AGNC Investment Corp. 10-Q

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 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 June 30, 2024. Our MD&A is presented in the following sections: • Executive Overview • Financial Condition • Results of Operations • Liquidity and Capital Resources • Off-Balance Sheet Arrangements • Forward-Looking Statements • Website and Social Media Disclosure EXECUTIVE OVERVIEW We are a leading provider of private capital to the U.S. housing market, enhancing liquidity in the residential real estate mortgage markets and, in turn, facilitating home ownership in the U.S. We invest primarily in Agency residential mortgage-backed securities ("Agency RMBS") on a leveraged basis. These investments consist of residential mortgage pass-through securities and collateralized mortgage obligations for which the principal and interest payments are guaranteed by a U.S. Government-sponsored enterprise, such as Federal National Mortgage Association ("Fannie Mae") and Federal Home Loan Mortgage Corporation ("Freddie Mac," and together with Fannie Mae, the "GSEs"), or by a U.S. Government agency, such as Government National Mortgage Association ("Ginnie Mae"). We may also invest in other assets related to the housing, mortgage or real estate markets that are not guaranteed by a GSE or U.S. Government agency. 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. We fund our investments primarily through collateralized borrowings structured as repurchase agreements. We operate in a manner to qualify to be taxed as a REIT under the Internal Revenue Code. 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 strong fixed income momentum that began in the fourth quarter of 2023 abated in the second quarter of 2024, as the Federal Reserve (the “Fed”) and market participants looked for indications that the economy was slowing and inflation moderating. On balance, the data showed that consumer spending and confidence were weakening, the labor market was moving into better balance, and most importantly, inflation measures were trending toward the Fed’s long run target. Nevertheless, the Fed was unwilling to adopt a more accommodative monetary policy stance. Against the backdrop of diverging economic and monetary policy outlooks, fixed income markets became more cautious, and intra-quarter volatility increased. In aggregate, interest rates edged higher and Agency RMBS spreads to benchmark interest rates widened, which drove our negative economic return for the second quarter of -0.9%. For Agency RMBS, the second quarter was a push and pull between evolving supply and demand dynamics. On the demand side, bank and foreign demand moderated in the second quarter, while demand from bond funds remained steady, but limited, given an already overweight position. On the supply side, seasonal dynamics led to an uptick in Agency RMBS supply, with $52 billion in supply for the quarter, double the pace of the first quarter. As a result, Agency RMBS spreads to Treasuries widened approximately five to 10 basis points across the coupon stack, with current production securities, namely the 5.5% and 6% coupons, experiencing the greatest spread widening given the uptick in supply. Despite the intra-quarter rate volatility, Agency RMBS continued to trade within the relatively narrow spread range that has emerged over the course of the last several quarters. For current coupon Agency RMBS, that trading range has evolved to approximately 140 to 160 basis points to a blend of 5- and 10-year Treasury hedges. Using a similar combination of swap 26 hedges, that range has evolved to approximately 170 to 190 basis points. At quarter end, Agency RMBS spreads to Treasuries and swaps were approximately 150 and 180 basis points, respectively, squarely in the middle of these recent ranges. We view this range-bound trading behavior as a positive development for Agency RMBS. Economic data released in July has continued to be supportive of a more accommodative Fed monetary policy stance. The shift in Fed policy will likely occur over the next several months and start a new, more favorable monetary policy cycle. Although we may continue to experience bouts of market turbulence in the short term due to evolving monetary policy expectations, political uncertainty and geopolitical risks, we believe AGNC is well positioned for this environment. Our active management strategy, core 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. The moderate spread widening that occurred during the second quarter drove AGNC’s total comprehensive loss of $(0.13) per diluted common share and economic loss of -0.9% on tangible common equity for the quarter, comprised of $0.36 dividends declared per common share and a $(0.44) decrease in tangible net book value per common share. For the first two quarters of 2024, AGNC had total comprehensive income of $0.33 per diluted common share and generated an economic return of 4.8%, comprised of $0.72 dividends per common share and a $(0.30) decrease in tangible net book value per common share. During the first two quarters, we maintained a significant interest rate hedge position, which covered 98% of the outstanding balance of our Investment Securities Repo, TBA position and other debt as of the end of the second quarter. “At risk” leverage increased modestly for the second quarter to 7.4x tangible stockholders’ equity as of the end of the quarter from 7.1x as of March 31, 2024. At the same time, our unencumbered cash and Agency RMBS was largely unchanged at the end of the second quarter from the first quarter at $5.3 billion, or 65% of our tangible stockholders' equity. The weighted average coupon on our fixed-rate Agency RMBS and TBA securities increased to 4.95% as of the end of the second quarter, from 4.86% as of the first quarter, as we continued to shift a larger share of our asset portfolio toward higher coupon, high-quality specified pools. Consistent with the increase in interest rates, the average projected life CPR for our portfolio at quarter-end decreased 120 basis points to 9.2%. Seasonal factors drove an increase in our actual CPRs for the quarter to an average of 7.1%, up from 5.7% for the prior quarter. Net spread and dollar roll income per diluted common share (a non-GAAP measure) totaled $0.53 for the second quarter, a decline of 5 cents per share from the first quarter of $0.58 per share. This decline was primarily due to higher swap costs resulting from the replacement of maturing interest rate swaps and an overall increase in our interest rate swap position, which more than offset the increase in the average asset yield on our portfolio. During the first two quarters, we utilized our At-the-Market offering program (“ATM”) to opportunistically create incremental value for existing stockholders through book value and earnings accretion. In the first and second quarters, we issued $241 million and $434 million of common equity, respectively, at significant price-to-book premiums and invested those proceeds in attractively priced assets. 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. For information regarding the sensitivity of our tangible net book value per common share to changes in interest rates and mortgage spreads, please refer to Item 3. Quantitative and Qualitative Disclosures about Market Risk in this form 10-Q . 27 Market Information The following table summarizes benchmark interest rates and prices of generic fixed rate Agency RMBS as of each date presented below: Interest Rate/Security Price 1 June 30, 2023 Sept. 30, 2023 Dec. 31, 2023 Mar. 31, 2024 June 30, 2024 June 30, 2024 vs Mar. 31, 2024 June 30, 2024 vs Dec. 31, 2023 Target Federal Funds Rate: Target Federal Funds Rate - Upper Band 5.25% 5.50% 5.50% 5.50% 5.50% — bps — bps SOFR: SOFR Rate 5.09% 5.31% 5.38% 5.34% 5.33% -1 bps -5 bps SOFR Interest Rate Swap Rate: 2-Year Swap 4.82% 4.97% 4.07% 4.55% 4.61% +6 bps +54 bps 5-Year Swap 3.94% 4.38% 3.53% 3.98% 4.10% +12 bps +57 bps 10-Year Swap 3.58% 4.27% 3.47% 3.84% 3.98% +14 bps +51 bps 30-Year Swap 3.20% 4.01% 3.32% 3.62% 3.76% +14 bps +44 bps U.S. Treasury Security Rate: 2-Year U.S. Treasury 4.90% 5.05% 4.25% 4.62% 4.76% +14 bps +51 bps 5-Year U.S. Treasury 4.16% 4.61% 3.85% 4.21% 4.38% +17 bps +53 bps 10-Year U.S. Treasury 3.84% 4.57% 3.88% 4.20% 4.40% +20 bps +52 bps 30-Year U.S. Treasury 3.86% 4.70% 4.03% 4.34% 4.56% +22 bps +53 bps 30-Year Fixed Rate Agency Price: 2.5% $84.77 $79.39 $85.24 $82.77 $81.87 -$0.90 -$3.37 3.0% $88.01 $82.75 $88.58 $86.16 $85.26 -$0.90 -$3.32 3.5% $91.11 $86.02 $91.86 $89.61 $88.67 -$0.94 -$3.19 4.0% $93.84 $89.09 $94.69 $92.74 $91.68 -$1.06 -$3.01 4.5% $96.14 $91.85 $97.04 $95.34 $94.45 -$0.89 -$2.59 5.0% $98.00 $94.39 $99.04 $97.70 $96.81 -$0.89 -$2.23 5.5% $99.55 $96.68 $100.56 $99.58 $98.76 -$0.82 -$1.80 6.0% $100.88 $98.74 $101.63 $100.98 $100.39 -$0.59 -$1.24 6.5% $102.12 $100.52 $102.51 $102.21 $101.88 -$0.33 -$0.63 15-Year Fixed Rate Agency Price: 1.5% $86.30 $83.27 $86.86 $86.69 $85.61 -$1.08 -$1.25 2.0% $88.61 $85.81 $89.47 $88.71 $88.00 -$0.71 -$1.47 2.5% $90.98 $88.21 $92.14 $91.07 $90.44 -$0.63 -$1.70 3.0% $93.32 $90.54 $94.30 $93.17 $92.61 -$0.56 -$1.69 3.5% $95.14 $92.52 $96.39 $95.13 $94.61 -$0.52 -$1.78 4.0% $96.59 $94.42 $98.10 $96.95 $96.24 -$0.71 -$1.86 ________________________________ 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. Price information is sourced from Barclays. Interest rate information is sourced from Bloomberg. 28 The following table summarizes mortgage and credit spreads as of each date presented below: Mortgage Rate/Credit Spread June 30, 2023 Sept. 30, 2023 Dec. 31, 2023 Mar. 31, 2024 June 30, 2024 June 30, 2024 vs Mar. 31, 2024 June 30, 2024 vs Dec. 31, 2023 Mortgage Rate: 1 30-Year Agency Current Coupon Yield to 5-Year U.S. Treasury Spread 147 175 140 139 149 +10 +9 30-Year Agency Current Coupon Yield to 10-Year U.S. Treasury Spread 179 179 137 140 147 +7 +10 30-Year Agency Current Coupon Yield to 5/10-Year U.S. Treasury Spread 163 177 139 139 149 +10 +10 30-Year Agency Current Coupon Yield 5.63% 6.36% 5.25% 5.60% 5.87% +27 bps +62 bps 30-Year Mortgage Rate 6.78% 7.41% 6.56% 6.74% 6.94% +20 bps +38 bps Credit Spread (in bps): 2 CRT M2 360 252 206 182 166 -16 -40 CMBS AAA 151 137 118 88 100 +12 -18 CDX IG 66 74 56 51 54 +3 -2 ________________________________ 1. 30-Year Current Coupon Yield represents yield on new production Agency RMBS. 30-Year Current Coupon Yields are sourced from Bloomberg and 30-Year Mortgage Rates are sourced from Clear Blue. 2. CRT and CDX spreads sourced from JP Morgan. CMBS spreads are the average of spreads sourced from Bank of America, JP Morgan and Wells Fargo. 29 FINANCIAL CONDITION As of June 30, 2024 and December 31, 2023, our investment portfolio totaled $66.0 billion and $60.2 billion, respectively, consisting of: $59.7 billion and $53.8 billion Agency RMBS, at fair value, respectively; $5.3 billion and $5.4 billion net TBA securities, at fair value, respectively; $0.9 billion and $1.0 billion CRT, non-Agency RMBS and CMBS, at fair value, respectively; and other mortgage credit investments of $60 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 (including TBA securities) as of June 30, 2024 and December 31, 2023 (dollars in millions): June 30, 2024 December 31, 2023 Investment Securities (Includes TBAs) 1 Amortized Cost Fair Value Average Coupon % Amortized Cost Fair Value Average Coupon % Fixed rate Agency RMBS and TBA securities: ≤ 15-year: ≤ 15-year RMBS $ 116 $ 108 2.74 % — % $ 759 $ 718 3.25 % 1 % 15-year TBA securities 89 89 5.00 % — % 89 91 5.00 % — % Total ≤ 15-year 205 197 3.74 % — % 848 809 3.44 % 1 % 20-year RMBS 610 534 3.10 % 1 % 872 768 2.82 % 1 % 30-year: 30-year RMBS 60,980 58,087 4.97 % 88 % 53,658 51,675 4.82 % 86 % 30-year TBA securities, net 2 5,229 5,259 4.95 % 8 % 5,199 5,263 5.50 % 9 % Total 30-year 66,209 63,346 4.97 % 96 % 58,857 56,938 4.88 % 95 % Total fixed rate Agency RMBS and TBA securities 67,024 64,077 4.95 % 97 % 60,577 58,515 4.83 % 97 % Adjustable rate Agency RMBS 667 661 4.78 % 1 % 293 290 4.67 % — % Multifamily 138 139 4.39 % — % 161 162 4.47 % — % CMO Agency RMBS: CMO 114 107 3.30 % — % 127 120 3.28 % — % Interest-only strips 37 32 1.81 % — % 40 35 1.77 % — % Principal-only strips 26 24 — % — % 27 26 — % — % Total CMO Agency RMBS 3 177 163 3.30 % — % 194 181 3.28 % 1 % Total Agency RMBS and TBA securities 3 68,006 65,040 4.94 % 99 % 61,225 59,148 4.83 % 98 % Non-Agency RMBS 1,3 17 14 5.31 % — % 43 34 4.61 % — % CMBS 3 267 243 6.69 % — % 303 273 7.27 % — % CRT 627 683 11.04 % 1 % 682 723 10.45 % 1 % Total investment securities 3 $ 68,917 $ 65,980 5.01 % 100 % $ 62,253 $ 60,178 4.90 % 100 % ________________________________ 1. Table excludes other mortgage credit investments of $60 million and $44 million as of June 30, 2024 and December 31, 2023, respectively. 2. TBA securities are presented net of long and short positions. For further details of our TBA securities refer to Note 5 of our Consolidated Financial Statements in this Form 10-Q 3. Average coupon excludes interest-only and principal-only securities. 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 June 30, 2024 and December 31, 2023, our TBA securities had a net carrying value of $30 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 June 30, 2024 and December 31, 2023, the weighted average yield on our investment securities (excluding TBA and forward settling securities) was 4.70% and 4.41%, respectively. 30 The following tables summarize certain characteristics of our fixed rate Agency RMBS portfolio, inclusive of TBA securities, as of June 30, 2024 and December 31, 2023 (dollars in millions): June 30, 2024 Includes Net TBA Position Excludes Net TBA Position Fixed Rate Agency RMBS and TBA Securities Par Value Amortized Cost Fair Value Specified Pool % 1 Weighted Average Coupon Amortized Cost Basis Weighted Average Projected CPR 2 Yield 2 Age (Months) Fixed rate ≤ 15-year: ≤ 2.5% 52 53 47 100% 2.14% 101.7% 1.74% 68 10% 3.0% 42 42 40 100% 3.00% 101.0% 2.40% 131 14% 3.5% 11 11 11 100% 3.50% 101.3% 2.61% 131 15% 4.0% 9 9 9 7% 4.00% 101.5% 1.93% 160 28% 4.5% 1 1 1 100% 4.50% 101.4% 2.70% 159 24% 5.0% 90 89 89 —% 5.00% 100.5% 2.29% 174 59% Total ≤ 15-year 205 205 197 51% 3.74% 101.4% 2.08% 104 14% 20-year: 2.5% 322 337 281 —% 2.50% 104.6% 1.73% 48 5% 3.0% 25 26 23 97% 3.00% 103.6% 2.29% 59 7% 3.5% 107 109 102 79% 3.50% 101.7% 2.97% 130 9% 4.0% 63 65 60 92% 4.00% 103.8% 3.09% 87 9% ≥ 4.5% 69 73 68 99% 4.50% 105.1% 3.23% 89 10% Total 20-year: 586 610 534 42% 3.10% 104.0% 2.30% 72 7% 30-year: ≤ 3.0% 3,830 3,800 3,155 54% 2.42% 99.2% 2.51% 38 6% 3.5% 5,318 5,516 4,825 84% 3.50% 104.1% 2.84% 103 7% 4.0% 6,276 6,617 5,872 90% 4.00% 105.7% 3.09% 86 7% 4.5% 7,000 7,159 6,684 56% 4.50% 103.7% 3.86% 51 8% 5.0% 11,704 11,592 11,401 34% 5.00% 99.2% 5.04% 17 7% 5.5% 15,996 16,002 15,886 28% 5.50% 100.2% 5.45% 14 9% 6.0% 10,651 10,790 10,778 35% 6.00% 101.2% 5.76% 11 12% ≥ 6.5% 4,616 4,733 4,745 39% 6.52% 102.6% 5.89% 10 15% Total 30-year 65,391 66,209 63,346 45% 4.97% 101.7% 4.66% 34 9% Total fixed rate $ 66,182 $ 67,024 $ 64,077 45% 4.95% 101.7% 4.64% 35 9% ________________________________ 1. 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 June 30, 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. 2. Portfolio yield incorporates a projected life CPR based on forward rate assumptions as of June 30, 2024. 31 December 31, 2023 Includes Net TBA Position Excludes Net TBA Position Fixed Rate Agency RMBS and TBA Securities Par Value Amortized Cost Fair Value Specified Pool % 1 Weighted Average Coupon Amortized Cost Basis Weighted Average Projected CPR 2 Yield 2 Age (Months) Fixed rate ≤ 15-year: ≤ 2.5% 58 59 54 100% 2.16% 101.7% 1.77% 65 10% 3.0% 442 450 423 99% 3.00% 101.5% 2.54% 71 10% 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% 20-year: ≤ 2.0% 219 225 188 —% 2.00% 102.6% 1.58% 37 5% 2.5% 337 352 301 —% 2.50% 104.7% 1.72% 42 6% 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: 842 872 768 32% 2.82% 103.6% 2.11% 59 7% 30-year: ≤ 3.0% 3,816 3,861 3,263 55% 2.43% 101.0% 2.28% 34 6% 3.5% 5,580 5,811 5,230 86% 3.50% 104.1% 2.84% 97 7% 4.0% 6,586 6,960 6,358 92% 4.00% 105.7% 3.08% 80 8% 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% Total fixed rate $ 59,442 $ 60,577 $ 58,515 47% 4.83% 102.2% 4.34% 35 11% ________________________________ 1. See Note 1 of preceding table for specified pool composition. As of December 31, 2023, lower balance specified pools had a weighted average original loan balance of $132,000 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. 2. 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 June 30, 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," 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 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 32 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 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. Additionally, we believe the exclusion of "catch-up" premium amortization adjustments is meaningful as it excludes the cumulative effect from prior reporting periods due to current changes in future prepayment expectations and, therefore, exclusion of such adjustments is more indicative of the current earnings potential of our investment portfolio. 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, 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. ________________________________ 1. 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 June 30, 2024 and December 31, 2023 and condensed consolidated statements of comprehensive income and key statistics for the three and six months ended June 30, 2024 (in millions, except per share amounts): June 30, December 31, Balance Sheet Data 2024 2023 (Unaudited) Investment securities, at fair value of $60,632 and $54,824, respectively, and other mortgage credit investments $ 60,692 $ 54,868 Total assets $ 79,685 $ 71,596 Repurchase agreements and other debt $ 57,018 $ 50,506 Total liabilities $ 71,033 $ 63,339 Total stockholders' equity $ 8,652 $ 8,257 Net book value per common share 1 $ 9.09 $ 9.46 Tangible net book value per common share 2 $ 8.40 $ 8.70 33 Three Months Ended June 30, Six Months Ended June 30, Statement of Comprehensive Income Data (Unaudited) 2024 2023 2024 2023 Interest income $ 695 $ 457 $ 1,337 $ 808 Interest expense 698 526 1,370 975 Net interest income (expense) (3) (69) (33) (167) Other gain (loss), net (21) 378 476 347 Operating expenses 24 23 48 45 Net income (loss) (48) 286 395 135 Dividends on preferred stock 32 31 63 61 Net income (loss) available (attributable) to common stockholders $ (80) $ 255 $ 332 $ 74 Net income (loss) $ (48) $ 286 $ 395 $ 135 Other comprehensive income (loss), net (18) (65) (95) 77 Comprehensive income (loss) (66) 221 300 212 Dividends on preferred stock 32 31 63 61 Comprehensive income (loss) available (attributable) to common stockholders $ (98) $ 190 $ 237 $ 151 Weighted average number of common shares outstanding - basic 740.0 598.8 721.1 589.1 Weighted average number of common shares outstanding - diluted 740.0 599.7 723.0 590.1 Net income (loss) per common share - basic $ (0.11) $ 0.43 $ 0.46 $ 0.13 Net income (loss) per common share - diluted $ (0.11) $ 0.43 $ 0.46 $ 0.13 Comprehensive income (loss) per common share - basic $ (0.13) $ 0.32 $ 0.33 $ 0.26 Comprehensive income (loss) per common share - diluted $ (0.13) $ 0.32 $ 0.33 $ 0.26 Dividends declared per common share $ 0.36 $ 0.36 $ 0.72 $ 0.72 Three Months Ended June 30, Six Months Ended June 30, Other Data (Unaudited) * 2024 2023 2024 2023 Average investment securities - at par $ 58,066 $ 47,711 $ 56,761 $ 47,043 Average investment securities - at cost $ 59,198 $ 49,119 $ 57,926 $ 48,497 Average net TBA dollar roll position - at cost $ 6,805 $ 9,985 $ 6,498 $ 13,896 Average total assets - at fair value $ 73,885 $ 62,469 $ 72,303 $ 60,391 Average repurchase agreements and other debt outstanding 3 $ 50,784 $ 41,546 $ 49,757 $ 40,690 Average stockholders' equity 4 $ 8,481 $ 7,712 $ 8,380 $ 7,896 Average tangible net book value "at risk" leverage 5 7.2:1 7.2:1 7.2:1 7.4:1 Tangible net book value "at risk" leverage (as of period end) 6 7.4:1 7.2:1 7.4:1 7.2:1 Economic return on tangible common equity 7 (0.9) % 3.6 % 4.8 % 2.7 % Expenses % of average total assets - annualized 0.13 % 0.15 % 0.13 % 0.15 % Expenses % of average assets, including average net TBA position - annualized 0.12 % 0.13 % 0.12 % 0.12 % Expenses % of average stockholders' equity - annualized 1.13 % 1.19 % 1.15 % 1.14 % ________________________________ * Except as noted below, average numbers for each period are weighted based on days on our books and records. 1. Net book value per common share is calculated as total stockholders' equity, less preferred stock liquidation preference, divided by number of common shares outstanding as of period end. 2. Tangible net book value per common share excludes goodwill. 3. Amount represents the daily weighted average repurchase agreements outstanding for the period used to fund our investment securities and other debt. Amount excludes U.S. Treasury repurchase agreements and TBA contracts. Other debt includes debt of consolidated VIEs. 4. Average stockholders' equity calculated as average month-ended stockholders' equity during the period. 5. Average tangible net book value "at risk" leverage is calculated by dividing the sum of daily weighted average repurchase agreements used to fund our investment securities, other debt, and TBA and forward settling securities (at cost) (collectively "mortgage borrowings") outstanding for the period by the sum of average stockholders' equity adjusted to exclude goodwill for the period. Leverage excludes U.S. Treasury repurchase agreements. 6. Tangible net book value "at risk" leverage as of period end is calculated by dividing the sum of mortgage borrowings outstanding and receivable/payable for unsettled investment securities as of period end by the sum of total stockholders' equity adjusted to exclude goodwill as of period end. Leverage excludes U.S. Treasury repurchase agreements. 34 7. Economic return on tangible common equity represents the sum of the change in tangible net book value per common share and dividends declared per share of common stock during the period over beginning tangible net book value per common share. Economic Interest Income and Asset Yields The following table summarizes our economic interest income (a non-GAAP measure) for the three and six months ended June 30, 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 June 30, Six Months Ended June 30, 2024 2023 2024 2023 Amount Yield Amount Yield Amount Yield Amount Yield Interest income: Cash/coupon interest income $ 723 4.98 % $ 502 4.21 % $ 1,402 4.94 % $ 973 4.14 % Net premium amortization benefit (cost) (28) (0.28) % (45) (0.49) % (65) (0.32) % (165) (0.81) % Interest income (GAAP measure) 695 4.70 % 457 3.72 % 1,337 4.62 % 808 3.33 % Estimated "catch-up" premium amortization cost (benefit) due to change in CPR forecast (14) (0.10) % (11) (0.09) % (24) (0.09) % 58 0.24 % Interest income, excluding "catch-up" premium amortization 681 4.60 % 446 3.63 % 1,313 4.53 % 866 3.57 % TBA dollar roll income - implied interest income 1,2 93 5.47 % 129 5.18 % 177 5.45 % 349 5.03 % Economic interest income (non-GAAP measure) 3 $ 774 4.69 % $ 575 3.89 % $ 1,490 4.63 % $ 1,215 3.90 % Weighted average actual portfolio CPR for investment securities held during the period 7.1 % 6.6 % 6.4 % 5.9 % Weighted average projected CPR for the remaining life of investment securities held as of period end 9.2 % 9.8 % 9.2 % 9.8 % 30-year fixed rate mortgage rate as of period end 4 6.94 % 6.78 % 6.94 % 6.78 % 10-year U.S. Treasury rate as of period end 4 4.40 % 3.84 % 4.40 % 3.84 % ________________________________ 1. Reported in gain (loss) on derivatives instruments and other securities, net in the accompanying consolidated statements of operations. 2. Implied interest income from TBA dollar roll transactions is computed as the sum of (i) TBA dollar roll income and (ii) estimated TBA implied funding cost (see Economic Interest Expense and Aggregate Cost of Funds below). TBA dollar roll income represents the price differential, or "price drop," between the TBA price for current month settlement versus the TBA price for forward month settlement and is the economic equivalent to interest income on the underlying Agency securities, less an implied funding cost, over the forward settlement period. Amount is net of TBAs used for hedging purposes. Amount excludes TBA mark-to-market adjustments. 3. 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. 4. 30-year fixed rate mortgage rates are sourced from Optimal Blue. 10-year U.S. 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 six months ended June 30, 2024 compared to the prior year period (in millions): 35 Impact of Changes in the Principal Elements Impacting Economic Interest Income Periods ended June 30, 2024 vs. June 30, 2023 Due to Change in Average Three months ended: Total Increase / (Decrease) Portfolio Size Asset Yield Interest Income (GAAP measure) $ 238 $ 94 $ 144 Estimated "catch-up" premium amortization due to change in CPR forecast (3) — (3) Interest income, excluding "catch-up" premium amortization 235 94 141 TBA dollar roll income - implied interest income (36) (41) 5 Economic interest income, excluding "catch-up" amortization (non-GAAP measure) $ 199 $ 53 $ 146 Due to Change in Average Six months ended: Total Increase / (Decrease) Portfolio Size Asset Yield Interest Income (GAAP measure) $ 529 $ 157 $ 372 Estimated "catch-up" premium amortization due to change in CPR forecast (82) — (82) Interest income, excluding "catch-up" premium amortization 447 157 290 TBA dollar roll income - implied interest income (172) (186) 14 Economic interest income, excluding "catch-up" amortization (non-GAAP measure) $ 275 $ (29) $ 304 Our average investment portfolio (at cost), inclusive of TBAs, increased 12% and 3% for the three and six months ended June 30, 2024, respectively, primarily due to an increase in our capital base. The average yield on our investment portfolio, including TBA implied asset yields and excluding "catch-up" premium amortization, increased 80 and 73 basis points for the three and six months ended June 30, 2024, respectively, largely as a result of shifting our asset portfolio from TBA and lower coupon holdings toward a greater share of higher coupon, specified pools. Leverage 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. We include our net TBA position in our measure of leverage because a forward contract to acquire Agency RMBS in the TBA market carries similar risks to Agency RMBS purchased in the cash market and funded with on-balance sheet liabilities. 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 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. Treasury securities ("U.S. Treasury repo") are excluded from our measure of leverage due to the temporary and highly liquid nature of these investments. The following table presents a summary of our leverage ratios for the periods listed (dollars in millions): Investment Securities Repurchase Agreements and Other Debt 1 Net TBA Position Long/(Short) 2 Average Tangible Net Book Value "At Risk" Leverage during the Period 3 Tangible Net Book Value "At Risk" Leverage as of Period End 4 Quarter Ended Average Daily Amount Maximum Daily Amount Ending Amount Average Daily Amount Ending Amount June 30, 2024 $ 50,784 $ 55,507 $ 54,682 $ 6,805 $ 5,318 7.2:1 7.4:1 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, 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, 2023 $ 39,824 $ 42,919 $ 42,022 $ 17,851 $ 10,385 7.7:1 7.2:1 ________________________________ 1. Other debt includes debt of consolidated VIEs. Amounts exclude U.S. Treasury repo agreements. 2. Daily average and ending net TBA position outstanding measured at cost. Includes forward settling non-Agency securities. 3. Average tangible net book value "at risk" leverage during the period represents the sum of our daily weighted average repurchase agreements and other debt used to fund acquisitions of investment securities and net TBA and forward settling securities position outstanding, divided by the sum of our average month-ended stockholders' equity, adjusted to exclude goodwill. 4. Tangible net book value "at risk" leverage as of period end represents the sum of our repurchase agreements and other debt used to fund acquisitions of investments securities, net TBA and forward settling securities position (at cost), and net receivable/payable for unsettled investment securities outstanding as of period end, divided by total stockholders' equity, adjusted to exclude goodwill as of period end. 36 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 six months ended June 30, 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 June 30, Six Months Ended June 30, 2024 2023 2024 2023 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 Investment securities repurchase agreement and other debt - interest expense (GAAP measure) $ 698 5.44 % $ 526 5.01 % $ 1,370 5.44 % $ 975 4.77 % TBA dollar roll income - implied interest expense 2,3 88 5.11 % 123 4.89 % 172 5.22 % 325 4.66 % Economic interest expense - before interest rate swap periodic income, net 4 786 5.39 % 649 4.98 % 1,542 5.42 % 1,300 4.74 % Interest rate swap periodic income, net 2,5 (494) (3.39) % (567) (4.35) % (1,030) (3.62) % (1,071) (3.90) % Total economic interest expense (non-GAAP measure) $ 292 2.00 % $ 82 0.63 % $ 512 1.80 % $ 229 0.84 % ________________________________ 1. Amounts exclude interest rate swap termination fees and variation margin settlements paid or received, forward starting swaps and the impact of other supplemental hedges, such as swaptions and U.S. Treasury positions. 2. Reported in gain (loss) on derivative instruments and other securities, net in our consolidated statements of comprehensive income. 3. The implied funding cost (benefit) of TBA dollar roll transactions is determined using the price differential, or "price drop," between the TBA price for current month settlement versus the TBA price for forward month settlement and market based assumptions regarding the "cheapest-to-deliver" collateral that can be delivered to satisfy the TBA contract, such as the anticipated collateral’s weighted average coupon, weighted average maturity and projected 1-month CPR. The average implied funding cost (benefit) for all TBA transactions is weighted based on our daily average TBA balance outstanding for the period. 4. 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. 5. 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 six months ended June 30, 2024 compared to the prior year period (in millions): Impact of Changes in the Principal Elements of Economic Interest Expense Periods ended June 30, 2024 vs. June 30, 2023 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 $ 172 $ 117 $ 55 TBA dollar roll income - implied interest expense (35) (39) 4 Interest rate swap periodic income/cost 73 37 36 Total change in economic interest expense $ 210 $ 115 $ 95 Due to Change in Average Six months ended: Total Increase / (Decrease) Borrowing / Swap Balance Borrowing / Swap Rate Investment securities repurchase agreement and other debt interest expense $ 395 $ 221 $ 174 TBA dollar roll income - implied interest benefit/expense (153) (172) 19 Interest rate swap periodic income/cost 41 82 (41) Total change in economic interest benefit/expense $ 283 $ 131 $ 152 Our average mortgage borrowings, inclusive of TBAs, increased 12% and 3% for the three and six months ended June 30, 2024, respectively, consistent with the increase in our investment portfolio. The average interest rate on our mortgage borrowings, excluding the impact interest rate swap period income, increased 41 and 68 basis points for the three and six months ended June 30, 2024, respectively, due to higher short-term interest rates. 37 Interest rate swap periodic income declined for the three and six months ended June 30, 2024 primarily due to higher pay rates on our pay-fixed swaps, which were partly offset by higher receive rates. The following is a summary of our average interest rate swaps outstanding and their average pay and receive rates for the three and six months ended June 30, 2024 (dollars in millions). Amounts exclude forward starting swaps not yet in effect. Three Months Ended June 30, Six Months Ended June 30, Average Ratio of Interest Rate Swaps (Excluding Forward Starting Swaps) to Mortgage Borrowings Outstanding 2024 2023 2024 2023 Average investment securities repo and other debt outstanding $ 50,784 $ 41,546 $ 49,757 $ 40,690 Average net TBA dollar roll position outstanding - at cost $ 6,805 $ 9,985 $ 6,498 $ 13,896 Average mortgage borrowings outstanding $ 57,589 $ 51,531 $ 56,255 $ 54,586 Average notional amount of interest rate swaps outstanding (excluding forward starting swaps), net $ 45,263 $ 48,436 $ 44,583 $ 48,837 Ratio of average interest rate swaps to mortgage borrowings outstanding 79 % 94 % 79 % 89 % Average interest rate swap pay-fixed rate (excluding forward starting swaps) 1.18 % 0.44 % 1.01 % 0.45 % Average interest rate swap receive-floating rate (5.50) % (5.07) % (5.58) % (4.81) % Average interest rate swap net pay/(receive) rate (4.32) % (4.63) % (4.57) % (4.36) % For the three and six months ended June 30, 2024, we had an average forward starting net pay-fixed rate swap balance of $1.8 billion and $0.7 billion, respectively. For the three and six months ended June 30, 2023, we had an average forward starting net pay and (receive) fixed rate swap balance of $(12) million and $45 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 six months ended June 30, 2024 and 2023: Three Months Ended June 30, Six Months Ended June 30, Investment and TBA Securities - Net Interest Spread 2024 2023 2024 2023 Average asset yield 4.69 % 3.89 % 4.63 % 3.90 % Average aggregate cost of funds (2.00) % (0.63) % (1.80) % (0.84) % Average net interest spread 2.69 % 3.26 % 2.83 % 3.06 % 38 Net Spread and Dollar Roll Income 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 and six months ended June 30, 2024 and 2023 (dollars in millions): Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Comprehensive income (loss) available (attributable) to common stockholders $ (98) $ 190 $ 237 $ 151 Adjustments to exclude realized and unrealized (gains) losses reported through net income: Realized loss on sale of investment securities, net 115 255 206 336 Unrealized (gain) loss on investment securities measured at fair value through net income, net 261 363 732 (231) Gain on derivative instruments and other securities, net (355) (996) (1,414) (452) 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 18 65 95 (77) Other adjustments: Estimated "catch-up" premium amortization cost (benefit) due to change in CPR forecast 1 (14) (11) (24) 58 TBA dollar roll income, net 2 5 6 5 24 Interest rate swap periodic income (cost), net 2 494 567 1,030 1,071 Other interest income (expense), net 2,3 (32) (35) (67) (68) Net spread and dollar roll income available to common stockholders (non-GAAP measure) 4 394 404 800 812 Weighted average number of common shares outstanding - basic 740.0 598.8 721.1 589.1 Weighted average number of common shares outstanding - diluted 741.9 599.7 723.0 590.1 Net spread and dollar roll income per common share - basic $ 0.53 $ 0.67 $ 1.11 $ 1.38 Net spread and dollar roll income per common share - diluted $ 0.53 $ 0.67 $ 1.11 $ 1.38 ________________________________ 1. Reported in interest income in our consolidated statements of comprehensive income. 2. Reported in gain (loss) on derivative instruments and other securities, net in our consolidated statements of comprehensive income. 3. Other interest income (expense), net includes interest income on cash and cash equivalents; price alignment interest income (expense) ("PAI") on interest rate swap margin deposits posted by or (to) the Company; and other miscellaneous interest income (expense). 4. 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 six months ended June 30, 2024 and 2023 (in millions): Three Months Ended June 30, Six Months Ended June 30, Gain (Loss) on Investment Securities, Net 1 2024 2023 2024 2023 Loss on sale of investment securities, net $ (115) $ (255) $ (206) $ (336) Unrealized (loss) gain on investment securities measured at fair value through net income, net 2 (261) (363) (732) 231 Unrealized (loss) gain on investment securities measured at fair value through other comprehensive income, net (18) (65) (95) 77 Total loss on investment securities, net $ (394) $ (683) $ (1,033) $ (28) ________________________________ 1. Amounts exclude gain (loss) on TBA securities, which are reported in gain (loss) on derivative instruments and other securities, net in our Consolidated Statements of Comprehensive Income. 2. Investment securities acquired after fiscal year 2016 are measured at fair value through net income (see Note 2 of our Consolidated Financial Statements in this Form 10-Q). 39 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 six months ended June 30, 2024 and 2023 (in millions): Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 TBA securities, dollar roll income $ 5 $ 6 $ 5 $ 24 TBA securities, mark-to-market loss (34) (142) (92) (48) Interest rate swaps, periodic income (cost) 494 567 1,030 1,071 Interest rate swaps, mark-to-market gain (loss) (315) 290 (202) (446) Credit default swaps - buy protection — (5) (3) (8) Payer swaptions — 26 33 (40) U.S. Treasury securities - short position 163 234 501 77 U.S. Treasury securities - long position (12) (130) (55) (55) U.S. Treasury futures contracts - short position 89 212 275 (23) SOFR futures contracts - long position (3) (16) (13) (19) Other interest income (expense), net (32) (35) (67) (68) Other gain (loss), net — (11) 2 (13) Total gain (loss) on derivative instruments and other securities, net $ 355 $ 996 $ 1,414 $ 452 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. 40 LIQUIDITY AND CAPITAL RESOURCES Our business is dependent on our ability to maintain adequate levels of liquidity and capital resources to fund day-to-day operations, fulfill collateral requirements under our funding and derivative agreements, and to satisfy our dividend distribution requirement of at least 90% of our taxable income to maintain our qualification as a REIT. Our primary sources of liquidity are unencumbered cash and securities, borrowings available under repurchase agreements, TBA dollar roll financing and monthly receipts of principal and interest payments. We may also conduct asset sales, change our asset or funding mix, issue equity or undertake other capital enhancing actions to maintain adequate levels of liquidity and capital resources. There are various risks and uncertainties that can impact our liquidity, such as those described in Item 1A. Risk Factors of our most recent Annual Report on Form 10-K and Item 3. Quantitative and Qualitative Disclosures of Market Risks in this Form 10-Q. In assessing our liquidity, we consider a number of factors, including our current leverage, collateral levels, access to capital markets, overall market conditions, and the sensitivity of our tangible net book value over a range of scenarios. We believe that we have sufficient liquidity and capital resources available to meet our obligations and execute our business strategy. Leverage and Financing Sources 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 7.4x and 7.0x as of June 30, 2024 and December 31, 2023, respectively. The following table includes a summary of our mortgage borrowings outstanding as of June 30, 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. June 30, 2024 December 31, 2023 Mortgage Borrowings Amount % Amount % Investment securities repurchase agreements 1,2 $ 54,611 91 % $ 48,879 90 % Debt of consolidated variable interest entities, at fair value 71 — % 80 — % Total debt 54,682 91 % 48,959 90 % TBA and forward settling non-Agency securities, at cost 5,318 9 % 5,288 10 % Total mortgage borrowings $ 60,000 100 % $ 54,247 100 % ________________________________ 1. Includes Agency RMBS, CRT and non-Agency MBS repurchase agreements. E xcludes U.S. Treasury repurchase agreements totaling $2.3 billion and $1.5 billion as of June 30, 2024 and December 31, 2023, respectively. 2. As of June 30, 2024 and December 31, 2023, 42% and 43%, respectively, of our total repurchase agreements, including 44% 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. We enter into repurchase agreements, or "repo," through bi-lateral arrangements with financial institutions and independent dealers. We also enter into third-party repurchase agreements through our wholly-owned registered broker-dealer subsidiary, Bethesda Securities, LLC, such as tri-party repo offered through the FICC's GCF Repo service. We manage our repurchase agreement funding position through a variety of methods, including diversification of counterparties, maintaining a suitable maturity profile and utilization of interest rate hedging strategies. 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 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. None of our repo counterparties are obligated to renew or otherwise enter into new borrowings at the conclusion of our existing borrowings. The use of TBA dollar roll transactions increases our funding diversification, expands our available pool of assets, and increases our overall liquidity position, as TBA contracts typically have lower implied haircuts relative to Agency RMBS pools funded with repo financing. TBA dollar roll transactions may also have a lower implied cost of funds than comparable repo funded transactions (referred to as "dollar roll specialness") offering incremental return potential. However, if it were to become uneconomical to roll our TBA contracts into future months it may be necessary to take physical delivery of the underlying securities and fund those assets with cash or other financing sources, which could reduce our liquidity position. 41 Collateral Requirements and Unencumbered Assets Amounts available to be borrowed under our repurchase agreements are dependent upon prevailing interest rates, the lender’s "haircut" requirements and collateral value. Each of these elements may fluctuate with changes in interest rates, credit quality and liquidity conditions within the financial markets. To help manage the adverse impact of interest rate changes on our borrowings, we utilize an interest rate risk management strategy involving the use of derivative financial instruments. In particular, we attempt to mitigate the risk of the cost of our short-term funding liabilities increasing at a faster rate than the earnings of our long-term fixed rate assets during a period of rising interest rates. The collateral requirements, or haircut levels, under our repo agreements are typically determined on an individual transaction basis or by the prevailing requirements established by the FICC for GCF tri-party repo. Consequently, haircut levels and minimum margin requirements can change over time and may increase during periods of elevated market volatility. If the fair value of our collateral declines, our counterparties will typically require that we post additional collateral to re-establish the agreed-upon collateral levels, referred to as "margin calls." Similarly, if the estimated fair value of our investment securities increases, we may request that counterparties release collateral back to us. Our counterparties typically have the sole discretion to determine the value of pledged collateral but are required to act in good faith in making determinations of value. 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 June 30, 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. Fannie Mae and Freddie Mac publish monthly security pay-down factors for their mortgage pools on the fifth day after month-end, but do not remit payment to security holders until generally the 25th day after month-end. Bi-lateral repo counterparties assess margin to account for the reduction in value of Agency collateral when factors are released. The FICC assesses margin on the last day of each month, prior to the factor release date, based on its internally projected pay-down rates (referred to as the "blackout period exposure adjustment" or "blackout margin"). On the factor release date, the blackout margin is released and collateralization requirements are adjusted to actual factor data. Due to the timing difference between associated margin calls and our receipt of principal pay-downs, our liquidity is temporarily reduced each month for principal repayments. We attempt to manage the liquidity risk associated with principal pay-downs by monitoring conditions impacting prepayment rates and through asset selection. As of June 30, 2024, approximately 8% 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 7%. Collateral requirements under our derivative agreements are subject to our counterparties' assessment of their maximum risk of loss associated with the derivative instrument, referred to as the initial or minimum margin requirement, and may be adjusted based on changes in market volatility and other factors. We are also subject to daily variation margin requirements based on changes in the value of the derivative instrument and/or collateral pledged. Daily variation margin requirements also entitle us to receive collateral if the value of amounts owed to us under the derivative agreement exceeds the minimum margin requirement. The collateral requirements under our TBA contracts are governed by the Mortgage-Backed Securities Division ("MBSD") of the FICC. Collateral levels for interest rate derivative agreements are typically governed by the central clearing exchange and the associated futures commission merchants ("FCMs"), which may establish margin levels in excess of the clearing exchange. Collateral levels for interest rate derivative agreements not subject to central clearing are established by the counterparty financial institution. 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 six months ended June 30, 2024, haircuts on our repo funding arrangements remained stable. As of June 30, 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 June 30, 2024, our unencumbered assets totaled approximately $5.3 billion, or 66% of tangible equity, consisting of $5.3 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. Counterparty Risk Collateral requirements imposed by counterparties subject us to the risk that the counterparty does not return pledged assets to us as and when required. We attempt to manage this risk by monitoring our collateral positions and limiting our counterparties to registered clearinghouses and major financial institutions with acceptable credit ratings. We also diversify our funding across multiple counterparties and by region. 42 As of June 30, 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 2% of our tangible stockholders' equity, with our top five repo counterparties, excluding the FICC, representing less than 6% of our tangible stockholders' equity. As of June 30, 2024, 6% of our tangible stockholder's equity was at risk with the FICC. Excluding central clearing exchanges, as of June 30, 2024, our amount at risk with any counterparty to our derivative agreements was less than 1% of our stockholders' equity. Asset Sales 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. Treasury market). Although market conditions fluctuate, the vitality of these markets enables us to sell assets under most conditions to generate liquidity through direct sales or delivery into TBA contracts, subject to "good delivery" provisions promulgated by the Securities Industry and Financial Markets Association ("SIFMA"). Under certain market conditions, however, we may be unable to realize the full carrying value of our securities. We attempt to manage this risk by maintaining at least a minimum level of securities that trade at or near TBA values that in our estimation enhances our portfolio liquidity across a wide range of market conditions. Please refer to Trends and Recent Market Impacts of this Management Discussion and Analysis for further information regarding Agency RMBS and TBA market conditions. Capital Markets The equity capital markets serve as a source of capital to grow our business and to meet potential liquidity needs of our business. The availability of equity capital is dependent on market conditions and investor demand for our common and preferred stock. We will typically not issue common stock at times when we believe the capital raised will not be accretive to our tangible net book value or earnings, and we will typically not issue preferred equity when its cost exceeds acceptable hurdle rates of return on our equity. 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 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 June 30, 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 June 30, 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 The statements contained in this Quarterly Report that are not historical facts, including estimates, projections, beliefs, expectations concerning conditions, events, or the outlook for our business, strategy, performance, operations or the markets or industries in which we operate, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Forward-looking statements are typically identified by words such as “believe,” “plan,” “expect,” “anticipate,” “see,” “intend,” “outlook,” “potential,” “forecast,” “estimate,” “will,” “could,” “should,” “likely” and other similar, correlative or comparable words and expressions. Forward-looking statements are based on management’s assumptions, projections and beliefs as of the date of this Quarterly Report, but they involve a number of risks and uncertainties. Actual results may differ materially from those anticipated in forward-looking statements, as well as from historical performance. Factors that could cause actual results to vary from our forward-looking statements include, but are not limited to, the following: • changes in U.S. monetary policy or interest rates, including actions taken by the Federal Reserve to normalize monetary policy and to reduce the size of its U.S. Treasury and Agency RMBS bond portfolio; • 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; • the availability and terms of financing and our hedge positions; • changes in the market value of our assets, including from changes in net interest spreads, market liquidity or depth, and changes in our "at risk" leverage or hedge positions; 43 • the effectiveness of our risk mitigation strategies; • conditions in the market for Agency RMBS and other mortgage securities, including changes in the available supply of such securities or investor appetite therefor; • actions by the federal, state, or local governments that affect the economy, the housing sector or financial markets; • 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. housing finance activity, the GSE's or the markets for Agency RMBS; and • legislative or regulatory changes that affect our status as a REIT, our exemption from the Investment Company Act of 1940 or the mortgage markets in which we participate. 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 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. WEBSITE AND SOCIAL MEDIA DISCLOSURE We use our website (www.AGNC.com) and AGNC’s LinkedIn (www.linkedin.com/company/agnc-investment-corp/) and X (www.x.com/AGNCInvestment) accounts to distribute information about the Company. Investors should monitor these channels in addition to our press releases, filings with the U.S. Securities and Exchange Commission (“SEC”), public conference calls and webcasts, as information posted through them may be deemed material. Our website, alerts and social media channels are not incorporated by reference into, and are not a part of, this or any other report filed with or furnished to the SEC. Investors and others may automatically receive emails and information about AGNC when they sign up for investor alerts on the "Investor Resources" tab of the Investor Relations section of our website.