The period-over-period increase in our adjusted net interest expense was largely attributable to the increase in our investment portfolio and the corresponding increase in our average repurchase agreements and other debt balances outstanding and a higher cost of funds. Our higher cost of funds was reflective of higher repurchase agreement financing ("repo") rates and a higher ratio of interest rate swaps outstanding to repurchase agreements and other debt, which was partially offset by a decrease in the weighted average pay rate on our interest rate swaps. Our higher repo cost is primarily a function of higher repo rates in the market and extending the average original days-to-maturity of our repo funding to 181 days as of December 31, 2012 from 90 days as of December 31, 2011.
The following is a summary of the impact of changes from fiscal year 2012 to fiscal year 2011 in the principal elements of our total adjusted net interest expense and cost of funds (in millions):
Fiscal Year 2012 vs. Fiscal Year 2011
Due to Change in Average (1)
Repurchase agreement and other debt interest expense
Periodic interest rate swap costs (2)
Total adjusted net interest expense and cost of funds
Variances that are the combined effect of volume and yield, but cannot be separately identified, are allocated to the volume and yield variances based on their respective relative amounts.
Includes amounts recognized in interest expense and in gain (loss) on derivatives and other securities in our consolidated statements of comprehensive income. Change due to interest rate reflects impact of change in the weighted average fixed pay rate, net of change in the weighted average receive rate.
Net Spread Income
The table below presents a reconciliation of our net interest income (the most comparable GAAP financial measure) to our net spread income (a non-GAAP financial measure) for fiscal year 2012 and 2011 (dollars in millions).
Net interest income
Other periodic interest costs of interest rate swaps, net
Adjusted net interest income
Net spread income
Dividend on preferred stock
Net spread income available to common shareholders
Weighted average number of common shares outstanding - basic and diluted
Net spread income per common share - basic and diluted
The period-over-period decline in net spread income per common share is primarily a function of margin compression due to lower asset yields and higher cost of funds.
Gain on Sale of Agency Securities, Net
The following table is a summary of our net gain on sale of agency MBS for fiscal year 2012 and 2011 (in millions):