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SEC Filings

10-Q
AGNC INVESTMENT CORP. filed this Form 10-Q on 05/05/2016
Entire Document
 


 
 
Three Months Ended March 31, 2015
Derivative and Other Hedging Instruments
 
Notional Amount
Long/(Short)
December 31, 2014
 
Additions
 
Settlement, Termination,
Expiration or
Exercise
 
Notional Amount
 Long/(Short) March 31, 2015
 
 
Amount of
Gain/(Loss)
Recognized in
Income on
Derivatives 1
TBA securities, net
 
$
14,412

 
45,500

 
(55,039
)
 
$
4,873

 
 
$
234

Interest rate swaps
 
$
(43,700
)
 
(3,500
)
 
2,275

 
$
(44,925
)
 
 
(746
)
Payer swaptions
 
$
(6,800
)
 

 
1,600

 
$
(5,200
)
 
 
(17
)
Receiver swaptions
 
$
4,250

 

 
(3,500
)
 
$
750

 
 
17

U.S. Treasury securities - short position
 
$
(5,392
)
 
(4,173
)
 
6,212

 
$
(3,353
)
 
 
(82
)
U.S. Treasury securities - long position
 
$
2,411

 
15,562

 
(13,712
)
 
$
4,261

 
 
52

U.S. Treasury futures contracts - short position
 
$
(730
)
 
(730
)
 
730

 
$
(730
)
 
 
(20
)
 
 
 
 
 
 
 
 
 
 
 
$
(562
)
  ______________________
1.
Excludes a net gain of $2 million from investments in REIT equity securities and a net gain of $11 million from interest and principal-only securities recognized in gain (loss) on derivative instruments and other securities, net in our consolidated statements of comprehensive income.

Note 7. Pledged Assets
Our funding agreements require us to fully collateralize our obligations under the agreements based upon our counterparties' collateral requirements and their determination of the fair value of the securities pledged as collateral, which fluctuates with changes in interest rates, credit quality and liquidity conditions within the investment banking, mortgage finance and real estate industries. Our derivative contracts similarly require us to fully collateralize our obligations under such agreements, which will vary over time based on similar factors as well as our counterparties' determination of the value of the derivative contract. We are typically required to post initial collateral upon execution of derivative transactions, such as interest rate swap agreements and TBA contracts. If we breach our collateral requirements, we will be required to fully settle our obligations under the agreements, which could include a forced liquidation of our pledged collateral.
Our counterparties also apply a "haircut" to our pledged collateral, which means our collateral is valued at slightly less than market value and limits the amount we can borrow against our securities. This haircut reflects the underlying risk of the specific collateral and protects our counterparty against a change in its value. Our agreements do not specify the haircut; rather haircuts are determined on an individual transaction basis. Additionally, the FHLB of Des Moines may adjust the haircut on our outstanding FHLB advances at any time prior to maturity. As a condition of our membership in the FHLB of Des Moines, we are also obligated to purchase membership and activity-based stock in the FHLB based upon the aggregate amount of advances obtained from the FHLB.
Consequently, our funding agreements and derivative contracts expose us to credit risk relating to potential losses that could be recognized in the event that our counterparties fail to perform their obligations under such agreements. We minimize this risk by limiting our counterparties to major financial institutions with acceptable credit ratings or to registered clearinghouses and U.S. government agencies and we monitor our positions with individual counterparties. In the event of a default by a counterparty we may have difficulty obtaining our assets pledged as collateral to such counterparty and may not receive payments provided for under the terms of our derivative agreements. In the case of centrally cleared instruments, we could be exposed to credit risk if the central clearing agency or a clearing member defaults on its respective obligation to perform under the contract. However, we believe that the risk is minimal due to the clearing exchanges' initial and daily mark to market margin requirements and clearinghouse guarantee funds and other resources that are available in the event of a clearing member default.
Further, each of our International Swaps and Derivatives Association ("ISDA") Master Agreements also contains a cross default provision under which a default under certain of our other indebtedness in excess of certain thresholds causes an event of default under the ISDA Master Agreement. Threshold amounts vary by lender. Following an event of default, we could be required to settle our obligations under the agreements. Additionally, under certain of our ISDA Master Agreements, we could be required to settle our obligations under the agreements if we fail to maintain certain minimum stockholders' equity thresholds or our REIT status or if we fail to comply with limits on our leverage above certain specified levels. As of March 31, 2016, the fair value of additional collateral that could be required to be posted as a result of the credit-risk-related contingent features being triggered was not material to our financial statements.
As of March 31, 2016, our maximum amount at risk with any counterparty related to our repurchase agreements was 5% of our stockholders' equity and our maximum amount at risk with any counterparty related to our interest rate swap and swaption agreements, excluding centrally cleared swaps, was less than 1% of our stockholders' equity.

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