Derivative Instruments and Hedging Activities

The Company enters into derivative instruments in connection with its risk management activities. These derivative instruments may include interest rate swaps, swaptions, futures and options on futures. The Company may also purchase or sell “To-Be-Announced,” or TBAs, purchase options on U.S. Treasury futures or invest in other types of mortgage derivative securities. The Company's derivative instruments are currently comprised of interest rate swaps, which are designated as trading instruments.

Derivatives Not Designated as Hedging Instruments

The following table presents the fair value of derivative instruments and their location in our condensed consolidated balance sheets at March 31, 2019 and December 31, 2018, respectively (dollar amounts in thousands):



Type of Derivative Instrument	Balance Sheet Location	March 31, 2019		December 31, 2018
Interest rate swaps ⁽¹⁾	Derivative assets	$	14,873	$	10,263

⁽¹⁾

All of the Company's interest rate swaps outstanding are cleared through a central clearing house. The Company exchanges variation margin for swaps based upon daily changes in fair value. As a result of amendments to rules governing certain central clearing activities, the exchange of variation margin is treated as a legal settlement of the exposure under the swap contract. Previously such payments were treated as cash collateral pledged against the exposure under the swap contract. Accordingly, the Company accounted for the receipt or payment of variation margin as a direct reduction to or increase of the carrying value of the interest rate swap asset or liability on the Company's condensed consolidated balance sheets. Includes $12.8 million of derivative liabilities netted against a variation margin of $27.7 million at March 31, 2019. Includes $1.8 million of derivative assets and variation margin of $8.5 million at December 31, 2018.

The tables below summarize the activity of derivative instruments not designated as hedges for the three months ended March 31, 2019 and 2018, respectively (dollar amounts in thousands):



	Notional Amount For the Three Months Ended March 31, 2019
Type of Derivative Instrument	December 31, 2018		Additions		Settlement, Expiration or Exercise		March 31, 2019
Interest rate swaps	$	495,500	$	—	$	—	$	495,500



	Notional Amount For the Three Months Ended March 31, 2018
Type of Derivative Instrument	December 31, 2017		Additions		Settlement, Expiration or Exercise		March 31, 2018
Interest rate swaps	$	345,500	$	—	$	—	$	345,500

The following table presents the components of realized and unrealized gains and losses related to our derivative instruments that were not designated as hedging instruments included in other income category in our condensed consolidated statements of operations for the three months ended March 31, 2019 and 2018 (dollar amounts in thousands):



	Three Months Ended March 31,
	2019					2018
	Realized Gains (Losses)		Unrealized Gains (Losses)			Realized Gains (Losses)		Unrealized Gains (Losses)
Interest rate swaps	$	—	$	(14,586	)	$	—	$	8,969
Total	$	—	$	(14,586	)	$	—	$	8,969

Derivatives Designated as Hedging Instruments

As of March 31, 2019 and December 31, 2018, there were no derivative instruments designated as hedging instruments. The Company documents its risk-management policies, including objectives and strategies, as they relate to its hedging activities, and upon entering into hedging transactions, documents the relationship between the hedging instrument and the hedged liability contemporaneously. The Company assesses, both at inception of a hedge and on an ongoing basis, whether or not the hedge is “highly effective” when using the matched term basis.

The Company discontinues hedge accounting on a prospective basis and recognizes changes in the fair value through earnings when: (i) it is determined that the derivative is no longer effective in offsetting cash flows of a hedged item (including forecasted transactions); (ii) it is no longer probable that the forecasted transaction will occur; or (iii) it is determined that designating the derivative as a hedge is no longer appropriate. The Company’s derivative instruments are carried on the Company’s balance sheets at fair value, as assets, if their fair value is positive, or as liabilities, if their fair value is negative. For the Company’s derivative instruments that are designated as “cash flow hedges,” changes in their fair value are recorded in accumulated other comprehensive income (loss), provided that the hedges are effective. A change in fair value for any ineffective amount of the Company’s derivative instruments would be recognized in earnings.

Outstanding Derivatives

The following table presents information about our interest rate swaps whereby we receive floating rate payments in exchange for fixed rate payments as of March 31, 2019 and December 31, 2018, respectively (dollar amounts in thousands):



	March 31, 2019						December 31, 2018
Swap Maturities	Notional Amount		Weighted Average Fixed Interest Rate		Weighted Average Variable Interest Rate		Notional Amount		Weighted Average Fixed Interest Rate		Weighted Average Variable Interest Rate
2024	$	98,000	2.18	%	2.78	%	$	98,000	2.18	%	2.45	%
2027	247,500		2.39	%	2.74	%	247,500		2.39	%	2.53	%
2028	150,000		3.23	%	2.74	%	150,000		3.23	%	2.53	%
Total	$	495,500	2.60	%	2.75	%	$	495,500	2.60	%	2.52	%

The use of derivatives exposes the Company to counterparty credit risks in the event of a default by a counterparty. If a counterparty defaults under the applicable derivative agreement, the Company may be unable to collect payments to which it is entitled under its derivative agreements and may have difficulty collecting the assets it pledged as collateral against such derivatives. The Company has in place with all counterparties bi-lateral margin agreements requiring a party to post collateral to the Company for any valuation deficit. This arrangement is intended to limit the Company’s exposure to losses in the event of a counterparty default. Currently, all of the Company's interest rate swaps outstanding are cleared through CME Group Inc. ("CME Clearing") which is the parent company of the Chicago Mercantile Exchange Inc. CME Clearing serves as the counterparty to every cleared transaction, becoming the buyer to each seller and the seller to each buyer, limiting the credit risk by guaranteeing the financial performance of both parties and netting down exposures.