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Derivatives | 6 Months Ended
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Jun. 30, 2017
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivatives | DERIVATIVES As of June 30, 2017, the Company's derivative instruments include interest rate swaps and TBA securities. The Company utilizes interest rate swaps to economically hedge a portion of its exposure to interest rate risk. The objective of the Company's risk management strategy is to mitigate declines in book value resulting from fluctuations in the fair value of the Company's assets from changing interest rates and to protect some portion of the Company's earnings from rising interest rates. During the second quarter of 2017, the Company began investing in TBA securities for the purchase or sale of Agency RMBS on a non-specified pool basis. TBA securities are forward contracts which are accounted for as derivative instruments, however, management views TBA securities as the economic equivalent of investing in and financing generic Agency fixed-rate RMBS through the repurchase agreement markets. Please refer to Note 1 for information related to the Company's accounting policy for its derivative instruments. 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:
|  |  |  | June 30, 2017 |  | December 31, 2016
Type of Derivative Instruments |  | Balance Sheet Location |  | Fair Value |  | Fair Value (1)
Interest rate swaps |  | Derivative assets |  | $ | 267 |  |  | $ | 28,534 |
TBA securities |  | Derivative assets |  | — |  |  | — |
|  |  |  | $ | 267 |  |  | $ | 28,534 |
Interest rate swaps |  | Derivative liabilities |  | $ | (18 | ) |  | $ | (6,922 | )
TBA securities |  | Derivative liabilities |  | (1,668 | ) |  | — |
|  |  |  | $ | (1,686 | ) |  | $ | (6,922 | )
(1) | Refer to Note 1 regarding information on a change in the CME rulebook. Amounts reported on the consolidated balance sheet as of June 30, 2017 for its interest rate swaps reflect the netting of the derivative asset or liability with the related collateral received or posted, respectively. The net amounts comparable to June 30, 2017 for the derivative asset and derivative liabilities as of December 31, 2016 were $104 and $(576), respectively.
The following tables present information about the Company's interest rate swaps as of the dates indicated:
|  | June 30, 2017
|  |  |  | Weighted-Average: |  |
Years to Maturity: |  | Net Notional Amount (1) |  | Pay Rate (2) |  | Life Remaining (in Years) |  | Fair Value
< 3 years |  | $ | 3,060,000 |  |  | 1.39 | % |  | 1.1 |  | $ | 249 |
>3 and < 6 years |  | 1,050,000 |  |  | 1.63 | % |  | 4.3 |  | — |
>6 and < 10 years |  | 1,175,000 |  |  | 2.45 | % |  | 8.3 |  | — |
Total |  | $ | 5,285,000 |  |  | 1.67 | % |  | 3.4 |  | $ | 249 |
|  | December 31, 2016
|  |  |  | Weighted-Average: |  |
Years to Maturity: |  | Net Notional Amount (1) |  | Pay Rate (2) |  | Life Remaining (in Years) |  | Fair Value
< 3 years |  | $ | 595,000 |  |  | 0.73 | % |  | 2.3 |  | $ | 4,348 |
>3 and < 6 years |  | 1,185,000 |  |  | 1.47 | % |  | 4.3 |  | 8,631 |
>6 and < 10 years |  | 1,250,000 |  |  | 2.42 | % |  | 8.9 |  | 8,633 |
Total |  | $ | 3,030,000 |  |  | 1.58 | % |  | 5.3 |  | $ | 21,612 |
(1) | The net notional amounts included in the tables above represent pay-fixed interest rate swaps, net of receive-fixed interest rate swaps and include $2,425,000 and $2,725,000 of pay-fixed forward starting interest rate swaps as of June 30, 2017 and December 31, 2016, respectively.
(2) Excluding forward starting pay-fixed interest rate swaps, the weighted average pay rate was 1.31% and 0.73% as of June 30, 2017 and December 31, 2016, respectively. The following table summarizes information about the Company's TBA securities as of June 30, 2017:
|  | June 30, 2017
By Coupon: |  | Notional Amount (1) |  | Cost Basis (2) |  | Market Value (3) |  | Net Carrying Value (4)
30-year TBA securities: |  |  |  |  |  |  |  |
3.0% |  | $ | 100,000 |  |  | $ | 100,656 |  |  | $ | 99,867 |  |  | $ | (789 | )
4.0% |  | 300,000 |  |  | 315,656 |  |  | 314,777 |  |  | (879 | )
Total 30-year TBA securities |  | $ | 400,000 |  |  | $ | 416,312 |  |  | $ | 414,644 |  |  | $ | (1,668 | )
(1) | Notional amount represents the par value (or principal balance) of the underlying Agency MBS.
(2) | Cost basis represents the forward price to be paid for the underlying Agency MBS as if settled.
(3) | Market value is the current fair value of the TBA contract and represents the estimated fair value of the underlying Agency security as of the end of the period.
(4) | Net carrying value represents the difference between the market value and the cost basis of the TBA contract as of the end of the period and is included on the consolidated balance sheets within "derivative assets (liabilities)".
The tables below summarize changes in our derivative instruments for the periods indicated:
Type of Derivative Instrument |  | Notional Amount as of December 31, 2016 |  | Additions |  | Settlements, Terminations, or Pair-Offs |  | Notional Amount as of June 30, 2017
Receive-fixed interest rate swaps |  | $ | 425,000 |  |  | $ | — |  |  | $ | (325,000 | ) |  | $ | 100,000 |
Pay-fixed interest rate swaps |  | 3,455,000 |  |  | 2,750,000 |  |  | (820,000 | ) |  | 5,385,000 |
TBA securities |  | — |  |  | 1,300,000 |  |  | (900,000 | ) |  | 400,000 |
The table below provides detail of the Company's "loss on derivative instruments, net" by type of derivative for the periods indicated:
|  | Three Months Ended |  | Six Months Ended
|  | June 30, |  | June 30,
Type of Derivative Instrument |  | 2017 |  | 2016 |  | 2017 |  | 2016
Receive-fixed interest rate swaps |  | $ | 979 |  |  | $ | 3,743 |  |  | $ | 845 |  |  | $ | 14,277 |
Pay-fixed interest rate swaps |  | (18,498 | ) |  | (15,854 | ) |  | (18,189 | ) |  | (62,466 | )
TBA securities |  | 1,717 |  |  | — |  |  | 1,717 |  |  | — |
Eurodollar futures |  | — |  |  | (4,186 | ) |  | — |  |  | (16,372 | )
Loss on derivative instruments, net |  | $ | (15,802 | ) |  | $ | (16,297 | ) |  | $ | (15,627 | ) |  | $ | (64,561 | )
There is a net unrealized gain of $499 remaining in AOCI on the Company's consolidated balance sheet as of June 30, 2017 which represents the activity related to interest rate swap agreements while they were previously designated as cash flow hedges, and this amount will be recognized in the Company's net income as an adjustment to "interest expense" over the remaining contractual life of the agreements. The Company estimates a credit of $193 will be reclassified to net income as a reduction of "interest expense" within the next 12 months. 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 our 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 June 30, 2017. The Company's derivatives are subject to underlying agreements with master netting or similar arrangements, which provide for the right of offset in the event of default or in the event of bankruptcy of either party to the transactions. The Company reports its derivative assets and liabilities subject to these arrangements on a gross basis. The following tables present information regarding those derivative assets and liabilities subject to such arrangements as if the Company had presented them on a net basis as of June 30, 2017 and December 31, 2016:
| 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
Financial Instruments Received as Collateral |  | Cash Received as Collateral
June 30, 2017 |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps | $ | 267 |  |  | $ | — |  |  | $ | 267 |  |  | $ | (4 | ) |  | $ | — |  |  | $ | 263 |
TBA securities | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Derivative assets | $ | 267 |  |  | $ | — |  |  | $ | 267 |  |  | $ | (4 | ) |  | $ | — |  |  | $ | 263 |
December 31, 2016: |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps | $ | 28,534 |  |  | $ | — |  |  | $ | 28,534 |  |  | $ | (6,449 | ) |  | $ | (22,085 | ) |  | $ | — |
TBA securities | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Derivative assets | $ | 28,534 |  |  | $ | — |  |  | $ | 28,534 |  |  | $ | (6,449 | ) |  | $ | (22,085 | ) |  | $ | — |
| 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
Financial Instruments Posted as Collateral |  | Cash Posted as Collateral
June 30, 2017 |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps | $ | 18 |  |  | $ | — |  |  | $ | 18 |  |  | $ | (18 | ) |  | $ | — |  |  | $ | — |
TBA securities | 1,668 |  |  | — |  |  | 1,668 |  |  | — |  |  | (961 | ) |  | 707 |
Derivative liabilities | $ | 1,686 |  |  | $ | — |  |  | $ | 1,686 |  |  | $ | (18 | ) |  | $ | (961 | ) |  | $ | 707 |
December 31, 2016: |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps | $ | 6,922 |  |  | $ | — |  |  | $ | 6,922 |  |  | $ | (6,913 | ) |  | $ | — |  |  | $ | 9 |
TBA securities | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Derivative liabilities | $ | 6,922 |  |  | $ | — |  |  | $ | 6,922 |  |  | $ | (6,913 | ) |  | $ | — |  |  | $ | 9 |
(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 asset or liability presented in the balance sheet. The fair value of the actual collateral received by or posted to the same counterparty may exceed the amounts presented.
Please see Note 3 for information related to the Company's repurchase agreements which are also subject to underlying agreements with master netting or similar arrangements.

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
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