XML 71 R10.htm IDEA: XBRL DOCUMENT
v3.19.3.a.u2

Derivatives (Notes) | 12 Months Ended
--- | ---
Dec. 31, 2019
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivatives | DERIVATIVES The Company is a party to certain types of financial instruments that are accounted for as derivative instruments. Please refer to Note 1 for information related to the Company’s accounting policy for its derivative instruments. Types and Uses of Derivatives Instruments Interest Rate Derivatives. Changing interest rates impact the fair value of the Company’s investments as well as the interest rates on the Company’s repurchase agreement borrowings used to finance its investments. The Company primarily uses interest rate swaps as economic hedges to mitigate declines in book value and to protect some portion of the Company's earnings from rising interest rates. The Company may also periodically utilize other types of interest rate derivatives, such as interest rate swaptions and Eurodollar and U.S. Treasury futures as economic hedges. TBA Transactions. The Company may also purchase TBA securities as a means of investing in non-specified fixed-rate Agency RMBS, and may also periodically sell TBA securities as a means of economically hedging its book value exposure to Agency RMBS as well as earnings exposure from rising financing costs. The Company holds long and short positions in TBA securities by executing a series of transactions, commonly referred to as “dollar roll” transactions, which effectively delay the settlement of a forward purchase (or sale) of a non-specified Agency RMBS by entering into an offsetting TBA position, net settling the paired-off positions in cash, and simultaneously entering into an identical TBA long (or short) position with a later settlement date. TBA securities purchased (or sold) for a forward settlement date are generally priced at a discount relative to TBA securities settling in the current month. This discount, often referred to as “drop income” represents the economic equivalent of net interest income (interest income less implied financing cost) on the underlying Agency security from trade date to settlement date. 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 |  | December 31, 2019 |  | December 31, 2018
Interest rate swaps (1) |  | Derivative assets |  | Economic hedging |  | $ | — |  |  | $ | 324 |
Interest rate swaptions |  | Derivative assets |  | Economic hedging |  | 573 |  |  | — |
Options on U.S. Treasury futures |  | Derivative assets |  | Economic hedging |  | 2,883 |  |  | — |
TBA securities - long positions |  | Derivative assets |  | Investing |  | 834 |  |  | 6,239 |
|  |  |  |  |  | $ | 4,290 |  |  | $ | 6,563 |
TBA securities - short positions |  | Derivative liabilities |  | Economic hedging |  | $ | (974) |  |  | $ | — |
U.S. Treasury futures |  | Derivative liabilities |  | Economic hedging |  | — |  |  | (1,218) |
|  |  |  |  |  | $ | (974) |  |  | $ | (1,218) |
(1) Amounts shown as of December 31, 2019 and December 31, 2018 are net of $(9,265) paid and $8,424 received, respectively, in variation margin which is recorded on the Company’s consolidated balance sheets within “restricted cash.” As of December 31, 2019, all 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. The amount shown as of December 31, 2018 is the unsettled fair value of the instruments subject to bilateral agreements and not centrally cleared through the CME as of that date. The table below provides detail of the Company’s “(loss) gain on derivative instruments, net” by type of derivative for the periods indicated:
|  | Year Ended |  |  |  |  |
|  | December 31, |  |  |  |  |
Type of Derivative Instrument |  | 2019 |  | 2018 |  | 2017 |
Interest rate swaps |  | $ | (202,450) |  |  | $ | 10,363 |  |  | $ | (2,632) |  |
Interest rate swaptions |  | (5,607) |  |  | — |  |  | — |  |
Eurodollar futures |  | 2,359 |  |  | 1,887 |  |  | 821 |  |
U.S. Treasury futures |  | (109) |  |  | (4,609) |  |  | — |  |
Options on U.S. Treasury futures |  | (1,422) |  |  | (658) |  |  | — |  |
TBA securities - long positions |  | 20,020 |  |  | (10,737) |  |  | 5,757 |  |
TBA securities - short positions |  | 260 |  |  | 293 |  |  | (902) |  |
(Loss) gain on derivative instruments, net |  | $ | (186,949) |  |  | $ | (3,461) |  |  | $ | 3,044 |  |
Interest Rate Swaps The following tables present information about the Company’s interest rate swaps as of the dates indicated:
|  | December 31, 2019 |  |  |  |
|  |  |  | Weighted-Average |  |
Years to Maturity: |  | Notional Amount |  | Pay Rate |  | Life Remaining (in Years)
< 3 years |  | $ | 2,860,000 |  |  | 1.58 | % |  | 1.5
>3 and < 6 years |  | 700,000 |  |  | 1.43 | % |  | 4.7
>6 and < 10 years |  | 545,000 |  |  | 1.78 | % |  | 9.4
>10 years |  | 120,000 |  |  | 2.84 | % |  | 27.7
Total |  | $ | 4,225,000 |  |  | 1.62 | % |  | 3.8
|  | December 31, 2018 |  |  |  |
|  |  |  | Weighted-Average |  |
Years to Maturity: |  | Notional Amount |  | Pay Rate |  | Life Remaining (in Years)
< 3 years |  | $ | 1,560,000 |  |  | 1.96 | % |  | 1.4
>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
Options The following table presents information about the Company’s options outstanding as of December 31, 2019:(1)
| December 31, 2019 |  |  |  |  |  |  |  |  |  |
| Option |  |  |  |  |  | Underlying Instrument |  |  |  |
| Cost Basis |  | Fair Value |  | Maturity Date |  | Notional Amount |  | Rate (2) |  | Term in Years
Pay-fixed interest rate swaptions | $ | 6,180 |  |  | $ | 573 |  |  | January 16, 2020 |  | $ | 750,000 |  |  | 2.07 | % |  | 10.0
Options on U.S. Treasury futures | 4,359 |  |  | 2,883 |  |  | Febuary 21, 2020 |  | 1,350,000 |  |  | n/a |  |  | 10.0
Total | $ | 10,539 |  |  | $ | 3,456 |  |  |  |  | $ | 2,100,000 |  |  |  |  |
(1) The Company did not have any options as of December 31, 2018. (2) Weighted average based on notional amount of the underlying instrument. TBA Securities The following table summarizes information about the Company's TBA securities as of the dates indicated:
| December 31, 2019 |  |  |  | December 31, 2018 |  |
| Long Positions |  |  | Short Positions |  |  | Long Positions |  |  | Short Positions |
Implied market value (1) | $ | 442,161 |  |  | $ | (520,117) |  |  | $ | 888,469 |  |  | $ | — |
Implied cost basis (2) | 441,327 |  |  | (519,143) |  |  | 882,230 |  |  | — |
Net carrying value (3) | $ | 834 |  |  | $ | (974) |  |  | $ | 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. Volume of Activity 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 December 31, 2019
Interest rate swaps |  | $ | 4,515,000 |  |  | $ | 6,560,000 |  |  | $ | (6,850,000) |  |  | $ | 4,225,000 |
Interest rate swaptions |  | — |  |  | 1,500,000 |  |  | (750,000) |  |  | 750,000 |
Eurodollar futures |  | — |  |  | 9,000,000 |  |  | (9,000,000) |  |  | — |
U.S. Treasury futures |  | 50,000 |  |  | — |  |  | (50,000) |  |  | — |
Options on U.S. Treasury futures |  | — |  |  | 1,350,000 |  |  | — |  |  | 1,350,000 |
TBA long positions |  | 860,000 |  |  | 7,615,000 |  |  | (8,040,000) |  |  | 435,000 |
TBA short positions |  | — |  |  | 1,800,000 |  |  | (2,300,000) |  |  | (500,000) |
Offsetting 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 December 31, 2019 and December 31, 2018:
| 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 |  |
December 31, 2019 |  |  |  |  |  |  |  |  |  |  |
Interest rate swaptions | $ | 573 |  |  | $ | — |  |  | $ | 573 |  |  | $ | — |  |  | $ | — |  |  | $ | 573 |
Options on U.S. Treasury future | 2,883 |  |  | — |  |  | 2,883 |  |  | — |  |  | — |  |  | 2,883 |
TBA securities-long positions | 834 |  |  | — |  |  | 834 |  |  | (380) |  |  | — |  |  | 454 |
Derivative assets | $ | 4,290 |  |  | $ | — |  |  | $ | 4,290 |  |  | $ | (380) |  |  | $ | — |  |  | $ | 3,910 |
December 31, 2018 |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps | $ | 324 |  |  | $ | — |  |  | $ | 324 |  |  | $ | — |  |  | $ | — |  |  | $ | 324 |
TBA securities-long positions | 6,239 |  |  | — |  |  | 6,239 |  |  | — |  |  | (1,719) |  |  | 4,520 |
Derivative assets | $ | 6,563 |  |  | $ | — |  |  | $ | 6,563 |  |  | $ | — |  |  | $ | (1,719) |  |  | $ | 4,844 |
| 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 |  |
December 31, 2019 |  |  |  |  |  |  |  |  |  |  |
TBA securities-short positions | (974) |  |  | — |  |  | (974) |  |  | 380 |  |  | — |  |  | (594) |
Derivative liabilities | $ | (974) |  |  | $ | — |  |  | $ | (974) |  |  | $ | 380 |  |  | $ | — |  |  | $ | (594) |
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. 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.

X
- References No definition available. + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- 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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration