DERIVATIVE INSTRUMENTS (Tables)

9 Months Ended

Sep. 30, 2015

Summarizes Fair Value Information about Derivative Assets Liabilities

The table below summarizes fair value information about our derivative assets and liabilities as of September 30, 2015 and December 31, 2014:

Derivatives Instruments	Balance Sheet Location	September 30, 2015		December 31, 2014
Assets:		(dollars in thousands)
Interest rate swaps	Interest rate swaps, at fair value	$	39,295	$	75,225
Interest rate swaptions	Other derivatives, at fair value		-		5,382
TBA derivatives	Other derivatives, at fair value		87,516		-
Futures contracts	Other derivatives, at fair value		-		117
		$	126,811	$	80,724
Liabilities:
Interest rate swaps	Interest rate swaps, at fair value	$	2,160,350	$	1,608,286
TBA derivatives	Other derivatives, at fair value		-		4,258
Futures contracts	Other derivatives, at fair value		113,626		3,769
		$	2,273,976	$	1,616,313

Offsetting of Derivative Assets and Liabilities

The following tables present information about derivative assets and liabilities that are subject to such provisions and can potentially be offset on our Consolidated Statements of Financial Condition as of September 30, 2015 and December 31, 2014, respectively.

September 30, 2015			Amounts Eligible for Offset
	Gross Amounts		Financial Instruments			Cash Collateral			Net Amounts
Assets:	(dollars in thousands)
Interest rate swaps, at fair value	$	39,295	$	(39,295	)	$	-		$	-
TBA derivatives, at fair value		87,516		-			-			87,516
Liabilities:
Interest rate swaps, at fair value	$	2,160,350	$	(39,295	)	$	(1,254,287	)	$	866,768
Futures contracts, at fair value		113,626		-			(113,626	)		-

December 31, 2014			Amounts Eligible for Offset
	Gross Amounts		Financial Instruments			Cash Collateral			Net Amounts
Assets:	(dollars in thousands)
Interest rate swaps, at fair value	$	75,225	$	(66,180	)	$	-		$	9,045
Interest rate swaptions, at fair value		5,382		-			-			5,382
Futures contracts, at fair value		117		(117	)		-			-
Liabilities:
Interest rate swaps, at fair value	$	1,608,286	$	(66,180	)	$	(869,302	)	$	672,804
TBA derivatives, at fair value		4,258		-			-			4,258
Futures contracts, at fair value		3,769		(117	)		-			3,652

Schedule of Derivative Instruments in Statement of Operations and Comprehensive Income Loss

The effect of interest rate swaps on the Consolidated Statements of Comprehensive Income (Loss) is as follows:

	Location on Consolidated Statements of Comprehensive Income (Loss)
	Realized Gains (Losses) on Interest Rate Swaps(1)			Realized Gains (Losses) on Termination of Interest Rate Swaps			Unrealized Gains (Losses) on Interest Rate Swaps
	(dollars in thousands)
Quarter Ended:
September 30, 2015	$	(162,304	)	$	-		$	(822,585	)
September 30, 2014	$	(169,083	)	$	-		$	98,593
Nine Months Ended:
September 30, 2015	$	(465,008	)	$	(226,462	)	$	(587,995	)
September 30, 2014	$	(650,452	)	$	(779,333	)	$	(75,287	)
(1) Interest expense related to the Company’s interest rate swaps is recorded in Realized gains (losses) on interest rate swaps on the Consolidated Statements of Comprehensive Income (Loss).

Effect of Other Derivative Contracts on the Consolidated Statements of Operations and Comprehensive Income (Loss)

The effect of other derivative contracts on the Company’s Consolidated Statements of Comprehensive Income (Loss) is as follows:

Derivative Instruments	Realized Gain (Loss)			Unrealized Gain (Loss)			Amount of Gain/(Loss) Recognized in Net Gains (Losses) on Trading Assets
(dollars in thousands)
Quarter Ended September 30, 2015
Net TBA derivatives (1)	$	168,292		$	81,560		$	249,852
Net interest rate swaptions		(11,525	)		11,519			(6	)
Futures		(36,468	)		(105,199	)		(141,667	)
							$	108,179

Derivative Instruments	Realized Gain (Loss)			Unrealized Gain (Loss)		Amount of Gain/(Loss) Recognized in Net Gains (Losses) on Trading Assets
(dollars in thousands)
Quarter Ended September 30, 2014
Net TBA derivatives (1)	$	(1,864	)	$	6,992	$	5,128
Net interest rate swaptions		(30,432	)		26,518		(3,914	)
Futures		(2,991	)		6,455		3,464
						$	4,678

Derivative Instruments	Realized Gain (Loss)			Unrealized Gain (Loss)			Amount of Gain/(Loss) Recognized in Net Gains (Losses) on Trading Assets
(dollars in thousands)
Nine Months Ended September 30, 2015
Net TBA derivatives (1)	$	61,846		$	91,773		$	153,619
Net interest rate swaptions		(41,016	)		35,634			(5,382	)
Futures		(51,205	)		(109,974	)		(161,179	)
							$	(12,942	)

Derivative Instruments	Realized Gain (Loss)			Unrealized Gain (Loss)			Amount of Gain/(Loss) Recognized in Net Gains (Losses) on Trading Assets
(dollars in thousands)
Nine Months Ended September 30, 2014
Net TBA derivatives (1)	$	(46,747	)	$	(8,046	)	$	(54,793	)
Net interest rate swaptions	$	(102,413	)	$	(24,613	)	$	(127,026	)
Futures	$	(15,466	)	$	3,631		$	(11,835	)
							$	(193,654	)
(1) Includes options on TBA securities.

Interest Rate Swaps

Summary of Certain Characteristics of Derivatives

The following table summarizes certain characteristics of the Company’s interest rate swaps at September 30, 2015 and December 31, 2014:

September 30, 2015
Maturity	Current Notional (1)		Weighted Average Pay Rate (2) (3)			Weighted Average Receive Rate (2)			Weighted Average Years to Maturity (2)
(dollars in thousands)
0 - 3 years	$	3,202,454		1.85	%		0.22	%		2.04
3 - 6 years		11,113,000		1.81	%		0.46	%		4.49
6 - 10 years		11,743,300		2.45	%		0.47	%		8.20
Greater than 10 years		3,634,400		3.70	%		0.26	%		19.62
Total / Weighted Average	$	29,693,154		2.26	%		0.42	%		7.28

December 31, 2014
Maturity	Current Notional (1)		Weighted Average Pay Rate (2) (3)			Weighted Average Receive Rate (2)			Weighted Average Years to Maturity (2)
(dollars in thousands)
0 - 3 years	$	2,502,505		1.63	%		0.17	%		2.64
3 - 6 years		11,138,000		2.06	%		0.22	%		5.18
6 - 10 years		13,069,200		2.67	%		0.23	%		8.57
Greater than 10 years		4,751,800		3.58	%		0.20	%		19.53
Total / Weighted Average	$	31,461,505		2.49	%		0.22	%		8.38
(1) Notional amount includes $500.0 million in forward starting pay fixed swaps as of September 30, 2015 and December 31, 2014.
(2) Excludes forward starting swaps.
(3) Weighted average fixed rate on forward starting pay fixed swaps was 2.04% and 3.25% as of September 30, 2015 and December 31, 2014, respectively.

Interest Rate Swaption

Summary of Certain Characteristics of Derivatives

The following table summarizes certain characteristics of the Company’s interest rate swaptions at September 30, 2015 and December 31, 2014:

September 30, 2015	Current Underlying Notional		Weighted Average Underlying Pay Rate		Weighted Average Underlying Receive Rate		Weighted Average Underlying Years to Maturity		Weighted Average Months to Expiration
	(dollars in thousands)
Long	$	-		-		-		-		-

December 31, 2014	Current Underlying Notional		Weighted Average Underlying Pay Rate			Weighted Average Underlying Receive Rate		Weighted Average Underlying Years to Maturity		Weighted Average Months to Expiration
	(dollars in thousands)
Long	$	1,750,000		2.88	%		3M LIBOR		9.17		3.59

Future

Summary of Certain Characteristics of Derivatives

The following table summarizes certain characteristics of the Company’s futures derivatives as of September 30, 2015:

	Notional - Long Positions		Notional - Short Positions			Weighted Average Years to Maturity
	(dollars in thousands)
2-year swap equivalent Eurodollar contracts	$	-	$	(8,000,000	)		2.00
U.S. Treasury futures - 5 year		-		(2,273,000	)		4.41
U.S. Treasury futures - 10 year and greater		-		(655,600	)		6.92
Total	$	-	$	(10,928,600	)		2.80

TBA Derivatives

Summary of Certain Characteristics of Derivatives

The following table summarizes certain characteristics of the Company’s TBA derivatives as of September 30, 2015 and December 31, 2014:

September 30, 2015
Purchase and sale contracts for derivative TBAs	Notional		Implied Cost Basis		Implied Market Value		Net Carrying Value
	(dollars in thousands)
Purchase contracts	$	14,055,000	$	14,490,220	$	14,577,736	$	87,516
Sale contracts		-		-		-		-
Net TBA derivatives	$	14,055,000	$	14,490,220	$	14,577,736	$	87,516

December 31, 2014
Purchase and sale contracts for derivative TBAs	Notional			Implied Cost Basis			Implied Market Value			Net Carrying Value
	(dollars in thousands)
Purchase contracts	$	-		$	-		$	-		$	-
Sale contracts		(375,000	)		(375,430	)		(379,688	)		(4,258	)
Net TBA derivatives	$	(375,000	)	$	(375,430	)	$	(379,688	)	$	(4,258	)