Edgar Filing: AGNC Investment Corp.

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2018



o	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)

__________________________________________________



Delaware		26-1701984
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

2 Bethesda Metro Center, 12th Floor

Bethesda, Maryland 20814

(Address of principal executive offices)

(301) 968-9315

(Registrant’s telephone number, including area code)

__________________________________________________

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 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 ý No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý 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. See definition of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer	ý		Accelerated filer	¨

Non-accelerated filer	¨	(Do not check if a smaller reporting company)	Smaller Reporting Company	¨

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 ý

The number of shares of the issuer's common stock, $0.01 par value, outstanding as of October 26, 2018 was 477,831,997.

AGNC INVESTMENT CORP.

TABLE OF CONTENTS



PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements	2
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	45
Item 4.	Controls and Procedures	48

PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	49
Item 1A.	Risk Factors	49
Item 2.	Properties	49
Item 3.	Defaults upon Senior Securities	49
Item 4.	Mine Safety Disclosures	49
Item 5.	Other Information	49
Item 6.	Exhibits	50

Signatures		52

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

AGNC INVESTMENT CORP.

CONSOLIDATED BALANCE SHEETS

(in millions, except per share data)



	September 30, 2018			December 31, 2017
	(Unaudited)
Assets:
Agency securities, at fair value (including pledged securities of $67,889 and $53,055, respectively)	$	70,408		$	55,506
Agency securities transferred to consolidated variable interest entities, at fair value (pledged securities)	453			662
Credit risk transfer securities, at fair value (including pledged securities of $44 and $0, respectively)	997			876
Non-Agency securities, at fair value	507			36
U.S. Treasury securities, at fair value (including pledged securities of $45 and $0, respectively)	109			—
REIT equity securities, at fair value	—			29
Cash and cash equivalents	1,071			1,046
Restricted cash	456			317
Derivative assets, at fair value	412			205
Receivable for investment securities sold (including pledged securities of $443 and $0, respectively)	524			—
Receivable under reverse repurchase agreements	16,309			10,961
Goodwill and other intangible asset, net	526			551
Other assets	259			187
Total assets	$	92,031		$	70,376
Liabilities:
Repurchase agreements	$	65,734		$	50,296
Debt of consolidated variable interest entities, at fair value	291			357
Payable for investment securities purchased	23			95
Derivative liabilities, at fair value	62			28
Dividends payable	95			80
Obligation to return securities borrowed under reverse repurchase agreements, at fair value	15,549			10,467
Accounts payable and other liabilities	650			299
Total liabilities	82,404			61,622
Stockholders' equity:
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)	315			315
Common stock - $0.01 par value; 900 and 600 shares authorized, respectively; 477.8 and 391.3 shares issued and outstanding, respectively	5			4
Additional paid-in capital	12,785			11,173
Retained deficit	(2,343		)	(2,562		)
Accumulated other comprehensive loss	(1,304		)	(345		)
Total stockholders' equity	9,627			8,754
Total liabilities and stockholders' equity	$	92,031		$	70,376

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,
	2018			2017			2018			2017
Interest income:
Interest income	$	500		$	318		$	1,345		$	907
Interest expense	312			140			755			350
Net interest income	188			178			590			557
Other gain (loss), net:
Gain (loss) on sale of investment securities, net	(40		)	22			(116		)	(47		)
Unrealized loss on investment securities measured at fair value through net income, net	(363		)	(31		)	(980		)	(6		)
Gain (loss) on derivative instruments and other securities, net	430			131			1,466			(78		)
Management fee income	46			4			54			12
Total other gain (loss), net:	73			126			424			(119		)
Expenses:
Compensation and benefits	14			10			34			30
Other operating expense	31			8			47			22
Total operating expense	45			18			81			52
Net income	216			286			933			386
Dividend on preferred stock	9			9			27			23
Issuance costs of redeemed preferred stock	—			6			—			6
Net income available to common stockholders	$	207		$	271		$	906		$	357

Net income	$	216		$	286		$	933		$	386
Other comprehensive income (loss):
Unrealized gain (loss) on available-for-sale securities, net	(193		)	90			(959		)	257
Comprehensive income (loss)	23			376			(26		)	643
Dividend on preferred stock	9			9			27			23
Issuance costs of redeemed preferred stock	—			6			—			6
Comprehensive income (loss) available (attributable) to common stockholders	$	14		$	361		$	(53	)	$	614

Weighted average number of common shares outstanding - basic	462.3			364.7			419.8			347.5
Weighted average number of common shares outstanding - diluted	462.7			364.9			420.1			347.6
Net income per common share - basic	$	0.45		$	0.74		$	2.16		$	1.03
Net income per common share - diluted	$	0.45		$	0.74		$	2.16		$	1.03
Dividends declared per common share	$	0.54		$	0.54		$	1.62		$	1.62

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
	8.000% Series A Cumulative Redeemable Preferred Stock			7.750% Series B Cumulative Redeemable Preferred Stock				Shares	Amount		Additional Paid-in Capital		Retained Deficit			Accumulated Other Comprehensive Income (Loss)			Total
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

Balance, December 31, 2017	$	—		$	169	$	315	391.3	$	4	$	11,173	$	(2,562	)	$	(345	)	$	8,754
Net income	—			—		—		—	—		—		933			—			933
Other comprehensive loss:
Unrealized loss on available-for-sale securities, net	—			—		—		—	—		—		—			(959		)	(959		)
Stock-based compensation	—			—		—		—	—		8		—			—			8
Issuance of common stock	—			—		—		86.5	1		1,604		—			—			1,605
Preferred dividends declared	—			—		—		—	—		—		(27		)	—			(27		)
Common dividends declared	—			—		—		—	—		—		(687		)	—			(687		)
Balance, September 30, 2018	$	—		$	169	$	315	477.8	$	5	$	12,785	$	(2,343	)	$	(1,304	)	$	9,627

See accompanying notes to consolidated financial statements.

AGNC INVESTMENT CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in millions)



	Nine Months Ended September 30,
	2018			2017
Operating activities:
Net income	$	933		$	386
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of premiums and discounts on mortgage-backed securities, net	224			282
Amortization of intangible assets	25			3
Stock-based compensation	5			3
Loss on sale of investment securities, net	116			47
Unrealized loss on investment securities measured at fair value through net income, net	980			6
(Gain) loss on derivative instruments and other securities, net	(1,466		)	78
(Increase) decrease in other assets	(71		)	99
Increase in accounts payable and other accrued liabilities	94			31
Net cash provided by operating activities	840			935
Investing activities:
Purchases of Agency mortgage-backed securities	(29,615		)	(23,823		)
Purchases of credit risk transfer and non-Agency securities	(1,051		)	(881		)
Proceeds from sale of Agency mortgage-backed securities	6,696			13,390
Proceeds from sale of credit risk transfer and non-Agency securities	483			437
Principal collections on Agency mortgage-backed securities	5,317			5,076
Principal collections on credit risk transfer and non-Agency securities	9			4
Payments on U.S. Treasury securities	(7,119		)	(10,618		)
Proceeds from U.S. Treasury securities	12,381			11,682
Net payments on reverse repurchase agreements	(5,175		)	(1,456		)
Net proceeds from derivative instruments	1,087			38
Net proceeds from (payments on) other investing activity	30			(4		)
Net cash used in investing activities	(16,957		)	(6,155		)
Financing activities:
Proceeds from repurchase arrangements	1,299,744			294,885
Payments on repurchase agreements	(1,284,306		)	(287,238		)
Payments on Federal Home Loan Bank advances	—			(3,037		)
Payments on debt of consolidated variable interest entities	(63		)	(80		)
Net proceeds from preferred stock issuances	—			315
Payment for preferred stock redemption	—			(173		)
Net proceeds from common stock issuances	1,605			1,238
Cash dividends paid	(699		)	(580		)
Net cash provided by financing activities	16,281			5,330
Net change in cash, cash equivalents and restricted cash	164			110
Cash, cash equivalents and restricted cash at beginning of period	1,363			1,282
Cash, cash equivalents and restricted cash at end of period	$	1,527		$	1,392

See accompanying notes to consolidated financial statements.

AGNC INVESTMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Basis of Presentation

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. 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.

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.

Adoption of Accounting Standard Updates

As of January 1, 2018, we adopted Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers (Topic 606), and ASU 2016-18, Statement of Cash Flows (Topic 230) - Restricted Cash. The adoption of ASU 2014-09 resulted in reclassification of expense reimbursements from MTGE Investment Corp. ("MTGE") from an other operating expense offset to management fee income on the consolidated statements of comprehensive income. Net income was not impacted. The adoption of ASU 2016-18 resulted in the presentation of restricted cash with cash and cash equivalents on the consolidated statements of cash flows when reconciling the total beginning and ending amounts. Our prior period results have been revised to conform to the current presentation.

Note 2. Organization

We were 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 Nasdaq Global Select Market under the symbol "AGNC."

We 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. So 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 income 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. 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 GSE or U.S. Government agency. We fund our investments primarily through borrowings structured as repurchase agreements.

Our principal objective is to provide our stockholders with attractive risk-adjusted returns through a combination of monthly dividends and tangible net book value accretion. We generate income from the interest earned on our investments, net of associated borrowing and hedging costs, and net realized gains and losses on our investment and hedging activities.

Note 3. Summary of Significant Accounting Policies

Investment Securities

Agency RMBS 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," and together with Fannie Mae, the "GSEs") or the Government National Mortgage Association ("Ginnie Mae").

CRT securities are risk sharing instruments issued by the GSEs, and similarly structured transactions issued by third-party market participants, that 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 U.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 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, overcollateralization or insurance, but nonetheless carry a higher level of credit exposure than Agency RMBS.

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 securities pursuant to ASC Topic 825, Financial Instruments. 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 acquired after fiscal year 2016. Consequently, all of our securities are reported at fair value on our consolidated balance sheet. Unrealized gains and losses on securities classified as available-for-sale are reported in accumulated other comprehensive income ("OCI"). 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) 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.

In our view, the 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, as the fair value changes for these assets are presented in a manner consistent with the presentation and timing of the fair value changes of our derivative 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 as available-for-sale securities until we receive full repayment of principal or we dispose of the security.

We estimate the fair value of our investment securities based on prices provided by multiple third-party pricing services and non-binding dealer quotes (collectively "pricing sources"). These pricing sources use various valuation approaches, including market and income approaches, using "Level 2" inputs. The pricing sources primarily utilize a matrix pricing technique that interpolates the estimated fair value of our Agency RMBS based on observed quoted prices for forward contracts in the Agency RMBS "to-be-announced" market ("TBA securities") of the same coupon, maturity and issuer, adjusted to reflect the specific characteristics of the pool of mortgages underlying the Agency security, which may include maximum loan balance, loan vintage, loan-to-value ratio, geography and other characteristics as may be appropriate. The pricing sources may also utilize discounted cash flow model-derived pricing techniques to estimate the fair value of investment securities. 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 and other market data that are current as of the measurement date and may include certain unobservable inputs, such as assumptions of future levels of prepayment, defaults and loss severities. We review the pricing estimates obtained from the pricing sources and perform procedures to validate their reasonableness. 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 judgments 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) it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis or (iii) we do not expect to recover the security's amortized cost basis, even if we do not intend to sell the security and it is not more likely than not that we will be required to sell the security. A general allowance for unidentified impairments in a portfolio of securities is not permitted.

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. The third-party service provider estimates prepayment speeds using models that incorporate the forward yield curve, 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 and compare the results to market consensus prepayment speeds, if available. We also consider historical prepayment speeds and current market conditions to validate the reasonableness of the third-party estimates. We review our actual and anticipated prepayment experience on at least a quarterly basis and effective yields are recalculated when differences arise between (i) our previously estimated future prepayments and (ii) actual prepayments to date and our current estimated future prepayments. If the actual and estimated future prepayment experience differs from our prior estimate of prepayments, we are required to record an adjustment in the current period to the amortization or accretion of premiums and discounts for the cumulative difference in the effective yield 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 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 adjusted for credit impairments, if any.

Repurchase Agreements

We finance the acquisition of securities for our investment portfolio primarily through repurchase transactions under master repurchase agreements. Pursuant to ASC Topic 860, Transfers and Servicing, we account for repurchase transactions 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 or three-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.

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. 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 considered to be at market.

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, or TBA securities, to invest in and finance Agency securities as well as 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.

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. Cash receipts and payments related to 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 registered central clearing exchanges and major financial institutions with acceptable credit ratings, monitoring positions with individual counterparties and adjusting posted collateral as required.

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 or three-month LIBOR ("payer swaps") with terms up to 20 years. The majority of our interest 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 the 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 require that we post an "initial margin" amount determined by the clearing exchange, which 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. We also exchange daily settlements of "variation margin" based upon changes in fair value, as measured by the exchange. Pursuant to rules governing central clearing activities, we recognize variation margin settlements as a direct reduction of the carrying value of the interest rate swap asset or liability.

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 interest rate swaption agreements 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 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 of 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 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

We use U.S. Treasury securities and U.S. Treasury futures contracts to mitigate the potential impact of changes in interest rates on the performance of our portfolio. We borrow U.S. Treasury securities under reverse repurchase agreements to cover short sales of U.S. Treasury securities. 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 U.S. Treasury security as of the reporting date. Gains and losses associated with 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.

MTGE Management Agreement

On May 2, 2018, MTGE announced its proposed sale to a third party. Coincident with the announcement, we entered into an amendment to our management agreement with MTGE. Pursuant to the amendment, we continued to manage MTGE through the closing of the proposed sale, which occurred on September 7, 2018, and for a one month transitional period following the closing. In addition to regular monthly management fees payable for ongoing service through the transition period, we were paid a termination fee under the management agreement of approximately $42 million, which is reported in management fee income in our consolidated statements of comprehensive income for the three and nine month periods ended September 30, 2018. Concurrent with the termination of the management agreement, we wrote-off the remaining unamortized intangible asset associated with the management agreement of approximately $23 million, which is reported in other operating expense in our consolidated statements of comprehensive income for the three and nine month periods ended September 30, 2018.

Loss Contingencies

We evaluate the existence of any pending or threatened litigation or other potential claims against the Company in accordance with ASC Topic 450, Contingencies, which requires that we assess the likelihood and range of potential outcomes of any such matters. We are the defendant in three stockholder derivative lawsuits alleging that certain of our current and former directors and officers breached fiduciary duties and wasted corporate assets relating to past renewals 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, we do not believe that these cases have merit or will result in a material liability, and, as of September 30, 2018, we did not accrue a loss contingency related to these matters.

Recent Accounting Pronouncements

We consider the applicability and impact of all Accounting Standards Updates ("ASUs") issued by the Financial Accounting Standards Board. ASUs not listed below were determined to be either not applicable, are not expected to have a significant impact on our consolidated financial statements when adopted or did not have a significant impact on our consolidated financial statements upon adoption.

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.

Note 4. Investment Securities

As of September 30, 2018 and December 31, 2017, our investment portfolio consisted of $72.4 billion and $57.1 billion of investment securities, at fair value, respectively, and $9.4 billion and $15.7 billion of TBA securities, at fair value, respectively. Our TBA position is reported at its net carrying value of $(43) million and $3 million as of September 30, 2018 and December 31, 2017, 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, 2018 and December 31, 2017, our investment securities had a net unamortized premium balance of $2.8 billion and $2.7 billion, respectively, including interest and principal-only securities.

The following tables summarize our investment securities as of September 30, 2018 and December 31, 2017, excluding TBA securities, (dollars in millions). Details of our TBA securities as of each of the respective dates are included in Note 6.



	September 30, 2018				December 31, 2017
Investment Securities	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Agency RMBS:
Fixed rate	$	72,194	$	69,844	$	55,477	$	55,026
Adjustable rate	229		230		278		283
CMO	623		609		629		631
Interest-only and principal-only strips	181		178		213		228
Total Agency RMBS	73,227		70,861		56,597		56,168
Non-Agency RMBS	375		374		7		7
CMBS	133		133		28		29
CRT securities	956		997		834		876
Total investment securities	$	74,691	$	72,365	$	57,466	$	57,080



	September 30, 2018
	Agency RMBS									Non-Agency
Investment Securities	Fannie Mae			Freddie Mac			Ginnie Mae			RMBS			CMBS			CRT			Total
Available-for-sale securities:
Par value	$	18,688		$	5,987		$	27		$	7		$	—		$	—		$	24,709
Unamortized discount	(15		)	(2		)	—			—			—			—			(17		)
Unamortized premium	960			362			—			—			—			—			1,322
Amortized cost	19,633			6,347			27			7			—			—			26,014
Gross unrealized gains	3			1			1			—			—			—			5
Gross unrealized losses	(960		)	(349		)	—			—			—			—			(1,309		)
Total available-for-sale securities, at fair value	18,676			5,999			28			7			—			—			24,710
Securities remeasured at fair value through earnings:
Par value	29,290			16,420			—			378			133			914			47,135
Unamortized discount	(68		)	(2		)	—			(10		)	(2		)	—			(82		)
Unamortized premium	973			607			—			—			2			42			1,624
Amortized cost	30,195			17,025			—			368			133			956			48,677
Gross unrealized gains	5			1			—			—			—			41			47
Gross unrealized losses	(665		)	(403		)	—			(1		)	—			—			(1,069		)
Total securities remeasured at fair value through earnings	29,535			16,623			—			367			133			997			47,655
Total securities, at fair value	$	48,211		$	22,622		$	28		$	374		$	133		$	997		$	72,365
Weighted average coupon as of September 30, 2018	3.77		%	3.84		%	3.24		%	3.85		%	4.49		%	5.76		%	3.82		%
Weighted average yield as of September 30, 2018 ¹	3.16		%	3.23		%	2.04		%	4.16		%	4.71		%	5.64		%	3.22		%

________________________________


1.	Incorporates a weighted average future constant prepayment rate assumption of 6.8% based on forward rates as of September 30, 2018.



	December 31, 2017
	Agency RMBS									Non-Agency
Investment Securities	Fannie Mae			Freddie Mac			Ginnie Mae			RMBS			CMBS			CRT			Total
Available-for-sale securities:
Par value	$	24,200		$	8,219		$	34		$	7		$	—		$	—		$	32,460
Unamortized discount	(25		)	(3		)	—			—			—			—			(28		)
Unamortized premium	1,119			447			—			—			—			—			1,566
Amortized cost	25,294			8,663			34			7			—			—			33,998
Gross unrealized gains	98			22			1			—			—			—			121
Gross unrealized losses	(325		)	(141		)	—			—			—			—			(466		)
Total available-for-sale securities, at fair value	25,067			8,544			35			7			—			—			33,653
Securities remeasured at fair value through earnings:
Par value	13,558			7,956			—			—			29			801			22,344
Unamortized discount	(34		)	—			—			—			(1		)	—			(35		)
Unamortized premium	711			415			—			—			—			33			1,159
Amortized cost	14,235			8,371			—			—			28			834			23,468
Gross unrealized gains	26			2			—			—			1			42			71
Gross unrealized losses	(70		)	(42		)	—			—			—			—			(112		)
Total securities remeasured at fair value through earnings	14,191			8,331			—			—			29			876			23,427
Total securities, at fair value	$	39,258		$	16,875		$	35		$	7		$	29		$	876		$	57,080
Weighted average coupon as of December 31, 2017	3.67		%	3.73		%	2.84		%	2.50		%	6.55		%	5.26		%	3.71		%
Weighted average yield as of December 31, 2017 ¹	2.84		%	2.87		%	2.02		%	3.08		%	7.30		%	5.19		%	2.89		%

________________________________


1.	Incorporates a weighted average future constant prepayment rate assumption of 8.4% based on forward rates as of December 31, 2017.

As of September 30, 2018 and December 31, 2017, our investments in CRT and non-Agency securities had the following credit ratings:



	September 30, 2018						December 31, 2017
CRT and Non-Agency Security Credit Ratings ¹	CRT		RMBS		CMBS		CRT		RMBS		CMBS
AAA	$	—	$	276	$	37	$	—	$	7	$	—
AA	—		21		61		—		—		—
A	17		27		—		1		—		—
BBB	67		37		30		34		—		29
BB	428		8		5		370		—		—
B	458		2		—		455		—		—
Not Rated	27		3		—		16		—		—
Total	$	997	$	374	$	133	$	876	$	7	$	29

________________________________


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.

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, 2018, our CRT securities had floating and fixed rate coupons ranging from 3.6% to 9.2%, referenced to loans originated between 2011 and 2018 with weighted average coupons ranging from 3.6% to 4.5%. As of December 31, 2017, our CRT securities had floating rate coupons ranging from 3.9% to 8.5%, referenced to loans originated between 2012 and 2017 with weighted average coupons ranging from 3.6% to 4.4%.

The actual maturities of our investment securities are generally shorter than their stated contractual maturities. Actual maturities are affected by the contractual lives of the underlying mortgages, periodic contractual principal payments and principal prepayments. As of September 30, 2018 and December 31, 2017, the weighted average expected constant prepayment rate ("CPR") over the remaining life of our aggregate investment portfolio was 6.8% and 8.4%, respectively. Our estimates can differ materially for different securities and thus our individual holdings have a wide range of projected CPRs. The following table summarizes our investments as of September 30, 2018 and December 31, 2017 according to their estimated weighted average life classification (dollars in millions):



	September 30, 2018						December 31, 2017
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	$	1,315	$	1,340	4.34%	2.67%	$	2,712	$	2,693	3.90%	2.67%
> 3 years and ≤ 5 years	4,397		4,529		3.15%	2.42%	7,499		7,518		3.31%	2.39%
> 5 years and ≤10 years	50,933		52,655		3.92%	3.26%	45,977		46,398		3.75%	2.95%
> 10 years	15,720		16,167		3.63%	3.36%	892		857		4.87%	4.74%
Total	$	72,365	$	74,691	3.82%	3.22%	$	57,080	$	57,466	3.71%	2.89%

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, 2018 and December 31, 2017 (in millions):



	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
September 30, 2018	$	7,641	$	(219	)	$	16,855	$	(1,090	)	$	24,496	$	(1,309	)
December 31, 2017	$	3,582	$	(15	)	$	20,577	$	(451	)	$	24,159	$	(466	)

We did not recognize OTTI charges on our investment securities during the periods presented on our consolidated statements of operations. As of the end of each respective reporting period, a decision had not been made to sell 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 or U.S. Government agency 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.

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, 2018 and 2017 by investment classification of accounting (in millions):



	Three Months Ended September 30,
	2018									2017
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	$	(1,965	)	$	(1,039	)	$	(3,004	)	$	(3	)	$	(6,016	)	$	(6,019	)
Proceeds from investment securities sold ¹	1,929			1,035			2,964			2			6,039			6,041
Net gain (loss) on sale of investment securities	$	(36	)	$	(4	)	$	(40	)	$	(1	)	$	23		$	22

Gross gain on sale of investment securities	$	1		$	2		$	3		$	—		$	28		$	28
Gross loss on sale of investment securities	(37		)	(6		)	(43		)	(1		)	(5		)	(6		)
Net gain (loss) on sale of investment securities	$	(36	)	$	(4	)	$	(40	)	$	(1	)	$	23		$	22



	Nine Months Ended September 30,
	2018									2017
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	$	(3,801	)	$	(4,017	)	$	(7,818	)	$	(5,738	)	$	(8,636	)	$	(14,374	)
Proceeds from investment securities sold ¹	3,746			3,956			7,702			5,649			8,678			14,327
Net gain (loss) on sale of investment securities	$	(55	)	$	(61	)	$	(116	)	$	(89	)	$	42		$	(47	)

Gross gain on sale of investment securities	$	6		$	12		$	18		$	6		$	48		$	54
Gross loss on sale of investment securities	(61		)	(73		)	(134		)	(95		)	(6		)	(101		)
Net gain (loss) on sale of investment securities	$	(55	)	$	(61	)	$	(116	)	$	(89	)	$	42		$	(47	)

________________________________


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.

Consolidated Variable Interest Entities

As of September 30, 2018 and December 31, 2017, our consolidated financial statements reflect the consolidation of certain variable interest entities ("VIEs") for which we have determined we are the primary beneficiary. The consolidated VIEs consist of CMO trusts 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 the 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.

Note 5. Repurchase Agreements and Other Secured Borrowings

We pledge our securities as collateral under our borrowing agreements with financial institutions. Interest rates on our borrowings are generally based on LIBOR plus or minus a margin and amounts 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, 2018, we had met all margin call requirements. For additional information regarding our pledged assets, please refer to Note 7.

Repurchase Agreements

As of September 30, 2018 and December 31, 2017, we had $65.7 billion and $50.3 billion, respectively, of repurchase agreements outstanding. 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 one year have floating interest rates based on an index plus or minus a fixed spread. The following table summarizes our borrowings under repurchase agreements by their remaining maturities as of September 30, 2018 and December 31, 2017 (dollars in millions):



	September 30, 2018					December 31, 2017
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	$	35,815	2.29	%	9	$	19,771	1.59	%	11
> 1 to ≤ 3 months	16,273		2.30	%	56	16,150		1.50	%	50
> 3 to ≤ 6 months	9,472		2.15	%	110	7,287		1.50	%	130
> 6 to ≤ 9 months	400		2.78	%	254	2,361		1.66	%	225
> 9 to ≤ 12 months	700		2.53	%	279	202		1.64	%	297
> 12 to ≤ 24 months	2,099		2.78	%	486	1,700		1.84	%	468
> 24 to ≤ 36 months	925		2.79	%	829	2,200		1.80	%	803
> 36 to ≤ 48 months	—		—	%	—	625		1.90	%	1,141
Total Agency repo	$	65,684	2.30	%	67	$	50,296	1.57	%	116
U.S.Treasury repo:
> 1 day to ≤ 1 months	50		2.32	%	1	—		—	%	—
Total	$	65,734	2.30	%	67	$	50,296	1.57	%	116

As of September 30, 2018 and December 31, 2017, $14.0 billion and $5.3 billion, respectively, of our Agency repurchase agreements matured overnight and none of our repurchase agreements were due on demand. As of September 30, 2018 and December 31, 2017, 39% and 33%, respectively, of our repurchase agreement funding was sourced through our wholly-owned captive broker-dealer subsidiary, Bethesda Securities, LLC ("BES"). Amounts sourced through BES include Agency repo funding from the General Collateral Finance Repo service ("GCF Repo") offered by the Fixed Income Clearing Corporation ("FICC"), which totaled 36% and 30% of our repurchase agreement funding outstanding as of September 30, 2018 and December 31, 2017, respectively. Additionally, as of September 30, 2018 and December 31, 2017, we had $3.9 billion and $2.7 billion, respectively, of U.S. Treasury reverse repurchase agreements sourced through BES with the FICC, which are reported in receivable under reverse repurchase agreements on our consolidated balance sheets.

Note 6. Derivative and Other Hedging Instruments

We hedge a portion of our interest rate risk by entering into interest rate swaps, interest rate swaptions and U.S. Treasury securities and U.S. Treasury futures contracts, primarily through short sales. We may also utilize TBA securities, options and other types of derivative instruments to hedge a portion of our risk. 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.

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, 2018 and December 31, 2017 (in millions):



Derivative and Other Hedging Instruments	Balance Sheet Location	September 30, 2018			December 31, 2017
Interest rate swaps	Derivative assets, at fair value	$	217		$	81
Swaptions	Derivative assets, at fair value	157			75
TBA securities	Derivative assets, at fair value	18			30
U.S. Treasury futures - short	Derivative assets, at fair value	20			19
Total derivative assets, at fair value		$	412		$	205

Interest rate swaps	Derivative liabilities, at fair value	$	(1	)	$	(1	)
TBA securities	Derivative liabilities, at fair value	(61		)	(27		)
Total derivative liabilities, at fair value		$	(62	)	$	(28	)

U.S. Treasury securities - long	U.S. Treasury securities, at fair value	$	109		$	—
U.S. Treasury securities - short	Obligation to return securities borrowed under reverse repurchase agreements, at fair value	(15,549		)	(10,467		)
Total U.S. Treasury securities, net at fair value		$	(15,440	)	$	(10,467	)

The following tables summarize certain characteristics of our derivative and other hedging instruments outstanding as of September 30, 2018 and December 31, 2017 (dollars in millions):



	September 30, 2018					December 31, 2017
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	$	19,250	1.59%	2.33%	1.2	$	21,025	1.40%	1.46%	1.5
> 3 to ≤ 5 years	9,975		1.96%	2.33%	3.9	6,825		1.82%	1.43%	4.1
> 5 to ≤ 7 years	5,025		2.54%	2.34%	6.1	5,775		2.02%	1.44%	5.9
> 7 to ≤ 10 years	10,000		2.33%	2.33%	8.5	6,650		2.10%	1.42%	9.1
> 10 years	4,425		2.59%	2.34%	11.8	3,425		2.49%	1.45%	12.9
Total	$	48,675	2.01%	2.33%	4.7	$	43,700	1.74%	1.44%	4.5

________________________________


1.	As of September 30, 2018 and December 31, 2017, notional amount includes forward starting swaps of $4.9 billion and $4.6 billion, respectively, with an average forward start date of 0.5 and 0.3 years, respectively.


2.	Average fixed pay rate includes forward starting swaps. Excluding forward starting swaps, the average fixed pay rate was 1.89% and 1.68% as of September 30, 2018 and December 31, 2017, respectively.



Swaptions	Option					Underlying Payer Swap
Current Option Expiration Date	Cost Basis		Fair Value		Average Months to Current Option Expiration Date ¹	Notional Amount		Average Fixed Pay Rate	Average Receive Rate (LIBOR)	Average Term (Years)
September 30, 2018
≤ 1 year	$	99	$	127	4	$	4,950	2.83%	3M	7.5
> 1 year ≤ 2 years	23		30		20	650		2.80%	3M	10.0
Total	$	122	$	157	6	$	5,600	2.83%	3M	7.8
December 31, 2017
≤ 1 year	$	118	$	46	7	$	5,100	2.71%	3M	8.8
> 1 year ≤ 2 years	23		16		18	1,050		2.71%	3M	8.7
> 2 year ≤ 3 years	18		13		30	500		2.78%	3M	10.0
Total	$	159	$	75	10	$	6,650	2.72%	3M	8.9

________________________________


1.	As of September 30, 2018 and December 31, 2017, ≤ 1 year notional amount includes $700 million of Bermudan swaptions where the options may be exercised on predetermined dates up to their final exercise date, which is six months prior to the underlying swaps' maturity date.



U.S. Treasury Securities	September 30, 2018									December 31, 2017
Maturity	Face Amount (Short)			Cost Basis ¹			Fair Value			Face Amount (Short)			Cost Basis ¹			Fair Value
5 years	$	(230	)	$	(229	)	$	(228	)	$	(288	)	$	(286	)	$	(283	)
7 years	(10,319		)	(10,274		)	(9,989		)	(6,131		)	(6,106		)	(6,029		)
10 years	(5,554		)