Edgar Filing: American Capital Agency Corp

AGNC 10Q 3/31/15

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 March 31, 2015



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

Commission file number 001-34057

__________________________________________________

AMERICAN CAPITAL AGENCY 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, 14th Floor

Bethesda, Maryland 20814

(Address of principal executive offices)

(301) 968-9300

(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 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 ý 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 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	¨

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 April 30, 2015 was 352,788,707.

AMERICAN CAPITAL AGENCY 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	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	45
Item 4.	Controls and Proceedures	49

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	50
Item 1A.	Risk Factors	50
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	50
Item 3.	Defaults upon Senior Securites	50
Item 4.	Mine Safety Disclosures	50
Item 5.	Other Information	50
Item 6.	Exhibits	50

Signatures		52

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

AMERICAN CAPITAL AGENCY CORP.

CONSOLIDATED BALANCE SHEETS

(in millions, except per share data)




	March 31, 2015			December 31, 2014
	(Unaudited)
Assets:
Agency securities, at fair value (including pledged securities of $56,836 and $51,629, respectively)	$	60,131		$	55,482
Agency securities transferred to consolidated variable interest entities, at fair value (pledged securities)	1,221			1,266
U.S. Treasury securities, at fair value (including pledged securities of $4,328 and $2,375, respectively)	4,328			2,427
REIT equity securities, at fair value	68			68
Cash and cash equivalents	1,708			1,720
Restricted cash	1,108			713
Derivative assets, at fair value	229			408
Receivable for securities sold (including pledged securities of $721 and $79, respectively)	908			239
Receivable under reverse repurchase agreements	3,175			5,218
Other assets	229			225
Total assets	$	73,105		$	67,766
Liabilities:
Repurchase agreements	$	58,112		$	50,296
Debt of consolidated variable interest entities, at fair value	725			761
Payable for securities purchased	50			843
Derivative liabilities, at fair value	1,352			890
Dividends payable	85			85
Obligation to return securities borrowed under reverse repurchase agreements, at fair value	3,363			5,363
Accounts payable and other accrued liabilities	62			100
Total liabilities	63,749			58,338
Stockholders' equity:
Preferred stock - $0.01 par value; 10.0 shares authorized:
Redeemable Preferred Stock; $0.01 par value; 6.9 shares issued and outstanding (aggregate liquidation preference of $348)	336			336
Common stock - $0.01 par value; 600.0 shares authorized;
352.8 shares issued and outstanding	4			4
Additional paid-in capital	10,332			10,332
Retained deficit	(2,166		)	(1,674		)
Accumulated other comprehensive income	850			430
Total stockholders' equity	9,356			9,428
Total liabilities and stockholders' equity	$	73,105		$	67,766

See accompanying notes to consolidated financial statements.

AMERICAN CAPITAL AGENCY CORP.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(in millions, except per share data)



	Three months ended March 31,
	2015			2014
Interest income:
Interest income	$	383		$	399
Interest expense	86			108
Net interest income	297			291
Other loss, net:
Gain (loss) on sale of agency securities, net	36			(19		)
Loss on derivative instruments and other securities, net	(549		)	(378		)
Total other loss, net	(513		)	(397		)
Expenses:
Management fees	30			29
General and administrative expenses	6			6
Total expenses	36			35
Net loss	(252		)	(141		)
Dividend on preferred stock	7			3
Net loss attributable to common stockholders	$	(259	)	$	(144	)

Net loss	$	(252	)	$	(141	)
Other comprehensive income:
Unrealized gain on available-for-sale securities, net	391			521
Unrealized gain on derivative instruments, net	29			43
Other comprehensive income	420			564
Comprehensive income	168			423
Dividend on preferred stock	7			3
Comprehensive income available to common stockholders	$	161		$	420

Weighted average number of common shares outstanding - basic and diluted	352.8			354.8
Net loss per common share - basic and diluted	$	(0.73	)	$	(0.41	)
Comprehensive income per common share - basic and diluted	$	0.46		$	1.18
Dividends declared per common share	$	0.66		$	0.65

See accompanying notes to consolidated financial statements.

AMERICAN CAPITAL AGENCY CORP.

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

(Unaudited)

(in millions)



	Preferred Stock			Common Stock				Additional Paid-in Capital			Retained Deficit			Accumulated Other Comprehensive Income (Loss)			Total
	Shares	Amount		Shares		Amount		Additional Paid-in Capital			Retained Deficit			Accumulated Other Comprehensive Income (Loss)			Total
Balance, December 31, 2013	6.9	$	167	356.2		$	4	$	10,406		$	(497	)	$	(1,383	)	$	8,697
Net loss	—	—		—		—		—			(141		)	—			(141		)
Other comprehensive income:
Unrealized gain on available-for-sale securities, net	—	—		—		—		—			—			521			521
Unrealized gain on derivative instruments, net	—	—		—		—		—			—			43			43
Repurchase of common stock	—	—		(3.4	)	—		(74		)	—			—			(74		)
Preferred dividends declared	—	—		—		—		—			(3		)	—			(3		)
Common dividends declared	—	—		—		—		—			(229		)	—			(229		)
Balance, March 31, 2014	6.9	$	167	352.8		$	4	$	10,332		$	(870	)	$	(819	)	$	8,814

Balance, December 31, 2014	6.9	$	336	352.8		$	4	$	10,332		$	(1,674	)	$	430		$	9,428
Net loss	—	—		—		—		—			(252		)	—			(252		)
Other comprehensive income:
Unrealized gain on available-for-sale securities, net	—	—		—		—		—			—			391			391
Unrealized gain on derivative instruments, net	—	—		—		—		—			—			29			29
Preferred dividends declared	—	—		—		—		—			(7		)	—			(7		)
Common dividends declared	—	—		—		—		—			(233		)	—			(233		)
Balance, March 31, 2015	6.9	$	336	352.8		$	4	$	10,332		$	(2,166	)	$	850		$	9,356

See accompanying notes to consolidated financial statements.

AMERICAN CAPITAL AGENCY CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in millions)



	Three months ended March 31,
	2015			2014
Operating activities:
Net loss	$	(252	)	$	(141	)
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of agency securities premiums and discounts, net	133			142
Amortization of accumulated other comprehensive loss on interest rate swaps de-designated as qualifying hedges	29			43
(Gain) loss on sale of agency securities, net	(36		)	19
Loss on derivative instruments and other securities, net	549			378
(Increase) decrease in other assets	(4		)	60
Increase (decrease) in accounts payable and other accrued liabilities	1			(13		)
Net cash provided by operating activities	420			488
Investing activities:
Purchases of agency securities	(14,672		)	(1,403		)
Proceeds from sale of agency securities	7,099			9,545
Principal collections on agency securities	1,811			1,853
Purchases of U.S. Treasury securities	(21,929		)	(4,343		)
Proceeds from sale of U.S. Treasury securities	17,999			12,807
Net proceeds from (payments on) reverse repurchase agreements	2,043			(4,804		)
Net proceeds from other derivative instruments	99			58
Purchases of REIT equity securities	(11		)	(204		)
Proceeds from sale of REIT equity securities	11			86
Increase in restricted cash	(395		)	(168		)
Other investing cash flows, net	(28		)	(183		)
Net cash (used in) provided by investing activities	(7,973		)	13,244
Financing activities:
Proceeds from repurchase arrangements	120,104			79,314
Repayments on repurchase agreements	(112,288		)	(93,118		)
Repayments on debt of consolidated variable interest entities	(35		)	(36		)
Payments for common stock repurchases	—			(74		)
Cash dividends paid	(240		)	(235		)
Net cash provided by (used in) financing activities	7,541			(14,149		)
Net change in cash and cash equivalents	(12		)	(417		)
Cash and cash equivalents at beginning of period	1,720			2,143
Cash and cash equivalents at end of period	$	1,708		$	1,726

See accompanying notes to consolidated financial statements.

AMERICAN CAPITAL AGENCY CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Unaudited Interim Consolidated Financial Statements

The unaudited interim consolidated financial statements of American Capital Agency 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 our wholly-owned subsidiaries, American Capital Agency TRS, LLC and Old Georgetown Insurance Co., LLC, and variable interest entities for which the Company is 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 were organized in Delaware on January 7, 2008, and commenced operations on May 20, 2008 following the completion of our initial public offering ("IPO"). Our common stock is traded on The NASDAQ Global Select Market under the symbol "AGNC."

We are externally managed by American Capital AGNC Management, LLC (our "Manager"), an affiliate of American Capital, Ltd. ("American Capital").

We operate so as 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 net 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 net income to the extent that we distribute all of our annual taxable net income to our stockholders. It is our intention to distribute 100% of our taxable net income, after application of available tax attributes, within the limits prescribed by the Internal Revenue Code, which may extend into the subsequent taxable year.

We earn income primarily from investing on a leveraged basis in agency mortgage-backed securities ("agency MBS"). 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-sponsored enterprise, such as the Federal National Mortgage Association ("Fannie Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac"), 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 agency debenture securities issued by Freddie Mac, Fannie Mae or the Federal Home Loan Bank ("FHLB") and in other assets reasonably related to agency securities.

Our principal objective is to generate attractive risk-adjusted returns for distribution to our stockholders through regular monthly dividends from the combination of our net interest income and net realized gains and losses on our investments and hedging activities while preserving our net asset value (also referred to as "net book value," "NAV" and "stockholders' equity"). We fund our investments primarily through short-term borrowings structured as repurchase agreements.

Note 3. Summary of Significant Accounting Policies

Investment Securities

ASC Topic 320, Investments—Debt and Equity Securities ("ASC 320"), 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. Securities classified as trading and available-for-sale are reported at fair value, while securities classified as held-to-maturity are reported at amortized cost. We may sell any of our agency securities as part of our overall management of our investment portfolio. Accordingly, we typically designate our agency securities as available-for-sale. All securities classified as available-for-sale are reported at fair value, with unrealized gains and losses reported in accumulated other comprehensive income (loss) ("OCI"), a

separate component of stockholders' equity. Upon the sale of a security, 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.

Interest-only securities and inverse interest-only securities (collectively referred to as "interest-only securities") represent our right to receive a specified proportion of the contractual interest flows of specific agency CMO securities. Principal-only securities represent our right to receive the contractual principal flows of specific agency CMO securities. Interest and principal-only securities are measured at fair value through earnings in gain (loss) on derivative instruments and other securities, net in our consolidated statements of comprehensive income. Our investments in interest and principal-only securities are included in agency securities, at fair value on the accompanying consolidated balance sheets.

REIT equity securities represent investments in the common stock of other publicly traded mortgage REITs that invest predominantly in agency MBS. We designate our investments in REIT equity securities as trading securities and report them at fair value on the accompanying consolidated balance sheets.

We estimate the fair value of our agency securities based on valuations obtained from third-party pricing services and non-binding dealer quotes derived from common market pricing methods using observable (or "Level 2") inputs. 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. We estimate the fair value of our REIT equity securities based on a market approach using quoted market prices (or "Level 1" inputs). Refer to Note 8 for further discussion of fair value measurements.

We evaluate our agency securities 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 investment securities 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 ("ASC 310-20").

We estimate long-term prepayment speeds of our agency securities using a third-party service and market data. The third-party service estimates prepayment speeds using models that incorporate the forward yield curve, current mortgage rates and mortgage rates of the outstanding loans, age and size of the outstanding loans, loan-to-value ratios, 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 prepayment speeds estimated by the third-party service. As market conditions may change rapidly, we may make adjustments for different securities based on our Manager's judgment. Various market participants could use materially different assumptions.

Actual and anticipated prepayment experience is reviewed quarterly and effective yields are recalculated when differences arise between (i) our previously estimated future prepayments and (ii) the actual prepayments to date plus our currently 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.

Derivative Instruments

We use a variety of derivative instruments to hedge a portion of our exposure to market risks, including interest rate risk, prepayment risk and extension risk. 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 principal instruments that we use are interest rate swaps and options to enter into interest rate swaps ("swaptions"). We also utilize forward contracts for the purchase or sale of agency MBS securities in the "to-be-announced" market on a generic pool basis ("TBA securities") and we utilize U.S. Treasury securities and U.S. Treasury

futures contracts, primarily through short sales. We may also purchase or write put or call options on TBA securities and we may invest in other types of mortgage derivatives, such as interest and principal-only securities.

We may also enter into TBA contracts as a means of investing in and financing agency securities (thereby increasing our "at risk" leverage) or as a means of disposing of or reducing our exposure to agency securities (thereby reducing our "at risk" leverage). Pursuant to TBA contracts, we agree to purchase or sell, for future delivery, agency securities with certain principal and interest terms and certain types of collateral, but the particular agency securities to be delivered are not identified until shortly before the TBA settlement date. We may also choose, prior to settlement, to move the settlement of these securities out to a later date by entering into an offsetting short or long position (referred to as a "pair off"), net settling the paired off positions for cash, and simultaneously purchasing or selling a similar TBA contract for a later settlement date. This transaction is commonly referred to as a "dollar roll." The agency securities purchased or sold for a forward settlement date are typically priced at a discount to agency securities for settlement in the current month. This difference (or discount) is referred to as the "price drop." The price drop is the economic equivalent of net interest carry income on the underlying agency securities over the roll period (interest income less implied financing cost) and is commonly referred to as "dollar roll income/loss." Consequently, forward purchases of agency securities and dollar roll transactions represent a form of off-balance sheet financing.

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 the balance sheet 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 in the event that the counterparties to these instruments fail to perform their obligations under the contracts. We attempt to minimize this risk 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 September 30, 2011, we entered into interest rate swap agreements typically with the intention of qualifying for hedge accounting under ASC 815. However, as of September 30, 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 is being reclassified from accumulated OCI into interest expense on a straight-line basis over the remaining term of each interest rate swap.

Interest rate swap agreements

We use interest rate swaps to hedge the variable cash flows associated with borrowings made under our repurchase agreement facilities. 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") with terms up to 20 years. The floating rate we receive under our swap agreements has the effect of offsetting the repricing characteristics of our repurchase agreements and cash flows on such liabilities. Our swap agreements are privately negotiated in the over−the−counter ("OTC") market, with swap agreements entered into subsequent to May 2013 subject to central clearing through a registered commodities exchange ("centrally cleared swaps").

We estimate the fair value of our centrally cleared interest rate swaps using the daily settlement price determined by the respective exchange. Centrally cleared swaps are valued by the exchange using a pricing model that references the underlying rates including the overnight index swap rate and LIBOR forward rate to produce the daily settlement price.

We estimate the fair value of our "non-centrally cleared" interest rate swaps based on valuations obtained from third-party pricing services and the swap counterparty (collectively, “third-party valuations”). The third-party valuations are model-driven using observable inputs consisting of LIBOR and the forward yield curve. We also consider the creditworthiness of both us and our counterparties and the impact of netting and credit enhancement provisions contained in each derivative agreement, such as collateral postings. All of our "non-centrally cleared" interest rate swaps are subject to bilateral collateral arrangements. Consequently, no credit valuation adjustment was made in determining the fair value of such instruments.

Interest rate swaptions

We purchase interest rate swaptions generally 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, which we refer as "payer swaptions." We may also enter into swaption agreements that provide us the option to enter into a receive fixed interest rate swap, which we refer to as "receiver swaptions." The premium paid for interest rate swaptions is reported as an asset in our consolidated balance sheets. The premium is valued at an amount equal to the fair value of the swaption that would have the effect of closing the position adjusted for nonperformance risk, if any. The difference between the premium 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.

Our interest rate swaption agreements are privately negotiated in the OTC market and are not subject to central clearing. We estimate the fair value of our interest rate swaption agreements based on model-driven valuations obtained from third-party pricing services and the swaption counterparty using observable inputs, taking into account 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.

TBA securities

A TBA security is a forward contract for the purchase ("long position") or sale ("short position") of agency MBS at a predetermined price, face amount, issuer, coupon and stated maturity on an agreed-upon future date. The specific agency MBS delivered into the contract upon the settlement date, published each month by the Securities Industry and Financial Markets Association, are not known at the time of the transaction. We may enter into TBA contracts as a means of hedging against short-term changes in interest rates. We may also enter into TBA contracts as a means of acquiring or disposing of agency securities and we may from time to time utilize TBA dollar roll transactions to finance agency MBS purchases.

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 take physical delivery of the agency security upon settlement of the contract. We account for TBA dollar roll transactions as a series of derivative transactions. Gains, losses and dollar roll income associated with our TBA contracts and dollar roll transactions are recognized in our consolidated statements of comprehensive income in gain (loss) on derivative instruments and other securities, net.

We estimate the fair value of TBA securities based on similar methods used to value our agency MBS securities.

U.S. Treasury securities

We purchase or sell short 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 sales of U.S. Treasury securities under reverse repurchase agreements. 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. 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.

Note 4. Investment Securities

As of March 31, 2015 and December 31, 2014, our investment portfolio consisted of $61.4 billion and $56.7 billion of agency MBS, respectively, and a $4.9 billion and $14.8 billion net long TBA position, at fair value, respectively.

Our TBA positions are reported at their net carrying value of $79 million and $192 million as of March 31, 2015 and December 31, 2014, 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. (See Note 6 for further details of our net TBA position as of March 31, 2015 and December 31, 2014.)

As of March 31, 2015 and December 31, 2014, the net unamortized premium balance on our agency MBS was $2.6 billion and $2.5 billion, respectively, including interest and principal-only strips.

The following tables summarize our investments in agency MBS as of March 31, 2015 and December 31, 2014 (dollars in millions):



	March 31, 2015
Agency MBS	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss			Fair Value
Fixed rate	$	58,235	$	977	$	(72	)	$	59,140
Adjustable rate	622		20		—			642
CMO	1,138		35		—			1,173
Interest-only and principal-only strips	354		46		(3		)	397
Total agency MBS	$	60,349	$	1,078	$	(75	)	$	61,352



	December 31, 2014
Agency MBS	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss			Fair Value
Fixed rate	$	53,945	$	715	$	(187	)	$	54,473
Adjustable rate	659		19		—			678
CMO	1,172		24		(1		)	1,195
Interest-only and principal-only strips	372		33		(3		)	402
Total agency MBS	$	56,148	$	791	$	(191	)	$	56,748



	March 31, 2015
Agency MBS	Fannie Mae			Freddie Mac			Ginnie Mae			Total
Available-for-sale agency MBS:
Agency MBS, par	$	44,954		$	12,231		$	289		$	57,474
Unamortized discount	(36		)	(5		)	—			(41		)
Unamortized premium	1,944			606			12			2,562
Amortized cost	46,862			12,832			301			59,995
Gross unrealized gains	823			205			4			1,032
Gross unrealized losses	(49		)	(23		)	—			(72		)
Total available-for-sale agency MBS, at fair value	47,636			13,014			305			60,955
Agency MBS remeasured at fair value through earnings:
Interest-only and principal-only strips, amortized cost ¹	331			23			—			354
Gross unrealized gains	43			3			—			46
Gross unrealized losses	(2		)	(1		)	—			(3		)
Total agency MBS remeasured at fair value through earnings	372			25			—			397
Total agency MBS, at fair value	$	48,008		$	13,039		$	305		$	61,352
Weighted average coupon as of March 31, 2015 ²	3.55		%	3.70		%	3.16		%	3.58		%
Weighted average yield as of March 31, 2015 ³	2.63		%	2.71		%	1.61		%	2.64		%
Weighted average yield for the quarter ended March 31, 2015 ³	2.56		%	2.58		%	1.63		%	2.57		%

________________________


1.	The underlying unamortized principal balance ("UPB" or "par value") of our interest-only agency MBS strips was $1.1 billion and the weighted average contractual interest we are entitled to receive was 5.45% of this amount as of March 31, 2015. The par value of our principal-only agency MBS strips was $235 million as of March 31, 2015.


2.	The weighted average coupon includes the interest cash flows from our interest-only agency MBS strips taken together with the interest cash flows from our fixed rate, adjustable-rate and CMO agency MBS as a percentage of the par value of our agency MBS (excluding the UPB of our interest-only securities) as of March 31, 2015.


3.	Incorporates a weighted average future constant prepayment rate assumption of 10% based on forward rates as of March 31, 2015.



	December 31, 2014
Agency MBS	Fannie Mae			Freddie Mac			Ginnie Mae			Total
Available-for-sale agency MBS:
Agency MBS, par	$	42,749		$	10,566		$	107		$	53,422
Unamortized discount	(37		)	(5		)	—			(42		)
Unamortized premium	1,880			514			2			2,396
Amortized cost	44,592			11,075			109			55,776
Gross unrealized gains	610			145			3			758
Gross unrealized losses	(127		)	(61		)	—			(188		)
Total available-for-sale agency MBS, at fair value	45,075			11,159			112			56,346
Agency MBS remeasured at fair value through earnings:
Interest-only and principal-only strips, amortized cost ¹	348			24			—			372
Gross unrealized gains	30			3			—			33
Gross unrealized losses	(2		)	(1		)	—			(3		)
Total agency MBS remeasured at fair value through earnings	376			26			—			402
Total agency MBS, at fair value	$	45,451		$	11,185		$	112		$	56,748
Weighted average coupon as of December 31, 2014 ²	3.63		%	3.70		%	3.52		%	3.65		%
Weighted average yield as of December 31, 2014 ³	2.75		%	2.73		%	1.87		%	2.74		%
Weighted average yield for the year ended December 31, 2014 ³	2.62		%	2.64		%	1.66		%	2.63		%

________________________


1.	The underlying UPB of our interest-only agency MBS strips was $1.2 billion and the weighted average contractual interest we are entitled to receive was 5.46% of this amount as of December 31, 2014. The par value of our principal-only agency MBS strips was $242 million as of December 31, 2014.


2.	The weighted average coupon includes the interest cash flows from our interest-only agency MBS strips taken together with the interest cash flows from our fixed rate, adjustable-rate and CMO agency MBS as a percentage of the par value of our agency MBS (excluding the UPB of our interest-only securities) as of December 31, 2014.


3.	Incorporates a weighted average future constant prepayment rate assumption of 9% based on forward rates as of December 31, 2014.

The actual maturities of our agency MBS are generally shorter than the stated contractual maturities. Actual maturities are affected by the contractual lives of the underlying mortgages, periodic contractual principal payments and principal prepayments. As of March 31, 2015 and December 31, 2014, our weighted average expected constant prepayment rate ("CPR") over the remaining life of our aggregate agency MBS portfolio was 10% and 9%, respectively. Our estimates differ materially for different types of securities and thus individual holdings have a wide range of projected CPRs.

The following table summarizes our agency MBS classified as available-for-sale as of March 31, 2015 and December 31, 2014 according to their estimated weighted average life classification (dollars in millions):



	March 31, 2015						December 31, 2014
Estimated Weighted Average Life of Agency MBS Classified as Available-for-Sale ¹	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	1,049		1,032		3.36%	1.64%	289		280		4.08%	2.62%
> 3 years and ≤ 5 years	23,885		23,373		3.27%	2.37%	22,153		21,820		3.26%	2.40%
> 5 years and ≤10 years	35,898		35,471		3.64%	2.80%	33,271		33,055		3.73%	2.92%
> 10 years	123		119		3.75%	3.28%	633		621		3.28%	3.15%
Total	$	60,955	$	59,995	3.49%	2.61%	$	56,346	$	55,776	3.54%	2.72%

_______________________


1.	Excludes interest and principal-only strips.

The weighted average life of our interest-only strips was 5.7 and 6.0 years as of March 31, 2015 and December 31, 2014, respectively. The weighted average life of our principal-only strips was 7.6 and 8.1 years as of March 31, 2015 and December 31, 2014, respectively.

Our agency securities classified as available-for-sale are reported at fair value, with unrealized gains and losses excluded from earnings and reported in accumulated OCI. The following table summarizes changes in accumulated OCI, a separate component of stockholders' equity, for our available-for-sale securities for the three months ended March 31, 2015 and 2014 (in millions):



Agency Securities Classified as Available-for-Sale	Beginning Accumulated OCI Balance			Unrealized Gains and (Losses), Net	Reversal of Unrealized (Gains) and Losses, Net on Realization		Ending Accumulated OCI Balance
Three months ended March 31, 2015	$	570		427	(36	)	$	961
Three months ended March 31, 2014	$	(1,087	)	502	19		$	(566	)

The following table presents the gross unrealized loss and fair values of our available-for-sale agency securities by length of time that such securities have been in a continuous unrealized loss position as of March 31, 2015 and December 31, 2014 (in millions):



	Unrealized Loss Position For
	Less than 12 Months					12 Months or More					Total
Agency Securities Classified as Available-for-Sale	Estimated Fair Value		Unrealized Loss			Estimated Fair Value		Unrealized Loss			Estimated Fair Value		Unrealized Loss
March 31, 2015	$	542	$	(3	)	$	7,942	$	(69	)	$	8,484	$	(72	)
December 31, 2014	$	778	$	(2	)	$	11,679	$	(186	)	$	12,457	$	(188	)

As of the end of each respective reporting period, a decision had not been made to sell any of these agency securities and we do not believe it is more likely than not we will be required to sell the agency securities before recovery of their amortized cost basis. The unrealized losses on these agency securities are not due to credit losses given the GSE guarantees, but are rather due to changes in interest rates and prepayment expectations. We did not recognize any OTTI charges on our investment securities

for the three months ended March 31, 2015 and 2014. However, as we continue to actively manage our portfolio, we may recognize additional realized losses on our agency securities upon selecting specific securities to sell.

Gains and Losses

The following table is a summary of our net gain (loss) from the sale of agency securities classified as available-for-sale for the three months ended March 31, 2015 and 2014 (in millions):



	Three Months Ended March 31,
Agency Securities Classified as Available-for-Sale	2015			2014
Agency MBS sold, at cost	$	(7,732	)	$	(9,711	)
Proceeds from agency MBS sold ¹	7,768			9,692
Net gain (loss) on sale of agency MBS	$	36		$	(19	)

Gross gain on sale of agency MBS	$	57		$	42
Gross loss on sale of agency MBS	(21		)	(61		)
Net gain (loss) on sale of agency MBS	$	36		$	(19	)

________________________


1.	Proceeds include cash received during the period, plus receivable for agency MBS sold during the period as of period end.

For the three months ended March 31, 2015 and 2014, we recognized a net unrealized gain of $11 million and $12 million, respectively, for the change in value of investments in interest and principal-only strips in gain (loss) on derivative instruments and other securities, net in our consolidated statements of comprehensive income. Over the same periods, we did not recognize any realized gains or losses on our interest or principal-only securities.

Securitizations and Variable Interest Entities

As of March 31, 2015 and December 31, 2014, we held investments in CMO trusts, which are 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 MBS. 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 of $1.2 billion and $1.3 billion as of March 31, 2015 and December 31, 2014, respectively, and debt, at fair value, of $725 million and $761 million, respectively, in our accompanying consolidated balance sheets. As of March 31, 2015 and December 31, 2014, the agency securities had an aggregate unpaid principal balance of $1.1 billion and $1.2 billion, respectively, and the debt had an aggregate unpaid principal balance of $707 million and $742 million, respectively. 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. For the three months ended March 31, 2015, we recorded no gain or loss associated with our consolidated debt. For the three months ended March 31, 2014, we recognized a net loss of $(3) million associated with our consolidated debt. 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.

As of both March 31, 2015 and December 31, 2014, the fair value of our CMO securities and interest and principal-only securities was $1.6 billion, excluding the consolidated CMO trusts discussed above, or $2.1 billion 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 $289 million and $274 million as of March 31, 2015 and December 31, 2014, respectively.

Note 5. Repurchase Agreements and Other Debt

We pledge certain of our securities as collateral under repurchase arrangements with financial institutions, the terms and conditions of which are negotiated on a transaction-by-transaction basis. For additional information regarding our pledged assets please refer to Note 7. Interest rates on these 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 March 31, 2015, we had met all margin call requirements.

The following table summarizes our borrowings under repurchase arrangements and weighted average interest rates classified by remaining maturities as of March 31, 2015 and December 31, 2014 (dollars in millions):



	March 31, 2015					December 31, 2014
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 MBS:
≤ 1 month	$	24,680	0.36	%	16	$	14,157	0.37	%	15
> 1 to ≤ 3 months	15,100		0.38	%	52	20,223		0.38	%	61
> 3 to ≤ 6 months	5,455		0.43	%	132	6,654		0.42	%	120
> 6 to ≤ 9 months	2,668		0.56	%	222	1,575		0.50	%	225
> 9 to ≤ 12 months	1,826		0.47	%	330	2,678		0.54	%	313
> 12 to ≤ 24 months	700		0.61	%	491	600		0.57	%	551
> 24 to ≤ 36 months	852		0.61	%	937	952		0.60	%	999
> 36 to ≤ 48 months	1,150		0.68	%	1,268	650		0.64	%	1,266
> 48 to < 60 months	1,900		0.70	%	1,706	900		0.68	%	1,542
Total agency MBS	54,331		0.41	%	164	48,389		0.41	%	143
U.S. Treasury securities:
1 day	3,781		0.21	%	1	1,907		0.09	%	1
Total / Weighted Average	$	58,112	0.33	%	142	$	50,296	0.40	%	138

As of March 31, 2015 and December 31, 2014, debt of consolidated VIEs, at fair value ("other debt") was $725 million and $761 million, respectively. As of March 31, 2015 and December 31, 2014, our other debt had a weighted average interest rate of LIBOR plus 43 basis points and a principal balance of $707 million and $742 million, respectively. The actual maturities of our other debt are generally shorter than the stated contractual maturities. The actual maturities are affected by the contractual lives of the underlying agency MBS securitizing our other debt and periodic principal prepayments of such underlying securities. The estimated weighted average life of our other debt as of March 31, 2015 and December 31, 2014 was 5.6 and 5.8 years, respectively.

As of March 31, 2015 and December 31, 2014, we also had outstanding forward commitments to purchase and sell agency securities through the TBA market (see Notes 3 and 6). These transactions, also referred to as TBA dollar roll transactions, represent a form of "off-balance sheet" financing and serve to either increase, in the case of forward purchases, or decrease, in the case of forward sales, our total "at risk" leverage. However, pursuant to ASC 815, we account for such transactions as one or more series of derivative transactions and, consequently, they are not recognized as debt on our consolidated balance sheet and are excluded from commensurate measurements of our balance sheet debt to equity leverage ratios.

Note 6. Derivative and Other Hedging Instruments

In connection with our risk management strategy, we hedge a portion of our interest rate risk by entering into derivative and other hedging instrument contracts. We typically enter into agreements for interest rate swaps and interest rate swaptions and purchase or short TBA and U.S. Treasury securities. We may also purchase or write put or call options on TBA securities or we may invest in other types of mortgage derivative securities, such as interest and principal-only securities. Our risk management strategy attempts to manage the overall risk of the portfolio, reduce fluctuations in book value and generate additional income distributable to stockholders. For additional information regarding our derivative instruments and our overall risk management strategy, please refer to the discussion of derivative and other hedging instruments in Note 3.

Prior to September 30, 2011, our interest rate swaps were typically designated as cash flow hedges under ASC 815; however, as of September 30, 2011, we elected to discontinue hedge accounting for our interest rate swaps in order to increase our funding flexibility. For the three months ended March 31, 2015 and 2014, we reclassified $29 million and $43 million, respectively, of net deferred losses from accumulated OCI into interest expense related to our de-designated interest rate swaps and recognized

an equal, but offsetting, amount in other comprehensive income. Our total net periodic interest costs on our swap portfolio for these periods was $113 million and $126 million, respectively. The difference of $84 million and $83 million for these periods, respectively, is reported in our accompanying consolidated statements of comprehensive income in gain (loss) on derivative instruments and other securities, net. As of March 31, 2015, the remaining net deferred loss in accumulated OCI related to de-designated interest rate swaps was $111 million and will be reclassified from OCI into interest expense over a remaining weighted average period of 1.2 years. As of March 31, 2015, the net deferred loss expected to be reclassified from OCI into interest expense over the next twelve months was $91 million.

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 and liabilities as of March 31, 2015 and December 31, 2014 (in millions):



Derivative and Other Hedging Instruments	Balance Sheet Location	March 31, 2015			December 31, 2014
Interest rate swaps	Derivative assets, at fair value	$	70		$	136
Swaptions	Derivative assets, at fair value	50			75
TBA securities	Derivative assets, at fair value	109			197
Total		$	229		$	408

Interest rate swaps	Derivative liabilities, at fair value	$	(1,308	)	$	(880	)
TBA securities	Derivative liabilities, at fair value	(30		)	(5		)
U.S. Treasury futures - short	Derivative liabilities, at fair value	(14		)	(5		)
Total		$	(1,352	)	$	(890	)

U.S. Treasury securities - long	U.S. Treasury securities, at fair value	$	4,328		$	2,427
U.S. Treasury securities - short	Obligation to return securities borrowed under reverse repurchase agreements, at fair value ¹	(3,363		)	(5,363		)
Total - (short)/long, net		$	965		$	(2,936	)

________________________

Our obligation to return securities borrowed under reverse repurchase agreements as of March 31, 2015 and December 31, 2014 relates to securities borrowed to cover short sales of U.S. Treasury securities from which we received total sale proceeds of $3.3 billion and $5.4 billion, respectively. The change in fair value of the borrowed securities is recorded in gain (loss) on derivative instruments and other securities, net in our consolidated statements of comprehensive income.

The following tables summarize our interest rate swap agreements outstanding as of March 31, 2015 and December 31, 2014 (dollars in millions):



	March 31, 2015
Payer Interest Rate Swaps	Notional Amount ¹		Average Fixed Pay Rate ²	Average Receive Rate ³	Net Estimated Fair Value			Average Maturity (Years) ⁴
≤ 3 years	$	14,850	1.21%	0.24%	$	(110	)	1.9
> 3 to ≤ 5 years	10,475		1.74%	0.26%	(149		)	4.3
> 5 to ≤ 7 years	7,050		2.61%	0.26%	(309		)	6.2
> 7 to ≤ 10 years	9,825		2.45%	0.26%	(405		)	8.2
> 10 years	2,725		3.15%	0.26%	(265		)	12.5
Total Payer Interest Rate Swaps	$	44,925	1.94%	0.25%	$	(1,238	)	5.2

________________________


1.	Notional amount includes forward starting swaps of $10.1 billion with an average forward start date of 0.9 years and an average maturity of 7.3 years from March 31, 2015.


2.	Average fixed pay rate includes forward starting swaps. Excluding forward starting swaps, the average fixed pay rate was 1.64% as of March 31, 2015.


3.	Average receive rate excludes forward starting swaps.


4.	Average maturity measured from March 31, 2015 through stated maturity date.



	December 31, 2014
Payer Interest Rate Swaps	Notional Amount ¹		Average Fixed Pay Rate ²	Average Receive Rate ³	Net Estimated Fair Value			Average Maturity (Years) ⁴
≤ 3 years	$	12,300	1.33%	0.21%	$	(87	)	2.0
> 3 to ≤ 5 years	8,975		1.63%	0.24%	(4		)	4.2
> 5 to ≤ 7 years	7,250		2.47%	0.23%	(139		)	6.1
> 7 to ≤ 10 years	10,775		2.48%	0.24%	(223		)	8.3
> 10 years	4,400		3.19%	0.23%	(291		)	12.6
Total Payer Interest Rate Swaps	$	43,700	2.05%	0.23%	$	(744	)	5.8

________________________


1.	Notional amount includes forward starting swaps of $12.4 billion with an average forward start date of 1.1 years and an average maturity of 7.9 years from December 31, 2014.


2.	Average fixed pay rate includes forward starting swaps. Excluding forward starting swaps, the average fixed pay rate was 1.68% as of December 31, 2014.


3.	Average receive rate excludes forward starting swaps.


4.	Average maturity measured from December 31, 2014 through stated maturity date.

The following table summarizes our interest rate payer swaption agreements outstanding as of March 31, 2015 and December 31, 2014 (dollars in millions):



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)
March 31, 2015
≤ 1 year	$	117	$	28	7	$	4,650	3.33%	3M	7.1
> 1 to ≤ 2 years	13		1		16	550		4.01%	3M	5.7
Total Payer Swaptions	$	130	$	29	8	$	5,200	3.40%	3M	7.0

December 31, 2014
≤ 1 year	$	113	$	36	6	$	5,600	3.15%	3M	6.4
> 1 to ≤ 2 years	32		10		16	1,200		3.87%	3M	5.1
Total Payer Swaptions	$	145	$	46	8	$	6,800	3.28%	3M	6.2

The following table summarizes our interest rate receiver swaption agreements outstanding as of March 31, 2015 and December 31, 2014 (dollars in millions):



Receiver Swaptions	Option					Underlying Receiver Swap
Years to Expiration	Cost		Fair Value		Average Months to Expiration	Notional Amount		Average Fixed Receive Rate	Average Pay Rate (LIBOR)	Average Term (Years)
March 31, 2015
≤ 1 year	$	6	$	21	2	$	750	1.96%	3M	6.7
December 31, 2014
≤ 1 year	$	18	$	29	5	$	4,250	1.78%	3M	6.4

The following table summarizes our U.S. Treasury securities as of March 31, 2015 and December 31, 2014 (in millions):



	March 31, 2015									December 31, 2014
Maturity	Face Amount Net Long / (Short)			Cost Basis			Market Value			Face Amount Net Long / (Short)			Cost Basis			Market Value
3 years	$	(900	)	$	(899	)	$	(902	)	$	—		$	—		$	—
5 years	(2,111		)	(2,096		)	(2,116		)	(4,674		)	(4,650		)	(4,645		)
7 years	(339		)	(334		)	(341		)	(717		)	(717		)	(718		)
10 years	4,258			4,303			4,324			2,410			2,422			2,427
Total U.S. Treasury securities, net	$	908		$	974		$	965		$	(2,981	)	$	(2,945	)	$	(2,936	)

The following tables summarize our TBA securities as of March 31, 2015 and December 31, 2014 (in millions):



	March 31, 2015												December 31, 2014
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%	$	1,632		$	1,670		$	1,673		$	3		$	962		$	968		$	980		$	12
3.0%	(2,733		)	(2,852		)	(2,866		)	(14		)	2,779			2,889			2,888			(1		)
3.5%	(192		)	(201		)	(203		)	(2		)	(468		)	(495		)	(494		)	1
4.0%	—			—			—			—			(13		)	(14		)	(14		)	—
Total 15-Year TBAs	(1,293		)	(1,383		)	(1,396		)	(13		)	3,260			3,348			3,360			12
30-Year TBA securities:
3.0%	5,432			5,500			5,566			66			5,254			5,259			5,313			54
3.5%	3,423			3,560			3,598			38			7,902			8,151			8,232			81
4.0%	(2,689		)	(2,862		)	(2,874		)	(12		)	(1,853		)	(2,019		)	(1,974		)	45
4.5%	—			—			—			—			(151		)	(163		)	(163		)	—
Total 30-Year TBAs	6,166			6,198			6,290			92			11,152			11,228			11,408			180
Total net TBA securities	$	4,873		$	4,815		$	4,894		$	79		$	14,412		$	14,576		$	14,768		$	192

	March 31, 2015												December 31, 2014
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	$	2,230		$	2,125		$	2,178		$	53		$	15,127		$	15,316		$	15,509		$	193
Freddie Mac	(957		)	(1,021		)	(1,025		)	(4		)	(715		)	(740		)	(741		)	(1		)
Ginnie Mae	3,600			3,711			3,741			30			—			—			—			—
TBA securities, net	$	4,873		$	4,815		$	4,894		$	79		$	14,412		$	14,576		$	14,768		$	192

_____________________


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.

Gain (Loss) From Derivative Instruments and Other Securities, Net

The tables below summarize changes in our derivative and other hedge portfolio and their effect on our consolidated statements of comprehensive income for the three months ended March 31, 2015 and 2014 (in millions):



	Three Months Ended March 31, 2015
Derivative and Other Hedging Instruments	Notional Amount Long/(Short) December 31, 2014			Additions		Settlement, Termination, Expiration or Exercise		Notional Amount Long/(Short) March 31, 2015			Amount of Gain/(Loss) Recognized in Income on Derivatives ¹
TBA securities, net	$	14,412		45,500		(55,039	)	$	4,873		$	234
Interest rate swaps	$	(43,700	)	(3,500	)	2,275		$	(44,925	)	(746		)
Payer swaptions	$	(6,800	)	—		1,600		$	(5,200	)	(17		)
Receiver swaptions	$	4,250		—		(3,500	)	$	750		17
U.S. Treasury securities - short position	$	(5,392	)	(4,173	)	6,212		$	(3,353	)	(82		)
U.S. Treasury securities - long position	$	2,411		15,562		(13,712	)	$	4,261		52
U.S. Treasury futures contracts - short position	$	(730	)	(730	)	730		$	(730	)	(20		)
											$	(562	)

________________________________


1.	Excludes a net gain of $2 million from investments in REIT equity securities and a net gain of $11 million from interest and principal-only securities recognized in gain (loss) on derivative instruments and other securities, net in our consolidated statements of comprehensive income.



	Three Months Ended March 31, 2014
Derivative and Other Hedging Instruments	Notional Amount Long/(Short) December 31, 2013			Additions		Settlement, Termination, Expiration or Exercise		Notional Amount Long/(Short) March 31, 2014			Amount of Gain/(Loss) Recognized in Income on Derivatives ¹
TBA securities, net	$	2,119		24,376		(12,586	)	$	13,909		$	60
Interest rate swaps	$	(43,250	)	(5,900	)	2,750		$	(46,400	)	(380		)
Payer swaptions	$	(14,250	)	(1,000	)	7,250		$	(8,000	)	(105		)
Receiver swaptions	$	—		1,000		—		$	1,000		—
U.S. Treasury securities - short position	$	(2,007	)	(7,241	)	2,462		$	(6,786	)	(45		)
U.S. Treasury securities - long position	$	3,927		1,900		(5,627	)	$	200		72
U.S. Treasury futures contracts - short position	$	(1,730	)	(730	)	1,730		$	(730	)	(36		)
TBA put option	$	—		(50	)	50		$	—		—
											$	(434	)

______________________


1.	Excludes a net gain of $49 million from investments in REIT equity securities, a net loss of $3 million from debt of consolidated VIEs, a net gain of $12 million from interest and principal-only securities and other miscellaneous net losses of $2 million recognized in gain (loss) on derivative instruments and other securities, net in our consolidated statements of comprehensive income.

Note 7. Pledged Assets

Our repurchase agreements and derivative contracts 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. In addition, obligations under our derivative agreements will typically vary over time based on similar factors as well as the remaining term of the derivative contract. We are also typically required to post initial collateral upon execution of derivative transactions, such as interest rate swap agreements and TBA contracts. If we breach any of these provisions, we will be required to fully settle our obligations under the agreements, which could include a forced liquidation of our pledged collateral.

Our repurchase agreement and derivative 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, the use of repurchase agreements and derivative instruments exposes us to credit risk relating to potential losses that could be recognized in the event that our counterparties fail to perform their obligations under such agreements. We minimize this risk by limiting our repurchase agreement and derivative counterparties to major financial institutions with acceptable credit ratings or to registered clearinghouses, 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 for 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 market margin requirements and clearinghouse guarantee funds and other resources that are available in the event of a clearing member default.

Further, each of our International Swaps and Derivatives Association ("ISDA") Master Agreements also contains a cross default provision under which a default under certain of our other indebtedness in excess of a certain threshold causes an event of default under the 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 above certain specified levels. As of March 31, 2015, 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 March 31, 2015, our amount at risk with any counterparty related to our repurchase agreements was less than 4% of our stockholders' equity and our amount 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.

Assets Pledged to Counterparties

The following tables summarize our assets pledged as collateral under our repurchase agreements, debt of consolidated VIEs, derivative agreements and prime broker agreements by type, including securities pledged related to securities sold but not yet settled, as of March 31, 2015 and December 31, 2014 (in millions):



	March 31, 2015
Assets Pledged to Counterparties	Repurchase Agreements		Debt of Consolidated VIEs		Derivative Agreements		Prime Broker Agreements		Total
Agency MBS - fair value	$	57,245	$	1,221	$	171	$	141	$	58,778
U.S. Treasury securities - fair value	3,789		—		539		—		4,328
Accrued interest on pledged securities	176		4		2		—		182
Restricted cash	29		—		1,077		2		1,108
Total	$	61,239	$	1,225	$	1,789	$	143	$	64,396



	December 31, 2014
Assets Pledged to Counterparties	Repurchase Agreements		Debt of Consolidated VIEs		Derivative Agreements		Prime Broker Agreements		Total
Agency MBS - fair value	$	50,858	$	1,266	$	69	$	702	$	52,895
U.S. Treasury securities - fair value	1,904		—		550		—		2,454
Accrued interest on pledged securities	147		4		2		—		153
Restricted cash	6		—		698		9		713
Total	$	52,915	$	1,270	$	1,319	$	711	$	56,215

The cash and cash equivalents and agency securities pledged as collateral under our derivative agreements are included in restricted cash and agency securities, at fair value, respectively, on our consolidated balance sheets.

The following table summarizes our securities pledged as collateral under repurchase agreements and other debt of consolidated VIEs by remaining maturity of the repurchase agreement and other debt liability, including securities pledged related to sold but not yet settled securities, as of March 31, 2015 and December 31, 2014 (in millions). For the corresponding repurchase agreement and other debt liability associated with the following amounts and the interest rates thereon, refer to Note 5.



	March 31, 2015						December 31, 2014
Agency Securities Pledged by Remaining Maturity of Repurchase Agreements and Debt of Consolidated VIEs	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
Agency MBS:
≤ 30 days	$	25,572	$	25,188	$	69	$	14,605	$	14,453	$	41
> 30 and ≤ 60 days	11,932		11,731		32		10,912		10,789		30
> 60 and ≤ 90 days	3,937		3,880		11		10,205		10,109		28
> 90 days	17,025		16,728		47		16,402		16,227		47
Total agency MBS	58,466		57,527		159		52,124		51,578		146
U.S. Treasury securities:
1 day	3,789		3,774		21		1,904		1,899		5
Total	$	62,255	$	61,301	$	180	$	54,028	$	53,477	$	151

As of March 31, 2015 and December 31, 2014, none of our repurchase agreement borrowings backed by agency MBS were due on demand or mature overnight.

Assets Pledged from Counterparties

As of March 31, 2015 and December 31, 2014, we had assets pledged to us from counterparties as collateral under our reverse repurchase and derivative agreements summarized in the tables below (in millions).



	March 31, 2015						December 31, 2014
Assets Pledged to AGNC	Reverse Repurchase Agreements		Derivative Agreements		Total		Reverse Repurchase Agreements		Derivative Agreements		Total
Agency MBS - fair value	$	—	$	14	$	14	$	—	$	43	$	43
U.S. Treasury securities - fair value	3,363		—		3,363		5,363		47		5,410
Cash	—		—		—		—		28		28
Total	$	3,363	$	14	$	3,377	$	5,363	$	118	$	5,481

U.S Treasury securities received as collateral under our reverse repurchase agreements are accounted for as securities borrowing transactions and are used to cover short sales of the same securities. 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 such arrangements and can potentially be offset on our consolidated balance sheets as of March 31, 2015 and December 31, 2014 (in millions):



	Offsetting of Financial Assets 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
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Consolidated Balance Sheets				Financial Instruments			Collateral Received ²			Net Amount
March 31, 2015
Interest rate swap and swaption agreements, at fair value ¹	$	120	$	—	$	120	$	(97	)	$	(14	)	$	9
Receivable under reverse repurchase agreements	3,175		—		3,175		(3,175		)	—			—
Total derivative, other hedging instruments and other assets	$	3,295	$	—	$	3,295	$	(3,272	)	$	(14	)	$	9

December 31, 2014
Interest rate swap and swaption agreements, at fair value¹	$	211	$	—	$	211	$	(94	)	$	(83	)	$	34
Receivable under reverse repurchase agreements	5,218		—		5,218		(4,690		)	(528		)	—
Total derivative, other hedging instruments and other assets	$	5,429	$	—	$	5,429	$	(4,784	)	$	(611	)	$	34



	Offsetting of Financial Liabilities 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
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Consolidated Balance Sheets				Financial Instruments			Collateral Pledged ²			Net Amount
March 31, 2015
Interest rate swap agreements, at fair value ¹	$	1,308	$	—	$	1,308	$	(97	)	$	(1,208	)	$	3
Repurchase agreements	58,112		—		58,112		(3,175		)	(54,937		)	—
Total derivative, other hedging instruments and other liabilities	$	59,420	$	—	$	59,420	$	(3,272	)	$	(56,145	)	$	3

December 31, 2014
Interest rate swap agreements, at fair value¹	$	880	$	—	$	880	$	(94	)	$	(782	)	$	4
Repurchase agreements	50,296		—		50,296		(4,690		)	(45,606		)	—
Total derivative, other hedging instruments and other liabilities	$	51,176	$	—	$	51,176	$	(4,784	)	$	(46,388	)	$	4

_______________________


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 received / pledged 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. Fair Value Measurements

We determine the fair value of our agency 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 further information regarding valuation of our derivative instruments, please refer to the discussion of derivative and other hedging instruments in Note 3.

We review the various third party fair value estimates and perform procedures to validate their reasonableness, including an analysis of the range of third party estimates for each position, comparison to recent trade activity for similar securities, and management review 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 determination of fair value if we determine (based on our validation procedures and our market knowledge and expertise) that the price is significantly different from 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 hierarchy levels during the three months ended March 31, 2015. The three levels of 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 March 31, 2015 and December 31, 2014 (in millions):



	March 31, 2015						December 31, 2014
	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Assets:
Agency securities	$	—	$	60,131	$	—	$	—	$	55,482	$	—
Agency securities transferred to consolidated VIEs	—		1,221		—		—		1,266		—
U.S. Treasury securities	4,328		—		—		2,427		—		—
Interest rate swaps	—		70		—		—		136		—
Swaptions	—		50		—		—		75		—
REIT equity securities	68		—		—		68		—		—
TBA securities	—		109		—		—		197		—
Total	$	4,396	$	61,581	$	—	$	2,495	$	57,156	$	—
Liabilities:
Debt of consolidated VIEs	$	—	$	725	$	—	$	—	$	761	$	—
Obligation to return U.S. Treasury securities borrowed under reverse repurchase agreements	3,363		—		—		5,363		—		—
Interest rate swaps	—		1,308		—		—		880		—
U.S. Treasury futures	14		—		—		5		—		—
TBA securities	—		30		—		—		5		—
Total	$	3,377	$	2,063	$	—	$	5,368	$	1,646	$	—

We elected the option to account for debt of consolidated VIEs at fair value with changes in fair value reflected in earnings 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 are presented in a consistent manner, at fair value, on our consolidated balance sheets. We estimate the fair value of the consolidated debt based on the fair value of the agency MBS transferred to

consolidated VIEs, less the fair value of our retained interests, which are based on valuations obtained from third-party pricing services and non-binding dealer quotes derived from common market pricing methods using "Level 2" inputs.

Excluded from the table above are financial instruments, including cash and cash equivalents, restricted cash, receivables, payables and borrowings under repurchase agreements, which are presented in our consolidated financial statements at cost, which is determined to approximate fair value, primarily due to the short duration of these instruments. The cost basis of repo borrowings with initial terms of greater than one year is determined to approximate fair value, primarily as such agreements have floating rates based on an index plus or minus a fixed spread and the fixed spread is generally consistent with those demanded in the market. We estimate the fair value of these instruments using "Level 2" inputs.

Note 9. Stockholders' Equity

Preferred Stock

Pursuant to our amended and restated certificate of incorporation, we are authorized to designate and issue up to 10.0 million shares of preferred stock in one or more classes or series. Our Board of Directors has designated 6.9 million shares as 8.000% Series A Cumulative Redeemable Preferred Stock ("Series A Preferred Stock") and 8,050 shares as 7.750% Series B Cumulative Redeemable Preferred Stock ("Series B Preferred Stock"). As of March 31, 2015, we had 3.1 million shares of authorized but unissued shares of preferred stock. Our Board of Directors may designate additional series of authorized preferred stock ranking junior to or in parity with the Series A or Series B Preferred Stock or designate additional shares of the Series A or Series B Preferred Stock and authorize the issuance of such shares.

In April 2012, we completed a public offering in which 6.9 million shares of our Series A Preferred Stock were sold to the underwriters at a price of $24.2125 per share for proceeds, net of offering expenses, of $167 million. In May 2014, we completed a public offering in which 7.0 million depositary shares were sold to the underwriters at a price of $24.2125 per depositary share for proceeds, net of offering expenses, of $169 million. Each depositary share represents a 1/1,000th interest in a share of our Series B Preferred Stock.

Our Series A and Series B Preferred Stock have no stated maturity, are not subject to any sinking fund or mandatory redemption and rank on parity with each other. Under certain circumstances upon a change of control, our Series A and Series B Preferred Stock are convertible to shares of our common stock. Holders of our Series A Preferred Stock and depository shares underlying our Series B Preferred Stock have no voting rights, except under limited conditions, and are entitled to receive cumulative cash dividends at a rate of 8.000% and 7.750% per annum, respectively, of their $25.00 per share and $25.00 per depositary share liquidation preference, respectively, before holders of our common stock are entitled to receive any dividends. Shares of our Series A Preferred Stock and depository shares underlying our Series B Preferred Stock are each redeemable at $25.00 per share, plus accumulated and unpaid dividends (whether or not declared) exclusively at our option commencing on April 5, 2017 and May 8, 2019, respectively, or earlier under certain circumstances intended to preserve our qualification as a REIT for federal income tax purposes. Dividends are payable quarterly in arrears on the 15th day of each January, April, July and October. As of March 31, 2015, we had declared all required quarterly dividends on our Series A and Series B Preferred Stock.

Common Stock Repurchase Program

Our Board of Directors adopted a program that authorizes repurchases of our common stock through December 31, 2015, up to a specified amount. Shares of our common stock may be purchased in the open market, including through block purchases, or through privately negotiated transactions, or pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended. The timing, manner, price and amount of any repurchases will be determined at our discretion and the program may be suspended, terminated or modified at any time for any reason. Among other factors, we intend to only consider repurchasing shares of our common stock when the purchase price is less than our estimate of our current net asset value per common share. Generally, when we repurchase our common stock at a discount to our net asset value, the net asset value of our remaining shares of common stock outstanding increases. In addition, we do not intend to repurchase any shares from directors, officers or other affiliates. The program does not obligate us to acquire any specific number of shares, and all repurchases will be made in accordance with Rule 10b-18, which sets certain restrictions on the method, timing, price and volume of stock repurchases.

We did not repurchase any shares of our common stock during the three months ended March 31, 2015. During the three months ended March 31, 2014, we repurchased approximately 3.4 million shares of our common stock at an average repurchase price of $22.10 per share, including expenses, totaling $74 million. As of March 31, 2015, the total remaining amount authorized for repurchases of our common stock was $992 million.

Accumulated Other Comprehensive Income (Loss)

The following tables summarize changes to accumulated OCI for the three months ended March 31, 2015 and 2014 (in millions):



Accumulated Other Comprehensive Income (Loss)	Net Unrealized Gain (Loss) on Available-for-Sale MBS			Net Unrealized Gain (Loss) on Swaps			Total Accumulated OCI Balance
Three Months Ended March 31, 2015
Balance as of December 31, 2014	$	570		$	(140	)	$	430
OCI before reclassifications	427			—			427
Amounts reclassified from accumulated OCI	(36		)	29			(7		)
Balance as of March 31, 2015	$	961		$	(111	)	$	850

Three Months Ended March 31, 2014
Balance as of December 31, 2013	$	(1,087	)	$	(296	)	$	(1,383	)
OCI before reclassifications	502			—			502
Amounts reclassified from accumulated OCI	19			43			62
Balance as of March 31, 2014	$	(566	)	$	(253	)	$	(819	)

The following tables summarize reclassifications out of accumulated OCI for the three months ended March 31, 2015 and 2014 (in millions):



	Three Months Ended March 31,					Line Item in the Consolidated Statements of Comprehensive Income Where Net Income is Presented
Amounts Reclassified from Accumulated OCI	2015			2014
(Gain) loss amounts reclassified from accumulated OCI for available-for-sale MBS	$	(36	)	$	19	Gain (loss) on sale of agency securities, net
Periodic interest costs of interest rate swaps previously designated as hedges under GAAP, net	29			43		Interest expense
Total reclassifications	$	(7	)	$	62

Note 10. Subsequent Events

On April 13, 2015, our Board of Directors declared a monthly dividend of $0.22 per common share, which will be paid on May 8, 2015, to common stockholders of record as of April 30, 2015.

On April 27, 2015, our Board of Directors declared a monthly dividend of $0.20 per common share, which will be paid on June 5, 2015, to common stockholders of record as of May 29, 2015.

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 American Capital Agency Corp.'s consolidated financial statements with a narrative from the perspective of management. Our MD&A is presented in five sections:


•	Executive Overview


•	Financial Condition


•	Results of Operations


•	Liquidity and Capital Resources


•	Forward-Looking Statements

EXECUTIVE OVERVIEW

American Capital Agency Corp. ("AGNC," the "Company," "we," "us" and "our") was organized 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 are externally managed by American Capital AGNC Management, LLC (our "Manager"), an affiliate of American Capital, Ltd. ("American Capital").

We operate so as 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 such, we are required to distribute annually 90% of our taxable net 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 net income to the extent that we distribute all of our annual taxable net income to our stockholders. It is our intention to distribute 100% of our taxable net income, after application of available tax attributes, within the limits prescribed by the Internal Revenue Code, which may extend into the subsequent taxable year.

We earn income primarily from investing on a leveraged basis in agency mortgage-backed securities ("agency MBS"). 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-sponsored enterprise, such as the Federal National Mortgage Association ("Fannie Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac"), 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 agency debenture securities issued by Freddie Mac, Fannie Mae or the Federal Home Loan Bank and in other assets reasonably related to agency securities.

Our principal objective is to generate attractive risk-adjusted returns for distribution to our stockholders through regular monthly dividends from the combination of our net interest income and net realized gains and losses on our investments and hedging activities while preserving our net book value (also referred to as "net asset value", "NAV" and "stockholders' equity"). We fund our investments primarily through borrowings structured as repurchase agreements ("repo").

Our Investment Strategy

Our investment strategy is designed to:


•	manage an investment portfolio consisting primarily of agency securities and assets reasonably related to agency securities that seeks to generate attractive risk-adjusted returns;


•	capitalize on discrepancies in the relative valuations in the agency securities market;


•	manage financing, interest rate, prepayment and extension risks;


•	preserve our net book value;


•	provide regular quarterly distributions to our stockholders;


•	continue to qualify as a REIT; and


•	remain exempt from the requirements of the Investment Company Act of 1940, as amended (the "Investment Company Act").

The size and composition of our investment portfolio depends on investment strategies implemented by our Manager, the availability of investment capital and overall market conditions, including the availability of attractively priced investments and suitable financing to appropriately leverage our investment portfolio. Market conditions are influenced by, among other things, current levels of and expectations for future levels of interest rates, mortgage prepayments, market liquidity, housing prices, unemployment rates, general economic conditions, government participation in the mortgage market and evolving regulations or legal settlements that impact servicing practices or other mortgage related activities.

Our Risk Management Strategy

We use a variety of strategies to hedge a portion of our exposure to market risks, including interest rate, prepayment and extension risks, to the extent that our Manager believes is prudent, taking into account our investment strategy, the cost of the hedging transactions and our intention to qualify as a REIT. As a result, we may not hedge certain interest rate, prepayment or extension risks if our Manager believes that bearing such risks enhances our return relative to our risk/return profile, or the hedging transaction would negatively impact our REIT status.

•

Interest Rate Risk. We hedge a portion of our exposure to potential interest rate mismatches between the interest we earn on our longer term investments and the interest we pay on our shorter term borrowings. Because a majority of our funding is in the form of repurchase agreements, our financing costs fluctuate based on short-term interest rate indices, such as LIBOR. Because our investments are assets that primarily have fixed rates of interest and could mature in up to 40 years, the interest we earn on those assets generally does not move in tandem with the interest that we pay on our repurchase agreements; therefore, we may experience reduced income or losses due to adverse rate movements. In order to attempt to mitigate a portion of such risk, we utilize certain hedging techniques to attempt to lock in a portion of the net interest spread between the interest we earn on our assets and the interest we pay on our financing costs.

Additionally, because prepayments on residential mortgages generally accelerate when interest rates decrease and slow when interest rates increase, mortgage securities typically have "negative convexity." In other words, certain mortgage securities in which we invest may increase in price more slowly than similar duration bonds, or even fall in value, as interest rates decline. Conversely, certain mortgage securities in which we invest may decrease in value more quickly than similar duration bonds as interest rates increase. In order to manage this risk, we monitor, among other things, the "duration gap" between our mortgage assets and our hedge portfolio as well as our convexity exposure. Duration is the estimated percentage change in market value of our mortgage assets or our hedge portfolio that would be caused by a parallel change in short and long-term interest rates. Convexity exposure relates to the way the duration of our mortgage assets or our hedge portfolio changes when the interest rate or prepayment environment changes.

The value of our mortgage assets may also be adversely impacted by fluctuations in the shape of the yield curve or by changes in the market's expectation about the volatility of future interest rates. We analyze our exposure to non-parallel changes in interest rates and to changes in the market's expectation of future interest rate volatility and take actions to attempt to mitigate these risks.

•

Prepayment Risk. Because residential borrowers have the option to prepay their mortgage loans at par at any time, we face the risk that we will experience a return of principal on our investments faster than anticipated. Prepayment risk generally increases when interest rates decline. In this scenario, our financial results may be adversely affected as we may have to invest that principal at potentially lower yields.

•

Extension Risk. Because residential borrowers have the option to make only scheduled payments on their mortgage loans, rather than prepay their mortgage loans, we face the risk that a return of capital on our investment will occur slower than anticipated. Extension risk generally increases when interest rates rise. In this scenario, our financial results may be adversely affected as we may have to finance our investments at potentially higher costs without the ability to reinvest principal into higher yielding securities.

The principal instruments that we use to hedge a portion of our exposure to interest rate, prepayment and extension risks are interest rate swaps and options to enter into interest rate swaps ("interest rate swaptions"). We also utilize forward contracts for the purchase or sale of agency MBS securities on a generic pool basis, or a TBA contract, and on a non-generic, specified pool basis, and we utilize U.S. Treasury securities and U.S. Treasury futures contracts, primarily through short sales. We may also purchase or write put or call options on TBA securities and we may invest in other types of mortgage derivatives, such as interest and principal-only securities.

Our hedging instruments are generally not designed to protect our net book value from "spread risk" (also referred to as "basis risk"), which is the risk of an increase of the market spread between the yield on our agency securities and the benchmark yield on U.S. Treasury securities or interest rate swap rates. The inherent spread risk associated with our agency securities and the resulting fluctuations in fair value of these securities can occur independent of 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 ("Fed"), 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 our net book value against moves in interest rates, such instruments typically will not protect our net book value against spread risk and, therefore, the value of our agency securities and our net book value could decline.

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 be no certainty that our Manager's projections of our exposures to interest rates, prepayments, extension or other risks will be accurate or that our hedging activities will be effective and, therefore, actual results could differ materially.

Income from hedging transactions that we enter into to manage risk may not constitute qualifying gross income under one or both of the gross income tests applicable to REITs. Therefore, we may have to limit our use of certain advantageous hedging techniques, which could expose us to greater risks than we would otherwise want to bear, or implement those hedges through a taxable REIT subsidiary ("TRS"). Implementing our hedges through a TRS could increase the cost of our hedging activities because a TRS is subject to tax on income and gains.

Trends and Recent Market Impacts

U.S. interest rates declined in the first quarter of 2015, consistent with the general decline in interest rates across the globe. The yield on the 10 year U.S. Treasury note fell 24 basis points ("bps") to end the quarter at 1.93%. Despite the modest aggregate decline, the intra-quarter swings in interest rates were extreme by historical standards. The yield on the 10 year U.S. Treasury note fell 50 bps in January, increased 60 bps in February and early March, and ended the quarter with another 30 bps decline.

In the fourth quarter of 2014, we made several changes to the composition of our asset and hedge portfolio that were intended to mitigate the negative impact of volatile interest rate environments, such as what unfolded in the first quarter of 2015. In particular, we reduced our exposure to higher coupon, generic agency MBS; lowered our net duration gap (the difference between the interest rate sensitivity of our assets and that of our liabilities and hedges); and reduced leverage. In the first quarter, we further reduced our “at risk” leverage, inclusive of our net TBA position, to 6.4x as of March 31, 2015, our lowest leverage level in over 6 years. Similarly, we reduced our net duration gap to 0.2 years as of March 31, 2015, compared to 0.5 years as of December 31, 2014 and 1.2 years as of March 31, 2014. Together, these actions muted the month-to-month fluctuations in our net book value and limited our aggregate net book value change to a loss of $(0.21) per common share or (0.8%) over the first quarter, despite the considerable intra-quarter moves in interest rates. As a result, economic return for the first quarter was 1.7%, or 7.1% annualized, based upon $0.66 in dividends per common share and a decline of $(0.21) in our net book value per common share.

We believe that interest rate volatility will likely remain elevated due to the countervailing forces of weak economic growth and deflation risk abroad versus moderate economic growth and stable price inflation in the U.S. Weak economic growth and deflationary forces have led to substantial quantitative easing in Europe, Japan, and China, driving some overseas sovereign yields to historically low levels, and, in some cases, to negative yields. In contrast, the U.S. economic landscape is very different, marked by moderate growth, a strong dollar, low energy prices and improving employment. As a result of these factors, the Federal Reserve appears poised to raise short term rates despite disappointing U.S. gross domestic product, or "GDP", growth in the first quarter of 2015. The divergence between global and domestic economic forces has created significant interest rate uncertainty. In addition, more onerous regulatory requirements and unprecedented central bank intervention appears to have reduced bond market liquidity, further exacerbating interest rate volatility. In light of these factors, we positioned our portfolio in a manner that prioritizes risk management and book value preservation over incremental short term returns.

Looking ahead, if interest rates decline, we would expect prepayment speeds to accelerate substantially and agency MBS spreads relative to benchmark interest rates to widen somewhat, possibly adversely impacting our net book value per share in the near term. In this falling rate scenario, we believe our portfolio performance will benefit somewhat from our sizable position in assets that possess favorable prepayment characteristics and our relatively low coupon profile. If interest rates increase, we would expect agency MBS spreads to tighten in response to reduced supply and prepayments to slow. In this scenario, the benefit to our net book value per share stemming from strong agency MBS performance would be offset somewhat by hedging costs associated with rising interest rate scenarios. For the estimated impact of changes in interests rates and mortgage spreads on our net book value please refer to "Quantitative and Qualitative Disclosures about Market Risk" under Item 3 of this Quarterly Report on Form 10-Q.

Given our current defensive portfolio positioning, we expect fluctuations in our net book value to be more muted than they would otherwise be and our economic return to be driven primarily by our dividend in the near term. Our conservative risk profile also provides us capacity and flexibility to grow our portfolio quickly through increased leverage if agency MBS weaken and expected returns improve.

On April 27, 2015, our Board of Directors declared a monthly dividend of $0.20 per common share for the month of May, payable on June 5, 2015 to common stockholders of record as of May 29, 2015, a decline of $0.02 per common share, or 9%,

from April's monthly dividend of $0.22 per common share. The reduction in our dividend was as a result of our defensive portfolio positioning and corresponding diminished near-term earnings expectations.

Market Information:

The following table summarizes interest rates and prices of generic fixed rate agency mortgage-backed securities as of each date presented below:



Interest Rate/Security Price ¹	Mar. 31, 2014	June 30, 2014	Sept. 30, 2014	Dec. 31, 2014	Mar. 31, 2015	Mar. 31, 2015 vs. Dec. 31, 2014
LIBOR:
1-Month	0.15%	0.16%	0.16%	0.17%	0.18%	+0.01	bps
3-Month	0.23%	0.23%	0.24%	0.26%	0.27%	+0.01	bps
6-Month	0.33%	0.33%	0.33%	0.36%	0.40%	+0.04	bps
U.S. Treasury Security Rate:
2-Year U.S. Treasury	0.43%	0.46%	0.58%	0.67%	0.56%	-0.11	bps
3-Year U.S. Treasury	0.88%	0.86%	1.06%	1.08%	0.88%	-0.20	bps
5-Year U.S. Treasury	1.73%	1.62%	1.78%	1.65%	1.37%	-0.28	bps
10-Year U.S. Treasury	2.72%	2.52%	2.51%	2.17%	1.93%	-0.24	bps
30-Year U.S. Treasury	3.56%	3.34%	3.21%	2.75%	2.54%	-0.21	bps
Interest Rate Swap Rate:
2-Year Swap	0.55%	0.58%	0.83%	0.89%	0.81%	-0.08	bps
3-Year Swap	1.01%	0.99%	1.31%	1.29%	1.11%	-0.18	bps
5-Year Swap	1.81%	1.70%	1.95%	1.77%	1.53%	-0.24	bps
10-Year Swap	2.85%	2.61%	2.65%	2.29%	2.03%	-0.26	bps
30-Year Swap	3.54%	3.31%	3.20%	2.70%	2.39%	-0.31	bps
30-Year Fixed Rate MBS Price:
3.0%	$96.53	$98.77	$98.59	$101.22	$102.25	+$1.03
3.5%	$100.59	$102.92	$102.23	$104.28	$105.05	+$0.77
4.0%	$103.94	$106.11	$105.41	$106.75	$106.92	+$0.17
4.5%	$106.69	$108.30	$107.91	$108.56	$109.08	+$0.52
15-Year Fixed Rate MBS Price:
2.5%	$99.92	$101.59	$100.55	$101.81	$102.71	+$0.90
3.0%	$102.72	$103.88	$102.98	$103.91	$104.83	+$0.92
3.5%	$104.83	$105.98	$105.11	$105.61	$106.09	+$0.48
4.0%	$105.78	$106.17	$105.69	$106.06	$105.59	-$0.47

_______________________


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.

The following table summarizes recent prepayment trends for our portfolio:



Annualized Monthly Constant Prepayment Rates ¹	Dec. 2014	Jan. 2015	Feb. 2015	Mar. 2015
AGNC portfolio	8%	9%	8%	9%

________________________


1.	Weighted average actual one-month annualized CPR released at the beginning of the month based on securities held/outstanding as of the preceding month-end.

FINANCIAL CONDITION



	March 31, 2015										December 31, 2014
Agency MBS and Net TBA Securities	Amortized Cost			Fair Value			Average Coupon		%		Amortized Cost		Fair Value		Average Coupon		%
Fixed rate:
≤ 15-year
≤ 15-year agency MBS	$	25,204		$	25,693		3.19	%	39	%	$	22,694	$	23,021	3.20	%	32	%
15-year net (short) / long TBA securities	(1,383		)	(1,396		)	3.71	%	(2	)%	3,348		3,360		2.78	%	5	%
Total ≤ 15-year	23,821			24,297			3.16	%	37	%	26,042		26,381		3.15	%	37	%
20-year	1,198			1,247			3.49	%	2	%	1,232		1,272		3.49	%	2	%
30-year
30-year agency MBS	31,833			32,200			3.74	%	49	%	30,019		30,180		3.82	%	42	%
30-year net long TBA securities	6,198			6,290			2.84	%	9	%	11,228		11,408		3.17	%	16	%
Total 30-year	38,031			38,490			3.59	%	58	%	41,247		41,588		3.63	%	58	%
Total fixed rate	63,050			64,034			3.42	%	97	%	68,521		69,241		3.45	%	97	%

Adjustable rate	622			642			3.24	%	1	%	659		678		3.29	%	1	%

CMO:
CMO	1,138			1,173			3.37	%	2	%	1,172		1,195		3.37	%	2	%
Interest-only strips	167			198			5.45	%	—	%	179		203		5.46	%	—	%
Principal-only strips	187			199			—	%	—	%	193		199		—	%	—	%
Total CMO	1,492			1,570			4.00	%	2	%	1,544		1,597		4.02	%	2	%

Total	$	65,164		$	66,246		3.44	%	100	%	$	70,724	$	71,516	3.47	%	100	%

Our TBA positions are recorded as derivative instruments in our accompanying consolidated financial statements, with the TBA dollar roll transactions representing a form of off-balance sheet financing. As of March 31, 2015 and December 31, 2014, our TBA position had a net carrying value of $79 million and $192 million, respectively, reported in derivative 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 cost basis or the forward price to be paid or received for the underlying agency security.

The following tables summarize certain characteristics of our agency MBS fixed rate portfolio, inclusive of our net TBA position as of March 31, 2015 and December 31, 2014 (dollars in millions):



	March 31, 2015
	Includes Net TBA Position							Excludes Net TBA Position
Fixed Rate Securities	Par Value		Amortized Cost		Fair Value		% Lower Loan Balance & HARP ^1,2	Amortized Cost Basis	Weighted Average			Projected Life CPR ⁴
Fixed Rate Securities	Par Value		Amortized Cost		Fair Value		% Lower Loan Balance & HARP ^1,2	Amortized Cost Basis	WAC ³	Yield ⁴	Age (Months)	Projected Life CPR ⁴
Fixed rate
≤ 15-year
≤ 2.5%	$	7,373	$	7,522	$	7,594	34%	101.9%	2.97%	2.04%	29	8%
3.0%	6,208		6,435		6,533		68%	103.9%	3.51%	2.03%	25	10%
3.5%	4,877		5,052		5,210		94%	103.7%	3.95%	2.54%	43	10%
4.0%	4,146		4,331		4,466		88%	104.5%	4.40%	2.71%	52	12%
4.5%	451		474		487		97%	104.9%	4.87%	3.05%	55	13%
≥ 5.0%	6		7		7		25%	104.2%	6.49%	4.43%	87	14%
Total ≤ 15-year	23,061		23,821		24,297		67%	103.5%	3.66%	2.28%	35	10%
20-year
≤ 3.0%	317		315		330		28%	99.3%	3.55%	3.11%	22	8%
3.5%	680		694		721		63%	102.1%	4.05%	3.04%	24	11%
4.0%	77		80		83		48%	104.4%	4.53%	2.96%	43	12%
4.5%	98		104		108		99%	106.6%	4.89%	3.03%	52	11%
≥ 5.0%	4		5		5		—%	105.8%	5.91%	3.34%	82	21%
Total 20-year:	1,176		1,198		1,247		56%	101.9%	4.03%	3.05%	28	10%
30-year:
≤ 3.0%	8,585		8,671		8,796		2%	100.6%	3.59%	2.91%	22	7%
3.5%	15,413		16,169		16,264		54%	105.2%	4.07%	2.74%	25	8%
4.0%	10,243		10,907		11,052		72%	106.5%	4.53%	2.87%	23	11%
4.5%	1,775		1,888		1,963		89%	106.3%	4.96%	3.36%	46	11%
5.0%	176		187		197		65%	106.0%	5.45%	3.70%	83	13%
≥ 5.5%	193		209		218		37%	108.7%	6.22%	3.37%	100	19%
Total 30-year	36,385		38,031		38,490		49%	105.3%	4.30%	2.86%	26	9%
Total fixed rate	$	60,622	$	63,050	$	64,034	56%	104.5%	4.01%	2.61%	30	10%

_______________________


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 for 15-year and 30-year securities, as of March 31, 2015.


2.	HARP securities are defined as pools backed by100% refinance loans with LTV ≥ 80%. Our HARP securities had a weighted average LTV of 109% and 119% for 15-year and 30-year securities, respectively, as of March 31, 2015. Includes $1.1 billion and $3.0 billion of 15-year and 30-year securities, respectively, with >105 LTV pools which are not deliverable into TBA securities.


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 March 31, 2015.



	December 31, 2014
	Includes Net TBA Position							Excludes Net TBA Position
Fixed Rate Securities	Par Value		Amortized Cost		Fair Value		% Lower Loan Balance & HARP ^1,2	Amortized Cost Basis	Weighted Average			Projected Life CPR ⁴
Fixed Rate Securities	Par Value		Amortized Cost		Fair Value		% Lower Loan Balance & HARP ^1,2	Amortized Cost Basis	WAC ³	Yield ⁴	Age (Months)	Projected Life CPR ⁴
Fixed rate
≤ 15-year
≤ 2.5%	$	7,828	$	7,972	$	7,993	30%	102.0%	2.96%	2.03%	26	8%
3.0%	7,635		7,897		7,950		48%	103.1%	3.50%	2.25%	31	9%
3.5%	4,726		4,889		5,017		99%	103.6%	3.95%	2.56%	41	10%
4.0%	4,569		4,776		4,906		89%	104.5%	4.40%	2.72%	49	12%
4.5%	478		501		508		97%	105.0%	4.87%	3.06%	52	12%
≥ 5.0%	6		7		7		26%	104.2%	6.46%	4.44%	84	14%
Total ≤ 15-year	25,242		26,042		26,381		61%	103.2%	3.65%	2.37%	36	10%
20-year
≤ 3.0%	324		322		334		28%	99.3%	3.55%	3.11%	19	7%
3.5%	698		713		736		63%	102.2%	4.05%	3.05%	22	10%
4.0%	80		84		86		47%	104.5%	4.53%	2.98%	40	11%
4.5%	101		108		111		99%	106.8%	4.89%	3.05%	49	11%
≥ 5.0%	5		5		5		—%	106.0%	5.91%	3.34%	79	20%
Total 20-year:	1,208		1,232		1,272		55%	102.0%	4.03%	3.06%	25	9%
30-year:
≤ 3.0%	6,887		6,875		6,969		2%	98.9%	3.58%	3.14%	19	6%
3.5%	17,970		18,748		18,765		49%	105.2%	3.98%	2.78%	27	7%
4.0%	12,644		13,398		13,551		61%	106.4%	4.43%	3.00%	20	9%
4.5%	1,699		1,807		1,868		96%	106.5%	4.96%	3.41%	43	10%
5.0%	183		194		203		65%	106.2%	5.45%	3.74%	80	12%
≥ 5.5%	207		225		232		36%	108.9%	6.23%	3.40%	96	18%
Total 30-year	39,590		41,247		41,588		47%	105.6%	4.28%	2.96%	25	8%
Total fixed rate	$	66,040	$	68,521	$	69,241	53%	104.5%	4.01%	2.72%	29	9%

_______________


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 $96,000 for 15-year and 30-year securities, respectively, as of December 31, 2014.


2.	HARP securities are defined as pools backed by100% refinance loans with LTVs ≥ 80%. Our HARP securities had a weighted average LTV of 109% and 118% for 15-year and 30-year securities, respectively, as of December 31, 2014. Includes $934 million and $3.1 billion of 15-year and 30-year securities, respectively, with >105 LTV pools which are not deliverable into TBA securities.


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, 2014.

As of March 31, 2015 and December 31, 2014, the combined weighted average yield of our agency MBS portfolio, inclusive of interest and principal-only strips, was 2.64% and 2.74%, respectively.

Our pass-through agency MBS collateralized by adjustable rate mortgage loans ("ARMs") have coupons linked to various indices. As of March 31, 2015 and December 31, 2014, our ARM securities had a weighted average next reset date of 50 months and 51 months, respectively.

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 interest expense" (defined as interest expense plus the periodic interest rate costs of our interest rate swaps reported in gain (loss) on derivatives and other securities, net in our consolidated statements of comprehensive income), "net spread and dollar roll income" (defined as interest income, TBA dollar roll income and dividends from REIT equity securities, net of adjusted net interest expense and operating expenses) and "estimated taxable income" and certain financial metrics derived from non-GAAP information, such as "cost of funds" and "net interest rate spread." By providing users of our financial information with such measures in addition to the related GAAP measures, we believe it gives users greater

transparency into the information used by our management in its financial and operational decision-making and that it is meaningful information to consider related to: (i) the economic costs of financing our investment portfolio inclusive of interest rate swaps used to economically hedge against fluctuations in our borrowing costs, (ii) in the case of net spread and dollar roll income, our current financial performance without the effects of certain transactions that are not necessarily indicative of our current investment portfolio and operations, and (iii) in the case of estimated taxable income, information that is directly related 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, our 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-titled measures of other companies. Furthermore, estimated taxable income can include certain information that is subject to potential adjustments up to the time of filing our income tax returns, which occurs after the end of our fiscal year.

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 March 31, 2015 and December 31, 2014 and our condensed consolidated statements of comprehensive income and key statistics for the three months ended March 31, 2015 and 2014 (in millions, except per share amounts):



($ in millions, except per share amounts)
Balance Sheet Data	March 31, 2015		December 31, 2014
	(unaudited)
Investment portfolio, at fair value	$	61,352	$	56,748
Total assets	$	73,105	$	67,766
Repurchase agreements and other debt	$	58,837	$	51,057
Total liabilities	$	63,749	$	58,338
Total stockholders' equity	$	9,356	$	9,428
Net asset value per common share as of period end ¹	$	25.53	$	25.74



	Three Months Ended March 31,
Statement of Comprehensive Income Data (unaudited)	2015			2014
Interest income	$	383		$	399
Interest expense ²	86			108
Net interest income	297			291
Other loss, net ²	(513		)	(397		)
Expenses	36			35
Net loss	(252		)	(141		)
Dividend on preferred stock	7			3
Net loss attributable to common stockholders	$	(259	)	$	(144	)

Net loss	$	(252	)	$	(141	)
Other comprehensive income ²	420			564
Comprehensive income	168			423
Dividend on preferred stock	7			3
Comprehensive income available to common stockholders	$	161		$	420

Weighted average number of common shares outstanding - basic and diluted	352.8			354.8
Net loss per common share - basic and diluted	$	(0.73	)	$	(0.41	)
Comprehensive income per common share - basic and diluted	$	0.46		$	1.18
Dividends declared per common share	$	0.66		$	0.65

	Three Months Ended March 31,
Other Data (unaudited)	2015			2014
Average agency securities - at par	$56,874			$60,103
Average agency securities - at cost	$59,479			$62,920
Average net TBA portfolio - at cost	$6,957			$4,534
Average total assets - at fair value	$72,688			$73,422
Average repurchase agreements and other debt ³	$53,963			$57,544
Average stockholders' equity ⁴	$9,401			$8,975
Average coupon - agency securities ⁵	3.63		%	3.60		%
Average asset yield - agency securities ⁶	2.57		%	2.54		%
Average cost of funds ⁷	(1.28		)%	(1.35		)%
Average net interest rate spread	1.29		%	1.19		%
Average net interest rate spread, including estimated TBA dollar roll income ⁸	1.53		%	1.43		%
Average coupon - agency securities (as of period end)	3.58		%	3.65		%
Average asset yield - agency securities (as of period end)	2.64		%	2.72		%
Average cost of funds (as of period end) ⁹	(1.34		)%	(1.45		)%
Average net interest rate spread (as of period end)	1.30		%	1.27		%
Net comprehensive income return on average common equity - annualized ¹⁰	7.2		%	19.4		%
Economic return on common equity - annualized ¹¹	7.1		%	20.5		%
Average leverage ¹²	5.8:1			6.7:1
Average "at risk" leverage, inclusive of the net TBA position ¹³	6.5:1			7.2:1
Leverage (as of period end) ¹⁴	5.8:1			5.9:1
"At risk" leverage, inclusive of net TBA position (as of period end) ¹⁵	6.4:1			7.6:1
Expenses % of average total assets - annualized	0.20		%	0.19		%
Expenses % of average assets, including average net TBA portfolio - annualized	0.18		%	0.18		%
Expenses % of average stockholders' equity - annualized	1.55		%	1.58		%

_______________________

* Except as noted below, average numbers for each period are weighted based on days on our books and records. All percentages are annualized.


1.	Net asset value per common share is calculated as our total stockholders' equity, less our Series A and Series B Preferred Stock aggregate liquidation preference, divided by our number of common shares outstanding as of period end.


2.	We voluntarily discontinued hedge accounting for our interest rate swaps as of September 30, 2011. Please refer to our Interest Expense and Cost of Funds discussion further below and Notes 3 and 6 of our Consolidated Financial Statements in this Quarterly Report on Form 10-Q for additional information regarding our discontinuance of hedge accounting.


3.	Excludes U.S. Treasury repo agreements.


4.	Average stockholders' equity calculated as our average month-end stockholders' equity during the period.


5.	Average coupon for the period was calculated by dividing our total coupon (or cash) interest income on agency securities by our average agency securities held at par.


6.	Average asset yield for the period was calculated by dividing our total cash interest income on agency securities, adjusted for amortization of premiums and discounts, by our average amortized cost of agency securities held.

Average cost of funds includes agency MBS repurchase agreements, debt of consolidated variable interest entities ("VIEs") and interest rate swaps currently in effect, but excludes interest rate swap termination fees, forward starting swaps and costs associated with other supplemental hedges such as interest rate swaptions and short U.S. Treasury or TBA positions. Average cost of funds for the period was calculated by dividing our total cost of funds by our average repurchase agreements and debt of consolidated VIEs outstanding for the period.


8.	TBA dollar roll income / (loss) is net of short TBAs used for hedging purposes. Dollar roll income excludes the impact of other supplemental hedges, and is recognized in gain (loss) on derivative instruments and other securities, net.

Average cost of funds as of period end includes agency MBS repurchase agreements and debt of consolidated VIEs outstanding, plus the impact of interest rate swaps in effect as of each period end and forward starting swaps becoming effective, net of swaps expiring, within three months of each period end, but excludes costs associated with other supplemental hedges such as swaptions, U.S. Treasuries and TBA positions.


10.	Net comprehensive income (loss) return on average common equity for the period was calculated by dividing our comprehensive income/(loss) available /(attributable) to common stockholders by our average stockholders' equity, net of the Series A and Series B Preferred Stock aggregate liquidation preference.


11.	Economic return (loss) 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.


12.	Average leverage during the period was calculated by dividing our daily weighted average agency MBS repurchase agreements and debt of consolidated VIEs 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.	Average "at risk" leverage, inclusive of net TBA portfolio, during the period includes the components of "leverage (average during the period)" plus our daily weighted average net TBA dollar position (at cost) during the period.


14.	Leverage at period end is calculated by dividing the sum of the amount outstanding under our agency MBS repurchase agreements, net receivable / payable for unsettled agency securities and debt of consolidated VIEs 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.


15.	"At risk" leverage at period end, inclusive of net TBA position, includes the components of "leverage (as of period end)" plus our net TBA dollar roll position outstanding as of period end, at cost.

Interest Income and Asset Yield

The following table summarizes our interest income for the three months ended March 31, 2015 and 2014 (dollars in millions):



	Three Months Ended March 31,
	2015					2014
	Amount			Yield		Amount			Yield
Cash/coupon interest income	$	516		3.63	%	$	541		3.60	%
Premium amortization	(133		)	(1.06	)%	(142		)	(1.06	)%
Interest income	$	383		2.57	%	$	399		2.54	%
Actual portfolio CPR	8		%			7		%
Projected life CPR as of period end	10		%			8		%
Average 30-year fixed rate mortgage rate as of period end ¹	3.70		%			4.40		%
10-year U.S. Treasury rate as of period end	1.93		%			2.72		%

_______________________


1.	Source: Freddie Mac Primary Fixed Mortgage Rate Mortgage Market Survey

The principal elements impacting our interest income are the size of our average agency MBS portfolio and the yield on our investments. The following is a summary of the estimated impact of each of these elements on the decline in interest income between the current and prior year periods ended March 31, 2015 and 2014 (in millions):



Impact of Changes in the Principal Elements Impacting Interest Income
Three Months Ended March 31, 2015 vs. March 31, 2014
				Due to Change in Average
	Net Decrease			Portfolio Size			Asset Yield
Interest Income	$	(16	)	$	(22	)	$	6

The average par value of our agency MBS portfolio decreased by 5% for the three months ended March 31, 2015, compared to the prior year period, reflective of lower "at risk" leverage and a shift from agency MBS repo funded assets to TBA dollar roll funded assets. Because we recognize TBA securities as derivative instruments under GAAP, our reported interest income does not include our TBA dollar roll income, which we report in gain/loss on derivative instruments and other securities, net in our accompanying consolidated financial statements in this Form 10-Q.

Our average asset yield for the three months ended March 31, 2015 was impacted by changes in our asset composition and fluctuations in "catch-up" premium amortization adjustments recognized due to changes in our projected life CPR forecasts. Excluding "catch-up" premium amortization adjustments, our average asset yield was 2.70% for the three months ended March 31, 2015, unchanged from the prior year period.

Leverage

Our leverage was 5.8x our stockholders' equity as of March 31, 2015, compared to 5.3x and 5.9x as of December 31, 2014 and March 31, 2014, respectively, measured as the sum of our agency MBS repo agreements, net receivable / payable for unsettled agency securities and debt of consolidated VIEs divided by the sum of our total stockholders' equity less the fair value of our investments in REIT equity securities as of period end. Since the individual agency mortgage REITs in which we invest employ similar leverage as within our agency portfolio, we acquire these securities on an unlevered basis and, therefore, exclude from our leverage measurements the portion of our stockholders' equity allocated to investments in other mortgage REITs. In addition, our measurement of leverage excludes repurchase agreements used to fund short-term investments in U.S. Treasury securities due to the highly liquid and temporary nature of these investments.

Inclusive of our net TBA position, our total "at risk" leverage was 6.4x our stockholders' equity as of March 31, 2015, compared to 6.9x and 7.6x as of December 31, 2014 and March 31, 2014, respectively. Since we recognize our TBA commitments as derivatives under GAAP, they are not included in our repo and other debt leverage calculations as measured from our consolidated balance sheets; however, a long TBA position carries similar risks as if we had purchased the underlying MBS assets and funded such purchases with on-balance sheet repo agreements. Similarly, a short TBA position has substantially the same effect as selling the underlying MBS assets and reducing our on-balance sheet repurchase commitments. (Refer to Liquidity and Capital Resources for further discussion of TBA dollar roll positions). Therefore, we commonly refer to our leverage adjusted for TBA positions as our "at risk" leverage.

The table below presents our average and quarter-end repo and other debt balance, net TBA position and leverage ratios for each of the three month periods listed below (dollars in millions):



	Agency MBS Repurchase Agreements and Other Debt ¹						Net TBA Position Long / (Short) ²				Average Leverage during the Period ^1,3	Average Total "At Risk" Leverage during the Period ^1,4	Leverage as of Period End ^1,5	"At Risk" Leverage as of Period End ^1,6
Quarter Ended	Average Daily Amount		Maximum Daily Amount		Ending Amount		Average Daily Amount		Ending Amount		Average Leverage during the Period ^1,3	Average Total "At Risk" Leverage during the Period ^1,4	Leverage as of Period End ^1,5	"At Risk" Leverage as of Period End ^1,6
March 31, 2015	$	53,963	$	58,217	$	55,056	$	6,957	$	4,815	5.8:1	6.5:1	5.8:1	6.4:1
December 31, 2014	$	45,554	$	49,170	$	49,150	$	18,492	$	14,576	4.9:1	6.9:1	5.3:1	6.9:1
March 31, 2014	$	57,544	$	63,117	$	50,454	$	4,534	$	14,127	6.7:1	7.2:1	5.9:1	7.6:1

_______________________


1.	Excludes U.S. Treasury repo agreements.


2.	Daily average and ending net TBA position outstanding measured at cost.


3.	Average leverage during the period was calculated by dividing the sum of our daily weighted average agency repurchase agreements and debt of consolidated VIEs outstanding by the sum of our average month-end stockholders' equity less our average investment in REIT equity securities for the period.


4.	Average "at risk" leverage during the period includes the components of "average leverage during the period," plus our daily weighted average net TBA position (at cost) during the period.


5.	Leverage as of period end was calculated by dividing the sum of the amount outstanding under our agency MBS repurchase agreements, net payables and receivables for unsettled agency MBS securities and debt of consolidated VIEs by the sum of our total stockholders' equity less the fair value of our investment in REIT equity securities at period end.


6.	"At risk" leverage as of period end includes the components of "leverage as of period end," plus the cost basis (or contract price) of our net TBA position.

Interest Expense and Cost of Funds

Our interest expense is primarily comprised of interest expense on our repurchase agreements and the reclassification of accumulated OCI into interest expense related to previously de-designated interest rate swaps. Upon our election to discontinue hedge accounting under GAAP as of September 30, 2011, the net deferred loss related to our de-designated interest rate swaps remained in accumulated OCI and is being reclassified from accumulated OCI into interest expense on a straight-line basis over the remaining term of each interest rate swap.

Our "adjusted net interest expense," also referred to as our "cost of funds" when stated as a percentage of our outstanding repurchase agreements and other debt balance, includes periodic interest costs on our interest rate swaps reported in gain (loss) on derivatives and other securities, net in our consolidated statements of comprehensive income. Our cost of funds does not include swap termination fees, forward starting swaps and costs associated with our other supplemental hedges, such as swaptions and U.S. Treasury positions. Our cost of funds also does not include the implied financing cost/benefit of our net TBA dollar roll position, but does however include interest rate swap hedge costs related to our TBA dollar roll funded assets. Consequently, our cost of funds measured as a percentage of our outstanding repurchase agreement and other debt is higher than if we allocated a portion of our swap hedge costs to our TBA dollar roll funded assets.

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 months ended March 31, 2015 and 2014 (dollars in millions):



	Three Months Ended March 31,
	2015				2014
Adjusted Net Interest Expense and Cost of Funds	Amount		% ¹		Amount		% ¹
Interest expense:
Repurchase agreement and other debt interest expense	$	57	0.43	%	$	65	0.46	%
Periodic interest costs of interest rate swaps previously designated as hedges under GAAP, net	29		0.22	%	43		0.30	%
Total interest expense	86		0.65	%	108		0.76	%
Other periodic interest costs of interest rate swaps, net	84		0.63	%	83		0.59	%
Total adjusted net interest expense and cost of funds	$	170	1.28	%	$	191	1.35	%

_______________________


1.	Percent of our average repurchase agreements and other debt outstanding for the period annualized.

The principal elements impacting our adjusted net interest expense are the average repurchase agreements and interest rate swaps in effect, or "current pay" interest rate swaps, outstanding during the period as well as our cost of funds. The following is a summary of the estimated impact of these elements on changes in our adjusted net interest expense for the three months ended March 31, 2015 and 2014 (in millions):



Impact of Changes in the Principal Elements of Adjusted Net Interest Expense
Three Months Ended March 31, 2015 vs. March 31, 2014
				Due to Change in Average
	Decrease			Repo / Swap Balance			Repo / Swap Rate
Repurchase agreements and other debt expense	$	(8	)	$	(4	)	$	(4	)
Periodic interest rate swap costs ¹	(13		)	(14		)	1
Total change in adjusted net interest expense	$	(21	)	$	(18	)	$	(3	)

_______________________


1.	Includes amounts recognized in interest expense and in gain (loss) on derivatives and other securities, net in our consolidated statements of comprehensive income. The change due to interest rate reflects the net impact of the change in the weighted average fixed pay and variable receive rates.

The decline in our adjusted net interest expense was primarily a function of maintaining a smaller portfolio of current pay interest rate swaps (i.e., excluding forward starting swaps) during the three months ended March 31, 2015, in both absolute terms and relative to our average repurchase agreements and other debt outstanding during the period, compared to the prior year period. The table below presents a summary of our average repurchase agreement and other debt outstanding and our average current pay interest rates swaps in effect for the three months ended March 31, 2015 and 2014 (dollars in millions):



	Three Months Ended March 31,
Average Ratio of Current Pay Interest Rate Swaps Outstanding to Repo and Other Debt ¹	2015			2014
Average repurchase agreements and other debt	$	53,963		$	57,544
Average notional amount of current pay interest rate swaps	$	32,924		$	37,201
Average ratio of current pay interest rate swaps to repurchase agreements and other debt outstanding	61		%	65		%

Weighted average pay rate on current pay interest rate swaps	1.62		%	1.58		%
Weighted average receive rate on current pay interest rate swaps	0.23		%	0.21		%
Weighted average net pay rate on current pay interest rate swaps	1.39		%	1.37		%

_______________________


1.	Excludes forward starting swaps not in effect during the periods presented.

Our average interest rate swaps outstanding in the table above exclude our forward starting swaps not in effect during the periods presented. Forward starting interest rate swaps do not impact our adjusted net interest expense and cost of funds until they commence accruing net interest settlements on their forward start dates. We enter into forward starting interest rate swaps based on a variety of factors, including our Manager's view of the forward yield curve and the timing of potential changes in short-term interest rates, time to deploy new capital, amount and timing of expirations of our existing interest swap portfolio, current and anticipated swap spreads and our desire to mitigate our exposure to specific sectors of the yield curve.

Our average ratio of interest rate swaps outstanding, inclusive of forward starting swaps, to our average repurchase agreement, other debt and net TBA position (at cost) was 75% and 69% for the three months ended March 31, 2015 and 2014, respectively.



	Three Months Ended March 31,
Average Ratio of all Interest Rate Swaps Outstanding to Repo, Other Debt and Net TBA Position	2015			2014
Average repurchase agreements and other debt	$	53,963		$	57,544
Average net TBA portfolio - at cost	6,957			4,534
Total average repurchase agreement, other debt and net TBA position	$	60,920		$	62,078
Average notional amount of interest rate swaps (inclusive of forward starting swaps)	$	45,880		$	42,716
Average ratio of interest rate swaps to repurchase agreements, other debt and net TBA position outstanding	75		%	69		%

Net Spread and Dollar Roll Income

The table below presents a reconciliation of our net interest income (the most comparable GAAP financial measure) to our net spread and dollar roll income and to our net spread and dollar roll income, excluding estimated "catch-up" premium amortization cost (non-GAAP financial measures) for the three months ended March 31, 2015 and 2014 (dollars in millions):



	Three Months Ended March 31,
	2015			2014
Net interest income	$	297		$	291
Other periodic interest costs of interest rate swaps, net ¹	(84		)	(83		)
Dividend from REIT equity securities	2			10
TBA dollar roll income ¹	57			48
Adjusted net interest income	272			266
Operating expenses	36			35
Net spread and dollar roll income	236			231
Dividend on preferred stock	7			3
Net spread and dollar roll income available to common stockholders	229			228
Estimated "catch-up" premium amortization cost due to change in CPR forecast	19			25
Net spread and dollar roll income, excluding "catch-up" premium amortization, available to common stockholders	$	248		$	253

Weighted average number of common shares outstanding - basic and diluted	352.8			354.8
Net spread and dollar roll income per common share - basic and diluted	$	0.65		$	0.64
Net spread and dollar roll income, excluding "catch-up" premium amortization, per common share - basic and diluted	$	0.70		$	0.71

_______________________


1.	Reported in gain (loss) on derivatives and other securities, net in our consolidated statements of comprehensive income

Net spread and dollar roll income, excluding "catch-up" premium amortization cost, for the three months ended March 31, 2015 was largely unchanged at $0.70 per common share, compared to $0.71 per common share for the three months ended March 31, 2014, despite a decline in our average "at risk" leverage. Our smaller investment portfolio was largely offset by the combination of favorable financing in the TBA dollar roll market and a moderate shift from repo funded assets towards dollar roll funded assets and lower swap costs. Our average net interest rate spread and dollar roll income (i.e., the difference between the average yield on our assets and our average cost of funds), excluding catch-up premium amortization cost, was approximately 1.64% for the three months ended March 31, 2015, compared to 1.59% for the three months ended March 31, 2014. Including catch-up premium amortization cost, our net interest rate spread and dollar roll income was 1.53% for the three months ended March 31, 2015, compared to 1.43% for the three months ended March 31, 2014.

Gain (Loss) on Sale of Agency Securities, Net

The following table is a summary of our net gain (loss) on sale of agency MBS for the three months ended March 31, 2015 and 2014 (in millions):



	Three Months Ended March 31,
	2015			2014
Agency MBS sold, at cost	$	(7,732	)	$	(9,711	)
Proceeds from agency MBS sold ¹	7,768			9,692
Net gain (loss) on sale of agency MBS	$	36		$	(19	)

Gross gain on sale of agency MBS	$	57		$	42
Gross loss on sale of agency MBS	(21		)	(61		)
Net gain (loss) on sale of agency MBS	$	36		$	(19	)

_______________________


1.	Proceeds include cash received during the period, plus receivable for agency MBS sold during the period as of period end.

Asset sales were primarily a function of shifting our portfolio to TBA dollar roll funded assets, reducing leverage and repositioning our investment portfolio.

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 months ended March 31, 2015 and 2014 (in millions):



	Three Months Ended March 31,
	2015			2014
Periodic interest costs of interest rate swaps, net ¹	$	(84	)	$	(83	)
Realized gain (loss) on derivative instruments and other securities, net:
TBA securities - dollar roll income, net	57			48
TBA securities - mark-to-market net gain	289			31
Payer swaptions	(15		)	(81		)
Receiver swaptions	13			—
U.S. Treasury securities - long position	36			17
U.S. Treasury securities - short position	(47		)	(11		)
U.S. Treasury futures - short position	(11		)	(3		)
Interest rate swap termination fees	(162		)	33
REIT equity securities	2			19
Other	—			(2		)
Total realized gain on derivative instruments and other securities, net	162			51
Unrealized gain (loss) on derivative instruments and other securities, net: ²
TBA securities - mark-to-market net loss	(112		)	(19		)
Interest rate swaps	(500		)	(330		)
Payer swaptions	(2		)	(24		)
Receiver swaptions	4			—
Interest and principal-only strips	11			12
U.S. Treasury securities - long position	16			55
U.S. Treasury securities - short position	(35		)	(34		)
U.S. Treasury futures - short position	(9		)	(33		)
Debt of consolidated VIEs	—			(3		)
REIT equity securities	—			30
Total unrealized loss on derivative instruments and other securities, net	(627		)	(346		)
Total loss on derivative instruments and other securities, net	$	(549	)	$	(378	)

_______________________


1.	Please refer to Interest Expense and Cost of Funds discussion above for additional information regarding other periodic interest costs of interest rate swaps, net.


2.	Unrealized gain (loss) from derivative instruments and other securities, net includes reversals of prior period amounts for settled, terminated or expired derivative instruments and other securities.

For further details regarding our use of derivative instruments and related activity refer to Notes 3 and 6 of our consolidated financial statements in this Form 10-Q.

Management Fees and General and Administrative Expenses

We pay 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, adjusted to exclude the effect of any unrealized gains or losses included in either retained earnings or accumulated OCI, each as computed in accordance with GAAP. There is no incentive compensation payable to our Manager pursuant to the management agreement. We incurred management fees of $30 million and $29 million for the three months ended March 31, 2015 and 2014, respectively.

General and administrative expenses were $6 million for each of the three months ended March 31, 2015 and 2014. Our general and administrative expenses primarily consisted of prime broker fees, information technology costs, accounting fees, legal fees, Board of Director fees, insurance expense and general overhead expense.

Our total operating expense as a percentage of our average stockholders' equity was 1.55% and 1.58% for the three months ended March 31, 2015 and 2014, respectively.

Dividends and Income Taxes

For the three months ended March 31, 2015, we had estimated taxable income available to common stockholders of $166 million (or $0.47 per common share), largely unchanged from $167 million (or $0.47 per common share) for the prior year period.

As a REIT, we are required to distribute annually 90% of our ordinary taxable income to maintain our status as a REIT and all of our taxable income to avoid federal and state corporate income taxes. We can treat dividends declared by September 15 and paid by December 31 as having been a distribution of our taxable income for our prior tax year ("spill-back provision"). 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 associated with interest rate swaps and other derivatives and 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 net premiums paid 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 months ended March 31, 2015 and 2014 (dollars in millions):



	Three Months Ended March 31,
	2015			2014
Net loss	$	(252	)	$	(141	)
Estimated book to tax differences:
Premium amortization, net	26			31
Realized (gains) losses, net	(113		)	36
Capital loss carryforward	(115		)	(102		)
Unrealized losses, net	627			346
Total book to tax differences	425			311
Estimated REIT taxable income	173			170
Dividend on preferred stock	7			3
Estimated REIT taxable income available to common stockholders	$	166		$	167
Weighted average number of common shares outstanding - basic and diluted	352.8			354.8
Estimated REIT taxable income per common share - basic and diluted	$	0.47		$	0.47

Beginning cumulative non-deductible capital losses	$	763		$	1,785
Utilization of capital loss carryforward	(115		)	(102		)
Ending cumulative non-deductible capital losses	$	648		$	1,683
Ending cumulative non-deductible capital losses per common share	$	1.84		$	4.77

Our estimated taxable income for the three months ended March 31, 2015 and 2014 excludes $115 million and $102 million, respectively, of estimated net capital gains, which were applied against our prior year net capital loss carryforward. As of March 31, 2015, we had $648 million (or $1.84 per common share) of remaining net capital loss carryforwards, which can be carried forward and applied against future net capital gains through fiscal year 2018.

The following table summarizes dividends declared on our Series A Preferred Stock, depositary shares underlying our Series B Preferred Stock and common stock during the three months ended March 31, 2015 and 2014:



	Dividends Declared per Share
Quarter Ended	Series A Preferred Stock		Series B Preferred Stock (Per Depositary Share)		Common Stock
March 31, 2015	$	0.50000	$	0.484375	$	0.66
March 31, 2014	0.50000		—		0.65

The final tax characterization of our fiscal year 2015 dividends will be determined and reported to stockholders on their annual Form 1099-DIV statement after the end of the year.

Other Comprehensive Income

The following table summarizes the components of our other comprehensive income for the three months ended March 31, 2015 and 2014 (in millions):



	Three Months Ended March 31,
	2015			2014
Unrealized gain on available-for-sale securities, net:
Unrealized gain, net	$	427		$	502
Reversal of prior period unrealized (gain) loss, net, upon realization	(36		)	19
Unrealized gain on available-for-sale securities, net:	391			521
Unrealized gain on interest rate swaps designated as cash flow hedges:
Reversal of prior period unrealized loss on interest rate swaps, net, upon reclassification to interest expense	29			43
Total other comprehensive income	$	420		$	564

LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of funds are borrowings under master repurchase agreements, equity offerings, asset sales and monthly principal and interest payments on our investment portfolio. Because the level of our borrowings can be adjusted on a daily basis, the level of cash and cash equivalents carried on our balance sheet is significantly less important than the potential liquidity available under our borrowing arrangements. We currently believe that we have sufficient liquidity and capital resources available for 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. To qualify as a REIT, we must distribute annually at least 90% of our taxable income. To the extent that we annually distribute all of our taxable income in a timely manner, we will generally not be subject to federal and state income taxes. We currently expect to distribute all of our taxable income in a timely manner so that we are not subject to federal and state income taxes. This distribution requirement limits our ability to retain earnings and thereby replenish or increase capital from operations.

Debt Capital

Repurchase Agreements

As part of our investment strategy, we borrow against our investment portfolio pursuant to master repurchase agreements. We expect that our borrowings under such master repurchase agreements will generally have maturities ranging up to one year, but may have maturities up to five years or longer. Our leverage may vary periodically depending on market conditions and our Manager's assessment of risks and returns. We generally would expect our leverage to be within six to eleven times the amount of our stockholders' equity. However, under certain market conditions, we may operate at leverage levels outside of this range for extended periods of time.

As of March 31, 2015, we had $54.3 billion of repurchase agreements outstanding used to fund acquisitions of agency securities and we had an additional $3.8 billion of repurchase agreements outstanding used to fund temporary holdings of U.S. Treasury securities, which we exclude from our leverage measurements due to the highly liquid and temporary nature of these investments. Inclusive of our net TBA position, our "at risk" leverage ratio was 6.4x as of March 31, 2015, compared to 6.9x as of December 31, 2014, measured as the sum of our agency repurchase agreements, net TBA position (at cost), net receivable / payable for unsettled agency securities and debt of consolidated VIEs divided by the sum of our total stockholders' equity less the fair value of our investment in REIT equity securities as of period end. Excluding our net TBA position, our leverage ratio was 5.8x our stockholders' equity as of March 31, 2015, compared to 5.3x as of December 31, 2014.

As of March 31, 2015, our agency repurchase agreements had a weighted average cost of funds of 0.41% and a weighted average remaining days-to-maturity of 164 days, excluding amounts borrowed under U.S. Treasury repurchase agreements, compared 0.41% and 143 days, respectively, as of December 31, 2014.

To limit our exposure to counterparty credit risk, we diversify our funding across multiple counterparties and by counterparty region. As of March 31, 2015, we had master repurchase agreements with 34 financial institutions located throughout North America, Europe and Asia. As of March 31, 2015, less than 4% of our stockholders' equity was at risk with any one repo counterparty, with the top five repo counterparties representing approximately 15% of our stockholders' equity. The table below includes a summary of our repurchase agreement funding by number of repo counterparties and counterparty region as of March 31, 2015. For further details regarding our borrowings under repurchase agreements and other debt as of March 31, 2015, please refer to Note 5 to our consolidated financial statements in this Quarterly Report on Form 10-Q.



	March 31, 2015
Counter-Party Region	Number of Counter-Parties	Percent of Repurchase Agreement Funding
North America	18	65%
Asia	5	12%
Europe	11	23%
	34	100%

Amounts available to be borrowed under our repurchase agreements are dependent upon lender collateral requirements and the lender's 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. 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 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 three months ended March 31, 2015, haircuts on our pledged collateral remained stable and as of March 31, 2015, our weighted average haircut was less than 5% of the value of our collateral.

Under our repurchase agreements, we may be required to pledge additional assets to the repurchase agreement counterparties in the event the estimated fair value of the existing pledged collateral under such agreements declines and such 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 value of our agency securities securing our repurchase agreements and prepayments on the mortgages securing such agency 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 for the agency MBS securing our repurchase agreements are to be obtained from a generally recognized source agreed to by the parties. However, in certain circumstances under certain of our repurchase agreements our lenders have the sole discretion to determine the value of the agency MBS securing our repurchase agreements. 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 March 31, 2015, we had met all of our margin requirements and we had unrestricted cash and cash equivalents of $1.7 billion and unpledged securities of approximately $3.4 billion, including securities pledged to us, available to meet margin calls on our repurchase agreements and 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.

To help manage the adverse impact of interest rate changes on the value of our investment portfolio as well as our cash flows, we utilize an interest rate risk management strategy under which we use derivative financial instruments. In particular, we attempt to mitigate the risk of the cost of our variable rate liabilities increasing at a faster rate than the earnings of our long-term fixed rate assets during a period of rising interest rates. The principal derivative instruments that we use are interest rate swaps, supplemented with the use of interest rate swaptions, TBA securities, U.S. Treasury securities, U.S. Treasury futures contracts and other instruments. Please refer to Notes 3 and 6 to our consolidated financial statements in this Quarterly Report on Form 10-Q for further details regarding our use of derivative instruments.

Our derivative agreements typically require that we pledge/receive collateral on such agreements to/from our counterparties in a similar manner as we are required to under our repurchase agreements. Our counterparties, or the clearing agency in the case of centrally cleared interest rate swaps, typically have the sole discretion to determine the value of the derivative instruments and the value of the collateral securing such instruments. In the event of a margin call, we must generally provide additional collateral on the same business day.

Similar to repurchase agreements, our use of derivatives exposes us to counterparty credit risk relating to potential losses that could be recognized in the event that the counterparties to these instruments fail to perform their obligations under the contracts. We minimize this risk by limiting our counterparties to major financial institutions with acceptable credit ratings and by monitoring positions with individual counterparties.

Excluding centrally cleared interest rate swaps, as of March 31, 2015, our amount at risk with any counterparty related to our interest rate swap and swaption agreements was less than 1% of our stockholders' equity.

In the case of centrally cleared interest rate swap contracts, 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 exchange's initial and daily mark to market margin requirements and a clearinghouse guarantee fund 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 use of long (or short) TBA contracts. (See Notes 3 and 6 in the accompanying consolidated financial statements in this Quarterly Report on Form 10-Q). Inclusive of our net TBA position, as of March 31, 2015, our total "at risk" leverage was 6.4 times our stockholders' equity.

Under certain market conditions, it may be uneconomical for us to roll our TBA contracts into future months 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 March 31, 2015, we had a net long TBA position with a market value and a total contract price of $4.9 billion and $4.8 billion, respectively, and a total net carrying value of $79 million recognized in derivative assets/(liabilities), at fair value on our consolidated balance sheets in this Quarterly Report on Form 10-Q.

Our TBA dollar roll contracts are also subject to margin requirements governed by the Mortgage-Backed Securities Division ("MBSD") of the Fixed Income Clearing Corporation and by our prime brokerage agreements, 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 is subject to increase if the estimated fair value of our TBA contract or the estimated fair value of our pledged collateral declines. The MBSD has the sole discretion to determine the value of our TBA contracts and of the pledged collateral securing such contracts. In the event of a margin call, we must generally provide additional collateral on the same business day.

Settlement of our TBA obligations by taking delivery of 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 Membership

In April 2015, our wholly-owned captive insurance subsidiary, Old Georgetown Insurance Co., LLC ("AGNC Captive"), was approved as a member of the Federal Home Loan Bank ("FHLB") of Des Moines. The 12 regional FHLBs provide a variety of products and services to their members, including long-term and short-term secured loans, called "advances." FHLB members may use a variety of real estate related assets, including agency MBS, as collateral for such advances. Membership in the FHLB obligates AGNC Captive to purchase membership stock and activity-based stock in the FHLB, the latter dependent upon the aggregate amount of advances obtained from the FHLB.

FHLB advances collateralized by agency MBS typically require higher effective "haircuts" than those required under our current repurchase agreements as a result of the slightly higher haircuts implemented by the FHLB, coupled with the requirement to acquire activity-based stock in the FHLB concurrent with such borrowings. Consequently, we do not currently anticipate FHLB advances to serve as a primary source of funding for our investment portfolio. In addition, the FHLBs determine the fair value of the securities pledged as collateral and retain the right to adjust collateral haircuts during the term of secured borrowings.

In September 2014, the Federal Housing Financing Authority ("FHFA") issued a Notice of Proposed Rulemaking and Request for Comments Involving Proposed Changes to Regulations Concerning Federal Home Loan Bank Membership Criteria (the "Proposed Rule"). If enacted, the Proposed Rule, among other things, would immediately terminate the membership of captive insurance companies that became members of the FHLB system after publication of the Proposed Rule, which would include AGNC Captive. If AGNC Captive's membership in the FHLB were terminated, the FHLB would have up to five years to redeem the FHLB stock that AGNC Captive purchased and owns as the result of its membership and level of FHLB activity. In addition, if such membership were terminated, AGNC Captive could be required to immediately unwind any outstanding debt advances from the FHLB. It is unclear at this point whether the Proposed Rule will be enacted in its current form. The ultimate content of any rule enacted by FHFA with respect to captive insurance company membership in FHLBs, FHLB advance requirements or standards, or similar matters could have a material impact on AGNC Captive’s ability to procure funding through the FHLB, which could cause us to experience losses and may have a material adverse effect on our business to the extent of our reliance on FHLB advances.

Asset Sales and TBA Eligible Securities

We maintain a portfolio of highly liquid agency MBS securities. We may sell our agency MBS securities through the TBA market by delivering securities into TBA contracts for the sale of agency securities, subject to "good delivery" provisions promulgated by the Securities Industry and Financial Markets Association ("SIFMA"). We may alternatively sell agency MBS 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 (second to the U.S. Treasury market), maintaining a significant level of agency MBS 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 March 31, 2015, approximately 93% of our fixed rate agency MBS portfolio was eligible for TBA delivery.

Equity Capital

To the extent we raise additional equity capital through follow-on equity offerings, through our at-the-market offering program or under our dividend reinvestment and direct stock purchase plan, we may use cash proceeds from such transactions to purchase additional investment securities, to make scheduled payments of principal and interest on our repurchase agreements and for other general corporate purposes. There can be no assurance, however, that we will be able to raise additional equity capital at any particular time or on any particular terms.

Common Stock Repurchase Program

Off-Balance Sheet Arrangements

As of March 31, 2015, 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 facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Further, as of March 31, 2015, we had not guaranteed any obligations of unconsolidated entities or entered into any commitment or intent to provide funding to any such entities.

FORWARD-LOOKING STATEMENTS

This document contains "forward-looking statements" (within the meaning of the Private Securities Litigation Reform Act of 1995) that inherently involve risks and uncertainties. Our actual results and liquidity can differ materially from those anticipated in these forward-looking statements because of changes in the level and composition of our investments and other factors. These factors may include, but are not limited to, changes in general economic conditions, 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 costs and other general competitive factors.

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 risk, prepayment risk, spread risk, liquidity risk, extension risk and counterparty credit risk.

Interest Rate Risk

Interest rate risk is highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond our control.

Changes in the general level of interest rates can affect 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. Changes in the level of interest rates can also affect the rate of prepayments of our securities and the value of the agency securities that constitute our investment portfolio, which affects our net income and ability to realize gains from the sale of these assets and impacts our ability and the amount that we can borrow against these securities.

We may utilize a variety of financial instruments in order to limit the effects of changes in interest rates on our operations. The principal instruments that we use are interest rate swaps and swaptions. We also utilize TBA contracts as well as U.S. Treasury securities and U.S. Treasury futures contracts, primarily through short sales. We may also purchase or write put or call options on TBA securities and we may invest in other types of mortgage derivatives, such as interest and principal-only securities. Derivative instruments may expose us to certain risks, including the risk that losses on a hedge position will reduce 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.

Primary measures of an instrument's price sensitivity to interest rate fluctuations are its duration and convexity. The duration of our investment portfolio changes with interest rates and tends to increase when rates rise and decrease when 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 portfolio using both a third-party risk management system and market data. We review the duration estimates from the third-party model and may make adjustments based on our Manager's judgment. These adjustments are intended to, in our Manager's opinion, better reflect the unique characteristics and market trading conventions associated with certain types of securities.

The table below quantifies the estimated changes in net interest income (including periodic interest costs on our interest rate swaps) and the estimated changes in the fair value of our investment portfolio (including derivatives and other securities used for hedging purposes) and in our net asset value as of March 31, 2015 and December 31, 2014 should interest rates go up or down by 50 and 100 basis points, assuming instantaneous parallel shifts in the yield curve and including the impact of both duration and convexity.

All changes in income and value 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 March 31, 2015 and December 31, 2014. 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.

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 is likely in a period of high price volatility, actual results will likely differ materially from projections and could be larger or smaller than the estimates in the table below. 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 to the size and composition of our asset and hedge portfolio.



Interest Rate Sensitivity ¹
	Percentage Change in Projected
Change in Interest Rate	Net Interest Income ²	Portfolio Market Value ^3,4	Net Asset Value ^3,5
As of March 31, 2015
-100 Basis Points	-20.2%	-1.0%	-7.1%
-50 Basis Points	-5.7%	-0.1%	-1.0%
+50 Basis Points	+0.5%	-0.4%	-2.6%
+100 Basis Points	-1.2%	-1.0%	-7.6%

As of December 31, 2014
-100 Basis Points	-14.5%	-0.6%	-4.7%
-50 Basis Points	-3.3%	+0.1%	+0.5%
+50 Basis Points	+0.9%	-0.5%	-3.8%
+100 Basis Points	-0.4%	-1.2%	-9.6%

________________


1.	Interest rate sensitivity is derived from models that are dependent on inputs and assumptions provided by third parties as well as by our Manager, assumes there are no changes in mortgage spreads and assumes a static portfolio. Actual results could differ materially from these estimates.

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 current pay interest rate swaps, but excludes costs associated with our other supplemental hedges, such as swaptions and U.S. Treasury securities. Also excludes costs associated with our TBA position and TBA dollar roll income/loss. Base case scenario assumes interest rates and forecasted CPR of 10% and 9% as of March 31, 2015 and December 31, 2014, respectively. As of March 31, 2015, rate shock scenarios assume a forecasted CPR of 16%, 12%, 8% and 8% for the -100, -50, +50 and +100 basis points scenarios, respectively. As of December 31, 2014, rate shock scenarios assume a forecasted CPR of 14%, 11%, 8% and 7% for such scenarios, respectively. Estimated dollar change in net interest income does not include the one time impact of retroactive "catch-up" premium amortization benefit/cost due to a decrease/increase in the forecasted CPR and does not include dividend income from investments in other REITs. Down rate scenarios assume a floor of 0% for anticipated interest rates.


3.	Includes the effect of derivatives and other securities used for hedging purposes.


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.


5.	Estimated dollar change in portfolio value expressed as a percent of stockholders' equity, net of the Series A and Series B Preferred Stock liquidation preference, as of such date.

Prepayment Risk

Because residential borrowers have the option to prepay their mortgage loans at par at any time, we face the risk that we will experience a return of principal on our investments faster than anticipated. Various factors affect the rate at which mortgage prepayments occur, including changes in the level of and directional trends in housing prices, interest rates, general economic conditions, loan age and size, loan-to-value ratio, the location 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 the loans underlying our securities become seriously delinquent or are modified and the timing of GSE repurchases of such loans from our securities can materially impact the rate of prepayments. Generally, prepayments on agency MBS increase during periods of falling mortgage interest rates and decrease during periods of rising mortgage interest rates. However, this may not always be the case.

We may reinvest principal repayments at a yield that is lower or higher than the yield on the repaid investment, thus affecting our net interest income by altering the average yield on our assets. We also amortize or accrete premiums and discounts associated with the purchase of agency MBS into interest income over the 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 agency securities, market consensus and current market conditions. If the actual prepayment experienced differs from our estimate of prepayments, we will be required to make an adjustment to the amortization or accretion of premiums and discounts that would have an impact on future income.

Spread Risk

When the market spread widens between the yield on our agency securities and benchmark interest rates, our net book value could decline if the value of our agency securities fall by more than the offsetting fair value increases on our 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 Fed, 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 will not protect our net book value against spread risk.

The table below quantifies the estimated changes in the fair value of our investment portfolio (including derivatives and other securities used for hedging purposes) and in our net asset value as of March 31, 2015 and December 31, 2014 should spreads widen or tighten by 10 and 25 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 4.6 years and 5.3 years based on interest rates and MBS prices as of March 31, 2015 and December 31, 2014, respectively. However, our portfolio's sensitivity of 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.



Spread Sensitivity of Agency MBS Portfolio ¹
	Percentage Change in Projected
Change in MBS Spread	Portfolio Market Value ^2,3	Net Asset Value ^2,4
As of March 31, 2015
-25 Basis Points	+1.3%	+9.3%
-10 Basis Points	+0.5%	+3.7%
+10 Basis Points	-0.5%	-3.7%
+25 Basis Points	-1.3%	-9.3%

As of December 31, 2014
-25 Basis Points	+1.3%	+9.8%
-10 Basis Points	+0.5%	+3.9%
+10 Basis Points	-0.5%	-3.9%
+25 Basis Points	-1.3%	-9.8%

________________


1.	Spread sensitivity is derived from models that are dependent on inputs and assumptions provided by third parties as well as by our Manager, assumes there are no changes in interest rates 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.


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.


4.	Estimated dollar change in portfolio value expressed as a percent of stockholders' equity, net of the Series A and Series B Preferred Stock liquidation preference, as of such date.

Liquidity Risk

The primary liquidity risk for us arises from financing long-term assets with shorter-term borrowings through repurchase agreements. Our assets that are pledged to secure repurchase agreements are agency securities, U.S. Treasury securities and cash. As of March 31, 2015, we had unrestricted cash and cash equivalents of $1.7 billion and unpledged securities of approximately $3.4 billion, including securities pledged to us, available to meet margin calls on our repurchase agreements and derivative contracts and for other corporate purposes. However, should the value of our collateral or the value of our derivative instruments suddenly decrease, margin calls relating to our repurchase and derivative agreements could increase, causing an adverse change in our liquidity position. Further, there is no assurance that we will always be able to renew (or roll) our repurchase agreements. In addition, our counterparties have the option to increase our haircuts (margin requirements) on the assets we pledge, against repurchase agreements thereby reducing the amount that can be borrowed against an asset even if they agree to renew or roll the repurchase agreement. Significantly higher haircuts can reduce our ability to leverage our portfolio or even force us to sell assets, especially if correlated with asset price declines or faster prepayment rates on our assets.

In addition, we may utilize TBA dollar roll transactions as a means of investing in and financing agency mortgage-backed securities. 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 Manager's 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 repurchase agreements.

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 agency 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.

Counterparty Credit Risk

We are exposed to counterparty credit risk relating to potential losses that could be recognized in the event that the counterparties to our repurchase agreements and derivative contracts fail to perform their obligations under such agreements. The amount of assets we pledge as collateral in accordance with our agreements varies over time based on the market value and notional amount of such assets as well as the value of our derivative contracts. In the event of a default by a counterparty, we may not receive payments provided for under the terms of our agreements and may have difficulty obtaining our assets pledged as collateral under such agreements. Our credit risk related to certain derivative transactions is largely mitigated through daily adjustments to collateral pledged based on changes in market value and we limit our counterparties to major financial institutions with acceptable credit ratings. However, there is no guarantee our efforts to manage counterparty credit risk will be successful and we could suffer significant losses if unsuccessful.

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 March 31, 2015. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective.

Changes in Internal Controls 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

From time to time, we may be involved in various claims and legal actions arising in the ordinary course of business. 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.

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, 2014.

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

None.

Item 6. Exhibits and Financial Statement Schedules

(a) Exhibit Index



Exhibit No.		Description

*3.1		American Capital Agency Corp. Amended and Restated Certificate of Incorporation, as amended, incorporated herein by reference to Exhibit 3.1 of Form 10-Q for the quarter ended March 31, 2012 (File No. 001-34057), filed May 9, 2012.

*3.2		American Capital Agency Corp. Second Amended and Restated Bylaws, as amended, incorporated herein by reference to Exhibit 3.2 of Form 10-K for the year ended December 31, 2011 (File No. 001-34057), filed February 23, 2012.

*3.3		Certificate of Designations of 8.000% Series A Cumulative Redeemable Preferred Stock, incorporated herein by reference to Exhibit 3.1 of Form 8-K (File No 001-34057), filed April 3, 2012.

*3.4		Certificate of Designations of 7.750% Series B Cumulative Redeemable Preferred Stock, incorporated herein by reference to Exhibit 3.3 to Form 8-A (File No. 001-34057), filed May 7, 2014.

*4.1		Instruments defining the rights of holders of securities: See Article IV of our Amended and Restated Certificate of Incorporation, as amended, incorporated herein by reference to Exhibit 3.1 of Form 10-Q for the quarter ended March 31, 2012 (File No. 001-34057), filed May 9, 2012.

*4.2		Instruments defining the rights of holders of securities: See Article VI of our Second Amended and Restated Bylaws, as amended, incorporated herein by reference to Exhibit 3.2 of Form 10-K for the year ended December 31, 2011 (File No. 001-34057), filed February 23, 2012.

*4.3		Form of Certificate for Common Stock, incorporated herein by reference to Exhibit 4.1 to Amendment No. 4 to the Registration Statement on Form S-11 (Registration No. 333-149167), filed May 9, 2008.

*4.4		Specimen 8.000% Series A Cumulative Redeemable Preferred Stock Certificate, incorporated herein by reference to Exhibit 4.1 of Form 8-K (File No. 001-34057), filed April 3, 2012.

*4.5		Specimen 7.750% Series B Cumulative Redeemable Preferred Stock Certificate, incorporated herein by reference to Exhibit 4.1 to Form 8-A (File No. 001-34057), filed May 7, 2014.

*4.6		Deposit Agreement, dated May 8, 2014, among American Capital Agency Corp., Computershare Inc. and Computershare Trust Company, N.A., jointly as depositary, incorporated herein by reference to Exhibit 4.2 to Form 8-K (File No. 001-34067), filed May 8, 2014.

*4.7		Form of Depositary Receipt, incorporated herein by reference to Exhibit 4.3 to Form 8-K (File No. 001-34067), filed May 8, 2014.

31.1		Certification of CEO Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.

31.2		Certification of CFO Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.

32		Certification of CEO and CFO Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS**		XBRL Instance 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


**	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


(b)	Exhibits


	See the exhibits filed herewith.


(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.



		AMERICAN CAPITAL AGENCY CORP.

		By:	/s/ MALON WILKUS
			Malon Wilkus Chair of the Board of Directors and Chief Executive Officer
Date:	May 6, 2015