Derivatives (Tables)

3 Months Ended

Mar. 31, 2019

Schedule of Derivative Instruments in Statement of Financial Position, Fair Value

The table below summarizes information about the fair value by type of derivative instrument on the Company’s consolidated balance sheets as of the dates indicated:



Type of Derivative Instrument	Balance Sheet Location	Purpose	March 31, 2019		December 31, 2018
Interest rate swaps	Derivative assets	Economic hedging	$	112	$	324
TBA securities	Derivative assets	Trading	5,918		6,239
			$	6,030	$	6,563

U.S. Treasury futures	Derivative liabilities	Economic hedging	$	—	$	(1,218	)

Derivative Instruments, Gain (Loss)

The table below provides detail of the Company’s “(loss) gain on derivative instruments, net” by type of derivative for the periods indicated:



	Three Months Ended
	March 31,
Type of Derivative Instrument	2019			2018
Receive-fixed interest rate swaps	$	—		$	(1,129	)
Pay-fixed interest rate swaps	(71,764		)	49,372
Eurodollar futures	—			1,905
TBA dollar roll positions	10,176			(12,087		)
TBA economic hedges	—			293
U.S. Treasury futures	(109		)	—
(Loss) gain on derivative instruments, net	$	(61,697	)	$	38,354

Schedule of Derivative Instruments

The following tables present information about the Company’s interest rate swaps as of the dates indicated:



	March 31, 2019
			Weighted-Average:
Years to Maturity:	Notional Amount ⁽¹⁾		Pay Rate ⁽²⁾		Life Remaining (in Years)	Fair Value ⁽³⁾
< 3 years	$	1,435,000	2.01	%	1.3	$	112
>3 and < 6 years	1,930,000		2.27	%	5.7	—
>6 and < 10 years	1,530,000		2.85	%	9.0	—
>10 years	120,000		2.84	%	28.4	—
Total	$	5,015,000	2.38	%	6.0	$	112

	December 31, 2018
			Weighted-Average:
Years to Maturity:	Notional Amount ⁽¹⁾		Pay Rate ⁽²⁾		Life Remaining (in Years)	Fair Value ⁽³⁾
< 3 years	$	1,560,000	1.96	%	1.4	$	324
>3 and < 6 years	1,230,000		2.23	%	4.4	—
>6 and < 10 years	1,505,000		2.80	%	8.3	—
>10 years	220,000		2.81	%	21.9	—
Total	$	4,515,000	2.35	%	5.5	$	324


(1)	The notional amounts include $0 and $775,000 of forward starting pay-fixed interest rate swaps as of March 31, 2019 and December 31, 2018, respectively.


(2)	Excluding forward starting pay-fixed interest rate swaps, the weighted average pay rate was 2.38% and 2.29% as of March 31, 2019 and December 31, 2018, respectively.


(3)	The majority of the Company’s interest rate swap agreements are centrally cleared through the CME. Please refer to Note 1 for information regarding the exchange of variation margin being legally considered as settlement of the derivative as opposed to a pledge of collateral.

A portion of the Company’s interest rate swaps were entered into under bilateral agreements which contain cross-default provisions with other agreements between the parties. In addition, these bilateral agreements contain financial and operational covenants similar to those contained in the repurchase agreements as described in Note 3. The Company was in compliance with all covenants with respect to bilateral agreements under which interest rate swaps were entered into as of March 31, 2019.

TBA Securities

The following table summarizes information about the Company's TBA securities as of the dates indicated:



	March 31, 2019		December 31, 2018
Implied market value ⁽¹⁾	$	733,130	$	888,469
Implied cost basis ⁽²⁾	727,212		882,230
Net carrying value ⁽³⁾	$	5,918	$	6,239


(1)	Implied market value represents the estimated fair value of the underlying Agency MBS as if settled as of the date indicated.


(2)	Implied cost basis represents the forward price to be paid for the underlying Agency MBS as if settled as of the date indicated.


(3)	Net carrying value is the amount included on the consolidated balance sheets within “derivative assets (liabilities)” and represents the difference between the implied market value and the implied cost basis of the TBA security as of the date indicated.

Schedule of Notional Amounts of Outstanding Derivative Positions

The tables below summarize changes in the Company’s derivative instruments for the periods indicated:



Type of Derivative Instrument	Notional Amount as of December 31, 2018		Additions		Settlements, Terminations, or Pair-Offs			Notional Amount as of March 31, 2019
Interest rate swaps	$	4,515,000	$	1,500,000	$	(1,000,000	)	$	5,015,000
TBA dollar roll positions	860,000		2,720,000		(2,865,000		)	715,000
U.S. Treasury futures	50,000		—		(50,000		)	—

Offsetting Assets



	Offsetting of Assets
	Gross Amount of Recognized Assets		Gross Amount Offset in the Balance Sheet		Net Amount of Assets Presented in the Balance Sheet		Gross Amount Not Offset in the Balance Sheet ⁽¹⁾					Net Amount
	Gross Amount of Recognized Assets		Gross Amount Offset in the Balance Sheet		Net Amount of Assets Presented in the Balance Sheet		Financial Instruments Received as Collateral		Cash Received as Collateral			Net Amount
March 31, 2019
Interest rate swaps	$	112	$	—	$	112	$	—	$	—		$	112
TBA securities	5,918		—		5,918		—		(1,699		)	4,219
Derivative assets	$	6,030	$	—	$	6,030	$	—	$	(1,699	)	$	4,331
December 31, 2018
Interest rate swaps	$	324	$	—	$	324	$	—	$	—		$	324
TBA securities	6,239		—		6,239		—		(1,719		)	4,520
Derivative assets	$	6,563	$	—	$	6,563	$	—	$	(1,719	)	$	4,844

Offsetting Liabilities



	Offsetting of Liabilities
	Gross Amount of Recognized Liabilities		Gross Amount Offset in the Balance Sheet		Net Amount of Liabilities Presented in the Balance Sheet		Gross Amount Not Offset in the Balance Sheet ⁽¹⁾					Net Amount
	Gross Amount of Recognized Liabilities		Gross Amount Offset in the Balance Sheet		Net Amount of Liabilities Presented in the Balance Sheet		Financial Instruments Posted as Collateral		Cash Posted as Collateral			Net Amount
March 31, 2019
U.S. Treasury futures	—		—		—		—		—			—
Derivative liabilities	$	—	$	—	$	—	$	—	$	—		$	—

December 31, 2018
U.S. Treasury futures	1,218		—		1,218		—		(1,218		)	—
Derivative liabilities	$	1,218	$	—	$	1,218	$	—	$	(1,218	)	$	—

(1)

Amounts disclosed for collateral received by or posted to the same counterparty include cash and the fair value of MBS up to and not exceeding the net amount of the derivative asset or liability presented in the balance sheet. The fair value of the total collateral received by or posted to the same counterparty may exceed the amounts presented. Please refer to the consolidated balance sheets for the total cash posted as collateral, which is recorded as "restricted cash", and the total fair value of financial instruments pledged as collateral for derivatives and repurchase agreements, which is shown parenthetically.

- Definition

Tabular disclosure of pertinent information about a derivative or group of derivatives on a disaggregated basis, such as for individual instruments, or small groups of similar instruments. May include a combination of the type of instrument, risks being hedged, notional amount, hedge designation, related hedged item, inception date, maturity date, or other relevant item.

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