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SEC Filings

10-Q
AGNC INVESTMENT CORP. filed this Form 10-Q on 11/06/2014
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series of derivative transactions and, consequently, they are not included in our on-balance sheet debt or measurement of commensurate leverage ratios.

Note 6. Derivative and Other Hedging Instruments
In connection with our risk management strategy, we hedge a portion of our interest rate risk by entering into derivative and other hedging instrument contracts. We typically enter into agreements for interest rate swaps and interest rate swaptions. We may also purchase or short TBA and U.S. Treasury securities, purchase or write put or call options on TBA securities or we may invest in other types of mortgage derivative securities, such as interest and principal-only securities. Our risk management strategy attempts to manage the overall risk of the portfolio, reduce fluctuations in book value and generate additional income distributable to stockholders. For additional information regarding our derivative instruments and our overall risk management strategy, please refer to the discussion of derivative and other hedging instruments in Note 3.
Prior to September 30, 2011, our interest rate swaps were typically designated as cash flow hedges under ASC 815; however, as of September 30, 2011, we elected to discontinue hedge accounting for our interest rate swaps in order to increase our funding flexibility. For the three and nine months ended September 30, 2014, we reclassified $38 million and $121 million, respectively, and for the three and nine months ended September 30, 2013, we reclassified $47 million and $144 million, respectively, of net deferred losses from accumulated OCI into interest expense related to our de-designated interest rate swaps and recognized an equal, but offsetting, amount in other comprehensive income. Our total net periodic interest costs on our swap portfolio was $120 million and $373 million for the three and nine months ended September 30, 2014, respectively, and $178 million and $464 million for the three and nine months ended September 30, 2013, respectively. The difference between our total net periodic interest costs on our swap portfolio and the amount recorded in interest expense related to our de-designated hedges is reported in our accompanying consolidated statements of comprehensive income in gain (loss) on derivative instruments and other securities, net (totaling $82 million and $252 million for the three and nine months ended September 30, 2014, respectively, and $131 million and $320 million for the three and nine months ended September 30, 2013, respectively). As of September 30, 2014, the remaining net deferred loss in accumulated OCI related to de-designated interest rate swaps was $175 million and will be reclassified from OCI into interest expense over a remaining weighted average period of 1.6 years. As of September 30, 2014, the net deferred loss expected to be reclassified from OCI into interest expense over the next twelve months was $115 million.

Derivative Assets (Liabilities), at Fair Value

The table below summarizes fair value information about our derivative assets and liabilities as of September 30, 2014 and December 31, 2013 (in millions):

Derivative Instruments
 
Balance Sheet Location
 
September 30, 2014
 
December 31, 2013
Interest rate swaps
 
Derivative assets, at fair value
 
$
344

 
$
880

Swaptions
 
Derivative assets, at fair value
 
70

 
258

TBA securities
 
Derivative assets, at fair value
 
42

 
17

U.S. Treasury futures - short
 
Derivative assets, at fair value
 
6

 
39

 
 
 
 
$
462

 
$
1,194

Interest rate swaps
 
Derivative liabilities, at fair value
 
$
(447
)
 
$
(400
)
TBA securities
 
Derivative liabilities, at fair value
 
(63
)
 
(22
)
 
 
 
 
$
(510
)
 
$
(422
)
  Additionally, as of September 30, 2014 and December 31, 2013, we had obligations to return U.S. Treasury securities borrowed under reverse repurchase agreements accounted for as securities borrowing transactions at a fair value of $4.7 billion and $1.8 billion, respectively. The borrowed securities were used to cover short sales of U.S. Treasury securities from which we received total proceeds of $4.7 billion and $1.9 billion, respectively. The change in fair value of the borrowed securities is recorded in gain (loss) on derivative instruments and other securities, net in our consolidated statements of comprehensive income.


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