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Item 2. Management’s Discussion and Analysis

2025-05-02 compared with 2024-11-01 · 131 added, 194 removed, 528 unchanged (38% of the section changed)

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

Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is designed to provide a reader of AGNC Investment Corp.'s consolidated financial statements with a narrative from the perspective of management and should be read in conjunction with the consolidated financial statements and accompanying notes included in this Quarterly Report on Form 10-Q for quarterly period ended September 30, 2024.

Our MD&A is presented in the following sections:

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Trends and Recent Market Impacts

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.

Investor sentiment turned decidedly more cautious during the first quarter of 2025, as the potential adverse effects of government policy actions on economic growth and inflation caused increasing macroeconomic and monetary policy uncertainty.

In response, investors initially rotated into high-quality assets—such as U.S.

Treasuries, Agency RMBS, and cash—while reducing exposure to higher-risk assets, including equities and corporate debt.

Fixed income markets posted positive returns across major Bloomberg indices during the quarter, led by Agency RMBS with a total return of 3.1%.

On a hedged basis, Agency RMBS performance was more mixed, as spreads to benchmark rates generally widened, particularly in the lower- and middle-coupon segments.

The 30-year Agency RMBS current coupon spread to a blend of 5- and 10-year Treasury rates widened by eight basis points during the quarter.

Despite the modest spread widening, for the first quarter, AGNC had total comprehensive income of $0.12 per common share and generated an economic return on tangible common equity of 2.4%, consisting of $0.36 in dividends declared per common share and a $0.16 decline in tangible net book value per share.

Shortly after quarter-end in early April, volatility escalated following the administration’s announcement of tariffs that were significantly broader and greater in magnitude than anticipated.

Recession concerns intensified, equity markets entered bear market territory from their February peaks, and interest rate volatility increased markedly.

Over the first nine trading days of April, the 10-year Treasury yield fluctuated by more than 100 basis points—initially declining sharply before reversing

materially higher.

This elevated volatility and uncertainty disrupted typical market correlations, constrained liquidity, and further pressured investor sentiment.

The Agency RMBS market was not immune to these adverse developments and also came under significant pressure.

In early April, the 30-year Agency RMBS current coupon spread to the blended 5- and 10-year Treasury rate widened to 160 basis points—the top of its five-quarter trading range.

Agency RMBS relative performance to swaps was even weaker.

The Agency RMBS current coupon spread to blended swap rates reached an intraday peak of 230 basis points, approaching the high of 235 basis points observed during the COVID-19 crisis.

As of the end of April, these spreads have narrowed somewhat but remain elevated.

AGNC was well-positioned entering this period of market disruption.

Consistent with our disciplined approach to balance sheet management, during the first quarter we maintained our tangible net book value "at risk" leverage within our target range, ending the quarter at 7.5x tangible equity.

We also raised $509 million in common equity through our At-the-Market Offering Program at a material premium to tangible net book value, generating meaningful accretion for common stockholders and further enhancing our liquidity position.

As a result, we concluded the quarter with $6.0 billion in cash and unencumbered Agency RMBS, representing 63% of tangible equity.

While our net asset value was negatively impacted by the widening of mortgage spreads to benchmark interest rates, the implied return potential on our portfolio and new investments have increased commensurately, reflecting these wider spread levels.

At current valuations, we believe Agency RMBS offer compelling return opportunities on both a levered and unlevered basis.

Historical spread behavior supports this view, as mortgage spreads to benchmark rates have not typically remained at these levels for extended periods.

We also view Agency RMBS as an attractive alternative to corporate credit, particularly in the context of a weakening economic outlook.

Accordingly, despite the likelihood of continued macroeconomic uncertainty, our outlook for Agency RMBS remains highly constructive.

On the demand side, we continue to expect that regulatory relief and the potential for more favorable capital requirements will support increased bank demand for Agency RMBS and also benefit the Treasury and swap markets.

At the same time, with mortgage rates in the mid-to-upper 6% range, new issuance of Agency RMBS is expected to remain relatively muted.

During the first quarter, our investment portfolio increased approximately $5 billion to $78.9 billion at quarter-end.

Asset additions were concentrated in pools with favorable prepayment characteristics, while our TBA position was relatively stable, and the weighted average coupon of our holdings remained just over 5.0%.

In line with our asset growth, our interest rate hedge portfolio increased during the quarter to $64.1 billion in notional balance at quarter-end and covered 91% of the outstanding balance of our repurchase agreements used to fund our investment portfolio ("Investment Securities Repo"), TBA position, and other debt, unchanged from December 31, 2024.

Our duration gap, which measures the estimated difference between the interest rate sensitivity of our assets and our liabilities, inclusive of interest rate hedges, was 0.4 years at quarter-end, compared to 0.3 years as of December 31, 2024.

Net spread and dollar roll income (a non-GAAP measure) for the first quarter increased $0.07 to $0.44 per common share, driven by a 21 basis point improvement in our net interest rate spread from the fourth quarter of 2024 to 2.12%.

This improvement reflected higher asset yields, a greater proportion of swap-based hedges, and repo funding that fully reset to prevailing short-term rate levels.

Consistent with lower rates during the quarter, the average projected life CPR for our portfolio increased to 8.3% at quarter-end, from 7.7% as of December 31, 2024.

Actual CPRs averaged 7.0% for the quarter, down from 9.6% in the fourth quarter.

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

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Interest Rate/Security Price 1

31, 2024 June 30, 2024 Sept.

30, 2024 Dec.

31, 2024 Mar.

31, 2024 June 30, 2024 Sept.

30, 2024 Sept.

June 30, 2024

31, 2025 Mar.

Target Federal Funds Rate:

Target Federal Funds Rate - Upper Band

5.50% 5.50% 5.50% 5.50% 5.00% -50 bps -50 bps

SOFR Rate 5.31% 5.38% 5.34% 5.33% 4.96% -37 bps -42 bps

5.50% 5.50% 5.00% 4.50% 4.50% — bps

SOFR Rate 5.34% 5.33% 4.96% 4.49% 4.41% -8 bps

SOFR Interest Rate Swap Rate:

4.97% 4.07% 4.55% 4.61% 3.44% -117 bps -63 bps

4.38% 3.53% 3.98% 4.10% 3.25% -85 bps -28 bps

4.27% 3.47% 3.84% 3.98% 3.32% -66 bps -15 bps

4.01% 3.32% 3.62% 3.76% 3.30% -46 bps -2 bps

4.55% 4.61% 3.44% 4.08% 3.72% -36 bps

3.98% 4.10% 3.25% 4.04% 3.65% -39 bps

3.84% 3.98% 3.32% 4.07% 3.76% -31 bps

3.62% 3.76% 3.30% 3.93% 3.79% -14 bps

Treasury Security Rate:

5.05% 4.25% 4.62% 4.76% 3.64% -112 bps -61 bps

4.61% 3.85% 4.21% 4.38% 3.56% -82 bps -29 bps

4.57% 3.88% 4.20% 4.40% 3.78% -62 bps -10 bps

4.70% 4.03% 4.34% 4.56% 4.12% -44 bps +9 bps

4.62% 4.76% 3.64% 4.24% 3.89% -35 bps

4.21% 4.38% 3.56% 4.38% 3.95% -43 bps

4.20% 4.40% 3.78% 4.57% 4.21% -36 bps

4.34% 4.56% 4.12% 4.78% 4.57% -21 bps

30-Year Fixed Rate Agency Price:

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

Mortgage Rate/Credit Spread Sept.

Mortgage Rate/Credit Spread Mar.

31, 2024 June 30, 2024 Sept.

30, 2024 Dec.

31, 2024 Mar.

31, 2024 June 30, 2024 Sept.

30, 2024 Sept.

June 30, 2024

31, 2025 Mar.

Mortgage Rate:

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Treasury Spread 139 149 129 135 143 +8

30-Year Agency Current Coupon Yield 6.36% 5.25% 5.60% 5.87% 4.96% -91 bps -29 bps

30-Year Mortgage Rate 7.41% 6.56% 6.74% 6.94% 6.14% -80 bps -42 bps

30-Year Agency Current Coupon Yield 5.60% 5.87% 4.96% 5.83% 5.51% -32 bps

30-Year Mortgage Rate 6.74% 6.94% 6.14% 6.86% 6.60% -26 bps

Credit Spread (in bps):

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FINANCIAL CONDITION

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

As of March 31, 2025 and December 31, 2024, our investment portfolio totaled $78.9 billion and $73.3 billion, respectively, consisting of:

$70.5 billion and $65.5 billion Agency RMBS, at fair value, respectively;

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and other mortgage credit investments of $63 million and $64 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 September 30, 2024 and December 31, 2023 (dollars in millions):

September 30, 2024 December 31, 2023

The following table is a summary of our investment securities (including TBA securities) as of March 31, 2025 and December 31, 2024 (dollars in millions):

March 31, 2025 December 31, 2024

Investment Securities (Includes TBAs) 1

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________________________________

Table excludes other mortgage credit investments of $61 million and $44 million as of September 30, 2024 and December 31, 2023, respectively.

Table excludes other mortgage credit investments of $63 million and $64 million as of March 31, 2025 and December 31, 2024, respectively.

TBA securities are presented net of long and short positions.

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

As of September 30, 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.

As of March 31, 2025 and December 31, 2024, our TBA securities had a net carrying value of $44 million and $(26) million, respectively, reported in derivative assets/(liabilities) on our accompanying consolidated balance sheets.

The net carrying value represents the difference between the fair value of the underlying security in the TBA contract and the price to be paid or received for the underlying security.

As of September 30, 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

As of March 31, 2025 and December 31, 2024, the weighted average yield on our investment securities (excluding TBA and forward settling securities) was 4.87% and 4.77%, respectively.

The following tables summarize certain characteristics of our fixed rate Agency RMBS portfolio, inclusive of TBA securities, as of March 31, 2025 and December 31, 2024 (dollars in millions):

March 31, 2025

Includes Net TBA Position Excludes Net TBA Position

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4.0% 4 4 4 10% 4.00% 101.0% 1.98% 166 38%

≥ 4.5% 1 1 1 100% 4.51% 101.2% 2.71% 162 28%

Total ≤ 15-year 86 88 83 96% 2.65% 101.3% 2.03% 107 15%

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

As of September 30, 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.

As of March 31, 2025, lower balance specified pools had a weighted average original loan balance of $188,000 and $139,000 for 15-year and 30-year securities, respectively, and HARP pools had a weighted average original LTV of 128% and 141% for 15-year and 30-year securities, respectively.

Portfolio yield incorporates a projected life CPR based on forward rate assumptions as of March 31, 2025.

December 31, 2024

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

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.

For additional details regarding our CRT and non-Agency securities, including credit ratings, as of March 31, 2025 and December 31, 2024, please refer to Note 3 of our Consolidated Financial Statements in this Form 10-Q.

RESULTS OF OPERATIONS

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In addition, because not all companies use identical calculations, our presentation of such non-GAAP measures may not be comparable to other similarly titled measures of other companies.

________________________________

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

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

Selected Financial Data

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

The tables below present our condensed consolidated balance sheets as of September 30, 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,

The selected financial data should be read in conjunction with the more detailed information contained in Item 1.

Financial Statements and in this Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations (in millions, except per share amounts):

Balance Sheet Data 2025

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$ 8.25 $ 8.41

Three Months Ended

September 30,

Nine Months Ended

September 30,

Three Months Ended March 31,

Statement of Comprehensive Income Data (Unaudited)

2024 2023 2024 2023

Interest income $ 846 $ 642

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Operating expenses 28 24

Net income (loss) 346 (392) 741 (257)

Net income 50 443

Dividends on preferred stock 35 31

Net income (loss) available (attributable) to common stockholders $ 313 $ (423) $ 645 $ (349)

Net income (loss) $ 346 $ (392) $ 741 $ (257)

Net income available to common stockholders $ 15 $ 412

Net income $ 50 $ 443

Other comprehensive income (loss), net 93 (77)

Comprehensive income (loss) 546 (605) 846 (393)

Comprehensive income 143 366

Dividends on preferred stock 35 31

Comprehensive income (loss) available (attributable) to common stockholders $ 513 $ (636) $ 750 $ (485)

Comprehensive income available to common stockholders $ 108 $ 335

Weighted average number of common shares outstanding - basic 918.3 702.2

Weighted average number of common shares outstanding - diluted 921.9 704.2

Net income (loss) per common share - basic $ 0.39 $ (0.68) $ 0.86 $ (0.58)

Net income (loss) per common share - diluted $ 0.39 $ (0.68) $ 0.86 $ (0.58)

Comprehensive income (loss) per common share - basic $ 0.64 $ (1.02) $ 1.00 $ (0.81)

Comprehensive income (loss) per common share - diluted $ 0.63 $ (1.02) $ 1.00 $ (0.81)

Net income per common share - basic $ 0.02 $ 0.59

Net income per common share - diluted $ 0.02 $ 0.59

Comprehensive income per common share - basic $ 0.12 $ 0.48

Comprehensive income per common share - diluted $ 0.12 $ 0.48

Dividends declared per common share $ 0.36 $ 0.36

Three Months Ended

September 30,

Nine Months Ended

September 30,

Three Months Ended March 31,

Other Data (Unaudited) * 2025 2024

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Average tangible net book value "at risk" leverage 5

7.2:1 7.5:1 7.2:1 7.5:1

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

7.2:1 7.9:1 7.2:1 7.9:1

Economic return on tangible common equity 7

9.3 % (10.1) % 13.8 % (6.9) %

Expenses % of average total assets - annualized

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Economic Interest Income and Asset Yields

The following table summarizes our economic interest income (a non-GAAP measure) for the three and nine months ended September 30, 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 months ended March 31, 2025 and 2024, which includes the combination of interest income (a GAAP measure) on our holdings reported as investment securities on our consolidated balance sheets, adjusted to exclude estimated "catch-up" premium amortization adjustments for the cumulative effect from prior reporting periods due to changes in our CPR forecast, and implied interest income on our TBA securities (dollars in millions):

Three Months Ended

September 30,

Nine Months Ended

September 30,

2024 2023 2024 2023

Amount Yield Amount Yield Amount Yield Amount Yield

Amount Yield Amount Yield

Interest income:

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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 nine months ended September 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 months ended March 31, 2025 compared to the prior year period (in millions):

Impact of Changes in the Principal Elements Impacting Economic Interest Income

Periods ended September 30, 2024 vs.

September 30, 2023

Due to Change in Average

Three months ended:

Total Increase /

(Decrease) Portfolio

Interest Income (GAAP measure) $ 163 $ 117 $ 46

Estimated "catch-up" premium amortization due to change in CPR forecast 55 — 55

Interest income, excluding "catch-up" premium amortization 218 117 101

TBA dollar roll income - implied interest income (60) (63) 3

Economic interest income, excluding "catch-up" amortization (non-GAAP measure) $ 158 $ 54 $ 104

Three Months Ended March 31, 2025 vs.

March 31, 2024

Due to Change in Average

Nine months ended:

Total Increase /

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Economic interest income, excluding "catch-up" amortization (non-GAAP measure) $ 236 $ 176 $ 60

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 average investment portfolio (at cost), inclusive of TBAs, increased 24% for the three months ended March 31, 2025, compared to the prior year period, 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 31 basis points for the three months ended March 31, 2025 largely as a result of shifting our asset portfolio from 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

March 31, 2025 $ 61,707 $ 63,789 $ 63,312 $ 7,428 $ 7,429 7.3:1 7.5:1

December 31, 2024 $ 59,690 $ 63,759 $ 59,426 $ 5,936 $ 6,887 7.2:1 7.2:1

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

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Economic Interest Expense and Aggregate Cost of Funds

The following table summarizes our economic interest expense and aggregate cost of funds (non-GAAP measures) for the three and nine months ended September 30, 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 months ended March 31, 2025 and 2024 (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

September 30,

Nine Months Ended

September 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

Amount Cost of Funds Amount Cost of Funds

Investment securities repurchase agreement and other debt - interest expense (GAAP measure) $ 687 4.45 % $ 672 5.45 %

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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 nine months ended September 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 months ended March 31, 2025 compared to the prior year period (in millions):

Impact of Changes in the Principal Elements of Economic Interest Expense

Periods ended September 30, 2024 vs.

September 30, 2023

Three Months Ended March 31, 2025 vs.

March 31, 2024

Due to Change in Average

Three months ended:

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

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Total change in economic interest expense $ 255 $ 193 $ 62

Due to Change in Average

Nine months ended:

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

Investment securities repurchase agreement and other debt interest expense $ 569 $ 389 $ 180

TBA dollar roll income - implied interest benefit/expense (217) (234) 17

Interest rate swap periodic income/cost 168 117 51

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

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).

Our average mortgage borrowings, inclusive of TBAs, increased 26% for the three months ended March 31, 2025, consistent with the increase to our average investment portfolio.

The average interest rate on our mortgage borrowings, excluding the impact of interest rate swap periodic income, decreased 100 basis points for the three months ended March 31, 2025 due to lower short-term interest rates.

Interest rate swap periodic income declined for the three months ended March 31, 2025, primarily due to higher pay rates on our pay-fixed swaps—driven by the maturity of lower-cost swaps—and lower receive rates.

The ratio of interest rate swaps outstanding to mortgage borrowings also declined, reflecting a shift towards a higher proportion of U.S.

Treasury-based hedges.

The following is a summary of our interest rate swaps outstanding during the three months ended March 31, 2025 and 2024 (dollars in millions).

Amounts exclude forward starting swaps not yet in effect.

Three Months Ended

September 30,

Nine Months Ended

September 30,

Average Ratio of Interest Rate Swaps (Excluding Forward Starting Swaps) to Mortgage Borrowings Outstanding 2025 2024

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Ratio of average interest rate swaps to mortgage borrowings outstanding

72 % 86 % 77 % 88 %

Average interest rate swap pay-fixed rate (excluding forward starting swaps) 1.73 % 0.84 %

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(2.65) % (4.83) %

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.

For the three months ended March 31, 2025 and 2024, we had an average forward starting net pay-fixed rate swap balance of $286 million and $585 million, respectively.

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

Net Interest Spread

The following table presents a summary of our net interest spread (including the impact of TBA dollar roll income, interest rate swaps and excluding "catch-up" premium amortization) for the three and nine months ended September 30, 2024 and 2023:

Three Months Ended September 30,

Nine Months Ended

September 30,

Three Months Ended

Investment and TBA Securities - Net Interest Spread 2025 2024

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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 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

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

$ 513 $ (636) $ 750 $ (485)

The following table presents a reconciliation of net spread and dollar roll income available to common stockholders (non-GAAP measure) from comprehensive income (loss) available (attributable) to common stockholders (the most comparable GAAP financial measure) for the three months ended March 31, 2025 and 2024 (dollars in millions):

Three Months Ended

Comprehensive income available to common stockholders

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

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

(106) 534 100 870

Realized loss on sale of investment securities, net

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

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

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

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

(200) 213 (105) 136

Other adjustments:

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TBA dollar roll income, net 2

Interest rate swap periodic income (cost), net 2

456 583 1,486 1,654

Interest rate swap periodic income, net 2

Other interest income (expense), net 2,3

(12) (42) (79) (111)

Net spread and dollar roll income available to common stockholders (non-GAAP measure) 403 406

345 403 1,145 1,214

Weighted average number of common shares outstanding - basic 918.3 702.2

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and other miscellaneous interest income (expense).

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

Gain (Loss) on Investment Securities, Net

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

Three Months Ended September 30,

Nine Months Ended

September 30,

The following table is a summary of our net gain (loss) on investment securities for the three months ended March 31, 2025 and 2024 (in millions):

Three Months Ended

Gain (Loss) on Investment Securities, Net 1

2024 2023 2024 2023

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

Loss on sale of investment securities, net $ (245) $ (91)

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

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

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

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

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

Three Months Ended September 30,

Nine Months Ended

September 30,

2024 2023 2024 2023

The following table is a summary of our gain (loss) on derivative instruments and other securities, net for the three months ended March 31, 2025 and 2024 (in millions):

Three Months Ended

TBA securities, dollar roll income $ 23 $ —

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Other interest income (expense)

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

Other gain (loss) (7) 2

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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 7.2x 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).

Our tangible net book value "at risk" leverage ratio was 7.5x and 7.2x as of March 31, 2025 and December 31, 2024, respectively.

The following table includes a summary of our mortgage borrowings outstanding as of March 31, 2025 and December 31, 2024 (dollars in millions).

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

September 30, 2024 December 31, 2023

March 31, 2025 December 31, 2024

Mortgage Borrowings Amount % Amount %

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E xcludes U.S.

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.

Treasury repurchase agreements totaling $2.9 billion and $1.4 billion as of March 31, 2025 and December 31, 2024, respectively.

As of March 31, 2025 and December 31, 2024, 47% and 47%, respectively, of our total repurchase agreements, including 49% and 49% 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 September 30, 2024, we had met all our margin requirements.

As of March 31, 2025, we had met all our margin requirements.

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

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

As of September 30, 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.

As of March 31, 2025, approximately 9% of our investment portfolio consisted of TBA securities, which are not subject to monthly principal pay-downs.

The remainder of our portfolio primarily consisted of Agency RMBS, which had an average one-year CPR forecast of 8% as of March 31, 2025.

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 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.

During the three months ended March 31, 2025, haircuts on our repo funding arrangements remained stable.

As of March 31, 2025, the weighted average haircut on our repurchase agreements was approximately 3.0% of the value of our collateral, compared to 3.2% as of December 31, 2024.

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

As of September 30, 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.

As of March 31, 2025, our unencumbered assets totaled approximately $6.1 billion, or 64% of tangible equity, consisting of $6.0 billion of cash and unencumbered Agency RMBS and $0.1 billion of unencumbered credit assets.

This compares to $6.2 billion of unencumbered assets, or 67% of tangible equity, as of December 31, 2024, consisting of $6.1 billion of cash and unencumbered Agency RMBS and $0.1 billion of unencumbered credit assets.

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

As of September 30, 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.

As of March 31, 2025, 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 March 31, 2025, 8% of our tangible stockholder's equity was at risk with the FICC.

Excluding central clearing exchanges, as of March 31, 2025, 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 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.

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, which as of March 31, 2025, shares of our common stock with an aggregate repurchase price of $1.0 billion remained authorized for repurchase through December 31, 2026.

Please refer to Notes 9 and 11 of our Consolidated Financial Statements in this Form 10-Q for further details regarding our recent equity capital transactions and our new At-the-Market Offering Program established in April 2025.

OFF-BALANCE SHEET ARRANGEMENTS

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.

As of March 31, 2025, we did not maintain relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance, or special purpose or variable interest entities, established to facilitate off-balance sheet arrangements or other contractually narrow or limited purposes.

Additionally, as of March 31, 2025, 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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• 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;

• 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.

• changes to laws, regulations, rules or policies that affect the GSE's, the primary or secondary mortgage markets in which we participate or U.S.

housing finance activity, including actions that would end or alter the conservatorships of Fannie Mae or Freddie Mac or their quasi-governmental status;

• legislative or regulatory actions that affect our status as a REIT or our exemption from the Investment Company Act of 1940.

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.

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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