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SEC Filings

10-Q
AGNC INVESTMENT CORP. filed this Form 10-Q on 11/03/2017
Entire Document
 


 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2017
 
2016
 
2017
 
2016
Adjusted Net Interest Expense and Cost of Funds
 
Amount
 
% 1
 
Amount
 
% 1
 
Amount
 
% 1
 
Amount
 
% 1
Interest expense:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense on mortgage borrowings
 
$
140

 
1.34
%
 
$
89

 
0.80
%
 
$
350

 
1.17
%
 
$
258

 
0.75
%
Periodic interest costs of interest rate swaps previously designated as hedges under GAAP, net
 

 
%
 
7

 
0.06
%
 

 
%
 
38

 
0.11
%
Total interest expense
 
140

 
1.34
%
 
96

 
0.86
%
 
350

 
1.17
%
 
296

 
0.86
%
Periodic interest costs of interest rate swaps reported in gain (loss) on derivative instruments and other securities, net
 
26

 
0.25
%
 
51

 
0.47
%
 
106

 
0.36
%
 
209

 
0.60
%
Total adjusted net interest expense and cost of funds
 
$
166

 
1.59
%
 
$
147

 
1.32
%
 
$
456

 
1.53
%
 
$
505

 
1.47
%
 _______________________
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 and interest rate swap portfolio (excluding forward starting swaps) outstanding during the period, the average interest rate on our borrowings and the average net interest rate paid/received on our interest rate swaps. The following is a summary of the estimated impact of these elements on our adjusted net interest expense for the three and nine months ended September 30, 2017, compared to the prior year period (in millions):
Impact of Changes in the Principal Elements of Adjusted Net Interest Expense
Periods ended September 30, 2017 vs. September 30, 2016
 
 
 
Due to Change in Average
 
Total Increase / (Decrease)
 
Borrowing / Swap Balance
 
Borrowing / Swap Rate
Three months ended:
 
 
 
 
 
Interest expense on mortgage borrowings
$
51

 
$
(6
)
 
$
57

Periodic interest rate swap costs
(32
)
 
11

 
(43
)
Total change in adjusted net interest expense
$
19

 
$
5

 
$
14

 
 
 
 
 
 
Nine months ended:
 
 
 
 
 
Interest expense on mortgage borrowings
$
92

 
$
(33
)
 
$
125

Periodic interest rate swap costs
(141
)
 
22

 
(163
)
Total change in adjusted net interest expense
$
(49
)
 
$
(11
)
 
$
(38
)

The average interest rate on our mortgage borrowings increased for the current year periods largely due to increases in the federal funds rate, which were partly offset by the benefit of shifting a larger portion of our total Agency repo funding through our captive broker-dealer subsidiary. The size of our total average borrowings outstanding decreased compared to the prior year periods due to the relative shift from Agency RMBS to TBA holdings, which was partly offset by a larger asset base as a function of new equity issuances during 2017 and modestly higher leverage. The decrease in our periodic swap cost was primarily due to an increase in the floating rate received on our pay-fixed receive-floating interest rate swaps. The size of our interest rate swap portfolio increased relative to our mortgage borrowings as a function of our larger TBA dollar roll position.

40


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