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Derivative Instruments
3 Months Ended
Mar. 31, 2018
Derivative Instrument Detail [Abstract]  
Derivative Instruments and Hedging Activities Disclosure [Text Block]
Financial Derivatives
The Company is exposed to certain risks arising from both its business operations and economic conditions. Specifically, the Company's primary source of financing is repurchase agreements and the Company enters into financial derivative and other instruments to manage exposure to variable cash flows on portions of its borrowings under those repurchase agreements. Since the interest rates on repurchase agreements typically change with market interest rates such as LIBOR, the Company is exposed to constantly changing interest rates, which accordingly affects cash flows associated with the Company's borrowings. To mitigate the effect of changes in these interest rates and their related cash flows, the Company may enter into a variety of derivative contracts, including interest rate swaps, swaptions, and TBAs. Additionally, from time to time, the Company may use short positions in U.S. Treasury securities to mitigate its interest rate risk.
The following table details the fair value of the Company's holdings of financial derivatives as of March 31, 2018 and December 31, 2017:
 
 
March 31, 2018
 
December 31, 2017
 
 
(In thousands)
Financial derivatives–assets, at fair value:
 
 
 
 
TBA securities purchase contracts
 
$
295

 
$
26

TBA securities sale contracts
 
1

 
376

Fixed payer interest rate swaps
 
12,652

 
7,475

Fixed receiver interest rate swaps
 
194

 
563

Swaptions
 
386

 
181

Futures
 

 
171

Total financial derivatives–assets, at fair value
 
13,528

 
8,792

Financial derivatives–liabilities, at fair value:
 
 
 
 
TBA securities purchase contracts
 
(122
)
 
(266
)
TBA securities sale contracts
 
(2,450
)
 
(469
)
Fixed payer interest rate swaps
 
(1,191
)
 
(1,128
)
Fixed receiver interest rate swaps
 
(1
)
 

Futures
 
(2,112
)
 

Total financial derivatives–liabilities, at fair value
 
(5,876
)
 
(1,863
)
Total
 
$
7,652

 
$
6,929


Interest Rate Swaps
The following tables provide information about the Company's fixed payer interest rate swaps as of March 31, 2018 and December 31, 2017:
March 31, 2018:
 
 
 
 
 
 
Weighted Average
Maturity
 
Notional Amount
 
Fair Value
 
Pay Rate
 
Receive Rate
 
Remaining Years to Maturity
 
 
(In thousands)
 
 
 
 
 
 
2020
 
$
86,000

 
$
1,372

 
1.60
%
 
1.76
%
 
2.07
2021
 
161,400

 
2,428

 
2.03

 
1.90

 
3.14
2022
 
68,480

 
1,511

 
2.00

 
1.80

 
4.19
2023
 
150,466

 
1,984

 
2.38

 
1.82

 
4.99
2024
 
8,900

 
316

 
1.99

 
1.69

 
6.01
2025
 
57,822

 
361

 
2.62

 
1.97

 
6.93
2026
 
40,885

 
3,423

 
1.63

 
1.87

 
8.46
2027
 
30,000

 
934

 
2.29

 
1.79

 
9.10
2028
 
36,663

 
(397
)
 
2.89

 
2.01

 
9.93
2043
 
12,380

 
(471
)
 
2.99

 
1.83

 
25.13
Total
 
$
652,996

 
$
11,461

 
2.15
%
 
1.86
%
 
5.31

December 31, 2017:
 
 
 
 
 
 
Weighted Average
Maturity
 
Notional Amount
 
Fair Value
 
Pay Rate
 
Receive Rate
 
Remaining Years to Maturity
 
 
(In thousands)
 
 
 
 
 
 
2018
 
$
65,990

 
$
187

 
0.97
%
 
1.38
%
 
0.43
2019
 
19,540

 
165

 
1.41

 
1.60

 
1.51
2020
 
131,900

 
1,514

 
1.60

 
1.41

 
2.39
2021
 
131,400

 
1,194

 
1.88

 
1.40

 
3.41
2022
 
79,044

 
736

 
1.97

 
1.39

 
4.48
2023
 
54,200

 
873

 
1.93

 
1.37

 
5.47
2024
 
8,900

 
142

 
1.99

 
1.34

 
6.26
2025
 
15,322

 
196

 
2.04

 
1.37

 
7.13
2026
 
40,885

 
2,230

 
1.63

 
1.36

 
8.71
2027
 
48,010

 
235

 
2.30

 
1.40

 
9.38
2043
 
12,380

 
(1,125
)
 
2.99

 
1.41

 
25.38
Total
 
$
607,571

 
$
6,347

 
1.77
%
 
1.40
%
 
4.54

The following tables provide information about the Company's fixed receiver interest rate swaps as of March 31, 2018 and December 31, 2017.
March 31, 2018:
 
 
 
 
 
 
Weighted Average
Maturity
 
Notional Amount
 
Fair Value
 
Pay Rate
 
Receive Rate
 
Remaining Years to Maturity
 
 
(In thousands)
 
 
 
 
 
 
2021
 
$
13,000

 
$
(1
)
 
2.31
%
 
2.66
%
 
3.01
2025
 
9,700

 
194

 
1.72

 
3.00

 
7.30
Total
 
$
22,700

 
$
193

 
2.06
%
 
2.80
%
 
4.84
December 31, 2017:
 
 
 
 
 
 
Weighted Average
Maturity
 
Notional Amount
 
Fair Value
 
Pay Rate
 
Receive Rate
 
Remaining Years to Maturity
 
 
(In thousands)
 
 
 
 
 
 
2025
 
$
9,700

 
$
563

 
1.36
%
 
3.00
%
 
7.54
Total
 
$
9,700

 
$
563

 
1.36
%
 
3.00
%
 
7.54

Interest Rate Swaptions
The following table provides information about the Company's swaptions as of March 31, 2018 and December 31, 2017.
March 31, 2018:
Option
 
Underlying Swap
Type
 
Fair Value
 
Months to Expiration
 
Notional
Amount
 
Term (Years)
 
 
Fixed Rate
($ in thousands)
 
 
 
 
 
 
 
 
 
 
Fixed Payer
 
$
386

 
4.0
 
$
10,000

 
10
 
2.40%
December 31, 2017:
Option
 
Underlying Swap
Type
 
Fair Value
 
Months to Expiration
 
Notional
Amount
 
Term (Years)
 
 
Fixed Rate
($ in thousands)
 
 
 
 
 
 
 
 
 
 
Fixed Payer
 
$
181

 
7.0
 
$
10,000

 
10
 
2.40%

Futures
The following tables provide information about the Company's short positions in futures as of March 31, 2018 and December 31, 2017.
March 31, 2018:
Description
 
Notional Amount
 
Fair Value
 
Remaining Months to Expiration
($ in thousands)
 
 
 
 
 
 
U.S. Treasury Futures
 
$
(296,100
)
 
$
(2,112
)
 
2.84
December 31, 2017:
Description
 
Notional Amount
 
Fair Value
 
Remaining Months to Expiration
($ in thousands)
 
 
 
 
 
 
U.S. Treasury Futures
 
$
(25,800
)
 
$
171

 
2.63

TBAs
The Company transacts in the forward settling TBA market. Pursuant to these TBA transactions, the Company agrees to purchase or sell, for future delivery, Agency RMBS with certain principal and interest terms and certain types of underlying collateral, but the particular Agency RMBS to be delivered is not identified until shortly before the TBA settlement date. TBAs are generally liquid, have quoted market prices, and represent the most actively traded class of MBS. The Company primarily uses TBAs to mitigate interest rate risk, typically in the form of short positions. However, from time to time, the Company also invests in TBAs as a means of acquiring additional exposure to Agency RMBS, or for speculative purposes, including holding long positions. Overall, the Company typically holds a net short position.
The Company does not generally take delivery of TBAs; rather, it settles the associated receivable and payable with its trading counterparties on a net basis. Transactions with the same counterparty for the same TBA that result in a reduction of the position are treated as extinguished.
As of March 31, 2018 and December 31, 2017, the Company had outstanding contracts to purchase ("long positions") and sell ("short positions") TBA securities as follows:
 
 
March 31, 2018
 
December 31, 2017
TBA Securities
 
Notional Amount(1)
 
Cost
Basis(2)
 
Market Value(3)
 
Net Carrying Value(4)
 
Notional Amount (1)
 
Cost
Basis(2)
 
Market Value(3)
 
Net Carrying Value(4)
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Purchase contracts:
 
 
 
 
 

 
 
 
 
 
 
 
 
 
 
Assets
 
$
98,555

 
$
99,949

 
$
100,244

 
$
295

 
$
37,355

 
$
38,065

 
$
38,091

 
$
26

Liabilities
 
41,149

 
42,763

 
42,641

 
(122
)
 
75,789

 
79,570

 
79,304

 
(266
)
 
 
139,704


142,712


142,885


173


113,144

 
117,635

 
117,395

 
(240
)
Sale contracts:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets
 
(3,600
)
 
(3,770
)
 
(3,769
)
 
1

 
(358,279
)
 
(372,219
)
 
(371,843
)
 
376

Liabilities
 
(378,653
)
 
(379,954
)
 
(382,404
)
 
(2,450
)
 
(328,576
)
 
(341,134
)
 
(341,603
)
 
(469
)
 
 
(382,253
)

(383,724
)

(386,173
)

(2,449
)

(686,855
)
 
(713,353
)
 
(713,446
)
 
(93
)
Total TBA securities, net
 
$
(242,549
)
 
$
(241,012
)
 
$
(243,288
)
 
$
(2,276
)
 
$
(573,711
)
 
$
(595,718
)
 
$
(596,051
)
 
$
(333
)
(1)
Notional amount represents the principal balance of the underlying Agency RMBS.
(2)
Cost basis represents the forward price to be paid (received) for the underlying Agency RMBS.
(3)
Market value represents the current market value of the underlying Agency RMBS (on a forward delivery basis) as of period end.
(4)
Net carrying value represents the difference between the market value of the TBA contract as of period end and the cost basis and is reported in Financial derivatives-assets at fair value and Financial derivatives-liabilities at fair value on the Consolidated Balance Sheet.
The table below details the average notional values of the Company's financial derivatives, using absolute value of month end notional values, for the three month period ended March 31, 2018 and the year ended December 31, 2017:
Derivative Type
 
Three Month
Period Ended
March 31, 2018
 
Year Ended
December 31, 2017
 
 
(In thousands)
Interest rate swaps
 
$
630,497

 
$
549,907

TBAs
 
707,333

 
796,813

Futures
 
172,575

 
30,092

Swaptions
 
10,000

 
4,615


Gains and losses on the Company's financial derivatives for the three month periods ended March 31, 2018 and 2017 are summarized in the tables below:
 
 
Three Month Period Ended March 31, 2018
Derivative Type
 
Net Realized Gains (Losses) on Periodic Settlements of Interest Rate Swaps
 
Net Realized Gains (Losses) Other Than Periodic Settlements of Interest Rate Swaps
 
Net Realized Gains (Losses) on Financial Derivatives
 
Change in Net Unrealized Gains (Losses) on Accrued Periodic Settlements of Interest Rate Swaps
 
Change in Net Unrealized Gains (Losses) Other Than on Accrued Periodic Settlements of Interest Rate Swaps
 
Change in Net Unrealized Gains (Losses) on Financial Derivatives
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
 
$
1,132

 
$
2,441

 
$
3,573

 
$
(1,511
)
 
$
6,098

 
$
4,587

Swaptions
 
 
 

 

 
 
 
205

 
205

TBAs
 
 
 
11,303

 
11,303

 
 
 
(1,944
)
 
(1,944
)
Futures
 
 
 
1,079

 
1,079

 
 
 
(2,283
)
 
(2,283
)
Total
 
$
1,132

 
$
14,823

 
$
15,955

 
$
(1,511
)
 
$
2,076

 
$
565


 
 
Three Month Period Ended March 31, 2017
Derivative Type
 
Net Realized Gains (Losses) on Periodic Settlements of Interest Rate Swaps
 
Net Realized Gains (Losses) Other Than Periodic Settlements of Interest Rate Swaps
 
Net Realized Gains (Losses) on Financial Derivatives
 
Change in Net Unrealized Gains (Losses) on Accrued Periodic Settlements of Interest Rate Swaps
 
Change in Net Unrealized Gains (Losses) Other Than on Accrued Periodic Settlements of Interest Rate Swaps
 
Change in Net Unrealized Gains (Losses) on Financial Derivatives
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
 
$
(15
)
 
$
(29
)
 
$
(44
)
 
$
(462
)
 
$
756

 
$
294

TBAs
 
 
 
1,831

 
1,831

 
 
 
(2,342
)
 
(2,342
)
Futures
 
 
 
(134
)
 
(134
)
 
 
 
(94
)
 
(94
)
Total
 
$
(15
)
 
$
1,668

 
$
1,653

 
$
(462
)
 
$
(1,680
)
 
$
(2,142
)

From time to time, the Company uses short positions in U.S. Treasury positions as a component of its interest rate hedging portfolio. As of March 31, 2018, the Company held short positions in U.S. Treasury securities, with a principal amount of $44.4 million and a fair value of $44.4 million. As of December 31, 2017, the Company held short positions in U.S. Treasury securities, with a principal amount of $82.5 million and a fair value of $81.3 million. Such securities are included on the Company's Consolidated Balance Sheet under the caption U.S. Treasury securities sold short, at fair value.