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SEC Filings

10-K
AGNC INVESTMENT CORP. filed this Form 10-K on 02/26/2018
Entire Document
 


Economic Interest Expense and Aggregate Cost of Funds 
The following table summarizes our economic interest expense and aggregate cost of funds (non-GAAP measures) for fiscal years 2017 and 2016 (dollars in millions), which includes the combination of interest expense on Agency repurchase agreements and other debt (GAAP measure), implied interest expense on our TBA securities and periodic interest rate swap costs:
 
 
Fiscal Year 2017
 
Fiscal Year 2016
Economic Interest Expense and Aggregate Cost of Funds 1
 
Amount
 
Cost of Funds
 
Amount
 
Cost of Funds
Interest expense:
 
 
 
 
 
 
 
 
Repurchase agreements and other debt interest expense
 
$
524

 
1.25
%
 
$
355

 
0.79
%
Periodic interest costs of interest rate swaps previously designated as hedges under GAAP, net
 

 
%
 
39

 
0.09
%
Interest expense (GAAP measure)
 
524

 
1.25
%
 
394

 
0.80
%
TBA dollar roll income - implied interest expense 2
 
164

 
0.97
%
 
48

 
0.47
%
Economic interest expense - before interest rate swap costs
 
688

 
1.17
%
 
442

 
0.73
%
Periodic interest costs of interest rate swaps reported in gain (loss) on derivative instruments and other securities, net 3
 
127

 
0.22
%
 
255

 
0.54
%
Total economic interest expense (non-GAAP measure)
 
$
815

 
1.39
%
 
$
697

 
1.27
%
 ________________________________
1.
Amounts exclude interest rate swap termination fees and variation margin settlements paid or received, forward starting swaps or the impact of other supplemental hedges, such as swaptions and U.S. Treasury positions.
2.
Reported in gain (loss) on derivative instruments and other securities, net in our consolidated statements of comprehensive income. TBA implied interest expense is derived from the Company's executed TBA roll levels and TBA delivery assumptions sourced from Barclays Bank, PLC,'s "Barclays Live" research application for the associated weighted average coupon, weighted average maturity, and 1-month projected CPR. Amount is gross of TBA implied interest income.
3.
Interest rate swap cost of funds measured as a percent of average mortgage borrowings outstanding for the period.

The principal elements impacting our economic interest expense are (i) the size of our average mortgage borrowings and interest rate swap portfolio outstanding during the period, (ii) the average interest rate on our mortgage borrowings and (iii) 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 economic interest expense for fiscal year 2017, compared to the prior year period (in millions):
Impact of Changes in the Principal Elements of Economic Interest Expense
Fiscal Year 2017 vs. 2016
 
 
 
Due to Change in Average
 
Total Increase / (Decrease)
 
Borrowing / Swap Balance
 
Borrowing / Swap Rate
Repurchase agreements and other debt interest expense

$
169

 
$
(21
)
 
$
190

TBA dollar roll income - implied interest expense
116

 
30

 
86

Periodic interest rate swap costs
(167
)
 
33

 
(200
)
Total change in economic interest expense
$
118

 
$
42

 
$
76

The average interest rate on our mortgage borrowings increased for fiscal year 2017 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, BES, and a larger relative portion of our overall mortgage funding into TBA dollar roll positions, which had a lower implied funding cost than traditional repo funding. The decrease in our periodic swap costs was due to an increase in the floating rate received on our pay-fixed receive-floating interest rate swaps, partly offset by a larger interest rate swap balance relative to our total mortgage borrowings.






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