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Derivative Instruments
6 Months Ended
Jun. 30, 2020
Derivative Instrument Detail [Abstract]  
Derivative Instruments and Hedging Activities Disclosure [Text Block] Financial Derivatives
The 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 LIBOR, the Company is exposed to constantly 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, 2020 and December 31, 2019:
 
 
June 30, 2020
 
December 31, 2019
 
 
(In thousands)
Financial derivatives–assets, at fair value:
 
 
 
 
TBA securities purchase contracts
 
$
1,147

 
$
48

TBA securities sale contracts
 
1,124

 
74

Fixed payer interest rate swaps
 

 
3,543

Fixed receiver interest rate swaps
 
844

 
81

Futures
 

 
434

Total financial derivatives–assets, at fair value
 
3,115

 
4,180

Financial derivatives–liabilities, at fair value:
 
 
 
 
TBA securities purchase contracts
 
(129
)
 
(71
)
TBA securities sale contracts
 
(606
)
 
(233
)
Fixed payer interest rate swaps
 
(11,012
)
 
(1,632
)
Fixed receiver interest rate swaps
 
(20
)
 
(15
)
Futures
 
(377
)
 
(96
)
Total financial derivatives–liabilities, at fair value
 
(12,144
)
 
(2,047
)
Total, net
 
$
(9,029
)
 
$
2,133


Interest Rate Swaps
The following tables provide information about the Company's fixed payer interest rate swaps as of June 30, 2020 and December 31, 2019:
June 30, 2020:
 
 
 
 
 
 
Weighted Average
Maturity
 
Notional Amount
 
Fair Value
 
Pay Rate
 
Receive Rate
 
Remaining Years to Maturity
 
 
(In thousands)
 
 
 
 
 
 
2022
 
$
127,777

 
$
(2,542
)
 
1.05
%
 
0.34
%
 
2.10
2023
 
89,849

 
(2,589
)
 
1.10

 
0.46

 
2.98
2026
 
28,502

 
(2,123
)
 
1.57

 
0.36

 
6.42
2027
 
38,228

 
(428
)
 
0.62

 
0.30

 
7.03
2042
 
10,303

 
(2,002
)
 
1.81

 
0.36

 
22.43
2048
 
630

 
(375
)
 
3.18

 
0.37

 
28.43
2049
 
3,633

 
(953
)
 
1.89

 
1.02

 
29.34
Total
 
$
298,922

 
$
(11,012
)
 
1.10
%
 
0.38
%
 
4.50

December 31, 2019:
 
 
 
 
 
 
Weighted Average
Maturity
 
Notional Amount
 
Fair Value
 
Pay Rate
 
Receive Rate
 
Remaining Years to Maturity
 
 
(In thousands)
 
 
 
 
 
 
2020
 
$
86,000

 
$
148

 
1.60
%
 
1.97
%
 
0.32
2021
 
161,581

 
(134
)
 
1.79

 
1.92

 
1.55
2022
 
74,370

 
292

 
1.54

 
1.91

 
2.92
2023
 
84,373

 
(1,223
)
 
1.97

 
1.91

 
3.61
2024
 
19,073

 
246

 
1.46

 
2.04

 
4.76
2025
 
106,812

 
1,129

 
1.56

 
1.92

 
5.91
2026
 
28,502

 
402

 
1.57

 
1.91

 
6.92
2027
 
35,550

 
547

 
1.61

 
1.92

 
7.91
2029
 
170

 
2

 
1.72

 
1.90

 
9.89
2042
 
10,303

 
501

 
1.81

 
1.91

 
22.93
2048
 
630

 
(157
)
 
3.18

 
1.92

 
28.93
2049
 
3,633

 
158

 
1.89

 
1.94

 
29.84
Total
 
$
610,997

 
$
1,911

 
1.69
%
 
1.93
%
 
3.87

The following tables provide information about the Company's fixed receiver interest rate swaps as of June 30, 2020 and December 31, 2019.
June 30, 2020:
 
 
 
 
 
 
Weighted Average
Maturity
 
Notional Amount
 
Fair Value
 
Pay Rate
 
Receive Rate
 
Remaining Years to Maturity
 
 
(In thousands)
 
 
 
 
 
 
2023
 
$
13,200

 
$
596

 
1.02
%
 
1.87
%
 
2.82
2025
 
16,294

 
229

 
0.31

 
0.58

 
4.74
2030
 
6,730

 
(1
)
 
1.42

 
0.69

 
9.77
Total
 
$
36,224

 
$
824

 
0.77
%
 
1.07
%
 
4.98
December 31, 2019:
 
 
 
 
 
 
Weighted Average
Maturity
 
Notional Amount
 
Fair Value
 
Pay Rate
 
Receive Rate
 
Remaining Years to Maturity
 
 
(In thousands)
 
 
 
 
 
 
2023
 
$
13,200

 
$
81

 
1.94
%
 
1.87
%
 
3.32
2029
 
9,902

 
(15
)
 
1.92

 
1.87

 
9.98
Total
 
$
23,102

 
$
66

 
1.93
%
 
1.87
%
 
6.17

Futures
The following tables provide information about the Company's futures as of June 30, 2020 and December 31, 2019.
June 30, 2020:
Description
 
Notional Amount
 
Fair Value
 
Remaining Months to Expiration
($ in thousands)
 
 
 
 
 
 
Long Contracts:
 
 
 
 
 
 
U.S. Treasury Futures
 
$
2,200

 
$
(3
)
 
2.77
Short Contracts:
 
 
 
 
 
 
U.S. Treasury Futures
 
(124,400
)
 
(374
)
 
2.89
Total, net
 
$
(122,200
)
 
$
(377
)
 
2.90
December 31, 2019:
Description
 
Notional Amount
 
Fair Value
 
Remaining Months to Expiration
($ in thousands)
 
 
 
 
 
 
Long Contracts:
 
 
 
 
 
 
U.S. Treasury Futures
 
$
4,100

 
$
(96
)
 
2.84
Short Contracts:
 
 
 
 
 
 
U.S. Treasury Futures
 
(37,500
)
 
434

 
2.72
Total, net
 
$
(33,400
)
 
$
338

 
2.71

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, 2020 and December 31, 2019, the Company had outstanding contracts to purchase ("long positions") and sell ("short positions") TBA securities as follows:
 
 
June 30, 2020
 
December 31, 2019
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
 
$
279,500

 
$
288,024

 
$
289,171

 
$
1,147

 
$
26,877

 
$
27,087

 
$
27,135

 
$
48

Liabilities
 
39,780

 
42,308

 
42,179

 
(129
)
 
43,570

 
45,629

 
45,558

 
(71
)
 
 
319,280

 
330,332

 
331,350

 
1,018


70,447

 
72,716

 
72,693

 
(23
)
Sale contracts:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets
 
(237,905
)
 
(252,708
)
 
(251,584
)
 
1,124

 
(82,520
)
 
(85,124
)
 
(85,050
)
 
74

Liabilities
 
(291,983
)
 
(308,262
)
 
(308,868
)
 
(606
)
 
(164,435
)
 
(170,779
)
 
(171,012
)
 
(233
)
 
 
(529,888
)
 
(560,970
)
 
(560,452
)
 
518


(246,955
)
 
(255,903
)
 
(256,062
)
 
(159
)
Total TBA securities, net
 
$
(210,608
)
 
$
(230,638
)
 
$
(229,102
)
 
$
1,536

 
$
(176,508
)
 
$
(183,187
)
 
$
(183,369
)
 
$
(182
)
(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, 2020 and the year ended December 31, 2019:
Derivative Type
 
Six-Month
Period Ended
June 30, 2020
 
Year Ended
December 31, 2019
 
 
(In thousands)
Interest rate swaps
 
$
470,836

 
$
651,793

TBAs
 
475,838

 
474,555

Futures
 
82,400

 
114,277

Options
 

 
1,492


Gains and losses on the Company's financial derivatives for the three- and six-month periods ended June 30, 2020 and 2019 are summarized in the tables below:
 
 
Three-Month Period Ended June 30, 2020
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
 
$
(1,223
)
 
$
(1,698
)
 
$
(2,921
)
 
$
896

 
$
1,281

 
$
2,177

TBAs
 
 
 
(1,886
)
 
(1,886
)
 
 
 
4,336

 
4,336

Futures
 
 
 
(3,645
)
 
(3,645
)
 
 
 
2,992

 
2,992

Total
 
$
(1,223
)
 
$
(7,229
)
 
$
(8,452
)
 
$
896

 
$
8,609

 
$
9,505

 
 
Three-Month Period Ended June 30, 2019
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
 
$
(383
)
 
$
(324
)
 
$
(707
)
 
$
1,045

 
$
(13,169
)
 
$
(12,124
)
TBAs
 
 
 
(2,323
)
 
(2,323
)
 
 
 
179

 
179

Futures
 
 
 
(5,741
)
 
(5,741
)
 
 
 
3,503

 
3,503

Total
 
$
(383
)
 
$
(8,388
)
 
$
(8,771
)
 
$
1,045

 
$
(9,487
)
 
$
(8,442
)

 
 
Six-Month Period Ended June 30, 2020
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
 
$
110

 
$
(6,282
)
 
$
(6,172
)
 
$
(253
)
 
$
(11,846
)
 
$
(12,099
)
TBAs
 
 
 
(2,686
)
 
(2,686
)
 
 
 
1,718

 
1,718

Futures
 
 
 
(6,093
)
 
(6,093
)
 
 
 
(715
)
 
(715
)
Total
 
$
110

 
$
(15,061
)
 
$
(14,951
)
 
$
(253
)
 
$
(10,843
)
 
$
(11,096
)

 
 
Six-Month Period Ended June 30, 2019
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
 
$
631

 
$
(2,293
)
 
$
(1,662
)
 
$
711

 
$
(18,695
)
 
$
(17,984
)
TBAs
 
 
 
(4,993
)
 
(4,993
)
 
 
 
504

 
504

Futures
 
 
 
(14,107
)
 
(14,107
)
 
 
 
8,070

 
8,070

Options
 
 
 
(100
)
 
(100
)
 
 
 

 

Total
 
$
631

 
$
(21,493
)
 
$
(20,862
)
 
$
711

 
$
(10,121
)
 
$
(9,410
)

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 December 31, 2019, the Company held short positions in U.S. Treasury securities, with a principal amount of $2.1 million and a fair value of $2.1 million; as of June 30, 2020, the Company did not hold any short positions in U.S. Treasury securities. Such securities are included on the Company's Consolidated Balance Sheet under the caption U.S. Treasury securities sold short, at fair value.