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SEC Filings

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


3.
Average leverage during the period was calculated by dividing the sum of our daily weighted average mortgage borrowings outstanding by the sum of our average month-end stockholders' equity less our average investment in REIT equity securities for the period.
4.
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.
5.
Leverage as of period end was calculated by dividing the sum of the amount of mortgage borrowings outstanding and net payables and receivables for unsettled agency securities by the sum of our total stockholders' equity less the fair value of our investment in REIT equity securities at period end.
6.
"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.

Interest Expense and Cost of Funds 

Our interest expense is comprised of interest expense on our mortgage borrowings and the reclassification of accumulated OCI into interest expense related to previously de-designated interest rate swaps. Our mortgage borrowings primarily consist of agency repurchase agreements. Upon our election to discontinue hedge accounting under GAAP as of September 30, 2011, the net deferred loss related to our de-designated interest rate swaps remained in accumulated OCI and is being reclassified from accumulated OCI into interest expense on a straight-line basis over the remaining term of each interest rate swap.
Our "adjusted net interest expense," also referred to as our "cost of funds" when stated as a percentage of our mortgage borrowings outstanding, includes periodic interest costs on our interest rate swaps reported in gain/loss on derivative instruments and other securities, net in our consolidated statements of comprehensive income. Our cost of funds does not include swap termination fees, forward starting swaps and costs associated with our other supplemental hedges, such as swaptions and U.S. Treasury positions. Our cost of funds also does not include the implied financing cost/benefit of our net TBA dollar roll position, but does, however, include interest rate swap hedge costs related to our TBA dollar roll funded assets. Consequently, our cost of funds measured as a percentage of our outstanding mortgage borrowings is higher than if we allocated a portion of our swap hedge costs to our TBA dollar roll funded assets.
The table below presents a reconciliation of our interest expense (the most comparable GAAP financial measure) to our adjusted net interest expense and cost of funds (non-GAAP financial measures) for the three and six months ended June 30, 2016 and 2015 (dollars in millions):

 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2016
 
2015
 
2016
 
2015
Adjusted Net Interest Expense and Cost of Funds
 
Amount
 
% 1
 
Amount
 
% 1
 
Amount
 
% 1
 
Amount
 
% 1
Interest expense:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense on mortgage borrowings
 
$
89

 
0.76
%
 
$
55

 
0.44
%
 
$
169

 
0.73
%
 
$
112

 
0.43
%
Periodic interest costs of interest rate swaps previously designated as hedges under GAAP, net
 
12

 
0.10
%
 
26

 
0.21
%
 
31

 
0.13
%
 
55

 
0.21
%
Total interest expense
 
101

 
0.86
%
 
81

 
0.65
%
 
200

 
0.86
%
 
167

 
0.64
%
Other periodic interest costs of interest rate swaps, net
 
69

 
0.60
%
 
99

 
0.78
%
 
158

 
0.67
%
 
183

 
0.71
%
Total adjusted net interest expense and cost of funds
 
$
170

 
1.46
%
 
$
180

 
1.43
%
 
$
358

 
1.55
%
 
$
350

 
1.35
%
 _______________________
1.
Percent of our average mortgage borrowings outstanding for the period annualized.

The principal elements impacting our adjusted net interest expense are the size of our average mortgage borrowings outstanding during the period, the size of our average interest rate swap balance outstanding (excluding forward starting swaps), the average interest rate on our borrowings and the average net pay rate on our pay-fixed receive-floating interest rate swaps. The size of our average borrowings declined 7% and 11% for the three and six months ended June 30, 2016, respectively, compared to the prior year period, commensurate with the decline in our average investment portfolio.

Our average cost of funds was 1.46% for the three months ended June 30, 2016, largely unchanged from the prior year period, as the increase in repo costs was largely offset by a decline in interest rate swap costs. Our average cost of funds was 1.55% for the six months ended June 30, 2016, an increase of 20 basis points from the prior year period due to the combination of (i) timing differences between the rate resets on our variable rate borrowings and rate resets on the receive-floating rate leg of our interest rate swaps after the December 2015 increase in the Federal Funds Rate and (ii) a larger relative swap position during the first quarter of 2016, compared to the prior year period.

The following is a summary of the estimated impact of the principal elements impacting the increase in our adjusted net interest expense for the three and six months ended June 30, 2016, compared to the prior year period (in millions):


40


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