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SEC Filings

10-Q
AGNC INVESTMENT CORP. filed this Form 10-Q on 05/06/2015
Entire Document
 


sources to understand the significant inputs and assumptions they used to determine their prices. For further information regarding valuation of our derivative instruments, please refer to the discussion of derivative and other hedging instruments in Note 3.
 
We review the various third party fair value estimates and perform procedures to validate their reasonableness, including an analysis of the range of third party estimates for each position, comparison to recent trade activity for similar securities, and management review for consistency with market conditions observed as of the measurement date. While we do not adjust prices we obtain from third party pricing sources, we will exclude third party prices for securities from our determination of fair value if we determine (based on our validation procedures and our market knowledge and expertise) that the price is significantly different from observable market data would indicate and we cannot obtain an understanding from the third party source as to the significant inputs used to determine the price.
 
The validation procedures described above also influence our determination of the appropriate fair value measurement classification.  We utilize a three-level valuation hierarchy for disclosure of fair value measurement. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. A financial instrument's categorization within the hierarchy is based upon the lowest level of input that is significant to the fair value measurement. There were no transfers between hierarchy levels during the three months ended March 31, 2015. The three levels of hierarchy are defined as follows:
Level 1 Inputs —Quoted prices (unadjusted) for identical unrestricted assets and liabilities in active markets that are accessible at the measurement date.
Level 2 Inputs —Quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3 Inputs —Instruments with primarily unobservable market data that cannot be corroborated.
The following table provides a summary of our assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2015 and December 31, 2014 (in millions):
 
 
March 31, 2015
 
December 31, 2014
 
 
Level 1
 
Level 2
 
Level 3
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
Agency securities
 
$

 
$
60,131

 
$

 
$

 
$
55,482

 
$

Agency securities transferred to consolidated VIEs
 

 
1,221

 

 

 
1,266

 

U.S. Treasury securities
 
4,328

 

 

 
2,427

 

 

Interest rate swaps
 

 
70

 

 

 
136

 

Swaptions
 

 
50

 

 

 
75

 

REIT equity securities
 
68

 

 

 
68

 

 

TBA securities
 

 
109

 

 

 
197

 

Total
 
$
4,396

 
$
61,581

 
$

 
$
2,495

 
$
57,156

 
$

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Debt of consolidated VIEs
 
$

 
$
725

 
$

 
$

 
$
761

 
$

Obligation to return U.S. Treasury securities borrowed under reverse repurchase agreements
 
3,363

 

 

 
5,363

 

 

Interest rate swaps
 

 
1,308

 

 

 
880

 

U.S. Treasury futures
 
14

 

 

 
5

 

 

TBA securities
 

 
30

 

 

 
5

 

Total
 
$
3,377


$
2,063


$

 
$
5,368

 
$
1,646

 
$

We elected the option to account for debt of consolidated VIEs at fair value with changes in fair value reflected in earnings during the period in which they occur, because we believe this election more appropriately reflects our financial position as both the consolidated agency securities and consolidated debt are presented in a consistent manner, at fair value, on our consolidated balance sheets. We estimate the fair value of the consolidated debt based on the fair value of the agency MBS transferred to

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