AGNC Investment Corp. Announces Second Quarter 2023 Financial Results

BETHESDA, Md., July 24, 2023 /PRNewswire/ -- AGNC Investment Corp. ("AGNC" or the "Company") (Nasdaq: AGNC) today announced financial results for the quarter ended June 30, 2023.

SECOND QUARTER 2023 FINANCIAL HIGHLIGHTS

• $0.32 comprehensive income per common share, comprised of:
  • $0.43 net income per common share
  • $(0.11) other comprehensive loss ("OCI") per common share on investments marked-to-market through OCI
• $0.67 net spread and dollar roll income per common share, excluding estimated "catch-up" premium amortization benefit ¹
  • Includes $0.01 per common share of dollar roll income associated with the Company's $10.0 billion average net long position in Agency mortgage-backed securities ("MBS") in the "to-be-announced" ("TBA") market
  • Excludes $0.02 per common share of estimated "catch-up" premium amortization benefit due to change in projected constant prepayment rate ("CPR") estimates
• $9.39 tangible net book value per common share as of June 30, 2023
  • Decreased $(0.02) per common share, or -0.2%, from $9.41 per common share as of March 31, 2023
• $0.36 dividends declared per common share for the second quarter
• 3.6% economic return on tangible common equity for the quarter
  • Comprised of $0.36 dividends per common share and $(0.02) decrease in tangible net book value per common share

OTHER SECOND QUARTER HIGHLIGHTS

• $58.0 billion investment portfolio as of June 30, 2023, comprised of:
  • $46.7 billion Agency MBS
  • $10.2 billion net TBA mortgage position
  • $1.1 billion credit risk transfer ("CRT") and non-Agency securities
• 7.2x tangible net book value "at risk" leverage as of June 30, 2023
  • 7.2x average tangible net book value "at risk" leverage for the quarter
• Cash and unencumbered Agency MBS totaled $4.3 billion as of June 30, 2023
  • Excludes unencumbered CRT and non-Agency securities
  • Represents 58% of the Company's tangible equity as of June 30, 2023
• 9.8% average projected portfolio life CPR as of June 30, 2023
  • 6.6% actual portfolio CPR for the quarter
• 3.26% annualized net interest spread and TBA dollar roll income for the quarter, excluding estimated "catch-up" premium amortization benefit
  • Excludes 7 bps of "catch-up" premium amortization benefit due to change in projected CPR estimates
• Capital markets activity
  • Issued 10.7 million common shares through At-the-Market ("ATM") Offerings at an average offering price of $9.86 per share, net of offering costs, or $106 million

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MANAGEMENT REMARKS
"Market conditions in the second quarter provided further support of our favorable investment outlook for Agency MBS," said Peter Federico, the Company's President and Chief Executive Officer. "Over the last two years, the U.S. Treasury and Agency MBS markets have undergone a dramatic repricing as the Federal Reserve pivoted from an ultra-accommodative monetary policy in response to the pandemic's impact on the U.S. economy to its restrictive stance today to combat elevated inflation. We believe that this transition is largely complete and that we are at the forefront of one of the most constructive investment environments in our 15 year history, driven by historically attractive asset valuations, strong funding markets, and gradually improving hedging conditions as the Fed's tightening campaign concludes.

"AGNC provides investors the opportunity to access this fundamental fixed income asset class in a highly efficient way and to a portfolio that is fully marked-to-market. At current valuation levels, we believe our portfolio can generate robust risk-adjusted returns for stockholders on a go forward basis either through strong earnings if mortgage spreads remain at these levels or a combination of earnings and net book value appreciation to the extent that mortgage spreads tighten from these historically wide levels. Agency MBS also provide investors a compelling alternative to U.S Treasuries and investment grade corporate debt. While short term deviations from this promising path are possible, we remain confident in AGNC's long term prospects and are excited about the next phase of this investment cycle."

"In the second quarter, AGNC generated a 3.6% economic return on tangible common equity, comprised of $0.36 of dividends per common share and a modest $(0.02) decline in tangible net book value per common share," said Bernice Bell, the Company's Executive Vice President and Chief Financial Officer. "AGNC's net spread and dollar roll income, excluding 'catch-up' premium amortization, remained strong at $0.67 per common share. Finally, in light of continuing rate volatility, AGNC maintained a conservative leverage level, disciplined risk management positioning, and ample liquidity throughout the quarter."

TANGIBLE NET BOOK VALUE PER COMMON SHARE
As of June 30, 2023, the Company's tangible net book value per common share was $9.39 per share, a decrease of -0.2% for the quarter compared to $9.41 per share as of March 31, 2023. The Company's tangible net book value per common share excludes $526 million, or $0.87 and $0.89 per share, of goodwill as of June 30, 2023 and March 31, 2023, respectively.

INVESTMENT PORTFOLIO
As of June 30, 2023, the Company's investment portfolio totaled $58.0 billion, comprised of:

• $56.9 billion of Agency MBS and TBA securities, including:
  • $56.5 billion of fixed-rate securities, comprised of:
    • $43.6 billion 30-year MBS,
    • $9.8 billion 30-year TBA securities,
    • $1.4 billion 15-year MBS,
    • $0.4 billion 15-year TBA securities, and
    • $1.3 billion 20-year MBS; and
  • $0.5 billion of collateralized mortgage obligations ("CMOs"), adjustable-rate and other Agency securities; and
• $1.1 billion of CRT and non-Agency securities.

As of June 30, 2023, 30-year and 15-year fixed-rate Agency MBS and TBA securities represented 92% and 3%, respectively, of the Company's investment portfolio, unchanged from March 31, 2023.

As of June 30, 2023, the Company's fixed-rate Agency MBS and TBA securities' weighted average coupon was 4.42%, compared to 4.24% as of March 31, 2023, comprised of the following weighted average coupons:

• 4.50% for 30-year fixed-rate securities;
• 3.59% for 15-year fixed rate securities; and
• 2.50% for 20-year fixed-rate securities.

The Company accounts for TBA securities and other forward settling securities as derivative instruments and recognizes TBA dollar roll income in other gain (loss), net on the Company's financial statements. As of June 30, 2023, such positions had a fair value of $10.2 billion and a GAAP net carrying value of $(92) million reported in derivative assets/(liabilities) on the Company's balance sheet, compared to $10.4 billion and $10 million, respectively, as of March 31, 2023.

CONSTANT PREPAYMENT RATES
The Company's weighted average projected CPR for the remaining life of its Agency securities held as of June 30, 2023 decreased to 9.8% from 10.0% as of March 31, 2023. The Company's weighted average CPR for the second quarter was 6.6%, compared to 5.2% for the prior quarter.

The weighted average cost basis of the Company's investment portfolio was 102.8% of par value as of June 30, 2023. The Company's investment portfolio generated net premium amortization cost of $(45) million, or $(0.08) per common share, for the second quarter, which includes a "catch-up" premium amortization benefit of $11 million, or $0.02 per common share, due to a decrease in the Company's CPR projections for certain securities acquired prior to the second quarter. This compares to net premium amortization cost for the prior quarter of $(120) million, or $(0.21) per common share, including a "catch-up" premium amortization cost of $(69) million, or $(0.12) per common share.

ASSET YIELDS, COST OF FUNDS AND NET INTEREST RATE SPREAD
The Company's average asset yield on its investment portfolio, excluding the TBA position, was 3.72% for the second quarter, compared to 2.93% for the prior quarter. Excluding "catch-up" premium amortization, the Company's average asset yield was 3.63% for the second quarter, compared to 3.51% for the prior quarter. Including the TBA position and excluding "catch-up" premium amortization, the Company's average asset yield for the second quarter was 3.89%, compared to 3.90% for the prior quarter.

For the second quarter, the weighted average interest rate on the Company's repurchase agreements was 5.01%, compared to 4.51% for the prior quarter. For the second quarter, the Company's TBA position had an implied financing cost of 4.89%, compared to 4.53% for the prior quarter. Inclusive of interest rate swaps, the Company's combined weighted average cost of funds for the second quarter was 0.63%, compared to 1.02% for the prior quarter.

The Company's annualized net interest spread, including the TBA position and interest rate swaps and excluding "catch-up" premium amortization, for the second quarter was 3.26%, compared to 2.88% for the prior quarter.

NET SPREAD AND DOLLAR ROLL INCOME
The Company recognized net spread and dollar roll income (a non-GAAP financial measure) for the second quarter of $0.67 per common share, excluding $0.02 per common share of "catch-up" premium amortization benefit, compared to $0.70 per common share for the prior quarter, excluding $(0.12) per common share of "catch-up" premium amortization cost.

A reconciliation of the Company's total comprehensive income (loss) to net spread and dollar roll income, excluding "catch-up" premium amortization, and additional information regarding the Company's use of non-GAAP measures are included later in this release.

LEVERAGE
As of June 30, 2023, $40.9 billion of repurchase agreements, $10.3 billion of net TBA dollar roll positions (at cost) and $0.1 billion of other debt were used to fund the Company's investment portfolio. The remainder, or approximately $1.2 billion, of the Company's repurchase agreements was used to fund purchases of U.S. Treasury securities ("U.S. Treasury repo") and is not included in the Company's leverage measurements. Inclusive of its TBA position and net payable/(receivable) for unsettled investment securities, the Company's tangible net book value "at risk" leverage ratio was 7.2x as of June 30, 2023, unchanged from March 31, 2023. The Company's average "at risk" leverage for the second quarter was 7.2x tangible net book value, compared to 7.7x for the prior quarter.

As of June 30, 2023, the Company's repurchase agreements used to fund its investment portfolio ("Agency repo") had a weighted average interest rate of 5.23%, compared to 4.81% as of March 31, 2023, and a weighted average remaining maturity of 15 days, compared to 18 days as of March 31, 2023. As of June 30, 2023, $19.7 billion, or 48%, of the Company's Agency repo agreements were funded through the Company's captive broker-dealer subsidiary, Bethesda Securities, LLC.

As of June 30, 2023, the Company's Agency repo agreements had remaining maturities of:

• $40.7 billion of three months or less and
• $0.2 billion from six to twelve months.

HEDGING ACTIVITIES
As of June 30, 2023, interest rate swaps, swaptions, U.S. Treasury positions and other interest rate hedges equaled 119% of the Company's outstanding balance of Agency repo agreements, TBA position and other debt, compared to 114% as of March 31, 2023.

As of June 30, 2023, the Company's net interest rate swap position totaled $47.7 billion in notional amount, compared to $48.9 billion as of March 31, 2023. As of June 30, 2023, the Company's interest rate swap portfolio had an average fixed pay rate of 0.55%, an average receive rate of 5.08% and an average maturity of 3.1 years, compared to 0.47%, 4.86% and 3.3 years, respectively, as of March 31, 2023. As of June 30, 2023, 81% and 19% of the Company's interest rate swap portfolio were linked to the Secured Overnight Financing Rate ("SOFR") and Overnight Index Swap Rate ("OIS"), respectively.

As of June 30, 2023, the Company had payer swaptions totaling $1.6 billion, a two-year swap equivalent long SOFR futures position of $1.3 billion and a net short U.S. Treasury position of $13.2 billion outstanding, compared to $1.6 billion, $0.3 billion and $9.2 billion, respectively, as of March 31, 2023.

OTHER GAIN (LOSS), NET
For the second quarter, the Company recorded a net gain of $378 million in other gain (loss), net, or $0.63 per common share, compared to a net loss of $(31) million, or $(0.05) per common share, for the prior quarter. Other gain (loss), net for the second quarter was comprised of:

• $(255) million of net realized losses on sales of investment securities;
• $(363) million of net unrealized losses on investment securities measured at fair value through net income;
• $567 million of interest rate swap periodic income;
• $290 million of net gains on interest rate swaps;
• $26 million of net gains on interest rate swaptions;
• $(16) million of net losses on SOFR futures;
• $316 million of net gains on U.S. Treasury positions;
• $6 million of TBA dollar roll income;
• $(142) million of net mark-to-market losses on TBA securities;
• $(35) million of other interest income (expense), net; and
• $(16) million of other miscellaneous losses.

OTHER COMPREHENSIVE LOSS
During the second quarter, the Company recorded other comprehensive loss of $(65) million, or $(0.11) per common share, consisting of net unrealized losses on the Company's Agency securities recognized through OCI, compared to $142 million, or $0.25 per common share, of other comprehensive income for the prior quarter.

COMMON STOCK DIVIDENDS
During the second quarter, the Company declared dividends of $0.12 per share to common stockholders of record as of April 28, May 31, and June 30, 2023, totaling $0.36 per share for the quarter. Since its May 2008 initial public offering through the second quarter of 2023, the Company has declared a total of $12.4 billion in common stock dividends, or $46.48 per common share.

FINANCIAL STATEMENTS, OPERATING PERFORMANCE AND PORTFOLIO STATISTICS
The following measures of operating performance include net spread and dollar roll income; net spread and dollar roll income, excluding "catch-up" premium amortization; economic interest income; economic interest expense; and the related per common share measures and financial metrics derived from such information, which are non-GAAP financial measures. Please refer to "Use of Non-GAAP Financial Information" later in this release for further discussion of non-GAAP measures.