Derivative Instruments

6 Months Ended

Jun. 30, 2020

Derivative Instruments

Derivative Instruments

NOTE 15. DERIVATIVE INSTRUMENTS

The table below presents the fair value of our derivative instruments as well as their classification in our consolidated balance sheets as of June 30, 2020 and December 31, 2019:

		June 30,		December 31,
Derivative Instruments	Balance Sheet Location	2020		2019
		(in thousands)
Interest rate swaps	Derivative Assets	$	—	$	5,302
TBA Agency MBS	Derivative Assets		2,205		531
		$	2,205	$	5,833
Interest rate swaps	Derivative Liabilities		93,317		52,197
		$	93,317	$	52,197

Interest Rate Swap Agreements

At June 30, 2020, we were a counterparty to interest rate swaps, which are derivative instruments as defined by ASC 815-10, with an aggregate notional amount of $915 million and a weighted average maturity of approximately 61 months. We utilize interest rate swaps to manage interest rate risk relating to our repurchase agreements and do not anticipate entering into derivative transactions for speculative or trading purposes. In accordance with the interest rate swaps, we pay a fixed-rate of interest during the term of the interest rate swaps (ranging from 1.5455% to 3.2205%) and receive a payment that varies with the three-month LIBOR rate.

During the three months ended June 30, 2020, we did not enter into any new interest rate swaps. During the three months ended June 30, 2020, 10 interest rate swaps with an aggregate notional amount of $361 million matured or were terminated.

At June 30, 2020, the amount in AOCI relating to interest rate swaps was approximately $5.8 million. The estimated net amount of the existing losses that were reported in AOCI at June 30, 2020 that is expected to be reclassified into earnings within the next twelve months is approximately $2.7 million.

For the three months ended June 30, 2020 and June 30, 2019, we had a loss of approximately $8.7 million and a loss of approximately $57.7 million, respectively, on interest rate swaps. For the six months ended June 30, 2020 and June 30, 2019, we had a loss of approximately $110.0 million and a loss of approximately $91.4 million, respectively, on interest rate swaps.

At June 30, 2020 and December 31, 2019, our interest rate swaps (which were all done through the central clearing houses) had the following notional amounts, weighted average fixed rates, and remaining terms:

	June 30, 2020					December 31, 2019
			Weighted					Weighted
			Average		Remaining			Average		Remaining
	Notional		Fixed		Term in	Notional		Fixed		Term in
Maturity	Amount		Rate		Months	Amount		Rate		Months
	(in thousands)					(in thousands)
Less than 1 year	$	200,000	1.72	%	2	$	541,000	1.70	%	7
1 year to 2 years		—	—		—		190,000	1.63		21
2 years to 3 years		—	—		—		335,000	1.65		34
3 years to 4 years		50,000	1.55		40		295,000	1.71		45
4 years to 5 years		175,000	1.73		58		550,000	2.18		61
5 years to 7 years		440,000	2.63		87		390,000	2.51		85
7 years to 10 years		50,000	3.22		102		200,000	2.94		103
	$	915,000	2.23	%	61	$	2,501,000	2.02	%	48

TBA Agency MBS

We also enter into TBA contracts and will recognize a gain or loss on the sale of the contracts or dollar roll income. See the section in Note 1, “Organization and Significant Accounting Policies – Derivative Financial Instruments – Risk Management,” for more information on TBA Agency MBS. During the three and six months ended June 30, 2020, we recognized a gain on derivatives-TBA Agency MBS (including derivative income) of approximately $2.5 million and $15.0 million, respectively. During the three and six months ended June 30, 2019, we recognized a gain on derivatives-TBA Agency MBS (including derivative income) of approximately $4.2 million and $10.6 million, respectively. The types of securities involved in these TBA contracts are Fannie Mae 30-year fixed-rate securities with coupons generally ranging from 2% to 3%. At June 30, 2020, the net notional amount of the TBA Agency MBS was $250 million.

For more information on our accounting policies, the objectives, and risk exposures relating to derivatives and hedging agreements, see the section on “Derivative Financial Instruments” in Note 1, “Organization and Significant Accounting Policies.” For more information on the fair value of our interest rate swaps, see Note 9, “Fair Values of Financial Instruments,” to our accompanying unaudited consolidated financial statements.