Business Combination - Acquisition of AGNC Mortgage Management, LLC (Notes)

9 Months Ended

Sep. 30, 2016

Business Combinations [Abstract]

Business Combination Disclosure [Text Block]

Business Combination - Acquisition of AGNC Mortgage Management, LLC

On July 1, 2016, we completed our acquisition of all of the outstanding membership interests of AMM from ACAM, a wholly owned portfolio company of ACAS, for a purchase price of $562 million in cash. Following the closing of the acquisition, we became internally managed and are no longer affiliated with ACAS. The results of AMM's operations have been included in our consolidated financial statements since that date. We believe internalizing our management function will result in lower operating costs as well as provide management fee income from MTGE.

Our acquisition of AMM is accounted for as a business combination using the acquisition method of accounting, whereby the total purchase price has been allocated to identifiable assets acquired and liabilities assumed based on their respective fair values as of the acquisition date. Goodwill is calculated as the excess of the consideration transferred over the net assets acquired that meet the criteria for separate recognition and represents the estimated future economic benefits arising from these and other assets acquired that could not be individually identified or do not qualify for recognition as a separate asset. A large majority of the acquisition price has been recognized as goodwill, which is attributable to our management agreement that does not qualify for separate recognition. Goodwill is expected to be deductible for income tax purposes over a 15 year amortization period. We did not recognize a gain or loss associated with the effective settlement of our pre-existing management agreement with our Manager on the acquisition date based on comparable agreements available in the market.

The fair values of intangible assets acquired were determined using a market-based measurement under the income approach based on primarily unobservable market data that cannot be corroborated and, thus, represent a level 3 measurement (see Note 8). The primary market-based inputs include forecasted revenues and expenses, discount rate and corporate income tax rate.

The following table summarizes the fair values of assets acquired and liabilities assumed at the acquisition date (in millions).

	July 1, 2016(Acquisition Date)
Cash	$	7
MTGE management agreement	29
Other intangible asset	1
Total identifiable assets	37
Accounts payable and other liabilities	(1		)
Identifiable net assets acquired	36
Goodwill	526
Net assets acquired	$	562

We recognized $9 million of transaction related costs that were expensed during the nine months ended September 30, 2016. These costs are included in other operating expenses in our consolidated statements of comprehensive income.

AMM's revenue and net income (loss) included in our consolidated statements of comprehensive income from the acquisition date to September 30, 2016 are $4 million and $(6) million, respectively, after elimination of AGNC's management fee and other intercompany transactions. The following table represents our pro forma consolidated revenue and net loss as if AMM had been included in our consolidated results for the nine months ended September 30, 2015 and for the entire nine months ended September 30, 2016 (in millions). Revenue includes interest income and management fee income from MTGE. Amounts have been calculated after applying our accounting policies and adjusting AMM's results to reflect amortization expense that would have been charged assuming the fair value adjustments to intangible assets had been applied on January 1, 2015. All AGNC management fees and all other actual and pro forma intercompany transactions have been eliminated. These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of what operating results would have been had the AMM acquisition occurred on January 1, 2015 and may not be indicative of future operating results.

	Pro Forma Consolidated Revenue and Net Loss
	Nine Months Ended September 30,
	2016			2015
Revenue	$	940		$	1,105
Net loss	$	(358	)	$	(307	)