Derivative Instruments (Tables)

6 Months Ended

Jun. 30, 2013

Derivative Instruments

Schedule of interest rate swaps, interest rate swaptions and TBA derivative instruments, linked transactions and options

The Company’s interest rate swaps, interest rate swaptions, TBA derivative instruments, linked transactions and options consisted of the following at June 30, 2013 and December 31, 2012 (dollars in thousands):

			June 30, 2013
Derivative Instrument	Designation	Balance Sheet Location	Notional Amount		Fair Value, excluding accrued interest			Accrued Interest Payable
Interest rate swaps, assets	Non-Hedge	Derivative assets, at fair value	$	2,301,050	$	80,709		$	4,411
Interest rate swaptions, assets	Non-Hedge	Derivative assets, at fair value	1,214,000		37,589			—
TBA securities, assets	Non-Hedge	Derivative assets, at fair value	50,000		34			—
Total derivative instruments, assets			3,565,050		118,332			4,411
TBA securities, liabilities	Non-Hedge	Derivative liability, at fair value	550,000		(1,484		)	—
Total derivative instruments, liabilities			550,000		(1,484		)	—
Linked transactions (1)	Non-Hedge	Linked transactions, net, at fair value	8,153		1,647			—
Total derivative instruments			$	4,123,203	$	118,495		$	4,411

(1) Notional amount represents the current face of the securities comprising the linked transactions.

			December 31, 2012
Derivative Instrument	Designation	Balance Sheet Location	Notional Amount		Fair Value, excluding accrued interest			Accrued Interest Payable
Interest rate swaps, assets	Non-Hedge	Derivative assets, at fair value	$	1,827,300	$	11,201		$	2,519
Interest rate swaptions, assets	Non-Hedge	Derivative assets, at fair value	520,000		10,087			—
TBA securities, assets	Non-Hedge	Derivative assets, at fair value	425,000		3,056			—
Total derivative instruments, assets			2,772,300		24,344			2,519
Interest rate swaps, liabilities	Non-Hedge	Derivative liability, at fair value	984,500		(3,552		)	588
TBA securities, liabilities	Non-Hedge	Derivative liability, at fair value	425,000		(1,219		)	—
Total derivative instruments, liabilities			1,409,500		(4,771		)	588
Total derivative instruments			$	4,181,800	$	19,573		$	3,107

Summary of average fixed pay rate and average maturity for the Company's interest rate swaps

The following tables summarize the average fixed pay rate and average maturity for the Company’s interest rate swaps as of June 30, 2013 and December 31, 2012 (excludes interest rate swaptions) (dollars in thousands):

	June 30, 2013
Remaining Interest Rate interest rate swap Term	Notional Amount		Average Fixed Pay Rate		Average Maturity (Years)	Forward Starting
Greater than 1 year and less than 3 years	$	556,100	0.4	%	1.7	26.8	%
Greater than 3 years and less than 5 years	411,400		0.9		4.6	—
Greater than 5 years	1,333,550		1.9		10.2	30.1
Total	$	2,301,050	1.4	%	7.1	23.9	%

	December 31, 2012
Remaining Interest Rate interest rate swap Term	Notional Amount		Average Fixed Pay Rate		Average Maturity (Years)	Forward Starting
Greater than 1 year and less than 3 years	$	762,800	0.4	%	2.3	22.7	%
Greater than 3 years and less than 5 years	439,500		0.8		4.8	10.2
Greater than 5 years	1,609,500		1.7		10.2	30.1
Total	$	2,811,800	1.2	%	7.2	25.0	%

Summary of long and short TBA positions reported in Derivative assets, at fair value on the Balance Sheet

Following is a summary of the Company’s long and short TBA positions reported in Derivative assets, at fair value on the Balance Sheets as of June 30, 2013 and December 31, 2012 (dollars in thousands):

	June 30, 2013						December 31, 2012
	Notional Amount			Fair Value			Notional Amount			Fair Value
Purchase contracts, asset	$	50,000		$	34		$	425,000		$	3,056
Sale contracts, asset	—			—			—			—
TBA securities, asset	50,000			34			425,000			3,056
Purchase contracts, liability	50,000			(90		)	—			—
Sale contracts, liability	(600,000		)	(1,394		)	(425,000		)	(1,219		)
TBA securities, liability	(550,000		)	(1,484		)	(425,000		)	(1,219		)
TBA securities, net	$	(500,000	)	$	(1,450	)	$	—		$	1,837
	Notional Amount as of December 31, 2012			Additions			Settlement, Termination, Expiration or Exercise			Notional Amount as of June 30, 2013
Purchase of TBAs	$	425,000		1,649,000			$	(1,974,000	)	$	100,000
Sale of TBAs	$	425,000		2,225,000			$	(2,050,000	)	$	600,000

Summary of the effect of interest rate swaps, swaptions, options, Agency Interest-Only Strips as derivatives and TBAs reported in Gain (loss) on derivative instruments, net on the statement of Operations related to the Company's derivative instruments

The following table summarizes the effect of interest rate swaps, swaptions, options, Agency Interest-Only Strips as derivatives and TBAs reported in Gain (loss) on derivative instruments, net on the Company’s Statement of Operations for the three and six months ended June 30, 2013 and for the period from May 15, 2012 (commencement of operations) through June 30, 2012 (dollars in thousands):

	Three months ended June 30, 2013
Description	RealizedGain(Loss), net			Contractual interest income (expense), net(1)			Basis Recovery			Mark-to- market adjustments			Total
Interest rate swaps	$	23,881		$	(5,156	)	$	—		$	71,202		$	89,927
Interest rate swaptions	1,038			—			—			20,751			21,789
Agency Interest-Only Strips and Agency Inverse Interest-Only Strips— accounted for as derivatives	—			7,032			(4,631		)	3,633			6,034
Options	(925		)	—			—			324			(601		)
TBAs	(3,164		)	—			—			(4,511		)	(7,675		)
Total	$	20,830		$	1,876		$	(4,631	)	$	91,399		$	109,474

	Six months ended June 30, 2013
Description	RealizedGain(Loss), net			Contractual interest income (expense), net(1)			Basis Recovery			Mark-to- market adjustments			Total
Interest rate swaps	$	42,139		$	(9,738	)	$	—		$	73,060		$	105,461
Interest rate swaptions	1,038			—			—			19,245			20,283
Agency Interest-Only Strips and Agency Inverse Interest-Only Strips— accounted for as derivatives	(99		)	12,975			(8,816		)	1,285			5,345
Options	(925		)	—			—			—			(925		)
TBAs	(2,563		)	—			—			(3,287		)	(5,850		)
Total	$	39,590		$	3,237		$	(8,816	)	$	90,303		$	124,314

	For the period from May 15, 2012 (commencement of operations) through June 30, 2012, as Revised (See Note 2)
Description	RealizedGain(Loss), net		Contractual interest income (expense), net(1)			Basis Recovery			Mark-to- market adjustments			Total
Interest rate swaps	$	4	$	(726	)	$	—		$	(5,044	)	$	(5,766	)
Interest rate swaptions	—		—			—			—			—
Agency Interest-Only Strips and Agency Inverse Interest-Only Strips— accounted for as derivatives	—		954			(122		)	(225		)	607
Options	—		—			—			—			—
TBAs	—		—			—			—			—
Total	$	4	$	228		$	(122	)	$	(5,269	)	$	(5,159	)

(1) Contractual interest income (expense), net on derivative instruments includes interest settlement paid or received.

Schedule of information related to the securities and repurchase agreements accounted for as part of linked transaction which is reported in Linked transactions, net, at fair value on the Balance Sheet and in Gain on linked transactions, net on the Statement of Operations

The following table presents certain information related to the securities and repurchase agreements accounted for as part of linked transaction which is reported in Linked transactions, net, at fair value on the Balance Sheet and in Gain on linked transactions, net on the Statement of Operations for the three and six months ended June 30, 2013 (dollars in thousands):

										For the Three Months Ended June 30, 2013
Instrument	Current Face(2)			Amortized Cost(2)			Fair Value(2)			Net Interest Income(1) (Expense)			Mark-to-market adjustments on linked transactions			Net Realized Gain			Gain on linked transactions, net			Weighted Average Coupon / Cost of Funds(2)		Weighted Average Life (years)/ Weighted Average days to Maturity(2)
Agency RMBS	$	—		$	—		$	—		$	44		$	—		$	(254	)	$	(210	)	n/a		n/a
Non-Agency RMBS	8,153			4,908			4,933			518			(296		)	4,002			4,224			0.35	%	8.4 years
Agency Repurchase Agreement	—			—			—			(6		)	—			—			(6		)	n/a		n/a
Non-Agency Repurchase Agreement	(3,286		)	(3,286		)	(3,286		)	(99		)	—			—			(99		)	1.70	%	26 days
Linked transactions, net, at fair value	$	4,867		$	1,622		$	1,647		$	457		$	(296	)	$	3,748		$	3,909		n/a		n/a

(1) Net interest income includes amortization of premium of $9 thousand for Agency RMBS and accretion of discount of $437 thousand for Non-Agency RMBS.

(2) Includes information only for linked transactions at June 30, 2013.

										For the Six Months Ended June 30, 2013
Instrument	Current Face(2)			Amortized Cost(2)			Fair Value(2)			Net Interest Income(1) (Expense)			Mark-to-market adjustments on linked transactions			Net Realized Gain			Gain on linked transactions, net			Weighted Average Coupon / Cost of Funds(2)		Weighted Average Life (years)/ Weighted Average days to Maturity(2)
Agency RMBS	$	—		$	—		$	—		$	44		$	—		$	(254	)	$	(210	)	n/a		n/a
Non-Agency RMBS	8,153			4,908			4,933			953			(46		)	4,002			4,909			0.35	%	8.4 years
Agency Repurchase Agreement	—			—			—			(6		)	—			—			(6		)	n/a		n/a
Non-Agency Repurchase Agreement	(3,286		)	(3,286		)	(3,286		)	(188		)	—			—			(188		)	1.70	%	26 days
Linked transactions, net, at fair value	$	4,867		$	1,622		$	1,647		$	803		$	(46	)	$	3,748		$	4,505		n/a		n/a

(1) Net interest income includes amortization of premium of $9 thousand for Agency RMBS and accretion of discount of $766 thousand for Non-Agency RMBS.

(2) Includes information only for linked transactions at June 30, 2013.