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SEC Filings

10-Q
AGNC INVESTMENT CORP. filed this Form 10-Q on 08/06/2018
Entire Document
 


Impact of Changes in the Principal Elements of Economic Interest Expense
Periods ended June 30, 2018 vs. June 30, 2017
 
 
 
Due to Change in Average
 
Total Increase / (Decrease)
 
Borrowing / Swap Balance
 
Borrowing / Swap Rate
Three months ended:
 
 
 
 
 
Repurchase agreements and other debt interest expense
$
125

 
$
25

 
$
100

TBA dollar roll income - implied interest expense
37

 

 
37

Periodic interest rate swap costs
(76
)
 
6

 
(82
)
Total change in economic interest expense
$
86

 
$
31

 
$
55

 
 
 
 
 
 
Six months ended:
 
 
 
 
 
Repurchase agreements and other debt interest expense
$
233

 
$
52

 
$
181

TBA dollar roll income - implied interest expense
76

 
4

 
72

Periodic interest rate swap costs
(112
)
 
13

 
(125
)
Total change in economic interest expense
$
197

 
$
69

 
$
128

The increase in our average borrowing cost over prior year periods was a function of a higher federal funds rate, which was partly offset by a larger portion of our Agency repo funded through our captive broker-dealer subsidiary, Bethesda Securities, LLC ("BES"). On average, repo sourced through BES carries a lower cost of funds than comparable traditional bi-lateral repo. The decrease in our periodic swap costs was primarily due to an increase in three-month LIBOR received on our pay-fixed receive-floating interest rate swaps.
The table below presents a summary of the ratio of our average interest rates swaps outstanding, excluding forward starting swaps, to our average mortgage borrowings for the three and six months ended June 30, 2018 and 2017 (dollars in millions):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
Average Ratio of Interest Rate Swaps (Excluding Forward Starting Swaps) to Mortgage Borrowings Outstanding
 
2018
 
2017
 
2018
 
2017
Average Agency repo and other debt outstanding
 
$
47,823

 
$
38,945

 
$
48,690

 
$
39,073

Average net TBA portfolio outstanding - at cost
 
$
16,912

 
$
16,931

 
$
16,252

 
$
15,205

Average mortgage borrowings outstanding
 
$
64,735

 
$
55,876

 
$
64,942

 
$
54,278

Average notional amount of interest rate swaps outstanding (excluding forward starting swaps)
 
$
42,804

 
$
36,549

 
$
41,918

 
$
36,161

Ratio of average interest rate swaps to mortgage borrowings outstanding
 
66
 %
 
65
 %
 
65
 %
 
67
 %
 
 
 
 
 
 
 
 
 
Average interest rate swap pay-fixed rate (excluding forward starting swaps)
 
1.79
 %
 
1.52
 %
 
1.76
 %
 
1.50
 %
Average interest rate swap receive-floating rate
 
(2.17
)%
 
(1.14
)%
 
(1.91
)%
 
(1.05
)%
Average interest rate swap net pay/(receive) rate
 
(0.38
)%
 
0.38
 %
 
(0.15
)%
 
0.45
 %
For the three and six months ended June 30, 2018, we had an average forward starting swap balance of $3.9 billion and $3.6 billion, respectively. For the three and six months ended June 30, 2017 we had an average forward starting swap balance of $2.5 billion and $1.5 billion, respectively. Forward starting interest rate swaps do not impact our economic interest expense and aggregate cost of funds until they commence accruing net interest settlements on their forward start dates. Including forward starting swaps, our average ratio of interest rate swaps outstanding to our average mortgage borrowings for the three and six months ended June 30, 2018 was 72% and 70%, respectively, compared to 70% and 69%, respectively, for the prior year period.
Net Interest Spread
The following table presents a summary of our net interest spread (including the impact of TBA dollar roll income, interest rate swaps and excluding "catch-up" premium amortization) for the three and six months ended June 30, 2018 and 2017:

37


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