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SEC Filings

10-Q
AGNC INVESTMENT CORP. filed this Form 10-Q on 08/05/2016
Entire Document
 


Gains and Losses on Sale of Mortgage-Backed Securities
The following table is a summary of our net gain (loss) from the sale of securities classified as available-for-sale for the three and six months ended June 30, 2016 and 2015 (in millions): 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
Securities Classified as Available-for-Sale
 
2016
 
2015
 
2016
 
2015
MBS sold, at cost
 
$
(7,508
)
 
$
(10,241
)
 
$
(11,023
)
 
$
(17,974
)
Proceeds from MBS sold 1
 
7,563

 
10,219

 
11,076

 
17,988

Net gain (loss) on sale of MBS
 
$
55

 
$
(22
)
 
$
53

 
$
14

 
 
 
 
 
 
 
 
 
Gross gain on sale of MBS
 
$
55

 
$
22

 
$
60

 
$
79

Gross loss on sale of MBS
 

 
(44
)
 
(7
)
 
(65
)
Net gain (loss) on sale of MBS
 
$
55

 
$
(22
)
 
$
53

 
$
14

  ________________________
1.
Proceeds include cash received during the period, plus receivable for MBS sold during the period as of period end.
For the three and six months ended June 30, 2016, we recognized a net unrealized gain of zero and $11 million, respectively, and for the three and six months ended June 30, 2015 we recognized a net unrealized loss of $7 million and an unrealized gain of $4 million, respectively, for the change in value of investments in interest and principal-only securities in gain (loss) on derivative instruments and other securities, net in our consolidated statements of comprehensive income. Over the same periods, we did not recognize any realized gains or losses on our interest or principal-only securities.
Securitizations and Variable Interest Entities
As of June 30, 2016 and December 31, 2015, we held investments in CMO trusts, which are variable interest entities ("VIEs"). We have consolidated certain of these CMO trusts in our consolidated financial statements where we have determined we are the primary beneficiary of the trusts. All of our CMO securities are backed by fixed or adjustable-rate agency MBS. Fannie Mae or Freddie Mac guarantees the payment of interest and principal and acts as the trustee and administrator of their respective securitization trusts. Accordingly, we are not required to provide the beneficial interest holders of the CMO securities any financial or other support. Our maximum exposure to loss related to our involvement with CMO trusts is the fair value of the CMO securities and interest and principal-only securities held by us, less principal amounts guaranteed by Fannie Mae and Freddie Mac.
In connection with our consolidated CMO trusts, we recognized agency securities with a total fair value of $0.9 billion and 1.0 billion as of June 30, 2016 and December 31, 2015, respectively, and debt with a total fair value of $528 million and $595 million, respectively, in our accompanying consolidated balance sheets. As of June 30, 2016 and December 31, 2015, the agency securities had an aggregate unpaid principal balance of $0.9 billion and $1.0 billion, respectively, and the debt had an aggregate unpaid principal balance of $523 million and $587 million, respectively. We re-measure our consolidated debt at fair value through earnings in gain (loss) on derivative instruments and other securities, net in our consolidated statements of comprehensive income. For the three and six months ended June 30, 2016, we recorded a gain of $1 million and a loss of $6 million, respectively, associated with our consolidated debt. For the three and six months ended June 30, 2015, we recorded a gain of $9 million associated with our consolidated debt. Our involvement with the consolidated trusts is limited to the agency securities transferred by us upon the formation of the trusts and the CMO securities subsequently held by us. There are no arrangements that could require us to provide financial support to the trusts.
As of June 30, 2016 and December 31, 2015, the fair value of our CMO securities and interest and principal-only securities was $1.3 billion, excluding the consolidated CMO trusts discussed above, or $1.7 billion and $1.8 billion, respectively, including the net asset value of our consolidated CMO trusts. Our maximum exposure to loss related to our CMO securities and interest and principal-only securities, including our consolidated CMO trusts, was $241 million and $238 million as of June 30, 2016 and December 31, 2015, respectively.

Note 5. Repurchase Agreements and Other Secured Borrowings
We pledge certain of our securities as collateral under our repurchase agreements with financial institutions and under our secured borrowing facility with the Federal Home Loan Bank ("FHLB") of Des Moines. Interest rates on our borrowings are generally based on LIBOR plus or minus a margin and amounts available to be borrowed are dependent upon the fair value of the securities pledged as collateral, which fluctuates with changes in interest rates, type of security and liquidity conditions within the banking, mortgage finance and real estate industries. If the fair value of our pledged securities declines, lenders will typically require us to post additional collateral or pay down borrowings to re-establish agreed upon collateral requirements, referred to as "margin calls." Similarly, if the fair value of our pledged securities increases, lenders may release collateral back to us. As of

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