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Item 2. Management’s Discussion and Analysis

2024-05-07 compared with 2023-11-06 · 174 added, 221 removed, 470 unchanged (46% of the section changed)

Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is designed to provide a reader of AGNC Investment Corp.'s consolidated financial statements with a narrative from the perspective of management and should be read in conjunction with the consolidated financial statements and accompanying notes included in this Quarterly Report on Form 10-Q for quarterly period ended September 30, 2023.

Our MD&A is presented in the following sections:

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Government agency.

We are internally managed with the principal objective of providing our stockholders with favorable long-term returns on a risk-adjusted basis through attractive monthly dividends.

We are internally managed with the principal objective of generating favorable long-term stockholder returns with a substantial yield component.

We generate income from the interest earned on our investments, net of associated borrowing and hedging costs, and net realized gains and losses on our investment and hedging activities.

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We operate in a manner to qualify to be taxed as a REIT under the Internal Revenue Code.

The size and composition of our investment portfolio depends on the investment strategies we implement, availability of attractively priced investments, suitable financing to appropriately leverage our investment portfolio and overall market conditions.

We employ an active management strategy that is dynamic and responsive to evolving market conditions.

The composition of our portfolio and our investment, funding, and hedging strategies are tailored to reflect our analysis of market conditions and the relative values of available options.

Market conditions are influenced by a variety of factors, including interest rates, prepayment expectations, liquidity, housing prices, unemployment rates, general economic conditions, government participation in the mortgage market, regulations and relative returns on other assets.

Trends and Recent Market Impacts

The third quarter of 2023 began relatively favorably for both U.S.

Treasuries and Agency RMBS as inflation data continued to exhibit a downward trend and stress in the regional bank sector from earlier in the year abated.

As the quarter progressed, however, a complex set of domestic and global factors, including heightened geopolitical risks, increased U.S.

Treasury issuance and a restrictive monetary policy, led to a decidedly negative shift in bond market sentiment and drove interest rates and interest rate volatility materially higher.

For the third quarter, the U.S.

Treasury yield curve steepened significantly, with the 5- and 10-year Treasury yields increasing by 45 and 73 basis points, respectively, while two-year yields moved only modestly higher.

Typically, in environments where Treasury prices drop abruptly and the market struggles to find its new equilibrium, Agency RMBS underperform.

This was the case in the third quarter, as Agency RMBS performance relative to benchmark rates lagged considerably.

Agency RMBS spreads to comparable duration U.S.

Treasuries widened 20 to 25 basis points across most of the coupon stack.

The performance of Agency RMBS also varied greatly depending on hedge position as a result of the sharp steepening of the yield curve.

The performance of Agency RMBS also varied across the coupon stack, with lower and middle coupons substantially underperforming higher coupons.

This significant rate volatility and spread widening resulted in our economic loss of (10.1)% for the third quarter, comprised of $0.36 of dividends declared per common share and a $(1.31) decline in our tangible net book value per common share.

Our investment portfolio increased modestly during the third quarter, growing from $58.0 billion at the end of the second quarter to $59.3 billion as of September 30, 2023.

We continued to move our holdings up in coupon to benefit from more attractive yields and wider spreads.

We also reduced our TBA position in favor of high-quality and low pay-up specified pools as the funding advantage of holding TBAs versus on-balance sheet Agency RMBS holdings dissipated.

The weighted average coupon on our fixed-rate Agency RMBS and TBA securities was 4.71% as of the end of the quarter, compared to 4.42% as of June 30, 2023.

Our hedge portfolio totaled $63.2 billion as of September 30, 2023, or 116% of our funding liabilities (investment securities repurchase agreements, net TBA position (at cost) and other debt outstanding), compared to 119% as of June 30, 2023.

Higher mortgage rates extended the duration of our assets, and we accordingly increased the duration of our hedge portfolio primarily by adding Treasury-based hedges at the 10-year point of the yield curve.

As a result, our duration gap, which measures the estimated difference between the interest rate sensitivity of our assets and our liabilities, inclusive of interest rate hedges, was reduced to 0.2 years as of September 30, 2023 from 0.4 years as of June 30, 2023.

Despite the decline in our tangible net book value, our "at-risk" leverage ratio experienced only a moderate increase to end the quarter at 7.9x tangible equity as of September 30, 2023, from 7.2x as of June 30, 2023, with average leverage for the third quarter at 7.5x compared to 7.2x for the second quarter.

Our liquidity position remained strong throughout the third quarter and in line with our typical operating parameters.

As of September 30, 2023, we had unencumbered cash and Agency RMBS totaling $3.6 billion, or 52% of our tangible equity.

Additionally, during the quarter, we issued $432 million of common equity through our at-the-market offering program at a price to book premium that was accretive to our tangible net book value.

Net spread and dollar roll income, excluding "catch-up" amortization, was $0.65 per common share for the third quarter, a decrease of $0.02 per common share from the second quarter, due primarily to a decline in our net interest rate spread to 303 basis points for the quarter.

The average projected life CPR on our portfolio decreased to 8.3% at the end of the third quarter from 9.8% at the end of the second quarter, reflecting the impact of higher interest rates.

Actual CPRs for the quarter averaged 7.1%, compared to 6.6% for the second quarter.

Looking ahead, although elevated interest rate and spread volatility pose near-term risks and may negatively impact our financial performance over the short-run, we continue to believe that the longer-term outlook for Agency RMBS remains favorable, with spreads likely to remain well above historical averages.

Additionally, the repo financing market for Agency RMBS remains deep and liquid.

At current spread levels, we believe our portfolio is well-positioned to generate attractive returns, either through strong earnings if mortgage spreads remain at these elevated levels or a combination of favorable earnings and net book value appreciation if mortgage spreads should tighten over time.

The favorable macroeconomic environment for fixed income investors that began in late 2023 persisted through the conclusion of the first quarter of 2024.

During this period, interest rate volatility declined significantly, and Agency RMBS spreads to benchmark interest rates remained relatively stable.

The Federal Reserve also indicated that the peak of the interest rate tightening cycle had likely been reached and further noted that a reduction in the pace of its balance sheet runoff was probable in the near-term, signaling that an end to the quantitative tightening process was nearing.

Mortgage origination levels remained depressed as a result of seasonal factors and affordability challenges.

Additionally, bank demand for Agency RMBS was unexpectedly strong, driven in part by the expectation that the Basel III Endgame capital requirements, if and when finally adopted, will be less onerous on banks than originally proposed.

Together, these factors, reduced mortgage originations and incremental bank demand, provided a favorable backdrop for Agency RMBS supply-demand dynamics.

The outlook for monetary policy shifted materially in April in response to stronger-than-expected economic data.

Contrary to the Fed’s expectations, inflation readings showed no meaningful improvement.

As a result, after a period of relative stability in the first quarter, benchmark interest rates and volatility increased sharply in April, driven by less optimistic inflation expectations and escalating geopolitical risks.

In response, Agency RMBS spreads to benchmark interest rates widened modestly, causing valuations to decline.

Despite the recent volatility, the fundamental outlook for Agency RMBS remains positive.

With absolute yields back above 6% as of the end of April and explicit support from the U.S.

government, Agency RMBS are appealing to a broad universe of investors.

Agency RMBS spreads to benchmark interest rates remain wide by historical standards, providing the opportunity for favorable risk-adjusted returns for levered Agency RMBS investors.

Looking forward, if monetary policy

proceeds largely as anticipated, we would expect interest rate volatility to decline, the yield curve to steepen, and quantitative tightening to conclude.

Importantly, the precise timing of Fed rate cuts is not a critical factor in our favorable long-term performance expectations for Agency RMBS.

During the first quarter, the 10-year U.S.

Treasury increased 32 basis points, and the current coupon Agency RMBS spread to a blend of 5- and 10-year Treasuries was unchanged at 139 basis points as of March 31, 2024.

For the quarter, AGNC earned total comprehensive income of $0.48 per diluted common share and generated a total economic return of 5.7% on tangible common equity comprised of $0.36 dividends declared per common share and a $0.14 increase in tangible net book value per common share.

These results compare to total comprehensive income of $1.00 per diluted common share and economic return of 12.1% for the prior quarter.

Net spread and dollar roll income per diluted common share (a non-GAAP measure) totaled $0.58 for the first quarter, a decline of 2 cents per share from the prior quarter, as higher swap costs more than offset the increase in the average asset yield on our portfolio.

We maintained a large interest rate hedge position during the quarter, which covered 99% of the outstanding balance of Investment Securities Repo, TBA position and other debt as of the end of the quarter.

This was a slight decrease from 112% as of December 31, 2023.

“At risk” leverage was largely unchanged at 7.1x of our tangible stockholders’ equity as of March 31, 2024, compared to 7.0x as of December 31, 2023.

Our unencumbered cash and Agency RMBS grew to $5.4 billion, or 67% of our tangible stockholders' equity, as of the end of the first quarter, up from $5.1 billion, or 66% of tangible stockholders’ equity, as of December 31, 2023.

The weighted average coupon on our fixed-rate Agency RMBS and TBA securities increased slightly to 4.86%, from 4.83%, as of the end of the quarter, as we continued to shift a larger share of our asset portfolio toward higher coupon, high-quality specified pools.

Additionally, we issued $241 million of accretive common equity during the quarter through our At-the-Market offering program to capitalize on our material price to book premium.

While market turbulence may persist in the short term due to factors such as inflation expectations and geopolitical risks, we believe AGNC is well positioned to navigate this environment.

Our active management strategy, strategic focus on high-quality Agency RMBS assets, attractive funding sources, and strong liquidity position should allow us not only to withstand episodes of volatility but also to take advantage of attractive investment opportunities as they arise.

For information regarding non-GAAP financial measures, including reconciliations to the most comparable GAAP measure please refer to Results of Operations included in this MD&A below.

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Interest Rate/Security Price 1

31, 2023 June 30, 2023 Sept.

30, 2023 Dec.

31, 2023 Mar.

31, 2023 June 30, 2023 Sept.

30, 2023 Sept.

June 30, 2023

31, 2024 Mar.

Target Federal Funds Rate:

Target Federal Funds Rate - Upper Band

3.25% 4.50% 5.00% 5.25% 5.50% +25 bps +100 bps

SOFR Rate 2.98% 4.30% 4.87% 5.09% 5.31% +22 bps +101 bps

5.00% 5.25% 5.50% 5.50% 5.50% — bps

SOFR Rate 4.87% 5.09% 5.31% 5.38% 5.34% -4 bps

SOFR Interest Rate Swap Rate:

4.25% 4.45% 4.06% 4.82% 4.97% +15 bps +52 bps

3.85% 3.75% 3.34% 3.94% 4.38% +44 bps +63 bps

3.59% 3.56% 3.17% 3.58% 4.27% +69 bps +71 bps

3.07% 3.21% 2.93% 3.20% 4.01% +81 bps +80 bps

4.06% 4.82% 4.97% 4.07% 4.55% +48 bps

3.34% 3.94% 4.38% 3.53% 3.98% +45 bps

3.17% 3.58% 4.27% 3.47% 3.84% +37 bps

2.93% 3.20% 4.01% 3.32% 3.62% +30 bps

Treasury Security Rate:

4.28% 4.43% 4.03% 4.90% 5.05% +15 bps +62 bps

4.09% 4.01% 3.58% 4.16% 4.61% +45 bps +60 bps

3.83% 3.88% 3.47% 3.84% 4.57% +73 bps +69 bps

3.78% 3.97% 3.65% 3.86% 4.70% +84 bps +73 bps

4.03% 4.90% 5.05% 4.25% 4.62% +37 bps

3.58% 4.16% 4.61% 3.85% 4.21% +36 bps

3.47% 3.84% 4.57% 3.88% 4.20% +32 bps

3.65% 3.86% 4.70% 4.03% 4.34% +31 bps

30-Year Fixed Rate Agency Price:

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The following table summarizes mortgage and credit spreads as of each date presented below:

Mortgage Rate/Credit Spread Sept.

Mortgage Rate/Credit Spread Mar.

31, 2023 June 30, 2023 Sept.

30, 2023 Dec.

31, 2023 Mar.

31, 2023 June 30, 2023 Sept.

30, 2023 Sept.

June 30, 2023

31, 2024 Mar.

Mortgage Rate:

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Treasury Spread 152 163 177 139 139 —

30-Year Agency Current Coupon Yield 5.68% 5.39% 5.05% 5.63% 6.36% +73 bps +97 bps

30-Year Mortgage Rate 6.72% 6.52% 6.40% 6.78% 7.41% +63 bps +89 bps

30-Year Agency Current Coupon Yield 5.05% 5.63% 6.36% 5.25% 5.60% +35 bps

30-Year Mortgage Rate 6.40% 6.78% 7.41% 6.56% 6.74% +18 bps

Credit Spread (in bps):

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CRT and CDX spreads sourced from JP Morgan.

CMBS spreads are the average of spreads sourced from JP Morgan and Wells Fargo.

CMBS spreads are the average of spreads sourced from Bank of America, JP Morgan and Wells Fargo.

FINANCIAL CONDITION

As of September 30, 2023 and December 31, 2022, our investment portfolio totaled $59.3 billion and $59.5 billion, respectively, consisting of:

$56.9 billion and $40.9 billion investment securities, at fair value, respectively;

As of March 31, 2024 and December 31, 2023, our investment portfolio totaled $63.3 billion and $60.2 billion, respectively, consisting of:

$53.7 billion and $53.8 billion Agency RMBS, at fair value, respectively;

$8.4 billion and $5.4 billion net TBA securities, at fair value, respectively;

$1.0 billion CRT, non-Agency RMBS and CMBS, at fair value;

and other mortgage credit investments of $59 million and $44 million, respectively, which we account for under the equity method of accounting.

The following table is a summary of our investment securities as of September 30, 2023 and December 31, 2022 (dollars in millions):

September 30, 2023 December 31, 2022

The following table is a summary of our investment securities (including TBA securities) as of March 31, 2024 and December 31, 2023 (dollars in millions):

March 31, 2024 December 31, 2023

Investment Securities (Includes TBAs) 1

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Adjustable rate Agency RMBS 722 716 4.72 % 1 % 293 290 4.67 % — %

Multifamily 75 75 3.77 % — % 161 162 4.47 % — %

CMO Agency RMBS:

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________________________________

Table excludes other mortgage credit investments of $45 million and $25 million as of September 30, 2023 and December 31, 2022, respectively.

Table excludes other mortgage credit investments of $59 million and $44 million as of March 31, 2024 and December 31, 2023, respectively.

TBA securities are presented net of long and short positions.

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TBA securities are recorded as derivative instruments in our accompanying consolidated financial statements, and our TBA dollar roll transactions represent a form of off-balance sheet financing.

As of September 30, 2023 and December 31, 2022, our TBA securities had a net carrying value of $(31) million and $167 million, respectively, reported in derivative assets/(liabilities) on our accompanying consolidated balance sheets.

As of March 31, 2024 and December 31, 2023, our TBA securities had a net carrying value of $43 million and $66 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 security in the TBA contract and the price to be paid or received for the underlying security.

As of September 30, 2023 and December 31, 2022, the weighted average yield on our investment securities (excluding TBA and forward settling securities) was 4.37% and 3.37%, respectively.

The following tables summarize certain characteristics of our fixed rate Agency RMBS portfolio, inclusive of TBA securities, as of September 30, 2023 and December 31, 2022 (dollars in millions):

September 30, 2023

As of March 31, 2024 and December 31, 2023, the weighted average yield on our investment securities (excluding TBA and forward settling securities) was 4.52% and 4.41%, respectively.

The following tables summarize certain characteristics of our fixed rate Agency RMBS portfolio, inclusive of TBA securities, as of March 31, 2024 and December 31, 2023 (dollars in millions):

March 31, 2024

Includes Net TBA Position Excludes Net TBA Position

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3.5% 12 12 12 100% 3.50% 101.4% 2.61% 129 14%

4.0% 11 11 11 6% 4.00% 101.7% 1.92% 157 26%

4.5% 1 1 1 100% 4.50% 101.5% 2.69% 157 23%

5.0% 90 89 90 —% 5.00% 100.8% 2.27% 171 44%

Total ≤ 15-year 216 216 209 52% 3.70% 101.4% 2.10% 103 14%

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3.0% 26 27 24 97% 3.00% 103.6% 2.29% 56 8%

3.5% 112 114 107 79% 3.50% 101.8% 2.97% 127 9%

≥ 4.0% 137 143 133 96% 4.26% 104.5% 3.15% 86 10%

Total 20-year:

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4.5% 7,670 7,811 7,388 52% 4.50% 103.8% 3.85% 48 8%

5.0% 11,408 11,321 11,205 33% 5.00% 100.7% 4.86% 18 8%

5.5% 13,542 13,588 13,572 28% 5.50% 100.6% 5.40% 13 10%

6.0% 9,148 9,263 9,314 35% 6.00% 101.2% 5.71% 9 15%

≥ 6.5% 4,217 4,317 4,346 39% 6.51% 102.6% 5.81% 8 17%

Total 30-year 61,920 62,805 60,272 46% 4.89% 102.1% 4.48% 36 10%

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Specified pools include pools backed by lower balance loans with original loan balances of up to $200K, HARP pools (defined as pools that were issued between May 2009 and December 2018 and backed by 100% refinance loans with original LTVs ≥ 80%), and pools backed by loans 100% originated in New York and Puerto Rico.

As of September 30, 2023, lower balance specified pools had a weighted average original loan balance of $125,000 and $155,000 for 15-year and 30-year securities, respectively, and HARP pools had a weighted average original LTV of 128% and 138% for 15-year and 30-year securities, respectively.

Portfolio yield incorporates a projected life CPR based on forward rate assumptions as of September 30, 2023.

As of March 31, 2024, lower balance specified pools had a weighted average original loan balance of $188,000 and $153,000 for 15-year and 30-year securities, respectively, and HARP pools had a weighted average original LTV of 128% and 141% for 15-year and 30-year securities, respectively.

Portfolio yield incorporates a projected life CPR based on forward rate assumptions as of March 31, 2024.

December 31, 2023

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3.5% 14 14 13 100% 3.50% 101.5% 2.60% 126 14%

4.0% 229 235 227 95% 4.00% 102.8% 2.98% 70 13%

4.5% 1 1 1 99% 4.50% 101.7% 2.70% 154 21%

≥ 5.0% 90 89 91 —% 5.00% 100.9% 2.54% 168 41%

Total ≤ 15-year 834 848 809 87% 3.44% 101.9% 2.62% 71 11%

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3.0% 27 28 25 97% 3.00% 103.6% 2.28% 53 8%

3.5% 117 119 113 79% 3.50% 101.7% 2.96% 125 10%

≥ 4.0% 142 148 141 96% 4.26% 104.3% 3.14% 83 11%

Total 20-year:

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4.5% 6,542 6,763 6,426 64% 4.50% 103.9% 3.83% 46 8%

5.0% 9,696 9,719 9,657 39% 5.00% 100.5% 4.91% 14 9%

5.5% 12,352 12,391 12,486 25% 5.50% 100.6% 5.39% 10 12%

6.0% 9,305 9,384 9,507 22% 6.00% 101.0% 5.71% 7 19%

≥ 6.5% 3,889 3,968 4,011 29% 6.50% 102.3% 5.78% 6 21%

Total 30-year 57,766 58,857 56,938 46% 4.88% 102.2% 4.41% 35 11%

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Portfolio yield incorporates a projected life CPR based on forward rate assumptions as of December 31, 2023.

For additional details regarding our CRT and non-Agency securities, including credit ratings, as of September 30, 2023 and December 31, 2022, please refer to Note 3 of our Consolidated Financial Statements in this Form 10-Q.

For additional details regarding our CRT and non-Agency securities, including credit ratings, as of March 31, 2024 and December 31, 2023, please refer to Note 3 of our Consolidated Financial Statements in this Form 10-Q.

RESULTS OF OPERATIONS

Non-GAAP Financial Measures

In addition to the results presented in accordance with GAAP, our results of operations discussed below include certain non-GAAP financial information, including "economic interest income," "economic interest expense," "net spread and dollar roll income" and "net spread and dollar roll income, excluding 'catch-up' premium amortization, available to common stockholders," and the related per common share measures and certain financial metrics derived from such non-GAAP information.

In addition to the results presented in accordance with GAAP, our results of operations discussed below include certain non-GAAP financial information, including "economic interest income," "economic interest expense," and "net spread and dollar roll income available to common stockholders" 1 and the related per common share measures and certain financial metrics derived from such non-GAAP information.

"Economic interest income" is measured as interest income (GAAP measure), adjusted to (i) exclude retrospective "catch-up" adjustments to premium amortization cost associated with changes in projected CPR estimates and (ii) include TBA dollar roll implied interest income.

"Economic interest expense" is measured as interest expense (GAAP measure) adjusted to include TBA dollar roll implied interest expense/benefit and interest rate swap periodic cost/income.

"Net spread and dollar roll income, excluding 'catch-up' premium amortization, available to common stockholders" is measured as comprehensive income (loss) available (attributable) to common stockholders (GAAP measure) adjusted to:

(i) exclude gains/losses on investment securities recognized through net income and other comprehensive income and gains/losses on derivative instruments and other securities (GAAP measures) and (ii) include interest rate swap periodic income/cost, TBA dollar roll income and other miscellaneous interest income/expense.

As defined "Net spread and dollar roll income, excluding 'catch-up' premium amortization, available to common stockholders" includes (i) the components of "economic interest income" and "economic interest expense", plus (ii) other interest income/expense, and less (iii) total operating expenses and dividends on preferred stock (GAAP measures).

"Net spread and dollar roll income available to common stockholders" is measured as comprehensive income (loss) available (attributable) to common stockholders (GAAP measure) adjusted to:

(i) exclude gains/losses on investment securities recognized through net income and other comprehensive income and gains/losses on derivative instruments and other securities (GAAP measures);

(ii) exclude retrospective "catch-up" adjustments to premium amortization cost associated with changes in projected CPR estimates;

and (iii) include interest rate swap periodic income/cost, TBA dollar roll income and other interest income/expense.

As defined "Net

spread and dollar roll income available to common stockholders" includes (i) the components of "economic interest income" and "economic interest expense", plus (ii) other interest income/expense, and less (iii) total operating expenses and dividends on preferred stock (GAAP measures).

By providing such measures, in addition to the related GAAP measures, we believe we give greater transparency into the information used by our management in its financial and operational decision-making.

We also believe it is important for users of our financial information to consider information related to our current financial performance without the effects of certain

measures and one-time events that are not necessarily indicative of our current investment portfolio performance and operations.

Specifically, in the case "net spread and dollar roll income, excluding 'catch-up' premium amortization, available to common stockholders" and components of such measure, "economic interest income" and "economic interest expense," we believe the inclusion of TBA dollar roll income is meaningful as TBAs, which are accounted for under GAAP as derivative instruments with gains and losses recognized in other gain (loss) in our consolidated statement of comprehensive income, are economically equivalent to holding and financing generic Agency RMBS using short-term repurchase agreements.

We also believe it is important for users of our financial information to consider information related to our current financial performance without the effects of certain measures and one-time events that are not necessarily indicative of our current investment portfolio performance and operations.

Specifically, in the case "net spread and dollar roll income available to common stockholders" and components of such measure, "economic interest income" and "economic interest expense," we believe the inclusion of TBA dollar roll income is meaningful as TBAs, which are accounted for under GAAP as derivative instruments with gains and losses recognized in other gain (loss) in our consolidated statement of comprehensive income, are economically equivalent to holding and financing generic Agency RMBS using short-term repurchase agreements.

Similarly, we believe that the inclusion of periodic interest rate swap settlements is meaningful as interest rate swaps are the primary instrument we use to economically hedge against fluctuations in our borrowing costs and it is more indicative of our total cost of funds than interest expense alone.

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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.

________________________________

Prior to December 31, 2023, "Net spread and dollar roll income available to common stockholders" was referred to as "net spread and dollar roll income, excluding 'catch-up' premium amortization, available to common stockholders".

"Net spread and dollar roll income available to common stockholders" continues to exclude "catch-up" premium amortization.

Selected Financial Data

The following selected financial data is derived from our interim consolidated financial statements and the notes thereto.

The tables below present our condensed consolidated balance sheets as of September 30, 2023 and December 31, 2022 and condensed consolidated statements of comprehensive income and key statistics for the three and nine months ended September 30, 2023 and 2022 (in millions, except per share amounts):

September 30,

The tables below present our condensed consolidated balance sheets as of March 31, 2024 and December 31, 2023 and condensed consolidated statements of comprehensive income and key statistics for the three months ended March 31, 2024 and 2023 (in millions, except per share amounts):

Balance Sheet Data 2024

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Three Months Ended

September 30,

Nine Months Ended

September 30,

Statement of Comprehensive Income Data (Unaudited)

2023 2022 2023 2022

Interest income $ 642 $ 351

Interest expense 672 449

Net interest income (53) 177 (220) 940

Net interest income (expense) (30) (98)

Other gain (loss), net 497 (31)

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Other comprehensive income (loss), net (77) 142

Comprehensive loss (605) (1,038) (393) (2,859)

Comprehensive income (loss) 366 (9)

Dividends on preferred stock 31 30

Comprehensive loss attributable to common stockholders $ (636) $ (1,064) $ (485) $ (2,935)

Comprehensive income (loss) available (attributable) to common stockholders $ 335 $ (39)

Weighted average number of common shares outstanding - basic 702.2 579.3

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Three Months Ended

September 30,

Nine Months Ended

September 30,

Other Data (Unaudited) * 2024 2023

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Average tangible net book value "at risk" leverage 5

7.5:1 8.1:1 7.5:1 8.1:1

Tangible net book value "at risk" leverage (as of period end) 6

7.9:1 8.7:1 7.9:1 8.7:1

Economic return on tangible common equity - unannualized 7

Economic return on tangible common equity 7

5.7 % (0.7) %

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Economic Interest Income and Asset Yields

The following table summarizes our economic interest income (a non-GAAP measure) for the three and nine months ended September 30, 2023 and 2022, which includes the combination of interest income (a GAAP measure) on our holdings reported as investment securities on our consolidated balance sheets, adjusted to exclude estimated "catch-up" premium amortization adjustments for the cumulative effect from prior reporting periods due to changes in our CPR forecast, and implied interest income on our TBA securities (dollars in millions):

Three Months Ended September 30,

Nine Months Ended September 30,

2023 2022 2023 2022

Amount Yield Amount Yield Amount Yield Amount Yield

The following table summarizes our economic interest income (a non-GAAP measure) for the three months ended March 31, 2024 and 2023, which includes the combination of interest income (a GAAP measure) on our holdings reported as investment securities on our consolidated balance sheets, adjusted to exclude estimated "catch-up" premium amortization adjustments for the cumulative effect from prior reporting periods due to changes in our CPR forecast, and implied interest income on our TBA securities (dollars in millions):

Three Months Ended

Amount Yield Amount Yield

Interest income:

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84 5.40 % 220 4.93 %

Economic interest income, excluding "catch-up" amortization (non-GAAP measure) 3

Economic interest income (non-GAAP measure) 3

$ 716 4.56 % $ 640 3.90 %

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The combined asset yield is calculated on a weighted average basis based on our average investment and TBA balances outstanding during the period and their respective yields.

30-year fixed rate mortgage rates are sourced from Clear Blue.

30-year fixed rate mortgage rates are sourced from Optimal Blue.

Treasury rates are sourced from Bloomberg.

The principal elements impacting our economic interest income are the average size of our investment portfolio and the average yield on our securities.

The following table includes a summary of the estimated impact of each of these elements on our economic interest income for the three and nine months ended September 30, 2023 compared to the prior year period (in millions):

The following table includes a summary of the estimated impact of each of these elements on our economic interest income for the three months ended March 31, 2024 compared to the prior year period (in millions):

Impact of Changes in the Principal Elements Impacting Economic Interest Income

Periods ended September 30, 2023 vs.

September 30, 2022

Due to Change in Average

Three months ended:

Total Increase /

(Decrease) Portfolio

Interest Income (GAAP measure) $ 220 $ 56 $ 164

Estimated "catch-up" premium amortization due to change in CPR forecast (13) — (13)

Interest income, excluding "catch-up" premium amortization 207 56 151

TBA dollar roll income - implied interest income (114) (136) 22

Economic interest income, excluding "catch-up" amortization (non-GAAP measure) $ 93 $ (80) $ 173

Three Months Ended March 31, 2024 vs.

March 31, 2023

Due to Change in Average

Nine months ended:

Total Increase /

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Economic interest income, excluding "catch-up" amortization (non-GAAP measure) $ 76 $ (79) $ 155

Our average investment portfolio, inclusive of TBAs (at cost), decreased 8% and 13% for the three and nine months ended September 30, 2023, respectively, compared to the prior year period, primarily due to a decline in stockholders' equity and operating with a lower "at risk" leverage ratio.

The average yield on our investment portfolio, including TBA implied asset yields and excluding "catch-up" premium amortization, increased 89 and 120 basis points for the three and nine months ended September 30, 2023, respectively, mostly due to changes in our asset composition as we shifted the portfolio higher in coupon to benefit from higher asset yields and wider mortgage spreads.

Our average investment portfolio (at cost), inclusive of TBAs, decreased 4% for the three months ended March 31, 2024.

The decline was primarily due to operating with lower "at risk" leverage, partly offset by a modest increase in our average stockholders' equity.

The average yield on our investment portfolio, including TBA implied asset yields and excluding "catch-up" premium amortization, increased 66 basis points for the three months ended March 31, 2024 largely as a result of shifting

our asset portfolio away from TBA and lower coupon holdings toward a greater share of higher coupon, high-quality specified pools.

Our primary measure of leverage is our tangible net book value "at risk" leverage ratio, which is measured as the sum of our repurchase agreements and other debt used to fund our investment securities and net TBA and forward settling securities position (at cost) (together referred to as "mortgage borrowings") and our net receivable/payable for unsettled investment securities, divided by our total stockholders' equity adjusted to exclude goodwill.

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Similarly, a TBA contract for the forward sale of Agency securities has substantially the same effect as selling the underlying Agency RMBS and reducing our on-balance sheet funding commitments.

(Refer to Liquidity and Capital Resources for further discussion of TBA securities and dollar roll transactions).

(Refer to Liquidity and Capital Resources in this Form 10-Q for further discussion of TBA securities and dollar roll transactions).

Repurchase agreements used to fund short-term investments in U.S.

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Amount Ending

September 30, 2023 $ 47,073 $ 52,888 $ 51,931 $ 7,340 $ 2,407 7.5:1 7.9:1

June 30, 2023 $ 41,546 $ 42,408 $ 40,962 $ 9,985 $ 10,320 7.2:1 7.2:1

March 31, 2024 $ 48,730 $ 49,894 $ 48,216 $ 6,190 $ 8,405 7.0:1 7.1:1

December 31, 2023 $ 47,548 $ 52,643 $ 48,959 $ 4,993 $ 5,288 7.4:1 7.0:1

September 30, 2022 $ 40,530 $ 41,834 $ 39,169 $ 20,331 $ 19,116 8.1:1 8.7:1

June 30, 2022 $ 42,997 $ 44,243 $ 41,406 $ 19,653 $ 16,001 7.8:1 7.4:1

March 31, 2023 $ 39,824 $ 42,919 $ 42,022 $ 17,851 $ 10,385 7.7:1 7.2:1

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Economic Interest Expense and Aggregate Cost of Funds

The following table summarizes our economic interest expense and aggregate cost of funds (non-GAAP measures) for the three and nine months ended September 30, 2023 and 2022 (dollars in millions), which includes the combination of interest expense on repurchase agreements and other debt used to fund acquisitions of investment securities (GAAP measure), implied financing cost (benefit) of our TBA securities and interest rate swap periodic cost (benefit):

Three Months Ended September 30,

Nine Months Ended September 30,

2023 2022 2023 2022

The following table summarizes our economic interest expense and aggregate cost of funds (non-GAAP measures) for the three months ended March 31, 2024 and 2023 (dollars in millions), which includes the combination of interest expense on repurchase agreements and other debt used to fund acquisitions of investment securities (GAAP measure), implied financing cost of our TBA securities and interest rate swap periodic income:

Three Months Ended

Economic Interest Expense and Aggregate Cost of Funds 1

Amount Cost of Funds Amount Cost of Funds Amount Cost of Funds Amount Cost of Funds

Amount Cost of Funds Amount Cost of Funds

Investment securities repurchase agreement and other debt - interest expense (GAAP measure) $ 672 5.45 % $ 449 4.51 %

TBA dollar roll income - implied interest expense (benefit) 2,3

TBA dollar roll income - implied interest expense 2,3

84 5.34 % 202 4.53 %

Economic interest expense - before interest rate swap periodic cost (income), net 4

Economic interest expense - before interest rate swap periodic income, net 4

756 5.44 % 651 4.52 %

Interest rate swap periodic cost (benefit), net 2,5,6

Interest rate swap periodic income, net 2,5

(536) (3.86) % (504) (3.50) %

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The average implied funding cost (benefit) for all TBA transactions is weighted based on our daily average TBA balance outstanding for the period.

The combined cost of funds for total mortgage borrowings outstanding, before interest rate swap costs, is calculated on a weighted average basis based on average investment securities repurchase agreements, other debt and TBA securities outstanding during the period and their respective cost of funds.

Interest rate swap periodic cost (benefit) is measured as a percent of average mortgage borrowings outstanding for the period.

In 2023, we began reporting price alignment interest income (expense) ("PAI") on interest swap margin deposits posted by or (to) us in other interest income (expense), net.

PAI was previously reported in interest rate swap periodic cost (benefit).

Both current and former categorizations are components of net spread and dollar roll income.

Prior year amounts have been reclassified and our economic interest expense and cost of funds have been restated to conform to the current period's presentation.

The combined cost of funds for total mortgage borrowings outstanding, before interest rate swap periodic income, is calculated on a weighted average basis based on average investment securities repurchase agreements, other debt and TBA securities outstanding during the period and their respective cost of funds.

Interest rate swap periodic income is measured as a percent of average mortgage borrowings outstanding for the period.

The principal elements impacting our economic interest expense are (i) the size of our average mortgage borrowings and interest rate swap portfolio outstanding during the period, (ii) the average interest rate on our mortgage borrowings and (iii) the average net interest rate paid/received on our interest rate swaps.

The following table includes a summary of the estimated impact of these elements on our economic interest expense for the three and nine months ended September 30, 2023 compared to the prior year period (in millions):

The following table includes a summary of the estimated impact of these elements on our economic interest expense for the three months ended March 31, 2024 compared to the prior year period (in millions):

Impact of Changes in the Principal Elements of Economic Interest Expense

Periods ended September 30, 2023 vs.

September 30, 2022

Due to Change in Average

Three months ended:

Total Increase / (Decrease) Borrowing / Swap Balance Borrowing / Swap Rate

Investment securities repurchase agreement and other debt interest expense $ 450 $ 32 $ 418

TBA dollar roll income - implied interest benefit/expense 5 (60) 65

Interest rate swap periodic income/cost (347) 11 (358)

Total change in economic interest benefit/expense $ 108 $ (17) $ 125

Three Months Ended March 31, 2024 vs.

March 31, 2023

Due to Change in Average

Nine months ended:

Total Increase / (Decrease) Borrowing / Swap Balance Borrowing / Swap Rate

Investment securities repurchase agreement and other debt interest expense $ 223 $ 100 $ 123

TBA dollar roll income - implied interest benefit/expense 361 (28) 389

TBA dollar roll income - implied interest expense (118) (132) 14

Interest rate swap periodic income/cost (32) 55 (87)

Total change in economic interest benefit/expense $ 299 $ (19) $ 318

Our average mortgage borrowings, inclusive of TBAs, decreased 11% and 15% for the three and nine months ended September 30, 2023, respectively, due to a decline in our asset base.

The average interest rate on our mortgage borrowings, excluding the impact interest rate swap period income/cost, increased 350 and 421 basis points for the three and nine months ended September 30, 2023, respectively, due to higher short-term interest rates.

Interest rate swap periodic income increased for the three and nine months ended September 30, 2023 primarily due to higher receive rates on our pay-fixed swaps.

The following is a summary of our average interest rate swaps outstanding and the related average swap pay and receive rates for the three and nine months ended September 30, 2023 (dollars in millions).

Total change in economic interest expense $ 73 $ 23 $ 50

Our average mortgage borrowings, inclusive of TBAs, decreased 5% for the three months ended March 31, 2024, consistent with the decline in our asset balance and lower operating leverage.

The average interest rate on our mortgage borrowings, excluding the impact interest rate swap period income, increased 92 basis points for the three months ended March 31, 2024 due to higher short-term interest rates.

Interest rate swap periodic income increased for the three months ended March 31, 2024 due to higher receive rates on our pay-fixed swaps, partly offset by modestly higher pay rates and a smaller swap balance.

The following is a summary of our average interest rate swaps outstanding and the related average swap pay and receive rates for the three months ended March 31, 2024 and 2023 (dollars in millions).

Amounts exclude forward starting swaps not yet in effect.

Three Months Ended

September 30,

Nine Months Ended

September 30,

Average Ratio of Interest Rate Swaps (Excluding Forward Starting Swaps) to Mortgage Borrowings Outstanding 2024 2023

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Ratio of average interest rate swaps to mortgage borrowings outstanding

86 % 81 % 88 % 78 %

Average interest rate swap pay-fixed rate (excluding forward starting swaps) 0.84 % 0.45 %

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(4.83) % (4.09) %

For the three and nine months ended September 30, 2023, we had an average forward starting net pay and (receive) fixed rate swap balance of $(0.9) billion and $(0.3) billion, respectively, and for the three and nine months ended September 30, 2022 of zero and $31 million, respectively.

For the three months ended March 31, 2024 and 2023, we had an average forward starting net pay and (receive) fixed rate swap balance of $(0.4) billion and $101 million, respectively.

Forward starting interest rate swaps do not impact our economic interest expense and aggregate cost of funds until they commence accruing net interest settlements on their forward start dates.

Net Interest Spread

The following table presents a summary of our net interest spread (including the impact of TBA dollar roll income, interest rate swaps and excluding "catch-up" premium amortization) for the three and nine months ended September 30, 2023 and 2022:

Three Months Ended September 30,

Nine Months Ended

September 30,

Three Months Ended

Investment and TBA Securities - Net Interest Spread 2024 2023

Average asset yield, excluding "catch-up" premium amortization 4.20 % 3.31 % 4.00 % 2.80 %

Average asset yield 4.56 % 3.90 %

Average aggregate cost of funds (1.58) % (1.02) %

Average net interest spread, excluding "catch-up" premium amortization 3.03 % 2.97 % 3.05 % 2.62 %

Average net interest spread 2.98 % 2.88 %

Net Spread and Dollar Roll Income

The following table presents a reconciliation of net spread and dollar roll income, excluding "catch-up" premium amortization, available to common stockholders (non-GAAP measure) from comprehensive income (loss) available (attributable) to common stockholders (the most comparable GAAP financial measure) for the three and nine months ended September 30, 2023 and 2022 (dollars in millions):

Three Months Ended September 30,

Nine Months Ended

September 30,

2023 2022 2023 2022

Comprehensive loss attributable to common stockholders

$ (636) $ (1,064) $ (485) $ (2,935)

The following table presents a reconciliation of net spread and dollar roll income available to common stockholders (non-GAAP measure) from comprehensive income (loss) available (attributable) to common stockholders (the most comparable GAAP financial measure) for the three months ended March 31, 2024 and 2023 (dollars in millions):

Three Months Ended

Comprehensive income (loss) available (attributable) to common stockholders

Adjustments to exclude realized and unrealized (gains) losses reported through net income:

Realized loss on sale of investment securities, net

534 560 870 1,848

Unrealized loss on investment securities measured at fair value through net income, net

1,356 1,738 1,125 5,257

Gain on derivative instruments and other securities, net

(1,574) (1,474) (2,026) (4,474)

Adjustment to exclude unrealized loss reported through other comprehensive income:

Unrealized loss on available-for-sale securities measure at fair value through other comprehensive income, net

213 372 136 1,108

Unrealized (gain) loss on investment securities measured at fair value through net income, net

(Gain) loss on derivative instruments and other securities, net

Adjustment to exclude unrealized (gain) loss reported through other comprehensive income:

Unrealized (gain) loss on available-for-sale securities measure at fair value through other comprehensive income, net

Other adjustments:

Estimated "catch-up" premium amortization cost (benefit) due to change in CPR forecast 1

TBA dollar roll income, net 2

Interest rate swap periodic income (cost), net 1,4

583 236 1,654 274

Interest rate swap periodic income, net 2

Other interest income (expense), net 2,3

(42) (25) (111) (32)

Net spread and dollar roll income available to common stockholders (non-GAAP measure) 4

Estimated "catch-up" premium amortization cost (benefit) due to change in CPR forecast 2

(31) (18) 27 (243)

Net spread and dollar roll income, excluding "catch-up" premium amortization, available to common stockholders (non-GAAP measure) $ 403 $ 444 $ 1,214 $ 1,256

Weighted average number of common shares outstanding - basic 702.2 579.3

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Net spread and dollar roll income per common share - diluted $ 0.58 $ 0.70

Net spread and dollar roll income, excluding "catch-up" premium amortization, per common share - basic $ 0.65 $ 0.84 $ 2.02 $ 2.39

Net spread and dollar roll income, excluding "catch-up" premium amortization, per common share - diluted $ 0.65 $ 0.84 $ 2.02 $ 2.38

________________________________

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

Reported in interest income in our consolidated statements of comprehensive income.

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

Other interest income (expense), net includes interest income on cash and cash equivalents;

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and other miscellaneous interest income (expense).

In 2023, we began reporting PAI in other interest income (expense), net.

PAI was previously reported in interest rate swap periodic income (cost).

Prior year amounts have been reclassified to conform to the current period's presentation.

Prior to December 31, 2023, this measure was referred to as "net spread and dollar roll income, excluding 'catch-up' premium amortization cost/benefit, per common share." Though it continues to exclude "catch-up" premium amortization cost/benefit, its title has been condensed to its revised title in the table above.

Gain (Loss) on Investment Securities, Net

The following table is a summary of our net gain (loss) on investment securities for the three and nine months ended September 30, 2023 and 2022 (in millions):

Three Months Ended September 30,

Nine Months Ended

September 30,

The following table is a summary of our net gain (loss) on investment securities for the three months ended March 31, 2024 and 2023 (in millions):

Three Months Ended

Gain (Loss) on Investment Securities, Net 1

2023 2022 2023 2022

Loss on sale of investment securities, net $ (91) $ (81)

Unrealized (loss) gain on investment securities measured at fair value through net income, net 2

(1,356) (1,738) (1,125) (5,257)

Unrealized (loss) gain on investment securities measured at fair value through other comprehensive income, net (77) 142

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

The following table is a summary of our gain (loss) on derivative instruments and other securities, net for the three and nine months ended September 30, 2023 and 2022 (in millions):

Three Months Ended September 30,

Nine Months Ended

September 30,

2023 2022 2023 2022

The following table is a summary of our gain (loss) on derivative instruments and other securities, net for the three months ended March 31, 2024 and 2023 (in millions):

Three Months Ended

TBA securities, dollar roll income $ — $ 18

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Interest rate swaps, periodic income (cost) 536 504

583 236 1,654 274

Interest rate swaps, mark-to-market gain (loss) 113 (736)

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Other interest income (expense), net

(42) (25) (110) (32)

Other gain (loss), net 2 (2)

Total gain (loss) on derivative instruments and other securities, net $ 1,059 $ (544)

________________________________

In 2023, we began reporting PAI in other interest income (expense), net.

PAI was previously reported in interest rate swap periodic income (cost).

Prior year amounts have been reclassified to conform to the current period's presentation.

For further details regarding our use of derivative instruments and related activity refer to Notes 2 and 5 of our Consolidated Financial Statements in this Form 10-Q.

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Our leverage will vary depending on market conditions and our assessment of relative risks and returns, but we generally expect our leverage to be between six and twelve times the amount of our tangible stockholders' equity, measured as the sum of our total mortgage borrowings and net payable / (receivable) for unsettled investment securities, divided by the sum of our total stockholders' equity adjusted to exclude goodwill.

Our tangible net book value "at risk" leverage ratio was 7.9x and 7.4x as of September 30, 2023 and December 31, 2022, respectively.

The following table includes a summary of our mortgage borrowings outstanding as of September 30, 2023 and December 31, 2022 (dollars in millions).

Our tangible net book value "at risk" leverage ratio was 7.1x and 7.0x as of March 31, 2024 and December 31, 2023, respectively.

The following table includes a summary of our mortgage borrowings outstanding as of March 31, 2024 and December 31, 2023 (dollars in millions).

For additional details of our mortgage borrowings refer to Notes 2, 4 and 5 to our Consolidated Financial Statements in this Form 10-Q.

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

Mortgage Borrowings Amount % Amount %

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E xcludes U.S.

Treasury repurchase agreements totaling $256 million and $355 million as of September 30, 2023 and December 31, 2022, respectively.

As of September 30, 2023 and December 31, 2022, 43% and 48%, respectively, of our total repurchase agreements, including 43% and 48% or our investment securities repurchase agreements, respectively, were funded through the Fixed Income Clearing Corporation's GCF Repo service.

Treasury repurchase agreements totaling $1.8 billion and $1.5 billion as of March 31, 2024 and December 31, 2023, respectively.

As of March 31, 2024 and December 31, 2023, 42% and 43%, respectively, of our total repurchase agreements, including 43% and 45% or our investment securities repurchase agreements, respectively, were funded through the Fixed Income Clearing Corporation's GCF Repo service.

Our primary financing sources are collateralized borrowings structured as repurchase agreements.

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We also use TBA dollar roll transactions as a means of synthetically financing Agency RMBS.

The terms and conditions of our repurchase agreements are determined on a transaction-by-transaction basis when each such borrowing is initiated or renewed and, in the case of GCF Repo, by the prevailing variable margin requirements calculated by the FICC, which acts as the central counterparty.

The amount borrowed is generally equal to the fair value of the securities pledged, as determined by the lending counterparty, less an agreed-upon discount, referred to as a "haircut," which reflects the underlying risk of the specific collateral and protects the counterparty against a change in its value.

The terms and conditions of our repurchase agreements are determined on a transaction-by-transaction basis when each such borrowing is initiated or renewed and, in the case of GCF Repo, by the prevailing margin requirements calculated by the FICC, which acts as the central counterparty.

The amount borrowed is generally equal to the fair value of the securities pledged, as determined by the lending counterparty, less an assessed discount, referred to as a "haircut," that reflects the underlying risk of the specific collateral and protects the counterparty against a change in its value.

Interest rates are generally fixed based on prevailing rates corresponding to the term of the borrowing.

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Our agreements generally provide that in the event of a margin call, collateral must be posted on the same business day, subject to notice requirements.

As of September 30, 2023, we had met all our margin requirements.

As of March 31, 2024, we had met all our margin requirements.

The value of Agency RMBS collateral is impacted by market factors and is reduced by monthly principal pay-downs on the underlying mortgage pools.

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We attempt to manage the liquidity risk associated with principal pay-downs by monitoring conditions impacting prepayment rates and through asset selection.

As of September 30, 2023, approximately 4% of our investment portfolio consisted of TBA securities, which are not subject to monthly principal pay-downs.

As of March 31, 2024, approximately 13% of our investment portfolio consisted of TBA securities, which are not subject to monthly principal pay-downs.

The remainder of our portfolio primarily consisted of Agency RMBS, which had an average one-year CPR forecast of 8%.

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Haircut levels and minimum margin requirements imposed by our counterparties reduce the amount of our unencumbered assets and limit the amount we can borrow against our investment securities.

During the nine months ended September 30, 2023, haircuts on our repo funding arrangements remained stable.

As of September 30, 2023, the weighted average haircut on our repurchase agreements was approximately 3.7% of the value of our collateral, compared to 3.7% as of December 31, 2022.

During the three months ended March 31, 2024, haircuts on our repo funding arrangements remained stable.

As of March 31, 2024, the weighted average haircut on our repurchase agreements was approximately 3.0% of the value of our collateral, compared to 3.1% as of December 31, 2023.

To mitigate the risk of margins calls, we seek to maintain excess liquidity by holding unencumbered liquid assets that can be used to satisfy collateral requirements, collateralize additional borrowings or sold for cash.

As of September 30, 2023, our unencumbered assets totaled approximately $3.7 billion, or 53% of tangible equity, consisting of $3.6 billion of unencumbered cash and Agency RMBS and $0.1 billion of unencumbered credit assets.

As of March 31, 2024, our unencumbered assets totaled approximately $5.4 billion, or 68% of tangible equity, consisting of $5.4 billion of unencumbered cash and Agency RMBS and $0.1 billion of unencumbered credit assets.

This compares to $5.2 billion of unencumbered assets, or 67% of tangible equity, as of December 31, 2023, consisting of $5.1 billion of unencumbered cash and Agency RMBS and $0.1 billion of unencumbered credit assets.

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We also diversify our funding across multiple counterparties and by region.

As of September 30, 2023, our maximum amount at risk (or the excess/shortfall of the value of collateral pledged/received over our repurchase agreement liabilities/reverse repurchase agreement receivables) with any of our repurchase agreement counterparties, excluding the FICC, was less than 4% of our tangible stockholders' equity, with our top five repo counterparties, excluding the FICC, representing approximately 9% of our tangible stockholders' equity.

As of September 30, 2023, less than 12% of our tangible stockholder's equity was at risk with the FICC.

Excluding central clearing exchanges, as of September 30, 2023, our amount at risk with any counterparty to our derivative agreements was less than 1% of our stockholders' equity.

As of March 31, 2024, our maximum amount at risk (or the excess/shortfall of the value of collateral pledged/received over our repurchase agreement liabilities/reverse repurchase agreement receivables) with any of our repurchase agreement counterparties, excluding the FICC, was less than 3% of our tangible stockholders' equity, with our top five repo counterparties, excluding the FICC, representing approximately 6% of our tangible stockholders' equity.

As of March 31, 2024, 5% of our tangible stockholder's equity was at risk with the FICC.

Excluding central clearing exchanges, as of March 31, 2024, our amount at risk with any counterparty to our derivative agreements was less than 1% of our stockholders' equity.

Agency RMBS securities are among the most liquid fixed income securities, and the TBA market is the second most liquid market (after the U.S.

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We may also be unable to raise additional equity capital at suitable times or on favorable terms.

Furthermore, when the trading price of our common stock is less than our estimate of our current tangible net book value per common share, among other conditions, we may repurchase shares of our common stock.

Furthermore, when the trading price of our common stock is less than our then-current estimate of our tangible net book value per common share, among other conditions, we may repurchase shares of our common stock pursuant to the stock repurchase plan authorized by our Board of Directors, which has $1 billion in remaining capacity and expires on December 31, 2024.

Please refer to Note 9 of our Consolidated Financial Statements in this Form 10-Q for further details regarding our recent equity capital transactions, if any.

OFF-BALANCE SHEET ARRANGEMENTS

As of September 30, 2023, we did not maintain relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance, or special purpose or variable interest entities, established to facilitate off-balance sheet arrangements or other contractually narrow or limited purposes.

Additionally, as of September 30, 2023, we had not guaranteed obligations of unconsolidated entities or entered into a commitment or intent to provide funding to such entities.

As of March 31, 2024, we did not maintain relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance, or special purpose or variable interest entities, established to facilitate off-balance sheet arrangements or other contractually narrow or limited purposes.

Additionally, as of March 31, 2024, we had not guaranteed obligations of unconsolidated entities or entered into a commitment or intent to provide funding to such entities.

FORWARD-LOOKING STATEMENTS

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• fluctuations in the yield curve;

• the level, degree and extent of volatility in interest rates or the yield on our assets relative to interest rate benchmarks;

• fluctuations in mortgage prepayment rates on the loans underlying our Agency RMBS;

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• actions by the federal, state, or local governments that affect the economy, the housing sector or financial markets;

• the ongoing availability of personnel and systems to conduct our operations;

• the direct or indirect effects of geopolitical events, including war, terrorism, civil discord, embargos, trade or other disputes, or natural disasters, on conditions in the markets for Agency RMBS or other mortgage securities, the terms or availability of funding for our business, or our ongoing business operations;

• the availability of personnel, operational resources, information technology and other systems to conduct our operations;

• changes to laws, regulations, rules or policies that affect U.S.

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Forward-looking statements speak only as of the date made, and we do not assume any duty and do not undertake to update forward-looking statements.

A further discussion of risks and uncertainties that could cause actual results to differ from any of our forward-looking statements is included in our most recent Annual Report on Form 10-K and this document under Item 1A.

Risk Factors .

A further discussion of risks and uncertainties that could cause actual results to differ from any of our forward-looking statements is included under Item 1A.

Risk Factors in Part I of our most recent Annual Report on Form 10-K and Part II of this Form 10-Q.

We caution readers not to place undue reliance on our forward-looking statements.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis