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Financial Derivatives (Tables)

9 Months Ended

Sep. 30, 2021

Derivative Instruments and Hedging Activities Disclosure [Abstract]

The following table details the fair value of the Company's holdings of financial derivatives as of September 30, 2021 and December 31, 2020:


	September 30, 2021		December 31, 2020
(In thousands)
Financial derivatives–assets, at fair value:
TBA securities purchase contracts	$	—	$	961
TBA securities sale contracts	2,399		1
Fixed payer interest rate swaps	4,450		125
Fixed receiver interest rate swaps	4,167		8,394
Credit default swaps on asset-backed securities	303		347
Credit default swaps on asset-backed indices	1,599		2,184
Credit default swaps on corporate bond indices	174		3,420
Total return swaps	—		9
Options	146		—
Futures	1,440		2
Forwards	360		—
Warrants	938		36
Total financial derivatives–assets, at fair value	15,976		15,479
Financial derivatives–liabilities, at fair value:
TBA securities purchase contracts	(2,596)		—
TBA securities sale contracts	(485)		(925)
Fixed payer interest rate swaps	(8,094)		(15,109)
Fixed receiver interest rate swaps	(757)		(65)
Credit default swaps on asset-backed indices	(38)		(130)
Credit default swaps on corporate bonds	(101)		(747)
Credit default swaps on corporate bond indices	(1,955)		(6,438)
Total return swaps	—		(484)
Futures	(93)		(376)
Forwards	—		(279)
Total financial derivatives–liabilities, at fair value	(14,119)		(24,553)
Total	$	1,857	$	(9,074)

Schedule of Interest Rate Derivatives [Table Text Block]

The following tables provide information about the Company's fixed payer interest rate swaps as of September 30, 2021 and December 31, 2020:

September 30, 2021:


					Weighted Average
	Notional Amount		Fair Value		Pay Rate		Receive Rate		Remaining Years to Maturity
	(In thousands)
2022	$	64,100	$	(269)	0.99	%	0.12	%	0.43
2023	691,110		(3,022)		0.55		0.12		1.72
2024	314,762		391		0.43		0.13		2.49
2025	52,692		(70)		0.86		0.13		3.69
2026	29,925		186		0.88		0.13		4.72
2027	9,732		360		0.49		0.13		5.73
2028	119,634		(215)		1.31		0.13		6.73
2029	19,152		(898)		1.98		0.13		7.80
2030	9,585		270		1.09		0.12		8.48
2031	111,409		835		1.43		0.13		9.68
2035	500		41		0.78		0.09		14.06
2036	1,100		37		1.45		0.12		14.39
2040	500		51		0.90		0.09		19.07
2049	5,796		(1,408)		2.89		0.15		27.28
2050	500		67		0.98		0.09		25.07
Total	$	1,430,497	$	(3,644)	0.72	%	0.12	%	3.29

December 31, 2020:


					Weighted Average
Maturity	Notional Amount		Fair Value		Pay Rate		Receive Rate		Remaining Years to Maturity
	(In thousands)
2021	$	17,500	$	(231)	2.75	%	0.24	%	0.22
2022	96,533		(1,535)		1.19		0.22		1.14
2023	146,012		(4,770)		1.50		0.23		2.42
2025	66,503		(1,034)		0.73		0.21		4.75
2026	11,216		(458)		1.23		0.25		5.50
2027	9,732		60		0.49		0.24		6.48
2028	16,644		(2,169)		2.39		0.24		7.32
2029	22,744		(2,289)		1.94		0.23		8.61
2030	13,015		(369)		1.13		0.22		9.29
2035	500		15		0.78		0.09		14.81
2036	1,100		(47)		1.45		0.25		15.13
2040	500		20		0.90		0.09		19.82
2049	5,796		(2,208)		2.89		0.23		28.02
2050	500		31		0.98		0.09		29.82
Total	$	408,295	$	(14,984)	1.39	%	0.23	%	3.82

The following tables provide information about the Company's fixed receiver interest rate swaps as of September 30, 2021 and December 31, 2020:

September 30, 2021:


					Weighted Average
Maturity	Notional Amount		Fair Value		Pay Rate		Receive Rate		Remaining Years to Maturity
	(In thousands)
2022	$	53,974	$	463	—	%	1.85	%	0.42
2023	41,407		1,094		0.12		2.00		1.47
2024	76,342		2,572		0.14		1.57		3.05
2026	59,640		(295)		0.13		0.89		4.76
2031	13,736		(251)		0.13		1.32		9.76
2035	500		(43)		0.09		0.74		14.06
2040	500		(55)		0.09		0.84		19.07
2050	500		(75)		0.09		0.90		29.07
Total	$	246,599	$	3,410	0.10	%	1.52	%	3.10

December 31, 2020:


					Weighted Average
Maturity	Notional Amount		Fair Value		Pay Rate		Receive Rate		Remaining Years to Maturity
	(In thousands)
2021	$	12,950	$	205	0.24	%	1.75	%	0.71
2022	103,974		1,413		0.22		1.07		1.48
2023	48,657		2,209		0.24		2.00		2.26
2024	86,342		4,567		0.22		1.65		3.73
2035	500		(14)		0.09		0.74		14.81
2040	500		(20)		0.09		0.84		19.82
2050	500		(31)		0.09		0.90		29.82
Total	$	253,423	$	8,329	0.22	%	1.48	%	2.48

Schedule of Credit Default Swaps [Table Text Block]

The following table provides information about the Company's credit default swaps as of September 30, 2021 and December 31, 2020:


	As of
	September 30, 2021					December 31, 2020
Type(1)	Notional		Fair Value		Weighted Average Remaining Term (Years)	Notional		Fair Value		Weighted Average Remaining Term (Years)
($ in thousands)
Asset:
Long:
Credit default swaps on asset-backed indices	$	499	$	8	24.32	$	395	$	5	16.99
Credit default swaps on corporate bond indices	2,206		174		2.22	67,779		3,296		2.52
Short:
Credit default swaps on asset-backed securities	(909)		303		13.96	(957)		347		14.70
Credit default swaps on asset-backed indices	(12,298)		1,591		40.55	(12,888)		2,179		39.61
Credit default swaps on corporate bond indices	—		—		—	(2,173)		124		2.97
Liability:
Long:
Credit default swaps on asset-backed indices	90		(38)		27.66	479		(130)		32.36
Short:
Credit default swaps on asset-backed indices	(1)		—		28.25	(1)		—		29.00
Credit default swaps on corporate bonds	(3,400)		(101)		3.72	(8,400)		(747)		4.17
Credit default swaps on corporate bond indices	(22,622)		(1,955)		4.54	(110,624)		(6,438)		2.78
	$	(36,435)	$	(18)	16.67	$	(66,390)	$	(1,364)	10.25

(1)Long notional represents contracts where the Company has written protection and short notional represents contracts where the Company has purchased protection.

Schedule of Futures Contracts [Table Text Block]

The following table provides information about the Company's long and short positions in futures as of September 30, 2021 and December 31, 2020:


	As of
	September 30, 2021					December 31, 2020
Description	Notional Amount		Fair Value		Remaining Months to Expiration	Notional Amount		Fair Value		Remaining Months to Expiration
	(In thousands)					(In thousands)
Assets:
Short Contracts:
U.S. Treasury futures	$	(221,400)	$	1,440	2.99	$	(300)	$	2	2.70
Liabilities:
Long Contracts:
U.S. Treasury futures	1,900		(93)		2.73	1,900		(9)		2.70
Short Contracts:
U.S. Treasury futures	—		—		—	(178,200)		(367)		2.94
Total, net	$	(219,500)	$	1,347	2.99	$	(176,600)	$	(374)	2.94

Schedule of Derivative Warrant Contracts [Table Text Block]

Warrants

The following table provides information about the Company's warrants contracts to purchase shares as of September 30, 2021 and December 31, 2020:


	September 30, 2021				December 31, 2020
Description	Number of Shares Underlying Warrant	Fair Value		Remaining Years to Expiration	Number of Shares Underlying Warrant	Fair Value		Remaining Years to Expiration
	(In thousands)				(In thousands)
Warrants	2,120	$	938	1.79	1,897	$	36	2.40

Schedule of TBA securities [Table Text Block]

As of September 30, 2021 and December 31, 2020, the Company had outstanding TBA purchase and sale contracts as follows:


	September 30, 2021								December 31, 2020
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	$	—	$	—	$	—	$	—	$	149,990	$	155,008	$	155,969	$	961
Liabilities	291,283		294,634		292,038		(2,596)		—		—		—		—
	291,283		294,634		292,038		(2,596)		149,990		155,008		155,969		961
Sale contracts:
Assets	(596,773)		(623,051)		(620,652)		2,399		(4,400)		(4,765)		(4,764)		1
Liabilities	(326,878)		(348,177)		(348,662)		(485)		(499,667)		(531,034)		(531,959)		(925)
	(923,651)		(971,228)		(969,314)		1,914		(504,067)		(535,799)		(536,723)		(924)
Total TBA securities, net	$	(632,368)	$	(676,594)	$	(677,276)	$	(682)	$	(354,077)	$	(380,791)	$	(380,754)	$	37

(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 Condensed Consolidated Balance Sheet.

Schedule of Gains and Losses on Derivative Contracts

Gains and losses on the Company's derivative contracts for the three- and nine-month periods ended September 30, 2021 and 2020 are summarized in the tables below:

Three-Month Period Ended September 30, 2021:


Derivative Type	Primary Risk Exposure	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(1)		Change in Net Unrealized Gains (Losses) on Financial Derivatives(1)
(In thousands)
Interest rate swaps	Interest Rate	$	(1,069)	$	(243)	$	(1,312)	$	252	$	2,790	$	3,042
Credit default swaps on asset-backed securities	Credit			(4)		(4)				—		—
Credit default swaps on asset-backed indices	Credit			(136)		(136)				69		69
Credit default swaps on corporate bond indices	Credit			(264)		(264)				244		244
Credit default swaps on corporate bonds	Credit			184		184				(192)		(192)
Total return swaps	Credit			(41)		(41)				(465)		(465)
TBAs	Interest Rate			(425)		(425)				(2,381)		(2,381)
Options	Credit			—		—				(148)		(148)
Futures	Interest Rate			(271)		(271)				843		843
Forwards	Currency			487		487				(85)		(85)
Warrants	Equity Market/Credit			—		—				221		221
Total		$	(1,069)	$	(713)	$	(1,782)	$	252	$	896	$	1,148

(1)Includes foreign currency remeasurement on financial derivatives in the amount of $(7) thousand for the three-month period ended September 30, 2021, which is included on the Condensed Consolidated Statement of Operations in Other, net.

Three-Month Period Ended September 30, 2020:


Derivative Type	Primary Risk Exposure	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(1)		Net Realized Gains (Losses) on Financial Derivatives(1)		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(2)		Change in Net Unrealized Gains (Losses) on Financial Derivatives(2)
(In thousands)
Interest rate swaps	Interest Rate	$	(1,150)	$	(29)	$	(1,179)	$	516	$	1,104	$	1,620
Credit default swaps on asset-backed securities	Credit			1		1				(1)		(1)
Credit default swaps on asset-backed indices	Credit			(239)		(239)				503		503
Credit default swaps on corporate bond indices	Credit			(1,067)		(1,067)				(1,059)		(1,059)
Credit default swaps on corporate bonds	Credit			(93)		(93)				(334)		(334)
Total return swaps	Credit			(125)		(125)				(348)		(348)
TBAs	Interest Rate			2,367		2,367				(744)		(744)
Futures	Interest Rate			(402)		(402)				52		52
Forwards	Currency			(898)		(898)				33		33
Total		$	(1,150)	$	(485)	$	(1,635)	$	516	$	(794)	$	(278)

(1)Includes realized gain/(loss) on transactions involving foreign-currency-denominated financial derivatives in the amount of $(15) thousand for the three-month period ended September 30, 2020, which is included on the Condensed Consolidated Statement of Operations in Other, net.

(2)Includes foreign currency remeasurement on financial derivatives in the amount of $20 thousand for the three-month period ended September 30, 2020, which is included on the Condensed Consolidated Statement of Operations in Other, net.

Nine-Month Period Ended September 30, 2021


Derivative Type	Primary Risk Exposure	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(1)		Net Realized Gains (Losses) on Financial Derivatives(1)		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(2)		Change in Net Unrealized Gains (Losses) on Financial Derivatives(2)
(In thousands)
Interest rate swaps	Interest Rate	$	(1,808)	$	(96)	$	(1,904)	$	(47)	$	6,244	$	6,197
Credit default swaps on asset-backed securities	Credit			39		39				(44)		(44)
Credit default swaps on asset-backed indices	Credit			1,062		1,062				(1,109)		(1,109)
Credit default swaps on corporate bond indices	Credit			(351)		(351)				(647)		(647)
Credit default swaps on corporate bonds	Credit			265		265				(346)		(346)
Total return swaps	Credit			(1,243)		(1,243)				476		476
Options	Credit			—		—				(210)		(210)
TBAs	Interest Rate			4,536		4,536				(720)		(720)
Futures	Interest Rate			1,641		1,641				1,721		1,721
Forwards	Currency			411		411				640		640
Warrants	Equity Market/Credit			—		—				187		187
Total		$	(1,808)	$	6,264	$	4,456	$	(47)	$	6,192	$	6,145

(1)Includes realized gain/(loss) on transactions involving foreign-currency-denominated financial derivatives in the amount of $18 thousand for the nine-month period ended September 30, 2021, which is included on the Condensed Consolidated Statement of Operations in Other, net.

(2)Includes foreign currency remeasurement on financial derivatives in the amount of $(38) thousand for the nine-month period ended September 30, 2021, which is included on the Condensed Consolidated Statement of Operations in Other, net.

Nine-Month Period Ended September 30, 2020:


Derivative Type	Primary Risk Exposure	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(1)		Net Realized Gains (Losses) on Financial Derivatives(1)		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(2)		Change in Net Unrealized Gains (Losses) on Financial Derivatives(2)
(In thousands)
Interest rate swaps	Interest Rate	$	(1,900)	$	(8,761)	$	(10,661)	$	541	$	(16,373)	$	(15,832)
Credit default swaps on asset-backed securities	Credit			(955)		(955)				915		915
Credit default swaps on asset-backed indices	Credit			3,660		3,660				7,642		7,642
Credit default swaps on corporate bond indices	Credit			(550)		(550)				3,080		3,080
Credit default swaps on corporate bonds	Credit			356		356				711		711
Total return swaps	Credit			(2,180)		(2,180)				607		607
TBAs	Interest Rate			(6,778)		(6,778)				1,280		1,280
Futures	Interest Rate			(7,866)		(7,866)				(434)		(434)
Forwards	Currency			(616)		(616)				343		343
Warrants	Equity Market/Credit			—		—				(382)		(382)
Options	Credit			(100)		(100)				—		—
Total		$	(1,900)	$	(23,790)	$	(25,690)	$	541	$	(2,611)	$	(2,070)

(1)Includes realized gain/(loss) on transactions involving foreign-currency-denominated financial derivatives in the amount of $12 thousand for the nine-month period ended September 30, 2020, which is included on the Condensed Consolidated Statement of Operations in Other, net.

(2)Includes foreign currency remeasurement on financial derivatives in the amount of $39 thousand for the nine-month period ended September 30, 2020, which is included on the Condensed Consolidated Statement of Operations in Other, net.

Derivative activity, volume

The table below details the average notional values of the Company's financial derivatives, using absolute value of month end notional values, for the nine-month-period ended September 30, 2021 and the year ended December 31, 2020:


Derivative Type	Nine-Month Period Ended September 30, 2021		Year Ended December 31, 2020
(In thousands)
Interest rate swaps	$	1,126,497	$	1,009,110
TBAs	1,083,070		713,634
Futures	184,690		149,538
Credit default swaps	130,899		277,990
Forwards	22,498		26,413
Options	12,000		1,500
Total return swaps	3,372		6,975
Warrants	1,956		1,570

Schedule of Credit Derivatives

Written credit derivatives held by the Company at September 30, 2021 and December 31, 2020 are summarized below:


Credit Derivatives	September 30, 2021		December 31, 2020
(In thousands)
Fair Value of Written Credit Derivatives, Net	$	144	$	3,171
Notional Value of Written Credit Derivatives (1)	2,795		68,653

(1)The notional value is the maximum amount that a seller of credit protection would be obligated to pay, and a buyer of credit protection would receive, upon occurrence of a "credit event." Movements in the value of credit default swap transactions may require the Company or the counterparty to post or receive collateral. Amounts due or owed under credit derivative contracts with an International Swaps and Derivatives Association, or "ISDA," counterparty may be offset against amounts due or owed on other credit derivative contracts with the same ISDA counterparty. As a result, the notional value of written credit derivatives involving a particular underlying reference asset or index has been reduced (but not below zero) by the notional value of any contracts where the Company has purchased credit protection on the same reference asset or index with the same ISDA counterparty.

Schedule of options contracts

The following table provides information about the Company's options contracts as of September 30, 2021. The Company did not have any options contracts as of December 31, 2020:


Option				Underlying Swap
Type	Fair Value		Months to Expiration	Notional Amount		Term (Years)	Fixed Rate
($ in thousands)
Put options on credit default swaps on corporate bond indices (1)	$	146	2.5	$	30,000	5.00	5.00	%

(1)Represents the option on the part of the Company to enter into a credit default swap on a corporate bond index whereby the Company would pay a fixed rate and receive credit protection payments.