Derivative Instruments

12 Months Ended

Dec. 31, 2016

Derivative Instruments And Hedging Activities Disclosure [Abstract]

Derivative Instruments

NOTE 14. 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 December 31, 2016 and December 31, 2015:

		December 31,		December 31,
Derivative Instruments	Balance Sheet Location	2016		2015
		(in thousands)
De-designated interest rate swaps	Derivative Assets	$	7,668	$	11,644
Eurodollar Futures Contracts	Derivative Assets		524		826
		$	8,192	$	12,470
De-designated interest rate swaps	Derivative Liabilities	$	20,976	$	33,897
TBA Agency MBS	Derivative Liabilities		13,103		650
Eurodollar Futures Contracts	Derivative Liabilities		223		-
		$	34,302	$	34,547

Interest Rate Swap Agreements

At December 31, 2016, we were a counterparty to interest rate swaps, which are derivative instruments as defined by ASC 815-10, with an aggregate notional amount of $1.77 billion and a weighted average maturity of approximately 34 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 swap agreements, we will pay a fixed-rate of interest during the term of the swap agreements (ranging from 0.598% to 3.06%) and receive a payment that varies with the three-month LIBOR rate. During the year ended December 31, 2016, 28 swap agreements with an aggregate notional amount of $2.22 billion either were terminated or matured, and we entered into 3 new swap agreements with an aggregate notional amount of $125 million and terms of up to five years.  

At December 31, 2016, the amount in AOCI relating to interest rate swaps was approximately $17.8 million. The estimated net amount of the existing losses that were reported in AOCI at December 31, 2016 that is expected to be reclassified into earnings within the next twelve months is approximately $2.4 million.

At December 31, 2016 and 2015, our swaps had the following notional amounts (dollar amounts in thousands), weighted average fixed rates and remaining terms (in months):

	December 31, 2016							December 31, 2015
Maturity	Notional Amount		Weighted Average Fixed Rate			Remaining Term  in Months		Notional Amount		Weighted Average Fixed Rate			Remaining Term  in Months
Less than 1 year	$	500,000		0.79	%		6	$	950,000		0.68	%		9
1 year to 2 years		410,000		0.96			16		930,000		0.96			18
2 years to 3 years		150,000		1.29			34		1,000,000		1.13			30
3 years to 4 years		166,000		1.45			46		250,000		1.28			44
4 years to 5 years		125,000		2.44			57		216,000		1.88			58
5 years to 7 years		420,000		2.73			75		320,000		2.54			78
7 years to 10 years		-		-			-		200,000		3.00			93
	$	1,771,000		1.51	%		34	$	3,866,000		1.24	%		32

Swap Agreements by Counterparty

	December 31,		December 31,
	2016		2015
	(in thousands)
Chicago Mercantile Exchange(1)	$	786,000	$	1,891,000
JPMorgan Securities		425,000		525,000
Deutsche Bank Securities		325,000		565,000
RBS Greenwich Capital		115,000		115,000
Nomura Securities International		100,000		200,000
Bank of New York		20,000		120,000
ING Financial Markets LLC		-		450,000
	$	1,771,000	$	3,866,000

(1) For all swap agreements entered into after September 9, 2013, the counterparty is the Chicago Mercantile Exchange regardless of who the trading party is. See the section entitled “Derivative Financial Instruments – Risk Management” in Note 1 for additional details.

Eurodollar Futures Contracts

Each Eurodollar Futures Contract embodies $1 million of notional value and is effective for a term of approximately three months. We do not designate these contracts as hedges for accounting purposes. As a result, realized and unrealized changes in fair value are recognized in earnings in the period in which the changes occur.

At December 31, 2016, we had 1,250 Eurodollar Futures Contracts representing $1.25 billion in notional amount. For the year ended December 31, 2016, we had losses on Eurodollar Futures Contracts of approximately $2.7 million. At December 31, 2015, we had 4,550 Eurodollar Futures Contracts representing $4.55 billion in notional amount. For the year ended December 31, 2015, we had losses on Eurodollar Futures Contracts of approximately $2.1 million.

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 on “Derivative Financial Instruments – TBA Agency MBS” for more information on TBA Agency MBS. During the year ended December 31, 2016, we recognized a gain on derivatives-TBA Agency MBS, net of derivative income, of approximately $11.5 million. During the year ended December 31, 2015, we recognized a gain on derivatives-TBA Agency MBS, net of derivative income, of approximately $9.3 million. The types of securities involved in these TBA contracts are Fannie Mae 15-year fixed-rate securities with coupons generally ranging from 2.5% to 3.0%. At December 31, 2016, the notional amount of the TBA Agency MBS was approximately $605 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. For more information on the fair value of our derivative instruments, see Note 8.