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Item 2. Management’s Discussion and Analysis

2024-11-01 compared with 2024-08-05 · 129 added, 113 removed, 593 unchanged (29% 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 June 30, 2024.

Our MD&A is presented in the following sections:

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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

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.

The favorable investment environment, characterized by Agency mortgage spreads to benchmark interest rates that remained materially wider than historical norms and within a relatively narrow trading range, declining interest rate volatility, and the emerging accommodative monetary policy stance by the Federal Reserve (the "Fed"), continued to strengthen in the third quarter of 2024.

The shift in monetary policy was further supported by the Fed's initial rate cut in September, which was larger than many expected.

More importantly, the September rate cut marked the end of an extended period of monetary policy restraint, with the Fed communicating its intention to lower short-term rates to a neutral level over time.

As a result, Treasury rates declined across the yield curve, and the yield curve ended the quarter with a positive slope for the first time in two years.

Against this favorable backdrop, AGNC generated an economic return on tangible common equity per share of 9.3% for the third quarter, comprised of $0.36 of dividends per common share and a $0.42, or 5%, increase in tangible net book value per common share, bringing our year-to-date economic return through September 30, 2024 to 13.8% per common share.

Consistent with Agency RMBS spreads trading in a relatively narrow range, our year-to-date economic return consisted of a modest increase in our tangible net book value per common share of 1.4% and a $1.08 of dividends per common share.

Looking ahead, the outlook for Agency RMBS is decidedly better today than it was in 2022 and 2023 given the current economic outlook, the stance of the Fed, and our expectation that long-term interest rates and Agency RMBS spreads will remain relatively stable.

While the path of financial markets is never perfectly smooth and periods of volatility are inevitable, our view is based, in part, on our belief that the supply and demand dynamics for Agency RMBS will remain in reasonable balance.

Given the recent modest decline in mortgage rates during the third quarter, it is possible that the supply of Agency

RMBS will increase somewhat over the intermediate term.

On the demand side, however, accommodative monetary policy, a steeper yield curve, historically large money market mutual fund balances, and the potential for less onerous bank capital reforms than originally proposed suggest that demand for high-quality fixed income assets is likely to increase as the Fed reduces short-term interest rates.

Agency RMBS performance during the third quarter varied considerably by coupon and hedge composition, with lower coupon RMBS outperforming higher coupons, driven by favorable technical factors and strong demand from fixed income bond funds.

Our performance benefited from having a diversified mix of assets as well as a meaningful share of longer-term US Treasury-based hedges.

During the quarter, we reduced our swap-based hedges and increased our allocation to Treasury-based hedges.

Additionally, we expanded our use of longer-term hedges in response to the shift in monetary policy and our expectations for further yield curve steepening.

Consistent with our transition toward longer-term hedges, our overall interest rate hedge position declined to 72% of the outstanding balance of our Investment Securities Repo, TBA position, and other debt by the end of the quarter, down from 98% as of the second quarter.

The weighted average coupon on our fixed-rate Agency RMBS and TBA securities decreased to 4.90% as of the end of the third quarter, from 4.95% at the end of the second quarter.

Consistent with the decline in interest rates during the third quarter, the average projected life CPR for our portfolio increased 4.0% to 13.2%.

Actual CPRs for the third quarter averaged 7.3%, up slightly from 7.1% in the second quarter.

Our "at risk" leverage decreased modestly to 7.2x tangible stockholders’ equity at the end of the quarter, from 7.4x as of June 30, 2024.

Additionally, we concluded the quarter with $6.2 billion in cash and unencumbered Agency RMBS, or 68% of our tangible equity, up from $5.3 billion, or 65% of our tangible equity, at the end of the second quarter.

Net spread and dollar roll income per diluted common share (a non-GAAP measure) declined by $0.10 to $0.43 per share in the third quarter, driven by a reduction in our net interest rate spread, which narrowed by 48 basis points to 221 basis points.

Approximately half of the decline in our net interest spread was due to the maturity of $6.5 billion of low-cost pay-fixed interest rate swaps during the quarter.

No additional swaps are scheduled to mature until the second quarter of 2025.

The remaining decline was largely due to our decision to further reduce our swap-based hedges in favor of Treasury-based hedges, which are not reflected in our reported net interest spread.

During the third quarter, we issued $781 million of common equity through our At-the-Market ("ATM") offering program, bringing our year-to-date issuances to $1.46 billion.

The significant increase in ATM issuances during the third quarter was aligned with the substantial price-to-book premium of our common stock and contributed to meaningful book value accretion for our common stockholders.

Additionally, the positive investment environment provided a favorable backdrop for deploying this new capital.

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

June 30, 2023 Sept.

30, 2023 Dec.

31, 2023 Mar.

31, 2024 June 30, 2024 June 30, 2024

31, 2024 June 30, 2024 Sept.

30, 2024 Sept.

June 30, 2024

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

Mortgage Rate/Credit Spread June 30, 2023 Sept.

Mortgage Rate/Credit Spread Sept.

30, 2023 Dec.

31, 2023 Mar.

31, 2024 June 30, 2024 June 30, 2024

31, 2024 June 30, 2024 Sept.

30, 2024 Sept.

June 30, 2024

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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:

As of September 30, 2024 and December 31, 2023, our investment portfolio totaled $73.1 billion and $60.2 billion, respectively, consisting of:

$68.0 billion and $53.8 billion Agency RMBS, at fair value, respectively;

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and other mortgage credit investments of $61 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

The following table is a summary of our investment securities (including TBA securities) as of September 30, 2024 and December 31, 2023 (dollars in millions):

September 30, 2024 December 31, 2023

Investment Securities (Includes TBAs) 1

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________________________________

Table excludes other mortgage credit investments of $60 million and $44 million as of June 30, 2024 and December 31, 2023, respectively.

Table excludes other mortgage credit investments of $61 million and $44 million as of September 30, 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 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.

As of September 30, 2024 and December 31, 2023, our TBA securities had a net carrying value of $1 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.

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

As of September 30, 2024 and December 31, 2023, the weighted average yield on our investment securities (excluding TBA and forward settling securities) was 4.68% and 4.41%, respectively.

The following tables summarize certain characteristics of our fixed rate Agency RMBS portfolio, inclusive of TBA securities, as of September 30, 2024 and December 31, 2023 (dollars in millions):

September 30, 2024

Includes Net TBA Position Excludes Net TBA Position

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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 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.

Portfolio yield incorporates a projected life CPR based on forward rate assumptions as of June 30, 2024.

As of September 30, 2024, lower balance specified pools had a weighted average original loan balance of $188,000 and $147,000 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 September 30, 2024.

December 31, 2023

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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 June 30, 2024 and December 31, 2023, 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 September 30, 2024 and December 31, 2023, please refer to Note 3 of our Consolidated Financial Statements in this Form 10-Q.

RESULTS OF OPERATIONS

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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):

The tables below present our condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023 and condensed consolidated statements of comprehensive income and key statistics for the three and nine months ended September 30, 2024 and 2023 (in millions, except per share amounts):

September 30,

Balance Sheet Data 2024

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Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Statement of Comprehensive Income Data (Unaudited)

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Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Other Data (Unaudited) * 2024 2023 2024 2023

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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 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):

The following table summarizes our economic interest income (a non-GAAP measure) for the three and nine months ended September 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

Six Months Ended

September 30,

Nine Months Ended

September 30,

2024 2023 2024 2023

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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):

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, 2024 compared to the prior year period (in millions):

Impact of Changes in the Principal Elements Impacting Economic Interest Income

Periods ended June 30, 2024 vs.

June 30, 2023

Periods ended September 30, 2024 vs.

September 30, 2023

Due to Change in Average

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Due to Change in Average

Six months ended:

Nine months ended:

Total Increase /

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Economic interest income, excluding "catch-up" amortization (non-GAAP measure) $ 433 $ 25 $ 408

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.

Our average investment portfolio (at cost), inclusive of TBAs, increased 10% and 5% for the three and nine months ended September 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 53 and 66 basis points for the three and nine months ended September 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.

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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Amount Ending

September 30, 2024 $ 59,322 $ 64,585 $ 63,468 $ 2,650 $ 4,067 7.2:1 7.2:1

June 30, 2024 $ 50,784 $ 55,507 $ 54,682 $ 6,805 $ 5,318 7.2:1 7.4:1

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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 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:

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, 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

Six Months Ended

September 30,

Nine Months Ended

September 30,

2024 2023 2024 2023

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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):

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, 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

Periods ended September 30, 2024 vs.

September 30, 2023

Due to Change in Average

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Due to Change in Average

Six months ended:

Nine months ended:

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

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Total change in economic interest benefit/expense $ 520 $ 272 $ 248

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.

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).

Our average mortgage borrowings, inclusive of TBAs, increased 14% and 7% for the three and nine months ended September 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 periodic income, increased 4 and 46 basis points for the three and nine months ended September 30, 2024, respectively, due to higher short-term interest rates.

Interest rate swap periodic income declined for the three and nine months ended September 30, 2024 primarily due to higher pay rates on our pay-fixed swaps largely driven by the maturity of low cost interest swaps.

The following is a summary of our average interest rate swaps outstanding and their average pay and receive rates for the three and nine months ended September 30, 2024 (dollars in millions).

Amounts exclude forward starting swaps not yet in effect.

Three Months Ended

Six 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 2024 2023

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(3.98) % (4.87) % (4.37) % (4.53) %

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.

For the three and nine months ended September 30, 2024, we had an average forward starting net pay-fixed rate swap balance of $1 million and $474 million, respectively.

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 $(928) million and $(294) 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

Three Months Ended September 30,

Nine Months Ended

September 30,

Investment and TBA Securities - Net Interest Spread 2024 2023 2024 2023

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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

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 nine months ended September 30, 2024 and 2023 (dollars in millions):

Three Months Ended September 30,

Nine Months Ended

September 30,

2024 2023 2024 2023

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

Realized loss on sale of investment securities, net

Realized (gain) loss on sale of investment securities, net

(106) 534 100 870

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(1,742) 1,356 (1,010) 1,125

Gain on derivative instruments and other securities, net

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

1,408 (1,574) (6) (2,026)

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

(14) (11) (24) 58

TBA dollar roll income, net 2

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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

The following table is a summary of our net gain (loss) on investment securities for the three and nine months ended September 30, 2024 and 2023 (in millions):

Three Months Ended September 30,

Nine Months Ended

September 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

Gain (loss) on sale of investment securities, net $ 106 $ (534) $ (100) $ (870)

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

1,742 (1,356) 1,010 (1,125)

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)

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

200 (213) 105 (136)

Total gain (loss) on investment securities, net

$ 2,048 $ (2,103) $ 1,015 $ (2,131)

________________________________

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.

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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 six months ended June 30, 2024 and 2023 (in millions):

Three Months Ended June 30,

Six Months Ended

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, 2024 and 2023 (in millions):

Three Months Ended September 30,

Nine Months Ended

September 30,

2024 2023 2024 2023

TBA securities, dollar roll income $ 4 $ — $ 9 $ 24

TBA securities, mark-to-market loss (34) (142) (92) (48)

Interest rate swaps, periodic income (cost) 494 567 1,030 1,071

TBA securities, mark-to-market gain (loss) 94 (148) 2 (196)

Interest rate swaps, periodic income 456 583 1,486 1,654

Interest rate swaps, mark-to-market gain (loss) (1,492) 170 (1,694) (276)

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SOFR futures contracts - long position 36 (6) 23 (25)

Other interest income (expense), net

Other interest income (expense)

(12) (42) (79) (110)

Other gain (loss), net — (11) 2 (13)

Other gain (loss) (1) (1) 1 (14)

Total gain (loss) on derivative instruments and other securities, net $ (1,408) $ 1,574 $ 6 $ 2,026

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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 7.4x 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).

Our tangible net book value "at risk" leverage ratio was 7.2x and 7.0x as of September 30, 2024 and December 31, 2023, respectively.

The following table includes a summary of our mortgage borrowings outstanding as of September 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

September 30, 2024 December 31, 2023

Mortgage Borrowings Amount % Amount %

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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.

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.

Treasury repurchase agreements totaling $2.6 billion and $1.5 billion as of September 30, 2024 and December 31, 2023, respectively.

As of September 30, 2024 and December 31, 2023, 47% and 43%, respectively, of our total repurchase agreements, including 49% 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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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.

As of September 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.

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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 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%.

As of September 30, 2024, approximately 6% 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 14% as of September 30, 2024.

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.

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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 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.

During the nine months ended September 30, 2024, haircuts on our repo funding arrangements remained stable.

As of September 30, 2024, the weighted average haircut on our repurchase agreements was approximately 2.9% 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.

As of September 30, 2024, our unencumbered assets totaled approximately $6.3 billion, or 69% of tangible equity, consisting of $6.2 billion of cash and unencumbered 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 cash and unencumbered Agency RMBS and $0.1 billion of unencumbered credit assets.

Counterparty Risk

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

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.

As of September 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 less than 2% of our tangible stockholders' equity, with our top five repo counterparties, excluding the FICC, representing 5% of our tangible stockholders' equity.

As of September 30, 2024, 7% of our tangible stockholder's equity was at risk with the FICC.

Excluding central clearing exchanges, as of September 30, 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 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.

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 as of the end of the third quarter had $1 billion in remaining capacity and was set to expire on December 31, 2024.

Please refer to Notes 9 and 10 of our Consolidated Financial Statements in this Form 10-Q for further details regarding our recent equity capital transactions and additional information about amendments to our At-the-Market Offering Program and the reauthorization of our stock repurchase plan through December 31, 2026.

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.

As of September 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 September 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

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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