Quarterly report pursuant to Section 13 or 15(d)

Derivative Instruments and Hedging Activities (Tables)

v3.24.3
Derivative Instruments and Hedging Activities (Tables)
 9 Months Ended
Sep. 30, 2024
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Schedule of Derivative Instruments in Statement of Financial Position, Fair Value
The following tables present the gross fair value and notional amounts of the Company’s derivative financial instruments treated as trading derivatives as of September 30, 2024 and December 31, 2023:
September 30, 2024
Derivative Assets Derivative Liabilities
(in thousands) Fair Value Notional Fair Value Notional
Inverse interest-only securities
 $ 11,842  $ 142,011  $ —  $ — 
Interest rate swap agreements
 —  —  —  14,197,205 
Swaptions, net —  —  —  — 
TBAs 184  (34,000) (16,725) 5,098,000 
Futures, net —  —  —  (3,693,900)
Interest rate lock commitments 478  33,381  —  — 
Forward mortgage loan sale commitments 68  26,786  (39) 9,612 
Total $ 12,572  $ 168,178  $ (16,764) $ 15,610,917 
December 31, 2023
Derivative Assets Derivative Liabilities
(in thousands) Fair Value Notional Fair Value Notional
Inverse interest-only securities
 $ 12,292  $ 163,735  $ —  $ — 
Interest rate swap agreements
 —  —  —  17,788,114 
Swaptions, net 19  (200,000) —  — 
TBAs 72,980  2,979,000  (21,506) 518,000 
Futures, net —  —  —  (6,203,050)
Interest rate lock commitments —  —  —  — 
Forward mortgage loan sale commitments —  —  —  — 
Total $ 85,291  $ 2,942,735  $ (21,506) $ 12,103,064 
Schedule of Derivative Instruments, Gain (Loss) in Statement of Financial Performance
The following table summarizes the location and amount of gains and losses on derivative instruments reported in the condensed consolidated statements of comprehensive income (loss):
Derivative Instruments Location of Gain (Loss) Recognized in Income Amount of Gain (Loss) Recognized in Income
Three Months Ended Nine Months Ended
(in thousands) September 30, September 30,
2024 2023 2024 2023
Interest rate risk management:
TBAs
(Loss) gain on other derivative instruments
 $ 84,073  $ (90,662) $ (2,438) $ (184,909)
Futures
(Loss) gain on other derivative instruments
 (119,553) 179,697  16,061  166,533 
Options on futures
(Loss) gain on other derivative instruments
 —  (779) (127) (779)
Interest rate swaps - Payers
(Loss) gain on interest rate swap and swaption agreements
 (201,417) 160,099  17,521  211,941 
Interest rate swaps - Receivers
(Loss) gain on interest rate swap and swaption agreements
 29,155  (47,937) (69,292) (125,596)
Swaptions
(Loss) gain on interest rate swap and swaption agreements
 —  (253) 31  (57)
Interest rate lock commitments
Gain on mortgage loans held-for-sale
 478  —  478  — 
Forward mortgage loan sale commitments
Gain on mortgage loans held-for-sale
 29  —  29  — 
Non-risk management:
Inverse interest-only securities
(Loss) gain on other derivative instruments
 2,758  (2,044) 631  (3,243)
Total $ (204,477) $ 198,121  $ (37,106) $ 63,890 
Schedule of Notional Amounts of Outstanding Derivative Positions
The following tables present information with respect to the volume of activity in the Company’s derivative instruments during the three and nine months ended September 30, 2024 and 2023:
Three Months Ended September 30, 2024
(in thousands) Beginning of Period Notional Amount Additions Settlement, Termination, Expiration or Exercise End of Period Notional Amount Average Notional Amount
Realized Gain (Loss),
net (1)
Inverse interest-only securities $ 149,152  $ —  $ (7,141) $ 142,011  $ 145,931  $ — 
Interest rate swap agreements 11,739,471  10,354,868  (7,897,134) 14,197,205  13,365,113  (86,310)
Swaptions, net —  —  —  —  —  — 
TBAs, net 4,983,000  14,936,000  (14,855,000) 5,064,000  4,799,826  90,444 
Futures, net
 (6,308,900) (3,253,400) 5,868,400  (3,693,900) (4,975,350) (117,162)
Interest rate lock commitments 12,879  69,927  (49,425) 33,381  26,775  — 
Forward mortgage loan sale commitments 12,879  69,927  (46,408) 36,398  26,872  — 
Total $ 10,588,481  $ 22,177,322  $ (16,986,708) $ 15,779,095  $ 13,389,167  $ (113,028)
Three Months Ended September 30, 2023
(in thousands) Beginning of Period Notional Amount Additions Settlement, Termination, Expiration or Exercise End of Period Notional Amount Average Notional Amount
Realized Gain (Loss),
net (1)
Inverse interest-only securities $ 179,542  $ —  $ (8,035) $ 171,507  $ 175,850  $ — 
Interest rate swap agreements 8,977,714  1,307,773  (1,739,522) 8,545,965  8,869,676  (5,096)
Swaptions, net (200,000) (200,000) 200,000  (200,000) (186,957) (80)
TBAs, net 3,051,000  9,704,000  (10,561,000) 2,194,000  2,713,272  (88,858)
Futures, net
 (6,624,550) (7,617,280) 6,371,380  (7,870,450) (7,003,084) 143,517 
Options on futures, net
 —  —  —  —  —  (779)
Interest rate lock commitments —  —  —  —  —  — 
Forward mortgage loan sale commitments —  —  —  —  —  — 
Total $ 5,383,706  $ 3,194,493  $ (5,737,177) $ 2,841,022  $ 4,568,757  $ 48,704 
Nine Months Ended September 30, 2024
(in thousands) Beginning of Period Notional Amount Additions Settlement, Termination, Expiration or Exercise End of Period Notional Amount Average Notional Amount
Realized Gain (Loss),
net (1)
Inverse interest-only securities $ 163,735  $ —  $ (21,724) $ 142,011  $ 153,181  $ — 
Interest rate swap agreements 17,788,114  24,147,143  (27,738,052) 14,197,205  13,290,306  (69,934)
Swaptions, net (200,000) (500,000) 700,000  —  (77,372) (98)
TBAs, net 3,497,000  42,967,000  (41,400,000) 5,064,000  4,046,869  65,576 
Futures, net
 (6,203,050) (19,067,500) 21,576,650  (3,693,900) (5,937,450) (89,537)
Options on futures, net
 —  —  —  —  —  (127)
Interest rate lock commitments —  82,806  (49,425) 33,381  14,204  — 
Forward mortgage loan sale commitments —  82,806  (46,408) 36,398  14,253  — 
Total $ 15,045,799  $ 47,712,255  $ (46,978,959) $ 15,779,095  $ 11,503,991  $ (94,120)
Nine Months Ended September 30, 2023
(in thousands) Beginning of Period Notional Amount Additions Settlement, Termination, Expiration or Exercise End of Period Notional Amount Average Notional Amount
Realized Gain (Loss),
net (1)
Inverse interest-only securities $ 196,456  $ —  $ (24,949) $ 171,507  $ 184,172  $ — 
Interest rate swap agreements —  11,873,556  (3,327,591) 8,545,965  6,874,280  (23,676)
Swaptions, net —  (400,000) 200,000  (200,000) (148,718) (80)
TBAs, net 3,826,000  35,490,000  (37,122,000) 2,194,000  3,394,330  (194,716)
Futures, net
 (18,285,452) (29,619,130) 40,034,132  (7,870,450) (9,637,688) 123,547 
Options on futures, net
 —  —  —  —  —  (779)
Interest rate lock commitments —  —  —  —  —  — 
Forward mortgage loan sale commitments —  —  —  —  —  — 
Total $ (14,262,996) $ 17,344,426  $ (240,408) $ 2,841,022  $ 666,376  $ (95,704)
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(1)Excludes net interest paid or received in full settlement of the net interest spread liability.
Schedule of TBA Positions The following tables present the notional amount, cost basis, market value and carrying value (which approximates fair value) of the Company’s TBA positions as of September 30, 2024 and December 31, 2023:
September 30, 2024
Net Carrying Value (4)
(in thousands)
Notional Amount (1)
Cost Basis (2)
Market Value (3)
Derivative Assets Derivative Liabilities
Purchase contracts $ 5,098,000  $ 5,092,267  $ 5,075,542  $ —  $ (16,725)
Sale contracts (34,000) (31,850) (31,665) 185  — 
TBAs, net $ 5,064,000  $ 5,060,417  $ 5,043,877  $ 185  $ (16,725)
December 31, 2023
Net Carrying Value (4)
(in thousands)
Notional Amount (1)
Cost Basis (2)
Market Value (3)
Derivative Assets Derivative Liabilities
Purchase contracts $ 4,194,000  $ 3,827,271  $ 3,898,874  $ 72,980  $ (1,377)
Sale contracts (697,000) (656,723) (676,852) —  (20,129)
TBAs, net $ 3,497,000  $ 3,170,548  $ 3,222,022  $ 72,980  $ (21,506)
___________________
(1)Notional amount represents the face amount 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 TBA (or of the underlying Agency RMBS) as of period end.
(4)Net carrying value represents the difference between the market value of the TBA as of period end and its cost basis, and is reported in derivative assets / (liabilities), at fair value, in the condensed consolidated balance sheets.
Schedule of Futures The following table summarizes certain characteristics of the Company’s futures as of September 30, 2024 and December 31, 2023:
(dollars in thousands) September 30, 2024 December 31, 2023
Type & Maturity Notional Amount Carrying Value Weighted Average Months to Expiration Notional Amount Carrying Value Weighted Average Months to Expiration
U.S. Treasury futures - 2 year $ (2,028,200) $ —  3.03 $ (549,600) $ —  2.89
U.S. Treasury futures - 5 year (749,400) —  3.03 (1,876,700) —  2.89
U.S. Treasury futures - 10 year (561,900) —  2.63 (983,300) —  2.60
U.S. Treasury futures - 20 year 425,600  —  2.63 (388,200) —  2.89
Eris SOFR swap futures - 10 year
 (30,000) —  122.66 —  —  —
SOFR futures
≤ 1 year (750,000) —  7.05 (1,842,750) —  6.05
> 1 and ≤ 2 years —  —  — (562,500) —  17.56
Total futures $ (3,693,900) $ —  4.30 $ (6,203,050) $ —  5.10
Schedule of Interest Rate Swap Payers As of September 30, 2024 and December 31, 2023, the Company held the following interest rate swaps that were utilized as economic hedges of interest rate exposure (or duration) whereby the Company receives interest at a floating interest rate (OIS or SOFR):
(notional in thousands)
September 30, 2024
Swaps Maturities
Notional Amount (1)
Weighted Average Fixed Pay Rate (2)
Weighted Average Receive Rate
Weighted Average Maturity (Years) (2)
≤ 1 year $ 2,647,671  4.730  % 4.960  % 0.46
> 1 and ≤ 3 years 4,505,979  3.929  % 4.960  % 1.75
> 3 and ≤ 5 years 2,718,767  3.546  % 4.960  % 3.28
> 5 and ≤ 7 years 450,866  —  % —  % 0.00
> 7 and ≤ 10 years 285,182  —  % —  % 0.00
> 10 years 736,262  3.707  % 4.960  % 13.65
Total $ 11,344,727  4.107  % 4.960  % 2.52
(notional in thousands)
December 31, 2023
Swaps Maturities
Notional Amount (1)
Weighted Average Fixed Pay Rate (2)
Weighted Average Receive Rate
Weighted Average Maturity (Years) (2)
≤ 1 year $ —  —  % —  % 0.00
> 1 and ≤ 3 years 6,796,772  4.551  % 5.380  % 1.44
> 3 and ≤ 5 years 2,040,444  3.800  % 5.380  % 4.07
> 5 and ≤ 7 years 697,800  4.282  % 5.380  % 6.67
> 7 and ≤ 10 years 2,125,830  3.606  % 5.380  % 9.32
> 10 years 466,637  3.753  % 5.380  % 14.57
Total $ 12,127,483  4.245  % 5.380  % 3.87
____________________
(1)Notional amount includes $2.5 billion and $1.1 billion in forward starting interest rate swaps as of September 30, 2024 and December 31, 2023, respectively.
(2)Weighted averages exclude forward starting interest rate swaps. As of September 30, 2024 and December 31, 2023, forward starting interest rate swap payers had a weighted average fixed pay rate of 3.3% and 4.0% and weighted average maturities of 5.4 and 6.4 years, respectively.
Schedule of Interest Rate Swap Receivers
Additionally, as of September 30, 2024 and December 31, 2023, the Company held the following interest rate swaps that were utilized as economic hedges of interest rate exposure (or duration) risk whereby the Company pays interest at a floating interest rate (OIS or SOFR):
(notional in thousands)
September 30, 2024
Swaps Maturities
Notional Amount (1)
Weighted Average Pay Rate
Weighted Average Fixed Receive Rate (2)
Weighted Average Maturity (Years) (2)
≤ 1 year $ 786,641  4.960  % 4.025  % 0.47
> 1 and ≤ 3 years 925,695  4.960  % 3.326  % 3.00
> 3 and ≤ 5 years 352,348  4.960  % 3.099  % 4.96
> 5 and ≤ 7 years 99,607  4.960  % 3.097  % 6.95
> 7 and ≤ 10 years 194,861  4.960  % 3.633  % 9.83
> 10 years 493,326  4.960  % 3.384  % 20.38
Total $ 2,852,478  4.960  % 3.571  % 7.12
(notional in thousands)
December 31, 2023
Swaps Maturities
Notional Amount (1)
Weighted Average Pay Rate
Weighted Average Fixed Receive Rate (2)
Weighted Average Maturity (Years) (2)
≤ 1 year $ —  —  % —  % 0.00
> 1 and ≤ 3 years 2,470,819  5.380  % 4.204  % 1.36
> 3 and ≤ 5 years 780,000  5.380  % 3.845  % 1.36
> 5 and ≤ 7 years 988,026  5.380  % 4.023  % 4.03
> 7 and ≤ 10 years 1,161,160  5.380  % 4.013  % 9.57
> 10 years 260,626  5.380  % 3.444  % 20.01
Total $ 5,660,631  5.380  % 4.052  % 5.00
____________________
(1)Notional amount includes $665.7 million and $645.2 million in forward starting interest rate swaps as of September 30, 2024 and December 31, 2023, respectively.
(2)Weighted averages exclude forward starting interest rate swaps. As of September 30, 2024 and December 31, 2023, forward starting interest rate swap receivers had a weighted average fixed receive rate of 3.4% and 4.4% and weighted average maturities of 2.0 and 2.0 years, respectively.
Schedule of Interest Rate Swaptions As of December 31, 2023, the Company had the following outstanding interest rate swaptions:
December 31, 2023
(notional and dollars in thousands) Option Underlying Swap
Swaption Expiration Cost Fair Value Average Months to Expiration Notional Amount Average Fixed Rate Average Term (Years)
Purchase contracts:
Payer < 6 Months $ 480  $ 22  2.40  $ 200,000  5.13  % 1.0
Sale contracts:
Payer < 6 Months $ (332) $ (3) 2.40  $ (400,000) 5.61  % 1.0