Amount (1)		Cost Basis(2)		Market Value(3)		Net Carrying Value(4)
(In thousands)
Purchase contracts:
Assets	$	17,500	$	17,137	$	17,148	$	11	$	—	$	—	$	—	$	—
Liabilities	99,509		97,774		97,273		(501)		81,759		81,498		80,834		(664)
	117,009		114,911		114,421		(490)		81,759		81,498		80,834		(664)
Sale contracts:
Assets	(243,532)		(217,688)		(216,906)		782		(258,253)		(234,384)		(230,816)		3,568


Total TBA securities, net	$	(126,523)	$	(102,777)	$	(102,485)	$	292	$	(176,494)	$	(152,886)	$	(149,982)	$	2,904

(1)Notional amount represents the 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 underlying Agency RMBS (on a forward delivery basis) as of period end.

(4)Net carrying value represents the difference between the market value of the TBA contract as of period end and the cost basis and is reported in Financial derivatives-assets at fair value and Financial derivatives-liabilities at fair value on the Consolidated Balance Sheet.

The table below details the average notional values of the Company's financial derivatives, using absolute value of month end notional values, for the six-month period ended June 30, 2023 and the year ended 2022:


Derivative Type	Six-Month Period Ended June 30, 2023		Year Ended December 31, 2022
	(In thousands)
Interest rate swaps	$	738,351	$	653,115
TBAs	353,443		343,695
Futures	66,671		110,415
Credit default swaps	7,143		—

Gains and losses on the Company's financial derivatives for the three- and six-month periods ended June 30, 2023 and 2022 are summarized in the tables below:


	Three-Month Period Ended June 30, 2023
Derivative Type	Net Realized Gains (Losses) on Periodic Settlements of Interest Rate Swaps		Net Realized Gains (Losses) on Financial Derivatives Other Than Periodic Settlements of Interest Rate Swaps		Net Realized Gains (Losses) on Financial Derivatives		Change in Net Unrealized Gains (Losses) on Accrued Periodic Settlements of Interest Rate Swaps		Change in Net Unrealized Gains (Losses) on Financial Derivatives Other Than on Accrued Periodic Settlements of Interest Rate Swaps		Change in Net Unrealized Gains (Losses) on Financial Derivatives
(In thousands)
Interest rate swaps	$	3,942	$	19,703	$	23,645	$	1,118	$	(7,476)	$	(6,358)
TBAs			266		266				2,137		2,137
Futures			334		334				(2,209)		(2,209)
Credit Default Swaps			$	(18)	$	(18)			$	(118)	$	(118)
Total	$	3,942	$	20,285	$	24,227	$	1,118	$	(7,666)	$	(6,548)


	Three-Month Period Ended June 30, 2022
Derivative Type	Net Realized Gains (Losses) on Periodic Settlements of Interest Rate Swaps		Net Realized Gains (Losses) on Financial Derivatives Other Than Periodic Settlements of Interest Rate Swaps		Net Realized Gains (Losses) on Financial Derivatives		Change in Net Unrealized Gains (Losses) on Accrued Periodic Settlements of Interest Rate Swaps		Change in Net Unrealized Gains (Losses) on Financial Derivatives Other Than on Accrued Periodic Settlements of Interest Rate Swaps		Change in Net Unrealized Gains (Losses) on Financial Derivatives
(In thousands)
Interest rate swaps	$	(232)	$	9,339	$	9,107	$	(328)	$	7,973	$	7,645
TBAs			9,075		9,075				(3,022)		(3,022)
Futures			12,295		12,295				(8,051)		(8,051)
Total	$	(232)	$	30,709	$	30,477	$	(328)	$	(3,100)	$	(3,428)


	Six-Month Period Ended June 30, 2023
Derivative Type	Net Realized Gains (Losses) on Periodic Settlements of Interest Rate Swaps		Net Realized Gains (Losses) on Financial Derivatives Other Than Periodic Settlements of Interest Rate Swaps		Net Realized Gains (Losses) on Financial Derivatives		Change in Net Unrealized Gains (Losses) on Accrued Periodic Settlements of Interest Rate Swaps		Change in Net Unrealized Gains (Losses) on Financial Derivatives Other Than on Accrued Periodic Settlements of Interest Rate Swaps		Change in Net Unrealized Gains (Losses) on Financial Derivatives
(In thousands)
Interest rate swaps	$	5,711	$	16,643	$	22,354	$	3,550	$	(17,433)	$	(13,883)
TBAs			3,799		3,799				(2,613)		(2,613)
Futures			(165)		(165)				(485)		(485)
Credit Default Swaps			(18)		(18)				(118)		(118)
Total	$	5,711	$	20,259	$	25,970	$	3,550	$	(20,649)	$	(17,099)


	Six-Month Period Ended June 30, 2022
Derivative Type	Net Realized Gains (Losses) on Periodic Settlements of Interest Rate Swaps		Net Realized Gains (Losses) on Financial Derivatives Other Than Periodic Settlements of Interest Rate Swaps		Net Realized Gains (Losses) on Financial Derivatives		Change in Net Unrealized Gains (Losses) on Accrued Periodic Settlements of Interest Rate Swaps		Change in Net Unrealized Gains (Losses) on Financial Derivatives Other Than on Accrued Periodic Settlements of Interest Rate Swaps		Change in Net Unrealized Gains (Losses) on Financial Derivatives
(In thousands)
Interest rate swaps	$	(848)	$	8,527	$	7,679	$	(371)	$	26,929	$	26,558
TBAs			16,802		16,802				(2,060)		(2,060)
Futures			21,349		21,349				(172)		(172)
Total	$	(848)	$	46,678	$	45,830	$	(371)	$	24,697	$	24,326

At June 30, 2023, the Company purchased protection on credit default swaps on corporate bond indices with a notional value of $25.0 million and a fair value of $(0.4) million; the weighted average remaining maturity on such contracts was 4.98 years.

From time to time, the Company uses short positions in U.S. Treasury positions as a component of its interest rate hedging portfolio. As of June 30, 2023, the Company held short positions in U.S. Treasury securities, with a principal amount of $2.0 million and a fair value of $2.0 million. As of December 31, 2022, the Company held short positions in U.S. Treasury securities, with a principal amount of $0.5 million and a fair value of $0.5 million.