UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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ý☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2017March 31, 2024
OR
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¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number 001-34057
AGNC INVESTMENT CORP.
(Exact name of registrant as specified in its charter)
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Delaware | | 26-1701984 |
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Delaware | | 26-1701984 |
(State or Other Jurisdiction of Incorporation or Organization)
| | (I.R.S. Employer Identification No.)
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2 Bethesda Metro Center, 12th7373 Wisconsin Avenue, 22nd Floor
Bethesda, Maryland 20814
(Address of principal executive offices)
(301) 968-9315
(Registrant’s telephone number, including area code)
___________________________________________________________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class | | Trading Symbol(s) | | Name of Exchange on Which Registered |
Common Stock, par value $0.01 per share | | AGNC | | The Nasdaq Global Select Market |
Depositary shares of 7.000% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock | | AGNCN | | The Nasdaq Global Select Market |
Depositary shares of 6.875% Series D Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock | | AGNCM | | The Nasdaq Global Select Market |
Depositary shares of 6.50% Series E Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock | | AGNCO | | The Nasdaq Global Select Market |
Depositary shares of 6.125% Series F Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock | | AGNCP | | The Nasdaq Global Select Market |
Depositary shares of 7.75% Series G Fixed-Rate Reset Cumulative Redeemable Preferred Stock | | AGNCL | | The Nasdaq Global Select Market |
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter earlier period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ýx No ¨☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ýx No ¨☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See definitiondefinitions of "large accelerated filer," "accelerated filer"filer," "smaller reporting company" and "smaller reporting"emerging growth company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | ý☒ | | Accelerated filer | ¨☐ |
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Non-accelerated filer | ¨☐ | | (Do not check if a smaller reporting company)Smaller Reporting Company | ¨☐ |
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Emerging growth company | ¨☐ | | | |
If an emerging growth company, indicate by check mark if registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No ýx
The number of shares of the issuer's common stock, $0.01 par value, outstanding as of October 31, 2017April 30, 2024 was 391,295,870.
AGNC INVESTMENT CORP.
TABLE OF CONTENTS
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Item 1A. | Risk Factors | |
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Item 4. | Mine Safety Disclosures | |
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AGNC INVESTMENT CORP.
CONSOLIDATED BALANCE SHEETS
(in millions, except per share data)
| | | September 30, 2017 | | December 31, 2016 |
| (Unaudited) | | |
| | March 31, 2024 | | December 31, 2023 |
| (Unaudited) | |
Assets: | | | |
Agency securities, at fair value (including pledged securities of $47,997 and $43,943, respectively) | $ | 51,638 |
| | $ | 45,393 |
|
Assets: | |
Assets: | |
Agency securities, at fair value (including pledged securities of $48,461 and $49,575, respectively) | |
Agency securities, at fair value (including pledged securities of $48,461 and $49,575, respectively) | |
Agency securities, at fair value (including pledged securities of $48,461 and $49,575, respectively) | |
Agency securities transferred to consolidated variable interest entities, at fair value (pledged securities) | 700 |
| | 818 |
|
Credit risk transfer securities, at fair value | 717 |
| | 164 |
|
Non-Agency securities, at fair value (including pledged securities of $0 and $90, respectively) | 36 |
| | 124 |
|
U.S. Treasury securities, at fair value (including pledged securities of $0 and $173, respectively) | — |
| | 182 |
|
REIT equity securities, at fair value | 4 |
| | — |
|
Credit risk transfer securities, at fair value (including pledged securities of $722 and $678, respectively) | |
Non-Agency securities, at fair value, and other mortgage credit investments (including pledged securities of $245 and $262, respectively) | |
U.S. Treasury securities, at fair value (including pledged securities of $1,825 and $1,530, respectively) | |
Cash and cash equivalents | 1,098 |
| | 1,208 |
|
Restricted cash and cash equivalents | 294 |
| | 74 |
|
Restricted cash | |
Derivative assets, at fair value | 183 |
| | 355 |
|
Receivable for securities sold (including pledged securities of $149 and $21, respectively) | 521 |
| | 21 |
|
Receivable for investment securities sold (including pledged securities of $5 and $0, respectively) | |
Receivable under reverse repurchase agreements | 9,226 |
| | 7,716 |
|
Goodwill and other intangible assets, net | 552 |
| | 554 |
|
Goodwill | |
Other assets | 521 |
| | 271 |
|
Total assets | $ | 65,490 |
| | $ | 56,880 |
|
Liabilities: | | | |
Repurchase agreements | $ | 45,505 |
| | $ | 37,858 |
|
Federal Home Loan Bank advances | — |
| | 3,037 |
|
Repurchase agreements | |
Repurchase agreements | |
Debt of consolidated variable interest entities, at fair value | 380 |
| | 460 |
|
Payable for securities purchased | 1,373 |
| | — |
|
Payable for investment securities purchased | |
Derivative liabilities, at fair value | 62 |
| | 256 |
|
Dividends payable | 77 |
| | 66 |
|
Obligation to return securities borrowed under reverse repurchase agreements, at fair value | 9,119 |
| | 7,636 |
|
Accounts payable and other liabilities | 183 |
| | 211 |
|
Other liabilities | |
Total liabilities | 56,699 |
| | 49,524 |
|
Stockholders' equity: | | | |
8.000% Series A Cumulative Redeemable Preferred Stock (aggregate liquidation preference of $0 and $173, respectively) | — |
| | 167 |
|
7.750% Series B Cumulative Redeemable Preferred Stock (aggregate liquidation preference of $175) | 169 |
| | 169 |
|
7.000% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock (aggregate liquidation preference of $325 and $0, respectively) | 315 |
| | — |
|
Common stock - $0.01 par value; 600 shares authorized; 391.3 and 331.0 shares issued and outstanding, respectively | 4 |
| | 3 |
|
Preferred Stock - aggregate liquidation preference of $1,688 | |
Preferred Stock - aggregate liquidation preference of $1,688 | |
Preferred Stock - aggregate liquidation preference of $1,688 | |
Common stock - $0.01 par value; 1,500 shares authorized; 720.3 and 694.3 shares issued and outstanding, respectively | |
Additional paid-in capital | 11,172 |
| | 9,932 |
|
Retained deficit | (2,729 | ) | | (2,518 | ) |
Accumulated other comprehensive loss | (140 | ) | | (397 | ) |
Total stockholders' equity | 8,791 |
| | 7,356 |
|
Total liabilities and stockholders' equity | $ | 65,490 |
| | $ | 56,880 |
|
See accompanying notes to consolidated financial statements.
AGNC INVESTMENT CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(in millions, except per share data)
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Interest income: | | | | | | | |
Interest income | $ | 318 |
| | $ | 315 |
| | $ | 907 |
| | $ | 928 |
|
Interest expense | 140 |
| | 96 |
| | 350 |
| | 296 |
|
Net interest income | 178 |
| | 219 |
| | 557 |
| | 632 |
|
Other gain (loss), net: | | | | | | | |
Gain (loss) on sale of investment securities, net | 22 |
| | 61 |
| | (47 | ) | | 114 |
|
Unrealized gain (loss) on investment securities measured at fair value through net income, net | (31 | ) | | (6 | ) | | (6 | ) | | 5 |
|
Gain (loss) on derivative instruments and other securities, net | 131 |
| | 248 |
| | (78 | ) | | (1,063 | ) |
Management fee income | 3 |
| | 4 |
| | 10 |
| | 4 |
|
Total other gain (loss), net: | 125 |
| | 307 |
| | (121 | ) | | (940 | ) |
Expenses: | | | | | | | |
Management fee expense | — |
| | — |
| | — |
| | 52 |
|
Compensation and benefits | 10 |
| | 9 |
| | 30 |
| | 9 |
|
Other operating expenses | 7 |
| | 6 |
| | 20 |
| | 27 |
|
Total operating expenses | 17 |
| | 15 |
| | 50 |
| | 88 |
|
Net income (loss) | 286 |
| | 511 |
| | 386 |
| | (396 | ) |
Dividend on preferred stock | 9 |
| | 7 |
| | 23 |
| | 21 |
|
Issuance costs of redeemed preferred stock | 6 |
| | — |
| | 6 |
| | — |
|
Net income (loss) available (attributable) to common stockholders | $ | 271 |
| | $ | 504 |
| | $ | 357 |
| | $ | (417 | ) |
| | | | | | | |
Net income (loss) | $ | 286 |
| | $ | 511 |
| | $ | 386 |
| | $ | (396 | ) |
Other comprehensive income (loss): | | | | | | | |
Unrealized gain (loss) on available-for-sale securities, net | 90 |
| | (97 | ) | | 257 |
| | 1,038 |
|
Unrealized gain on derivative instruments, net | — |
| | 7 |
| | — |
| | 38 |
|
Other comprehensive income (loss) | 90 |
| | (90 | ) | | 257 |
| | 1,076 |
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Comprehensive income | 376 |
| | 421 |
| | 643 |
| | 680 |
|
Dividend on preferred stock | 9 |
| | 7 |
| | 23 |
| | 21 |
|
Issuance costs of redeemed preferred stock | 6 |
| | — |
| | 6 |
| | — |
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Comprehensive income available to common stockholders | $ | 361 |
| | $ | 414 |
| | $ | 614 |
| | $ | 659 |
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Weighted average number of common shares outstanding - basic | 364.7 |
| | 331.0 |
| | 347.5 |
| | 332.1 |
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Weighted average number of common shares outstanding - diluted | 364.9 |
| | 331.0 |
| | 347.6 |
| | 332.1 |
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Net income (loss) per common share - basic and diluted | $ | 0.74 |
| | $ | 1.52 |
| | $ | 1.03 |
| | $ | (1.26 | ) |
Dividends declared per common share | $ | 0.54 |
| | $ | 0.56 |
| | $ | 1.62 |
| | $ | 1.76 |
|
See accompanying notes to consolidated financial statements.
AGNC INVESTMENT CORP.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
(in millions)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 8.000% Series A Cumulative Redeemable Preferred Stock | | 7.750% Series B Cumulative Redeemable Preferred Stock | | 7.000% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock | | Common Stock | | Additional Paid-in Capital | | Retained Deficit | | Accumulated Other Comprehensive Income (Loss) | | Total |
| | | | Shares | | Amount | |
Balance, December 31, 2015 | $ | 167 |
| | $ | 169 |
| | $ | — |
| | 337.5 |
| | $ | 3 |
| | $ | 10,048 |
| | $ | (2,350 | ) | | $ | (66 | ) | | $ | 7,971 |
|
Net loss | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (396 | ) | | — |
| | (396 | ) |
Other comprehensive income: | | | | | | | | | | | | | | | | |
|
|
Unrealized gain on available-for-sale securities, net | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1,038 |
| | 1,038 |
|
Unrealized gain on derivative instruments, net | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 38 |
| | 38 |
|
Repurchase of common stock | — |
| | — |
| | — |
| | (6.5 | ) | | — |
| | (116 | ) | | — |
| | — |
| | (116 | ) |
Preferred dividends declared | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (21 | ) | |
|
| | (21 | ) |
Common dividends declared | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (583 | ) | | — |
| | (583 | ) |
Balance, September 30, 2016 | $ | 167 |
| | $ | 169 |
| | $ | — |
| | 331.0 |
| | $ | 3 |
| | $ | 9,932 |
| | $ | (3,350 | ) | | $ | 1,010 |
| | $ | 7,931 |
|
| | | | | | | | | | | | | | | | | |
Balance, December 31, 2016 | $ | 167 |
| | $ | 169 |
| | $ | — |
| | 331.0 |
| | $ | 3 |
| | $ | 9,932 |
| | $ | (2,518 | ) | | $ | (397 | ) | | $ | 7,356 |
|
Net income | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 386 |
| | — |
| | 386 |
|
Other comprehensive income: | | | | | | | | | | | | | | | | | |
Unrealized gain on available-for-sale securities, net | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 257 |
| | 257 |
|
Stock-based compensation | — |
| | — |
| | — |
| | — |
| | — |
| | 3 |
| | — |
| | — |
| | 3 |
|
Issuance of preferred stock | — |
| | — |
| | 315 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 315 |
|
Redemption of preferred stock | (167 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (6 | ) | | — |
| | (173 | ) |
Issuance of common stock | — |
| | — |
| | — |
| | 60.3 |
| | 1 |
| | 1,237 |
| | — |
| | — |
| | 1,238 |
|
Preferred dividends declared | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (23 | ) | | — |
| | (23 | ) |
Common dividends declared | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (568 | ) | | — |
| | (568 | ) |
Balance, September 30, 2017 | $ | — |
| | $ | 169 |
| | $ | 315 |
| | 391.3 |
| | $ | 4 |
| | $ | 11,172 |
| | $ | (2,729 | ) | | $ | (140 | ) | | $ | 8,791 |
|
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2024 | | 2023 | | |
Interest income: | | | | | | | | | |
Interest income | | | | | $ | 642 | | | $ | 351 | | | |
Interest expense | | | | | 672 | | | 449 | | | |
Net interest income (expense) | | | | | (30) | | | (98) | | | |
Other gain (loss), net: | | | | | | | | | |
Loss on sale of investment securities, net | | | | | (91) | | | (81) | | | |
Unrealized gain (loss) on investment securities measured at fair value through net income, net | | | | | (471) | | | 594 | | | |
Gain (loss) on derivative instruments and other investments, net | | | | | 1,059 | | | (544) | | | |
Total other gain (loss), net: | | | | | 497 | | | (31) | | | |
Expenses: | | | | | | | | | |
Compensation and benefits | | | | | 16 | | | 14 | | | |
Other operating expense | | | | | 8 | | | 8 | | | |
Total operating expense | | | | | 24 | | | 22 | | | |
Net income (loss) | | | | | 443 | | | (151) | | | |
Dividends on preferred stock | | | | | 31 | | | 30 | | | |
| | | | | | | | | |
Net income (loss) available (attributable) to common stockholders | | | | | $ | 412 | | | $ | (181) | | | |
| | | | | | | | | |
Net income (loss) | | | | | $ | 443 | | | $ | (151) | | | |
Unrealized gain (loss) on investment securities measured at fair value through other comprehensive income (loss), net | | | | | (77) | | | 142 | | | |
Comprehensive income (loss) | | | | | 366 | | | (9) | | | |
Dividends on preferred stock | | | | | 31 | | | 30 | | | |
| | | | | | | | | |
Comprehensive income (loss) available (attributable) to common stockholders | | | | | $ | 335 | | | $ | (39) | | | |
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Weighted average number of common shares outstanding - basic | | | | | 702.2 | | | 579.3 | | | |
Weighted average number of common shares outstanding - diluted | | | | | 704.2 | | | 579.3 | | | |
Net income (loss) per common share - basic | | | | | $ | 0.59 | | | $ | (0.31) | | | |
Net income (loss) per common share - diluted | | | | | $ | 0.59 | | | $ | (0.31) | | | |
Dividends declared per common share | | | | | $ | 0.36 | | | $ | 0.36 | | | |
See accompanying notes to consolidated financial statements.
AGNC INVESTMENT CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
(in millions)
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| Preferred Stock | | Common Stock | | Additional Paid-in Capital | | Retained Deficit | | Accumulated Other Comprehensive Income (Loss) | | Total |
| | Shares | | Amount | |
Balance, December 31, 2022 | $ | 1,634 | | | 574.6 | | | $ | 6 | | | $ | 14,186 | | | $ | (7,284) | | | $ | (672) | | | $ | 7,870 | |
Net loss | — | | | — | | | — | | | — | | | (151) | | | — | | | (151) | |
Other comprehensive income: | | | | | | | | | | | | | |
Unrealized gain on available-for-sale securities, net | — | | | — | | | — | | | — | | | — | | | 142 | | | 142 | |
Stock-based compensation, net | — | | | 0.8 | | | — | | | (1) | | | — | | | — | | | (1) | |
| | | | | | | | | | | | | |
Issuance of common stock | — | | | 17.1 | | | — | | | 171 | | | — | | | — | | | 171 | |
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Preferred dividends declared | — | | | — | | | — | | | — | | | (30) | | | — | | | (30) | |
Common dividends declared | — | | | — | | | — | | | — | | | (209) | | | — | | | (209) | |
Balance, March 31, 2023 | $ | 1,634 | | | 592.5 | | | $ | 6 | | | $ | 14,356 | | | $ | (7,674) | | | $ | (530) | | | $ | 7,792 | |
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Balance, December 31, 2023 | $ | 1,634 | | | 694.3 | | | $ | 7 | | | $ | 15,281 | | | $ | (8,148) | | | $ | (517) | | | $ | 8,257 | |
Net income | — | | | — | | | — | | | — | | | 443 | | | — | | | 443 | |
Other comprehensive loss: | | | | | | | | | | | | | |
Unrealized loss on available-for-sale securities, net | — | | | — | | | — | | | — | | | — | | | (77) | | | (77) | |
Stock-based compensation, net | — | | | 0.9 | | | — | | | (1) | | | — | | | — | | | (1) | |
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Issuance of common stock | — | | | 25.1 | | | — | | | 241 | | | — | | | — | | | 241 | |
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Preferred dividends declared | — | | | — | | | — | | | — | | | (31) | | | — | | | (31) | |
Common dividends declared | — | | | — | | | — | | | — | | | (254) | | | — | | | (254) | |
Balance, March 31, 2024 | $ | 1,634 | | | 720.3 | | | $ | 7 | | | $ | 15,521 | | | $ | (7,990) | | | $ | (594) | | | $ | 8,578 | |
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See accompanying notes to consolidated financial statements.
AGNC INVESTMENT CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in millions)
| | Three Months Ended March 31, | |
| Three Months Ended March 31, | |
| Three Months Ended March 31, | |
| |
Operating activities: | |
Operating activities: | |
Operating activities: | |
Net income (loss) | |
Net income (loss) | |
Net income (loss) | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |
Amortization of premiums and discounts on mortgage-backed securities, net | |
Amortization of premiums and discounts on mortgage-backed securities, net | |
Amortization of premiums and discounts on mortgage-backed securities, net | |
Stock-based compensation, net | |
Stock-based compensation, net | |
Stock-based compensation, net | |
Loss on sale of investment securities, net | |
Loss on sale of investment securities, net | |
Loss on sale of investment securities, net | |
Unrealized (gain) loss on investment securities measured at fair value through net income, net | |
Unrealized (gain) loss on investment securities measured at fair value through net income, net | |
Unrealized (gain) loss on investment securities measured at fair value through net income, net | |
(Gain) loss on derivative instruments and other securities, net | |
(Gain) loss on derivative instruments and other securities, net | |
(Gain) loss on derivative instruments and other securities, net | |
(Increase) decrease in other assets | |
(Increase) decrease in other assets | |
(Increase) decrease in other assets | |
Increase (decrease) in other liabilities | |
Increase (decrease) in other liabilities | |
Increase (decrease) in other liabilities | |
Net cash provided by operating activities | |
Net cash provided by operating activities | |
Net cash provided by operating activities | |
Investing activities: | |
Investing activities: | |
Investing activities: | |
Purchases of Agency mortgage-backed securities | |
Purchases of Agency mortgage-backed securities | |
Purchases of Agency mortgage-backed securities | |
Purchases of credit risk transfer and non-Agency securities and other mortgage credit investments | |
Purchases of credit risk transfer and non-Agency securities and other mortgage credit investments | |
Purchases of credit risk transfer and non-Agency securities and other mortgage credit investments | |
Proceeds from sale of Agency mortgage-backed securities | |
Proceeds from sale of Agency mortgage-backed securities | |
Proceeds from sale of Agency mortgage-backed securities | |
Proceeds from sale of credit risk transfer and non-Agency securities | |
Proceeds from sale of credit risk transfer and non-Agency securities | |
Proceeds from sale of credit risk transfer and non-Agency securities | |
Principal collections on Agency mortgage-backed securities | |
Principal collections on Agency mortgage-backed securities | |
Principal collections on Agency mortgage-backed securities | |
Principal collections on credit risk transfer and non-Agency securities | |
Principal collections on credit risk transfer and non-Agency securities | |
Principal collections on credit risk transfer and non-Agency securities | |
Payments on U.S. Treasury securities | |
Payments on U.S. Treasury securities | |
Payments on U.S. Treasury securities | |
Proceeds from U.S. Treasury securities | |
Proceeds from U.S. Treasury securities | |
Proceeds from U.S. Treasury securities | |
Net payments on reverse repurchase agreements | |
Net payments on reverse repurchase agreements | |
Net payments on reverse repurchase agreements | |
Net proceeds from (payments on) derivative instruments | |
Net proceeds from (payments on) derivative instruments | |
Net proceeds from (payments on) derivative instruments | |
Net cash provided by (used in) investing activities | |
Net cash provided by (used in) investing activities | |
Net cash provided by (used in) investing activities | |
Financing activities: | |
Financing activities: | |
Financing activities: | |
Proceeds from repurchase arrangements | |
Proceeds from repurchase arrangements | |
Proceeds from repurchase arrangements | |
Payments on repurchase agreements | |
Payments on repurchase agreements | |
Payments on repurchase agreements | |
Payments on debt of consolidated variable interest entities | |
Payments on debt of consolidated variable interest entities | |
Payments on debt of consolidated variable interest entities | |
| Net proceeds from common stock issuances | |
| Net proceeds from common stock issuances | |
| Net proceeds from common stock issuances | |
| Cash dividends paid | |
| Cash dividends paid | |
| Cash dividends paid | |
Net cash provided by (used in) financing activities | |
Net cash provided by (used in) financing activities | |
Net cash provided by (used in) financing activities | |
Net change in cash, cash equivalents and restricted cash | |
Net change in cash, cash equivalents and restricted cash | |
Net change in cash, cash equivalents and restricted cash | |
Cash, cash equivalents and restricted cash at beginning of period | |
Cash, cash equivalents and restricted cash at beginning of period | |
Cash, cash equivalents and restricted cash at beginning of period | |
Cash, cash equivalents and restricted cash at end of period | |
Cash, cash equivalents and restricted cash at end of period | |
Cash, cash equivalents and restricted cash at end of period | |
| Reconciliation of cash, cash equivalents and restricted cash end of period: | |
| Reconciliation of cash, cash equivalents and restricted cash end of period: | |
| Reconciliation of cash, cash equivalents and restricted cash end of period: | |
Cash and cash equivalents | |
Cash and cash equivalents | |
Cash and cash equivalents | |
Restricted cash | |
Restricted cash | |
Restricted cash | |
Total cash, cash equivalents and restricted cash, end of period | |
Total cash, cash equivalents and restricted cash, end of period | |
Total cash, cash equivalents and restricted cash, end of period | |
| | | Nine Months Ended September 30, |
| 2017 | | 2016 |
Operating activities: | | | |
Net income (loss) | $ | 386 |
| | $ | (396 | ) |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | |
Amortization of premiums and discounts on mortgage-backed securities, net | 282 |
| | 394 |
|
Amortization of accumulated other comprehensive loss on interest rate swaps de-designated as qualifying hedges | — |
| | 38 |
|
Amortization of intangible assets | 3 |
| | 1 |
|
Stock-based compensation | 3 |
| | 1 |
|
(Gain) loss on sale of investment securities, net | 47 |
| | (114 | ) |
Unrealized gain (loss) on investment securities measured at fair value through net income, net | 6 |
| | (5 | ) |
Loss on derivative instruments and other securities, net | 78 |
| | 1,063 |
|
Decrease in other assets | 99 |
| | 37 |
|
Increase in accounts payable and other accrued liabilities | 31 |
| | 10 |
|
Net cash provided by operating activities | 935 |
| | 1,029 |
|
Investing activities: | | | |
Purchases of Agency mortgage-backed securities | (23,823 | ) | | (17,275 | ) |
Purchases of credit risk transfer and non-Agency securities | (881 | ) | | (36 | ) |
Proceeds from sale of Agency mortgage-backed securities | 13,390 |
| | 17,032 |
|
Proceeds from sale of credit risk transfer and non-Agency securities | 437 |
| | — |
|
Principal collections on Agency mortgage-backed securities | 5,076 |
| | 5,984 |
|
Principal collections on credit risk transfer and non-Agency securities | 4 |
| | 13 |
|
Payments on U.S. Treasury securities | (10,618 | ) | | (2,178 | ) |
Proceeds from U.S. Treasury securities | 11,682 |
| | 5,741 |
|
Net payments on reverse repurchase agreements | (1,456 | ) | | (3,728 | ) |
Net proceeds from (payments on) derivative instruments | 38 |
| | (892 | ) |
Purchases of REIT equity securities | (4 | ) | | — |
|
Proceeds from sale of REIT equity securities | — |
| | 39 |
|
Purchase of AGNC Mortgage Management, LLC, net of cash acquired | — |
| | (555 | ) |
(Increase) decrease in restricted cash pledged for derivative instruments | (239 | ) | | 577 |
|
Net cash provided by (used in) investing activities | (6,394 | ) | | 4,722 |
|
Financing activities: | | | |
Proceeds from repurchase arrangements | 294,885 |
| | 195,992 |
|
Payments on repurchase agreements | (287,238 | ) | | (200,078 | ) |
Proceeds from Federal Home Loan Bank advances | — |
| | 2,098 |
|
Payments on Federal Home Loan Bank advances | (3,037 | ) | | (2,814 | ) |
Payments on debt of consolidated variable interest entities | (80 | ) | | (100 | ) |
Net proceeds from preferred stock issuance | 315 |
| | — |
|
Payment for preferred stock redemption | (173 | ) | | — |
|
Net proceeds from common stock issuances | 1,238 |
| | — |
|
Payments for common stock repurchases | — |
| | (116 | ) |
Cash dividends paid | (580 | ) | | (612 | ) |
Decrease in restricted cash pledged for repurchase agreements | 19 |
| | 23 |
|
Net cash provided by (used in) financing activities | 5,349 |
| | (5,607 | ) |
Net change in cash and cash equivalents | (110 | ) | | 144 |
|
Cash and cash equivalents at beginning of period | 1,208 |
| | 1,110 |
|
Cash and cash equivalents at end of period | $ | 1,098 |
| | $ | 1,254 |
|
See accompanying notes to consolidated financial statements.
AGNC INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Unaudited Interim Consolidated Financial StatementsOrganization
The unaudited interim consolidated financial statements of AGNC Investment Corp. (referred throughout this report as the "Company," "we," "us" and "our") are prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.
Our unaudited interim consolidated financial statements include the accounts of all of our wholly-owned subsidiaries and variable interest entities for which we are the primary beneficiary. Significant intercompany accounts and transactions have been eliminated. In the opinion of management, all adjustments, consisting solely of normal recurring accruals, necessary for the fair presentation of financial statements for the interim period have been included. The current period’s results of operations are not necessarily indicative of results that ultimately may be achieved for the year.
Note 2. Organization
We werewas organized in Delaware on January 7, 2008 and commenced operations on May 20, 2008 following the completion of our initial public offering. Our common stock is traded on The NASDAQNasdaq Global Select Market under the symbol "AGNC."
We operate so asare a leading provider of private capital to qualify to be taxed as athe U.S. housing market, enhancing liquidity in the residential real estate investment trust ("REIT") undermortgage markets and, in turn, facilitating home ownership in the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"). As a REIT, we are required to distribute annually 90% of our taxable income. As long as we continue to qualify as a REIT, we will generally not be subject to U.S. federal or state corporate taxes on our taxable income to the extent that we distribute our annual taxable income to our stockholders on a timely basis. It is our intention to distribute 100% of our taxable income, after application of available tax attributes, within the limits prescribed by the Internal Revenue Code, which may extend into the subsequent tax year.
We earn incomeinvest primarily from investing in Agency residential mortgage-backed securities ("Agency RMBS") for which the principal and interest payments are guaranteed by a U.S. Government-sponsored enterprise ("GSE") or a U.S. Government agency ("Agency RMBS") on a leveraged basis.agency. We may also invest in other types of mortgage and mortgage-related securities, such as credit risk transfer ("CRT") securities and non-Agency residential and commercial mortgage-backed securities ("non-Agency RMBS" and "CMBS," respectively), where repayment of principal and interest is not guaranteed by a U.S. Government-sponsored enterpriseGSE or U.S. Government agency.agency, and other assets related to the housing, mortgage or real estate markets. We fund our investments primarily through collateralized borrowings structured as repurchase agreements.
OurWe operate to qualify to be taxed as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"). As a REIT, we are required to distribute annually 90% of our taxable income, and we will generally not be subject to U.S. federal or state corporate income tax to the extent that we distribute our annual taxable income to our stockholders on a timely basis. It is our intention to distribute 100% of our taxable income within the time limits prescribed by the Internal Revenue Code, which may extend into the subsequent tax year.
We are internally managed with the principal objective is to provide our stockholdersof generating favorable long-term stockholder returns with attractive risk-adjusted returns through a combination of monthly dividends and net book value accretion.substantial yield component. We generate income from the interest earned on our investment assets,investments, net of associated borrowing and hedging activities,costs, and net realized gains and losses on our investmentsinvestment and hedging activities. We fund our investments primarily through borrowings structured as repurchase agreements.
Prior to July 1, 2016, we were externally managed by AGNC Management, LLC (our "Manager"). On July 1, 2016, we completed the acquisition of all of the outstanding membership interests of AGNC Mortgage Management, LLC ("AMM"), the parent company of our Manager, from American Capital Asset Management, LLC ("ACAM"), a wholly owned portfolio company of American Capital, Ltd. ("ACAS"). AMM is also the parent company of MTGE Management, LLC, the external manager of MTGE Investment Corp. ("MTGE") (NASDAQ: MTGE). Following the closing of the acquisition of AMM, we became internally managed and are no longer affiliated with ACAS.
Note 3.2. Summary of Significant Accounting Policies
Basis of Presentation
Our accompanying consolidated financial statements and related notes have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X. The accompanying consolidated financial statements and related notes are unaudited and include the accounts of all our wholly-owned subsidiaries and variable interest entities for which we are the primary beneficiary. Significant intercompany accounts and transactions have been eliminated. The accompanying consolidated financial statements and related notes should be read in conjunction with the audited consolidated financial statements included in our most recent Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of income and expenses during the reporting period. In the opinion of management, all adjustments, consisting solely of normal recurring accruals, necessary for the fair presentation of consolidated financial statements for the interim period have been included. The current period’s results of operations are not necessarily indicative of results that ultimately may be achieved for the year.
Investment Securities
The Agency RMBS in which we invest consist of residential mortgage pass-through securities and collateralized mortgage obligations ("CMOs") guaranteed by the Federal National Mortgage Association ("Fannie Mae"), Federal Home Loan Mortgage Corporation ("Freddie Mac"Mac," and together with Fannie Mae, the "GSEs") or the Government National Mortgage Association ("Ginnie Mae") (collectively referred to as "GSEs").
CRT securities are risk sharing instruments issued by the GSEs, and similarly structured transactions issued by third partythird-party market participants, that synthetically transfer a portion of the risk associated with credit losses within pools of conventional residential mortgage
loans from the GSEs and/or third parties to private investors. Unlike Agency RMBS, full repayment of the original principal balance of CRT securities is not guaranteed by a GSE or other governmentU.S. Government agency; rather, "credit risk transfer" is achieved by writing down the outstanding principal balance of the CRT securities if credit losses on a related pool
of loans exceed certain thresholds. By reducing the amount that they are obligated to repay to holders of CRT securities, the GSEs and/or other third parties are able to offset credit losses on the related loans.
Non-Agency RMBS and CMBS (together, "Non-Agency MBS") are backed by residential and commercial mortgage loans, respectively, packaged and securitized by a private institution, such as a commercial bank. Non-Agency MBS typically benefit from credit enhancements derived from structural elements, such as subordination, overcollateralizationover-collateralization or insurance, but nonetheless carry a higher level of credit exposure than Agency RMBS.
Mortgage-relatedAll of our securities may also include investments in the common stock of other publicly traded mortgage REITs, including MTGE, which invest in Agency and non-Agency securities and/or other real estate related assets. As of September 30, 2017,are reported at fair value on our investments in REIT equity securities consisted solely of MTGE common stock.
consolidated balance sheet. Accounting Standards Codification ("ASC") Topic 320, Investments—Debt and Equity Securities, requires that at the time of purchase, we designate a security as held-to-maturity, available-for-sale or trading, depending on our ability and intent to hold such security to maturity. Alternatively, we may elect the fair value option of accounting for such securities pursuant to ASC Topic 825, Financial Instruments. All of our securities are reported at fair value as they have either been designated as available-for-sale or trading or we have elected the fair value option of accounting. Unrealized gains and losses on securities classified as available-for-sale are reported in accumulated other comprehensive income (loss) ("OCI"). Unrealized gains and losses on securities classified as trading or for which we elected the fair value option are reported in net income through other gain (loss) during the period in which they occur. Upon the sale of a security designated as available-for-sale, we determine the cost of the security and the amount of unrealized gains or losses to reclassify out of accumulated OCI into earnings based on the specific identification method.
Prior to fiscal year 2017, we primarily designated our investment securities as available-for-sale. On January 1, 2017, we began electing the fair value option of accounting for all investment securities newly acquired after fiscal year 2016.such date. Unrealized gains and losses on securities classified as available-for-sale are reported in accumulated other comprehensive income ("OCI"), whereas unrealized gains and losses on securities for which we elected the fair value option, or are classified as trading, are reported in net income through other gain (loss). Upon the sale of a security designated as available-for-sale, we determine the cost of the security and the amount of unrealized gain or loss to reclassify out of accumulated OCI into earnings based on the specific identification method. In our view, thisthe election of the fair value option simplifies the accounting for investment securities and more appropriately reflects the results of our operations for a particular reporting period asby presenting the fair value changes for these assets are presented in a manner consistent with the presentation and timing of the fair value changes offor our hedgingderivative instruments.
We are not permitted to change the designation of securities acquired prior to January 1, 2017; accordingly, such securities will continue to be classified asgenerally recognize gains or losses through net income on available-for-sale securities until such time as we receive full repayment of principal or we dispose ofonly if the security.
We estimatesecurity is sold; however, if the fair value of our investment securities based on a market approach using "Level 2" inputs from third-party pricing services and non-binding dealer quotes derived from common market pricing methods. Such methods incorporate, but are not limited to, reported trades and executable bid and asked prices for similar securities, benchmark interest rate curves, such as the spread to the U.S. Treasury rate and interest rate swap curves, convexity, duration and the underlying characteristics of the particular security, including coupon, periodic and life caps, rate reset period, issuer, additional credit support and expected life of the security. Refer to Note 8 for further discussion of fair value measurements.
We evaluate our investments designated as available-for-sale for other-than-temporary impairment ("OTTI") on at least a quarterly basis. The determination of whether a security is other-than-temporarily impaired may involve judgmentsdeclines below its amortized cost and assumptions based on subjective and objective factors. When a security is impaired, an OTTI is considered to have occurred if any one of the following three conditions exists as of the financial reporting date: (i) we intend to sell the security (that is, a decision has been made to sell the security), (ii)determine that it is more likely than not that we will be required toincur a realized loss on the security when we sell the security before recovery of itsasset, we will recognize the difference between the amortized cost basis or (iii)and the fair value in net income as a component of other gain (loss). We did not recognize any loss on available for sale securities through net income that we do not expect to recover the security's amortized cost basis, even ifheld as of March 31, 2024 because, as of such date, we dodid not intend to sell the security andany of them in an unrealized loss position nor was it is not more likely than not that we willwould be required to sell the security. A generalsuch securities before recovery of their amortized cost basis. Since all of our available-for-sale designated securities consist of Agency RMBS, we do not have an allowance for unidentified impairmentscredit losses. We have not recognized impairment losses on our available-for-sale securities through net income for the periods presented in a portfolio of securities is not permitted.our consolidated financial statements.
Interest Income
Interest income is accrued based on the outstanding principal amount of the investment securities and their contractual terms. Premiums or discounts associated with the purchase of Agency RMBS and non-Agency MBS of high credit quality are amortized or accreted into interest income, respectively, over the projected lives of the securities, including contractual payments and estimated prepayments, using the effective interest method in accordance with ASC Subtopic 310-20, Receivables—Nonrefundable Fees and Other Costs.
We estimate long-term prepayment speeds of our mortgage securities using a third-party service and market data. ActualThe third-party service provider estimates prepayment speeds using models that incorporate the forward yield curve, primary to secondary mortgage rate spreads, current mortgage rates, mortgage rates of the outstanding loans, age and size of the outstanding loans, loan-to-value ratios, interest rate volatility and other factors. We review the prepayment speeds estimated by the third-party service for reasonableness with consideration given to both historical prepayment speeds and current market conditions. If based on our assessment, we believe that the third-party model does not fully reflect our expectations of the current prepayment landscape we may make adjustments to the models. We review our actual and anticipated prepayment experience is reviewedon at least a quarterly basis and effective yields are recalculated when differences arise between (i) our previous estimate of future prepayments and (ii) the actual prepayments to date plusand our current estimate of future
prepayments. If the actual and estimated future prepayment experience differs from our prior estimate of prepayments, weWe are required to record an adjustment in the current period to thepremium amortization or/ discount accretion of premiums and discounts for the cumulative effect of the difference in the effective yields as if the recalculated yield had been in place as of the security's acquisition date through the reporting date.
At the time we purchase CRT securities and non-Agency MBS that are not of high credit quality, we determine an effective yield based on our estimate of the timing and amount of future cash flows and our cost basis. Our initial cash flow estimates for these investments are based on our observations of current information and events and include assumptions related to interest rates, prepayment rates, collateral call provisions, and the impact of default and severity rates on the timing and amount of credit losses. On at least a quarterly basis, we review the estimated cash flows and make appropriate adjustments based on inputs and analysis received from external sources, internal models, and our judgment regarding such inputs and other
factors. Any resulting changes in effective yield are recognized prospectively based on the current amortized cost of the investment as adjusted for credit impairment,impairments, if any.
Repurchase Agreements
We finance the acquisition of securities for our investment portfolio primarily through repurchase transactions under masteragreements with our lending counterparties. Repurchase arrangements involve the sale and a simultaneous agreement to repurchase agreements.the securities at a future date. We maintain a beneficial interest in the specific securities pledged during the term of each repurchase arrangement and we receive the related principal and interest payments. Pursuant to ASC Topic 860, Transfers and Servicing ("ASC 860"), we account for repurchase transactionsagreements as collateralized financing transactions, which are carried at their contractual amounts (cost), plus accrued interest. Our repurchase agreements typically have maturities of less than one year, but may extend up to five years or more. Interest rates on our repurchase agreements generally correspond to one, three or six month LIBOR plus or minus a fixed spread. The fair value of our repurchase agreements is assumed to equal cost as the interest rates are considered to be at market.year.
Reverse Repurchase Agreements and Obligation to Return Securities Borrowed under Reverse Repurchase Agreements
We borrow securities to cover short sales of U.S. Treasury securities through reverse repurchase transactions under our master repurchase agreements (see Derivative Instruments below). We account for these as securities borrowing transactions and recognize an obligation to return the borrowed securities at fair value on the balance sheet based on the value of the underlying borrowed securities as of the reporting date. We may also enter into reverse repurchase agreements to earn a yield on excess cash balances. The securities received as collateral in connection with our reverse repurchase agreements mitigate our credit risk exposure to counterparties. Our reverse repurchase agreements typically have maturities of 30 days or less. The fair value of our reverse repurchase agreements is assumed to equal cost as the interest rates are generally reset daily.
Derivative Instruments
We use a variety of derivative instruments to hedge a portion of our exposure to market risks, including interest rate, prepayment, extension and liquidity risks. The objective of our risk management strategy is to reduce fluctuations in net book value over a range of interest rate scenarios. In particular, we attempt to mitigate the risk of the cost of our variable rate liabilities increasing during a period of rising interest rates. The primary instruments that we use are interest rate swaps, options to enter into interest rate swaps ("swaptions"), U.S. Treasury securities and U.S. Treasury futures contracts. We also use forward contracts in the Agency RMBS "to-be-announced" market, ("TBA")or TBA securities, to invest in and finance Agency securities as well asand to periodically reduce our exposure to Agency RMBS.
We account for derivative instruments in accordance with ASC Topic 815, Derivatives and Hedging ("("ASC 815"). ASC 815 requires an entity to recognize all derivatives as either assets or liabilities in our accompanying consolidated balance sheets and to measure those instruments at fair value. None of our derivative instruments have been designated as hedging instruments for accounting purposes under the provisions of ASC 815, consequently changes in the fair value of our derivative instruments are reported in gain (loss) on derivative instruments and other securities, net in our consolidated statements of comprehensive income.
Our derivative agreements generally contain provisions that allow for netting or setting off derivative assets and liabilities with the counterparty; however, we report related assets and liabilities on a gross basis in our consolidated balance sheets. Derivative instruments in a gain position are reported as derivative assets at fair value and derivative instruments in a loss position are reported as derivative liabilities at fair value in our consolidated balance sheets. Changes in fair value of derivative instruments and periodic settlements related to our derivative instruments are recorded in gain (loss) on derivative instruments and other securities, net in our consolidated statements of comprehensive income. CashNet cash receipts from and payments related toon our derivative instruments are classified in our consolidated statements of cash flows according to the underlying nature or purpose of the derivative transaction, generally in the investing section.
The use of derivative instruments creates exposure to credit risk relating to potential losses that could be recognized if the counterparties to these instruments fail to perform their obligations under the contracts. Our derivative agreements require that we post or receive collateral to mitigate such risk. We also attempt to minimize our risk of loss by limiting our counterparties to major financial institutions with acceptable credit ratings, monitoring positions with individual counterparties and adjusting posted collateral as required.
Discontinuation of hedge accounting for interest rate swap agreements
Prior to fiscal year 2011, we entered into interest rate swap agreements typically with the intention of qualifying for hedge accounting under ASC 815. However, during fiscal year 2011, we elected to discontinue hedge accounting for our interest rate swaps. Upon discontinuation of hedge accounting, the net deferred loss related to our de-designated interest rate swaps remained in accumulated OCI and was reclassified from accumulated OCI into interest expense on a straight-line basis over the remaining term of each interest rate swap through December 2016.
Interest rate swap agreements
We use interest rate swaps to economically hedge the variable cash flows associated with our borrowings made under repurchase agreements. Under our interest rate swap agreements, we typically pay a fixed rate and receive a floating rate based on one, three or six-month LIBOR ("payer swaps") withbased on a short-term benchmark rate, such as the Secured Overnight Financing Rate ("SOFR") and Overnight Index Swap Rate ("OIS"). Our interest rate swaps typically have terms upfrom one to 2010 years. Our swap agreements are privately negotiated in the over−the−counter ("OTC") market.
Swap agreements entered into after May 2013interest rate swaps are centrally cleared through a registered commodities exchange. We value centrally cleared interest rate swaps using the daily settlement price, or fair value, determined by theThe clearing exchange based on a pricing model that references observable market inputs, including LIBOR, swap rates and the forward yield curve. Our centrally cleared swaps requirerequires that we post an "initial margin" amount determined by the clearing exchange, whichexchange. The initial margin amount is generally intended to be set at a level sufficient to protect the exchange from the interest rate swap's maximum estimated single-day price movement.movement and is subject to adjustment based on changes in market volatility and other factors. We also exchange daily settlements of "variation margin" based upon daily changes in fair value, as measured by the exchange. As a result of amendmentsPursuant to rules governing certain central clearing activities, which took effect January 3, 2017, the exchange ofwe recognize variation margin is a settlement of the interest rate swap, as opposed to pledged collateral. Accordingly, beginning in the first quarter of 2017 and in subsequent periods, we account for the receipt or payment of variation marginsettlements as a direct reduction toof the carrying value of the interest rate swap asset or liability. Variation margin pledged / (received) was previously reported in restricted cash and cash equivalents / (other liabilities) in our consolidated balance sheet.
We value non-centrally cleared swaps using a combination of third-party valuations obtained from pricing services and the swap counterparty. The third-party valuations are model-driven using observable inputs, including LIBOR, swap rates and the forward yield curve. We also consider both our own and our counterparties' nonperformance risk in estimating the fair value of our interest rate swaps. In considering the effect of nonperformance risk, we assess the impact of netting and credit enhancements, such as collateral postings and guarantees, and have concluded that our own and our counterparty risk is not significant to the overall valuation of these agreements.
Interest rate swaptions
We purchase interest rate swaptions to help mitigate the potential impact of larger, more rapid changes in interest rates on the performance of our investment portfolio. Interest rate swaptions provide us the option to enter into an interest rate swap agreement for a predetermined notional amount, stated term and pay and receive interest rates in the future. Our swaption agreements typically provide us the option to enter into a pay-fixed rate interest rate swap ("payer swaptions"). We may also enter into swaption agreements that provide us the option to enter into a receive-fixed interest rate swap ("receiver swaptions").
Our interest rate swaption agreements are privately negotiated in the OTC market and are not subject to central clearing. The premium paid for interest rate swaptions is reported as an asset in our consolidated balance sheets. We estimate the fair value of interest rate swaptions using a combination of inputs from counterparty and third-party pricing models based on the fair value of the future interest rate swap that we have the option to enter into as well as the remaining length of time that we have to exercise the option, adjusted for non-performance risk, if any. The difference between the premium paid and the fair value of the swaption is reported in gain (loss) on derivative instruments and other securities, net in our consolidated statements of comprehensive income. If a swaption expires unexercised, the realized loss on the swaption would be equal to the premium paid. If we sell or exercise a swaption, the realized gain or loss on the swaption would be equal to the difference between the cash or the fair value of the underlying interest rate swap received and the premium paid.
TBA securities
A TBA security is a forward contract for the purchase or sale of Agency RMBS at a predetermined price, face amount, issuer, coupon and stated maturity on an agreed-upon future date. The specific Agency RMBS to be delivered into the contract are not known until shortly before the settlement date. We may choose, prior to settlement, to move the settlement of these securities out to a later date by entering into an offsetting TBA position, net settling the offsetting positions for cash, and simultaneously purchasing or selling a similar TBA contract for a later settlement date (together referred to as a "dollar roll transaction"). The Agency securities purchased or sold for a forward settlement date are typically priced at a discount to equivalent securities settling in the current month. This difference, or "price drop," is the economic equivalent toof interest income on the underlying Agency securities, less
an implied funding cost, over the forward settlement period (referred to as "dollar roll income"). Consequently, forward purchases of Agency securities and dollar roll transactions represent a form of off-balance sheet financing.
We account for TBA contracts as derivative instruments since either the TBA contracts do not settle in the shortest period of time possible or we cannot assert that it is probable at inception and throughout the term of the TBA contract that we will physically settle the TBA contract on the settlement date. We account for TBA dollar roll transactions as a series of derivative transactions. Gains, losses and dollar roll income associated with our TBA contracts are recognized in gain (loss) on derivative instruments and other securities, net in our consolidated statements of comprehensive income. We estimate the fair value of TBA securities based on similar methods used to value our Agency RMBS securities.
U.S. Treasury securities and US Treasury futures contracts
We purchase and sell shortuse U.S. Treasury securities and U.S. Treasury futures contracts to help mitigate the potential impact of changes in interest rates on the performance of our portfolio. We borrow securities to cover short salesenter into short-sales of U.S. Treasury securities by borrowing the securities under reverse repurchase agreements.agreements and selling them into the market. We account for these as securities borrowing transactions and recognize an obligation to return the borrowed securities at fair value on our accompanying consolidated balance sheets based on the value of the underlying borrowed securitiesU.S. Treasury security as of the reporting date. Treasury futures contracts are standardized contracts that obligate us to sell or buy U.S. Treasury securities for future delivery. Gains and losses associated with purchases and short sales of U.S. Treasury securities and U.S. Treasury futures contracts are recognized in gain (loss) on derivative instruments and other securities, net in our consolidated statements of comprehensive income.
Loss ContingenciesFair Value Measurements
We evaluatedetermine the existencefair value of any pendingfinancial instruments based on our estimate of the price that would be received to sell the asset or threatened litigationpaid to transfer the liability in an orderly transaction between market participants at the measurement date. We utilize a three-level valuation hierarchy for disclosure of fair value measurements based upon the transparency of inputs to the valuation of the instrument as of the measurement date. We categorize a financial instrument within the hierarchy based upon the lowest level of input that is significant to the fair value measurement.
The three levels of valuation hierarchy are defined as follows:
•Level 1 Inputs —Quoted prices (unadjusted) for identical unrestricted assets and liabilities in active markets that are accessible at the measurement date.
•Level 2 Inputs —Quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
•Level 3 Inputs —Instruments with primarily unobservable market data that cannot be corroborated.
The majority of our financial instruments are classified as Level 2 inputs. The availability of observable inputs can be affected by a wide variety of factors, including the type of instrument, whether the instrument is new and not yet established in the marketplace and other potential claims againstcharacteristics particular to the Company in accordance with ASC Topic 450, Contingencies, which requiresinstrument. We typically obtain price estimates from multiple third-
party pricing sources, such as pricing services and dealers, or, if applicable, from the registered clearing exchange. We make inquiries of third-party pricing sources to understand the significant inputs and assumptions they used to determine their prices and that we assessthey are derived from orderly transactions, particularly during periods of elevated market turbulence and reduced market liquidity. We also review third-party price estimates and perform procedures to validate their reasonableness, including an analysis of the likelihood and range of potential outcomes of any such matters. We are the defendant in two stockholder derivative lawsuits alleging that certain of our currentestimates for each position, comparison to recent trade activity for similar securities and former directors and officers breached fiduciary duties and wasted corporate assets in connectionfor consistency with past renewalsmarket conditions observed as of the management agreement with our former external Manager and the internalization of our management, which occurred on July 1, 2016. Although the outcomes of these cases cannot be predicted with certainty,measurement date. While we do not believeadjust prices we obtain from pricing sources, we will exclude prices for securities from our estimation of fair value if we determine based on our validation procedures and our market knowledge and expertise that the price is significantly different from what observable market data would indicate and we cannot obtain an understanding from the third-party source as to the significant inputs used to determine the price.
The following is a description of the valuation methodologies used for financial instruments measured at fair value on a recurring basis classified as Level 2 inputs. These instruments trade in active markets such that participants transact with sufficient frequency and volume to provide transparent pricing information on an ongoing basis. The liquidity of these cases have merit or will result inmarkets and the similarity of our instruments to those actively traded enable our pricing sources and us to utilize the observed quoted prices as a material liability,basis for formulating fair value measurements.
Investment securities - are valued based on prices obtained from multiple third-party pricing sources. The pricing sources utilize various valuation approaches, including market and income approaches. For Agency RMBS, the pricing sources primarily utilize a matrix pricing technique that interpolates the estimated fair value based on observed quoted prices for TBA securities having the same coupon, maturity and issuer, adjusted to reflect the specific characteristics of the pool of mortgages underlying the Agency security, such as maximum loan balance, loan vintage, loan-to-value ratio, geography and other characteristics as may be appropriate. For other investment securities, the pricing sources primarily utilize discounted cash flow model-derived pricing techniques to estimate the fair value. Such models incorporate market-based discount rate assumptions based on observable inputs such as recent trading activity, credit data, volatility statistics, benchmark interest rate curves, spread measurements to benchmark curves and other market data that are current as of September 30, 2017,the measurement date and may include certain unobservable inputs, such as assumptions of future levels of prepayment, defaults and loss severities.
TBA securities - are valued using prices obtained from third-party pricing sources based on pricing models that reference recent trading activity.
Interest rate swaps - are valued using the daily settlement price, or fair value, determined by the clearing exchange based on a pricing model that references observable market inputs, including current benchmark rates and the forward yield curve.
Interest rate swaptions - are valued using prices obtained from the counterparty and other third-party pricing models. The pricing models are based on the value of the future interest rate swap that we did not accrue a loss contingency relatedhave the option to these matters.enter into as well as the remaining length of time that we have to exercise the option based on observable market inputs, adjusted for non-performance risk, if any.
U.S. Treasury securities and futures are valued based on quoted prices for identical instruments in active markets and are classified as Level 1 assets. None of our financial instruments are classified as Level 3 inputs.
Recent Accounting Pronouncements
We consider the applicability and impact of all Accounting Standards Updates (“ASUs”)ASUs issued by the Financial Accounting Standards Board.FASB. There are no unadopted ASUs not listed below were determined to be either not applicable,that are not expected to have a significant impact on our consolidated financial statements when adopted or did not haveother recently adopted ASUs that had a significant impact on our consolidated financial statements upon adoption.
ASU 2014-09, Revenue from Contracts with Customers (Topic 606): ASU 2014-09 is a comprehensive revenue recognition standard that supersedes virtually all existing revenue guidance under U.S. GAAP. The standard’s core principle is that an entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. Revenue recognition with respect to financial instruments is not within the scope of ASU 2014-09 and our review of each of our revenue streams indicates that it will not have a significant impact on our consolidated financial statements. ASU 2014-09 is effective on January 1, 2018.
ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): ASU 2016-13 changes the impairment model for most financial assets and certain other instruments. Allowances for credit losses on available-for-sale debt securities will be recognized, rather than direct reductions in the amortized cost of the investments. The new model also requires the estimation of lifetime expected credit losses and corresponding recognition of allowance for losses on trade and other receivables, held-to-maturity debt securities, loans, and other instruments held at amortized cost. The ASU requires certain recurring disclosures and is effective for annual periods, and interim periods within those annual periods, beginning on or after December 15, 2019, with early adoption permitted for annual periods, and interim periods within those annual periods, beginning on or after December 15, 2018. ASU 2016-13 is not expected to have a significant impact on our consolidated financial statements.
ASU 2016-18, Statement of Cash Flows (Topic 230) - Restricted Cash: ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 will be effective on January 1, 2018 and is not expected to have a significant impact on our consolidated financial statements.
Note 4.3. Investment Securities
As of September 30, 2017March 31, 2024 and December 31, 2016,2023, our investment portfolio consisted of $53.1$54.8 billion investment securities, at fair value, $8.4 billion and $46.5$5.4 billion of investmentnet TBA securities, at fair value, respectively, and $19.4 billionother mortgage credit investments of $59 million and $11.2 billion$44 million, respectively, which we account for under the equity method of TBA securities, at fair value, respectively.accounting. Our TBA position is reported at its net carrying value of $(24)totaling $43 million and $(147)$66 million as of September 30, 2017March 31, 2024 and December 31, 2016,2023, respectively, in derivative assets / (liabilities) on our accompanying consolidated balance sheets. The net carrying value of our TBA position represents the difference between the fair value of the underlying Agency security in the TBA contract and the cost basis or the forward price to be paid or received for the underlying Agency security.
As of September 30, 2017March 31, 2024 and December 31, 2016,2023, our investment securities had a net unamortized premium balance of $2.4 billion and $2.1 billion, respectively, including interest and principal-only securities.$1.2 billion.
The following tables summarize our investment securities as of September 30, 2017March 31, 2024 and December 31, 2016,2023, excluding TBA securities and other mortgage credit investments (dollars in millions). Note 6 contains detailsDetails of our TBA securities are included in Note 5.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2024 | | December 31, 2023 |
Investment Securities | | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value |
Agency RMBS: | | | | | | | | |
Fixed rate | | $ | 55,465 | | | $ | 52,767 | | | $ | 55,289 | | | $ | 53,161 | |
Adjustable rate | | 722 | | | 716 | | | 293 | | | 290 | |
CMO | | 120 | | | 113 | | | 127 | | | 120 | |
Interest-only and principal-only strips | | 65 | | | 58 | | | 67 | | | 61 | |
Multifamily | | 75 | | | 75 | | | 161 | | | 162 | |
Total Agency RMBS | | 56,447 | | | 53,729 | | | 55,937 | | | 53,794 | |
Non-Agency RMBS 1 | | 19 | | | 14 | | | 43 | | | 34 | |
CMBS | | 304 | | | 280 | | | 303 | | | 273 | |
CRT securities | | 694 | | | 753 | | | 682 | | | 723 | |
Total investment securities | | $ | 57,464 | | | $ | 54,776 | | | $ | 56,965 | | | $ | 54,824 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2024 |
| | Agency RMBS | | Non-Agency 1 | | | | |
Investment Securities | | Fannie Mae | | Freddie Mac | | Ginnie Mae | | RMBS | | CMBS | | CRT | | Total |
Available-for-sale securities: | | | | | | | | | | | | | | |
Par value | | $ | 3,772 | | | $ | 1,117 | | | $ | 1 | | | $ | — | | | $ | — | | | $ | — | | | $ | 4,890 | |
Unamortized discount | | (2) | | | — | | | — | | | — | | | — | | | — | | | (2) | |
Unamortized premium | | 221 | | | 71 | | | — | | | — | | | — | | | — | | | 292 | |
Amortized cost | | 3,991 | | | 1,188 | | | 1 | | | — | | | — | | | — | | | 5,180 | |
Gross unrealized gains | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Gross unrealized losses | | (452) | | | (142) | | | — | | | — | | | — | | | — | | | (594) | |
Total available-for-sale securities, at fair value | | 3,539 | | | 1,046 | | | 1 | | | — | | | — | | | — | | | 4,586 | |
Securities remeasured at fair value through earnings: | | | | | | | | | | | | | | |
Par value | | 28,931 | | | 21,406 | | | 42 | | | 21 | | | 310 | | | 687 | | | 51,397 | |
Unamortized discount | | (122) | | | (81) | | | (1) | | | (3) | | | (8) | | | (9) | | | (224) | |
Unamortized premium | | 697 | | | 395 | | | — | | | 1 | | | 2 | | | 16 | | | 1,111 | |
Amortized cost | | 29,506 | | | 21,720 | | | 41 | | | 19 | | | 304 | | | 694 | | | 52,284 | |
Gross unrealized gains | | 95 | | | 61 | | | — | | | — | | | 3 | | | 59 | | | 218 | |
Gross unrealized losses | | (1,506) | | | (773) | | | (1) | | | (5) | | | (27) | | | — | | | (2,312) | |
Total securities remeasured at fair value through earnings | | 28,095 | | | 21,008 | | | 40 | | | 14 | | | 280 | | | 753 | | | 50,190 | |
Total securities, at fair value | | $ | 31,634 | | | $ | 22,054 | | | $ | 41 | | | $ | 14 | | | $ | 280 | | | $ | 753 | | | $ | 54,776 | |
Weighted average coupon as of March 31, 2024 | | 4.73 | % | | 5.02 | % | | 4.63 | % | | 6.19 | % | | 7.28 | % | | 10.72 | % | | 4.93 | % |
Weighted average yield as of March 31, 2024 2 | | 4.27 | % | | 4.70 | % | | 4.96 | % | | 6.34 | % | | 7.42 | % | | 9.47 | % | | 4.52 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2023 |
| | Agency RMBS | | Non-Agency 1 | | | | |
Investment Securities | | Fannie Mae | | Freddie Mac | | Ginnie Mae | | RMBS | | CMBS | | CRT | | Total |
Available-for-sale securities: | | | | | | | | | | | | | | |
Par value | | $ | 3,881 | | | $ | 1,152 | | | $ | 1 | | | $ | — | | | $ | — | | | $ | — | | | $ | 5,034 | |
Unamortized discount | | (1) | | | — | | | — | | | — | | | — | | | — | | | (1) | |
Unamortized premium | | 227 | | | 73 | | | — | | | — | | | — | | | — | | | 300 | |
Amortized cost | | 4,107 | | | 1,225 | | | 1 | | | — | | | — | | | — | | | 5,333 | |
Gross unrealized gains | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Gross unrealized losses | | (392) | | | (125) | | | — | | | — | | | — | | | — | | | (517) | |
Total available-for-sale securities, at fair value | | 3,715 | | | 1,100 | | | 1 | | | — | | | — | | | — | | | 4,816 | |
Securities remeasured at fair value through earnings: | | | | | | | | | | | | | | |
Par value | | 29,910 | | | 19,503 | | | 283 | | | 44 | | | 307 | | | 679 | | | 50,726 | |
Unamortized discount | | (108) | | | (59) | | | (3) | | | (3) | | | (7) | | | (9) | | | (189) | |
Unamortized premium | | 702 | | | 376 | | | — | | | 2 | | | 3 | | | 12 | | | 1,095 | |
Amortized cost | | 30,504 | | | 19,820 | | | 280 | | | 43 | | | 303 | | | 682 | | | 51,632 | |
Gross unrealized gains | | 170 | | | 111 | | | 1 | | | — | | | 2 | | | 41 | | | 325 | |
Gross unrealized losses | | (1,270) | | | (638) | | | — | | | (9) | | | (32) | | | — | | | (1,949) | |
Total securities remeasured at fair value through earnings | | 29,404 | | | 19,293 | | | 281 | | | 34 | | | 273 | | | 723 | | | 50,008 | |
Total securities, at fair value | | $ | 33,119 | | | $ | 20,393 | | | $ | 282 | | | $ | 34 | | | $ | 273 | | | $ | 723 | | | $ | 54,824 | |
Weighted average coupon as of December 31, 2023 | | 4.69 | % | | 4.91 | % | | 4.94 | % | | 5.10 | % | | 7.27 | % | | 10.45 | % | | 4.86 | % |
Weighted average yield as of December 31, 2023 2 | | 4.22 | % | | 4.53 | % | | 5.16 | % | | 4.92 | % | | 7.04 | % | | 8.87 | % | | 4.41 | % |
________________________________
1.Non-Agency amounts exclude other mortgage credit investments of $59 million and $44 million as of eachMarch 31, 2024 and December 31, 2023, respectively.
2.Incorporates a weighted average future constant prepayment rate assumption of these respective dates.
|
| | | | | | | | | | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
Investment Securities | | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value |
Agency RMBS: | | | | | | | | |
Fixed rate | | $ | 51,275 |
| | $ | 51,104 |
| | $ | 45,145 |
| | $ | 44,736 |
|
Adjustable rate | | 304 |
| | 311 |
| | 371 |
| | 379 |
|
CMO | | 669 |
| | 677 |
| | 796 |
| | 801 |
|
Interest-only and principal-only strips | | 225 |
| | 246 |
| | 268 |
| | 295 |
|
Total Agency RMBS | | 52,473 |
| | 52,338 |
| | 46,580 |
| | 46,211 |
|
Non-Agency RMBS | | 8 |
| | 7 |
| | 102 |
| | 101 |
|
CMBS | | 28 |
| | 29 |
| | 23 |
| | 23 |
|
CRT securities | | 697 |
| | 717 |
| | 161 |
| | 164 |
|
Total investment securities | | $ | 53,206 |
| | $ | 53,091 |
| | $ | 46,866 |
| | $ | 46,499 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2017 |
| | Agency RMBS | | Non-Agency | | | | |
Investment Securities | | Fannie Mae | | Freddie Mac | | Ginnie Mae | | RMBS | | CMBS | | CRT | | Total |
Available-for-sale securities: | | | | | | | | | | | | | | |
Par value | | $ | 25,724 |
| | $ | 8,244 |
| | $ | 36 |
| | $ | 7 |
| | $ | — |
| | $ | — |
| | $ | 34,011 |
|
Unamortized discount | | (26 | ) | | (3 | ) | | — |
| | — |
| | — |
| | — |
| | (29 | ) |
Unamortized premium | | 1,183 |
| | 447 |
| | — |
| | — |
| | — |
| | — |
| | 1,630 |
|
Amortized cost | | 26,881 |
| | 8,688 |
| | 36 |
| | 7 |
| | — |
| | — |
| | 35,612 |
|
Gross unrealized gains | | 174 |
| | 41 |
| | 1 |
| | — |
| | — |
| | — |
| | 216 |
|
Gross unrealized losses | | (244 | ) | | (112 | ) | | — |
| | — |
| | — |
| | — |
| | (356 | ) |
Total available-for-sale securities, at fair value | | 26,811 |
| | 8,617 |
| | 37 |
| | 7 |
| | — |
| | — |
| | 35,472 |
|
Securities remeasured at fair value through earnings: | | | | | | | | | | | | | | |
Par value | | 11,260 |
| | 4,826 |
| | — |
| | — |
| | 29 |
| | 669 |
| | 16,784 |
|
Unamortized discount | | (36 | ) | | — |
| | — |
| | — |
| | (1 | ) | | — |
| | (37 | ) |
Unamortized premium | | 580 |
| | 239 |
| | — |
| | — |
| | — |
| | 28 |
| | 847 |
|
Amortized cost | | 11,804 |
| | 5,065 |
| | — |
| | — |
| | 28 |
| | 697 |
| | 17,594 |
|
Gross unrealized gains | | 37 |
| | 7 |
| | — |
| | — |
| | 1 |
| | 21 |
| | 66 |
|
Gross unrealized losses | | (26 | ) | | (14 | ) | | — |
| | — |
| | — |
| | (1 | ) | | (41 | ) |
Total securities remeasured at fair value through earnings | | 11,815 |
| | 5,058 |
| | — |
| | — |
| | 29 |
| | 717 |
| | 17,619 |
|
Total securities, at fair value | | $ | 38,626 |
| | $ | 13,675 |
| | $ | 37 |
| | $ | 7 |
| | $ | 29 |
| | $ | 717 |
| | $ | 53,091 |
|
Weighted average coupon as of September 30, 2017 | | 3.65 | % | | 3.68 | % | | 2.78 | % | | 2.50 | % | | 6.55 | % | | 5.10 | % | | 3.67 | % |
Weighted average yield as of September 30, 2017 1 | | 2.82 | % | | 2.81 | % | | 2.01 | % | | 3.03 | % | | 7.31 | % | | 4.61 | % | | 2.85 | % |
________________________
| |
1. | Incorporates a weighted average future constant prepayment rate assumption of 9% based on forward rates as of September 30, 2017.
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2016 |
| | Agency RMBS | | Non-Agency | | | | |
Investment Securities | | Fannie Mae | | Freddie Mac | | Ginnie Mae | | RMBS | | CMBS | | CRT | | Total |
Available-for-sale securities: | | | | | | | | | | | | | | |
Par value | | $ | 34,244 |
| | $ | 10,008 |
| | $ | 44 |
| | $ | 101 |
| | $ | — |
| | $ | — |
| | $ | 44,397 |
|
Unamortized discount | | (43 | ) | | (3 | ) | | — |
| | — |
| | — |
| | — |
| | (46 | ) |
Unamortized premium | | 1,518 |
| | 544 |
| | — |
| | 1 |
| | — |
| | — |
| | 2,063 |
|
Amortized cost | | 35,719 |
| | 10,549 |
| | 44 |
| | 102 |
| | — |
| | — |
| | 46,414 |
|
Gross unrealized gains | | 176 |
| | 48 |
| | 1 |
| | — |
| | — |
| | — |
| | 225 |
|
Gross unrealized losses | | (442 | ) | | (179 | ) | | — |
| | (1 | ) | | — |
| | — |
| | (622 | ) |
Total available-for-sale securities, at fair value | | 35,453 |
| | 10,418 |
| | 45 |
| | 101 |
| | — |
| | — |
| | 46,017 |
|
Securities remeasured at fair value through earnings: | | | | | | | | | | | | | | |
Par value | | 171 |
| | — |
| | — |
| | — |
| | 24 |
| | 157 |
| | 352 |
|
Unamortized discount | | (35 | ) | | — |
| | — |
| | — |
| | (1 | ) | | — |
| | (36 | ) |
Unamortized premium | | 118 |
| | 14 |
| | — |
| | — |
| | — |
| | 4 |
| | 136 |
|
Amortized cost | | 254 |
| | 14 |
| | — |
| | — |
| | 23 |
| | 161 |
| | 452 |
|
Gross unrealized gains | | 28 |
| | 3 |
| | — |
| | — |
| | — |
| | 3 |
| | 34 |
|
Gross unrealized losses | | (3 | ) | | (1 | ) | | — |
| | — |
| | — |
| | — |
| | (4 | ) |
Total securities remeasured at fair value through earnings | | 279 |
| | 16 |
| | — |
| | — |
| | 23 |
| | 164 |
| | 482 |
|
Total securities, at fair value | | $ | 35,732 |
| | $ | 10,434 |
| | $ | 45 |
| | $ | 101 |
| | $ | 23 |
| | $ | 164 |
| | $ | 46,499 |
|
Weighted average coupon as of December 31, 2016 | | 3.59 | % | | 3.67 | % | | 2.75 | % | | 3.42 | % | | 6.55 | % | | 5.25 | % | | 3.61 | % |
Weighted average yield as of December 31, 2016 1 | | 2.77 | % | | 2.72 | % | | 2.00 | % | | 3.27 | % | | 7.54 | % | | 6.28 | % | | 2.77 | % |
________________________
| |
1. | Incorporates a weighted average future constant prepayment rate assumption of 8% based on forward rates as of December 31, 2016. |
10.4% and 11.4% based on forward rates as of March 31, 2024 and December 31, 2023, respectively.
As of September 30, 2017March 31, 2024 and December 31, 2016,2023, our investments in CRT and non-Agency securities had the following credit ratings:ratings (in millions):
| | | | September 30, 2017 | | December 31, 2016 | | | March 31, 2024 | | December 31, 2023 |
CRT and Non-Agency Security Credit Ratings 1 | | CRT | | RMBS | | CMBS | | CRT | | RMBS | | CMBS | CRT and Non-Agency Security Credit Ratings 1 | | CRT | | RMBS 2 | | CMBS | | CRT | | RMBS 2 | | CMBS |
AAA | | $ | — |
| | $ | 7 |
| | $ | — |
| | $ | — |
| | $ | 99 |
| | $ | — |
|
AA | |
A | |
BBB | | — |
| | — |
| | 29 |
| | — |
| | — |
| | 23 |
|
BB | | 65 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
B | | 633 |
| | — |
| | — |
| | 164 |
| | 2 |
| | — |
|
Not Rated | | 19 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total | | $ | 717 |
| | $ | 7 |
| | $ | 29 |
| | $ | 164 |
| | $ | 101 |
| | $ | 23 |
|
________________________________________________________
| |
1. | Represents the lowest of Standard and Poor's ("S&P"), Moody's and Fitch credit ratings, stated in terms of the S&P equivalent rating as of each date. |
1.Represents the lowest of Standard and Poor's ("S&P"), Moody's, Fitch, DBRS, Kroll Bond Rating Agency ("KBRA") and Morningstar credit ratings, stated in terms of the S&P equivalent rating as of each date.
2.RMBS excludes other mortgage credit investments of $59 million and $44 million as of March 31, 2024 and December 31, 2023, respectively.
Our CRT securities reference the performance of loans underlying Agency RMBS issued by Fannie Mae or Freddie Mac, which were subject to their underwriting standards. As of September 30, 2017, our CRT securities had floating rate coupons ranging from 3.7% to 7.6%, referenced to loans originated between 2012 and 2017 with weighted average coupons ranging from 3.6% to 4.3%. As of December 31, 2016, our CRT securities had floating rate coupons ranging from 4.6% to 7.1%, referenced to loans originated between 2015 and 2016 with weighted average coupons ranging from 4.0% to 4.2%.
The actual maturities of our investment securities are generally shorter than their stated contractual maturities. ActualThe actual maturities of our Agency and high credit quality non-Agency RMBS are primarily affected by principal prepayments and to a lesser degree the contractual lives of the underlying mortgages and periodic contractual principal paymentsrepayments. The actual maturities of our credit-oriented investments are primarily impacted by their contractual lives and principal prepayments.default and loss recovery rates. As of September 30, 2017March 31, 2024 and December 31, 2016,2023, the weighted average expected constant prepayment rate ("CPR") over the remaining life of our aggregateAgency and high credit quality non-Agency RMBS investment portfolio was 9%10.4% and 8%11.4%, respectively. Our estimates can differ materially for different types of securities and thus our individual holdings have a wide range of projected CPRs. The following table summarizes our investments as of September 30, 2017March 31, 2024 and December 31, 20162023 according to their estimated weighted average life classification (dollars in millions):
| | | | | | | | | | | | | | | | | | | | March 31, 2024 | | December 31, 2023 |
| | September 30, 2017 | | December 31, 2016 |
Estimated Weighted Average Life of Investment Securities | | Fair Value | | Amortized Cost | | Weighted Average Coupon | | Weighted Average Yield | | Fair Value | | Amortized Cost | | Weighted Average Coupon | | Weighted Average Yield |
≥ 1 year and ≤ 3 years | | $ | 2,518 |
| | $ | 2,481 |
| | 3.89% | | 2.66% | | $ | 419 |
| | $ | 416 |
| | 4.33% | | 2.27% |
Estimated Weighted Average Life of Investment Securities 1 | | Estimated Weighted Average Life of Investment Securities 1 | | Fair Value | | Amortized Cost | | Weighted Average Coupon | | Weighted Average Yield | | Fair Value | | Amortized Cost | | Weighted Average Coupon | | Weighted Average Yield |
≤ 3 years | | ≤ 3 years | | $ | 630 | | | $ | 639 | | | 7.65% | | 7.22% | | $ | 942 | | | $ | 961 | | | 6.61% | | 5.93% |
> 3 years and ≤ 5 years | | 8,763 |
| | 8,704 |
| | 3.35% | | 2.44% | | 13,601 |
| | 13,509 |
| | 3.38% | | 2.44% | > 3 years and ≤ 5 years | | 4,647 | | | 4,641 | | 4,641 | | | 6.21% | | 6.21% | | 5.70% | | 10,381 | | | 10,331 | | 10,331 | | | 5.98% | | 5.98% | | 5.52% |
> 5 years and ≤10 years | | 40,234 |
| | 40,453 |
| | 3.75% | | 2.94% | | 30,513 |
| | 30,979 |
| | 3.74% | | 2.89% | > 5 years and ≤10 years | | 45,747 | | | 48,314 | | 48,314 | | | 4.77% | | 4.77% | | 4.34% | | 40,895 | | | 42,988 | | 42,988 | | | 4.55% | | 4.55% | | 4.10% |
> 10 years | | 1,576 |
| | 1,568 |
| | 3.36% | | 3.07% | | 1,966 |
| | 1,962 |
| | 3.17% | | 3.27% | > 10 years | | 3,752 | | | 3,870 | | 3,870 | | | 5.00% | | 5.00% | | 4.90% | | 2,606 | | | 2,685 | | 2,685 | | | 4.77% | | 4.77% | | 4.63% |
Total | | $ | 53,091 |
| | $ | 53,206 |
| | 3.68% | | 2.85% | | $ | 46,499 |
| | $ | 46,866 |
| | 3.61% | | 2.77% | Total | | $ | 54,776 | | | $ | | $ | 57,464 | | | 4.93% | | 4.93% | | 4.52% | | $ | 54,824 | | | $ | | $ | 56,965 | | | 4.86% | | 4.86% | | 4.41% |
________________________________
1.Table excludes other mortgage credit investments of $59 million and $44 million as of March 31, 2024 and December 31, 2023, respectively.
The following table presents the gross unrealized loss and fair values of securities classified as available-for-sale by length of time that such securities have been in a continuous unrealized loss position as of September 30, 2017March 31, 2024 and December 31, 20162023 (in millions):
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Unrealized Loss Position For |
| | Less than 12 Months | | 12 Months or More | | Total |
Securities Classified as Available-for-Sale | | Estimated Fair Value | | Unrealized Loss | | Estimated Fair Value | | Unrealized Loss | | Estimated Fair Value | | Unrealized Loss |
September 30, 2017 | | $ | 19,663 |
| | $ | (291 | ) | | $ | 1,972 |
| | $ | (65 | ) | | $ | 21,635 |
| | $ | (356 | ) |
December 31, 2016 | | $ | 28,397 |
| | $ | (554 | ) | | $ | 1,719 |
| | $ | (68 | ) | | $ | 30,116 |
| | $ | (622 | ) |
We did not recognize any OTTI charges on our investment securities for the nine months ended September 30, 2017 and 2016. As of the end of each respective reporting period, a decision had not been made to sell any of our securities in an unrealized loss position and we did not believe it was more likely than not that we would be required to sell such securities before recovery of their amortized cost basis. The unrealized losses on our securities were not due to credit losses given the GSE guarantees, but rather were due to changes in interest rates and prepayment expectations. However, as we continue to actively manage our portfolio, we may recognize additional realized losses on our investment securities upon selecting specific securities to sell.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Unrealized Loss Position For |
| | Less than 12 Months | | 12 Months or More | | Total |
Securities Classified as Available-for-Sale | | Fair Value | | Unrealized Loss | | Fair Value | | Unrealized Loss | | Fair Value | | Unrealized Loss |
March 31, 2024 | | $ | — | | | $ | — | | | $ | 4,569 | | | $ | (594) | | | $ | 4,569 | | | $ | (594) | |
December 31, 2023 | | $ | — | | | $ | — | | | $ | 4,797 | | | $ | (517) | | | $ | 4,797 | | | $ | (517) | |
Gains and Losses on Sale of Investment Securities
The following table is a summary of our net gain (loss) from the sale of investment securities for the three and nine months ended September 30, 2017March 31, 2024 and 20162023 by investment classification of accounting (in millions).:
|
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, |
| | 2017 | | 2016 |
Investment Securities | | Available-for-Sale Securities 2 | Fair Value Option Securities | Total | | Available-for-Sale Securities 2 | Fair Value Option Securities | Total |
Investment securities sold, at cost | | $ | (3 | ) | $ | (6,016 | ) | $ | (6,019 | ) | | $ | (6,123 | ) | $ | — |
| $ | (6,123 | ) |
Proceeds from investment securities sold 1 | | 2 |
| 6,039 |
| 6,041 |
| | 6,184 |
| — |
| 6,184 |
|
Net gain (loss) on sale of investment securities | | $ | (1 | ) | $ | 23 |
| $ | 22 |
| | $ | 61 |
| $ | — |
| $ | 61 |
|
| | | | | | | | |
Gross gain on sale of investment securities | | $ | — |
| $ | 28 |
| $ | 28 |
| | $ | 62 |
| $ | — |
| $ | 62 |
|
Gross loss on sale of investment securities | | (1 | ) | (5 | ) | (6 | ) | | (1 | ) | — |
| (1 | ) |
Net gain (loss) on sale of investment securities | | $ | (1 | ) | $ | 23 |
| $ | 22 |
| | $ | 61 |
| $ | — |
| $ | 61 |
|
| | | | Nine Months Ended September 30, |
| | 2017 | | 2016 |
| | | Three Months Ended March 31, | |
| | | Three Months Ended March 31, | |
| | | Three Months Ended March 31, | |
| | 2024 | |
Investment Securities | |
Investment Securities | |
Investment Securities | | Available-for-Sale Securities 2 | Fair Value Option Securities | Total | | Available-for-Sale Securities 2 | Fair Value Option Securities | Total |
Investment securities sold, at cost | | $ | (5,738 | ) | $ | (8,636 | ) | $ | (14,374 | ) | | $ | (17,146 | ) | $ | — |
| $ | (17,146 | ) |
Investment securities sold, at cost | |
Investment securities sold, at cost | |
Proceeds from investment securities sold 1 | | 5,649 |
| 8,678 |
| 14,327 |
| | 17,260 |
| — |
| 17,260 |
|
Proceeds from investment securities sold 1 | |
Proceeds from investment securities sold 1 | |
Net gain (loss) on sale of investment securities | |
Net gain (loss) on sale of investment securities | |
Net gain (loss) on sale of investment securities | | $ | (89 | ) | $ | 42 |
| $ | (47 | ) | | $ | 114 |
| $ | — |
| $ | 114 |
|
| | | | |
Gross gain on sale of investment securities | | $ | 6 |
| $ | 48 |
| $ | 54 |
| | $ | 122 |
| $ | — |
| $ | 122 |
|
| Gross gain on sale of investment securities | |
| Gross gain on sale of investment securities | |
Gross loss on sale of investment securities | |
Gross loss on sale of investment securities | |
Gross loss on sale of investment securities | | (95 | ) | (6 | ) | (101 | ) | | (8 | ) | — |
| (8 | ) |
Net gain (loss) on sale of investment securities | | $ | (89 | ) | $ | 42 |
| $ | (47 | ) | | $ | 114 |
| $ | — |
| $ | 114 |
|
Net gain (loss) on sale of investment securities | |
Net gain (loss) on sale of investment securities | |
________________________________________________________
| |
1. | 1.Proceeds include cash received during the period, plus receivable for investment securities sold during the period as of period end. |
| |
2. | See Note 10 for a summary of changes in accumulated OCI. |
Securitizations and Variable Interest Entities
As of September 30, 2017 and December 31, 2016, we held investments in CMO trusts, which are variable interest entities ("VIEs"). We have consolidated certain of these CMO trusts in our consolidated financial statements where we have determined we are the primary beneficiary of the trusts. All of our CMO securities are backed by fixed or adjustable-rate Agency RMBS. Fannie Mae or Freddie Mac guarantees the payment of interest and principal and acts as the trustee and administrator of their respective securitization trusts. Accordingly, we are not required to provide the beneficial interest holders of the CMO securities any financial or other support. Our maximum exposure to loss related to our involvement with CMO trusts is the fair value of the CMO securities and interest and principal-only securities held by us, less principal amounts guaranteed by Fannie Mae and Freddie Mac.
In connection with our consolidated CMO trusts, we recognized Agency securities with a total fair value and approximate unpaid principal balance of $0.7 billion as of September 30, 2017period end.
2.See Note 9 for a summary of changes in accumulated OCI.
3.During the three months ended March 31, 2024 and $0.8 billion as2023, we received principal repayments on available-for-sale securities of December 31, 2016$143 million and debt with a total fair value and approximate unpaid principal balance of $0.4 billion as of September 30, 2017 and $0.5 billion as of December 31, 2016 in our accompanying consolidated balance sheets. We re-measure our consolidated debt at fair value through earnings in gain (loss) on derivative instruments and other securities, net in our consolidated statements of comprehensive income. Our involvement with the consolidated trusts is limited to the Agency securities transferred by us upon the formation of the trusts and the CMO securities subsequently held by us. There are no arrangements that could require us to provide financial support to the trusts.$179 million, respectively.
As of September 30, 2017 and December 31, 2016, the fair value of our CMO securities and interest and principal-only securities was $0.9 billion and $1.1 billion, respectively, excluding the consolidated CMO trusts discussed above, or $1.2 billion and $1.5 billion, respectively, including the net asset value of our consolidated CMO trusts. Our maximum exposure to loss related to our CMO securities and interest and principal-only securities, including our consolidated CMO trusts, was $149 million and $182 million as of September 30, 2017 and December 31, 2016, respectively.
Note 5.4. Repurchase Agreements and Other Secured BorrowingsReverse Repurchase Agreements
Repurchase Agreements
We pledge certain of our securities as collateral under our borrowingborrowings structured as repurchase agreements with financial institutions. Interest rates on our borrowings are generally based on LIBOR plus or minus a margin and amountsAmounts available to be borrowed are dependent upon the fair value of the securities pledged as collateral, which fluctuates with changes in interest rates, type of security and liquidity conditions within the banking, mortgage finance and real estate industries. If the fair value of our pledged securities declines, lenders will typically require us to post additional collateral or pay down borrowings to re-establish agreed upon collateral requirements, referred to as "margin calls." Similarly, if the fair value of our pledged securities increases, lenders may release collateral back to us. As of September 30, 2017,March 31, 2024, we had met all margin call requirements. For additional information regarding our pledged assets, please refer to Note 7.6.
As of September 30, 2017March 31, 2024 and December 31, 2016,2023, we had $45.5$50.0 billion and $37.9$50.4 billion, respectively, of repurchase agreements outstanding.outstanding used to fund our investment portfolio and temporary holdings of U.S. Treasury securities. The terms and conditions of our repurchase agreements are typically negotiated on a transaction-by-transaction basis. Our repurchase agreements with original maturities greater than 90 days have floating interest rates based on an index plusbasis or minussubject to a fixed spread. Substantially all of our repurchase agreements were used to fund purchases of Agency securities ("Agency repo"). The remainder of our repurchase agreements were used to fund temporary holdings of U.S. Treasury securities ("U.S. Treasury repo").
tri-party repo agreement. The following table summarizes our borrowings under repurchase agreements by their remaining maturities as of September 30, 2017March 31, 2024 and December 31, 20162023 (dollars in millions):
|
| | | | | | | | | | | | | | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
Remaining Maturity | | Repurchase Agreements | | Weighted Average Interest Rate | | Weighted Average Days to Maturity | | Repurchase Agreements | | Weighted Average Interest Rate | | Weighted Average Days to Maturity |
Agency repo: | | | | | | | | | | | | |
≤ 1 month | | $ | 21,943 |
| | 1.31 | % | | 13 |
| | $ | 17,481 |
| | 0.90 | % | | 11 |
|
> 1 to ≤ 3 months | | 12,443 |
| | 1.27 | % | | 59 |
| | 10,011 |
| | 0.93 | % | | 55 |
|
> 3 to ≤ 6 months | | 4,640 |
| | 1.34 | % | | 137 |
| | 2,030 |
| | 1.02 | % | | 136 |
|
> 6 to ≤ 9 months | | 791 |
| | 1.60 | % | | 211 |
| | 1,270 |
| | 0.98 | % | | 214 |
|
> 9 to ≤ 12 months | | 1,111 |
| | 1.53 | % | | 319 |
| | 1,566 |
| | 1.08 | % | | 299 |
|
> 12 to ≤ 24 months | | 1,552 |
| | 1.69 | % | | 522 |
| | 1,203 |
| | 1.28 | % | | 538 |
|
> 24 to ≤ 36 months | | 2,100 |
| | 1.75 | % | | 851 |
| | 1,300 |
| | 1.36 | % | | 865 |
|
> 36 to ≤ 48 months | | 925 |
| | 1.77 | % | | 1,194 |
| | 2,200 |
| | 1.32 | % | | 1,168 |
|
> 48 to < 60 months | | — |
| | — |
| | — |
| | 625 |
| | 1.38 | % | | 1,506 |
|
Total Agency repo | | 45,505 |
| | 1.36 | % | | 129 |
| | 37,686 |
| | 0.98 | % | | 187 |
|
U.S. Treasury repo: | | | | | | | | | | | | |
> 1 day to ≤ 1 month | | — |
| | — |
| | — |
| | 172 |
| | (0.30 | )% | | 17 |
|
Total | | $ | 45,505 |
| | 1.36 | % | | 129 |
| | $ | 37,858 |
| | 0.98 | % | | 186 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2024 | | December 31, 2023 |
Remaining Maturity | | Repurchase Agreements | | Weighted Average Interest Rate | | Weighted Average Days to Maturity | | Repurchase Agreements | | Weighted Average Interest Rate | | Weighted Average Days to Maturity |
Investment securities repo | | | | | | | | | | | | |
≤ 1 month | | $ | 38,112 | | | 5.46 | % | | 10 | | | $ | 40,946 | | | 5.61 | % | | 11 | |
> 1 to ≤ 3 months | | 9,244 | | | 5.47 | % | | 59 | | | 7,933 | | | 5.55 | % | | 64 | |
> 3 to ≤ 6 months | | 784 | | | 5.41 | % | | 151 | | | — | | | — | % | | — | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Investment securities repo | | 48,140 | | | 5.46 | % | | 22 | | | 48,879 | | | 5.60 | % | | 19 | |
U.S. Treasury repo: | | | | | | | | | | | | |
≤ 1 month | | 1,831 | | | 5.47 | % | | 1 | | | 1,547 | | | 5.54 | % | | 2 | |
Total | | $ | 49,971 | | | 5.46 | % | | 21 | | | $ | 50,426 | | | 5.60 | % | | 19 | |
As of September 30, 2017March 31, 2024 and December 31, 2016, $1.62023, $16.9 billion and $150 million,$16.7 billion, respectively, of our Agencyinvestment securities repurchase agreements maturedand all of our U.S. Treasury repurchase agreements had an overnight maturity of one business day and none of our repurchase agreements were due on demand.
Federal Home Loan Bank Advances
As of DecemberMarch 31, 2016,2024, we had $3.0$10.4 billion of outstanding secured Federal Home Loan Bank ("FHLB") advances,forward commitments to enter into repurchase agreements with a weighted average borrowing rateforward start date of 0.73%. Our FHLB advances matured in February 2017, coinciding with the termination of our wholly-owned captive insurance subsidiary's FHLB membership in February 2017 pursuant to the Federal Housing Finance Agency's ("FHFA") final rule on FHLB membership released in January 2016. As a result, we had no outstanding secured FHLB advances as of September 30, 2017.
Debt of Consolidated Variable Interest Entities
As of September 30, 20174 days and December 31, 2016, debt of consolidated VIEs, at fair value, was $380 million and $460 million, respectively, and had a weighted average interest rate of LIBOR plus 41 and 36 basis points, respectively,5.46%. As of December 31, 2023, we had $8.8 billion of forward commitments to enter into repurchase agreements, with a weighted average forward start date of 4 days and a principal balance of $372 million and $452 million, respectively. The actual maturities of our debt of consolidated VIEs are generally shorter than the stated contractual maturities. The actual maturities are affected by the contractual lives of the underlying Agency RMBS securitizing the debt of our consolidated VIEs and periodic principal prepayments of such underlying securities. The estimated weighted average lifeinterest rate of the debt5.54%. As of our consolidated VIEs as of September 30, 2017March 31, 2024 and December 31, 20162023, 46% and 48%, respectively, of our repurchase agreement funding was 5.5 yearssourced through our wholly-owned captive broker-dealer subsidiary, Bethesda Securities, LLC ("BES"). Amounts sourced through BES include funding from the General Collateral Finance Repo service ("GCF Repo") offered by the Fixed Income Clearing Corporation ("FICC"), which totaled 42% and 5.8 years,43% of our repurchase agreement funding outstanding as of March 31, 2024 and December 31, 2023, respectively.
Reverse Repurchase Agreements
As of March 31, 2024 and December 31, 2023, we had $12.4 billion and $11.6 billion, respectively, of reverse repurchase agreements outstanding used primarily to borrow securities to cover short sales of U.S. Treasury securities, for which we had associated obligations to return borrowed securities at fair value of $12.1 billion and $10.9 billion, respectively. As of March 31, 2024 and December 31, 2023, $3.0 billion and $3.1 billion, respectively, of our reverse repurchase agreements were with the FICC sourced through BES.
Note 6.5. Derivative and Other Hedging Instruments
We hedge a portion ofFor the periods presented, our interest rate risk by entering intobased hedges primarily consisted of interest rate swaps, interest rate swaptions, and U.S. Treasury securities and U.S. Treasury futures contracts. We also utilized forward contracts, primarily through short sales. We may also utilizeconsisting of TBA securities, optionsfor the purchase and other typessale of derivative instruments to hedge a portion of our risk.investment securities. 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 3.2.
Derivative and Other Hedging Instrument Assets (Liabilities), at Fair Value
The table below summarizes fair value information about our derivative and other hedging instrument assets/(liabilities) as of September 30, 2017March 31, 2024 and December 31, 20162023 (in millions):
| | | | | | | | | | | | | | | | | | | | |
| | | | |
| | | | | | |
Derivative and Other Hedging Instruments | | Balance Sheet Location | | March 31, 2024 | | December 31, 2023 |
Interest rate swaps 1 | | Derivative assets, at fair value | | $ | 24 | | | $ | 15 | |
Swaptions | | Derivative assets, at fair value | | 2 | | | 89 | |
TBA and forward settling non-Agency securities | | Derivative assets, at fair value | | 58 | | | 81 | |
| | | | | | |
Total derivative assets, at fair value | | | | $ | 84 | | | $ | 185 | |
| | | | | | |
Interest rate swaps 1 | | Derivative liabilities, at fair value | | $ | — | | | $ | (1) | |
TBA and forward settling non-Agency securities | | Derivative liabilities, at fair value | | (15) | | | (15) | |
U.S. Treasury futures - short | | Derivative liabilities, at fair value | | (34) | | | (336) | |
SOFR futures contracts - long | | Derivative liabilities, at fair value | | (16) | | | (10) | |
Credit default swaps 1 | | Derivative liabilities, at fair value | | — | | | — | |
Total derivative liabilities, at fair value | | | | $ | (65) | | | $ | (362) | |
| | | | | | |
U.S. Treasury securities - long | | U.S. Treasury securities, at fair value | | $ | 1,836 | | | $ | 1,540 | |
U.S. Treasury securities - short | | Obligation to return securities borrowed under reverse repurchase agreements, at fair value | | (12,115) | | | (10,894) | |
Total U.S. Treasury securities, net at fair value | | | | $ | (10,279) | | | $ | (9,354) | |
________________________________ |
| | | | | | | | | | |
Derivative and Other Hedging Instruments | | Balance Sheet Location | | September 30, 2017 | | December 31, 2016 |
Interest rate swaps | | Derivative assets, at fair value | | $ | 67 |
| | $ | 321 |
|
Swaptions | | Derivative assets, at fair value | | 64 |
| | 22 |
|
TBA securities | | Derivative assets, at fair value | | 23 |
| | 4 |
|
U.S. Treasury futures - short | | Derivative assets, at fair value | | 29 |
| | 8 |
|
Total derivative assets, at fair value | | | | $ | 183 |
| | $ | 355 |
|
| | | | | | |
Interest rate swaps | | Derivative liabilities, at fair value | | $ | (15 | ) | | $ | (105 | ) |
TBA securities | | Derivative liabilities, at fair value | | (47 | ) | | (151 | ) |
Total derivative liabilities, at fair value | | | | $ | (62 | ) | | $ | (256 | ) |
| | | | | | |
U.S. Treasury securities - long | | U.S. Treasury securities, at fair value | | $ | — |
| | $ | 182 |
|
U.S. Treasury securities - short | | Obligation to return securities borrowed under reverse repurchase agreements, at fair value | | (9,119 | ) | | (7,636 | ) |
Total U.S. Treasury securities, net at fair value | | | | $ | (9,119 | ) | | $ | (7,454 | ) |
1.As of March 31, 2024 and December 31, 2023, the net fair value of our interest rate swaps excluding the recognition of variation margin settlements as a direct reduction of carrying value (see Note 2) was a net asset (liability) of $3.0 billion and $2.9 billion, respectively. As of March 31, 2024 and December 31, 2023, the net fair value of our credit default swaps excluding the recognition of variation margin settlements was $(7) million and $(6) million, respectively.
The following tables summarize certain characteristics of our derivative and other hedging instruments outstanding as of September 30, 2017March 31, 2024 and December 31, 20162023 (dollars in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pay Fixed / Receive Variable Interest Rate Swaps | | March 31, 2024 1 | | December 31, 2023 |
Years to Maturity | | Notional Amount | | Average Fixed Pay Rate 2 | | Average Variable Receive Rate 3 | | Average Maturity (Years) | | Notional Amount | | Average Fixed Pay Rate | | Average Variable Receive Rate 3 | | Average Maturity (Years) |
≤ 1 years | | $ | 8,500 | | | 0.06% | | 5.34% | | 0.4 | | $ | 13,750 | | | 0.14% | | 5.37% | | 0.4 |
> 1 to ≤ 3 years | | 15,800 | | | 0.17% | | 5.34% | | 1.7 | | 15,800 | | | 0.17% | | 5.36% | | 2.0 |
> 3 to ≤ 5 years | | 5,800 | | | 0.24% | | 5.34% | | 3.7 | | 5,800 | | | 0.24% | | 5.38% | | 3.9 |
> 5 to ≤ 7 years | | 5,400 | | | 1.72% | | 5.34% | | 6.2 | | 3,900 | | | 0.92% | | 5.37% | | 6.2 |
> 7 to ≤ 10 years | | 8,896 | | | 3.28% | | 5.34% | | 9.3 | | 5,226 | | | 3.06% | | 5.38% | | 9.2 |
| | | | | | | | | | | | | | | | |
Total | | $ | 44,396 | | | 0.97% | | 5.34% | | 3.8 | | $ | 44,476 | | | 0.57% | | 5.37% | | 3.0 |
1.As of March 31, 2024, notional amount includes forward starting swaps of $1.0 billion with an average forward start date of 0.2 years.
2.Average fixed pay rate includes forward starting swaps. Excluding forward starting swaps, the average fixed pay rate was 0.90% as of March 31, 2024.
3.As of March 31, 2024 and December 31, 2023, 80% and 20% of notional amount receive index references SOFR and OIS, respectively.
|
| | | | | | | | | | | | | | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
Payer Interest Rate Swaps | | Notional Amount 1 | | Average Fixed Pay Rate 2 | | Average Receive Rate | | Average Maturity (Years) | | Notional Amount 1 | | Average Fixed Pay Rate 2 | | Average Receive Rate | | Average Maturity (Years) |
≤ 3 years | | $ | 19,975 |
| | 1.27% | | 1.31% | | 1.4 | | $ | 19,775 |
| | 1.16% | | 0.92% | | 1.5 |
> 3 to ≤ 5 years | | 7,975 |
| | 1.78% | | 1.31% | | 4.1 | | 7,450 |
| | 1.62% | | 0.91% | | 4.0 |
> 5 to ≤ 7 years | | 3,500 |
| | 1.92% | | 1.31% | | 5.7 | | 4,725 |
| | 1.89% | | 0.91% | | 5.9 |
> 7 to ≤ 10 years | | 7,225 |
| | 2.08% | | 1.31% | | 8.8 | | 3,325 |
| | 1.90% | | 0.91% | | 9.2 |
> 10 years | | 3,475 |
| | 2.47% | | 1.31% | | 13.1 | | 1,900 |
| | 2.64% | | 0.91% | | 13.8 |
Total | | $ | 42,150 |
| | 1.66% | | 1.31% | | 4.5 | | $ | 37,175 |
| | 1.48% | | 0.92% | | 3.9 |
________________________
| |
1. | As of September 30, 2017 and December 31, 2016, notional amount includes forward starting swaps of $3.4 billion and $0.6 billion, respectively, with an average forward start date of 0.4 and 1.2 years, respectively, and an average maturity of 7.1 and 10.7 years, respectively. |
| |
2. | Average fixed pay rate includes forward starting swaps. Excluding forward starting swaps, the average fixed pay rate was 1.61% and 1.46% as of September 30, 2017 and December 31, 2016, respectively. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Receive Fixed / Pay Variable Interest Rate Swaps | | March 31, 2024 | | December 31, 2023 |
Years to Maturity | | Notional Amount | | Average Variable Pay Rate 1 | | Average Fixed Receive Rate | | Average Maturity (Years) | | Notional Amount | | Average Variable Pay Rate 1 | | Average Fixed Receive Rate | | Average Maturity (Years) |
| | | | | | | | | | | | | | | | |
> 1 to ≤ 3 years | | $ | (1,000) | | | 5.34% | | 4.65% | | 1.3 | | (1,000) | | | 5.38% | | 4.65% | | 1.5 |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Total | | $ | (1,000) | | | 5.34% | | 4.65% | | 1.3 | | $ | (1,000) | | | 5.38% | | 4.65% | | 1.5 |
1.Pay index references SOFR.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Payer Swaptions | | Option | | Underlying Payer Swap |
Current Option Expiration Date | | Cost Basis | | Fair Value | | Average Months to Current Option Expiration Date | | Notional Amount | | Average Fixed Pay Rate 1 | | Average Term (Years) |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
December 31, 2023 | | | | | | | | | | | | |
≤ 1 year | | $ | 28 | | | $ | 86 | | | 5 | | $ | 1,250 | | | 2.61% | | 10.0 |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Total | | $ | 28 | | | $ | 86 | | | 5 | | $ | 1,250 | | | 2.61% | | 10.0 |
1.Receive index references SOFR.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Receiver Swaptions | | Option | | Underlying Receiver Swap |
Current Option Expiration Date | | Cost Basis | | Fair Value | | Average Months to Current Option Expiration Date | | Notional Amount | | Average Fixed Receive Rate | | Average Term (Years) |
March 31, 2024 | | | | | | | | | | | | |
≤ 1 year | | $ | 3 | | | $ | 2 | | | 21 | | $ | 150 | | | 2.98% | | 5.0 |
| | | | | | | | | | | | |
December 31, 2023 | | | | | | | | | | | | |
≤ 1 year | | $ | 3 | | | $ | 3 | | | 24 | | $ | 150 | | | 2.98% | | 5.0 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. Treasury Securities 1 | | March 31, 2024 | | December 31, 2023 |
Years to Maturity | | Face Amount Long/(Short) | | Cost Basis | | Fair Value | | Face Amount Long/(Short) | | Cost Basis | | Fair Value |
≤ 5 years | | $ | 586 | | | $ | 594 | | | $ | 605 | | | $ | 1,408 | | | $ | 1,419 | | | $ | 1,454 | |
> 5 year ≤ 7 years | | (563) | | | (566) | | | (438) | | | (818) | | | (821) | | | (703) | |
> 7 year ≤ 10 years | | (9,230) | | | (8,884) | | | (8,592) | | | (8,649) | | | (8,277) | | | (8,187) | |
> 10 years | | (1,785) | | | (1,832) | | | (1,854) | | | (1,796) | | | (1,796) | | | (1,918) | |
Total U.S. Treasury securities | | $ | (10,992) | | | $ | (10,688) | | | $ | (10,279) | | | $ | (9,855) | | | $ | (9,475) | | | $ | (9,354) | |
1.As of March 31, 2024 and December 31, 2023, short U.S. Treasury securities totaling $(12.1) billion and $(10.9) billion, at fair value, respectively, had a weighted average yield of 3.69% and 3.64%, respectively. As of March 31, 2024 and December 31, 2023, long U.S. Treasury securities totaling $1.8 billion and $1.5 billion, at fair value, respectively, had a weighted average yield of 4.37% and 4.39%, respectively.
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| | | | | | | | | | | | | | | | | | | | |
Payer Swaptions | | Option | | Underlying Payer Swap |
Years to Expiration | | Cost | | Fair Value | | Average Months to Expiration | | Notional Amount | | Average Fixed Pay Rate | | Average Receive Rate (LIBOR) | | Average Term (Years) |
September 30, 2017 | | | | | | | | | | | | | | |
≤ 1 year | | $ | 105 |
| | $ | 34 |
| | 5 | | $ | 3,850 |
| | 2.80% | | 3M | | 9.3 |
> 1 year ≤ 2 years | | 13 |
| | 10 |
| | 21 | | 450 |
| | 2.72% | | 3M | | 10.0 |
> 2 year ≤ 3 years | | 23 |
| | 20 |
| | 32 | | 650 |
| | 2.80% | | 3M | | 10.0 |
Total | | $ | 141 |
| | $ | 64 |
| | 10 | | $ | 4,950 |
| | 2.79% | | 3M | | 9.4 |
December 31, 2016 | | | | | | | | | | | | | | |
Total ≤ 1 year | | $ | 52 |
| | $ | 22 |
| | 6 | | $ | 1,200 |
| | 3.06% | | 3M | | 8.3 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. Treasury Futures | | March 31, 2024 | | December 31, 2023 |
Years to Maturity | | Notional Amount Long (Short) | | Cost Basis | | Fair Value | | Net Carrying Value 1 | | Notional Amount Long (Short) | | Cost Basis | | Fair Value | | Net Carrying Value 1 |
| | | | | | | | | | | | | | | | |
> 5 year ≤ 7 years | | $ | (905) | | | $ | (997) | | | $ | (1,003) | | | $ | (6) | | | $ | (2,714) | | | $ | (2,961) | | | $ | (3,064) | | | $ | (103) | |
> 7 year ≤ 10 years | | (1,343) | | | (1,528) | | | (1,539) | | | (11) | | | (2,924) | | | (3,294) | | | (3,451) | | | (157) | |
> 10 years | | (791) | | | (936) | | | (953) | | | (17) | | | (791) | | | (913) | | | (989) | | | (76) | |
Total U.S. Treasury futures | | $ | (3,039) | | | $ | (3,461) | | | $ | (3,495) | | | $ | (34) | | | $ | (6,429) | | | $ | (7,168) | | | $ | (7,504) | | | $ | (336) | |
1.Net carrying value represents the difference between the fair market value and the cost basis (or the forward price to be paid/(received) for the underlying U.S. Treasury security) of the U.S. Treasury futures contract as of period-end and is reported in derivative assets/(liabilities), at fair value in our consolidated balance sheets.
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| | | | | | | | | | | | | | | | | | | | | | | | |
U.S. Treasury Securities | | September 30, 2017 | | December 31, 2016 |
Maturity | | Face Amount Net Long / (Short) | | Cost Basis | | Net Fair Value | | Face Amount Net Long / (Short) | | Cost Basis | | Net Fair Value |
5 years | | $ | (230 | ) | | $ | (229 | ) | | $ | (228 | ) | | $ | (400 | ) | | $ | (404 | ) | | $ | (392 | ) |
7 years | | (5,344 | ) | | (5,320 | ) | | (5,302 | ) | | (3,056 | ) | | (3,041 | ) | | (2,930 | ) |
10 years | | (3,680 | ) | | (3,638 | ) | | (3,589 | ) | | (4,416 | ) | | (4,236 | ) | | (4,132 | ) |
Total U.S. Treasury securities, net | | $ | (9,254 | ) | | $ | (9,187 | ) | | $ | (9,119 | ) | | $ | (7,872 | ) | | $ | (7,681 | ) | | $ | (7,454 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2024 | | December 31, 2023 |
TBA Securities by Coupon | | Notional Amount Long (Short) | | Cost Basis | | Fair Value | | Net Carrying Value 1 | | Notional Amount Long (Short) | | Cost Basis | | Fair Value | | Net Carrying Value 1 |
15-Year TBA securities: | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
≥ 5.0% | | $ | 90 | | | $ | 89 | | | $ | 90 | | | $ | 1 | | | $ | 90 | | | $ | 89 | | | $ | 91 | | | $ | 2 | |
Total 15-Year TBA securities | | 90 | | | 89 | | | 90 | | | 1 | | | 90 | | | 89 | | | 91 | | | 2 | |
30-Year TBA securities: | | | | | | | | | | | | | | | | |
≤ 3.0% | | — | | | — | | | — | | | — | | | (29) | | | (24) | | | (25) | | | (1) | |
3.5% | | 105 | | | 93 | | | 94 | | | 1 | | | — | | | — | | | — | | | — | |
4.0% | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
4.5% | | 1,715 | | | 1,631 | | | 1,636 | | | 5 | | | 363 | | | 343 | | | 352 | | | 9 | |
5.0% | | 5,040 | | | 4,907 | | | 4,932 | | | 25 | | | 1,717 | | | 1,704 | | | 1,704 | | | — | |
5.5% | | 2,874 | | | 2,861 | | | 2,872 | | | 11 | | | 2,034 | | | 2,014 | | | 2,047 | | | 33 | |
6.0% | | (2,107) | | | (2,125) | | | (2,128) | | | (3) | | | 20 | | | 10 | | | 21 | | | 11 | |
≥ 6.5% | | 934 | | | 949 | | | 952 | | | 3 | | | 1,137 | | | 1,152 | | | 1,164 | | | 12 | |
Total 30-Year TBA securities, net | | 8,561 | | | 8,316 | | | 8,358 | | | 42 | | | 5,242 | | | 5,199 | | | 5,263 | | | 64 | |
Total TBA securities, net | | $ | 8,651 | | | $ | 8,405 | | | $ | 8,448 | | | $ | 43 | | | $ | 5,332 | | | $ | 5,288 | | | $ | 5,354 | | | $ | 66 | |
1.Net carrying value represents the difference between the fair market value and the cost basis (or the forward price to be paid/(received) for the underlying Agency security) of the TBA contract as of period-end and is reported in derivative assets/(liabilities), at fair value in our consolidated balance sheets.
As of March 31, 2024 and December 31, 2023, we had a two-year swap equivalent SOFR futures contract long notional position of $0.7 billion and $0.9 billion, respectively, with a net carrying value of $(16) million and $(10) million, respectively. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. Treasury Futures | | September 30, 2017 | | December 31, 2016 |
Maturity | | Notional Amount - Long (Short) 1 | | Cost Basis 2 | | Market Value 3 | | Net Carrying Value 4 | | Notional Amount - Long (Short) 1 | | Cost Basis 2 | | Market Value 3 | | Net Carrying Value 4 |
5 years | | $ | (730 | ) | | $ | (863 | ) | | $ | (858 | ) | | $ | 5 |
| | $ | (730 | ) | | $ | (862 | ) | | $ | (859 | ) | | $ | 3 |
|
10 years | | (2,180 | ) | | (2,755 | ) | | (2,731 | ) | | 24 |
| | (1,080 | ) | | (1,347 | ) | | (1,342 | ) | | 5 |
|
Total U.S. Treasury futures | | $ | (2,910 | ) | | $ | (3,618 | ) | | $ | (3,589 | ) | | $ | 29 |
| | $ | (1,810 | ) | | $ | (2,209 | ) | | $ | (2,201 | ) | | $ | 8 |
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_____________________
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1. | Notional amount represents the par value (or principal balance) of the underlying U.S. Treasury security. |
| |
2. | Cost basis represents the forward price to be paid/(received) for the underlying U.S. Treasury security. |
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3. | Market value represents the current market value of the U.S. Treasury futures as of period-end. |
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4. | Net carrying value represents the difference between the fair value and the cost basis of the U.S. Treasury futures as of period-end and is reported in derivative assets/(liabilities), at fair value in our consolidated balance sheets. |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
TBA Securities by Coupon | | Notional Amount - Long (Short) 1 | | Cost Basis 2 | | Market Value 3 | | Net Carrying Value 4 | | Notional Amount - Long (Short) 1 | | Cost Basis 2 | | Market Value 3 | | Net Carrying Value 4 |
15-Year TBA securities: | | | | | | | | | | | | | | | | |
2.5% | | $ | 1,508 |
| | $ | 1,520 |
| | $ | 1,515 |
| | $ | (5 | ) | | $ | 1,853 |
| | $ | 1,870 |
| | $ | 1,856 |
| | $ | (14 | ) |
3.0% | | 2,930 |
| | 3,016 |
| | 3,010 |
| | (6 | ) | | 292 |
| | 302 |
| | 300 |
| | (2 | ) |
3.5% | | 20 |
| | 20 |
| | 21 |
| | 1 |
| | 15 |
| | 16 |
| | 16 |
| | — |
|
Total 15-Year TBA securities | | 4,458 |
| | 4,556 |
| | 4,546 |
| | (10 | ) | | 2,160 |
| | 2,188 |
| | 2,172 |
| | (16 | ) |
30-Year TBA securities: | | | | | | | | | | | | | | | | |
3.0% | | 4,317 |
| | 4,359 |
| | 4,329 |
| | (30 | ) | | 3,027 |
| | 3,114 |
| | 3,007 |
| | (107 | ) |
3.5% | | 4,511 |
| | 4,630 |
| | 4,646 |
| | 16 |
| | 1,209 |
| | 1,251 |
| | 1,236 |
| | (15 | ) |
4.0% | | 5,362 |
| | 5,641 |
| | 5,642 |
| | 1 |
| | 4,530 |
| | 4,769 |
| | 4,760 |
| | (9 | ) |
4.5% | | 230 |
| | 247 |
| | 246 |
| | (1 | ) | | (10 | ) | | (10 | ) | | (10 | ) | | — |
|
Total 30-Year TBA securities, net | | 14,420 |
| | 14,877 |
| | 14,863 |
| | (14 | ) | | 8,756 |
| | 9,124 |
| | 8,993 |
| | (131 | ) |
Total TBA securities, net | | $ | 18,878 |
| | $ | 19,433 |
| | $ | 19,409 |
| | $ | (24 | ) | | $ | 10,916 |
| | $ | 11,312 |
| | $ | 11,165 |
| | $ | (147 | ) |
| | | | | | | | | | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
TBA Securities by Issuer | | Notional Amount - Long (Short) 1 | | Cost Basis 2 | | Market Value 3 | | Net Carrying Value 4 | | Notional Amount - Long (Short) 1 | | Cost Basis 2 | | Market Value 3 | | Net Carrying Value 4 |
Fannie Mae | | $ | 17,170 |
| | $ | 17,684 |
| | $ | 17,661 |
| | $ | (23 | ) | | $ | 9,881 |
| | $ | 10,251 |
| | $ | 10,118 |
| | $ | (133 | ) |
Freddie Mac | | 1,708 |
| | 1,749 |
| | 1,748 |
| | (1 | ) | | 1,035 |
| | 1,060 |
| | 1,047 |
| | (13 | ) |
Ginnie Mae | | — |
| | — |
| | — |
| | — |
| | — |
| | 1 |
| | — |
| | (1 | ) |
Total TBA securities, net | | $ | 18,878 |
| | $ | 19,433 |
| | $ | 19,409 |
| | $ | (24 | ) | | $ | 10,916 |
| | $ | 11,312 |
| | $ | 11,165 |
| | $ | (147 | ) |
_____________________
| |
1. | Notional amount represents the par value (or principal balance) of the underlying Agency security. |
| |
2. | Cost basis represents the forward price to be paid/(received) for the underlying Agency security. |
| |
3. | Market value represents the current market value of the TBA contract (or of the underlying Agency security) as of period-end. |
| |
4. | Net carrying value represents the difference between the market value and the cost basis of the TBA contract as of period-end and is reported in derivative assets/(liabilities), at fair value in our consolidated balance sheets. |
As of March 31, 2024 and December 31, 2023, we had $95 million notional value of centrally cleared credit default swaps ("CDS") outstanding that reference the Markit CDX Investment Grade or High Yield Grade Index, maturing in December 2028. Under the terms of our CDS, we pay fixed periodic payments equal to 1% per annum of the notional value and we are entitled to receive payments for qualified credit events. As of March 31, 2024 and December 31, 2023, the CDS had a market value of $(7) million and $(6) million, respectively, and a net carrying value of zero dollars, net of variation margin settlements. Pursuant to rules governing central clearing activities, we recognize variation margin settlements as a direct reduction of the carrying value of the CDS asset or liability.
Gain (Loss) From Derivative Instruments and Other Securities, Net
The following table summarizes changes in our derivative and other hedge portfolio and their effect on our consolidated statements of comprehensive income for the three and nine months ended September 30, 2017March 31, 2024 and 20162023 (in millions):
|
| | | | | | | | | | | | | | | | | | | |
Derivative and Other Hedging Instruments | | Beginning Notional Amount | | Additions | | Settlement, Termination, Expiration or Exercise | | Ending Notional Amount | | | Gain/(Loss) on Derivative Instruments and Other Securities, Net 1 |
| | | | | | | | | | | |
Three months ended September 30, 2017: | | | | | | | | | | | |
TBA securities, net | | $ | 16,867 |
| | 92,803 |
| | (90,792 | ) | | $ | 18,878 |
| | | $ | 158 |
|
Interest rate swaps | | $ | 40,000 |
| | 3,550 |
| | (1,400 | ) | | $ | 42,150 |
| | | 15 |
|
Payer swaptions | | $ | 4,950 |
| | — |
| | — |
| | $ | 4,950 |
| | | (22 | ) |
U.S. Treasury securities - short position | | $ | (7,358 | ) | | (5,105 | ) | | 3,209 |
| | $ | (9,254 | ) | | | (19 | ) |
U.S. Treasury futures contracts - short position | | $ | (2,910 | ) | | (2,910 | ) | | 2,910 |
| | $ | (2,910 | ) | | | (1 | ) |
| | | | | | | | | | | $ | 131 |
|
| | | | | | | | | | | |
Three months ended September 30, 2016: | | | | | | | | | | | |
TBA securities, net | | $ | 6,756 |
| | 37,881 |
| | (29,756 | ) | | $ | 14,881 |
| | | $ | 67 |
|
Interest rate swaps | | $ | 35,125 |
| | 2,400 |
| | (3,375 | ) | | $ | 34,150 |
| | | 153 |
|
Payer swaptions | | $ | 1,050 |
| | — |
| | (350 | ) | | $ | 700 |
| | | (1 | ) |
U.S. Treasury securities - short position | | $ | (2,930 | ) | | (2,696 | ) | | 270 |
| | $ | (5,356 | ) | | | 14 |
|
U.S. Treasury securities - long position | | $ | 62 |
| | 90 |
| | (107 | ) | | $ | 45 |
| | | 1 |
|
U.S. Treasury futures contracts - short position | | $ | (1,960 | ) | | (1,960 | ) | | 1,960 |
| | $ | (1,960 | ) | | | 15 |
|
| | | | | | | | | | | $ | 249 |
|
| | | | | | | | | | | |
Nine months ended September 30, 2017: | | | | | | | | | | | |
TBA securities, net | | $ | 10,916 |
| | 185,205 |
| | (177,243 | ) | | $ | 18,878 |
| | | $ | 360 |
|
Interest rate swaps | | $ | 37,175 |
| | 10,575 |
| | (5,600 | ) | | $ | 42,150 |
| | | (157 | ) |
Payer swaptions | | $ | 1,200 |
| | 3,750 |
| | — |
| | $ | 4,950 |
| | | (46 | ) |
U.S. Treasury securities - short position | | $ | (8,061 | ) | | (11,595 | ) | | 10,402 |
| | $ | (9,254 | ) | | | (207 | ) |
U.S. Treasury securities - long position | | $ | 189 |
| | 304 |
| | (493 | ) | | $ | — |
| | | 1 |
|
U.S. Treasury futures contracts - short position | | $ | (1,810 | ) | | (8,430 | ) | | 7,330 |
| | $ | (2,910 | ) | | | (29 | ) |
| | | | | | | | | | | $ | (78 | ) |
| | | | | | | | | | | |
Nine months ended September 30, 2016: | | | | | | | | | | | |
TBA securities, net | | $ | 7,295 |
| | 75,906 |
| | (68,320 | ) | | $ | 14,881 |
| | | $ | 391 |
|
Interest rate swaps | | $ | 40,525 |
| | 5,950 |
| | (12,325 | ) | | $ | 34,150 |
| | | (1,208 | ) |
Payer swaptions | | $ | 2,150 |
| | — |
| | (1,450 | ) | | $ | 700 |
| | | (12 | ) |
U.S. Treasury securities - short position | | $ | (1,714 | ) | | (5,329 | ) | | 1,687 |
| | $ | (5,356 | ) | | | (142 | ) |
U.S. Treasury securities - long position | | $ | 25 |
| | 495 |
| | (475 | ) | | $ | 45 |
| | | 7 |
|
U.S. Treasury futures contracts - short position | | $ | (1,860 | ) | | (5,880 | ) | | 5,780 |
| | $ | (1,960 | ) | | | (106 | ) |
| | | | | | | | | | | $ | (1,070 | ) |
17
______________________ | |
1. | Amounts above exclude other miscellaneous gains and losses recognized in gain (loss) on derivative instruments and other securities, net in our consolidated statements of comprehensive income. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivative and Other Hedging Instruments | | Beginning Notional Amount | | Additions | | Settlement, Termination, Expiration or Exercise | | Ending Notional Amount | | | Gain/(Loss) on Derivative Instruments and Other Securities, Net 1 |
Three months ended March 31, 2024: | | | | | | | | | | | |
TBA securities, net | | $ | 5,332 | | | 25,390 | | | (22,071) | | | $ | 8,651 | | | | $ | (58) | |
| | | | | | | | | | | |
Interest rate swaps - payer | | $ | 44,476 | | | 5,170 | | | (5,250) | | | $ | 44,396 | | | | 658 | |
Interest rate swaps - receiver | | $ | (1,000) | | | — | | | — | | | $ | (1,000) | | | | (9) | |
Credit default swaps - buy protection | | $ | (96) | | | — | | | — | | | $ | (96) | | | | (3) | |
Payer swaptions | | $ | 1,250 | | | — | | | (1,250) | | | $ | — | | | | 33 | |
Receiver swaptions | | $ | (150) | | | — | | | — | | | $ | (150) | | | | — | |
U.S. Treasury securities - short position | | $ | (11,347) | | | (3,101) | | | 1,641 | | | $ | (12,807) | | | | 338 | |
U.S. Treasury securities - long position | | $ | 1,492 | | | 1,669 | | | (1,346) | | | $ | 1,815 | | | | (43) | |
U.S. Treasury futures contracts - short position | | $ | (6,429) | | | (3,384) | | | 6,774 | | | $ | (3,039) | | | | 186 | |
| | | | | | | | | | | $ | 1,102 | |
| | | | | | | | | | | |
Three months ended March 31, 2023: | | | | | | | | | | | |
TBA securities, net | | $ | 19,050 | | | 60,147 | | | (68,801) | | | $ | 10,396 | | | | $ | 112 | |
| | | | | | | | | | | |
Interest rate swaps - payer | | $ | 47,825 | | | 3,000 | | | (1,900) | | | $ | 48,925 | | | | (232) | |
| | | | | | | | | | | |
Credit default swaps - buy protection | | $ | (215) | | | (710) | | | 500 | | | $ | (425) | | | | (3) | |
Payer swaptions | | $ | 3,050 | | | — | | | (1,450) | | | $ | 1,600 | | | | (66) | |
| | | | | | | | | | | |
U.S. Treasury securities - short position | | $ | (7,373) | | | (2,949) | | | 936 | | | $ | (9,386) | | | | (157) | |
U.S. Treasury securities - long position | | $ | 357 | | | 7,446 | | | (1,243) | | | $ | 6,560 | | | | 75 | |
U.S. Treasury futures contracts - short position | | $ | (9,213) | | | (7,215) | | | 10,528 | | | $ | (5,900) | | | | (235) | |
| | | | | | | | | | | $ | (506) | |
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1.Amounts exclude other miscellaneous gains and losses and other interest income (expense) recognized in gain (loss) on derivative instruments and other securities, net in our consolidated statements of comprehensive income.
Additionally, as of March 31, 2024 and December 31, 2023, we had SOFR futures contracts, measured on a two-year swap equivalent basis, of $0.7 billion and $0.9 billion, respectively. For the three months ended March 31, 2024 and 2023, we recognized a loss of $(10) million and $(3) million, respectively, on our SOFR futures contracts in gain (loss) on derivative instruments and other securities, net in our consolidated statements of comprehensive income.
Note 7.6. Pledged Assets
Our funding agreements require us to fully collateralize our obligations under the agreements based upon our counterparties' collateral requirements and their determination of the fair value of the securities pledged as collateral, which fluctuates with changes in interest rates, credit quality and liquidity conditions within the investment banking, mortgage finance and real estate
industries. Our derivative contracts similarly require us to fully collateralize our obligations under such agreements, which will vary over time based on similar factors as well as our counterparties' determination of the value of the derivative contract. We are typically required to post initial margin upon execution of derivative transactions, such as under our interest rate swap agreements and TBA contracts, and subsequently post or receive variation margin based on daily fluctuations in fair value. Our prime brokerage agreements, pursuant to which we receiveand custody and settlement services,agreements and the clearing organizations utilized by our wholly-owned captive broker-dealer subsidiary, Bethesda Securities, LLC, also require that we post minimum daily clearing deposits. If we breach our collateral requirements, we will be required to fully settle our obligations under the agreements, which could include a forced liquidation of our pledged collateral.
Our counterparties also apply a "haircut" to our pledged collateral, which means our collateral is valued at slightly less than market value and limits the amount we can borrow against our securities. This haircut reflects the underlying risk of the specific collateral and protects our counterparty against a change in its value. Our agreements do not specify the haircut; rather, haircuts are determined on an individual transaction basis. Consequently, our funding agreements and derivative contracts expose us to credit risk relating to potential losses that could be recognized in the event thatif our counterparties fail to perform their obligations under such agreements. We minimize this risk by limiting our counterparties to major financial institutions with acceptable credit ratings or to registered clearinghouses and U.S. government agencies, and we monitor our positions with individual counterparties. In the event of a default by a counterparty, we may have difficulty obtaining our assets pledged as collateral to
such counterparty and may not receive payments provided foras and when due to us under the terms of our derivative agreements. In the case of centrally cleared instruments, we could be exposed to credit risk if the central clearing agency or a clearing member defaults on its respective obligation to perform under the contract. However, we believe that the risk is minimal due to the clearing exchanges' initial and daily mark to marketmark-to-market margin requirements, and clearinghouse guarantee funds and other resources that are available in the event of a clearing member default.
Our International Swaps and Derivatives Association ("ISDA") Master Agreements contain a cross default provision under which a default under certain of our other indebtedness in excess of certain thresholds causes an event of default under the ISDA Master Agreement. Threshold amounts vary by lender. Following an event of default, we could be required to settle our obligations under the agreements. Additionally, under certain of our ISDA Master Agreements, we could be required to settle our obligations under the agreements if we fail to maintain certain minimum stockholders' equity thresholds or our REIT status or if we fail to comply with limits on our leverage up to certain specified levels. As of September 30, 2017, the fair value of additional collateral that could be required to be posted as a result of the credit-risk-related contingent features being triggered was not material to our financial statements.
As of September 30, 2017, our amount at risk with any counterparty related to our repurchase agreements was less than 5% of our stockholders' equity. As of DecemberMarch 31, 2016,2024, our maximum amount at risk with any counterparty related to our repurchase agreements, excluding the Fixed Income Clearing Corporation, was 5.5%,less than 3% of our tangible stockholders' equity and(or the excess/shortfall of the value of collateral pledged/received over our maximum amountrepurchase agreement liabilities/reverse repurchase agreement receivables). As of March 31, 2024, 5% of our tangible stockholder's equity was at risk with any counterparty related to our interest rate swap and swaption agreements, excluding centrally cleared swaps, was less than 1% of our stockholders' equity. The following table summarizes certain characteristics of our repurchase agreements outstanding with counterparties representing amounts at risk greater than or equal to 5% of our stockholders' equity as of December 31, 2016 (dollars in millions).
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| | | | | | | | | | | | | | |
| | December 31, 2016 |
| | Amount Outstanding | | Net Counterparty Exposure 1 | | Percent of Stockholders' Equity | | Weighted Average Months to Maturity |
J.P. Morgan Securities, LLC | | $ | 4,875 |
| | $ | 405 |
| | 5.5 | % | | 34 |
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______________________
| |
1. | Represents the net carrying value of securities pledged under repurchase agreements, including accrued interest plus any cash or assets on deposit to secure the repurchase obligation, less the amount of the repurchase liability, including accrued interest. |
the Fixed Income Clearing Corporation.
Assets Pledged to Counterparties
The following tables summarize our assets pledged as collateral under our funding, derivative and prime brokerbrokerage and clearing agreements by type, including securities pledged related to securities sold but not yet settled, as of September 30, 2017March 31, 2024 and December 31, 20162023 (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2024 |
Assets Pledged to Counterparties 1 | | Repurchase Agreements 2 | | Debt of Consolidated VIEs | | Derivative Agreements and Other | | Total |
Agency RMBS - fair value | | $ | 48,428 | | | $ | 114 | | | $ | 72 | | | $ | 48,614 | |
CRT - fair value | | 722 | | | — | | | — | | | 722 | |
Non-Agency - fair value | | 250 | | | — | | | — | | | 250 | |
U.S. Treasury securities - fair value | | 1,825 | | | — | | | — | | | 1,825 | |
Accrued interest on pledged securities | | 230 | | | — | | | — | | | 230 | |
Restricted cash | | 293 | | | — | | | 1,075 | | | 1,368 | |
Total | | $ | 51,748 | | | $ | 114 | | | $ | 1,147 | | | $ | 53,009 | |
| | | | September 30, 2017 |
Assets Pledged to Counterparties | | Repurchase Agreements 1 | | Debt of Consolidated VIEs | | Derivative Agreements | | Prime Broker Agreements 2 | | Total |
| | December 31, 2023 | | | | December 31, 2023 |
Assets Pledged to Counterparties 1 | | Assets Pledged to Counterparties 1 | | Repurchase Agreements 2 | | Debt of Consolidated VIEs | | Derivative Agreements and Other | | Total |
Agency RMBS - fair value | | $ | 47,462 |
| | $ | 700 |
| | $ | 256 |
| | $ | 618 |
| | $ | 49,036 |
|
U.S. Treasury securities - fair value 3 | | 102 |
| | — |
| | 71 |
| | — |
| | 173 |
|
CRT - fair value | |
Non-Agency - fair value | |
U.S. Treasury securities - fair value | |
Accrued interest on pledged securities | | 136 |
| | 2 |
| | 1 |
| | 2 |
| | 141 |
|
Restricted cash and cash equivalents | | 41 |
| | — |
| | 247 |
| | 6 |
| | 294 |
|
Restricted cash | |
Total | | $ | 47,741 |
| | $ | 702 |
| | $ | 575 |
| | $ | 626 |
| | $ | 49,644 |
|
1.Includes repledged assets received as collateral from counterparties and securities sold but not yet settled.
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| | December 31, 2016 |
Assets Pledged to Counterparties | | Repurchase Agreements and FHLB Advances 1 | | Debt of Consolidated VIEs | | Derivative Agreements | | Prime Broker Agreements 2 | | Total |
Agency RMBS - fair value | | $ | 43,005 |
| | $ | 818 |
| | $ | 275 |
| | $ | 865 |
| | $ | 44,963 |
|
Non-Agency RMBS - fair value | | 90 |
| | — |
| | — |
| | — |
| | 90 |
|
U.S. Treasury securities - fair value | | 173 |
| | — |
| | — |
| | — |
| | 173 |
|
Accrued interest on pledged securities | | 122 |
| | 3 |
| | 1 |
| | 2 |
| | 128 |
|
Restricted cash and cash equivalents | | 60 |
| | — |
| | 14 | | — |
| | 74 |
|
Total | | $ | 43,450 |
| | $ | 821 |
| | $ | 290 |
| | $ | 867 |
| | $ | 45,428 |
|
______________________
| |
1. | Includes $190 million and $1812.Includes $39 million and $42 million of retained interests in our consolidated VIEs pledged as collateral under repurchase agreements as of September 30, 2017 and December 31, 2016, respectively. |
| |
2. | Includes margin for TBAs cleared through prime broker and other clearing deposits. |
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3. | Includes securities received as collateral from counterparties that were repledged as collateral to counterparties. |
As of December 31, 2016, we held $126 million of membership and activity-based stock in the FHLB of Des Moines, which was redeemed in February 2017 with the termination of our captive insurance subsidiary's FHLB membership such that we held no such stock as of September 30, 2017. FHLB stock is reported at cost, which equals par value, in other assets on our accompanying consolidated balance sheets.
The cash and cash equivalents and Agency securities pledged as collateral under our derivativerepurchase agreements are included in restricted cashas of March 31, 2024 and cash equivalents and Agency securities, at fair value, respectively, on our consolidated balance sheets.December 31, 2023, respectively.
The following table summarizes our securities pledged as collateral under our repurchase agreements and FHLB advances by the remaining maturity of our borrowings, including securities pledged related to sold but not yet settled securities, as of September 30, 2017March 31, 2024 and December 31, 20162023 (in millions). For the corresponding borrowings associated with the following amounts and the interest rates thereon, refer to Note 54.
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| | March 31, 2024 | | December 31, 2023 |
Securities Pledged by Remaining Maturity of Repurchase Agreements 1,2 | | Fair Value of Pledged Securities | | Amortized Cost of Pledged Securities | | Accrued Interest on Pledged Securities | | Fair Value of Pledged Securities | | Amortized Cost of Pledged Securities | | Accrued Interest on Pledged Securities |
≤ 1 month | | $ | 40,685 | | | $ | 42,234 | | | $ | 191 | | | $ | 43,701 | | | $ | 44,918 | | | $ | 188 | |
> 1 and ≤ 2 months | | 4,644 | | | 4,954 | | | 18 | | | 2,847 | | | 3,069 | | | 10 | |
> 2 and ≤ 3 months | | 5,076 | | | 5,561 | | | 18 | | | 5,524 | | | 5,947 | | | 19 | |
> 3 months | | 820 | | | 894 | | | 3 | | | — | | | — | | | — | |
Total | | $ | 51,225 | | | $ | 53,643 | | | $ | 230 | | | $ | 52,072 | | | $ | 53,934 | | | $ | 217 | |
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| | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
Securities Pledged by Remaining Maturity of Repurchase Agreements and FHLB Advances | | Fair Value of Pledged Securities | | Amortized Cost of Pledged Securities | | Accrued Interest on Pledged Securities | | Fair Value of Pledged Securities | | Amortized Cost of Pledged Securities | | Accrued Interest on Pledged Securities |
RMBS:1,2 | | | | | | | | | | | | |
≤ 30 days | | $ | 22,638 |
| | $ | 22,674 |
| | $ | 65 |
| | $ | 19,681 |
| | $ | 19,863 |
| | $ | 56 |
|
> 30 and ≤ 60 days | | 6,013 |
| | 6,040 |
| | 17 |
| | 8,103 |
| | 8,158 |
| | 23 |
|
> 60 and ≤ 90 days | | 7,038 |
| | 7,047 |
| | 20 |
| | 4,034 |
| | 4,070 |
| | 11 |
|
> 90 days | | 11,773 |
| | 11,816 |
| | 34 |
| | 11,278 |
| | 11,380 |
| | 32 |
|
Total RMBS | | 47,462 |
| | 47,577 |
| | 136 |
| | 43,096 |
| | 43,471 |
| | 122 |
|
U.S. Treasury securities: | | | | | | | | | | | | |
> 1 day ≤ 30 days | | — |
| | — |
| | — |
| | 173 |
| | 173 |
| | — |
|
Total | | $ | 47,462 |
| | $ | 47,577 |
| | $ | 136 |
| | $ | 43,269 |
| | $ | 43,644 |
| | $ | 122 |
|
______________________ | |
1. | Includes $190 million and $1811.Includes $39 million and $42 million of retained interests in our consolidated VIEs pledged as collateral under repurchase agreements as of September 30, 2017 and December 31, 2016, respectively. |
| |
2. | September 30, 2017 amounts exclude $102 million of U.S. Treasury securities received as collateral from counterparties that were repledged as collateral to counterparties under repurchase agreements. |
The table above excludes Agency securities transferred to our consolidated VIEs. Securities transferred to our consolidated VIEs can only be used to settle the obligations of each respective VIE. However, we may pledge our retained interests in our consolidated VIEs pledged as collateral under our repurchase agreements as of March 31, 2024 and derivative contracts. Please refer to Notes 4 and 5 for additional information regarding our consolidated VIEs.December 31, 2023, respectively.
2.Excludes $397 million of repledged U.S. Treasury securities received as collateral from counterparties as of December 31, 2023.
Assets Pledged from Counterparties
As of September 30, 2017March 31, 2024 and December 31, 2016,2023, we had assets pledged to us from counterparties as collateral under our reverse repurchase repurchase and derivative agreements summarized in the tables below (in millions).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2024 | | December 31, 2023 |
Assets Pledged to AGNC | | Reverse Repurchase Agreements | | Derivative Agreements | | Repurchase Agreements | | Total | | Reverse Repurchase Agreements | | Derivative Agreements | | Repurchase Agreements | | Total |
Agency securities - fair value | | $ | — | | | $ | — | | | $ | 68 | | | $ | 68 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
U.S. Treasury securities - fair value | | 12,352 | | | — | | | 20 | | | 12,372 | | | 11,667 | | | — | | | 306 | | | 11,973 | |
Cash | | — | | | 2 | | | 5 | | | 7 | | | — | | | 89 | | | 49 | | | 138 | |
Total | | $ | 12,352 | | | $ | 2 | | | $ | 93 | | | $ | 12,447 | | | $ | 11,667 | | | $ | 89 | | | $ | 355 | | | $ | 12,111 | |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
Assets Pledged to AGNC | | Reverse Repurchase Agreements 1 | | Derivative Agreements | | Repurchase Agreements | | Total | | Reverse Repurchase Agreements | | Derivative Agreements | | Repurchase Agreements | | Total |
Agency RMBS - fair value | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 14 |
| | $ | 14 |
|
U.S. Treasury securities - fair value | | 9,128 |
| | — |
| | — |
| | 9,128 |
| | 7,636 |
| | — |
| | — |
| | 7,636 |
|
Cash | | — |
| | 39 |
| | — |
| | 39 |
| | — |
| | 107 |
| | — |
| | 107 |
|
Total | | $ | 9,128 |
| | $ | 39 |
| | $ | — |
| | $ | 9,167 |
| | $ | 7,636 |
| | $ | 107 |
| | $ | 14 |
| | $ | 7,757 |
|
U.S Treasury securities received as collateral under our reverse repurchase agreements that we use to cover short sales of U.S. Treasury securities are accounted for as securities borrowing transactions. We recognize a corresponding obligation to return the borrowed securities at fair value on the accompanying consolidated balance sheets based on the value of the underlying borrowed securities as of the reporting date.
Cash collateral received is recognized in cash and cash equivalents with a corresponding amount recognized in accounts payable and other accrued liabilities on the accompanying consolidated balance sheets.
Offsetting Assets and Liabilities
Certain of our repurchase agreements and derivative transactions are governed by underlying agreements that generally provide for a right of setoff under master netting arrangements (or similar agreements), including in the event of default or in the event of bankruptcy of either party to the transactions. We present our assets and liabilities subject to such arrangements on a gross basis in our consolidated balance sheets. The following tables present information about our assets and liabilities that are subject to master netting arrangements and can potentially be offset on our consolidated balance sheets as of September 30, 2017March 31, 2024 and December 31, 20162023 (in millions):
| | | Offsetting of Financial and Derivative Assets | | | | Offsetting of Financial and Derivative Assets |
| | | | | | | | | | | | | | | | Gross Amounts of Recognized Assets | | Gross Amounts Offset in the Consolidated Balance Sheets | | Net Amounts of Assets Presented in the Consolidated Balance Sheets | | Gross Amounts Not Offset in the Consolidated Balance Sheets | | Net Amount |
| | Offsetting of Financial and Derivative Assets |
| | Gross Amounts of Recognized Assets | | Gross Amounts Offset in the Consolidated Balance Sheets | | Net Amounts of Assets Presented in the Consolidated Balance Sheets | | Gross Amounts Not Offset in the Consolidated Balance Sheets | | Net Amount |
| | Financial Instruments | | Collateral Received 2 | |
September 30, 2017 | | | | | | | | | | | | |
| | | | | Financial Instruments | |
March 31, 2024 | |
March 31, 2024 | |
March 31, 2024 | |
Interest rate swap and swaption agreements, at fair value 1 | | $ | 131 |
| | $ | — |
| | $ | 131 |
| | $ | (11 | ) | | $ | (39 | ) | | $ | 81 |
|
TBA securities, at fair value | | 23 |
| | — |
| | 23 |
| | (23 | ) | | — |
| | — |
|
Interest rate swap and swaption agreements, at fair value 1 | |
Interest rate swap and swaption agreements, at fair value 1 | |
TBA securities, at fair value 1 | |
Receivable under reverse repurchase agreements | | 9,226 |
| | — |
| | 9,226 |
| | (8,403 | ) | | (823 | ) | | — |
|
Total | | $ | 9,380 |
| | $ | — |
| | $ | 9,380 |
| | $ | (8,437 | ) | | $ | (862 | ) | | $ | 81 |
|
| | | | | | | | | | | | |
December 31, 2016 | | | | | | | | | | | | |
December 31, 2023 | |
December 31, 2023 | |
December 31, 2023 | |
Interest rate swap and swaption agreements, at fair value 1 | | $ | 342 |
| | $ | — |
| | $ | 342 |
| | $ | (80 | ) | | $ | (49 | ) | | $ | 213 |
|
TBA securities, at fair value | | 4 |
| | — |
| | 4 |
| | (4 | ) | | — |
| | — |
|
Interest rate swap and swaption agreements, at fair value 1 | |
Interest rate swap and swaption agreements, at fair value 1 | |
TBA securities, at fair value 1 | |
Receivable under reverse repurchase agreements | | 7,716 |
| | — |
| | 7,716 |
| | (6,963 | ) | | (753 | ) | | — |
|
Total | | $ | 8,062 |
| | $ | — |
| | $ | 8,062 |
| | $ | (7,047 | ) | | $ | (802 | ) | | $ | 213 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Offsetting of Financial and Derivative Liabilities |
| | Gross Amounts of Recognized Liabilities | | Gross Amounts Offset in the Consolidated Balance Sheets | | Net Amounts of Liabilities Presented in the Consolidated Balance Sheets | | Gross Amounts Not Offset in the Consolidated Balance Sheets | | Net Amount |
| | | | | Financial Instruments | | Collateral Pledged 2 | |
March 31, 2024 | | | | | | | | | | | | |
| | | | | | | | | | | | |
TBA securities, at fair value 1 | | $ | 15 | | | $ | — | | | $ | 15 | | | $ | (15) | | | $ | — | | | $ | — | |
Repurchase agreements | | 49,971 | | | — | | | 49,971 | | | (8,722) | | | (41,249) | | | — | |
Total | | $ | 49,986 | | | $ | — | | | $ | 49,986 | | | $ | (8,737) | | | $ | (41,249) | | | $ | — | |
| | | | | | | | | | | | |
December 31, 2023 | | | | | | | | | | | | |
| | | | | | | | | | | | |
TBA securities, at fair value 1 | | $ | 15 | | | $ | — | | | $ | 15 | | | $ | (15) | | | $ | — | | | $ | — | |
Repurchase agreements | | 50,426 | | | — | | | 50,426 | | | (8,433) | | | (41,993) | | | — | |
Total | | $ | 50,441 | | | $ | — | | | $ | 50,441 | | | $ | (8,448) | | | $ | (41,993) | | | $ | — | |
1.Reported under derivative assets / liabilities, at fair value in the accompanying consolidated balance sheets. Refer to Note 5 for a reconciliation of derivative assets / liabilities, at fair value to their sub-components.
2.Includes cash and securities pledged / received as collateral, at fair value. Amounts include repledged collateral. Amounts presented are limited to collateral pledged sufficient to reduce the net amount to zero for individual counterparties, as applicable.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Offsetting of Financial and Derivative Liabilities |
| | Gross Amounts of Recognized Liabilities | | Gross Amounts Offset in the Consolidated Balance Sheets | | Net Amounts of Liabilities Presented in the Consolidated Balance Sheets | | Gross Amounts Not Offset in the Consolidated Balance Sheets | | Net Amount |
| | | | | Financial Instruments | | Collateral Pledged 2 | |
September 30, 2017 | | | | | | | | | | | | |
Interest rate swap agreements, at fair value 1 | | $ | 15 |
| | $ | — |
| | $ | 15 |
| | $ | (11 | ) | | $ | (4 | ) | | $ | — |
|
TBA securities, at fair value | | 47 |
| | — |
| | 47 |
| | (23 | ) | | (24 | ) | | — |
|
Repurchase agreements | | 45,505 |
| | — |
| | 45,505 |
| | (8,403 | ) | | (37,102 | ) | | — |
|
Total | | $ | 45,567 |
| | $ | — |
| | $ | 45,567 |
| | $ | (8,437 | ) | | $ | (37,130 | ) | | $ | — |
|
| | | | | | | | | | | | |
December 31, 2016 | | | | | | | | | | | | |
Interest rate swap agreements, at fair value 1 | | $ | 105 |
| | $ | — |
| | $ | 105 |
| | $ | (80 | ) | | $ | (25 | ) | | $ | — |
|
TBA securities, at fair value | | 151 |
| | — |
| | 151 |
| | (4 | ) | | (147 | ) | | — |
|
Repurchase agreements and FHLB advances | | 40,895 |
| | — |
| | 40,895 |
| | (6,963 | ) | | (33,932 | ) | | — |
|
Total | | $ | 41,151 |
| | $ | — |
| | $ | 41,151 |
| | $ | (7,047 | ) | | $ | (34,104 | ) | | $ | — |
|
_______________________
| |
1. | Reported under derivative assets / liabilities, at fair value in the accompanying consolidated balance sheets. Refer to Note 6 for a reconciliation of derivative assets / liabilities, at fair value to their sub-components. |
| |
2. | Includes cash and securities pledged / received as collateral, at fair value. Amounts presented are limited to collateral pledged sufficient to reduce the net amount to zero for individual counterparties, as applicable. |
Note 8.7. Fair Value Measurements
We determine the fair value of our investment securities and debt of consolidated VIEs based upon fair value estimates obtained from multiple third party pricing services and dealers. In determining fair value, third party pricing sources use various valuation approaches, including market and income approaches. Factors used by third party sources in estimating the fair value of an instrument may include observable inputs such as coupons, primary and secondary mortgage rates, pricing information, credit data, volatility statistics, and other market data that are current as of the measurement date. The availability of observable inputs can vary by instrument and is affected by a wide variety of factors, including the type of instrument, whether the instrument is new and not yet established in the marketplace and other characteristics particular to the instrument. Third party pricing sources may also use certain unobservable inputs, such as assumptions of future levels of prepayment, defaults and foreclosures, especially when estimating fair values for securities with lower levels of recent trading activity. We make inquiries of third party pricing sources to understand the significant inputs and assumptions they used to determine their prices. For information regarding valuation of our derivative instruments, please refer to the discussion of derivative and other hedging instruments in Note 3.
We review third party fair value estimates and perform procedures to validate their reasonableness, including an analysis of the range of estimates for each position, comparison to recent trade activity for similar securities, and for consistency with market conditions observed as of the measurement date. While we do not adjust prices we obtain from third party pricing sources, we will exclude third party prices for securities from our estimation of fair value if we determine (based on our validation procedures and our market knowledge and expertise) that the price is significantly different from what observable market data would indicate and we cannot obtain an understanding from the third party source as to the significant inputs used to determine the price.
The validation procedures described above also influence our determination of the appropriate fair value measurement classification. We utilize a three-level valuation hierarchy for disclosure of fair value measurement. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. A financial instrument's categorization within the hierarchy is based upon the lowest level of input that is significant to the fair value measurement. There were no transfers between valuation hierarchy levels during the three and nine months ended September 30, 2017. The three levels of valuation hierarchy are defined as follows:
Level 1 Inputs —Quoted prices (unadjusted) for identical unrestricted assets and liabilities in active markets that are accessible at the measurement date.
Level 2 Inputs —Quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3 Inputs —Instruments with primarily unobservable market data that cannot be corroborated.
The following table provides a summary of our assets and liabilities that are measured at fair value on a recurring basis, as of September 30, 2017March 31, 2024 and December 31, 20162023, based on their categorization within the valuation hierarchy (in millions):
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
| | Level 1 | | Level 2 | | Level 3 | | Level 1 | | Level 2 | | Level 3 |
Assets: | | | | | | | | | | | | |
Agency securities | | $ | — |
| | $ | 51,638 |
| | $ | — |
| | $ | — |
| | $ | 45,393 |
| | $ | — |
|
Agency securities transferred to consolidated VIEs | | — |
| | 700 |
| | — |
| | — |
| | 818 |
| | — |
|
Credit risk transfer securities | | — |
| | 717 |
| | — |
| | — |
| | 164 |
| | — |
|
Non-Agency securities | | — |
| | 36 |
| | — |
| | — |
| | 124 |
| | — |
|
U.S. Treasury securities | | — |
| | — |
| | — |
| | 182 |
| | — |
| | — |
|
REIT equity securities | | 4 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Interest rate swaps | | — |
| | 67 |
| | — |
| | — |
| | 321 |
| | — |
|
Swaptions | | — |
| | 64 |
| | — |
| | — |
| | 22 |
| | — |
|
TBA securities | | — |
| | 23 |
| | — |
| | — |
| | 4 |
| | — |
|
U.S. Treasury futures | | 29 |
| | — |
| | — |
| | 8 |
| | — |
| | — |
|
Total | | $ | 33 |
| | $ | 53,245 |
| | $ | — |
| | $ | 190 |
| | $ | 46,846 |
| | $ | — |
|
Liabilities: | | | | | | | | | | | | |
Debt of consolidated VIEs | | $ | — |
| | $ | 380 |
| | $ | — |
| | $ | — |
| | $ | 460 |
| | $ | — |
|
Obligation to return U.S. Treasury securities borrowed under reverse repurchase agreements | | 9,119 |
| | — |
| | — |
| | 7,636 |
| | — |
| | — |
|
Interest rate swaps | | — |
| | 15 |
| | — |
| | — |
| | 105 |
| | — |
|
TBA securities | | — |
| | 47 |
| | — |
| | — |
| | 151 |
| | — |
|
Total | | $ | 9,119 |
|
| $ | 442 |
|
| $ | — |
| | $ | 7,636 |
| | $ | 716 |
| | $ | — |
|
We elected the option to account for debt of consolidated VIEs at fair value with changes in fair value reflected in earnings. There were no transfers between valuation hierarchy levels during the period in which they occur, because we believe this election more appropriately reflects our financial position as both the consolidated Agency securities and consolidated debt areperiods presented in a consistent manner, at fair value, on our accompanying consolidated balance sheets. We estimatestatements of comprehensive income.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2024 | | December 31, 2023 |
| | Level 1 | | Level 2 | | Level 3 | | Level 1 | | Level 2 | | Level 3 |
Assets: | | | | | | | | | | | | |
Agency securities | | $ | — | | | $ | 53,615 | | | $ | — | | | $ | — | | | $ | 53,673 | | | $ | — | |
Agency securities transferred to consolidated VIEs | | — | | | 114 | | | — | | | — | | | 121 | | | — | |
Credit risk transfer securities | | — | | | 753 | | | — | | | — | | | 723 | | | — | |
Non-Agency securities | | — | | | 294 | | | — | | | — | | | 307 | | | — | |
U.S. Treasury securities | | 1,836 | | | — | | | — | | | 1,540 | | | — | | | — | |
Interest rate swaps 1 | | — | | | 24 | | | — | | | — | | | 15 | | | — | |
Swaptions | | — | | | 2 | | | — | | | — | | | 89 | | | — | |
TBA securities | | — | | | 58 | | | — | | | — | | | 81 | | | — | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Total | | $ | 1,836 | | | $ | 54,860 | | | $ | — | | | $ | 1,540 | | | $ | 55,009 | | | $ | — | |
Liabilities: | | | | | | | | | | | | |
Debt of consolidated VIEs | | $ | — | | | $ | 76 | | | $ | — | | | $ | — | | | $ | 80 | | | $ | — | |
Obligation to return U.S. Treasury securities borrowed under reverse repurchase agreements | | 12,115 | | | — | | | — | | | 10,894 | | | — | | | — | |
Interest rate swaps 1 | | — | | | — | | | — | | | — | | | 1 | | | — | |
Credit default swaps 1 | | — | | | — | | | — | | | — | | | — | | | — | |
TBA securities | | — | | | 15 | | | — | | | — | | | 15 | | | — | |
U.S. Treasury futures | | 34 | | | — | | | — | | | 336 | | | — | | | — | |
SOFR Futures | | 16 | | | — | | | — | | | 10 | | | — | | | — | |
Total | | $ | 12,165 | | | $ | 91 | | | $ | — | | | $ | 11,240 | | | $ | 96 | | | $ | — | |
________________________________1.As of March 31, 2024 and December 31, 2023, the fair value of the consolidated debt based on the difference between the fair value of the RMBS transferred to consolidated VIEs and thenet fair value of our retained interests, eachinterest rate swaps excluding the recognition of which isvariation margin settlements as a direct reduction of carrying value was a net asset (liability) of $3.0 billion and $2.9 billion, respectively, based on valuations obtained from third-party pricing services and non-binding dealer quotes derived from common market pricing methods using "Level 2" inputs,inputs. As of March 31, 2024 and are more observable than using inputs to estimateDecember 31, 2023, the net fair value of our credit default swaps excluding the consolidated debtrecognition of variation margin settlements was $(7) million and $(6) million, respectively, based on a stand-alone basis."Level 2" inputs. See Notes 2 and 5 for additional details.
Excluded from the table above are financial instruments includingreported at cost and other mortgage credit investments reported under the equity method of accounting in our consolidated financial statements. As of March 31, 2024 and December 31, 2023, the fair value of our repurchase agreements approximated cost, as the rates on our outstanding repurchase agreements largely corresponded to prevailing rates observed in the repo market. The fair value of cash and cash equivalents, restricted cash, receivables and cash equivalents, receivables,other payables and borrowings under repurchase agreements and FHLB advances, which are presented in our consolidated financial statements at cost. The cost basis of these instruments iswere determined to approximate fair valuecost as of such dates due to their short duration or, in the case of longer-term repo, due to floating rates of interest based on an index plus or minus a fixed spread which is consistent with fixed spreads demanded in the market.duration. We estimate the fair value of these instruments carried at cost using "Level 1" or "Level 2" inputs. As of March 31, 2024 and December 31, 2023, the carrying value of other mortgage credit investments reported under the equity method of accounting was $59 million and $44 million, respectively.
Note 9.8. Net Income (Loss) Per Common Share
Basic net income (loss) per common share includes no dilution and is computed by dividing (i) net income or (loss) applicableavailable (attributable) to common stockstockholders by (ii) the sum of our weighted-average number of common shares outstanding forand the respective period. Diluted earnings per common share includes the impactweighted-average number of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares outstanding include unvestedvested but not yet issued time and performance-based restricted stock units and performance share units("RSUs") outstanding for the period granted under our long-term incentive program to employees and non-employee Board of Directors. Diluted net income (loss) per common share assumes the issuance of all potential common stock equivalents unless the effect is to reduce a loss or increase the income per common share. Our potential common stock equivalents consist of unvested time and performance-based RSUs. The following table presents the computations of basic and diluted net income (loss) per common share for the periods indicated (shares and dollars in millions):
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | | | Three Months Ended March 31, | |
| | | | Three Months Ended March 31, | |
| | | | Three Months Ended March 31, | |
| | | | | | 2024 | |
Weighted average number of common shares issued and outstanding | |
Weighted average number of common shares issued and outstanding | |
Weighted average number of common shares issued and outstanding | |
Weighted average number of fully vested restricted stock units outstanding | |
Weighted average number of fully vested restricted stock units outstanding | |
Weighted average number of fully vested restricted stock units outstanding | |
Weighted average number of common shares outstanding - basic | | 364.7 |
| | 331.0 |
| | 347.5 |
| | 332.1 |
|
Unvested restricted stock units and performance share units | | 0.2 |
| | — |
| | 0.1 |
| | — |
|
Weighted average number of common shares outstanding - basic | |
Weighted average number of common shares outstanding - basic | |
Weighted average number of dilutive unvested restricted stock units outstanding | |
Weighted average number of dilutive unvested restricted stock units outstanding | |
Weighted average number of dilutive unvested restricted stock units outstanding | |
Weighted average number of common shares outstanding - diluted | |
Weighted average number of common shares outstanding - diluted | |
Weighted average number of common shares outstanding - diluted | | 364.9 |
| | 331.0 | | 347.6 |
| | 332.1 |
Net income (loss) available (attributable) to common stockholders | | $ | 271 |
| | $ | 504 |
| | $ | 357 |
| | $ | (417 | ) |
Net income (loss) per common share - basic and diluted | | $ | 0.74 |
| | $ | 1.52 |
| | $ | 1.03 |
| | $ | (1.26 | ) |
Net income (loss) available (attributable) to common stockholders | |
Net income (loss) available (attributable) to common stockholders | |
Net income (loss) per common share - basic | |
Net income (loss) per common share - basic | |
Net income (loss) per common share - basic | |
Net income (loss) per common share - diluted | |
Net income (loss) per common share - diluted | |
Net income (loss) per common share - diluted | |
For the three months ended March 31, 2023 1.2 million of potentially dilutive unvested time and performance based RSUs outstanding were excluded from the computation of diluted net income (loss) per common share because to do so would have been anti-dilutive for the period.
Note 10.9. Stockholders' Equity
Preferred Stock
Pursuant to our amended and restated certificate of incorporation, weWe are authorized to designate and issue up to 10.0 million shares of preferred stock in one or more classes or series. As of September 30, 2017, 6.9 millionMarch 31, 2024 and December 31, 2023, 13,800, 10,350, 16,100, 23,000 and 6,900 shares were designated as 8.000% Series A Cumulative Redeemable Preferred Stock ("Series A Preferred Stock"), 8,050 shares were designated as 7.750% Series B Cumulative Redeemable Preferred Stock ("Series B Preferred Stock") and 13,800 sharesof preferred stock were designated as 7.00% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, ("6.875% Series C Preferred Stock"). The Series BD Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, is represented by6.50% Series B depositary shares of 1/1000 interest in a share ofE Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, 6.125% Series BF Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock and the7.75% Series CG Fixed-Rate Reset Cumulative Redeemable Preferred Stock, is represented by Seriesrespectively, (referred to as "Series C, depositary shares of 1/1000 interest in a share of Series CD, E, F and G Preferred Stock.Stock", respectively). As of March 31, 2024 and December 31, 2016, we had 6.9 million shares of Series A Preferred Stock2023, 13,000, 9,400, 16,100, 23,000 and 7,000 shares of Series B Preferred Stock (representing 7.0 million depositary shares) outstanding. In August 2017, we issued 13,0006,000 shares of Series C, D, E, F and G Preferred Stock, inrespectively, were issued and outstanding. Each share of preferred stock is represented by 1,000 depositary shares. Each share of preferred stock has a public offeringliquidation preference of 13.0 million Series C depositary shares at a price of $25$25,000 per share ($25 per depositary share for net proceeds of $315 million, after deducting underwriting discounts and estimated offering expenses. In September 2017, we redeemed all of our issued and outstanding shares of Series A Preferred Stock for $173 million (or $25 per share liquidation preference), plus accrued and unpaid dividends, and, in October of 2017, we filed a Certificate of Elimination of our Series A Preferred Stock with the Secretary of State of the State of Delaware, which eliminated the designation of Series A Preferred Stock from our amended and restated certificate of incorporation. As of September 30, 2017, we had 7,000 shares of Series B Preferred Stock (represented by 7.0 million Series B depositary shares) and 13,000 shares of Series C Preferred Stock (represented by 13.0 million Series C depositary shares) outstanding and 9,980,000 of authorized but unissued shares of preferred stock.
Prior to the September 2017 redemption, holders of Series A Preferred Stock were entitled to receive cumulative cash dividends at a rate of 8.000% per annum of their $25.00 per share liquidation preference. Holders of depository shares underlying our Series B Preferred Stock are entitled to receive cumulative cash dividends at a rate of 7.750% per annum of their $25.00 per depositary share liquidation preference. Holders of depositary shares underlying our Series C Preferred Stock are entitled to receive cumulative cash dividends at a rate of 7.00% per annum up to, and including, October 14, 2022 and thereafter at a floating rate equal to three-month LIBOR plus a spread of 5.111% per annum of their $25.00 per depositary share liquidation preference. Dividends are payable quarterly in arrears on the 15th day of each January, April, July and October. As of September 30, 2017, we had declared all required quarterly dividends on our preferred stock.share).
Our preferred stock ranks senior to our common stock with respect to the payment of dividends and the distribution of assets upon a voluntary or involuntary liquidation, dissolution or winding up of the Company. Our preferred stock has no stated maturity, is not subject to any sinking fund or mandatory redemption and each series of preferred stock ranks on parity with each other.one another. Under certain circumstances upon a change of control, our preferred stock is convertible to shares of our common stock. Holders of our preferred stock and depositorydepositary shares underlying our preferred stock have no voting rights, except under limited conditions. Beginning on May 8, 2019 and October 15, 2022, depositoryeach series' optional redemption date, we may redeem shares underlying our Series B and C Preferred Stock, respectively, will be redeemable at $25.00 per depositary share, plus accumulated and unpaid dividends (whether or not declared), exclusively at our option. We may redeem
The following table includes a summary of preferred stock depositary shares issued and outstanding as of March 31, 2024 (dollars and shares in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cumulative Redeemable Preferred Stock 1 | | Issue Date | | Depositary Shares Issued and Outstanding | | Carrying Value | | Aggregate Liquidation Preference | | Per Annum Dividend Rate 2,3 | | First Optional Redemption Date / Conversion Date 3,4 | | |
Fixed-to-Floating Rate: | | | | | | | | | | | | | | |
Series C | | August 22, 2017 | | 13.0 | | | $ | 315 | | | $ | 325 | | | 10.689% | | October 15, 2022 | | |
Series D | | March 6, 2019 | | 9.4 | | | 227 | | | 235 | | | 6.875% | | April 15, 2024 | | |
Series E | | October 3, 2019 | | 16.1 | | | 390 | | | 403 | | | 6.500% | | October 15, 2024 | | |
Series F | | February 11, 2020 | | 23.0 | | | 557 | | | 575 | | | 6.125% | | April 15, 2025 | | |
Fixed-Rate Reset: | | | | | | | | | | | | | | |
Series G | | September 14, 2022 | | 6.0 | | | 145 | | | 150 | | | 7.750% | | October 15, 2027 | | |
Total | | | | 67.5 | | | $ | 1,634 | | | $ | 1,688 | | | | | | | |
1.The depositary shares underlying our preferred stock accrue dividends at an initial annual fixed rate of the $25.00 liquidation preference per depositary share from the issuance date up to, but not including, the fixed-to-floating rate or fixed-rate-reset conversion date; thereafter, dividends will accrue on a floating rate or fixed-rate-reset basis equal to the conversion rate plus a fixed spread.
2.The Series C per annum dividend rate represents the dividend rate in effect as of March 31, 2024.
3.The Series C dividend accrues at a rate equal to the 3-Month CME Term SOFR plus 0.26161%, plus a spread of 5.111%, per annum, resetting quarterly in accordance with the certificate of designations for such series and the Adjustable Interest Rate (LIBOR) Act of 2021 (the “LIBOR Act”). At the conclusion of the fixed rate period (the conversion date) for each of the Series D, E, and F Preferred Stock, the dividend for such series
will accrue at a rate equal to the 3-Month CME Term SOFR plus 0.26161%, plus a spread of 4.332%, 4.993% and 4.697%, respectively, per annum, resetting quarterly in accordance with the certificate of designations for such series and the LIBOR Act. At the conclusion of the fixed rate period for the Series G Preferred Stock, the dividend will accrue at a floating rate equal to the 5-Year US Treasury rate, plus a spread of 4.39%, per annum and will reset in accordance with the certificate of designations for such series.
4.Shares may be redeemed prior to our optional redemption date under certain circumstances intended to preserve our qualification as a REIT for U.S federal income tax purposes.
Common Stock Offerings
In September 2017, we completed a public offering in which 28.2 million shares of our common stock were sold to the underwriters for proceeds of $577 million, or $20.47 per common share, net of estimated offering costs. In May 2017, we completed a public offering in which 24.5 million shares of our common stock were sold to the underwriters for proceeds of $503 million, or $20.51 per common share, net of offering costs.
At-the-Market Offering Program
In February 2017, we enteredWe are authorized by our Board of Directors to enter into agreements with sales agents to publicly offer and sell shares of our common stock in privately negotiated and/or at-the-market transactions from time-to-time up to ana maximum aggregate amount of $750 million of sharesoffering price of our common stock. During the three and nine months ended September 30, 2017,March 31, 2024, we sold 7.625.1 million shares, of our common stock under the sales agreements for proceeds of $159$241 million, or $20.96$9.61 per common share, respectively, net of estimated offering costs. As of September 30, 2017, $589 million ofMarch 31, 2024, shares of our common stock remain availablewith an aggregate offering price of $0.6 billion remained authorized for issuance under this program.
Common Stock Repurchase Program
In October 2012, our Board of Directors adopted a program that provided for stock repurchases, which, as amended, authorized repurchases of our common stock up to $2 billion through December 31, 2016. In October 2016, our Board of Directors terminated the existing stock repurchase program and replaced it with a new stock repurchase authorization. Under the new stock repurchase program we are authorized to repurchase up to $1 billion of our outstanding shares of common stock through December 31, 2017.
During the nine months ended September 30, 2016, we repurchased 6.5 million shares of our common stock at an average repurchase price of $17.89, including expenses, totaling $116 million. We did not repurchase shares of our common stock during the nine months ended September 30, 2017. As of September 30, 2017, the total remaining amount authorized for repurchases of our common stock was $1 billion.2024.
Accumulated Other Comprehensive Income (Loss)
The following table summarizes changes to accumulated OCI for the three and nine months ended September 30, 2017March 31, 2024 and 20162023 (in millions):
| | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31, |
Accumulated Other Comprehensive Income (Loss) | | | | | | 2024 | | 2023 | | |
Beginning Balance | | | | | | $ | (517) | | | $ | (672) | | | |
OCI before reclassifications | | | | | | (77) | | | 118 | | | |
Net loss amounts for available-for-sale securities reclassified from accumulated OCI to realized gain (loss) on sale of investment securities, net | | | | | | — | | | 24 | | | |
Ending Balance | | | | | | $ | (594) | | | $ | (530) | | | |
|
| | | | | | | | | | | | |
Accumulated Other Comprehensive Income (Loss) | | Net Unrealized Gain (Loss) on Available-for-Sale MBS | | Net Unrealized Gain (Loss) on Swaps | | Total Accumulated OCI Balance |
Balance as of June 30, 2017 | | $ | (211 | ) | | $ | — |
| | $ | (211 | ) |
OCI before reclassifications | | 70 |
| | — |
| | 70 |
|
Amounts reclassified from accumulated OCI | | 1 |
| | — |
| | 1 |
|
Balance as of September 30, 2017 | | $ | (140 | ) | | $ | — |
| | $ | (140 | ) |
| | | | | | |
Balance as of June 30, 2016 | | $ | 1,108 |
| | $ | (8 | ) | | $ | 1,100 |
|
OCI before reclassifications | | (36 | ) | | — |
| | (36 | ) |
Amounts reclassified from accumulated OCI | | (61 | ) | | 7 |
| | (54 | ) |
Balance as of September 30, 2016 | | $ | 1,011 |
| | $ | (1 | ) | | $ | 1,010 |
|
| | | | | | |
Balance as of December 31, 2016 | | $ | (397 | ) | | $ | — |
| | $ | (397 | ) |
OCI before reclassifications | | 168 |
| | — |
| | 168 |
|
Amounts reclassified from accumulated OCI | | 89 |
| | — |
| | 89 |
|
Balance as of September 30, 2017 | | $ | (140 | ) | | $ | — |
| | $ | (140 | ) |
| | | | | | |
Balance as of December 31, 2015 | | $ | (27 | ) | | $ | (39 | ) | | $ | (66 | ) |
OCI before reclassifications | | 1,152 |
| | — |
| | 1,152 |
|
Amounts reclassified from accumulated OCI | | (114 | ) | | 38 |
| | (76 | ) |
Balance as of September 30, 2016 | | $ | 1,011 |
| | $ | (1 | ) | | $ | 1,010 |
|
The following table summarizes reclassifications out of accumulated OCI for the three and nine months ended September 30, 2017 and 2016 (in millions):
|
| | | | | | | | | | |
| | Three Months Ended September 30, | | Line Item in the Consolidated Statements of Comprehensive Income Where Net Income is Presented |
Amounts Reclassified from Accumulated OCI | | 2017 | | 2016 | |
(Gain) loss amounts reclassified from accumulated OCI for available-for-sale MBS upon realization | | $ | 1 |
| | $ | (61 | ) | | Realized gain (loss) on sale of investment securities, net |
Periodic interest costs of interest rate swaps previously designated as hedges under GAAP, net | | — |
| | 7 |
| | Interest expense |
Total reclassifications | | $ | 1 |
| | $ | (54 | ) | | |
|
| | | | | | | | | | |
| | Nine Months Ended September 30, | | Line Item in the Consolidated Statements of Comprehensive Income Where Net Income is Presented |
Amounts Reclassified from Accumulated OCI | | 2017 | | 2016 | |
(Gain) loss amounts reclassified from accumulated OCI for available-for-sale MBS upon realization | | $ | 89 |
| | $ | (114 | ) | | Realized gain (loss) on sale of investment securities, net |
Periodic interest costs of interest rate swaps previously designated as hedges under GAAP, net | | — |
| | 38 |
| | Interest expense |
Total reclassifications | | $ | 89 |
| | $ | (76 | ) | | |
Note 11. Subsequent Events
On October 12, 2017, our Board of Directors declared a monthly dividend of $0.18 per common share, payable on November 9, 2017 to common stockholders of record as of October 31, 2017.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is designed to provide a reader of AGNC Investment Corp.'s consolidated financial statements with a narrative from the perspective of management and should be read in conjunction with the consolidated financial statements and accompanying notes included in this Quarterly Report on Form 10-Q for quarterly period ended September 30, 2017.March 31, 2024. Our MD&A is presented in sixthe following sections:
•Executive Overview
•Financial Condition
•Results of Operations
•Liquidity and Capital Resources
•Off-Balance Sheet Arrangements
•Forward-Looking Statements
EXECUTIVE OVERVIEW
AGNC Investment Corp. ("AGNC," the "Company," "we," "us" and "our") is an internally managed Real Estate Investment Trust ("REIT") that was organized on January 7, 2008 and commenced operations on May 20, 2008 following the completionWe are a leading provider of our initial public offering. Our common stock is traded on The NASDAQ Global Select Market ("NASDAQ") under the symbol "AGNC."
We operate so as to qualify to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"). As such, we are required to distribute annually 90% of our taxable income. As long as we qualify as a REIT, we will generally not be subject to U.S. federal or state corporate taxes on our taxable incomeprivate capital to the extent that we distribute all of our taxable income to our stockholdersU.S. housing market, enhancing liquidity in a timely manner. It is our intention to distribute 100% of our taxable income, after application of available tax attributes, within the limits prescribed byresidential real estate mortgage markets and, in turn, facilitating home ownership in the Internal Revenue Code, which may extend into the subsequent tax year.
U.S. We earn incomeinvest primarily from investing in Agency residential mortgage-backed securities ("Agency RMBS") on a leveraged basis. These investments consist of residential mortgage pass-through securities and collateralized mortgage obligations ("CMOs") for which the principal and interest payments are guaranteed by a government-sponsoredU.S. Government-sponsored enterprise, such as the Federal National Mortgage Association ("Fannie Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac"Mac," and together with Fannie Mae, the "GSEs"), or by a U.S. Government agency, such as the Government National Mortgage Association ("Ginnie Mae") (collectively referred to as "GSEs"). We may also invest in other types ofassets related to the housing, mortgage and mortgage-related securities, such as credit risk transfer ("CRT") securities and non-Agency residential and commercial mortgage-backed securities ("non-Agency RMBS" and "CMBS," respectively), where repayment of principal and interest isor real estate markets that are not guaranteed by a GSE or U.S. Government agency.
OurWe are internally managed with the principal objective is to provide our stockholdersof generating favorable long-term stockholder returns with attractive risk-adjusted returns through a combination of monthly dividends and net book value (also referred to as "net asset value" or "NAV") accretion.substantial yield component. We generate income from the interest earned on our investment assets,investments, net of associated borrowing and hedging activities,costs, and net realized gains and losses on our investmentsinvestment and hedging activities. We fund our investments primarily through collateralized borrowings structured as repurchase agreements ("repo").
Prior to July 1, 2016, we were externally managed by AGNC Management, LLC (our "Manager"). On July 1, 2016, we completed the acquisition of all of the outstanding membership interests of AGNC Mortgage Management, LLC ("AMM"), the parent company of our Manager, from American Capital Asset Management, LLC,agreements. We operate in a wholly owned portfolio company of American Capital, Ltd. ("ACAS"). AMM is also the parent company of MTGE Management, LLC, the external manager of MTGE Investment Corp. ("MTGE") (NASDAQ: MTGE). Following the closing of the acquisition of AMM, we became internally managed and are no longer affiliated with ACAS.
Our Investment Strategy
Our investment strategy is designed to:
generate attractive risk-adjusted returns for our stockholders comprised of monthly dividend distributions and NAV accretion;
manage an investment portfolio consisting primarily of Agency securities;
invest a subset of the portfolio in mortgage credit risk oriented assets;
capitalize on discrepancies in the relative valuations in the Agency and non-Agency securities market;
manage financing, interest rate, prepayment, extension and credit risks;
continuemanner to qualify to be taxed as a REIT;REIT under the Internal Revenue Code.
We employ an active management strategy that is dynamic and
remain exempt from the requirements of the Investment Company Act of 1940 (the "Investment Company Act").
responsive to evolving market conditions. The size and composition of our portfolio and our investment, portfolio depends on investmentfunding, and hedging strategies we implement, the availabilityare tailored to reflect our analysis of investment capital and overall market conditions includingand the availabilityrelative values of attractively priced investments and suitable financing to appropriately leverage our investment portfolio.available options. Market conditions are influenced by among other things, current levels and expectations for future levelsa variety of factors, including interest rates, mortgage prepayments, marketprepayment expectations, liquidity, housing prices, unemployment rates, general economic conditions, government participation in the mortgage market, regulations and evolving regulations that impact mortgage related activities.relative returns on other assets.
Our Risk Management Strategy
We use a variety of strategies to reduce our exposure to market risks, including interest rate, prepayment, extension, liquidity and credit risks. Our investment strategies incorporate our assessment of these risks, the cost of the hedging transactions and our intention to qualify as a REIT. Our hedging strategies are generally not designed to protect our net asset value from "spread risk" (also referred to as "basis risk"), which is the risk that the yield differential between our investments and our hedges fluctuates. In addition, while we use interest rate swaps and other supplemental hedges to attempt to protect our net asset value against moves in interest rates, we may not hedge certain interest rate, prepayment, extension or other market risks if we believe that bearing such risks enhances our return profile, or if the hedging transaction would negatively impact our REIT status.
The risk management actions we take may lower our earnings and dividends in the short term to further our objective of maintaining attractive levels of earnings and dividends over the long term. In addition, some of our hedges are intended to provide protection against larger rate moves and as a result may be relatively ineffective for smaller changes in interest rates. There can also be no certainty that our projections of our exposures to interest rates, prepayment, extension or other risks will be accurate or that our hedging activities will be effective and, therefore, actual results could differ materially. Furthermore, since our hedging strategies are generally not designed to protect our net book value from spread risk, wider spreads between the market yield on our investment securities and benchmark interests underlying our interest rate hedges will typically cause our net book value to decline and can occur independent of changes in benchmark interest rates. For further discussion of our market risks and risk management strategy, please refer to "Quantitative and Qualitative Disclosures about Market Risk" under Item 3 of this Quarterly Report on Form 10-Q.
Trends and Recent Market Impacts
The favorable macroeconomic environment for fixed income markets were relatively stable throughoutinvestors that began in late 2023 persisted through the conclusion of the first three quartersquarter of 2017 as2024. During this period, interest rate volatility declined significantly, and Agency RMBS spreads to benchmark interest rates remained extremely low. In this environment, investors continuedrelatively stable. The Federal Reserve also indicated that the peak of the interest rate tightening cycle had likely been reached and further noted that a reduction in the pace of its balance sheet runoff was probable in the near-term, signaling that an end to favor higher risk assets,the quantitative tightening process was nearing. Mortgage origination levels remained depressed as evidenceda result of seasonal factors and affordability challenges. Additionally, bank demand for Agency RMBS was unexpectedly strong, driven in part by the strongexpectation that the Basel III Endgame capital requirements, if and when finally adopted, will be less onerous on banks than originally proposed. Together, these factors, reduced mortgage originations and incremental bank demand, provided a favorable backdrop for Agency RMBS supply-demand dynamics.
The outlook for monetary policy shifted materially in April in response to stronger-than-expected economic data. Contrary to the Fed’s expectations, inflation readings showed no meaningful improvement. As a result, after a period of relative stability in the first quarter, benchmark interest rates and volatility increased sharply in April, driven by less optimistic inflation expectations and escalating geopolitical risks. In response, Agency RMBS spreads to benchmark interest rates widened modestly, causing valuations to decline.
Despite the recent volatility, the fundamental outlook for Agency RMBS remains positive. With absolute yields back above 6% as of the end of April and explicit support from the U.S. government, Agency RMBS are appealing to a broad universe of investors. Agency RMBS spreads to benchmark interest rates remain wide by historical standards, providing the opportunity for favorable risk-adjusted returns for levered Agency RMBS investors. Looking forward, if monetary policy
proceeds largely as anticipated, we would expect interest rate volatility to decline, the yield curve to steepen, and quantitative tightening to conclude. Importantly, the precise timing of Fed rate cuts is not a critical factor in our favorable long-term performance ofexpectations for Agency RMBS.
During the first quarter, the 10-year U.S. equitiesTreasury increased 32 basis points, and the tighteningcurrent coupon Agency RMBS spread to a blend of 5- and 10-year Treasuries was unchanged at 139 basis points as of March 31, 2024.
For the quarter, AGNC earned total comprehensive income of $0.48 per diluted common share and generated a total economic return of 5.7% on tangible common equity comprised of $0.36 dividends declared per common share and a $0.14 increase in spreads associated withtangible net book value per common share. These results compare to total comprehensive income of $1.00 per diluted common share and economic return of 12.1% for the prior quarter. Net spread and dollar roll income per diluted common share (a non-GAAP measure) totaled $0.58 for the first quarter, a wide rangedecline of credit-sensitive fixed income assets. In contrast,2 cents per share from the spread betweenprior quarter, as higher swap costs more than offset the increase in the average asset yield on our portfolio.
We maintained a large interest rate hedge position during the quarter, which covered 99% of the outstanding balance of Investment Securities Repo, TBA position and other debt as of the end of the quarter. This was a slight decrease from 112% as of December 31, 2023. “At risk” leverage was largely unchanged at 7.1x of our tangible stockholders’ equity as of March 31, 2024, compared to 7.0x as of December 31, 2023. Our unencumbered cash and Agency RMBS grew to $5.4 billion, or 67% of our tangible stockholders' equity, as of the end of the first quarter, up from $5.1 billion, or 66% of tangible stockholders’ equity, as of December 31, 2023. The weighted average coupon on our fixed-rate Agency RMBS and other hedge instrumentsTBA securities increased slightly to 4.86%, from 4.83%, as of the end of the quarter, as we continued to shift a larger share of our asset portfolio toward higher coupon, high-quality specified pools. Additionally, we issued $241 million of accretive common equity during the quarter through our At-the-Market offering program to capitalize on our material price to book premium.
While market turbulence may persist in the short term due to factors such as U.S. Treasuriesinflation expectations and swaps widened throughout much of the period until the Federal Reserve (the "Fed") announcedgeopolitical risks, we believe AGNC is well positioned to navigate this environment. Our active management strategy, strategic focus on September 20, 2017 that, commencing in October 2017, it will begin to taper its reinvestment of proceeds from its bond portfolio. Following the Fed's announcement,high-quality Agency RMBS spreads tightened meaningfully, outperforming interest rate hedges, benefiting our net asset valueassets, attractive funding sources, and confirming our thesis thatstrong liquidity position should allow us not only to withstand episodes of volatility but also to take advantage of attractive investment opportunities as they arise.
For information regarding non-GAAP financial measures, including reconciliations to the Agency RMBS market had already pricedmost comparable GAAP measure please refer to Results of Operations included in muchthis MD&A below. For information regarding the sensitivity of the reduced Fed support.
The strong performance of Agency RMBS, combined with the accretive impact of common equity raises, increased our tangible net book value to $19.78 per common share as of September 30, 2017, from $19.25 per common share as of June 30, 2017, an increase of 2.8% for the quarter. Year-to-date, through September 30, 2017, our tangible net book value improved 1.4%, from $19.50 per common share as of December 31, 2016. Including $1.62 of dividends paid per common share, the economic return on our tangible common equity was 9.7% for the first three quarters of the year.
The yield curve flattened during the first three quarters of 2017, as the Fed continued to gradually increase short term interest rates by raising the federal funds rate by 50 basis points. Over the same period, the 10-year yield on the U.S. Treasury declined by 10 basis points, causing the yield curve to flatten and contributing to a modest compression of our net interest margin. Inclusive of our TBA position and excluding "catch-up" premium amortization cost due to changes in our constant prepayment rate forecasts, the net interest margin between our assets and our cost of funds decreased to 1.41% during the third quarter of 2017, from 1.45% during the fourth quarter of 2016.
The funding landscape for Agency RMBS has remained favorable throughout the year in terms of relative interest rate levels and funding capacity. Our aggregate cost-of-funds, which includes the implied funding cost on our TBA position and the cost on our interest rate swaps, increased 31 basis points to 1.46% as of September 30, 2017, from 1.15% as of December 31, 2016. The average rate on our repurchase agreements increased 38 basis points to 1.36% as of September 30, 2017, from 0.98% as of December 31, 2016, while implied funding costs in the TBA dollar roll market remained favorable at 15 to 25 basis points below comparable
repo rates. Favorable implied funding levels and stable prepayment expectations led us to maintain a sizable TBA position throughout much of the period. Our cost of funds also benefited from a 39 basis point increase in the average receive rate on our pay-fixed receive-variable interest rate swaps over the first three quarters of the year, which was partly offset by higher costs associated with an increase in our swap portfolio in conjunction with our larger asset balance and an increase in the average maturity of our swap portfolio to 4.5 years as of September 30, 2017, from 3.9 years as of December 31, 2016. In addition, we achieved a greater diversity of funding and benefited from more favorable terms than traditional levels by shifting a larger portion our repo funding and TBA clearing through our captive broker-dealer subsidiary, Bethesda Securities, LLC, or "BES”. As of September 30, 2017, our repo funding transacted through BES totaled 30%, up significantly from 12% as of December 31, 2016.
As of September 30, 2017, our "at risk" leverage was 8.0x our tangible equity, up from 7.7x as of December 31, 2016. Additional Agency RMBS spread widening and ongoing favorable funding dynamics, could provide attractive investment opportunities and serve as a catalyst for us to further increase leverage.
As of September 30, 2017, our interest rate hedges equaled 92% of our funding liabilities and net TBA position, up slightly from 90% as of December 31, 2016. We believe operating at this level provides us a significant amount of protection against net asset value fluctuations due to interest rate changes. Our net "duration gap," which is a measure of the risk due to mismatches that can occur between the interest rate sensitivity of our assets and liabilities, inclusive of hedges, was 0.4 years as of September 30, 2017, down from 1.3 years as of December 31, 2016. The reduction in our net duration gap is a result of our larger hedge position and the overall decline in interest rates during the first three quarters of the year.and mortgage spreads, please refer to Item 3. Quantitative and Qualitative Disclosures about Market Risk in this form 10-Q.
Market Information
The following table summarizes benchmark interest rates and prices of generic fixed rate Agency RMBS as of each date presented below: |
| | | | | | | | | | | | | | | | | | |
Interest Rate/Security Price 1 | | Sept. 30, 2016 | | Dec. 31, 2016 | | Mar. 31, 2017 | | June 30, 2017 | | Sept. 30, 2017 | | Sept. 30, 2017 vs June 30, 2017 | | Sept. 30, 2017 vs Dec. 31, 2016 |
LIBOR: | | | | | | | | | | | | | | | | |
1-Month | | 0.53% | | 0.77% | | 0.98% | | 1.22% | | 1.23% | | +0.01 |
| bps | | +0.46 |
| bps |
3-Month | | 0.85% | | 1.00% | | 1.15% | | 1.30% | | 1.33% | | +0.03 |
| bps | | +0.33 |
| bps |
6-Month | | 1.24% | | 1.31% | | 1.42% | | 1.45% | | 1.51% | | +0.06 |
| bps | | +0.20 |
| bps |
U.S. Treasury Security Rate: | | | | | | | | | | | | | | | | |
2-Year U.S. Treasury | | 0.76% | | 1.20% | | 1.26% | | 1.38% | | 1.48% | | +0.10 |
| bps | | +0.28 |
| bps |
3-Year U.S. Treasury | | 0.87% | | 1.46% | | 1.50% | | 1.55% | | 1.61% | | +0.06 |
| bps | | +0.15 |
| bps |
5-Year U.S. Treasury | | 1.15% | | 1.92% | | 1.93% | | 1.89% | | 1.93% | | +0.04 |
| bps | | +0.01 |
| bps |
10-Year U.S. Treasury | | 1.61% | | 2.43% | | 2.39% | | 2.30% | | 2.33% | | +0.03 |
| bps | | -0.10 |
| bps |
30-Year U.S. Treasury | | 2.33% | | 3.05% | | 3.02% | | 2.84% | | 2.86% | | +0.02 |
| bps | | -0.19 |
| bps |
Interest Rate Swap Rate: | | | | | | | | | | | | | | | | |
2-Year Swap | | 1.01% | | 1.46% | | 1.62% | | 1.61% | | 1.73% | | +0.12 |
| bps | | +0.27 |
| bps |
3-Year Swap | | 1.07% | | 1.68% | | 1.81% | | 1.74% | | 1.84% | | +0.10 |
| bps | | +0.16 |
| bps |
5-Year Swap | | 1.18% | | 1.96% | | 2.06% | | 1.95% | | 2.00% | | +0.05 |
| bps | | +0.04 |
| bps |
10-Year Swap | | 1.46% | | 2.32% | | 2.39% | | 2.27% | | 2.28% | | +0.01 |
| bps | | -0.04 |
| bps |
30-Year Swap | | 1.78% | | 2.57% | | 2.65% | | 2.53% | | 2.52% | | -0.01 |
| bps | | -0.05 |
| bps |
30-Year Fixed Rate Agency Price: | | | | | | | | | | | | | | | | |
3.0% | | $103.95 | | $99.38 | | $99.15 | | $99.88 | | $100.33 | | +$0.45 | | +$0.95 |
3.5% | | $105.53 | | $102.50 | | $102.29 | | $102.70 | | $103.09 | | +$0.39 | | +$0.59 |
4.0% | | $107.41 | | $105.13 | | $104.90 | | $105.12 | | $105.27 | | +$0.15 | | +$0.14 |
4.5% | | $109.52 | | $107.51 | | $107.24 | | $107.27 | | $107.33 | | +$0.06 | | -$0.18 |
15-Year Fixed Rate Agency Price: | | | | | | | | | | | | | | | | |
2.5% | | $103.56 | | $100.20 | | $100.03 | | $100.53 | | $100.69 | | +$0.16 | | +$0.49 |
3.0% | | $104.99 | | $102.62 | | $102.51 | | $102.64 | | $102.75 | | +$0.11 | | +$0.13 |
3.5% | | $105.41 | | $104.17 | | $104.06 | | $104.06 | | $104.14 | | +$0.08 | | -$0.03 |
4.0% | | $103.73 | | $102.69 | | $103.29 | | $103.44 | | $103.13 | | -$0.31 | | +$0.44 |
_______________________ | |
1. | Price information is for generic instruments only and is not reflective of our specific portfolio holdings. Price information is as of 3:00 p.m. (EST) on such date and can vary by source. Prices and interest rates in the table above were obtained from Barclays. LIBOR rates were obtained from Bloomberg. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest Rate/Security Price 1 | | Mar. 31, 2023 | | June 30, 2023 | | Sept. 30, 2023 | | Dec. 31, 2023 | | Mar. 31, 2024 | | | | Mar. 31, 2024 vs Dec. 31, 2023 |
Target Federal Funds Rate: | | | | | | | | | | | | | | | | |
Target Federal Funds Rate - Upper Band | | 5.00% | | 5.25% | | 5.50% | | 5.50% | | 5.50% | | | | | — | | bps |
SOFR: | | | | | | | | | | | | | | | | |
SOFR Rate | | 4.87% | | 5.09% | | 5.31% | | 5.38% | | 5.34% | | | | | -4 | | bps |
SOFR Interest Rate Swap Rate: | | | | | | | | | | | | | | | | |
2-Year Swap | | 4.06% | | 4.82% | | 4.97% | | 4.07% | | 4.55% | | | | | +48 | | bps |
5-Year Swap | | 3.34% | | 3.94% | | 4.38% | | 3.53% | | 3.98% | | | | | +45 | | bps |
10-Year Swap | | 3.17% | | 3.58% | | 4.27% | | 3.47% | | 3.84% | | | | | +37 | | bps |
30-Year Swap | | 2.93% | | 3.20% | | 4.01% | | 3.32% | | 3.62% | | | | | +30 | | bps |
U.S. Treasury Security Rate: | | | | | | | | | | | | | | | | |
2-Year U.S. Treasury | | 4.03% | | 4.90% | | 5.05% | | 4.25% | | 4.62% | | | | | +37 | | bps |
5-Year U.S. Treasury | | 3.58% | | 4.16% | | 4.61% | | 3.85% | | 4.21% | | | | | +36 | | bps |
10-Year U.S. Treasury | | 3.47% | | 3.84% | | 4.57% | | 3.88% | | 4.20% | | | | | +32 | | bps |
30-Year U.S. Treasury | | 3.65% | | 3.86% | | 4.70% | | 4.03% | | 4.34% | | | | | +31 | | bps |
30-Year Fixed Rate Agency Price: | | | | | | | | | | | | | | | | |
2.5% | | $86.16 | | $84.77 | | $79.39 | | $85.24 | | $82.77 | | | | -$2.47 |
3.0% | | $89.63 | | $88.01 | | $82.75 | | $88.58 | | $86.16 | | | | -$2.42 |
3.5% | | $92.82 | | $91.11 | | $86.02 | | $91.86 | | $89.61 | | | | -$2.25 |
4.0% | | $95.59 | | $93.84 | | $89.09 | | $94.69 | | $92.74 | | | | -$1.95 |
4.5% | | $97.92 | | $96.14 | | $91.85 | | $97.04 | | $95.34 | | | | -$1.70 |
5.0% | | $99.69 | | $98.00 | | $94.39 | | $99.04 | | $97.70 | | | | -$1.34 |
5.5% | | $101.00 | | $99.55 | | $96.68 | | $100.56 | | $99.58 | | | | -$0.98 |
6.0% | | $102.08 | | $100.88 | | $98.74 | | $101.63 | | $100.98 | | | | -$0.65 |
6.5% | | $103.23 | | $102.12 | | $100.52 | | $102.51 | | $102.21 | | | | -$0.30 |
15-Year Fixed Rate Agency Price: | | | | | | | | | | | | | | | | |
1.5% | | $87.95 | | $86.30 | | $83.27 | | $86.86 | | $86.69 | | | | -$0.17 |
2.0% | | $90.36 | | $88.61 | | $85.81 | | $89.47 | | $88.71 | | | | -$0.76 |
2.5% | | $92.83 | | $90.98 | | $88.21 | | $92.14 | | $91.07 | | | | -$1.07 |
3.0% | | $94.83 | | $93.32 | | $90.54 | | $94.30 | | $93.17 | | | | -$1.13 |
3.5% | | $96.68 | | $95.14 | | $92.52 | | $96.39 | | $95.13 | | | | -$1.26 |
4.0% | | $98.41 | | $96.59 | | $94.42 | | $98.10 | | $96.95 | | | | -$1.15 |
________________________________1.Price information is for generic instruments only and is not reflective of our specific portfolio holdings. Price information is as of 3:00 p.m. (EST) on such date and can vary by source. Price information is sourced from Barclays. Interest rate information is sourced from Bloomberg.
The following table summarizes mortgage and credit spreads as of each date presented below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Mortgage Rate/Credit Spread | | Mar. 31, 2023 | | June 30, 2023 | | Sept. 30, 2023 | | Dec. 31, 2023 | | Mar. 31, 2024 | | | | Mar. 31, 2024 vs Dec. 31, 2023 |
Mortgage Rate: 1 | | | | | | | | | | | | | | | | |
30-Year Agency Current Coupon Yield to 5-Year U.S. Treasury Spread | | 147 | | 147 | | 175 | | 140 | | 139 | | | | -1 |
30-Year Agency Current Coupon Yield to 10-Year U.S. Treasury Spread | | 158 | | 179 | | 179 | | 137 | | 140 | | | | +3 |
30-Year Agency Current Coupon Yield to 5/10-Year U.S. Treasury Spread | | 152 | | 163 | | 177 | | 139 | | 139 | | | | — |
30-Year Agency Current Coupon Yield | | 5.05% | | 5.63% | | 6.36% | | 5.25% | | 5.60% | | | | | +35 | | bps |
30-Year Mortgage Rate | | 6.40% | | 6.78% | | 7.41% | | 6.56% | | 6.74% | | | | | +18 | | bps |
Credit Spread (in bps): 2 | | | | | | | | | | | | | | | | |
CRT M2 | | 423 | | 360 | | 252 | | 206 | | 182 | | | | -24 |
CMBS AAA | | 171 | | 151 | | 137 | | 118 | | 88 | | | | -30 |
CDX IG | | 76 | | 66 | | 74 | | 56 | | 51 | | | | -5 |
________________________________1.30-Year Current Coupon Yield represents yield on new production Agency RMBS. 30-Year Current Coupon Yields are sourced from Bloomberg and 30-Year Mortgage Rates are sourced from Clear Blue.
2.CRT and CDX spreads sourced from JP Morgan. CMBS spreads are the average of spreads sourced from Bank of America, JP Morgan and Wells Fargo.
FINANCIAL CONDITION
As of September 30, 2017March 31, 2024 and December 31, 2016,2023, our investment portfolio consisted of $53.1totaled $63.3 billion and $46.5$60.2 billion, of investment securities, respectively, consisting of: $53.7 billion and $53.8 billion Agency RMBS, at fair value, respectively, and $19.4respectively; $8.4 billion and $11.2$5.4 billion ofnet TBA securities, at fair value, respectively.respectively; $1.0 billion CRT, non-Agency RMBS and CMBS, at fair value; and other mortgage credit investments of $59 million and $44 million, respectively, which we account for under the equity method of accounting. The following table is a summary of our investment portfoliosecurities (including TBA securities) as of September 30, 2017March 31, 2024 and December 31, 20162023 (dollars in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2024 | | December 31, 2023 |
Investment Securities (Includes TBAs) 1 | | Amortized Cost | | Fair Value | | Average Coupon | | % | | Amortized Cost | | Fair Value | | Average Coupon | | % |
Fixed rate Agency RMBS and TBA securities: | | | | | | | | | | | | | | | | |
≤ 15-year: | | | | | | | | | | | | | | | | |
≤ 15-year RMBS | | $ | 127 | | | $ | 119 | | | 2.77 | % | | — | % | | $ | 759 | | | $ | 718 | | | 3.25 | % | | 1 | % |
15-year TBA securities | | 89 | | | 90 | | | 5.00 | % | | — | % | | 89 | | | 91 | | | 5.00 | % | | — | % |
Total ≤ 15-year | | 216 | | | 209 | | | 3.70 | % | | — | % | | 848 | | | 809 | | | 3.44 | % | | 1 | % |
20-year RMBS | | 849 | | | 734 | | | 2.82 | % | | 1 | % | | 872 | | | 768 | | | 2.82 | % | | 1 | % |
30-year: | | | | | | | | | | | | | | | | |
30-year RMBS | | 54,489 | | | 51,914 | | | 4.88 | % | | 82 | % | | 53,658 | | | 51,675 | | | 4.82 | % | | 86 | % |
30-year TBA securities, net 2 | | 8,316 | | | 8,358 | | | 4.97 | % | | 13 | % | | 5,199 | | | 5,263 | | | 5.50 | % | | 9 | % |
Total 30-year | | 62,805 | | | 60,272 | | | 4.89 | % | | 95 | % | | 58,857 | | | 56,938 | | | 4.88 | % | | 95 | % |
Total fixed rate Agency RMBS and TBA securities | | 63,870 | | | 61,215 | | | 4.86 | % | | 97 | % | | 60,577 | | | 58,515 | | | 4.83 | % | | 97 | % |
Adjustable rate Agency RMBS | | 722 | | | 716 | | | 4.72 | % | | 1 | % | | 293 | | | 290 | | | 4.67 | % | | — | % |
Multifamily | | 75 | | | 75 | | | 3.77 | % | | — | % | | 161 | | | 162 | | | 4.47 | % | | — | % |
CMO Agency RMBS: | | | | | | | | | | | | | | | | |
CMO | | 120 | | | 113 | | | 3.30 | % | | — | % | | 127 | | | 120 | | | 3.28 | % | | — | % |
Interest-only strips | | 38 | | | 33 | | | 1.78 | % | | — | % | | 40 | | | 35 | | | 1.77 | % | | — | % |
Principal-only strips | | 27 | | | 25 | | | — | % | | — | % | | 27 | | | 26 | | | — | % | | — | % |
Total CMO Agency RMBS | | 185 | | | 171 | | | 2.03 | % | | — | % | | 194 | | | 181 | | | 2.03 | % | | 1 | % |
Total Agency RMBS and TBA securities | | 64,852 | | | 62,177 | | | 4.83 | % | | 98 | % | | 61,225 | | | 59,148 | | | 4.80 | % | | 98 | % |
Non-Agency RMBS 1 | | 19 | | | 14 | | | 6.19 | % | | — | % | | 43 | | | 34 | | | 5.10 | % | | — | % |
CMBS | | 304 | | | 280 | | | 7.28 | % | | — | % | | 303 | | | 273 | | | 7.27 | % | | — | % |
CRT | | 694 | | | 753 | | | 10.72 | % | | 1 | % | | 682 | | | 723 | | | 10.45 | % | | 1 | % |
Total investment securities | | $ | 65,869 | | | $ | 63,224 | | | 4.90 | % | | 100 | % | | $ | 62,253 | | | $ | 60,178 | | | 4.88 | % | | 100 | % |
1.Table excludes other mortgage credit investments of $59 million and $44 million as of March 31, 2024 and December 31, 2023, respectively. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
Investment Portfolio (Includes TBAs) 1 | | Amortized Cost | | Fair Value | | Average Coupon | | % | | Amortized Cost | | Fair Value | | Average Coupon | | % |
Fixed rate Agency RMBS and TBA securities: | | | | | | | | | | | | | | | | |
≤ 15-year: | | | | | | | | | | | | | | | | |
≤ 15-year RMBS | | $ | 9,920 |
| | $ | 9,987 |
| | 3.32 | % | | 14 | % | | $ | 12,794 |
| | $ | 12,867 |
| | 3.26 | % | | 22 | % |
15-year TBA securities | | 4,556 |
| | 4,546 |
| | 2.83 | % | | 6 | % | | 2,188 |
| | 2,172 |
| | 2.57 | % | | 4 | % |
Total ≤ 15-year | | 14,476 |
| | 14,533 |
| | 3.17 | % | | 20 | % | | 14,982 |
| | 15,039 |
| | 3.16 | % | | 26 | % |
20-year RMBS | | 700 |
| | 720 |
| | 3.48 | % | | 1 | % | | 801 |
| | 817 |
| | 3.49 | % | | 1 | % |
30-year: | | | | | | | | | | | | | | | | |
30-year RMBS | | 40,655 |
| | 40,397 |
| | 3.67 | % | | 56 | % | | 31,553 |
| | 31,052 |
| | 3.63 | % | | 54 | % |
30-year TBA securities | | 14,878 |
| | 14,863 |
| | 3.55 | % | | 20 | % | | 9,124 |
| | 8,993 |
| | 3.58 | % | | 16 | % |
Total 30-year | | 55,533 |
| | 55,260 |
| | 3.64 | % | | 76 | % | | 40,677 |
| | 40,045 |
| | 3.62 | % | | 70 | % |
Total fixed rate Agency RMBS and TBA securities | | 70,709 |
| | 70,513 |
| | 3.54 | % | | 97 | % | | 56,460 |
| | 55,901 |
| | 3.49 | % | | 97 | % |
Adjustable rate Agency RMBS | | 304 |
| | 311 |
| | 2.94 | % | | 1 | % | | 371 |
| | 379 |
| | 2.96 | % | | 1 | % |
CMO Agency RMBS: | | | | | | | | | | | | | | | | |
CMO | | 669 |
| | 677 |
| | 3.43 | % | | 1 | % | | 796 |
| | 801 |
| | 3.41 | % | | 2 | % |
Interest-only strips | | 107 |
| | 123 |
| | 4.64 | % | | — | % | | 132 |
| | 151 |
| | 5.03 | % | | — | % |
Principal-only strips | | 117 |
| | 123 |
| | — | % | | — | % | | 136 |
| | 144 |
| | — | % | | — | % |
Total CMO Agency RMBS | | 893 |
| | 923 |
| | 3.70 | % | | 1 | % | | 1,064 |
| | 1,096 |
| | 3.89 | % | | 2 | % |
Total Agency RMBS and TBA securities | | 71,906 |
| | 71,747 |
| | 3.54 | % | | 99 | % | | 57,895 |
| | 57,376 |
| | 3.50 | % | | 100 | % |
Non-Agency RMBS | | 8 |
| | 7 |
| | 2.50 | % | | — | % | | 102 |
| | 101 |
| | 3.42 | % | | — | % |
CMBS | | 28 |
| | 29 |
| | 6.55 | % | | — | % | | 23 |
| | 23 |
| | 6.55 | % | | — | % |
CRT | | 697 |
| | 717 |
| | 5.10 | % | | 1 | % | | 161 |
| | 164 |
| | 5.25 | % | | — | % |
Total investment portfolio | | $ | 72,639 |
| | $ | 72,500 |
| | 3.56 | % | | 100 | % | | $ | 58,181 |
| | $ | 57,664 |
| | 3.51 | % | | 100 | % |
_______________________
| |
1. | TBA securities are presented net of long and short positions. For further details of our TBA securities refer to Note 6 of the accompanying consolidated financial statements. |
2.TBA securities are recognizedpresented net of long and short positions. For further details of our TBA securities refer to Note 5 of our Consolidated Financial Statements in this Form 10-Q
TBA securities are recorded as derivative instruments in our accompanying consolidated financial statements, and our TBA dollar roll transactions represent a form of off-balance sheet financing. As of September 30, 2017March 31, 2024 and December 31, 2016,2023, our TBA positionssecurities had a net carrying value of $(24)$43 million and $(147)$66 million, respectively, reported in derivative assets /(liabilities)assets/(liabilities) on our accompanying consolidated balance sheets. The net carrying value represents the difference between the fair value of the underlying Agency security in the TBA contract and the contract price to be paid or received for the underlying Agency security.
As of September 30, 2017March 31, 2024 and December 31, 2016,2023, the weighted average yield on our investment securities (excluding TBA and forward settling securities) was 2.85%4.52% and 2.77%4.41%, respectively.
The following tables summarize certain characteristics of our fixed rate Agency RMBS portfolio, inclusive of TBAs,TBA securities, as of September 30, 2017March 31, 2024 and December 31, 20162023 (dollars in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2024 |
| | Includes Net TBA Position | | Excludes Net TBA Position |
Fixed Rate Agency RMBS and TBA Securities | | Par Value | | Amortized Cost | | Fair Value | | Specified Pool % 1 | | Weighted Average Coupon | | Amortized Cost Basis | | Weighted Average | | Projected CPR 2 |
| Yield 2 | | Age (Months) |
Fixed rate | | | | | | | | | | | | | | | | | | |
≤ 15-year: | | | | | | | | | | | | | | | | | | |
≤ 2.5% | | 56 | | | 57 | | | 51 | | | 100% | | 2.15% | | 101.7% | | 1.76% | | 67 | | 10% |
3.0% | | 46 | | | 46 | | | 44 | | | 100% | | 3.00% | | 101.0% | | 2.40% | | 128 | | 14% |
3.5% | | 12 | | | 12 | | | 12 | | | 100% | | 3.50% | | 101.4% | | 2.61% | | 129 | | 14% |
4.0% | | 11 | | | 11 | | | 11 | | | 6% | | 4.00% | | 101.7% | | 1.92% | | 157 | | 26% |
4.5% | | 1 | | | 1 | | | 1 | | | 100% | | 4.50% | | 101.5% | | 2.69% | | 157 | | 23% |
5.0% | | 90 | | | 89 | | | 90 | | | —% | | 5.00% | | 100.8% | | 2.27% | | 171 | | 44% |
Total ≤ 15-year | | 216 | | | 216 | | | 209 | | | 52% | | 3.70% | | 101.4% | | 2.10% | | 103 | | 14% |
20-year: | | | | | | | | | | | | | | | | | | |
≤ 2.0% | | 214 | | | 220 | | | 181 | | | —% | | 2.00% | | 102.6% | | 1.58% | | 40 | | 5% |
2.5% | | 329 | | | 345 | | | 289 | | | —% | | 2.50% | | 104.7% | | 1.73% | | 45 | | 5% |
3.0% | | 26 | | | 27 | | | 24 | | | 97% | | 3.00% | | 103.6% | | 2.29% | | 56 | | 8% |
3.5% | | 112 | | | 114 | | | 107 | | | 79% | | 3.50% | | 101.8% | | 2.97% | | 127 | | 9% |
≥ 4.0% | | 137 | | | 143 | | | 133 | | | 96% | | 4.26% | | 104.5% | | 3.15% | | 86 | | 10% |
Total 20-year: | | 818 | | | 849 | | | 734 | | | 32% | | 2.82% | | 103.7% | | 2.12% | | 62 | | 6% |
30-year: | | | | | | | | | | | | | | | | | | |
≤ 3.0% | | 4,037 | | | 4,035 | | | 3,358 | | | 56% | | 2.43% | | 99.9% | | 2.43% | | 36 | | 6% |
3.5% | | 5,560 | | | 5,774 | | | 5,092 | | | 85% | | 3.50% | | 104.1% | | 2.84% | | 100 | | 7% |
4.0% | | 6,338 | | | 6,696 | | | 5,997 | | | 92% | | 4.00% | | 105.6% | | 3.08% | | 83 | | 8% |
4.5% | | 7,670 | | | 7,811 | | | 7,388 | | | 52% | | 4.50% | | 103.8% | | 3.85% | | 48 | | 8% |
5.0% | | 11,408 | | | 11,321 | | | 11,205 | | | 33% | | 5.00% | | 100.7% | | 4.86% | | 18 | | 8% |
5.5% | | 13,542 | | | 13,588 | | | 13,572 | | | 28% | | 5.50% | | 100.6% | | 5.40% | | 13 | | 10% |
6.0% | | 9,148 | | | 9,263 | | | 9,314 | | | 35% | | 6.00% | | 101.2% | | 5.71% | | 9 | | 15% |
≥ 6.5% | | 4,217 | | | 4,317 | | | 4,346 | | | 39% | | 6.51% | | 102.6% | | 5.81% | | 8 | | 17% |
Total 30-year | | 61,920 | | | 62,805 | | | 60,272 | | | 46% | | 4.89% | | 102.1% | | 4.48% | | 36 | | 10% |
Total fixed rate | | $ | 62,954 | | | $ | 63,870 | | | $ | 61,215 | | | 46% | | 4.86% | | 102.1% | | 4.44% | | 37 | | 10% |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2017 |
| | Includes Net TBA Position | | Excludes Net TBA Position |
Fixed Rate Agency RMBS and TBA Securities | | Par Value | | Amortized Cost | | Fair Value | | % Lower Loan Balance & HARP 1,2 | | Amortized Cost Basis | | Weighted Average | | Projected Life CPR 4 |
| WAC 3 | | Yield 4 | | Age (Months) |
Fixed rate | | | | | | | | | | | | | | | | | | |
≤ 15-year | | | | | | | | | | | | | | | | | | |
2.5% | | $ | 3,261 |
| | $ | 3,294 |
| | $ | 3,289 |
| | 31% | | 101.2% | | 2.98% | | 2.13% | | 60 | | 9% |
3.0% | | 5,550 |
| | 5,708 |
| | 5,706 |
| | 36% | | 102.8% | | 3.49% | | 2.18% | | 59 | | 10% |
3.5% | | 2,858 |
| | 2,952 |
| | 2,989 |
| | 89% | | 103.3% | | 3.95% | | 2.49% | | 69 | | 11% |
4.0% | | 2,191 |
| | 2,277 |
| | 2,302 |
| | 89% | | 103.9% | | 4.40% | | 2.68% | | 81 | | 12% |
4.5% | | 231 |
| | 241 |
| | 243 |
| | 98% | | 104.4% | | 4.87% | | 3.02% | | 85 | | 12% |
≥ 5.0% | | 3 |
| | 4 |
| | 4 |
| | 20% | | 103.2% | | 6.64% | | 4.64% | | 121 | | 14% |
Total ≤ 15-year | | 14,094 |
| | 14,476 |
| | 14,533 |
| | 55% | | 103.0% | | 3.78% | | 2.40% | | 68 | | 11% |
20-year | | | | | | | | | | | | | | | | | | |
≤ 3.0% | | 202 |
| | 201 |
| | 207 |
| | 31% | | 99.4% | | 3.55% | | 3.10% | | 52 | | 9% |
3.5% | | 382 |
| | 386 |
| | 398 |
| | 75% | | 102.1% | | 4.05% | | 3.00% | | 55 | | 11% |
4.0% | | 48 |
| | 50 |
| | 51 |
| | 51% | | 104.2% | | 4.55% | | 2.95% | | 73 | | 12% |
4.5% | | 57 |
| | 61 |
| | 62 |
| | 99% | | 106.5% | | 4.89% | | 2.95% | | 82 | | 11% |
≥ 5.0% | | 2 |
| | 2 |
| | 2 |
| | —% | | 106.0% | | 5.93% | | 3.33% | | 113 | | 17% |
Total 20-year: | | 691 |
| | 700 |
| | 720 |
| | 62% | | 101.8% | | 4.02% | | 3.02% | | 58 | | 11% |
30-year: | | | | | | | | | | | | | | | | | | |
3.0% | | 7,671 |
| | 7,720 |
| | 7,709 |
| | 1% | | 100.2% | | 3.58% | | 2.96% | | 40 | | 6% |
3.5% | | 24,566 |
| | 25,626 |
| | 25,431 |
| | 51% | | 104.7% | | 4.04% | | 2.84% | | 32 | | 7% |
4.0% | | 19,322 |
| | 20,553 |
| | 20,466 |
| | 49% | | 106.8% | | 4.49% | | 2.94% | | 33 | | 9% |
4.5% | | 1,317 |
| | 1,415 |
| | 1,431 |
| | 71% | | 107.4% | | 4.97% | | 3.24% | | 76 | | 9% |
5.0% | | 102 |
| | 109 |
| | 112 |
| | 65% | | 106.6% | | 5.45% | | 3.70% | | 113 | | 11% |
≥ 5.5% | | 100 |
| | 110 |
| | 111 |
| | 36% | | 109.8% | | 6.19% | | 3.35% | | 131 | | 14% |
Total 30-year | | 53,078 |
| | 55,533 |
| | 55,260 |
| | 44% | | 105.2% | | 4.20% | | 2.90% | | 35 | | 8% |
Total fixed rate | | $ | 67,863 |
| | $ | 70,709 |
| | $ | 70,513 |
| | 47% | | 104.7% | | 4.12% | | 2.80% | | 41 | | 8% |
_______________________
| |
1. | Lower loan balance securities represent pools backed by an original loan balance of ≤ $150,000. Our lower loan balance securities had a weighted average original loan balance of $97,000 and $106,000 for 15-year and 30-year securities, respectively, as of September 30, 2017.
|
| |
2. | HARP securities are defined as pools backed by 100% refinance loans with LTV ≥ 80%. Our HARP securities had a weighted average LTV of 114% and 136% for 15-year and 30-year securities, respectively, as of September 30, 2017.
|
| |
3. | WAC represents the weighted average coupon of the underlying collateral. |
| |
4. | Portfolio yield incorporates a projected life CPR assumption based on forward rate assumptions as of September 30, 2017.
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2016 |
| | Includes Net TBA Position | | Excludes Net TBA Position |
Fixed Rate Agency RMBS and TBA Securities | | Par Value | | Amortized Cost | | Fair Value | | % Lower Loan Balance & HARP 1,2 | | Amortized Cost Basis | | Weighted Average | | Projected Life CPR 4 |
| WAC 3 | | Yield 4 | | Age (Months) |
Fixed rate | | | | | | | | | | | | | | | | | | |
≤ 15-year | | | | | | | | | | | | | | | | | | |
≤ 2.5% | | $ | 4,877 |
| | $ | 4,945 |
| | $ | 4,912 |
| | 26% | | 101.7% | | 2.96% | | 2.05% | | 50 | | 9% |
3.0% | | 3,460 |
| | 3,561 |
| | 3,561 |
| | 73% | | 102.9% | | 3.50% | | 2.20% | | 55 | | 9% |
3.5% | | 3,294 |
| | 3,408 |
| | 3,450 |
| | 90% | | 103.4% | | 3.95% | | 2.50% | | 63 | | 10% |
4.0% | | 2,655 |
| | 2,766 |
| | 2,810 |
| | 89% | | 104.2% | | 4.40% | | 2.69% | | 72 | | 11% |
4.5% | | 285 |
| | 298 |
| | 302 |
| | 98% | | 104.6% | | 4.87% | | 3.03% | | 76 | | 11% |
≥ 5.0% | | 4 |
| | 4 |
| | 4 |
| | 22% | | 103.3% | | 6.63% | | 4.65% | | 112 | | 13% |
Total ≤ 15-year | | 14,575 |
| | 14,982 |
| | 15,039 |
| | 65% | | 103.1% | | 3.72% | | 2.37% | | 60 | | 10% |
20-year | | | | | | | | | | | | | | | | | | |
≤ 3.0% | | 225 |
| | 223 |
| | 228 |
| | 31% | | 99.4% | | 3.55% | | 3.10% | | 43 | | 8% |
3.5% | | 436 |
| | 445 |
| | 454 |
| | 75% | | 102.2% | | 4.06% | | 3.01% | | 46 | | 10% |
4.0% | | 54 |
| | 57 |
| | 58 |
| | 50% | | 104.4% | | 4.54% | | 2.97% | | 64 | | 10% |
4.5% | | 68 |
| | 73 |
| | 74 |
| | 99% | | 106.7% | | 4.90% | | 2.99% | | 73 | | 11% |
≥ 5.0% | | 3 |
| | 3 |
| | 3 |
| | —% | | 106.3% | | 5.94% | | 3.33% | | 104 | | 17% |
Total 20-year: | | 786 |
| | 801 |
| | 817 |
| | 63% | | 101.9% | | 4.03% | | 3.03% | | 49 | | 10% |
30-year: | | | | | | | | | | | | | | | | | | |
≤ 3.0% | | 7,390 |
| | 7,482 |
| | 7,357 |
| | 2% | | 100.1% | | 3.57% | | 2.97% | | 26 | | 6% |
3.5% | | 16,365 |
| | 17,227 |
| | 16,849 |
| | 72% | | 105.4% | | 4.07% | | 2.75% | | 38 | | 7% |
4.0% | | 13,464 |
| | 14,368 |
| | 14,224 |
| | 61% | | 107.4% | | 4.51% | | 2.92% | | 45 | | 7% |
4.5% | | 1,246 |
| | 1,341 |
| | 1,352 |
| | 87% | | 107.6% | | 4.97% | | 3.30% | | 67 | | 8% |
5.0% | | 119 |
| | 127 |
| | 130 |
| | 65% | | 106.8% | | 5.45% | | 3.73% | | 104 | | 10% |
≥ 5.5% | | 120 |
| | 132 |
| | 133 |
| | 38% | | 110.0% | | 6.20% | | 3.40% | | 122 | | 14% |
Total 30-year | | 38,704 |
| | 40,677 |
| | 40,045 |
| | 56% | | 105.4% | | 4.19% | | 2.86% | | 40 | | 7% |
Total fixed rate | | $ | 54,065 |
| | $ | 56,460 |
| | $ | 55,901 |
| | 58% | | 104.6% | | 4.05% | | 2.73% | | 46 | | 8% |
_______________ | |
1. | Lower loan balance securities represent pools backed by an original loan balance of ≤ $150,000. Our lower loan balance securities had a weighted average original loan balance of $97,000 and $100,000 for 15-year and 30-year securities, respectively, as of December 31, 2016. |
| |
2. | HARP securities are defined as pools backed by 100% refinance loans with LTVs ≥ 80%. Our HARP securities had a weighted average LTV of 113% and 135% for 15-year and 30-year securities, respectively, as of December 31, 2016. |
| |
3. | WAC represents the weighted average coupon of the underlying collateral. |
| |
4. | Portfolio yield incorporates a projected life CPR assumption based on forward rate assumptions as of December 31, 2016. |
1.Specified pools include pools backed by lower balance loans with original loan balances of up to $200K, HARP pools (defined as pools that were issued between May 2009 and December 2018 and backed by 100% refinance loans with original LTVs ≥ 80%), and pools backed by loans 100% originated in New York and Puerto Rico. As of September March 31, 2024, lower balance specified pools had a weighted average original loan balance of $188,000 and $153,000 for 15-year and 30-year securities, respectively, and HARP pools had a weighted average original LTV of 128% and 141% for 15-year and 30-year securities, respectively.
2.Portfolio yield incorporates a projected life CPR based on forward rate assumptions as of March 31, 2024.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2023 |
| | Includes Net TBA Position | | Excludes Net TBA Position |
Fixed Rate Agency RMBS and TBA Securities | | Par Value | | Amortized Cost | | Fair Value | | Specified Pool % 1 | | Weighted Average Coupon | | Amortized Cost Basis | | Weighted Average | | Projected CPR 2 |
| Yield 2 | | Age (Months) |
Fixed rate | | | | | | | | | | | | | | | | | | |
≤ 15-year: | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
≤ 2.5% | | 58 | | | 59 | | | 54 | | | 100% | | 2.16% | | 101.7% | | 1.77% | | 65 | | 10% |
3.0% | | 442 | | | 450 | | | 423 | | | 99% | | 3.00% | | 101.5% | | 2.54% | | 71 | | 10% |
3.5% | | 14 | | | 14 | | | 13 | | | 100% | | 3.50% | | 101.5% | | 2.60% | | 126 | | 14% |
4.0% | | 229 | | | 235 | | | 227 | | | 95% | | 4.00% | | 102.8% | | 2.98% | | 70 | | 13% |
4.5% | | 1 | | | 1 | | | 1 | | | 99% | | 4.50% | | 101.7% | | 2.70% | | 154 | | 21% |
≥ 5.0% | | 90 | | | 89 | | | 91 | | | —% | | 5.00% | | 100.9% | | 2.54% | | 168 | | 41% |
Total ≤ 15-year | | 834 | | | 848 | | | 809 | | | 87% | | 3.44% | | 101.9% | | 2.62% | | 71 | | 11% |
20-year: | | | | | | | | | | | | | | | | | | |
≤ 2.0% | | 219 | | | 225 | | | 188 | | | —% | | 2.00% | | 102.6% | | 1.58% | | 37 | | 5% |
2.5% | | 337 | | | 352 | | | 301 | | | —% | | 2.50% | | 104.7% | | 1.72% | | 42 | | 6% |
3.0% | | 27 | | | 28 | | | 25 | | | 97% | | 3.00% | | 103.6% | | 2.28% | | 53 | | 8% |
3.5% | | 117 | | | 119 | | | 113 | | | 79% | | 3.50% | | 101.7% | | 2.96% | | 125 | | 10% |
≥ 4.0% | | 142 | | | 148 | | | 141 | | | 96% | | 4.26% | | 104.3% | | 3.14% | | 83 | | 11% |
Total 20-year: | | 842 | | | 872 | | | 768 | | | 32% | | 2.82% | | 103.6% | | 2.11% | | 59 | | 7% |
30-year: | | | | | | | | | | | | | | | | | | |
≤ 3.0% | | 3,816 | | | 3,861 | | | 3,263 | | | 55% | | 2.43% | | 101.0% | | 2.28% | | 34 | | 6% |
3.5% | | 5,580 | | | 5,811 | | | 5,230 | | | 86% | | 3.50% | | 104.1% | | 2.84% | | 97 | | 7% |
4.0% | | 6,586 | | | 6,960 | | | 6,358 | | | 92% | | 4.00% | | 105.7% | | 3.08% | | 80 | | 8% |
4.5% | | 6,542 | | | 6,763 | | | 6,426 | | | 64% | | 4.50% | | 103.9% | | 3.83% | | 46 | | 8% |
5.0% | | 9,696 | | | 9,719 | | | 9,657 | | | 39% | | 5.00% | | 100.5% | | 4.91% | | 14 | | 9% |
5.5% | | 12,352 | | | 12,391 | | | 12,486 | | | 25% | | 5.50% | | 100.6% | | 5.39% | | 10 | | 12% |
6.0% | | 9,305 | | | 9,384 | | | 9,507 | | | 22% | | 6.00% | | 101.0% | | 5.71% | | 7 | | 19% |
≥ 6.5% | | 3,889 | | | 3,968 | | | 4,011 | | | 29% | | 6.50% | | 102.3% | | 5.78% | | 6 | | 21% |
Total 30-year | | 57,766 | | | 58,857 | | | 56,938 | | | 46% | | 4.88% | | 102.2% | | 4.41% | | 35 | | 11% |
Total fixed rate | | $ | 59,442 | | | $ | 60,577 | | | $ | 58,515 | | | 47% | | 4.83% | | 102.2% | | 4.34% | | 35 | | 11% |
1.See Note 1 of preceding table for specified pool composition. As of December 31, 2016,2023, lower balance specified pools had a weighted average original loan balance of $132,000 and $153,000 for 15-year and 30-year securities, respectively, and HARP pools had a weighted average original LTV of 128% and 141% for 15-year and 30-year securities, respectively.
2.Portfolio yield incorporates a projected life CPR based on forward rate assumptions as of December 31, 2023.
For additional details regarding our investments in CRT and non-Agency securities, had the followingincluding credit ratings:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
CRT and Non-Agency Security Credit Ratings 1 | | CRT | | RMBS | | CMBS | | CRT | | RMBS | | CMBS |
AAA | | $ | — |
| | $ | 7 |
| | $ | — |
| | $ | — |
| | $ | 99 |
| | $ | — |
|
BBB | | — |
| | — |
| | 29 |
| | — |
| | — |
| | 23 |
|
BB | | 65 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
B | | 633 |
| | — |
| | — |
| | 164 |
| | 2 |
| | — |
|
Not Rated | | 19 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total | | $ | 717 |
| | $ | 7 |
| | $ | 29 |
| | $ | 164 |
| | $ | 101 |
| | $ | 23 |
|
________________________
| |
1. | Represents the lowest of Standardratings, as of March 31, 2024 and Poor's ("S&P"), Moody's and Fitch credit ratings, stated in terms of the S&P equivalent rating as of each date. |
Our CRT securities reference the performance of loans underlying Agency RMBS issued by Fannie Mae or Freddie Mac, which were subject to their underwriting standards. As of September 30, 2017, our CRT securities had floating rate coupons ranging from 3.7% to 7.6%, referenced to loans originated between 2012 and 2017 with weighted average coupons ranging from 3.6% to 4.3%. As of December 31, 2016,2023, please refer to Note 3 of our CRT securities had floating rate coupons ranging from 4.6% to 7.1%, referenced to loans originated between 2015 and 2016 with weighted average coupons ranging from 4.0% to 4.2%.
Consolidated Financial Statements in this Form 10-Q.
RESULTS OF OPERATIONS
Non-GAAP Financial Measures
In addition to the results presented in accordance with GAAP, our results of operations discussed below include certain non-GAAP financial information, including "adjusted net"economic interest income," "economic interest expense," and "net spread and dollar roll income" "net spread and dollar roll income, excluding 'catch-up' premium amortization," "estimated taxable income" available to common stockholders"1 and the related per common share measures and certain financial metrics derived from such non-GAAP information, suchinformation.
"Economic interest income" is measured as "cost of funds"interest income (GAAP measure), adjusted to (i) exclude retrospective "catch-up" adjustments to premium amortization cost associated with changes in projected CPR estimates and "net(ii) include TBA dollar roll implied interest rate spread."
"Adjusted netincome. "Economic interest expense" is measured as interest expense (GAAP measure) adjusted to include TBA dollar roll implied interest expense/benefit and interest rate swap periodic costs. "Net spread and dollar roll income" is measured as (i) net interest income (GAAP measure) adjusted to include interest rate swap periodic costs, TBA dollar roll income, management fee income and dividends on REIT equity securities (referred to as "adjusted net interest and dollar roll income") less (ii) total operating expenses (GAAP measure) adjusted to exclude non-recurring transaction costs (referred to as "adjusted operating expenses").cost/income. "Net spread and dollar roll income excluding 'catch-up' premium amortization," further excludesavailable to common stockholders" is measured as comprehensive income (loss) available (attributable) to common stockholders (GAAP measure) adjusted to: (i) exclude gains/losses on investment securities recognized through net income and other comprehensive income and gains/losses on derivative instruments and other securities (GAAP measures); (ii) exclude retrospective "catch-up" adjustments to premium amortization cost or benefit due toassociated with changes in projected CPR estimates.estimates; and (iii) include interest rate swap periodic income/cost, TBA dollar roll income and other interest income/expense. As defined "Net
spread and dollar roll income available to common stockholders" includes (i) the components of "economic interest income" and "economic interest expense", plus (ii) other interest income/expense, and less (iii) total operating expenses and dividends on preferred stock (GAAP measures).
By providing such measures, in addition to the related GAAP measures, we believe we give greater transparency into the information used by our management in its financial and operational decision-making. We also believe it is important for users of our financial information to consider information related to our current financial performance without the effects of certain measures and one-time events that are not necessarily indicative of our current investment portfolio performance and operations.
Specifically, in the case of "adjusted net interest"net spread and dollar roll income available to common stockholders" and components of such measure, "economic interest income" and "economic interest expense," we believe the inclusion of TBA dollar roll income is meaningful as TBAs, which are accounted for under GAAP as derivative instruments with gains and losses recognized in other gain (loss) in our consolidated statement of comprehensive income, are economically equivalent to holding and financing generic Agency RMBS using short-term repurchase agreements. Similarly, we believe that the inclusion of periodic interest rate swap settlements in such measure and in "adjusted net interest expense" is meaningful as interest rate swaps are the primary instrument we use to economically hedge against fluctuations in our borrowing costs and it is more indicative of our total cost of funds than interest expense alone. In the case of "net spread and dollar roll income, excluding 'catch-up' premium amortization,"Additionally, we believe the exclusion of "catch-up" adjustments to premium amortization cost or benefitadjustments is meaningful as it excludes the cumulative effect from prior reporting periods due to current changes in future prepayment expectations and, therefore, exclusion of such cost or benefitadjustments is more indicative of the current earnings potential of our investment portfolio. We also believe the exclusion of issuance costs of redeemed preferred stock reported as a reduction to net income available to common stockholders under GAAP and transactions costs associated with our acquisition of AMM reported in general, administrative and other expense under GAAP is meaningful as they represent non-recurring transaction costs and are not representative of our ongoing operating costs. In the case of estimated taxable income, we believe it is meaningful information because it directly relates to the amount of dividends we are required to distribute in order to maintain our REIT qualification status.
However, because such measures are incomplete measures of our financial performance and involve differences from results computed in accordance with GAAP, they should be considered as supplementary to, and not as a substitute for, results computed in accordance with GAAP. In addition, because not all companies use identical calculations, our presentation of such non-GAAP measures may not be comparable to other similarly-titledsimilarly titled measures of other companies. Furthermore, estimated taxable
1.Prior to December 31, 2023, "Net spread and dollar roll income can include certain information that is subjectavailable to potential adjustments upcommon stockholders" was referred to the time of filing ouras "net spread and dollar roll income, tax returns, which occurs after the end of our fiscal year.excluding 'catch-up' premium amortization, available to common stockholders". "Net spread and dollar roll income available to common stockholders" continues to exclude "catch-up" premium amortization.
Item 6. Selected Financial Data
The following selected financial data is derived from our interim consolidated financial statements and the notes thereto. The tables below present our condensed consolidated balance sheets as of September 30, 2017March 31, 2024 and December 31, 20162023 and our condensed consolidated statements of comprehensive income and key statistics for the three and nine months ended September 30, 2017March 31, 2024 and 2016 (in2023(in millions, except per share amounts):
| | | | | | | | | | | | | | | | |
| | |
| | March 31, | | December 31, | | |
Balance Sheet Data | | 2024 | | 2023 | | |
| | (Unaudited) | | | | |
Investment securities, at fair value of $54,776 and $54,824, respectively, and other mortgage credit investments | | $ | 54,835 | | | $ | 54,868 | | | |
Total assets | | $ | 71,876 | | | $ | 71,596 | | | |
Repurchase agreements and other debt | | $ | 50,047 | | | $ | 50,506 | | | |
Total liabilities | | $ | 63,298 | | | $ | 63,339 | | | |
Total stockholders' equity | | $ | 8,578 | | | $ | 8,257 | | | |
Net book value per common share 1 | | $ | 9.57 | | | $ | 9.46 | | | |
Tangible net book value per common share 2 | | $ | 8.84 | | | $ | 8.70 | | | |
|
| | | | | | | | |
($ in millions, except per share amounts) | | | | |
Balance Sheet Data | | September 30, 2017 | | December 31, 2016 |
Investment securities, at fair value | | $ | 53,091 |
| | $ | 46,499 |
|
Total assets | | $ | 65,490 |
| | $ | 56,880 |
|
Repurchase agreements, Federal Home Loan Bank advances and other debt | | $ | 45,885 |
| | $ | 41,355 |
|
Total liabilities | | $ | 56,699 |
| | $ | 49,524 |
|
Total stockholders' equity | | $ | 8,791 |
| | $ | 7,356 |
|
Net asset value per common share 1 | | $ | 21.19 |
| | $ | 21.17 |
|
Tangible net asset value per common share 2 | | $ | 19.78 |
| | $ | 19.50 |
|
32
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
Statement of Comprehensive Income Data | | 2017 | | 2016 | | 2017 | | 2016 |
Interest income | | $ | 318 |
| | $ | 315 |
| | $ | 907 |
| | $ | 928 |
|
Interest expense | | 140 |
| | 96 |
| | 350 |
| | 296 |
|
Net interest income | | 178 |
| | 219 |
| | 557 |
| | 632 |
|
Other gain (loss), net | | 125 |
| | 307 |
| | (121 | ) | | (940 | ) |
Operating expenses | | 17 |
| | 15 |
| | 50 |
| | 88 |
|
Net income (loss) | | 286 |
| | 511 |
| | 386 |
| | (396 | ) |
Dividend on preferred stock | | 9 |
| | 7 |
| | 23 |
| | 21 |
|
Issuance costs of redeemed preferred stock | | 6 |
| | — |
| | 6 |
| | — |
|
Net income (loss) available (attributable) to common stockholders | | $ | 271 |
| | $ | 504 |
| | $ | 357 |
| | $ | (417 | ) |
| | | | | | | | |
Net income (loss) | | $ | 286 |
| | $ | 511 |
| | $ | 386 |
| | $ | (396 | ) |
Other comprehensive income (loss) | | 90 |
| | (90 | ) | | 257 |
| | 1,076 |
|
Comprehensive income | | 376 |
| | 421 |
| | 643 |
| | 680 |
|
Dividend on preferred stock | | 9 |
| | 7 |
| | 23 |
| | 21 |
|
Issuance costs of redeemed preferred stock | | 6 |
| | — |
| | 6 |
| | — |
|
Comprehensive income available to common stockholders | | $ | 361 |
| | $ | 414 |
| | $ | 614 |
| | $ | 659 |
|
| | | | | | | | |
Weighted average number of common shares outstanding - basic | | 364.7 |
| | 331.0 |
| | 347.5 |
| | 332.1 |
|
Weighted average number of common shares outstanding - diluted | | 364.9 |
| | 331.0 |
| | 347.6 |
| | 332.1 |
|
Net income (loss) per common share - basic and diluted | | $ | 0.74 |
| | $ | 1.52 |
| | $ | 1.03 |
| | $ | (1.26 | ) |
Comprehensive income per common share - basic and diluted | | $ | 0.99 |
| | $ | 1.25 |
| | $ | 1.77 |
| | $ | 1.98 |
|
Dividends declared per common share | | $ | 0.54 |
| | $ | 0.56 |
| | $ | 1.62 |
| | $ | 1.76 |
|
| | | | | | | | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31, |
Statement of Comprehensive Income Data (Unaudited) | | | | | | 2024 | | 2023 | | |
Interest income | | | | | | $ | 642 | | | $ | 351 | | | |
Interest expense | | | | | | 672 | | | 449 | | | |
Net interest income (expense) | | | | | | (30) | | | (98) | | | |
Other gain (loss), net | | | | | | 497 | | | (31) | | | |
Operating expenses | | | | | | 24 | | | 22 | | | |
Net income (loss) | | | | | | 443 | | | (151) | | | |
Dividends on preferred stock | | | | | | 31 | | | 30 | | | |
| | | | | | | | | | |
Net income (loss) available (attributable) to common stockholders | | | | | | $ | 412 | | | $ | (181) | | | |
| | | | | | | | | | |
Net income (loss) | | | | | | $ | 443 | | | $ | (151) | | | |
Other comprehensive income (loss), net | | | | | | (77) | | | 142 | | | |
Comprehensive income (loss) | | | | | | 366 | | | (9) | | | |
Dividends on preferred stock | | | | | | 31 | | | 30 | | | |
| | | | | | | | | | |
Comprehensive income (loss) available (attributable) to common stockholders | | | | | | $ | 335 | | | $ | (39) | | | |
| | | | | | | | | | |
Weighted average number of common shares outstanding - basic | | | | | | 702.2 | | | 579.3 | | | |
Weighted average number of common shares outstanding - diluted | | | | | | 704.2 | | | 579.3 | | | |
Net income (loss) per common share - basic | | | | | | $ | 0.59 | | | $ | (0.31) | | | |
Net income (loss) per common share - diluted | | | | | | $ | 0.59 | | | $ | (0.31) | | | |
Comprehensive income (loss) per common share - basic | | | | | | $ | 0.48 | | | $ | (0.07) | | | |
Comprehensive income (loss) per common share - diluted | | | | | | $ | 0.48 | | | $ | (0.07) | | | |
Dividends declared per common share | | | | | | $ | 0.36 | | | $ | 0.36 | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31, |
Other Data (Unaudited) * | | | | | | 2024 | | 2023 | | |
Average investment securities - at par | | | | | | $ | 55,455 | | | $ | 46,374 | | | |
Average investment securities - at cost | | | | | | $ | 56,664 | | | $ | 47,846 | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Average net TBA dollar roll position - at cost | | | | | | $ | 6,190 | | | $ | 17,851 | | | |
Average total assets - at fair value | | | | | | $ | 70,731 | | | $ | 58,267 | | | |
Average repurchase agreements and other debt outstanding 3 | | | | | | $ | 48,730 | | | $ | 39,824 | | | |
Average stockholders' equity 4 | | | | | | $ | 8,328 | | | $ | 8,053 | | | |
Average tangible net book value "at risk" leverage 5 | | | | | | 7.0:1 | | 7.7:1 | | |
Tangible net book value "at risk" leverage (as of period end) 6 | | | | | | 7.1:1 | | 7.2:1 | | |
Economic return on tangible common equity 7 | | | | | | 5.7 | % | | (0.7) | % | | |
Expenses % of average total assets - annualized | | | | | | 0.14 | % | | 0.15 | % | | |
Expenses % of average assets, including average net TBA position - annualized | | | | | | 0.12 | % | | 0.12 | % | | |
Expenses % of average stockholders' equity - annualized | | | | | | 1.15 | % | | 1.09 | % | | |
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
Other Data (unaudited) * | | 2017 | | 2016 | | 2017 | | 2016 |
Average investment securities - at par | | $44,672 | | $46,372 | | $42,959 | | $48,201 |
Average investment securities - at cost | | $46,808 | | $48,548 | | $44,977 | | $50,388 |
Average net TBA portfolio - at cost | | $18,616 | | $10,748 | | $16,355 | | $9,050 |
Average total assets - at fair value | | $58,848 | | $57,088 | | $55,902 | | $57,361 |
Average mortgage borrowings outstanding 3 | | $41,406 | | $44,401 | | $39,859 | | $45,753 |
Average stockholders' equity 4 | | $8,134 | | $7,803 | | $7,695 | | $7,785 |
Average coupon 5 | | 3.72 | % | | 3.65 | % | | 3.69 | % | | 3.64 | % |
Average asset yield 6 | | 2.72 | % | | 2.60 | % | | 2.69 | % | | 2.46 | % |
Average cost of funds 7 | | (1.59 | )% | | (1.32 | )% | | (1.53 | )% | | (1.47 | )% |
Average net interest rate spread | | 1.13 | % | | 1.28 | % | | 1.16 | % | | 0.99 | % |
Average net interest rate spread, including TBA dollar roll income 8 | | 1.34 | % | | 1.42 | % | | 1.43 | % | | 1.18 | % |
Average coupon (as of period end) | | 3.67 | % | | 3.64 | % | | 3.67 | % | | 3.64 | % |
Average asset yield (as of period end) | | 2.85 | % | | 2.68 | % | | 2.85 | % | | 2.68 | % |
Average cost of funds (as of period end) 9 | | (1.61 | )% | | (1.30 | )% | | (1.61 | )% | | (1.30 | )% |
Average net interest rate spread (as of period end) | | 1.24 | % | | 1.38 | % | | 1.24 | % | | 1.38 | % |
Economic return on common equity - unannualized 10 | | 4.5 | % | | 5.6 | % | | 7.7 | % | | 9.2 | % |
Economic return on tangible common equity - unannualized 11 | | 5.6 | % | | N/A |
| | 9.7 | % | | N/A |
|
Average "at risk" leverage 12 | | 7.4:1 |
| | 7.1:1 |
| | 7.3:1 |
| | 7.1:1 |
|
Average tangible net book value "at risk" leverage 14 | | 7.9:1 |
| | 7.6:1 |
| | 7.9:1 |
| | 7.3:1 |
|
"At risk" leverage (as of period end) 13 | | 7.6:1 |
| | 7.2:1 |
| | 7.6:1 |
| | 7.2:1 |
|
Tangible net book value "at risk" leverage (as of period end) 14 | | 8.0:1 |
| | 7.7:1 |
| | 8.0:1 |
| | 7.7:1 |
|
Expenses % of average total assets | | 0.12 | % | | 0.10 | % | | 0.12 | % | | 0.20 | % |
Expenses % of average assets, including average net TBA position | | 0.09 | % | | 0.09 | % | | 0.09 | % | | 0.18 | % |
Expenses % of average stockholders' equity | | 0.84 | % | | 0.76 | % | | 0.87 | % | | 1.51 | % |
_______________________
* Except as noted below, average numbers for each period are weighted based on days on our books and records. All percentages are annualized, unless otherwise noted.
N/A - Not applicable1.Net book value per common share is calculated as total stockholders' equity, less preferred stock liquidation preference, divided by number of common shares outstanding as of period end.
2.Tangible net book value per common share excludes goodwill.
| |
1. | Net asset value per common share is calculated as our total stockholders' equity, less our preferred stock liquidation preference, divided by our number of common shares outstanding as of period end. |
| |
2. | Tangible net asset value per common share excludes goodwill and other intangible assets, net. |
| |
3. | Average mortgage borrowings include repurchase agreements used to fund Agency securities ("Agency repo"), FHLB advances and debt of consolidated VIEs. Amount excludes U.S. Treasury repo agreements and TBA contracts. |
| |
4. | Average stockholders' equity calculated as our average month-ended stockholders' equity during the period. |
| |
5. | Average coupon for the period was calculated by dividing our total coupon (or cash) interest income on investment securities by our average investment securities held at par. |
| |
6. | Average asset yield for the period was calculated by dividing our total cash interest income on investment securities, adjusted for amortization of premiums and discounts, by our average amortized cost of investment securities held. |
| |
7. | Average cost of funds includes mortgage borrowings and interest rate swap periodic costs. Amount excludes interest rate swap termination fees, forward starting swaps and costs associated with other supplemental hedges, such as interest rate swaptions and U.S. Treasury positions. Average cost of funds for the period was calculated by dividing our total cost of funds by our average mortgage borrowings outstanding for the period. |
| |
8. | TBA dollar roll income/(loss) is net of short TBAs used for hedging purposes and is recognized in gain (loss) on derivative instruments and other securities, net. |
| |
9. | Average cost of funds as of period end includes mortgage borrowings outstanding and interest rate swap hedges. Amount excludes costs associated with other supplemental hedges such as swaptions, U.S. Treasuries and TBA positions. |
| |
10. | 3.Amount represents the daily weighted average repurchase agreements outstanding for the period used to fund our investment securities and other debt. Amount excludes U.S. Treasury repurchase agreements and TBA contracts. Other debt includes debt of consolidated VIEs. 4.Average stockholders' equity calculated as average month-ended stockholders' equity during the period. 5.Average tangible net book value "at risk" leverage is calculated by dividing the sum of daily weighted average repurchase agreements used to fund our investment securities, other debt, and TBA and forward settling securities (at cost) (collectively "mortgage borrowings") outstanding for the period by the sum of average stockholders' equity adjusted to exclude goodwill for the period. Leverage excludes U.S. Treasury repurchase agreements. 6.Tangible net book value "at risk" leverage as of period end is calculated by dividing the sum of mortgage borrowings outstanding and receivable/payable for unsettled investment securities as of period end by the sum of total stockholders' equity adjusted to exclude goodwill as of period end. Leverage excludes U.S. Treasury repurchase agreements.
7.Economic return on tangible common equity represents the sum of the change in tangible net book value per common share and dividends declared per share of common stock during the period over beginning tangible net book value per common share. Economic return on common equity represents the sum of the change in our net asset value per common share and our dividends declared on common stock during the period over our beginning net asset value per common share. |
| |
11. | Economic return on tangible common equity represents the sum of the change in our tangible net asset value per common share and our dividends declared on common stock during the period over our beginning tangible net asset value per common share. |
| |
12. | Average "at risk" leverage is calculated by dividing the sum of our daily weighted average mortgage borrowings and net TBA position (at cost) outstanding for the period by the sum of our average stockholders' equity less our average investment in REIT equity securities for the period. Leverage excludes U.S. Treasury repurchase agreements. |
| |
13. | "At risk" leverage as of period end is calculated by dividing the sum of our mortgage borrowings outstanding, our receivable/payable for unsettled investment securities and our net TBA position outstanding as of period end (at cost) by the sum of our total stockholders' equity less the fair value of investments in REIT equity securities at period end. Leverage excludes U.S. Treasury repurchase agreements. |
| |
14. | Tangible net book value "at risk" leverage includes the components of "at risk" leverage, with stockholders' equity adjusted to exclude goodwill and other intangible assets, net. |
Interest Income and Asset YieldYields
The following table summarizes our economic interest income (a non-GAAP measure) for the three and nine months ended September 30, 2017March 31, 2024 and 20162023, which includes the combination of interest income (a GAAP measure) on our holdings reported as investment securities on our consolidated balance sheets, adjusted to exclude estimated "catch-up" premium amortization adjustments for the cumulative effect from prior reporting periods due to changes in our CPR forecast, and implied interest income on our TBA securities (dollars in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31, |
| | | | | | 2024 | | 2023 | | |
| | | | | | | | | | Amount | | Yield | | Amount | | Yield | | | | |
Interest income: | | | | | | | | | | | | | | | | | | | | |
Cash/coupon interest income | | | | | | | | | | $ | 679 | | | 4.90 | % | | $ | 471 | | | 4.06 | % | | | | |
Net premium amortization benefit (cost) | | | | | | | | | | (37) | | | (0.37) | % | | (120) | | | (1.13) | % | | | | |
Interest income (GAAP measure) | | | | | | | | | | 642 | | | 4.53 | % | | 351 | | | 2.93 | % | | | | |
Estimated "catch-up" premium amortization cost (benefit) due to change in CPR forecast | | | | | | | | | | (10) | | | (0.07) | % | | 69 | | | 0.58 | % | | | | |
Interest income, excluding "catch-up" premium amortization | | | | | | | | | | 632 | | | 4.46 | % | | 420 | | | 3.51 | % | | | | |
TBA dollar roll income - implied interest income 1,2 | | | | | | | | | | 84 | | | 5.40 | % | | 220 | | | 4.93 | % | | | | |
Economic interest income (non-GAAP measure) 3 | | | | | | | | | | $ | 716 | | | 4.56 | % | | $ | 640 | | | 3.90 | % | | | | |
| | | | | | | | | | | | | | | | | | | | |
Weighted average actual portfolio CPR for investment securities held during the period | | | | | | | | | | 5.7 | % | | | | 5.2 | % | | | | | | |
Weighted average projected CPR for the remaining life of investment securities held as of period end | | | | | | | | | | 10.4 | % | | | | 10.0 | % | | | | | | |
30-year fixed rate mortgage rate as of period end 4 | | | | | | | | | | 6.74 | % | | | | 6.40 | % | | | | | | |
10-year U.S. Treasury rate as of period end 4 | | | | | | | | | | 4.20 | % | | | | 3.47 | % | | | | | | |
1.Reported in gain (loss) on derivatives instruments and other securities, net in the accompanying consolidated statements of operations. |
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| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| Amount | | Yield | | Amount | | Yield | | Amount | | Yield | | Amount | | Yield |
Cash/coupon interest income | $ | 415 |
| | 3.72 | % | | $ | 425 |
| | 3.65 | % | | $ | 1,189 |
| | 3.69 | % | | $ | 1,322 |
| | 3.64 | % |
Net premium amortization | (97 | ) | | (1.00 | )% | | (110 | ) | | (1.05 | )% | | (282 | ) | | (1.00 | )% | | (394 | ) | | (1.18 | )% |
Interest income | $ | 318 |
| | 2.72 | % | | $ | 315 |
| | 2.60 | % | | $ | 907 |
| | 2.69 | % | | $ | 928 |
| | 2.46 | % |
Weighted average actual portfolio CPR for securities held during the period | 12.1 | % | | | | 14.3 | % | | | | 11.2 | % | | | | 11.7 | % | | |
Weighted average projected CPR for the remaining life of securities held as of period end | 8.5 | % | | | | 10.6 | % | | | | 8.5 | % | | | | 10.6 | % | | |
Average 30-year fixed rate mortgage rate as of period end 1 | 3.83 | % | | | | 3.42 | % | | | | 3.83 | % | | | | 3.42 | % | | |
10-year U.S. Treasury rate as of period end | 2.33 | % | | | | 1.61 | % | | | | 2.33 | % | | | | 1.61 | % | | |
2.Implied interest income from TBA dollar roll transactions is computed as the sum of (i) TBA dollar roll income and (ii) estimated TBA implied funding cost (see Economic Interest Expense and Aggregate Cost of Funds below). TBA dollar roll income represents the price differential, or "price drop," between the TBA price for current month settlement versus the TBA price for forward month settlement and is the economic equivalent to interest income on the underlying Agency securities, less an implied funding cost, over the forward settlement period. Amount is net of TBAs used for hedging purposes. Amount excludes TBA mark-to-market adjustments._______________________3.The combined asset yield is calculated on a weighted average basis based on our average investment and TBA balances outstanding during the period and their respective yields.
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1. | Source: Freddie Mac Primary Fixed Mortgage Rate Mortgage Market Survey |
4.30-year fixed rate mortgage rates are sourced from Optimal Blue. 10-year U.S. Treasury rates are sourced from Bloomberg.
The principal elements impacting our economic interest income are the average size of our average investment portfolio and the average yield on our investments.securities. The following istable includes a summary of the estimated impact of each of these elements on the increase / (decrease) inour economic interest income for the three and nine months ended September 30, 2017March 31, 2024 compared to the prior year period (in millions):
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Impact of Changes in the Principal Elements Impacting Economic Interest Income |
Three Months Ended March 31, 2024 vs. March 31, 2023 |
| | | | Due to Change in Average |
| | Total Increase / (Decrease) | | Portfolio Size | | Asset Yield |
Interest Income (GAAP measure) | | $ | 291 | | | $ | 65 | | | $ | 226 | |
Estimated "catch-up" premium amortization due to change in CPR forecast | | (79) | | | — | | | (79) | |
Interest income, excluding "catch-up" premium amortization | | 212 | | | 65 | | | 147 | |
TBA dollar roll income - implied interest income | | (136) | | | (144) | | | 8 | |
Economic interest income, excluding "catch-up" amortization (non-GAAP measure) | | $ | 76 | | | $ | (79) | | | $ | 155 | |
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Impact of Changes in the Principal Elements Impacting Interest Income |
Periods ended September 30, 2017 vs. September 30, 2016 |
| | | Due to Change in Average |
| Total Increase / (Decrease) | | Portfolio Size | | Asset Yield |
Three months ended | $ | 3 |
| | $ | (11 | ) | | $ | 14 |
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Nine months ended | $ | (21 | ) | | $ | (100 | ) | | $ | 79 |
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The size of ourOur average investment portfolio (at cost), inclusive of TBAs, decreased in par value relative to the prior year period by 4% and 11% for the three and nine months ended September 30, 2017, respectively,March 31, 2024. The decline was primarily due to operating with lower "at risk" leverage, partly offset by a relative shift ofmodest increase in our average stockholders' equity. The average yield on our investment portfolio, toincluding TBA contracts recognized as derivative assets / (liabilities) on our consolidated financial statements, which was partly offset by an overall increase in our investment portfolio as a function of new equity issuances during 2017.
Our averageimplied asset yieldyields and excluding "catch-up" premium amortization, increased to 2.72% and 2.69%66 basis points for the three and nine months ended September 30, 2017, respectively, compared to 2.60%March 31, 2024 largely as a result of shifting
our asset portfolio away from TBA and 2.46%, respectively, for the prior year period. Our average asset yield includes "catch-up" premium amortization cost due to changes in CPR forecastslower coupon holdings toward a greater share of $12 million and $34 million for the three and nine months ended September 30, 2017, respectively, compared to $8 million and $95 million, respectively, for the prior year period. Excluding "catch-up" premium amortization cost, our average asset yield increased to 2.82% and 2.79% for the three and nine months ended September 30, 2017, respectively, compared to 2.66% and 2.70%, respectively, for the prior year period, largely due to the combination of changes in asset composition and higher yields on new asset purchases.coupon, high-quality specified pools.
Leverage
Our primary measure of leverage is our tangible net book value "at risk" leverage ratio. Tangible net book value "at risk" leverageratio, which is measured as the sum of our mortgage borrowings (consisting of repurchase agreements and other debt used to fund our investment securities ("Agency repo"), debt of consolidated VIEs and FHLB advances), net TBA and forward settling securities position (at cost) (together referred to as "mortgage borrowings") and our net receivable /payablereceivable/payable for unsettled investment securities, divided by the sum of our total stockholders' equity adjusted to exclude goodwill and other intangible assets related to our acquisition of AMM on July 1, 2016.goodwill.
We include our net TBA position in our measure of leverage because a forward contract to acquire Agency RMBS in the TBA market carries similar risks to Agency RMBS purchased in the cash market and funded with on-balance sheet liabilities. Similarly, a TBA contract for the forward sale of Agency securities has substantially the same effect as selling the underlying Agency RMBS and reducing our on-balance sheet funding commitments. (Refer to Liquidity and Capital Resources in this Form 10-Q for further discussion of TBA securities and dollar roll transactions). Repurchase agreements used to fund short-term investments in U.S.
Treasury securities ("U.S. Treasury repo") are excluded from our measure of leverage due to the temporary and highly liquid nature of these investments. The following table presents a summary of our leverage ratios for the periods listed (dollars in millions):
Our | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Investment Securities Repurchase Agreements and Other Debt 1 | | Net TBA Position Long/(Short) 2 | | Average Tangible Net Book Value "At Risk" Leverage during the Period 3 | | Tangible Net Book Value "At Risk" Leverage as of Period End 4 |
Quarter Ended | | Average Daily Amount | | Maximum Daily Amount | | Ending Amount | | Average Daily Amount | | Ending Amount | |
March 31, 2024 | | $ | 48,730 | | | $ | 49,894 | | | $ | 48,216 | | | $ | 6,190 | | | $ | 8,405 | | | 7.0:1 | | 7.1:1 |
December 31, 2023 | | $ | 47,548 | | | $ | 52,643 | | | $ | 48,959 | | | $ | 4,993 | | | $ | 5,288 | | | 7.4:1 | | 7.0:1 |
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March 31, 2023 | | $ | 39,824 | | | $ | 42,919 | | | $ | 42,022 | | | $ | 17,851 | | | $ | 10,385 | | | 7.7:1 | | 7.2:1 |
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1.Other debt includes debt of consolidated VIEs. Amounts exclude U.S. Treasury repo agreements.
2.Daily average and ending net TBA position outstanding measured at cost. Includes forward settling non-Agency securities.
3.Average tangible net book value "at risk" leverage was 8.0xduring the period represents the sum of our daily weighted average repurchase agreements and 7.7xother debt used to fund acquisitions of investment securities and net TBA and forward settling securities position outstanding, divided by the sum of our average month-ended stockholders' equity, adjusted to exclude goodwill.
4.Tangible net book value "at risk" leverage as of September 30, 2017period end represents the sum of our repurchase agreements and December 31, 2016, respectively. The table below presents our average and quarter-end mortgage borrowings,other debt used to fund acquisitions of investments securities, net TBA and forward settling securities position (at cost), and leverage ratiosnet receivable/payable for the periods listed below (dollars in millions):unsettled investment securities outstanding as of period end, divided by total stockholders' equity, adjusted to exclude goodwill as of period end.
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| | Mortgage Borrowings 1 | | Net TBA Position Long/(Short) 2 | | Average Tangible Net Book Value "At Risk" Leverage during the Period 3 | | Average "At Risk" Leverage during the Period 4 | | Tangible Net Book Value "At Risk" Leverage as of Period End 3 | | "At Risk" Leverage as of Period End 5 |
Quarter Ended | | Average Daily Amount | | Maximum Daily Amount | | Ending Amount | | Average Daily Amount | | Ending Amount | |
September 30, 2017 | | $ | 41,406 |
| | $ | 47,442 |
| | $ | 45,885 |
| | $ | 18,616 |
| | $ | 19,433 |
| | 7.9:1 | | 7.4:1 | | 8.0:1 | | 7.6:1 |
June 30, 2017 | | $ | 38,945 |
| | $ | 40,112 |
| | $ | 39,463 |
| | $ | 16,931 |
| | $ | 17,283 |
| | 8.0:1 | | 7.4:1 | | 8.1:1 | | 7.5:1 |
March 31, 2017 | | $ | 39,203 |
| | $ | 41,221 |
| | $ | 39,809 |
| | $ | 13,460 |
| | $ | 14,377 |
| | 7.8:1 | | 7.2:1 | | 8.0:1 | | 7.4:1 |
December 31, 2016 | | $ | 41,031 |
| | $ | 42,157 |
| | $ | 41,183 |
| | $ | 14,141 |
| | $ | 11,312 |
| | 7.8:1 | | 7.3:1 | | 7.7:1 | | 7.1:1 |
September 30, 2016 | | $ | 44,401 |
| | $ | 46,555 |
| | $ | 41,154 |
| | $ | 10,748 |
| | $ | 15,540 |
| | 7.6:1 | | 7.1:1 | | 7.7:1 | | 7.2:1 |
June 30, 2016 | | $ | 46,948 |
| | $ | 48,875 |
| | $ | 45,502 |
| | $ | 8,238 |
| | $ | 6,975 |
| | N/A | | 7.2:1 | | N/A | | 7.2:1 |
March 31, 2016 | | $ | 45,926 |
| | $ | 49,767 |
| | $ | 48,875 |
| | $ | 8,144 |
| | $ | 5,983 |
| | N/A | | 7.0:1 | | N/A | | 7.3:1 |
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1. | Mortgage borrowings includes Agency repo, FHLB advances and debt of consolidated VIEs. Amounts exclude U.S. Treasury repo agreements. |
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2. | Daily average and ending net TBA position outstanding measured at cost. |
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3. | Tangible net book value "at risk" leverage includes the components of "at risk" leverage with stockholders' equity adjusted to exclude goodwill and other intangible assets, net. |
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4. | Average "at risk" leverage during the period was calculated by dividing the sum of our daily weighted average mortgage borrowings and net TBA position (at cost) outstanding during the period by the sum of our average month-ended stockholders' equity less our average investment in REIT equity securities for the period. |
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5. | "At risk" leverage as of period end is calculated by dividing the sum of our mortgage borrowings outstanding, our receivable/payable for unsettled investment securities and our net TBA dollar roll position outstanding as of period end (at cost) by the sum of our total stockholders' equity less the fair value of investments in REIT equity securities at period end. Leverage excludes U.S. Treasury repurchase agreements. |
Economic Interest Expense and Aggregate Cost of Funds
OurThe following table summarizes our economic interest expense is comprisedand aggregate cost of funds (non-GAAP measures) for the three months ended March 31, 2024 and 2023 (dollars in millions), which includes the combination of interest expense on Agency reporepurchase agreements and other mortgage borrowings. During 2016, interest expense also includes the reclassificationdebt used to fund acquisitions of accumulated OCI into interest expense related to previously de-designatedinvestment securities (GAAP measure), implied financing cost of our TBA securities and interest rate swaps.swap periodic income:
Our "adjusted net interest expense," also referred to as our "cost of funds" when stated as a percentage of our mortgage borrowings outstanding, includes periodic interest costs on our | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31, |
| | | | | | 2024 | | 2023 | | |
Economic Interest Expense and Aggregate Cost of Funds 1 | | | | | | | | | | Amount | | Cost of Funds | | Amount | | Cost of Funds | | | | |
Investment securities repurchase agreement and other debt - interest expense (GAAP measure) | | | | | | | | | | $ | 672 | | | 5.45 | % | | $ | 449 | | | 4.51 | % | | | | |
TBA dollar roll income - implied interest expense 2,3 | | | | | | | | | | 84 | | | 5.34 | % | | 202 | | | 4.53 | % | | | | |
Economic interest expense - before interest rate swap periodic income, net 4 | | | | | | | | | | 756 | | | 5.44 | % | | 651 | | | 4.52 | % | | | | |
Interest rate swap periodic income, net 2,5 | | | | | | | | | | (536) | | | (3.86) | % | | (504) | | | (3.50) | % | | | | |
Total economic interest expense (non-GAAP measure) | | | | | | | | | | $ | 220 | | | 1.58 | % | | $ | 147 | | | 1.02 | % | | | | |
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1.Amounts exclude interest rate swap termination fees and variation margin settlements paid or received, forward starting swaps reportedand 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. Our
3.The implied funding cost (benefit) of TBA dollar roll transactions is determined using the price differential, or "price drop," between the TBA price for current month settlement versus the TBA price for forward month settlement and market based assumptions regarding the "cheapest-to-deliver" collateral that can be delivered to satisfy the TBA contract, such as the anticipated collateral’s weighted average coupon, weighted average maturity and projected 1-month CPR. The average implied funding cost (benefit) for all TBA transactions is weighted based on our daily average TBA balance outstanding for the period.
4.The combined cost of funds does not include swap termination fees paid or received, forward starting swaps or the impact of other supplemental hedges, such as swaptions and U.S. Treasury positions. Our cost of funds also does not include the implied financing cost of our net TBA dollar roll position, although it includesfor total mortgage borrowings outstanding, before interest rate swap hedge costs related to ourperiodic income, is calculated on a weighted average basis based on average investment securities repurchase agreements, other debt and TBA dollar roll funded assets.
Our averagesecurities outstanding during the period and their respective cost of funds was 1.59% and 1.53%funds.
5.Interest rate swap periodic income is measured as a percent of our average mortgage borrowings outstanding for the three and nine months ended September 30, 2017, respectively, compared to 1.32% and 1.47% for the prior year period, respectively. The table below presents a reconciliation of our interest expense (the most comparable GAAP financial measure) to our adjusted net interest expense and cost of funds (non-GAAP financial measures) for the three and nine months ended September 30, 2017 and 2016 (dollars in millions):period.
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| | 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 | % |
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1. | Percent of our average mortgage borrowings outstanding for the period annualized. |
The principal elements impacting our adjusted neteconomic interest expense are (i) the size of our average mortgage borrowings and interest rate swap portfolio (excluding forward starting swaps) 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 istable includes a summary of the estimated impact of these elements on our adjusted neteconomic interest expense for the three and nine months ended September 30, 2017,March 31, 2024 compared to the prior year period (in millions):
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Impact of Changes in the Principal Elements of Economic Interest Expense |
Three Months Ended March 31, 2024 vs. March 31, 2023 |
| | | | Due to Change in Average |
| | Total Increase / (Decrease) | | Borrowing / Swap Balance | | Borrowing / Swap Rate |
Investment securities repurchase agreement and other debt interest expense | | $ | 223 | | | $ | 100 | | | $ | 123 | |
TBA dollar roll income - implied interest expense | | (118) | | | (132) | | | 14 | |
Interest rate swap periodic income/cost | | (32) | | | 55 | | | (87) | |
Total change in economic interest expense | | $ | 73 | | | $ | 23 | | | $ | 50 | |
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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 |
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Periodic interest rate swap costs | (32 | ) | | 11 |
| | (43 | ) |
Total change in adjusted net interest expense | $ | 19 |
| | $ | 5 |
| | $ | 14 |
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Nine months ended: | | | | | |
Interest expense on mortgage borrowings | $ | 92 |
| | $ | (33 | ) | | $ | 125 |
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Periodic interest rate swap costs | (141 | ) | | 22 |
| | (163 | ) |
Total change in adjusted net interest expense | $ | (49 | ) | | $ | (11 | ) | | $ | (38 | ) |
Our average mortgage borrowings, inclusive of TBAs, decreased 5% for the three months ended March 31, 2024, consistent with the decline in our asset balance and lower operating leverage. The average interest rate on our mortgage borrowings, excluding the impact interest rate swap period income, increased 92 basis points for the three months ended March 31, 2024 due to higher short-term interest rates.
Interest rate swap periodic income increased for the current year periods largelythree months ended March 31, 2024 due to increases in the federal funds rate, which werehigher receive rates on our pay-fixed swaps, 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.pay rates and a smaller swap balance. 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.
The table below presentsfollowing is a summary of our average mortgage borrowings and our average interest ratesrate swaps outstanding excludingand the related average swap pay and receive rates for the three months ended March 31, 2024 and 2023 (dollars in millions). Amounts exclude forward starting swaps for the three and nine months ended September 30, 2017 and 2016 (dollarsnot yet in millions):effect.
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| | Three Months Ended September 30, | | Nine Months Ended September 30, |
Average Ratio of Interest Rate Swaps Outstanding (Excluding Forward Starting Swaps) to Mortgage Borrowings Outstanding | | 2017 | | 2016 | | 2017 | | 2016 |
Average mortgage borrowings | | $ | 41,406 |
| | $ | 44,401 |
| | $ | 39,859 |
| | $ | 45,753 |
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Average notional amount of interest rate swaps (excluding forward starting swaps) | | $ | 38,013 |
| | $ | 31,839 |
| | $ | 36,785 |
| | $ | 33,790 |
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Average ratio of interest rate swaps to mortgage borrowings | | 92 | % | | 72 | % | | 92 | % | | 74 | % |
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Average pay rate | | 1.56 | % | | 1.45 | % | | 1.52 | % | | 1.60 | % |
Average receive rate | | (1.29 | )% | | (0.73 | )% | | (1.13 | )% | | (0.63 | )% |
Average net pay/(receive) rate | | 0.27 | % | | 0.72 | % | | 0.39 | % | | 0.97 | % |
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| | | | Three Months Ended March 31, |
Average Ratio of Interest Rate Swaps (Excluding Forward Starting Swaps) to Mortgage Borrowings Outstanding | | | | | | 2024 | | 2023 | | |
Average investment securities repo and other debt outstanding | | | | | | $ | 48,730 | | | $ | 39,824 | | | |
Average net TBA dollar roll position outstanding - at cost | | | | | | $ | 6,190 | | | $ | 17,851 | | | |
Average mortgage borrowings outstanding | | | | | | $ | 54,920 | | | $ | 57,675 | | | |
Average notional amount of interest rate swaps outstanding (excluding forward starting swaps), net | | | | | | $ | 43,903 | | | $ | 49,243 | | | |
Ratio of average interest rate swaps to mortgage borrowings outstanding | | | | | | 80 | % | | 85 | % | | |
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Average interest rate swap pay-fixed rate (excluding forward starting swaps) | | | | | | 0.84 | % | | 0.45 | % | | |
Average interest rate swap receive-floating rate | | | | | | (5.67) | % | | (4.54) | % | | |
Average interest rate swap net pay/(receive) rate | | | | | | (4.83) | % | | (4.09) | % | | |
For the three and nine months ended September 30, 2017,March 31, 2024 and 2023, we had an average forward starting net pay and (receive) fixed rate swap balance of $2.2$(0.4) billion and $1.7 billion, respectively, compared to $4.4 billion and $5.8 billion, respectively, for the prior year period.$101 million, respectively. Forward starting interest rate swaps do not impact our adjusted neteconomic interest expense and aggregate cost of funds until they commence accruing net interest settlements on their forward start dates. Including forward starting swaps and
Net Interest Spread
The following table presents a summary of our net interest spread (including the impact of TBA position, our average ratio ofdollar roll income, interest rate swaps outstanding to our average mortgage borrowings and net TBA position (at cost) was 67% and 69%excluding "catch-up" premium amortization) for the three and nine months ended September 30, 2017, respectively, compared to 66%March 31, 2024 and 72%, respectively, for the prior year period.2023:
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| | | | Three Months Ended March 31, |
Investment and TBA Securities - Net Interest Spread | | | | | | 2024 | | 2023 | | |
Average asset yield | | | | | | 4.56 | % | | 3.90 | % | | |
Average aggregate cost of funds | | | | | | (1.58) | % | | (1.02) | % | | |
Average net interest spread | | | | | | 2.98 | % | | 2.88 | % | | |
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| | Three Months Ended September 30, | | Nine Months Ended September 30, |
Average Ratio of Interest Rate Swaps Outstanding (Including Forward Starting Swaps) to Mortgage Borrowings and Net TBA Position | | 2017 | | 2016 | | 2017 | | 2016 |
Average mortgage borrowings | | $ | 41,406 |
| | $ | 44,401 |
| | $ | 39,859 |
| | $ | 45,753 |
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Average net TBA position - at cost | | 18,616 |
| | 10,748 |
| | 16,355 |
| | 9,050 |
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Total average mortgage borrowings and net TBA position | | $ | 60,022 |
| | $ | 55,149 |
| | $ | 56,214 |
| | $ | 54,803 |
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Average notional amount of interest rate swaps (including forward starting swaps) | | $ | 40,166 |
| | $ | 36,270 |
| | $ | 38,524 |
| | $ | 39,575 |
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Average ratio of interest rate swaps to mortgage borrowings and net TBA position | | 67 | % | | 66 | % | | 69 | % | | 72 | % |
Net Spread and Dollar Roll Income
The following table below presents a reconciliation of our net interestspread and dollar roll income available to common stockholders (non-GAAP measure) from comprehensive income (loss) available (attributable) to common stockholders (the most comparable GAAP financial measure) for the three months ended March 31, 2024 and 2023 (dollars in millions):
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| | | | Three Months Ended March 31, |
| | | | | | 2024 | | 2023 | | |
Comprehensive income (loss) available (attributable) to common stockholders | | | | | | $ | 335 | | | $ | (39) | | | |
Adjustments to exclude realized and unrealized (gains) losses reported through net income: | | | | | | | | | | |
Realized loss on sale of investment securities, net | | | | | | 91 | | | 81 | | | |
Unrealized (gain) loss on investment securities measured at fair value through net income, net | | | | | | 471 | | | (594) | | | |
(Gain) loss on derivative instruments and other securities, net | | | | | | (1,059) | | | 544 | | | |
| | | | | | | | | | |
Adjustment to exclude unrealized (gain) loss reported through other comprehensive income: | | | | | | | | | | |
Unrealized (gain) loss on available-for-sale securities measure at fair value through other comprehensive income, net | | | | | | 77 | | | (142) | | | |
Other adjustments: | | | | | | | | | | |
Estimated "catch-up" premium amortization cost (benefit) due to change in CPR forecast 1 | | | | | | (10) | | | 69 | | | |
TBA dollar roll income, net 2 | | | | | | — | | | 18 | | | |
Interest rate swap periodic income, net 2 | | | | | | 536 | | | 504 | | | |
Other interest income (expense), net 2,3 | | | | | | (35) | | | (33) | | | |
Net spread and dollar roll income available to common stockholders (non-GAAP measure) 4 | | | | | | 406 | | | 408 | | | |
| | | | | | | | | | |
Weighted average number of common shares outstanding - basic | | | | | | 702.2 | | | 579.3 | | | |
Weighted average number of common shares outstanding - diluted | | | | | | 704.2 | | | 580.5 | | | |
Net spread and dollar roll income per common share - basic | | | | | | $ | 0.58 | | | $ | 0.70 | | | |
Net spread and dollar roll income per common share - diluted | | | | | | $ | 0.58 | | | $ | 0.70 | | | |
1.Reported in interest income in our consolidated statements of comprehensive income.
2.Reported in gain (loss) on derivative instruments and other securities, net in our consolidated statements of comprehensive income.
3.Other interest income (expense), net includes interest income on cash and cash equivalents; price alignment interest income (expense) ("PAI") on interest rate swap margin deposits posted by or (to) the Company; and other miscellaneous interest income (expense).
4.Prior to our net spread and dollar roll income andDecember 31, 2023, this measure was referred to our netas "net spread and dollar roll income, excluding estimated'catch-up' premium amortization cost/benefit, per common share." Though it continues to exclude "catch-up" premium amortization cost, (non-GAAP financial measures) forcost/benefit, its title has been condensed to its revised title in the three and nine months ended September 30, 2017 and 2016 (dollars in millions):table above.
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
Net interest income | | $ | 178 |
| | $ | 219 |
| | $ | 557 |
| | $ | 632 |
|
Periodic interest costs of interest rate swaps, net 1 | | (26 | ) | | (51 | ) | | (106 | ) | | (209 | ) |
TBA dollar roll income 1 | | 87 |
| | 54 |
| | 251 |
| | 148 |
|
Management fee income | | 3 |
| | 4 |
| | 10 |
| | 4 |
|
Dividend from REIT equity securities 1 | | — |
| | — |
| | — |
| | 2 |
|
Adjusted net interest and dollar roll income | | 242 |
| | 226 |
| | 712 |
| | 577 |
|
Operating expenses: | | | | | | | | |
Total operating expenses | | 17 |
| | 15 |
| | 50 |
| | 88 |
|
Non-recurring transaction costs | | — |
| | — |
| | — |
| | (9 | ) |
Adjusted operating expenses | | 17 |
| | 15 |
| | 50 |
| | 79 |
|
Net spread and dollar roll income | | 225 |
| | 211 |
| | 662 |
| | 498 |
|
Dividend on preferred stock | | 9 |
| | 7 |
| | 23 |
| | 21 |
|
Net spread and dollar roll income available to common stockholders | | 216 |
| | 204 |
| | 639 |
| | 477 |
|
Estimated "catch-up" premium amortization cost due to change in CPR forecast | | 12 |
| | 8 |
| | 34 |
| | 95 |
|
Net spread and dollar roll income, excluding "catch-up" premium amortization, available to common stockholders | | $ | 228 |
| | $ | 212 |
| | $ | 673 |
| | $ | 572 |
|
| | | | | | | | |
Weighted average number of common shares outstanding - basic | | 364.7 |
| | 331.0 |
| | 347.5 |
| | 332.1 |
|
Weighted average number of common shares outstanding - diluted | | 364.9 |
| | 331.0 |
| | 347.6 |
| | 332.1 |
|
Net spread and dollar roll income per common share - basic | | $ | 0.59 |
| | $ | 0.62 |
| | $ | 1.84 |
| | $ | 1.44 |
|
Net spread and dollar roll income per common share -diluted | | $ | 0.59 |
| | $ | 0.62 |
| | $ | 1.84 |
| | $ | 1.44 |
|
Net spread and dollar roll income, excluding "catch-up" premium amortization, per common share - basic | | $ | 0.63 |
| | $ | 0.64 |
| | $ | 1.94 |
| | $ | 1.72 |
|
Net spread and dollar roll income, excluding "catch-up" premium amortization, per common share - diluted | | $ | 0.62 |
| | $ | 0.64 |
| | $ | 1.94 |
| | $ | 1.72 |
|
_______________________
| |
1. | Reported in gain (loss) on derivative instruments and other securities, net in our consolidated statements of comprehensive income |
Net spread and dollar roll income, excluding "catch-up" premium amortization adjustments, for the three months ended September 30, 2017 was $0.62 per common share, or a decline of $0.02 per common share from the prior year period. The decline was largely due to higher funding costs and a modest compression of our net interest rate spread and dollar roll margin (i.e. the difference between the average yield on our assets and our average cost of funds inclusive of TBAs), excluding "catch-up" premium amortization adjustments.
Net spread and dollar roll income, excluding "catch-up" premium amortization adjustments, for the nine months ended September 30, 2017 was $1.94 per common share, compared to $1.72 per common share for the prior year period. The increase relative to the prior year period was largely due to the combination of lower operating costs as a function of our management internalization on July 1, 2016 and a higher relative net interest rate spread and dollar roll margin during much of the current year period.
Our average net interest rate spread and dollar roll margin, excluding "catch-up" premium amortization cost, was 1.41% and 1.50% for the three and nine months ended September 30, 2017, respectively, compared to 1.47% and 1.39%, respectively, for the prior year period. Including "catch-up" premium amortization adjustments, our net interest rate spread and dollar roll margin was 1.34% and 1.43% for the three and nine months ended September 30, 2017, respectively, compared to 1.42% and 1.18%, respectively, for the prior year period.
Gain (Loss) on Sale of Investment Securities, Net
The following table is a summary of our net gain (loss) on sale of investment securities for the three and nine months ended September 30, 2017March 31, 2024 and 20162023 (in millions):
| | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31, |
Gain (Loss) on Investment Securities, Net 1 | | | | | | 2024 | | 2023 | | |
Loss on sale of investment securities, net | | | | | | $ | (91) | | | $ | (81) | | | |
Unrealized (loss) gain on investment securities measured at fair value through net income, net 2 | | | | | | (471) | | | 594 | | | |
Unrealized (loss) gain on investment securities measured at fair value through other comprehensive income, net | | | | | | (77) | | | 142 | | | |
Total loss on investment securities, net | | | | | | $ | (639) | | | $ | 655 | | | |
1.Amounts exclude gain (loss) on TBA securities, which are reported in gain (loss) on derivative instruments and other securities, net in our Consolidated Statements of Comprehensive Income.
2.Investment securities acquired after fiscal year 2016 are measured at fair value through net income (see Note 2 of our Consolidated Financial Statements in this Form 10-Q).
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Investment securities sold, at cost | $ | (6,019 | ) | | $ | (6,123 | ) | | $ | (14,374 | ) | | $ | (17,146 | ) |
Proceeds from sale 1 | 6,041 |
| | 6,184 |
| | 14,327 |
| | 17,260 |
|
Net gain (loss) on sale of investment securities | $ | 22 |
| | $ | 61 |
| | $ | (47 | ) | | $ | 114 |
|
| | | | | | | |
Gross gain on sale of investment securities | $ | 28 |
| | $ | 62 |
| | $ | 54 |
| | $ | 122 |
|
Gross loss on sale of investment securities | (6 | ) | | (1 | ) | | (101 | ) | | (8 | ) |
Net gain (loss) on sale of investment securities | $ | 22 |
| | $ | 61 |
| | $ | (47 | ) | | $ | 114 |
|
_______________________
| |
1. | Proceeds include cash received during the period, plus receivable for investment securities sold during the period as of period end. |
Gain (Loss) on Derivative Instruments and Other Securities, Net
The following table is a summary of our gain (loss) on derivative instruments and other securities, net for the three and nine months ended September 30, 2017March 31, 2024 and 20162023 (in millions):
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Periodic interest costs of interest rate swaps, net | $ | (26 | ) | | $ | (51 | ) | | $ | (106 | ) | | $ | (209 | ) |
Realized gain (loss) on derivative instruments and other securities, net: | | | | | | | |
TBA securities - dollar roll income, net | 87 |
| | 54 |
| | 251 |
| | 148 |
|
TBA securities - mark-to-market net gain (loss) | 84 |
| | 63 |
| | (14 | ) | | 210 |
|
Payer swaptions | — |
| | (10 | ) | | — |
| | (30 | ) |
U.S. Treasury securities - long position | — |
| | 1 |
| | 1 |
| | 7 |
|
U.S. Treasury securities - short position | (31 | ) | | (11 | ) | | (47 | ) | | (64 | ) |
U.S. Treasury futures - short position | (22 | ) | | (43 | ) | | (49 | ) | | (102 | ) |
Interest rate swaps - termination fees and variation margin settlements, net | 49 |
| | (299 | ) | | 156 |
| | (865 | ) |
REIT equity securities | — |
| | (1 | ) | | — |
| | (1 | ) |
Other | — |
| | (1 | ) | | 2 |
| | 7 |
|
Total realized gain (loss) on derivative instruments and other securities, net | 167 |
| | (247 | ) | | 300 |
| | (690 | ) |
Unrealized gain (loss) on derivative instruments and other securities, net: | | | | | | | |
TBA securities - mark-to-market net gain (loss) | (13 | ) | | (50 | ) | | 123 |
| | 33 |
|
Interest rate swaps | (8 | ) | | 503 |
| | (207 | ) | | (134 | ) |
Payer swaptions | (22 | ) | | 9 |
| | (46 | ) | | 18 |
|
U.S. Treasury securities - short position | 12 |
| | 25 |
| | (160 | ) | | (78 | ) |
U.S. Treasury futures - short position | 21 |
| | 58 |
| | 20 |
| | (4 | ) |
Debt of consolidated VIEs | — |
| | (2 | ) | | (1 | ) | | (8 | ) |
REIT equity securities | — |
| | 2 |
| | — |
| | 9 |
|
Other | — |
| | 1 |
| | (1 | ) | | — |
|
Total unrealized gain (loss) on derivative instruments and other securities, net | (10 | ) | | 546 |
| | (272 | ) | | (164 | ) |
Total gain (loss) on derivative instruments and other securities, net | $ | 131 |
| | $ | 248 |
| | $ | (78 | ) | | $ | (1,063 | ) |
| | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31, |
| | | | | | 2024 | | 2023 | | |
TBA securities, dollar roll income | | | | | | $ | — | | | $ | 18 | | | |
TBA securities, mark-to-market loss | | | | | | (58) | | | 94 | | | |
| | | | | | | | | | |
Interest rate swaps, periodic income (cost) | | | | | | 536 | | | 504 | | | |
Interest rate swaps, mark-to-market gain (loss) | | | | | | 113 | | | (736) | | | |
Credit default swaps - buy protection | | | | | | (3) | | | (3) | | | |
Payer swaptions | | | | | | 33 | | | (66) | | | |
U.S. Treasury securities - short position | | | | | | 338 | | | (157) | | | |
U.S. Treasury securities - long position | | | | | | (43) | | | 75 | | | |
U.S. Treasury futures contracts - short position | | | | | | 186 | | | (235) | | | |
SOFR futures contracts - long position | | | | | | (10) | | | (3) | | | |
Other interest income (expense), net | | | | | | (35) | | | (33) | | | |
Other gain (loss), net | | | | | | 2 | | | (2) | | | |
Total gain (loss) on derivative instruments and other securities, net | | | | | | $ | 1,059 | | | $ | (544) | | | |
For further details regarding our use of derivative instruments and related activity refer to Notes 32 and 65 of our Consolidated Financial Statements in this Form 10-Q.
Operating Expenses
Prior to our acquisition of AMM and related management internalization on July 1, 2016, we paid our Manager a management fee payable monthly in arrears in an amount equal to one-twelfth of 1.25% of our month-end stockholders' equity, as defined in our management agreement. Following our management internalization, we no longer incur a management fee, but we incur expenses associated with an internally managed organization, including compensation expense previously borne by our Manager. For the three and nine months ended September 30, 2017, we incurred compensation and benefits expense of $10 million and $30 million, respectively. For the nine months ended September 30, 2016, prior to our internalization, we incurred management fees of $52 million and, subsequent to our internalization, compensation and benefits expense of $9 million.
For the three and nine months ended September 30, 2017, we incurred other operating expenses of $7 million and $20 million, respectively, compared to $6 million and $27 million, respectively, for the prior year period. Excluding non-recurring acquisition costs, we incurred other operating expenses of $6 million and $18 million, respectively, for the prior year period. Other operating expenses primarily consist of prime broker fees; clearing, settlement and regulatory fees incurred by BES; information technology costs; accounting, legal and Board of Director fees; amortization of intangible assets associated with our acquisition of AMM; and other general overhead expenses.
Our total annualized operating expense as a percentage of our average stockholders' equity was 0.84% and 0.87% for the three and nine months ended September 30, 2017, compared to 0.76% and 1.51%, respectively, for the prior year period. Excluding non-recurring acquisition costs, our total operating expense as a percentage of our stockholders' equity was 1.35% for the prior year nine month period.
Estimated Taxable Income
For the three months ended September 30, 2017 and 2016, we had estimated taxable income available to common stockholders of $42 million and $63 million (or $0.12 and $0.19 per common share), respectively. For the nine months ended September 30, 2017 and 2016, we had estimated taxable income available to common stockholders of $118 million and $210 million (or $0.34 and $0.63 per common share), respectively. Income as determined under GAAP differs from income as determined under tax rules because of both temporary and permanent differences in income and expense recognition. The primary differences are (i) unrealized gains and losses on derivative instruments and other securities marked-to-market in current income for GAAP purposes, but excluded from taxable income until realized or settled, (ii) timing differences, both temporary and potentially permanent, in the recognition of certain realized gains and losses and (iii) temporary differences related to the amortization of premiums and discounts on investments. Furthermore, our estimated taxable income is subject to potential adjustments up to the time of filing our appropriate tax returns, which occurs after the end of our fiscal year. The following is a reconciliation of our GAAP net income to our estimated taxable income for the three and nine months ended September 30, 2017 and 2016 (dollars in millions, except per share amounts):
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Net income (loss) | $ | 286 |
| | $ | 511 |
| | $ | 386 |
| | $ | (396 | ) |
Estimated book to tax differences: | | | | | | | |
Premium amortization, net | (3 | ) | | (15 | ) | | (2 | ) | | 60 |
|
Realized gain/loss, net | (112 | ) | | 249 |
| | (392 | ) | | 733 |
|
Net capital loss/(utilization of net capital loss carryforward) | (159 | ) | | (127 | ) | | (115 | ) | | (325 | ) |
Unrealized gain/loss, net | 41 |
| | (540 | ) | | 278 |
| | 158 |
|
Other | (2 | ) | | (8 | ) | | (14 | ) | | 1 |
|
Total book to tax differences | (235 | ) | | (441 | ) | | (245 | ) | | 627 |
|
Estimated REIT taxable income | 51 |
| | 70 |
| | 141 |
| | 231 |
|
Dividend on preferred stock | 9 |
| | 7 |
| | 23 |
| | 21 |
|
Estimated REIT taxable income available to common stockholders | $ | 42 |
| | $ | 63 |
| | $ | 118 |
| | $ | 210 |
|
Weighted average number of common shares outstanding - basic | 364.7 |
| | 331.0 |
| | 347.5 |
| | 332.1 |
|
Weighted average number of common shares outstanding - diluted | 364.9 |
| | 331.0 |
| | 347.6 |
| | 332.1 |
|
Estimated REIT taxable income per common share - basic and diluted | $ | 0.12 |
| | $ | 0.19 |
| | $ | 0.34 |
| | $ | 0.63 |
|
| | | | | | | |
Beginning cumulative non-deductible net capital loss | $ | 496 |
| | $ | 486 |
| | $ | 452 |
| | $ | 684 |
|
Net capital loss / (utilization of net capital loss carryforward) | (159 | ) | | (127 | ) | | (115 | ) | | (325 | ) |
Ending cumulative non-deductible net capital loss | $ | 337 |
| | $ | 359 |
| | $ | 337 |
| | $ | 359 |
|
Ending cumulative non-deductible net capital loss per ending common share | $ | 0.86 |
| | $ | 1.08 |
| | $ | 0.86 |
| | $ | 1.08 |
|
As of September 30, 2017, we had $0.3 billion (or $0.86 per common share) of net capital loss carryforwards, which expire at the end of fiscal year 2018.
Other Comprehensive Income (Loss)
Other comprehensive income (loss) primarily consists of unrealized gains and (losses) recognized due to the impact of fluctuations in long-term interest rates on the market value of our Agency RMBS designated as "available-for-sale" securities, net of reversals of prior period unrealized amounts upon realization. For the three and nine months ended September 30, 2017, we had other comprehensive income (loss) of $90 million and $257 million, respectively, compared to $(90) million and $1.1 billion for the three and nine months ended September 30, 2016, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Our business is dependent on our ability to maintain adequate levels of liquidity and capital resources to fund day-to-day operations, fulfill collateral requirements under our funding and derivative agreements, and to satisfy our dividend distribution requirement of at least 90% of our taxable income to maintain our qualification as a REIT. Our primary sources of fundsliquidity are unencumbered cash and securities, borrowings available under master repurchase agreements, asset sales,TBA dollar roll financing and monthly receipts of monthly principal and interest payments onpayments. We may also conduct asset sales, change our investment portfolioasset or funding mix, issue equity or undertake other capital enhancing actions to maintain adequate levels of liquidity and equity offerings. We also enter into TBA contractscapital resources. There are various risks and uncertainties that can impact our liquidity, such as a means of acquiring or disposing of Agency securities and utilize TBA dollar roll transactions to finance Agency RMBS purchases. Because the levelthose described in Item 1A. Risk Factors of our borrowings can be adjustedmost recent Annual Report on Form 10-K and Item 3. Quantitative and Qualitative Disclosures of Market Risks in this Form 10-Q. In assessing our liquidity, we consider a daily basis, the levelnumber of cash and cash equivalents carried onfactors, including our balance sheet is significantly less important than the potential liquidity available under our borrowing arrangements. Ourcurrent leverage, will vary periodically depending oncollateral levels, access to capital markets, overall market conditions, and our assessment of risks and returns. We generally would expect our leverage to be within six to eleven times the amountsensitivity of our tangible stockholders' equity. However, under certain market conditions, we may operate at leverage levels outsidenet book value over a range of this range for extended periods of time.
scenarios. We currently believe that we have sufficient liquidity and capital resources available forto meet our obligations and execute our business strategy.
Leverage and Financing Sources
Our leverage will vary depending on market conditions and our assessment of relative risks and returns, but we generally expect our leverage to be between six and twelve times the acquisition of additional investments, repayments on borrowings, maintenance of any margin requirements and the payment of cash dividends as required for our continued qualification as a REIT. We currently expect to distribute 100%amount of our taxable income so that we are not subject to U.S. federal and state corporate income taxes. Our REIT distribution requirement of at least 90% of our taxable income limits our ability to retain earnings and thereby replenish or increase capital from operations.
Debt Capital
As of September 30, 2017 and December 31, 2016, our mortgage borrowings and net TBA position consisted of the following ($ in millions):
|
| | | | | | | | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
Mortgage Funding | | Amount | | % | | Amount | | % |
Repurchase agreements used to fund Agency RMBS 1 | | $ | 45,505 |
| | 69 | % | | $ | 37,686 |
| | 71 | % |
Debt of consolidated variable interest entities, at fair value | | 380 |
| | 1 | % | | 460 |
| | 1 | % |
FHLB advances | | — |
| | — | % | | 3,037 |
| | 6 | % |
Total mortgage borrowings | | 45,885 |
| | 70 | % | | 41,183 |
| | 78 | % |
Net TBA position, at cost | | 19,433 |
| | 30 | % | | 11,312 |
| | 22 | % |
Total mortgage funding | | $ | 65,318 |
| | 100 | % | | $ | 52,495 |
| | 100 | % |
______________________
1. Excludes repurchase agreements used to fund U.S. Treasury securities of $0 million and $172 million as of September 30, 2017 and December 31, 2016, respectively.
Our tangible net book value "at risk" leverage was 8.0x and 7.7x as of September 30, 2017 and December 31, 2016,stockholders' equity, measured as the sum of our total mortgage borrowings net TBA position (at cost) and net payable / (receivable) for unsettled investment securities, divided by the sum of our total stockholders' equity adjusted to exclude goodwillgoodwill. Our tangible net book value "at risk" leverage ratio was 7.1x and other intangible assets.
Repurchase Agreements
As part of our investment strategy, we borrow against our investment portfolio pursuant to master repurchase agreements. We expect that the majority of our borrowings under such master repurchase agreements will have maturities ranging up to one year, but we may have longer-term borrowings ranging up to five years or longer. Borrowings under our master repurchase agreements with maturities greater than 90 days typically have floating rates of interest based on LIBOR plus or minus a fixed spread.
As of September 30, 2017, we had $45.5 billion of repurchase agreements outstanding used to fund acquisitions of investment securities with a weighted average cost of funds of 1.36% and a weighted average remaining days-to-maturity of 129 days, compared $37.7 billion, 0.98% and 187 days, respectively,7.0x as of March 31, 2024 and December 31, 2016.
To limit our counterparty exposure, we diversify our funding across multiple counterparties and by counterparty region. As of September 30, 2017, we had master repurchase agreements with 41 financial institutions located throughout North America, Europe and Asia, including counterparties accessed through our wholly-owned captive broker-dealer subsidiary, Bethesda Securities. Bethesda Securities has direct access to bilateral and triparty funding, including the General Collateral Finance Repo service offered by the Fixed Income Clearing Corporation, or "FICC," which provides us greater depth and diversity of funding at favorable terms relative to traditional bilateral repurchase agreement funding. As of September 30, 2017, $13.8 billion of our repurchase agreement funding was accessed through Bethesda Securities.
2023, respectively. The following table below includes a summary of our Agency RMBS repurchase agreement funding by number of repo counterparties and counterparty regionmortgage borrowings outstanding as of September 30, 2017March 31, 2024 and December 31, 2023 (dollars in millions). For furtheradditional details regardingof our mortgage borrowings under repurchase agreements as of September 30, 2017, please refer to Notes 52, 4 and 75 to our Consolidated Financial Statements in this Form 10-Q.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2024 | | December 31, 2023 |
Mortgage Borrowings | | Amount | | % | | Amount | | % |
Investment securities repurchase agreements 1,2 | | $ | 48,140 | | | 85 | % | | $ | 48,879 | | | 90 | % |
Debt of consolidated variable interest entities, at fair value | | 76 | | | — | % | | 80 | | | — | % |
Total debt | | 48,216 | | | 85 | % | | 48,959 | | | 90 | % |
TBA and forward settling non-Agency securities, at cost | | 8,405 | | | 15 | % | | 5,288 | | | 10 | % |
Total mortgage borrowings | | $ | 56,621 | | | 100 | % | | $ | 54,247 | | | 100 | % |
1.Includes Agency RMBS, CRT and non-Agency MBS repurchase agreements. Excludes U.S. Treasury repurchase agreements totaling $1.8 billion and $1.5 billion as of March 31, 2024 and December 31, 2023, respectively.
2.As of March 31, 2024 and December 31, 2023, 42% and 43%, respectively, of our total repurchase agreements, including 43% and 45% or our investment securities repurchase agreements, respectively, were funded through the Fixed Income Clearing Corporation's GCF Repo service.
Our primary financing sources are collateralized borrowings structured as repurchase agreements. We enter into repurchase agreements, or "repo," through bi-lateral arrangements with financial institutions and independent dealers. We also enter into third-party repurchase agreements through our wholly-owned registered broker-dealer subsidiary, Bethesda Securities, LLC, such as tri-party repo offered through the FICC's GCF Repo service. We manage our repurchase agreement funding position through a variety of methods, including diversification of counterparties, maintaining a suitable maturity profile and utilization of interest rate hedging strategies. We also use TBA dollar roll transactions as a means of synthetically financing Agency RMBS.
The terms and conditions of our repurchase agreements are determined on a transaction-by-transaction basis when each such borrowing is initiated or renewed and, in the case of GCF Repo, by the prevailing margin requirements calculated by the FICC, which acts as the central counterparty. The amount borrowed is generally equal to the fair value of the securities pledged, as determined by the lending counterparty, less an assessed discount, referred to as a "haircut," that reflects the underlying risk of the specific collateral and protects the counterparty against a change in its value. Interest rates are generally fixed based on prevailing rates corresponding to the term of the borrowing. None of our repo counterparties are obligated to renew or otherwise enter into new borrowings at the conclusion of our existing borrowings.
The use of TBA dollar roll transactions increases our funding diversification, expands our available pool of assets, and increases our overall liquidity position, as TBA contracts typically have lower implied haircuts relative to Agency RMBS pools funded with repo financing. TBA dollar roll transactions may also have a lower implied cost of funds than comparable repo funded transactions (referred to as "dollar roll specialness") offering incremental return potential. However, if it were to become uneconomical to roll our TBA contracts into future months it may be necessary to take physical delivery of the underlying securities and fund those assets with cash or other financing sources, which could reduce our liquidity position.
|
| | | | |
| | September 30, 2017 |
Counter-Party Region | | Number of Counter-Parties | | Percent of Agency RMBS Repurchase Agreement Funding |
North America: | | | | |
FICC | | 1 | | 28% |
Other | | 21 | | 44% |
Total North America | | 22 | | 72% |
Europe | | 14 | | 18% |
Asia | | 5 | | 10% |
Total | | 41 | | 100% |
Collateral Requirements and Unencumbered AssetsAmounts available to be borrowed under our repurchase agreements are dependent upon lender collateralprevailing interest rates, the lender’s "haircut" requirements and the lender's determinationcollateral value. Each of the fair value of the securities pledged as collateral, which fluctuatesthese elements may fluctuate with changes in interest rates, credit quality and liquidity conditions within the investment banking, mortgage finance and real estate industries. In addition, our counterparties apply a "haircut" to our pledged collateral, which means our collateral is valued at slightly less than market value. This haircut reflects the underlying risk of the specific collateral and protects our counterparty against a change in its value, but conversely subjects us to counterparty credit risk and limits the amount we can borrow against our investment securities. Our master repurchase agreements do not specify the haircut; rather haircuts are determined on an individual repurchase transaction basis. Throughout the nine months ended September 30, 2017, haircuts on our pledged collateral remained stable and, as of September 30, 2017, our weighted average haircut was approximately 4.5% of the value of our collateral, inclusive of collateral funded through Bethesda Securities. As of September 30, 2017, our maximum amount at risk (or the amount or our repurchase liabilities in excess of the value of collateral pledged) with any counterparty related to our repurchase agreements was less than 5% of our tangible stockholders' equity, and our top five repo counterparties represented less than 12% of our tangible stockholders' equity.
We may be required to pledge additional assets to our counterparties in the event the estimated fair value of the existing collateral pledged under our agreements declines and our counterparties demand additional collateral (a "margin call"), which may take the form of additional securities or cash. Specifically, margin calls would result from a decline in the fair value of our investment securities securing our repurchase agreements as well as due to prepayments on the mortgages securing such securities. Similarly, if the estimated fair value of our investment securities increases due to changes in interest rates or other factors, counterparties may release collateral back to us. Our repurchase agreements generally provide that the valuations of securities securing our repurchase agreements are to be obtained from a generally recognized source agreed to by the parties. In certain circumstances, however, our lenders have the sole discretion to determine the value of pledged collateral. In such instances, our lenders are required to act in good faith in making determinations of value. Our repurchase agreements generally provide that in the event of a margin call, we must provide additional securities or cash on the same business day that a margin call is made if the lender provides us notice prior to the margin notice deadline on such day.
As of September 30, 2017, we had met all of our margin requirements and we had unrestricted cash and cash equivalents of $1.1 billion and unpledged securities of approximately $3.6 billion, including securities pledged to us and unpledged interests in our consolidated VIEs, available to meet margin calls on our repurchase agreements and other funding liabilities, derivative instruments and for other corporate purposes.
Although we believe we will have adequate sources of liquidity available to us through repurchase agreement financing to execute our business strategy, there can be no assurances that repurchase agreement financing will be available to us upon the maturity of our current repurchase agreements to allow us to renew or replace our repurchase agreement financing on favorable terms or at all. If our repurchase agreement lenders default on their obligations to resell the underlying collateral back to us at the end of the term, we could incur a loss equal to the difference between the value of the collateral and the cash we originally received.
financial markets. To help manage the adverse impact of interest rate changes on the value of our investment portfolio as well as our cash flows,borrowings, we utilize an interest rate risk management strategy under which weinvolving the use of derivative financial instruments. In particular, we attempt to mitigate the risk of the cost of our variable rateshort-term funding liabilities increasing at a faster rate than the earnings of our long-term fixed rate assets during a period of rising interest rates.
The primary derivative instruments that we usecollateral requirements, or haircut levels, under our repo agreements are interest rate swaps, interest rate
swaptions, U.S. Treasury securities, U.S. Treasury futures contractstypically determined on an individual transaction basis or by the prevailing requirements established by the FICC for GCF tri-party repo. Consequently, haircut levels and TBA securities. Please refer to Notes 3minimum margin requirements can change over time and 6 tomay increase during periods of elevated market volatility. If the fair value of our Consolidated Financial Statements in this Form 10-Q for further details regardingcollateral declines, our use of derivative instruments.
Our derivative agreementscounterparties will typically require that we pledge / receivepost additional collateral in a similar mannerto re-establish the agreed-upon collateral levels, referred to as "margin calls." Similarly, if the estimated fair value of our investment securities increases, we are requiredmay request that counterparties release collateral back to under our repurchase agreements.us. Our counterparties or the central clearing agency, typically have the sole discretion to determine the value of the derivative instruments and the valuepledged collateral but are required to act in good faith in making determinations of the collateral securing such instruments. Invalue. Our agreements generally provide that in the event of a margin call, wecollateral must provide additional collateral generallybe posted on the same business day, subject to notice requirements. As of March 31, 2024, we had met all our margin requirements.
The value of Agency RMBS collateral is impacted by market factors and is reduced by monthly principal pay-downs on the underlying mortgage pools. Fannie Mae and Freddie Mac publish monthly security pay-down factors for their mortgage pools on the fifth day after month-end, but do not remit payment to security holders until generally the 25th day after month-end. Bi-lateral repo counterparties assess margin to account for the reduction in value of Agency collateral when factors are released. The FICC assesses margin on the last day of each month, prior to the factor release date, based on its internally projected pay-down rates (referred to as the "blackout period exposure adjustment" or next business day."blackout margin"). On the factor release date, the blackout margin is released and collateralization requirements are adjusted to actual factor data. Due to the timing difference between associated margin calls and our receipt of principal pay-downs, our liquidity is temporarily reduced each month for principal repayments. We minimize counterparty creditattempt to manage the liquidity risk associated with our derivative instruments by limiting our counterparties to central clearing exchanges and major financial institutions with acceptable credit ratings andprincipal pay-downs by monitoring positions with individual counterparties. Excluding centrally cleared derivative instruments, asconditions impacting prepayment rates and through asset selection. As of September 30, 2017, our amount at risk with any counterparty related to our interest rate swap and swaption agreements was less than 1%March 31, 2024, approximately 13% of our stockholders' equity. In the case of centrally cleared derivative instruments, we could be exposed to credit risk if the central clearing agency or a clearing member defaults on its respective obligation to perform under the contract. However, we believe that the risk is minimal due to the exchanges' initial and daily mark to market margin requirements and clearinghouse guarantee funds and other resources that are available in the event of a clearing member default.
TBA Dollar Roll Transactions
TBA dollar roll transactions represent a form of off-balance sheet financing accounted for as derivative instruments and we may use them as a means of leveraging (or deleveraging) our investment portfolio through the useconsisted of long (or short) TBA contracts (see Notes 3 and 6securities, which are not subject to monthly principal pay-downs. The remainder of our portfolio primarily consisted of Agency RMBS, which had an average one-year CPR forecast of 8%.
Collateral requirements under our derivative agreements are subject to our Consolidated Financial Statements in this Form 10-Q).
Under certain market conditions, itcounterparties' assessment of their maximum risk of loss associated with the derivative instrument, referred to as the initial or minimum margin requirement, and may be uneconomical for us to roll our TBA contracts into future monthsadjusted based on changes in market volatility and we may need to take or make physical delivery of the underlying securities. If we were required to take physical delivery to settle a long TBA contract, we would have to fund our total purchase commitment with cash or other financing sources and our liquidity position could be negatively impacted. As of September 30, 2017, we had a net long TBA position with a total market value and a total cost basis of $19.4 billion and a net carrying value of $(24) million recognized in derivative assets/(liabilities), at fair value, on our Consolidated Balance Sheets in this Form 10-Q.
Our TBA dollar roll contractsfactors. We are also subject to daily variation margin requirements based on changes in the value of the derivative instrument and/or collateral pledged. Daily variation margin requirements also entitle us to receive collateral if the value of amounts owed to us under the derivative agreement exceeds the minimum margin requirement. The collateral requirements under our TBA contracts are governed by the Mortgage-Backed Securities Division ("MBSD") of the FICCFICC. Collateral levels for interest rate derivative agreements are typically governed by the central clearing exchange and by our prime brokerage agreements,the associated futures commission merchants ("FCMs"), which may establish margin levels in excess of the MBSD. Such provisions require that we establish an initial margin based on the notional value of the TBA contract, which isclearing exchange. Collateral levels for interest rate derivative agreements not subject to increase ifcentral clearing are established by the estimated fair valuecounterparty financial institution.
Haircut levels and minimum margin requirements imposed by our counterparties reduce the amount of our TBA contract orunencumbered assets and limit the estimated fair valueamount we can borrow against our investment securities. During the three months ended March 31, 2024, haircuts on our repo funding arrangements remained stable. As of March 31, 2024, the weighted average haircut on our pledged collateral declines. The MBSD has the sole discretion to determinerepurchase agreements was approximately 3.0% of the value of our TBA contractscollateral, compared to 3.1% as of December 31, 2023.
To mitigate the risk of margins calls, we seek to maintain excess liquidity by holding unencumbered liquid assets that can be used to satisfy collateral requirements, collateralize additional borrowings or sold for cash. As of March 31, 2024, our unencumbered assets totaled approximately $5.4 billion, or 68% of tangible equity, consisting of $5.4 billion of unencumbered cash and Agency RMBS and $0.1 billion of unencumbered credit assets. This compares to $5.2 billion of unencumbered assets, or 67% of tangible equity, as of December 31, 2023, consisting of $5.1 billion of unencumbered cash and Agency RMBS and $0.1 billion of unencumbered credit assets.
Counterparty Risk
Collateral requirements imposed by counterparties subject us to the risk that the counterparty does not return pledged assets to us as and when required. We attempt to manage this risk by monitoring our collateral positions and limiting our counterparties to registered clearinghouses and major financial institutions with acceptable credit ratings. We also diversify our funding across multiple counterparties and by region.
As of March 31, 2024, our maximum amount at risk (or the excess/shortfall of the pledgedvalue of collateral securing such contracts. In the event of a margin call, we must generally provide additional collateral on the same business day.
Settlementpledged/received over our repurchase agreement liabilities/reverse repurchase agreement receivables) with any of our TBA obligations by taking delivery ofrepurchase agreement counterparties, excluding the underlying securities as well as satisfying margin requirements could negatively impact our liquidity position. However, since we do not use TBA dollar roll transactions as our primary source of financing, we believe that we will have adequate sources of liquidity to meet such obligations.
Federal Home Loan Bank Advances
In February 2017, our wholly-owned captive insurance subsidiary's membership to the FHLB of Des MoinesFICC, was terminated pursuant to the FHFA's final rule on changes to regulations concerning FHLB membership criteria released in January 2016. Allless than 3% of our outstanding FHLB advances were repaid prior to termination.
Bethesda Securities Regulatory Capital Requirements
Bethesda Securities is subject to regulationstangible stockholders' equity, with our top five repo counterparties, excluding the FICC, representing approximately 6% of the securities business that include but are not limited to trade practices, capital structure, recordkeeping and conduct of directors, officers and employees. As a self-clearing registered broker-dealer, Bethesda Securities is required to maintain minimum net regulatory capital as defined by SEC Rule 15c3-1 (the "Rule").our tangible stockholders' equity. As of September 30, 2017,March 31, 2024, 5% of our tangible stockholder's equity was at risk with the minimum net capital requiredFICC. Excluding central clearing exchanges, as of March 31, 2024, our amount at risk with any counterparty to our derivative agreements was $0.3 million and Bethesda Securities had excess net capitalless than 1% of $204.0 million. Regulatory capital in excess of the minimum required by the Rule is held to meet levels required by clearing organizations, the clearing bank and other repo counterparties.our stockholders' equity.
Asset Sales
Agency RMBS securities are among the most liquid fixed income securities, and TBA Eligible Securities
We maintain a portfolio of highly liquid mortgage-backed securities. We may sell our Agency securities through the TBA market by delivering themis the second most liquid market (after the U.S. Treasury market). Although market conditions fluctuate, the vitality of these markets enables us to sell assets under most conditions to generate liquidity through direct sales or delivery into TBA contracts, subject to "good delivery" provisions promulgated by the Securities Industry and Financial Markets Association ("SIFMA"). Under certain market conditions, however, we may be unable to realize the full carrying value of our securities. We attempt to manage this risk by maintaining at least a minimum level of securities that trade at or near TBA values that in our estimation enhances our portfolio liquidity across a wide range of market conditions. Please refer to Trends and Recent Market Impacts of this Management Discussion and Analysis for further information regarding Agency RMBS and TBA market conditions.
Capital Markets
The equity capital markets serve as a source of capital to grow our business and to meet potential liquidity needs of our business. The availability of equity capital is dependent on market conditions and investor demand for our common and preferred stock. We will typically not issue common stock at times when we believe the capital raised will not be accretive to our tangible net book value or earnings, and we will typically not issue preferred equity when its cost exceeds acceptable hurdle rates of return on our equity. We may alternatively sell Agency securities that have more unique attributes on a specified basis when such securities trade at a premium over generic TBA securities or if the securities are not otherwise eligible for TBA delivery. Since the TBA market is the second most liquid market (after the U.S. Treasury market), maintaining a significant
level of Agency securities eligible for TBA delivery enhances our liquidity profile and provides price support for our TBA eligible securities at or above generic TBA prices. As of September 30, 2017, approximately 90% of our fixed rate Agency RMBS portfolio was eligible for TBA delivery.
Equity Capital
In September 2017, we completed a public offering in which 28.2 million shares of our common stock were sold to the underwriters for proceeds of $577 million, or $20.47 per common share, net of estimated offering costs. In May 2017, we completed a public offering in which 24.5 million shares of our common stock were sold to the underwriters for proceeds of $503 million, or $20.51 per common share, net of offering costs. We are also authorized by our Board of Directors to publicly offer and sell shares of our common stock in privately negotiated and/or at-the-market transactions from time-to-time up to an aggregate amount of $750 million of shares of our common stock, subject to U.S. Federal securities laws. During the three and nine months ended September 30, 2017, we sold 7.6 million shares of our common stock under the sales agreements for proceeds of $159 million, or $20.96 per common share, net of estimated offering costs. As of September 30, 2017, $589 million of shares of our common stock remain available for issuance under this program.
In August 2017, we issued 13,000 shares of 7.00% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock in a public offering of 13.0 million Series C depositary shares at a price of $25 per depositary share for net proceeds of $315 million, after deducting estimated offering expenses. In September 2017, we redeemed all of our issued and outstanding shares of 8.000% Series A Cumulative Redeemable Preferred Stock for $173 million (or $25 per share liquidation preference), plus accrued and unpaid dividends.
To the extent we raise additional equity capital we may use cash proceeds from such transactions to purchase additional investment securities, to make scheduled payments of principal and interest on our funding liabilities and for other general corporate purposes. There can be no assurance, however, that we will be ableunable to raise additional equity capital at any particular timesuitable times or on any particularfavorable terms. Furthermore, when the trading price of our common stock is significantly less than our then-current estimate of our current tangible net assetbook value per common share, among other conditions, we may repurchase shares of our common stock subjectpursuant to the provisions of our stock repurchase program (seeplan authorized by our Board of Directors, which has $1 billion in remaining capacity and expires on December 31, 2024. Please refer to Note 10 to9 of our Consolidated Financial Statements in this Form 10-Q).
10-Q for further details regarding our recent equity capital transactions, if any.
OFF-BALANCE SHEET ARRANGEMENTS
As of September 30, 2017,March 31, 2024, we did not maintain any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance, or special purpose or variable interest entities, established for the purpose of facilitatingto facilitate off-balance sheet arrangements or other contractually narrow or limited purposes. Furthermore,Additionally, as of September 30, 2017,March 31, 2024, we had not guaranteed any obligations of unconsolidated entities or entered into anya commitment or intent to provide funding to any such entities.
FORWARD-LOOKING STATEMENTS
This document contains "forward-looking statements" (withinThe statements contained in this Quarterly Report that are not historical facts, including estimates, projections, beliefs, expectations concerning conditions, events, or the outlook for our business, strategy, performance, operations or the markets or industries in which we operate, are forward-looking statements within the meaning of the Private Securities Litigation Reform ActAct. Forward-looking statements are typically identified by words such as “believe,” “plan,” “expect,” “anticipate,” “see,” “intend,” “outlook,” “potential,” “forecast,” “estimate,” “will,” “could,” “should,” “likely” and other similar, correlative or comparable words and expressions.
Forward-looking statements are based on management’s assumptions, projections and beliefs as of 1995) that inherentlythe date of this Quarterly Report, but they involve a number of risks and uncertainties. Our actualActual results and liquidity canmay differ materially from those anticipated in these forward-looking statements, because of changes in the level and composition ofas well as from historical performance. Factors that could cause actual results to vary from our investments and other factors. These factors mayforward-looking statements include, but are not limited to, the following:
•changes in general economic U.S. monetary policy or interest rates, including actions taken by the Federal Reserve to normalize monetary policy and to reduce the size of its U.S. Treasury and Agency RMBS bond portfolio;
•fluctuations in the yield curve;
•the level, degree and extent of volatility in interest rates or the yield on our assets relative to interest rate benchmarks;
•fluctuations in mortgage prepayment rates on the loans underlying our Agency RMBS;
•the availability and terms of financing and our hedge positions;
•changes in the market value of our assets, including from changes in net interest spreads, market liquidity or depth, and changes in our "at risk" leverage or hedge positions;
•the effectiveness of our risk mitigation strategies;
•conditions in the market for Agency RMBS and other mortgage securities, including changes in the available supply of such securities or investor appetite therefor;
•actions by the federal, state, or local governments that affect the economy, the housing sector or financial markets;
•the direct or indirect effects of geopolitical events, including war, terrorism, civil discord, embargos, trade or other disputes, or natural disasters, on conditions in the markets for Agency RMBS or other mortgage securities, the terms or availability of funding for our business, or our ongoing business operations;
•the availability of suitable investments from both an investment return and regulatory perspective, the availability of new investment capital, fluctuations in interest rates and levels of mortgage prepayments, deterioration in credit quality and ratings, the effectiveness of risk management strategies, the impact of leverage, liquidity of secondary markets and credit markets, increases in costspersonnel, operational resources, information technology and other general competitive factors.systems to conduct our operations;
•changes to laws, regulations, rules or policies that affect U.S. housing finance activity, the GSE's or the markets for Agency RMBS; and
•legislative or regulatory changes that affect our status as a REIT, our exemption from the Investment Company Act of 1940 or the mortgage markets in which we participate.
Forward-looking statements speak only as of the date made, and we do not assume any duty and do not undertake to update forward-looking statements. A further discussion of risks and uncertainties that could cause actual results to differ from any of our forward-looking statements is included under Item 1A. Risk Factors in Part I of our most recent Annual Report on Form 10-K and Part II of this Form 10-Q. We caution readers not to place undue reliance on our forward-looking statements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market risk is the exposure to loss resulting from changes in market factors such as interest rates, foreign currency exchange rates, commodity prices and equity prices. The primary market risks that we are exposed to are interest rate, prepayment, spread, liquidity, extension and credit risk.risks.
Interest Rate Risk
InterestWe are subject to interest rate risk is highly sensitive to many factors, including governmental monetaryin connection with the fixed income nature of our assets and tax policies, domesticthe short-term, variable rate nature of our financing obligations. Our operating results depend in large part on differences between the income earned on our assets and international economicour cost of borrowing and political considerations and other factors beyondhedging activities. The costs associated with our control.
Changes in the general levelborrowings are generally based on prevailing market interest rates. During a period of rising interest rates, our borrowing costs generally will increase while the yields earned on our existing portfolio of leveraged fixed-rate assets will largely remain static. This can affectresult in a decline in our net interest income, which is the difference between the interest income earned on interest-earning assets and the interest expense incurred in connection with our interest-bearing liabilities, by affecting the spread between our interest-earning assets and interest-bearing liabilities.spread. Changes in the level of interest rates can also affect the rate of mortgage prepayments of our securities and the value of the mortgage securities that constitute our investment portfolio, which affectsassets.
Interest rates are highly sensitive to many factors, including fiscal and monetary policies and domestic and international economic and political considerations, as well as other factors beyond our net income and abilitycontrol. Subject to realize gains from the sale of these assets and impactsmaintaining our ability and the amount thatqualification as a REIT, we can borrow against these securities.
We utilizeengage in a variety of strategiesinterest rate management techniques to limitmitigate the effectsinfluence of changes in interest ratesrate changes on our operations.net interest income and fluctuations of our tangible net book value. The principal instruments that we use to hedge our interest rate risk are interest rate swaps, swaptions, U.S. Treasury securities and U.S. Treasury futures contracts. WeOur hedging techniques are highly complex and are partly based on assumed levels of prepayments of our assets. If prepayments are slower or faster than assumed, the maturity of our investments will also use forward contractsdiffer from our expectations, which could reduce the effectiveness of our hedging strategies and may cause losses on such transactions and adversely affect our cash flow.
The severity of potential declines in our tangible net book value due to fluctuations in interest rates would depend on our asset, liability, and hedge composition at the Agency RMBS TBA market to invest in and finance Agency securitiestime, as well as to periodically reduce our exposure to Agency RMBS. Derivative instruments may expose us to certain risks, including the risk that losses on a hedge position will reducemagnitude and duration of the funds available for payments to holders of our common stock and that the losses may exceed the amount we invested in the instruments.
Our profitability and the value of our investment portfolio (including derivatives used for hedging purposes) may be adversely affected during any period as a result of changing interest rates including changes in the forward yield curve.
rate change. Primary measures of an instrument's price sensitivity to interest rate fluctuations are its duration and convexity. Duration measures the estimated percentage change in market value of our mortgage assets or our hedge portfolioan instrument that would be caused by a parallel change in short and long-term interest rates. The duration of our investment portfolioassets will vary with changes within interest rates and tends to increase when interest rates rise and decrease when interest rates fall. This "negative convexity" generally increases the interest rate exposure of our investment portfolio in excess of what is measured by duration alone.
We estimate the duration and convexity of our portfolioassets using both a third-party risk management system and market data. We review the duration estimates from the third-party modelfor reasonableness, giving consideration to any unique characteristics of our securities, market conditions and other factors likely to impact these estimates, and based on our judgement we may make adjustments based onto the third-party estimates. Our estimated duration gap, which is a measure of the difference between the interest rate sensitivity of our judgment. These adjustments are intendedassets and our liabilities, inclusive of interest rate hedges, was 0.2 years as of March 31, 2024, compared to better reflect the unique characteristics and market trading conventions associated with certain types-0.5 years as of securities. December 31, 2023.
The table below quantifies the estimated changes in (i) net interest income (including periodic interest costs on our interest rate swaps); (ii) the fair value of our investment portfolio (including derivatives and other securities used for hedging purposes); and (iii)in our tangible net assetbook value per common share as of September 30, 2017March 31, 2024 and December 31, 20162023 should interest rates go up or down by 25, 50 and 10075 basis points, assuming instantaneous parallel shifts in the yield curve and including the impact of both duration and convexity.
All changes in income and valuevalues in the table below are measured as percentage changes from the base interest rate scenario. The base interest rate scenario assumes interest rates and prepayment projections as of September 30, 2017March 31, 2024 and December 31, 2016. We apply a floor of 0% for the down rate scenarios on our interest bearing liabilities and the variable leg of our interest rate swaps, such that any hypothetical interest rate decrease would have a limited positive impact on our funding costs beyond a certain level.2023.
Actual results could differ materially from estimates, especially in the current market environment. To the extent that these estimates or other assumptions do not hold true, which ismay be more likely in a periodduring periods of high priceelevated market volatility, actual results will likelycould differ materially from our projections. Moreover, if different models were employed in the analysis, materially different projections could result. Lastly, while the table below reflects the estimated impact of interest rate changes on a static portfolio, we actively manage our portfolio, and we continuously make adjustments toadjust the size and composition of our asset and hedge portfolio.
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Interest Rate Sensitivity 1,2 |
| | March 31, 2024 | | December 31, 2023 |
Change in Interest Rate | | Estimated Change in Portfolio Market Value | | Estimated Change in Tangible Net Book Value Per Common Share | | Estimated Change in Portfolio Market Value | | Estimated Change in Tangible Net Book Value Per Common Share |
| | | | | | | | |
-75 Basis Points | | -0.2% | | -2.4% | | -0.7% | | -7.0% |
-50 Basis Points | | -0.1% | | -0.6% | | -0.4% | | -3.8% |
-25 Basis Points | | 0.0% | | +0.1% | | -0.1% | | -1.5% |
+25 Basis Points | | -0.1% | | -0.9% | | +0.1% | | +0.7% |
+50 Basis Points | | -0.3% | | -2.5% | | +0.1% | | +0.7% |
+75 Basis Points | | -0.5% | | -4.7% | | 0.0% | | 0.0% |
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1.Derived from models that are dependent on inputs and assumptions, assumes there are no changes in mortgage spreads and assumes a static portfolio. Actual results could differ materially from these estimates.
2.Includes the effect of derivatives and other securities used for hedging purposes. Interest rates are assumed to be floored at 0% in down rate scenarios.
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Interest Rate Sensitivity 1 |
| | Percentage Change in Projected |
Change in Interest Rate | | Net Interest Income 2 | | Portfolio Market Value 3,4 | | Tangible Net Asset Value 3,5 |
As of September 30, 2017 | | | | | | |
-100 Basis Points | | -10.4% | | -0.5% | | -5.1% |
-50 Basis Points | | -3.4% | | 0.0% | | -0.1% |
+50 Basis Points | | +1.9% | | -0.4% | | -3.7% |
+100 Basis Points | | +2.0% | | -1.1% | | -9.8% |
| | | | | | |
As of December 31, 2016 | | | | | | |
-100 Basis Points | | -9.7% | | +0.6% | | +4.9% |
-50 Basis Points | | -1.8% | | +0.5% | | +4.4% |
+50 Basis Points | | +4.1% | | -0.8% | | -6.9% |
+100 Basis Points | | +6.2% | | -1.7% | | -15.3% |
________________
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1. | Interest rate sensitivity is derived from models that are dependent on inputs and assumptions provided by third parties, assumes there are no changes in mortgage spreads and assumes a static portfolio. Actual results could differ materially from these estimates. |
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2. | Represents the estimated dollar change in net interest income expressed as a percent of net interest income based on asset yields and cost of funds as of such date. It includes the effect of periodic interest costs on our interest rate swaps, but excludes costs associated with our forward starting swaps and other supplemental hedges, such as swaptions and U.S. Treasury securities. Amounts also exclude costs associated with our TBA position and TBA dollar roll income/loss, which are accounted for as derivative instruments in accordance with GAAP. Base case scenario assumes interest rates and forecasted CPR of 9% and 8% as of September 30, 2017 and December 31, 2016, respectively. As of September 30, 2017, rate shock scenarios assume a forecasted CPR of 12%, 10%, 7% and 7% for the -100, -50, +50 and +100 basis points scenarios, respectively. As of December 31, 2016, rate shock scenarios assume a forecasted CPR of 10%, 9%, 7% and 7% for such scenarios, respectively. Estimated dollar change in net interest income does not include the impact of retroactive "catch-up" premium amortization adjustments due to changes in our forecasted CPR. Down rate scenarios assume a floor of 0% for anticipated interest rates.
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3. | Includes the effect of derivatives and other securities used for hedging purposes. |
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4. | Estimated dollar change in investment portfolio value expressed as a percent of the total fair value of our investment portfolio as of such date. |
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5. | Estimated dollar change in portfolio value expressed as a percent of tangible stockholders' equity, net of the Series A and Series B Preferred Stock liquidation preference, as of such date. |
Prepayment Risk and Extension Risk
Because residential borrowers have the option to prepay their mortgage loans at par at any time, we facePrepayment risk is the risk that weour assets will experiencebe repaid at a return of principal on our investments faster rate than anticipated. VariousInterest rates and numerous other factors affect the rate at which mortgageof prepayments, occur, including changes in the level of and directional trends insuch as housing prices, interest rates, general economic conditions, loan age, size and size, loan-to-value ratio, the locationratios, and GSE buyouts of the property and social and demographic conditions. Additionally, changes to GSE underwriting practices or other governmental programs could also significantly impact prepayment rates or expectations. Also, the pace at which thedelinquent loans underlying our securities become seriously delinquent or are modified and the timing of GSE repurchases of such loans from our securities can materially impactsecurities. Generally, declining mortgage rates increase the rate of prepayments. Generally, prepayments, on residential mortgage-backed securities increase during periods of falling mortgage interestwhile rising rates and decrease during periods of rising mortgage interest rates. However, thishave the opposite effect.
If our assets prepay at a faster rate than anticipated, we may not always be the case.
We mayunable to reinvest principalthe repayments at a yield that isacceptable yields. If the proceeds are reinvested at lower or higheryields than the yield on the repaid investment, thus affectingour existing assets, our net interest income by altering the average yield on our assets.would be negatively impacted. We also amortize or accrete premiums and discounts associated withwe pay or receive at purchase relative to the purchasestated principal of mortgage securitiesour assets into interest income over thetheir projected lives of the securities, including contractual payments and estimated prepayments using the effective interest method. Our policy for estimating prepayment speeds for calculating the effective yield is to evaluate published prepayment data for similar securities, market consensus and current market conditions. If the actual and estimated future prepayment experiencedexperience differs from our estimateprior estimates, we are required to record an adjustment to interest income for the impact of prepayments,the cumulative difference in the effective yield.
Extension risk is the risk that our assets will be repaid at a slower rate than anticipated and generally increases when interest rates rise. In a rising or higher interest rate environment, we willmay be required to make an adjustmentfinance our investments at potentially higher costs without the ability to reinvest principal into higher yielding securities as a result of borrowers prepaying their mortgages at a slower pace than originally anticipated, adversely impacting our net interest spread, and thus our net interest income.
As of March 31, 2024 and December 31, 2023, our investment securities (excluding TBAs) had a weighted average projected CPR of 10.4% and 11.4%, respectively, and a weighted average yield of 4.52% and 4.41%, respectively. The table below presents estimated weighted average projected CPRs and yields for our investment securities should interest rates go up or down instantaneously by 25, 50 and 75 basis points. Estimated yields exclude the impact of retroactive "catch-up" premium amortization or accretionadjustments for prior periods due to changes in the projected CPR assumption.
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Interest Rate Sensitivity 1 |
| | March 31, 2024 | | December 31, 2023 |
Change in Interest Rate | | Weighted Average Projected CPR | | Weighted Average Asset Yield 2 | | Weighted Average Projected CPR | | Weighted Average Asset Yield 2 |
| | | | | | | | |
-75 Basis Points | | 16.5% | | 4.42% | | 17.8% | | 4.33% |
-50 Basis Points | | 14.2% | | 4.46% | | 15.4% | | 4.36% |
-25 Basis Points | | 12.0% | | 4.49% | | 13.2% | | 4.39% |
Actual as of Period End | | 10.4% | | 4.52% | | 11.4% | | 4.41% |
+25 Basis Points | | 9.0% | | 4.55% | | 9.7% | | 4.44% |
+50 Basis Points | | 8.0% | | 4.57% | | 8.5% | | 4.46% |
+75 Basis Points | | 7.4% | | 4.58% | | 7.7% | | 4.47% |
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1.Derived from models that are dependent on inputs and assumptions and assumes a static portfolio. Actual results could differ materially from these estimates. Table excludes TBA securities.
2.Asset yield based on historical cost basis and does not include the impact of premiums and discounts that would have an impact on future income.retroactive "catch-up" premium amortization adjustments due to changes in projected CPR.
Spread Risk
WhenSpread risk is the risk that the market spread between the yield on our investment securitiesassets and the yield on benchmark interest rates widens,linked to our net book value could decline if the valueinterest rate hedges, such as U.S. Treasury rates and interest rate swap rates, may vary. As a levered investor in mortgage-backed securities, spread risk is an inherent component of our investment securities fall by more than the offsetting fair value increases on ourstrategy. Therefore, although we use hedging instruments tied to the underlying benchmark interest rates. We refer to this as "spread risk" or "basis risk." The spread risk associated with our mortgage assets and the resulting fluctuations in fair value of these securities can occur independent of changes in benchmark interest rates and may relate to other factors impacting the mortgage and fixed income markets, such as actual or
anticipated monetary policy actions by the Federal Reserve, market liquidity, or changes in required rates of return on different assets. Consequently, while we use interest rate swaps and other supplemental hedges to attempt to protect against moves in interest rates, such instruments typically willour hedges are generally not designed to protect against spread risk, and our tangible net book value against spread risk.could decline if spreads widen.
Fluctuations in mortgage spreads can occur due to a variety of factors, including changes in interest rates, prepayment expectations, actual or anticipated monetary policy actions by the U.S. and foreign central banks, liquidity conditions, required rates of returns on different assets and other market supply and demand factors. The table below quantifies the estimated changes in the fair value of our investment portfolio (including derivativesassets, net of hedges, and other securities used for hedging purposes) and in our tangible net assetbook value per common share as of September 30, 2017March 31, 2024 and December 31, 20162023 should spreads widen or tighten by 10, 25 and 2550 basis points. The estimated impact of changes in spreads is in addition to our interest rate shock sensitivity included in the interest rate shock table above. The table below assumes a spread duration of 5.34.8 and 5.44.7 years as of September 30, 2017March 31, 2024 and December 31, 2016,2023, respectively, based on interest rates and prices as of such dates. However,dates; however, our portfolio's sensitivity ofto mortgage spread changes will vary with changes in interest rates and in the size and composition of our investment portfolio. Therefore, actual results could differ materially from our estimates.
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Spread Sensitivity 1,2 |
| | March 31, 2024 | | December 31, 2023 |
Change in MBS Spread | | Estimated Change in Portfolio Market Value | | Estimated Change in Tangible Net Book Value Per Common Share | | Estimated Change in Portfolio Market Value | | Estimated Change in Tangible Net Book Value Per Common Share |
-50 Basis Points | | +2.4% | | +23.7% | | +2.3% | | +23.1% |
-25 Basis Points | | +1.2% | | +11.9% | | +1.2% | | +11.6% |
-10 Basis Points | | +0.5% | | +4.7% | | +0.5% | | +4.6% |
+10 Basis Points | | -0.5% | | -4.7% | | -0.5% | | -4.6% |
+25 Basis Points | | -1.2% | | -11.9% | | -1.2% | | -11.6% |
+50 Basis Points | | -2.4% | | -23.7% | | -2.3% | | -23.1% |
1.Spread sensitivity is derived from models that are dependent on inputs and assumptions, assumes there are no changes in interest rates and assumes a static portfolio. Actual results could differ materially from these estimates. |
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Spread Sensitivity 1 |
| | Percentage Change in Projected |
Change in MBS Spread | | Portfolio Market Value 2,3 | | Tangible Net Asset Value 2,4 |
As of September 30, 2017 | | | | |
-25 Basis Points | | +1.3% | | +12.3% |
-10 Basis Points | | +0.5% | | +4.9% |
+10 Basis Points | | -0.5% | | -4.9% |
+25 Basis Points | | -1.3% | | -12.3% |
| | | | |
As of December 31, 2016 | | | | |
-25 Basis Points | | +1.3% | | +12.0% |
-10 Basis Points | | +0.5% | | +4.8% |
+10 Basis Points | | -0.5% | | -4.8% |
+25 Basis Points | | -1.3% | | -12.0% |
2.Includes the effect of derivatives and other securities used for hedging purposes.________________
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1. | Spread sensitivity is derived from models that are dependent on inputs and assumptions provided by third parties, assumes there are no changes in interest rates and assumes a static portfolio. Actual results could differ materially from these estimates. |
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2. | Includes the effect of derivatives and other securities used for hedging purposes. |
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3. | Estimated dollar change in investment portfolio value expressed as a percent of the total fair value of our investment portfolio as of such date. |
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4. | Estimated dollar change in portfolio value expressed as a percent of tangible stockholders' equity, net of the Series A and Series B Preferred Stock liquidation preference, as of such date. |
Liquidity Risk
The primaryOur liquidity risk for usprincipally arises from financing long-term fixed rate assets with shorter-term variable rate borrowings. Future borrowings through repurchase agreementsare dependent upon the willingness of lenders to finance our investments, lender collateral
requirements and other short-term funding agreements. the lenders’ determination of the fair value of the securities pledged as collateral, which fluctuates with changes in interest rates and liquidity conditions within the commercial banking and mortgage finance industries.
As of September 30, 2017,March 31, 2024, we had unrestricted cashbelieve that we have sufficient liquidity and cash equivalents of $1.1 billion and unpledged securities of approximately $3.6 billion, including securities pledged to us and unpledged interests in our consolidated VIEs,capital resources available to meet margin calls onexecute our funding liabilitiesbusiness strategy (see Liquidity and derivative contracts andCapital Resources in this Form 10-Q for other corporate purposes.additional details). However, should the value of our collateral or the value of our derivative instruments suddenly decrease, or margin calls relatingrequirements increase, we may be required to our funding liabilities and derivative agreements could increase,post additional collateral for these arrangements, causing an adverse change in our liquidity position. Furthermore, there is no assurance that we will always be able to renew (or roll) our short-term funding liabilities. In addition, our counterparties have the option to increase our haircuts (margin requirements) on the assets we pledge against our funding liabilities, thereby reducing the amount that can be borrowed against an asset even if they agree to renew or roll suchour funding liabilities. Significantly higher haircuts can reduce our ability to leverage our portfolio or may even force us to sell assets, especially if correlated with asset price declines or faster prepayment rates on our assets.
In addition, we often utilize TBA dollar roll transactions as a means of investing in and financing Agency RMBS. Under certain economic conditions it may be uneconomical to roll our TBA dollar roll transactions prior to the settlement date and we could have to take physical delivery of the underlying securities and settle our obligations for cash, which could negatively impact our liquidity position, result in defaults or force us to sell assets under adverse conditions.
Extension Risk
The projected weighted-average life and estimated duration, or interest rate sensitivity, of our investments is based on our assumptions regarding the rate at which the borrowers will prepay the underlying mortgage loans. In general, we use interest rate
swaps and swaptions to help manage our funding cost on our investments in the event that interest rates rise. These swaps (or swaptions) allow us to reduce our funding exposure on the notional amount of the swap for a specified period of time by establishing a fixed rate to pay in exchange for receiving a floating rate that generally tracks our financing costs under our funding liabilities.
However, if prepayment rates decrease in a rising interest rate environment, the average life or duration of our fixed rate assets generally extends. This could have a negative impact on our results from operations, as our interest rate swap maturities are fixed and will, therefore, cover a smaller percentage of our funding exposure on our mortgage assets to the extent that their average lives increase due to slower prepayments. This situation may also cause the market value of our fixed rate securities to decline by more than otherwise would be the case while most of our hedging instruments would not receive any incremental offsetting gains. In extreme situations, we may be forced to sell assets to maintain adequate liquidity, which could cause us to incur realized losses.
Credit Risk
Our credit sensitive investments, such as CRT and non-Agency securities, expose us to the risk of nonpayment of principal, interest or other remuneration we are contractually entitled to. We are also exposed to credit risk relatedin the event our repurchase agreement counterparties default on their obligations to resell the underlying collateral back to us at the end of the repo term or in the event our CRT and non-Agency investments, certain derivative transactions, andcounterparties do not perform under the terms of our collateral held by funding and derivative counterparties. agreements.
We accept credit exposure related to our credit sensitive assets at levels we deem prudent as an integral partwithin the context of our overall investment and hedging strategy. We seekattempt to manage this risk through prudentcareful asset selection, pre-acquisition due diligence, post-acquisition performance monitoring, and the sale of assets where we have identifiedidentify negative credit trends and the use of various types of credit enhancements.trends. We may also use non-recourse financing, which limits our exposure tomanage credit losses to the specific securities subject to the non-recourse financing. Our overall management of credit exposure may also include the use ofrisk with credit default swaps or other financial derivatives that we believe are appropriate. Additionally, we may vary the percentage mix of our investmentsinterest rate and credit sensitive assets or our duration gap to adjust our credit exposure and/or improve the return profile of our assets, such as when we believe credit performance is inversely correlated with changes in interest rates, in an effort to actively adjust our credit exposure and to improve the risk/return profile of our investment portfolio.
rates. Our credit risk related to certain derivative and repurchase agreement transactions is largely mitigated through daily adjustments to collateral pledged based on changes in market value and we limitby limiting our counterparties to major financial institutions with acceptable credit ratings. There is no guarantee thatratings or to registered central clearinghouses and monitoring concentration levels with any one counterparty. We also continuously monitor and adjust the amount of collateral pledged based on changes in market value. However, our efforts to manage credit risk willmay be successfulunsuccessful and we could suffer losses if credit performance is worseas a result. Excluding central clearing exchanges, as of March 31, 2024, our maximum amount at risk with any counterparty related to our repurchase agreements and derivative agreements was less than our expectations or if economic conditions worsen.
3% and 1%, respectively, of tangible stockholders' equity.
Item 4. Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities Exchange Act of 1934, as amended (the "Exchange Act") reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based on the definition of "disclosure controls and procedures" as promulgated under the Exchange Act and the rules and regulations thereunder. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
We, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2017.March 31, 2024. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There have been no changes in our "internal control over financial reporting" (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Neither we, nor any of our consolidated subsidiaries, are currently subject to any material litigation nor, to our knowledge, is any material litigation threatened against us or any consolidated subsidiary, other than routine litigation and administrative proceedings arising in each case, that isthe ordinary course of business. Such proceedings are not expected to have a material adverse effect on ourthe business, financial conditionconditions, or operations. See also "Loss Contingencies" in Note 3 toresults of our Consolidated Financial Statements included in this Form 10-Q.operations.
Item 1A. Risk Factors
There have been no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016.2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
During the three months ended March 31, 2024, none of our directors or officers (as defined in Rule 16a-1(f) of the Exchange Act) informed us of the adoption or termination of a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," as those terms are defined in Regulation S-K, Item 408.
None.
Item 6. Exhibits and Financial Statement Schedules
(a) Exhibit Index
Exhibit No.Description
101.INS** The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document
101.SCH** XBRL Taxonomy Extension Schema Document
101.CAL** XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB** XBRL Taxonomy Extension Labels Linkbase Document
101.PRE** XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF** XBRL Taxonomy Extension Definition Linkbase Document
* Previously filed
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** | This exhibit is being furnished rather than filed, and shall not be deemed incorporated by reference into any filing, in accordance with Item 601 of Regulation S-K |
** This exhibit is being furnished rather than filed, and shall not be deemed incorporated by reference into any filing, in accordance with Item 601 of Regulation S-K
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| See the exhibits filed herewith. |
† Management contract or compensatory plan or arrangement
(b) Exhibits
See the exhibits filed herewith.
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(c) | (c) Additional financial statement schedules |
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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| | | | |
| | | AGNC INVESTMENT CORP. |
| | | | |
| | | By: | /s/ GARY KAINPETER J. FEDERICO |
| | | | | Gary Kain Peter J. Federico President and Chief Executive Officer, President and
Chief Investment Officer (Principal Executive Officer) |
Date: | November 3, 2017May 7, 2024 | | | |
| | | | |
| | | By: | /s/ PETER FEDERICOBERNICE E. BELL |
| | | | Peter Federico Bernice E. Bell Executive Vice President and Chief Financial Officer and
Executive Vice President (Principal Financial Officer and Principal Accounting Officer) |
Date: | November 3, 2017May 7, 2024 | | | |