Derivative Instruments

3 Months Ended

Mar. 31, 2025

Derivative Instruments and Hedging Activities Disclosure [Abstract]

In connection with the Company’s interest rate risk strategy, the Company may economically hedge a portion of its interest rate risk by entering into derivative financial instrument contracts in the form of interest rate swaps, swaptions, U.S. Treasury futures, Swap futures and Interest rate caps. Swaps are used to lock in a fixed rate related to a portion of the Company's current and anticipated payments on secured financing agreements. The Company typically agrees to pay a fixed rate of interest, or pay rate, in exchange for the right to receive a floating rate of interest, or receive rate, over a specified period of time. Interest rate swaptions provide the option to enter into an interest rate swap agreement for a predetermined notional amount, stated term and pay and receive interest rates in the future. The Company’s swaptions are not centrally cleared. U.S. Treasury futures are derivatives that track the prices of generic benchmark U.S. Treasury securities with identical maturity and are traded on an active exchange. It is generally the Company’s policy to close out any U.S. Treasury futures positions prior to delivering the underlying security. U.S. Treasury futures lock in a fixed rate related to a portion of its current and anticipated payments on its secured financing agreements. 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. Swap futures are marked-to-market daily, with prices published by the CME Group. Interest rate caps are used to protect against undesirable movement in a floating interest rate related to a portion of the Company’s current and anticipated payments on secured financing arrangements. Interest rate caps act as a hedge against rising floating interest rates, with the Company purchasing Interest rate caps for a set term and defined strike rate relative to a market reference rate such as SOFR.

The Company’s derivatives are recorded as either assets or liabilities on the Consolidated Statements of Financial Condition and measured at fair value. These derivative financial instrument contracts are not designated as hedges for GAAP; therefore, all changes in fair value are recognized in earnings. 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 the counterparty.

The use of derivatives creates exposure to credit risk relating to potential losses that could be recognized if the counterparties to these instruments fail to perform their obligations under the contracts. In the event of a default by the counterparty, the Company could have difficulty obtaining its RMBS or cash pledged as collateral for these derivative instruments. The Company periodically monitors the credit profiles of its counterparties to determine if it is exposed to counterparty credit risk. See Note 15 for further discussion of counterparty credit risk.

The weighted average pay rate on the Company’s interest rate swaps at March 31, 2025 was 3.53% and the weighted average receive rate was 4.41%. At March 31, 2025, the weighted average maturity on the Company’s interest rate swaps was less than one year.

The weighted average pay rate on the Company’s interest rate swaps at December 31, 2024 was 3.56% and the weighted average receive rate was 4.49%. At December 31, 2024, the weighted average maturity on the Company’s interest rate swaps was less than one year.

The Company had no swap terminations during the quarters ended March 31, 2025 and 2024.

During the quarter ended March 31, 2025, the Company exercised its one swaption contract with $500 million notional and entered into a less than one-year swap with $500 million notional with a 3.45% fixed pay rate. During the quarter ended March 31, 2024, the Company exercised its two swaption contracts with $1.0 billion notional and entered into two one-year swaps with $1.0 billion notional with a weighted average 3.46% fixed pay rate.

During the year ended December 31, 2024, the Company exercised its three swaption contracts, each with $500 million notional, and entered into three one-year swaps, each with $500 million notional and a weighted average fixed pay rate of 3.56%.

During the quarter ended March 31, 2025, the Company covered its open short position of 1,000 two-year U.S. Treasury Futures contracts for a net realized gain of $82 thousand. The Company did not have any Treasury futures contract positions or activity during the quarter ended March 31, 2024. The Company was short 1,000 two-year U.S. Treasury futures contract at December 31, 2024.

During the quarter ended March 31, 2025, the Company entered into short positions on Swap future contracts. The Company is short 400 10-year SOFR Swap future contracts, 900 two-year SOFR Swap future contracts and 250 five-year SOFR Swap future contracts. The net par equivalent pay fixed rate on the Company's Swap futures at March 31, 2025 was 3.84% and the weighted average receive rate was 4.41%. At March 31, 2024 Company held no Swap future contracts.

During the quarter ended March 31, 2025, the Company entered into an Interest rate cap. The Company paid $7 million for a two year Interest rate cap with a strike rate of 3.95% on SOFR as the market reference rate. At March 31, 2024, the Company held no Interest rate caps.

The Company also maintains collateral in the form of cash margin from its counterparties to its derivative contracts. In accordance with the Company's netting policy, the Company presents the fair value of its derivative contracts net of cash margin received. See Note 15 for additional details on derivative netting.

The table below summarizes the location and fair value of the derivatives reported in the Consolidated Statements of Financial Condition after counterparty netting and posting of cash collateral as of March 31, 2025 and December 31, 2024.


			March 31, 2025
			Derivative Assets			Derivative Liabilities
Derivative Instruments	Notional Amount Outstanding		Location on Consolidated Statements of Financial Condition	Net Estimated Fair Value/Carrying Value		Location on Consolidated Statements of Financial Condition	Net Estimated Fair Value/Carrying Value
			(dollars in thousands)
Interest Rate Swaps	$	2,000,000	Derivatives, at fair value	$	—	Derivatives, at fair value	$	—
Swap futures	155,000		Derivatives, at fair value	—		Derivatives, at fair value	(240)
Swaptions	—		Derivatives, at fair value	—		Derivatives, at fair value	—
U.S. Treasury futures	—		Derivatives, at fair value	—		Derivatives, at fair value	—
Interest Rate Cap	$	1,000,000	Derivatives, at fair value	—		Derivatives, at fair value	—
Total	$	3,155,000		$	—		$	(240)


			December 31, 2024
			Derivative Assets			Derivative Liabilities
Derivative Instruments	Notional Amount Outstanding		Location on Consolidated Statements of Financial Condition	Net Estimated Fair Value/Carrying Value		Location on Consolidated Statements of Financial Condition	Net Estimated Fair Value/Carrying Value
			(dollars in thousands)
Interest Rate Swaps	$	1,500,000	Derivatives, at fair value, net	$	—	Derivatives, at fair value, net	$	—
Swaptions	500,000		Derivatives, at fair value, net	—		Derivatives, at fair value, net	—
U.S. Treasury futures	200,000		Derivatives, at fair value, net	117		Derivatives, at fair value, net	—
Total	$	2,200,000		$	117		$	—

The effect of the Company’s derivatives on the Consolidated Statements of Operations for the quarters ended March 31, 2025 and 2024 is presented below.


		Net gains (losses) on derivatives for the quarters ended
Derivative Instruments	Location on Consolidated Statements of Operations and Comprehensive Income		March 31, 2025		March 31, 2024
		(dollars in thousands)
Interest Rate Swaps	Net unrealized gains (losses) on interest rate swaps		$	(3,870)	$	3,679
Interest Rate Swaps	Net realized gains (losses) on interest rate swaps		—		—
Interest Rate Swaps	Periodic interest on derivatives, net		4,088		5,476


Swap futures	Net unrealized gains (losses) on derivatives		(240)		—
Swap futures	Net realized gains (losses) on derivatives		—		—
Swap futures	Periodic interest on derivatives, net		47		—
Treasury futures	Net unrealized gains (losses) on derivatives		(117)		—
Treasury futures	Net realized gains (losses) on derivatives		82		—
Swaptions	Net unrealized gains (losses) on derivatives		—		1,510
Swaptions	Net realized gains (losses) on derivatives		—		—


Interest Rate Cap	Net unrealized gains (losses) on derivatives		(2,242)		—
Interest Rate Cap	Net realized gains (losses) on derivatives		—		—
Total			$	(2,252)	$	10,665

When the Company enters into derivative contracts, they are typically 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 such as (i) a decline in stockholders’ equity in excess of specified thresholds or dollar amounts over set periods of time, (ii) the Company’s failure to maintain its REIT status, (iii) the Company’s failure to comply with limits on the amount of leverage, and (iv) the Company’s stock being delisted from the NYSE. Upon the occurrence of any one of items (i) through (iv), or another default under the agreement, the counterparty to the applicable agreement has a right to terminate the agreement in accordance with its provisions. If the Company breaches any of these provisions, it will be required to settle its obligations under the agreements at their termination values, which approximates fair value.