Impact of Changes in the Principal Elements Impacting Interest Income
Three Months Ended March 31, 2015 vs. March 31, 2014
Due to Change in Average
The average par value of our agency MBS portfolio decreased by 5% for the three months ended March 31, 2015, compared to the prior year period, reflective of lower "at risk" leverage and a shift from agency MBS repo funded assets to TBA dollar roll funded assets. Because we recognize TBA securities as derivative instruments under GAAP, our reported interest income does not include our TBA dollar roll income, which we report in gain/loss on derivative instruments and other securities, net in our accompanying consolidated financial statements in this Form 10-Q.
Our average asset yield for the three months ended March 31, 2015 was impacted by changes in our asset composition and fluctuations in "catch-up" premium amortization adjustments recognized due to changes in our projected life CPR forecasts. Excluding "catch-up" premium amortization adjustments, our average asset yield was 2.70% for the three months ended March 31, 2015, unchanged from the prior year period.
Our leverage was 5.8x our stockholders' equity as of March 31, 2015, compared to 5.3x and 5.9x as of December 31, 2014 and March 31, 2014, respectively, measured as the sum of our agency MBS repo agreements, net receivable / payable for unsettled agency securities and debt of consolidated VIEs divided by the sum of our total stockholders' equity less the fair value of our investments in REIT equity securities as of period end. Since the individual agency mortgage REITs in which we invest employ similar leverage as within our agency portfolio, we acquire these securities on an unlevered basis and, therefore, exclude from our leverage measurements the portion of our stockholders' equity allocated to investments in other mortgage REITs. In addition, our measurement of leverage excludes repurchase agreements used to fund short-term investments in U.S. Treasury securities due to the highly liquid and temporary nature of these investments.
Inclusive of our net TBA position, our total "at risk" leverage was 6.4x our stockholders' equity as of March 31, 2015, compared to 6.9x and 7.6x as of December 31, 2014 and March 31, 2014, respectively. Since we recognize our TBA commitments as derivatives under GAAP, they are not included in our repo and other debt leverage calculations as measured from our consolidated balance sheets; however, a long TBA position carries similar risks as if we had purchased the underlying MBS assets and funded such purchases with on-balance sheet repo agreements. Similarly, a short TBA position has substantially the same effect as selling the underlying MBS assets and reducing our on-balance sheet repurchase commitments. (Refer to Liquidity and Capital Resources for further discussion of TBA dollar roll positions). Therefore, we commonly refer to our leverage adjusted for TBA positions as our "at risk" leverage.
The table below presents our average and quarter-end repo and other debt balance, net TBA position and leverage ratios for each of the three month periods listed below (dollars in millions):
Agency MBS Repurchase Agreements
and Other Debt 1
Net TBA Position
Long / (Short) 2
Leverage during the Period 1,3
"At Risk" Leverage during the Period 1,4
Period End 1,5
"At Risk" Leverage
Period End 1,6
March 31, 2015
December 31, 2014
March 31, 2014
Excludes U.S. Treasury repo agreements.
Daily average and ending net TBA position outstanding measured at cost.
Average leverage during the period was calculated by dividing the sum of our daily weighted average agency repurchase agreements and debt of consolidated VIEs outstanding by the sum of our average month-end stockholders' equity less our average investment in REIT equity securities for the period.
Average "at risk" leverage during the period includes the components of "average leverage during the period," plus our daily weighted average net TBA position (at cost) during the period.
Leverage as of period end was calculated by dividing the sum of the amount outstanding under our agency MBS repurchase agreements, net payables and receivables for unsettled agency MBS securities and debt of consolidated VIEs by the sum of our total stockholders' equity less the fair value of our investment in REIT equity securities at period end.
"At risk" leverage as of period end includes the components of "leverage as of period end," plus the cost basis (or contract price) of our net TBA position.