Note 6. Offsetting of Financial Assets and Liabilities

The agreements that govern certain of the Company’s derivative instruments and collateralized short-term financing arrangements provide for a right of setoff in the event of default or bankruptcy with respect to either party to such transactions. The Company presents derivative assets and liabilities as well as collateralized short-term financing arrangements on a gross basis.

Receivables recognized for the right to reclaim cash initial margin posted in respect of interest rate derivative instruments are included in the line item “deposits, net” in the accompanying consolidated balance sheets.

The daily exchange of variation margin associated with a centrally cleared or exchange-traded derivative instrument is legally characterized as the daily settlement of the derivative instrument itself, as opposed to a pledge of collateral. Accordingly, the Company accounts for the daily receipt or payment of variation margin associated with its interest rate swaps and futures as a direct reduction to the carrying value of the interest rate swap derivative asset or liability, respectively. The carrying amount of interest rate swaps and futures reflected in the Company’s consolidated balance sheets is equal to the unsettled fair value of such instruments; because variation margin is exchanged on a one-day lag, the unsettled fair value of such instruments generally represents the change in fair value that occurred on the last day of the reporting period.

The following tables present information, as of the dates indicated, about the Company’s derivative instruments, short-term borrowing arrangements, and associated collateral, including those subject to master netting (or similar) arrangements:

	As of September 30, 2018
	Gross Amount Recognized		Amount Offset in the Consolidated Balance Sheets		Net Amount Presented in the Consolidated Balance Sheets		Gross Amount Not Offset in the Consolidated Balance Sheets						Net Amount
							Financial Instruments ⁽¹⁾			Cash Collateral ⁽²⁾
Assets:
Derivative instruments:
Interest rate swaps	$	91	$	—	$	91	$	(91	)	$	—		$	—
Total derivative instruments		91		—		91		(91	)		—			—
Total assets	$	91	$	—	$	91	$	(91	)	$	—		$	—
Liabilities:
Derivative instruments:
Interest rate swaps	$	1,124	$	—	$	1,124	$	(91	)	$	(1,033	)	$	—
10-year U.S. Treasury note futures		219		—		219		—			(219	)		—
TBA commitments		2,088		—		2,088		—			(2,088	)		—
Total derivative instruments		3,431		—		3,431		(91	)		(3,340	)		—
Repurchase agreements		4,092,251		—		4,092,251		(4,092,251	)		—			—
Total liabilities	$	4,095,682	$	—	$	4,095,682	$	(4,092,342	)	$	(3,340	)	$	—

	As of December 31, 2017
	Gross Amount Recognized		Amount Offset in the Consolidated Balance Sheets		Net Amount Presented in the Consolidated Balance Sheets		Gross Amount Not Offset in the Consolidated Balance Sheets						Net Amount
							Financial Instruments ⁽¹⁾			Cash Collateral ⁽²⁾
Assets:
Derivative instruments:
TBA commitments	$	763	$	—	$	763	$	—		$	—		$	763
Total derivative instruments		763		—		763		—			—			763
Total assets	$	763	$	—	$	763	$	—		$	—		$	763
Liabilities:
Derivative instruments:
Interest rate swaps	$	3,338	$	—	$	3,338	$	—		$	(3,338	)	$	—
U.S. Treasury note futures		1,341		—		1,341		—			(1,341	)		—
TBA commitments		154		—		154		—			(154	)		—
Total derivative instruments		4,833		—		4,833		—			(4,833	)		—
Repurchase agreements		3,667,181		—		3,667,181		(3,667,181	)		—			—
Total liabilities	$	3,672,014	$	—	$	3,672,014	$	(3,667,181	)	$	(4,833	)	$	—

⁽¹⁾	Does not include the fair value amount of financial instrument collateral pledged in respect of repurchase agreements that exceeds the associated liability presented in the consolidated balance sheets.

⁽²⁾	Does not include the amount of cash collateral pledged in respect of derivative instruments that exceeds the associated derivative liability presented in the consolidated balance sheets.