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Valuation (Tables)

6 Months Ended

Jun. 30, 2023

The following tables present the Company's financial instruments measured at fair value on:

June 30, 2023:


(In thousands)
Description	Level 1		Level 2		Level 3		Total
Assets:
Mortgage-backed securities, at fair value:
Agency RMBS:
15-year fixed-rate mortgages	$	—	$	31,529	$	—	$	31,529
20-year fixed-rate mortgages	—		10,021		—		10,021
30-year fixed-rate mortgages	—		824,370		—		824,370
Adjustable rate mortgages	—		7,223		—		7,223
Reverse mortgages	—		15,885		—		15,885
Interest only securities	—		4,311		2,945		7,256
Non-Agency RMBS	—		8,093		16,337		24,430
Mortgage-backed securities, at fair value	—		901,432		19,282		920,714
Other investments, at fair value:
U.S. Treasury Securities	—		284		—		284
Preferred equity securities	226		—		—		226
Total other investments, at fair value	226		284		—		510
Financial derivatives–assets, at fair value:
TBAs	—		793		—		793
Interest rate swaps	—		69,636		—		69,636
Futures	89		—		—		89
Total financial derivatives–assets, at fair value	89		70,429		—		70,518
Total mortgage-backed securities, other investments, and financial derivatives–assets, at fair value	$	315	$	972,145	$	19,282	$	991,742
Liabilities:
U.S. Treasury securities sold short, at fair value	$	—	$	(1,957)	$	—	$	(1,957)
Financial derivatives–liabilities, at fair value:
TBAs	—		(501)		—		(501)
Interest rate swaps	—		(942)		—		(942)
Futures	(657)		—		—		(657)
Credit default swaps	—		(381)		—		(381)
Total financial derivatives–liabilities, at fair value	(657)		(1,824)		—		(2,481)
Total U.S. Treasury securities sold short and financial derivatives–liabilities, at fair value	$	(657)	$	(3,781)	$	—	$	(4,438)

December 31, 2022:


(In thousands)
Description	Level 1		Level 2		Level 3		Total
Assets:
Mortgage-backed securities, at fair value:
Agency RMBS:
15-year fixed-rate mortgages	$	—	$	45,324	$	—	$	45,324
20-year fixed-rate mortgages	—		9,691		—		9,691
30-year fixed-rate mortgages	—		781,754		—		781,754
Adjustable rate mortgages	—		8,663		—		8,663
Reverse mortgages	—		17,852		—		17,852
Interest only securities	—		5,228		4,085		9,313
Non-Agency RMBS	—		8,870		11,834		20,704
Mortgage-backed securities, at fair value	—		877,382		15,919		893,301
Other investments, at fair value:
Preferred equity securities	208		—		—		208
Total other investments, at fair value	208		—		—		208
Financial derivatives–assets, at fair value:
TBAs	—		3,568		—		3,568
Interest rate swaps	—		65,202		—		65,202
Total financial derivatives–assets, at fair value	—		68,770		—		68,770
Total mortgage-backed securities and financial derivatives–assets, at fair value	$	208	$	946,152	$	15,919	$	962,279
Liabilities:
U.S. Treasury securities sold short, at fair value	$	—	$	(498)	$	—	$	(498)
Financial derivatives–liabilities, at fair value:
TBAs	—		(664)		—		(664)
Interest rate swaps	—		(2,373)		—		(2,373)
Futures	(82)		—		—		(82)
Total financial derivatives–liabilities, at fair value	(82)		(3,037)		—		(3,119)
Total U.S. Treasury securities sold short and financial derivatives–liabilities, at fair value	$	(82)	$	(3,535)	$	—	$	(3,617)

Unobservable Input Reconciliation

The following tables present additional information about the Company's investments which are measured at fair value for which the Company has utilized Level 3 inputs to determine fair value.

Three-Month Period Ended June 30, 2023:


(In thousands)	Non-Agency RMBS		Agency RMBS
Beginning balance as of March 31, 2023	$	15,500	$	2,551
Purchases	1,158		—
Proceeds from sales	(4,208)		—
Principal repayments	(42)		(337)
(Amortization)/accretion, net	(45)		(174)
Net realized gains (losses)	(108)		(91)
Change in net unrealized gains (losses)	347		179
Transfers:
Transfers into level 3	3,735		817
Transfers out of level 3	—		—
Ending balance as of June 30, 2023	$	16,337	$	2,945

All amounts of net realized and changes in net unrealized gains (losses) in the table above are reflected in the accompanying Consolidated Statement of Operations. The table above incorporates changes in net unrealized gains (losses) for both Level 3 financial instruments held by the Company at June 30, 2023, as well as Level 3 financial instruments disposed of by the Company during the three-month period ended June 30, 2023. For Level 3 financial instruments held by the Company as of June 30, 2023, change in net unrealized gains (losses) of $0.3 million and $0.2 million, for the three-month period ended June 30, 2023 relate to non-Agency RMBS and Agency RMBS, respectively.

At June 30, 2023, the Company transferred $4.6 million of RMBS from Level 2 to Level 3. Transfers between hierarchy levels are based on the availability of sufficient observable inputs to meet Level 2 versus Level 3 criteria. The level designation of each financial instrument is reassessed at the end of each period, and is based on pricing information received from third party pricing sources.

Three-Month Period Ended June 30, 2022:


(In thousands)	Non-Agency RMBS		Agency RMBS
Beginning balance as of March 31, 2022	$	12,148	$	3,142
Purchases	1,375		—
Proceeds from sales	(1,375)		—
Principal repayments	(33)		—
(Amortization)/accretion, net	—		(146)
Net realized gains (losses)	25		(240)
Change in net unrealized gains (losses)	(688)		163
Transfers:
Transfers into level 3	4,722		671
Transfers out of level 3	—		(895)
Ending balance as of June 30, 2022	$	16,174	$	2,695

All amounts of net realized and changes in net unrealized gains (losses) in the table above are reflected in the accompanying Consolidated Statement of Operations. The table above incorporates changes in net unrealized gains (losses) for both Level 3 financial instruments held by the Company as of June 30, 2022, as well as Level 3 financial instruments disposed of by the Company during the three-month period ended June 30, 2022. For Level 3 financial instruments held by the Company as of June 30, 2022, change in net unrealized gains (losses) of $(0.1) million and $0.1 million, for the three-month period ended June 30, 2022 relate to non-Agency RMBS and Agency RMBS, respectively.

At June 30, 2022, the Company transferred $0.9 million of RMBS from Level 3 to Level 2 and $5.4 million of RMBS from Level 2 to Level 3. Transfers between these hierarchy levels are based on the availability of sufficient observable inputs to meet Level 2 versus Level 3 criteria. The level designation of each financial instrument is reassessed at the end of each period, and is based on pricing information received from third party pricing sources.

Six-Month Period Ended June 30, 2023:


(In thousands)	Non-Agency RMBS		Agency RMBS
Beginning balance as of December 31, 2022	$	11,834	$	4,085
Purchases	10,378		—
Proceeds from sales	(1,461)		(1,484)
Principal repayments	(173)		(382)
(Amortization)/accretion, net	(160)		(384)
Net realized gains (losses)	162		(216)
Change in net unrealized gains (losses)	248		200
Transfers:
Transfers into level 3	1,751		1,331
Transfers out of level 3	(6,242)		(205)
Ending balance as of June 30, 2023	$	16,337	$	2,945

All amounts of net realized and changes in net unrealized gains (losses) in the table above are reflected in the accompanying Consolidated Statement of Operations. The table above incorporates changes in net unrealized gains (losses) for both Level 3 financial instruments held by the Company at June 30, 2023, as well as Level 3 financial instruments disposed of by the Company during the six-month period ended June 30, 2023. For Level 3 financial instruments held by the Company as of June 30, 2023, change in net unrealized gains (losses) of $0.4 million and $0.3 million, for the six-month period ended June 30, 2023 relate to non-Agency RMBS and Agency RMBS, respectively.

At June 30, 2023, the Company transferred $6.4 million of RMBS from Level 3 to Level 2 and $3.1 million of RMBS from Level 2 to Level 3. Transfers between hierarchy levels are based on the availability of sufficient observable inputs to meet Level 2 versus Level 3 criteria. The level designation of each financial instrument is reassessed at the end of each period, and is based on pricing information received from third party pricing sources.

Six-Month Period Ended June 30, 2022:


(In thousands)	Non-Agency RMBS		Agency RMBS
Beginning balance as of December 31, 2021	$	7,259	$	5,654
Purchases	7,849		174
Proceeds from sales	(6,502)		—
Principal repayments	(74)		—
(Amortization)/accretion, net	(49)		(956)
Net realized gains (losses)	23		(181)
Change in net unrealized gains (losses)	321		824
Transfers:
Transfers into level 3	7,347		354
Transfers out of level 3	—		(3,174)
Ending balance as of June 30, 2022	$	16,174	$	2,695

All amounts of net realized and changes in net unrealized gains (losses) in the table above are reflected in the accompanying Consolidated Statement of Operations. The table above incorporates changes in net unrealized gains (losses) for both Level 3 financial instruments held by the Company as of June 30, 2022, as well as Level 3 financial instruments disposed of by the Company during the six-month period ended June 30, 2022. For Level 3 financial instruments held by the Company as of June 30, 2022, change in net unrealized gains (losses) of $0.3 million and $0.3 million, for the six-month period ended June 30, 2022 relate to non-Agency RMBS and Agency RMBS, respectively.

At June 30, 2022, the Company transferred $3.2 million of RMBS from Level 3 to Level 2 and $7.7 million of RMBS from Level 2 to Level 3. Transfers between these hierarchy levels are based on the availability of sufficient observable inputs to meet Level 2 versus Level 3 criteria. The level designation of each financial instrument is reassessed at the end of each period, and is based on pricing information received from third party pricing sources.

Quantitative Information

The following tables identify the significant unobservable inputs that affect the valuation of the Company's Level 3 assets and liabilities as of June 30, 2023 and December 31, 2022:

June 30, 2023:


					Range
Description	Fair Value		Valuation Technique	Significant Unobservable Input	Min			Max			Weighted Average(1)
	(In thousands)
Non-Agency RMBS	$	10,145	Market quotes	Non-Binding Third-Party Valuation	$	0.78		$	96.58		$	38.61
	6,192		Discounted Cash Flows
	$	16,337		Yield	6.1		%	16.7		%	9.8		%
				Projected Collateral Prepayments	2.4		%	63.2		%	45.0		%
				Projected Collateral Losses	0.6		%	9.3		%	2.8		%
				Projected Collateral Recoveries	0.0		%	15.0		%	4.5		%
Agency RMBS–Interest Only Securities	$	1,212	Market quotes	Non-Binding Third-Party Valuation	$	3.34		$	17.89		$	6.60
	1,733		Option Adjusted Spread ("OAS")	LIBOR OAS (2)(3)	36			5,076			1,407
	$	2,945		Projected Collateral Prepayments	10.6		%	100.0		%	63.3		%

(1)Averages are weighted based on the fair value of the related instrument.

(2)Shown in basis points.

(3)For the range minimum, the range maximum, and the weighted average of LIBOR OAS, excludes Agency interest only securities with a negative LIBOR OAS, with a total fair value of $0.1 million. Including these securities, the weighted average was 1351 basis points.

December 31, 2022:


					Range
Description	Fair Value		Valuation Technique	Significant Unobservable Input	Min			Max			Weighted Average(1)
	(In thousands)
Non-Agency RMBS	$	10,127	Market quotes	Non-Binding Third-Party Valuation	$	0.75		$	81.42		$	34.63
	1,707		Discounted Cash Flows
	$	11,834		Yield	5.3		%	21.6		%	9.4		%
				Projected Collateral Prepayments	25.1		%	56.9		%	31.1		%
				Projected Collateral Losses	0.0		%	8.7		%	5.7		%
				Projected Collateral Recoveries	1.6		%	15.4		%	11.1		%
Agency RMBS–Interest Only Securities	$	2,362	Market quotes	Non-Binding Third-Party Valuation	$	13.94		$	18.58		$	17.62
	1,723		Option Adjusted Spread ("OAS")	LIBOR OAS (2)(3)	92			5,070			644
	$	4,085		Projected Collateral Prepayments	21.2		%	76.6		%	51.5		%

(1)Averages are weighted based on the fair value of the related instrument.

(2)Shown in basis points.

(3)For the range minimum, the range maximum, and the weighted average of LIBOR OAS, excludes Agency interest only securities with a negative LIBOR OAS, with a total fair value of $3 thousand. Including these securities, the weighted average was 641 basis points.

Fair Value, Other Financial Instruments

The following table summarizes the estimated fair value of all other financial instruments not included in the disclosures above as of June 30, 2023 and December 31, 2022:


	June 30, 2023				December 31, 2022
(In thousands)	Fair Value		Carrying Value		Fair Value		Carrying Value

Assets:
Cash and cash equivalents	$	43,713	$	43,713	$	34,816	$	34,816
Due from brokers	17,031		17,031		18,824		18,824
Reverse repurchase agreements	12,191		12,191		499		499
Liabilities:
Repurchase agreements	875,030		875,030		842,455		842,455
Due to brokers	49,787		49,787		45,666		45,666

Cash and cash equivalents includes cash held in interest bearing overnight accounts, for which fair value equals the carrying value, and cash held in money market accounts, which are liquid in nature and for which fair value equals the carrying value; such assets are considered Level 1 assets. Due from brokers and Due to brokers include collateral transferred to or received from counterparties, along with receivables and payables for open and/or closed derivative positions. These receivables and payables are short term in nature and any collateral transferred consists primarily of cash; fair value of these items approximates carrying value and such items are considered Level 1 assets and liabilities. The Company's repurchase and reverse repurchase agreements are carried at cost, which approximates fair value due to their short term nature. Repurchase agreements and reverse repurchase agreements are classified as Level 2 assets and liabilities based on the adequacy of the collateral and their short term nature.