Derivative and other Hedging Instruments (Tables)

12 Months Ended

Dec. 31, 2013

Schedule of Location of Derivatives Instruments on Consolidated Balance Sheet

The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts).  The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. The fair value of Futures Contracts is based on quoted prices from the exchange on which they trade.  The table below presents the fair value of the Company’s derivative instruments as well as their classification on the consolidated balance sheets as of December 31, 2013 and 2012, respectively.

Derivative Instruments	Balance Sheet Location	December 31, 2013		December 31, 2012
Interest rate swaps	Interest rate swap asset	$	15,841	$	-
Forward purchase commitments	Other assets		-		5,452
Futures contracts	Other assets		11,148
Interest rate swaps	Interest rate swap liability	$	125,133	$	243,945
Futures contracts	Futures contract liability		36,733		-
Forward purchase commitments including TBA dollar roll transactions	Other liabilities		5,741		-

Volume of Activity for the Company's Interest Rate Derivative Instruments

The volume of activity for the Company’s interest rate swap instruments is shown in the table below.  

	Interest Rate
	Swaps
Notional amount as of December 31, 2012	$	10,700,000
Additions		800,000
Settlements, terminations, or expirations		(1,000,000	)
Notional amount as of December 31, 2013	$	10,500,000

Hedging Exposure Future Cash Flows with Interest Rate Swaps for Forecasted Transactions

As of December 31, 2013, the weighted-average remaining term of the Company’s swaps is 24 months.  The table below shows the remaining term of the Company’s interest rate swaps as of December 31, 2013.

			Remaining		Weighted Average
	Notional		Term		Fixed Interest
Maturity	Amount		in Months		Rate in Contract
12 months or less	$	2,200,000		8		1.71%
Over 12 months to 24 months		3,700,000		18		1.73%
Over 24 months to 36 months		2,400,000		30		0.92%
Over 36 months to 48 months		1,800,000		41		0.89%
Over 48 months to 60 months		400,000		50		0.96%
Total	$	10,500,000		24		1.37%

Schedule of Fair Value of Futures Contracts

The Company uses Futures Contracts to 1) synthetically replicate an interest rate swap, or 2) offset the changes in value of its forward purchases of certain agency securities.  As of December 31, 2013, the fair value of all Futures Contracts was a liability of $(25,585).  The Company did not own Futures Contracts prior to 2013.

	Fair Value
	Futures Contracts
Futures Contracts designed to replicate swaps	$	(27,881	)
Futures Contracts designed to hedge value changes in forward purchases		2,296
Total fair market value of Futures Contracts	$	(25,585	)

The volume of activity for the Company’s Futures Contracts is shown in the table below.

Schedule of Volume of Activity Futures Contracts

	Number of
	Contracts
As of December 31, 2012		-
Purchases		125,860
Settlements		(28,164	)
Maturities		(2,369	)
As of December 31, 2013		95,327

Schedule of ARM Securities Forward Purchase Commitments

The following table shows the ARM securities forward purchase commitments shown as a net asset in other assets on the balance sheets as of December 31, 2013 and 2012.

	Face		Cost		Fair Market Value		Net Asset
December 31, 2013	$	-	$	-	$	-	$	-
December 31, 2012	$	565,000	$	585,100	$	587,247	$	2,147

Schedule of Mortgage Backed Securities

At December 31, 2013, the Company had the following 15-year TBA dollar roll securities:

	Face		Cost		Fair Market Value		Net Liability
December 31, 2013	$	600,000	$	632,270	$	627,187	$	5,083

Gross Amounts Associated With Derivative Financial Instruments

The Company does not use either offsetting or netting to present any of its derivative assets or liabilities.  The following table shows the gross amounts associated with the Company’s derivative financial instruments and the impact if netting were used as of December 31, 2013.

	Assets/(Liabilities)			Cash Collateral Posted		Net Asset/(Liability)
Interest rate swaps	$	15,841		$	-	$	15,841
Futures contracts		11,148			-		11,148
Interest rate swaps	$	(125,133	)	$	133,661	$	8,528
Futures contracts		(36,733	)		77,713		40,980
Forward purchase commitments including TBA dollar roll transactions		(5,741	)		14,005		8,264

The following table shows the gross amounts associated with the Company’s derivative financial instruments and the impact if netting were used as of December 31, 2012.

	Assets/(Liabilities)			Cash Collateral Posted		Net Asset/(Liability)
Forward purchase commitments	$	5,452		$	-	$	5,452
Interest rate swaps	$	(243,945	)	$	281,021	$	37,076

Schedule of Derivative Instruments Gain (Loss), Net

The components of “Loss on derivative instruments, net” for the three years ended December 31, 2013, 2012 and 2011 were as follows.  Impacts from the Company’s interest rate swaps subsequent to the September 30, 2013 hedge de-designation are included herein.

	Years Ended December 31
	2013			2012		2011
Interest rate swaps – fair value adjustments	$	25,036		$	-	$	-
Interest rate swaps – monthly net settlements		(30,985	)		-		-
Futures Contracts – fair value adjustments		(25,585	)		-		-
Futures Contracts – realized losses		(33,298	)		-		-
TBA dollar roll income		5,605			-		-
Net realized loss on TBA contracts		(10,488	)		-		-
Loss on derivative instruments, net	$	(69,715	)	$	-	$	-

Schedule of Location of Derivatives on Income Statement

As discussed above, effective September 30, 2013, the Company discontinued cash flow hedge accounting for its interest rate swaps.  The table below presents the effect of the cash flow hedges on the Company’s comprehensive income for the years ended December 31, 2013, 2012 and 2011.

	Years Ended December 31
	2013			2012			2011
Amount of gain (loss) recognized in OCI (effective portion)	$	15,030		$	(141,392	)	$	(273,389	)
Amount of loss reclassified from OCI into net income as interest expense (effective portion)		(116,847	)		(116,792	)		(102,614	)
Amount of loss recognized in net income as interest expense (ineffective portion)		(205	)		(178	)		(654	)

Interest Rate Swap

Schedule of Interest Rate Swap Agreements on Accumulated Other Comprehensive Income

The following table presents the impact of the Company’s interest rate swap agreements on the Company’s AOCI for the years ended December 31, 2013 and 2012, respectively.

	Years Ended December 31
	2013			2012
Beginning balance	$	(243,051	)	$	(218,451	)
Unrealized gain (loss) on interest rate swaps		15,030			(141,392	)
Reclassification of net losses included in income statement		116,847			116,792
Ending balance	$	(111,174	)	$	(243,051	)