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Derivatives | 6 Months Ended
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Jun. 30, 2012
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivatives | DERIVATIVES As of June 30, 2012 and December 31, 2011, the Company’s derivative financial instruments are comprised entirely of interest rate swaps, and are designated as either hedging instruments or trading instruments. The tables below summarize information about the Company’s derivative financial instruments on the balance sheet as of the dates indicated:
|  | June 30, 2012 |  | December 31, 2011
Accounting Designation: | Balance Sheet Location: | Fair Value |  | Cumulative Notional Amount |  | Weighted-average Fixed Rate Swapped |  | Fair Value |  | Cumulative Notional Amount |  | Weighted-average Fixed Rate Swapped
Hedging instruments |  | $ | (36,551 | ) |  | $ | 1,485,000 |  |  | 1.50 | % |  | $ | (25,512 | ) |  | $ | 1,065,000 |  |  | 1.55 | %
Trading instruments |  | (2,716 | ) |  | 27,000 |  |  | 2.88 | % |  | (2,485 | ) |  | 27,000 |  |  | 2.88 | %
| Derivative liabilities | $ | (39,267 | ) |  |  |  |  |  | $ | (27,997 | ) |  |  |  |
Included in the balance as of June 30, 2012 are seven forward-starting interest rate swaps with a combined notional balance of $275,000 and a weighted average pay-fixed rate of 1.62% which are not effective until 2013. The following table summarizes the contractual maturities remaining for the Company’s outstanding interest rate swap agreements as of June 30, 2012:
Remaining Maturity | Notional Amount: Trading |  | Notional Amount: Hedging |  | Notional Amount: Total |  | Number of Swaps |  | Weighted-Average Fixed Rate Swapped
0-12 months | $ | — |  |  | $ | 75,000 |  |  | $ | 75,000 |  |  | 2 |  |  | 1.30 | %
13-36 months | — |  |  | 565,000 |  |  | 565,000 |  |  | 10 |  |  | 1.44 | %
37-60 months | 27,000 |  |  | 260,000 |  |  | 287,000 |  |  | 11 |  |  | 2.04 | %
Over 60 months | — |  |  | 585,000 |  |  | 585,000 |  |  | 19 |  |  | 1.39 | %
| $ | 27,000 |  |  | $ | 1,485,000 |  |  | $ | 1,512,000 |  |  | 42 |  |  | 1.53 | %
The table below provides additional information related to the forward-starting swaps that are included in the preceding table:
Forward-Start Date | Notional Amount |  | Weighted-Average Fixed Rate Swapped
March 25, 2013 | $ | 100,000 |  |  | 1.89 | %
April 15, 2013 | 25,000 |  |  | 1.70 | %
January 8, 2013 | 150,000 |  |  | 0.77 | %
| $ | 275,000 |  |  | 1.62 | %
With respect to hedging instruments, the Company’s objective for using interest rate swaps is to minimize its exposure to the risk of increased interest expense resulting from its existing and forecasted short-term, fixed-rate borrowings. The Company continuously borrows funds via sequential fixed-rate, short-term repurchase agreement borrowings. As each fixed-rate repurchase agreement matures, it is replaced with new fixed-rate agreements based on the market interest rate in effect at the time of such replacement. This sequential rollover borrowing program creates a variable interest expense pattern. The changes in the cash flows of the interest rate swaps are expected to be highly effective at offsetting changes in the interest portion of the cash flows expected to be paid at maturity of each borrowing. The table below presents the effect of the derivatives designated as hedging instruments on the Company’s consolidated statement of comprehensive income for the periods indicated:
Type of Derivative Designated as Cash Flow Hedge | Amount of Gain (Loss) Recognized in OCI (Effective Portion) | Location of Amount Reclassified from OCI into Net Income (Effective Portion) | Amount Reclassified from OCI into Net Income (Effective Portion) | Location of Loss Recognized in Net Income (Ineffective Portion) | Amount of Gain (Loss) Recognized in Net Income (Ineffective Portion)
For the three months ended June 30, 2012: |
Interest rate swaps | $(14,693) | Interest expense | $3,509 | Other income, net | $131
For the three months ended June 30, 2011: |  |  |
Interest rate swaps | $(14,810) | Interest expense | $3,072 | Other income, net | $(25)
For the six months ended June 30, 2012: |  |  |
Interest rate swaps | $(17,780) | Interest expense | $6,775 | Other income, net | $69
For the six months ended June 30, 2011: |  |  |
Interest rate swaps | $(13,722) | Interest expense | $4,941 | Other income, net | $(24)
The table below presents a rollforward of the activity in the Company’s AOCI related to its derivatives designated as hedging instruments for the periods presented:
| Three Months Ended |  | Six Months Ended
| June 30, 2012 |  | June 30, 2011 |  | June 30, 2012 |  | June 30, 2011
Balance as of beginning of period | $ | (25,265 | ) |  | $ | 137 |  |  | $ | (25,444 | ) |  | $ | (2,820 | )
Change in fair value of interest rate swaps | (14,693 | ) |  | (14,810 | ) |  | (17,780 | ) |  | (13,722 | )
Reclassification adjustment for amounts included in statement of income | 3,509 |  |  | 3,072 |  |  | 6,775 |  |  | 4,941 |
Balance as of end of period | $ | (36,449 | ) |  | $ | (11,601 | ) |  | $ | (36,449 | ) |  | $ | (11,601 | )
The Company estimates that $15,139 of the existing losses that are reported in AOCI as of June 30, 2012 is expected to be reclassified into earnings as an increase to interest expense within the next 12 months. The Company’s objective for designating certain interest rate swaps as trading instruments is to offset the changes in market value for a portion of its Agency CMBS investments that are also designated as trading. The table below presents the effect of the derivatives designated as trading instruments on the Company’s consolidated statements of income for the periods indicated.
Type of Derivative Designated as Trading | Location On Income Statement | Amount of Loss Recognized in Net Income
Three Months Ended |  | Six Months Ended
|  | June 30, 2012 |  | June 30, 2011 |  | June 30, 2012 |  | June 30, 2011
Interest rate swaps | Fair value adjustments, net | $ | (500 | ) |  | $ | (871 | ) |  | $ | (574 | ) |  | $ | (1,204 | )
These interest rate swap agreements contain various covenants related to the Company’s credit risk. Specifically, if the Company defaults on any of its indebtedness, including those circumstances whereby repayment of the indebtedness has not been accelerated by the lender, or is declared in default of any of its covenants with any counterparty, then the Company could also be declared in default of its derivative obligations. Additionally, the agreements outstanding with its derivative counterparties allow those counterparties to require settlement of its outstanding derivative transactions if the Company fails to earn GAAP net income greater than one dollar as measured on a rolling two quarter basis. These interest rate agreements also contain provisions whereby, if the Company fails to maintain a minimum net amount of shareholders’ equity, then the Company may be declared in default on its derivative obligations. As of June 30, 2012, the Company had derivatives in a net liability position with its derivative counterparties for which it had pledged Agency MBS with a fair value of $43,328 and cash of $38 as collateral. If the Company had breached any of these agreements as of June 30, 2012, it could have been required to settle those derivatives at their estimated termination value of $39,921, which includes accrued interest but excludes any adjustment for nonperformance risk.

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- Definition The entire disclosure for the entity's entire derivative instruments and hedging activities. Describes an entity's risk management strategies, derivatives in hedging activities and non-hedging derivative instruments, the assets, obligations, liabilities, revenues and expenses arising therefrom, and the amounts of and methodologies and assumptions used in determining the amounts of such items. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=7668309&loc=d3e80784-113994 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4C -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624171-113959 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4E -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624181-113959 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4K -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5708775-113959 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1A -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5579245-113959 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(n)) -URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=7476318&loc=d3e41641-113959 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5579240-113959 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 45 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6441202&loc=d3e80720-113993 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=7476318&loc=d3e41638-113959 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=7476318&loc=d3e41635-113959 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 133 -Paragraph 44 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. 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