Note 9 - Derivatives

3 Months Ended

Mar. 31, 2013

Derivative Instruments and Hedging Activities Disclosure [Text Block]

Note 9 – Derivatives

We enter into transactions to manage our interest rate risk exposure. These transactions include entering into interest rate swap contracts and interest rate swaptions as well as purchasing or selling Futures Contracts. These transactions are designed to lock in funding costs for repurchase agreements associated with our assets in such a way to help assure the realization of net interest margins. Such transactions are based on assumptions about prepayments which, if not realized, will cause transaction results to differ from expectations. Our derivatives are carried on our condensed balance sheets, as assets or as liabilities at their fair value. We do not designate our derivatives as cash flow hedges and as such, we recognize changes in the fair value of these derivatives through earnings.

We have agreements with our swap (including swaption) counterparties that provide for the posting of collateral based on the fair values of our interest rate swap contracts. Through this margin process, either we or our swap counterparty may be required to pledge cash or Agency Securities as collateral. Collateral requirements vary by counterparty and change over time based on the market value; notional amount and remaining term of the interest rate swap contracts. Certain interest rate swap contracts provide for cross collateralization and cross default with repurchase agreements and other contracts with the same counterparty.

Interest rate swaptions generally provide us the option to enter into an interest rate swap agreement at a certain point of time in the future with a predetermined notional amount, stated term and stated rate of interest in the fixed leg and interest rate index on the floating leg.

The following tables present information about interest rate swap contracts, interest rate swaptions and Futures Contracts which are included in derivatives on the accompanying condensed balance sheets as of March 31, 2013 and December 31, 2012.

March 31, 2013

	Notional Amount		Assets at Fair Value (1)		Liabilities at Fair Value (1)
	(in thousands)
Interest rate swap contracts	$	475,000	$	2,792	$	(597	)
Interest rate swaptions		130,000		4,874		-
Totals	$	605,000	$	7,666	$	(597	)

(1) See Note 7, “Fair Value of Financial Instruments” for additional discussion.

December 31, 2012

	Notional Amount		Assets at Fair Value (1)		Liabilities at Fair Value (1)
	(in thousands)
Interest rate swap contracts	$	325,000	$	395	$	(365	)
Interest rate swaptions		130,000		4,545		-
Totals	$	455,000	$	4,940	$	(365	)

(1) See Note 7, “Fair Value of Financial Instruments” for additional discussion.

March 31, 2013

			Gross Amounts Not Offset in the Condensed Balance Sheet
Assets	Gross Amounts of Assets Presented in the Condensed Balance Sheet		Financial Instruments			Cash Collateral Held			Net Amount
	(in thousands)
Interest rate swap contracts	$	2,792	$	(172	)	$	-		$	2,620
Interest rate swaptions		4,874		-			(5,431	)		(557	)
Totals	$	7,666	$	(172	)	$	(5,431	)	$	2,063

				Gross Amounts Not Offset in the Condensed Balance Sheet
Liabilities	Gross Amounts of Liabilities Presented in the Condensed Balance Sheet			Financial Instruments		Cash Collateral Posted		Net Amount
	(in thousands)
Interest rate swap contracts	$	(597	)	$	172	$	425	$	-
Totals	$	(597	)	$	172	$	425	$	-

December 31, 2012

			Gross Amounts Not Offset in the Condensed Balance Sheet
Assets	Gross Amounts of Assets Presented in the Condensed Balance Sheet		Financial Instruments			Cash Collateral Held			Net Amount
	(in thousands)
Interest rate swap contracts	$	395	$	(92	)	$	-		$	303
Interest rate swaptions		4,545		-			(1,426	)		3,119
Totals	$	4,940	$	(92	)	$	(1,426	)	$	3,422

				Gross Amounts Not Offset in the Condensed Balance Sheet
Liabilities	Gross Amounts of Liabilities Presented in the Condensed Balance Sheet			Financial Instruments		Cash Collateral Posted		Net Amount
	(in thousands)
Interest rate swap contracts	$	(365	)	$	92	$	273	$	-
Totals	$	(365	)	$	92	$	273	$	-

The following table represents the location and information regarding our derivatives which are included in Other Income in the accompanying condensed statement of operations for the quarter ended March 31, 2013.

		Income Recognized (in thousands)
Derivatives	Location on statement of operations	March 31, 2013
Interest rate swap contracts:
Interest income	Net gain on derivatives	$	113
Interest expense	Net gain on derivatives		(1,063	)
Realized (loss)	Net gain on derivatives		-
Changes in fair value	Net gain on derivatives		3,115
			2,165
Interest rate swaptions:
Changes in fair value	Net gain on derivatives		329
			329
Totals		$	2,494