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Item 2. Management’s Discussion and Analysis

2025-10-31 compared with 2025-08-01 · 164 added, 123 removed, 590 unchanged (33% 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, 2025.

Our MD&A is presented in the following sections:

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Market Trends

Financial markets experienced significant volatility during the second quarter of 2025 following the Administration's "Liberation Day" tariff announcements in early April and concerns about their potential adverse impact on the economy and monetary policy.

This volatility resulted in a sharp repricing across asset classes, with the yield on the 10-year U.S.

Treasury yield fluctuating by more than 100 basis points and the S&P 500 declining 12% during the first three weeks of April.

While most asset classes recovered and ended the quarter at higher valuation levels, Agency RMBS were a notable exception, with spreads to benchmark rates ending the quarter moderately wider.

Agency RMBS weakness over the second quarter was attributable to multiple factors, including significant rate volatility, relatively weak demand technicals, and the steepening yield curve, which was driven primarily by increases in long-term interest rates.

As a result of this underperformance, AGNC's economic return for the quarter was -1.0%.

Looking ahead, several factors underpin our constructive outlook for Agency RMBS performance:

anticipated bank regulatory reforms that are expected to drive increased bank demand, improved supply dynamics as seasonal pressures subside, and persistently high mortgage rates, which are expected to temper prepayment activity.

Further, mortgage spreads to interest rate benchmarks have continued to stabilize since quarter-end at levels that are both elevated by historical standards and range-bound, a favorable environment for levered and hedged investors in Agency RMBS.

In addition, and perhaps most importantly, statements from key policymakers during the quarter reaffirmed the government's commitment to preserving the credit quality of Agency RMBS and maintaining stability in the mortgage market amid potential GSE reform.

Importantly, the President,

Treasury Secretary, and FHFA Director collectively emphasized a "do no harm" approach to GSE reform and an intent to avoid actions that could put upward pressure on mortgage spreads.

The President specifically stated that the government would maintain the implicit guarantee of the GSEs and, by extension, Agency RMBS in connection with any privatization of the GSEs.

These statements should provide investors greater confidence in the asset class and contribute to tighter mortgage spreads over time.

We believe that these developments—stabilizing spreads at historically wide levels, manageable supply, anticipated regulatory reforms to drive greater bank demand, and the reduced risk of adverse consequences of GSE reform—provide a highly constructive backdrop for Agency RMBS as a fixed income asset class.

In the third quarter of 2025, the pivot by the Federal Reserve (the "Fed") to a less restrictive monetary policy stance, combined with easing fiscal policy concerns, drove strong financial market performance and a notable improvement in investor sentiment.

Agency RMBS were one of the best-performing fixed income asset classes during the quarter and have outperformed U.S.

Treasuries for five consecutive months for the first time since 2013.

In this favorable investment environment, AGNC generated an economic return on tangible common equity of 10.6% for the third quarter.

At its September meeting, the Fed lowered the federal funds rate as expected and signaled further monetary policy accommodation with the possibility of additional rate cuts at the October and December meetings.

On the fiscal policy front, the passage of the tax bill early in the quarter and several positive tariff developments reduced uncertainty that had weighed on the investment outlook in the second quarter.

Collectively, these investor-friendly developments contributed to a material decline in interest rate volatility and supported the relative outperformance of Agency RMBS.

Looking ahead, a number of macroeconomic dynamics support a constructive outlook for Agency RMBS.

First, the Administration has begun to focus on mortgage spreads as a means of improving housing affordability.

In a late-September interview, the Treasury Secretary underscored this view, stating:

"the really important thing here is that we either maintain mortgage spreads, or narrow them further, to help the American people."

Second, the supply and demand dynamic for Agency RMBS remains well balanced.

With the primary mortgage rate year-to-date remaining above 6%, net new issuance of Agency RMBS is expected to total approximately $200 billion in 2025—toward the lower end of initial expectations.

Meanwhile, the demand outlook has improved, with banks expected to increase demand following anticipated regulatory reforms.

In addition, money manager demand for Agency RMBS, which increased meaningfully in the third quarter, should remain robust given the favorable shift in monetary policy.

Third, the financing market for Agency RMBS remains strong.

The Fed recently announced that it will conclude the reduction of its aggregate securities holdings on December 1, 2025 to ensure bank reserves remain at levels consistent with ongoing funding market liquidity.

Over the longer-term, the Fed is also considering joining the FICC for purposes of the Standing Repo Facility and moving to a repo-based rate as its primary policy target.

If implemented, each of these measures would further strengthen the repo market for U.S.

Treasuries and Agency RMBS, particularly during periods of market stress.

Fourth, the outlook for GSE reform continues to move in a favorable direction, with policymakers emphasizing the importance of maintaining mortgage market stability.

To that end, the Treasury Department has emphasized three guiding principles for GSE reform:

(i) maximize taxpayer value;

(ii) lower mortgage rates through stable or tighter mortgage spreads;

and (iii) avoid disruptions to the housing finance system.

While these dynamics currently point in a favorable direction for Agency RMBS, episodes of financial market volatility and disruption are possible given ongoing monetary and fiscal policy uncertainty.

In this evolving investment environment, AGNC’s disciplined approach to asset selection and risk management positions it well to generate favorable risk-adjusted returns.

Portfolio and Summary Financial Results

For the second quarter, AGNC had a total comprehensive loss of $(0.13) per diluted common share and an economic loss of -1.0% on tangible common equity, comprised of $0.36 in dividends declared per common share and a $(0.44) decrease in tangible net book value per common share.

For the first half of 2025, AGNC had a total comprehensive loss of $(0.02) per diluted common share and an economic return of 1.4%, consisting of $0.72 in dividends per common share and a $(0.60) decrease in tangible net book value per common share.

As a result of our risk management positioning and ample liquidity at the end of the first quarter, AGNC was able to navigate the substantial financial market volatility in April with our portfolio intact.

Capitalizing on the wider spread environment, we also opportunistically raised $799 million of accretive capital through our At-the-Market offering program during the second quarter.

As of June 30, 2025, slightly less than half of the new capital had been deployed, primarily into higher-coupon specified pools with favorable prepayment attributes.

1 Our investment portfolio increased $3.4 billion during the quarter to $82.3 billion as of June 30, 2025.

We concluded the quarter with tangible "at risk" leverage of 7.6x, compared to 7.5x as of March 31, 2025, and a substantial liquidity position of $6.4 billion in unencumbered cash and Agency RMBS, representing 65% of tangible equity, up from 63% as of the first quarter.

Hedge performance varied by instrument during the second quarter, with longer-dated Treasury-based hedges outperforming shorter-term swap-based hedges amid the steepening yield curve.

As of June 30, 2025, our interest rate hedges equaled 89% of the outstanding balance of our repurchase agreements used to fund our investment portfolio ("Investment Securities Repo"), TBA position, and other debt, compared to 91% as of March 31, 2025.

On a duration-dollar (or interest rate sensitivity) basis, interest rate swaps and U.S.

Treasury-based hedges comprised 54% and 46%, respectively, of our hedge portfolio, versus 61% and 39%, respectively, at the end of the first quarter.

Our duration gap, —which measures the estimated difference between the interest rate sensitivity of our assets and liabilities, inclusive of interest rate hedges—was 0.2 years at quarter-end, compared to 0.4 years as of March 31, 2025.

Net spread and dollar roll income (a non-GAAP measure) for the second quarter decreased by $0.06 to $0.38 per common share, primarily due to the timing of capital deployment and moderately higher swap costs.

The average projected life CPR of our portfolio declined to 7.8% at quarter-end from 8.3% as of March 31, 2025, consistent with the steeper yield curve.

Actual CPRs averaged 8.7% for the quarter, up from 7.0% in the first quarter.

For the third quarter, AGNC generated total comprehensive income of $0.78 per diluted common share and an economic return of 10.6% on tangible common equity, comprised of $0.36 in dividends declared and a $0.47 increase in tangible net book value per common share.

For the first three quarters of 2025, total comprehensive income was $0.80 per diluted common share, resulting in an economic return of 11.3%, comprised of $1.08 in dividends and a $0.13 decline in tangible net book value per common share.

Agency spreads to both Treasury and swap rates tightened meaningfully across the coupon stack during the third quarter, reflecting a sharp decline in interest rate volatility.

Intermediate coupon securities performed the best, supported by strong index-based demand from money managers.

Higher coupon RMBS also generated positive excess returns, though to a lesser extent, as the sizable intra-quarter rally in long-term interest rates increased prepayment concerns associated with these coupons.

Hedge composition was another meaningful driver of performance, as swap spreads widened 2 to 5 basis points across the curve.

Our investment portfolio totaled $90.8 billion as of September 30, 2025, an increase of $8.5 billion from the prior quarter, reflecting the full deployment of preferred and common equity capital raised in the second and third quarters.

As is typically the case when new capital is deployed, the assets added were primarily newly originated production coupon RMBS.

Over time, we seek to optimize the composition of our asset base by rotating into pools with more favorable prepayment characteristics as market opportunities arise.

Consistent with the growth in our investment portfolio, our TBA position increased to $13.8 billion at quarter end from $8.3 billion as of June 30, 2025.

As a result, the percentage of assets with favorable prepayment attributes 1 declined to 76%, compared to 81% at June 30, 2025.

The weighted average coupon of our portfolio, excluding TBAs, increased modestly to 5.17% as of quarter end, compared to 5.14% as of June 30, 2025.

Including TBAs, the weighted average coupon was unchanged at 5.15%.

The average projected life CPR of our portfolio increased to 8.6% at quarter end from 7.8% as of June 30, 2025, reflecting lower mortgage rates.

Actual CPRs averaged 8.3% for the quarter, down from 8.7% in the second quarter.

We ended the third quarter with tangible “at risk” leverage of 7.6x, unchanged from the prior quarter, and a substantial liquidity position of $7.2 billion in unencumbered cash and Agency RMBS, which represented 66% of tangible equity, up slightly from the second quarter.

The notional balance of our swap and Treasury-based hedges remained relatively stable during the third quarter;

however, the composition shifted toward a greater share of longer-dated swap-based hedges.

In duration dollar terms, swap-based hedges increased to 59% of our overall hedge portfolio, compared to 54% as of June 30, 2025.

Given the convexity profile of our assets and the significant decline in interest rate volatility, we added $7 billion of receiver swaptions during the third quarter to provide additional protection in a declining rate environment.

Our duration gap,

which measures the estimated difference between the interest rate sensitivity of our assets and liabilities including hedges, was 0.3 years at quarter end compared to 0.2 years as of June 30, 2025.

Net spread and dollar roll income (a non-GAAP measure) declined $0.03 to $0.35 per common share for the third quarter.

This decline was primarily driven by lower swap income due to the maturity of legacy interest rate swaps with ultra-low fixed pay rates totaling $3.8 billion in the third quarter and $5.3 billion in the second quarter, as well as a timing mismatch between the issuance and deployment of new preferred and common equity capital.

Another important driver of net spread and dollar roll income is the amount of unhedged short-term debt in our funding mix, as measured by our hedge ratio.

As of September 30, 2025, our interest rate hedge ratio—excluding option-based hedges—declined to 77% of total funding liabilities, compared to 86% as of June 30, 2025.

This decline reflects our expectations for an accommodative monetary policy environment and positions AGNC’s earnings profile to benefit from future rate cuts as they occur.

Looking ahead, lower funding costs resulting from the September rate cut and potential future rate cuts, together with the full deployment of recently raised equity capital and a shift in our hedge mix toward a greater share of swap-based hedges, are likely to benefit net spread and dollar roll income, despite a gradual decline in the benefit of legacy swaps.

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, 2024 Sept.

30, 2024 Dec.

31, 2024 Mar.

31, 2025 June 30, 2025 June 30, 2025

31, 2025 June 30, 2025 Sept.

30, 2025 Sept.

June 30, 2025

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

Mortgage Rate/Credit Spread June 30, 2024 Sept.

Mortgage Rate/Credit Spread Sept.

30, 2024 Dec.

31, 2024 Mar.

31, 2025 June 30, 2025 June 30, 2025

31, 2025 June 30, 2025 Sept.

30, 2025 Sept.

June 30, 2025

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FINANCIAL CONDITION

As of June 30, 2025 and December 31, 2024, our investment portfolio totaled $82.3 billion and $73.3 billion, respectively, consisting of:

As of September 30, 2025 and December 31, 2024, our investment portfolio totaled $90.8 billion and $73.3 billion, respectively, consisting of:

$76.3 billion and $65.5 billion Agency RMBS, at fair value, respectively;

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and other mortgage credit investments of $69 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 June 30, 2025 and December 31, 2024 (dollars in millions):

June 30, 2025 December 31, 2024

The following table is a summary of our investment securities (including TBA securities) as of September 30, 2025 and December 31, 2024 (dollars in millions):

September 30, 2025 December 31, 2024

Investment Securities (Includes TBAs) 1

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________________________________

Table excludes other mortgage credit investments of $66 million and $64 million as of June 30, 2025 and December 31, 2024, respectively.

Table excludes other mortgage credit investments of $69 million and $64 million as of September 30, 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 June 30, 2025 and December 31, 2024, our TBA securities had a net carrying value of $101 million and $(26) million, respectively, reported in derivative assets/(liabilities) on our accompanying consolidated balance sheets.

As of September 30, 2025 and December 31, 2024, our TBA securities had a net carrying value of $36 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 June 30, 2025 and December 31, 2024, the weighted average yield on our investment securities (excluding TBA and forward settling securities) was 4.92% and 4.77%, respectively.

The following tables summarize certain characteristics of our fixed rate Agency RMBS portfolio, inclusive of TBA securities, as of June 30, 2025 and December 31, 2024 (dollars in millions):

June 30, 2025

As of September 30, 2025 and December 31, 2024, the weighted average yield on our investment securities (excluding TBA and forward settling securities) was 4.94% and 4.77%, respectively.

The following tables summarize certain characteristics of our fixed rate Agency RMBS portfolio, inclusive of TBA securities, as of September 30, 2025 and December 31, 2024 (dollars in millions):

September 30, 2025

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, 2025, lower balance specified pools had a weighted average original loan balance of $188,000 and $140,000 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, 2025.

As of September 30, 2025, lower balance specified pools had a weighted average original loan balance of $188,000 and $141,000 for 15-year and 30-year securities, respectively, and HARP pools had a weighted average original LTV of 128% and 142% for 15-year and 30-year securities, respectively.

Portfolio yield incorporates a projected life CPR based on forward rate assumptions as of September 30, 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 June 30, 2025 and December 31, 2024, 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, 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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Management's Discussion and Analysis of Financial Condition and Results of Operations (in millions, except per share amounts):

September 30,

Balance Sheet Data 2025

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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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Net interest income (expense) 148 (64) 469 (97)

Other gain (loss), net (274) (21) (355) 476

Other gain, net 688 440 333 916

Operating expenses 30 30 86 78

Net income (loss) (140) (48) (90) 395

Net income 806 346 716 741

Dividends on preferred stock 42 33 115 96

Net income (loss) available (attributable) to common stockholders $ (178) $ (80) $ (163) $ 332

Net income (loss) $ (140) $ (48) $ (90) $ 395

Other comprehensive income (loss), net 48 (18) 141 (95)

Comprehensive income (loss) (92) (66) 51 300

Net income available to common stockholders $ 764 $ 313 $ 601 $ 645

Net income $ 806 $ 346 $ 716 $ 741

Other comprehensive income, net 61 200 202 105

Comprehensive income 867 546 918 846

Dividends on preferred stock 42 33 115 96

Comprehensive income (loss) available (attributable) to common stockholders $ (130) $ (98) $ (22) $ 237

Comprehensive income available to common stockholders $ 825 $ 513 $ 803 $ 750

Weighted average number of common shares outstanding - basic 1,053.0 807.2 996.7 750.0

Weighted average number of common shares outstanding - diluted 1,056.6 810.1 999.9 752.3

Net income (loss) per common share - basic $ (0.17) $ (0.11) $ (0.17) $ 0.46

Net income (loss) per common share - diluted $ (0.17) $ (0.11) $ (0.17) $ 0.46

Comprehensive income (loss) per common share - basic $ (0.13) $ (0.13) $ (0.02) $ 0.33

Comprehensive income (loss) per common share - diluted $ (0.13) $ (0.13) $ (0.02) $ 0.33

Net income per common share - basic $ 0.73 $ 0.39 $ 0.60 $ 0.86

Net income per common share - diluted $ 0.72 $ 0.39 $ 0.60 $ 0.86

Comprehensive income per common share - basic $ 0.78 $ 0.64 $ 0.81 $ 1.00

Comprehensive income per common share - diluted $ 0.78 $ 0.63 $ 0.80 $ 1.00

Dividends declared per common share $ 0.36 $ 0.36 $ 1.08 $ 1.08

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Other Data (Unaudited) * 2025 2024 2025 2024

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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, 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):

The following table summarizes our economic interest income (a non-GAAP measure) for the three and nine months ended September 30, 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

Six Months Ended

September 30,

Nine Months Ended

September 30,

2025 2024 2025 2024

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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, 2025 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, 2025 compared to the prior year period (in millions):

Impact of Changes in the Principal Elements Impacting Economic Interest Income

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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) $ 668 $ 542 $ 126

Our average investment portfolio (at cost), inclusive of TBAs, increased 21% and 23% for the three and six months ended June 30, 2025, respectively, 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 18 and 24 basis points for the three and six months ended June 30, 2025, respectively, largely as a result of shifting our asset portfolio from lower coupon holdings toward a greater share of higher coupon, specified pools.

Our average investment portfolio (at cost), inclusive of TBAs, increased 23% and 23% for the three and nine months ended September 30, 2025, respectively, 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 22 and 24 basis points for the three and nine months ended September 30, 2025, respectively, 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, 2025 $ 66,654 $ 70,066 $ 69,057 $ 10,163 $ 13,805 7.5:1 7.6:1

June 30, 2025 $ 59,469 $ 66,790 $ 66,052 $ 11,996 $ 8,162 7.5:1 7.6:1

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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, 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:

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, 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

Six Months Ended

September 30,

Nine Months Ended

September 30,

2025 2024 2025 2024

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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, 2025 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, 2025 compared to the prior year period (in millions):

Impact of Changes in the Principal Elements of Economic Interest Expense

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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 $ 702 $ 561 $ 141

Our average mortgage borrowings, inclusive of TBAs, increased 24% and 25% for the three and six months ended June 30, 2025, respectively, 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 97 and 99 basis points for the three and six months ended June 30, 2025, respectively, due to lower short-term interest rates.

Interest rate swap periodic income declined for the three and six months ended June 30, 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 moderate decline in the Company's total hedge ratio and a shift towards a higher proportion of U.S.

Our average mortgage borrowings, inclusive of TBAs, increased 24% and 25% for the three and nine months ended September 30, 2025, respectively, 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 98 and 99 basis points for the three and nine months ended September 30, 2025, respectively, due to lower short-term interest rates.

Interest rate swap periodic income declined for the three and nine months ended September 30, 2025, primarily due to higher pay rates on our pay-fixed swaps—driven by the maturity of lower-cost swaps—and lower receive rates.

interest rate swaps outstanding to mortgage borrowings also declined, reflecting a decline in the Company's total hedge ratio and 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 and six months ended June 30, 2025 (dollars in millions).

The following is a summary of our interest rate swaps outstanding during the three and nine months ended September 30, 2025 (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 2025 2024 2025 2024

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(2.10) % (3.98) % (2.39) % (4.37) %

For the three and six months ended June 30, 2025, we had an average forward starting net pay-fixed rate swap balance of $63 million and $173 million, respectively.

For the three and six months ended June 30, 2024, we had an average forward starting net pay-fixed rate swap balance of $2.1 billion and $1.3 billion, respectively.

For the three and nine months ended September 30, 2025, we had an average forward starting net pay-fixed rate swap balance of $238 million and $196 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 $894 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, 2025 and 2024:

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 2025 2024 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 six months ended June 30, 2025 and 2024 (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, 2025 and 2024 (dollars in millions):

Three Months Ended September 30,

Nine Months Ended

September 30,

2025 2024 2025 2024

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

Comprehensive income available to common stockholders

$ 825 $ 513 $ 803 $ 750

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

81 (106) 503 100

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

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

(805) (1,742) (2,258) (1,010)

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36 1,408 1,422 (6)

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

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

Adjustment to exclude unrealized gain reported through other comprehensive income:

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

(61) (200) (202) (105)

Other adjustments:

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

(11) (14) (9) (24)

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

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, 2025 and 2024 (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, 2025 and 2024 (in millions):

Three Months Ended September 30,

Nine Months Ended

September 30,

Gain (Loss) on Investment Securities, Net 1

2025 2024 2025 2024

Loss on sale of investment securities, net $ (177) $ (115) $ (422) $ (206)

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

Gain (loss) on sale of investment securities, net $ (81) $ 106 $ (503) $ (100)

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

805 1,742 2,258 1,010

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

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

61 200 202 105

Total gain (loss) on investment securities, net

Total gain on investment securities, net

$ 785 $ 2,048 $ 1,957 $ 1,015

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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, 2025 and 2024 (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, 2025 and 2024 (in millions):

Three Months Ended September 30,

Nine Months Ended

September 30,

2025 2024 2025 2024

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Payer swaptions (1) — (29) 33

Receiver swaptions (15) 1 (15) 1

Treasury securities - short position (148) (509) (747) (8)

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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 7.6x and 7.2x as of June 30, 2025 and December 31, 2024, respectively.

The following table includes a summary of our mortgage borrowings outstanding as of June 30, 2025 and December 31, 2024 (dollars in millions).

Our tangible net book value "at risk" leverage ratio was 7.6x and 7.2x as of September 30, 2025 and December 31, 2024, respectively.

The following table includes a summary of our mortgage borrowings outstanding as of September 30, 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.

June 30, 2025 December 31, 2024

September 30, 2025 December 31, 2024

Mortgage Borrowings Amount % Amount %

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E xcludes U.S.

Treasury repurchase agreements totaling $3.2 billion and $1.4 billion as of June 30, 2025 and December 31, 2024, respectively.

As of June 30, 2025 and December 31, 2024, 48% and 47%, respectively, of our total repurchase agreements, including 50% and 49% or our investment securities repurchase agreements, respectively, were funded through the Fixed Income Clearing Corporation's GCF Repo service.

Treasury repurchase agreements totaling $5.2 billion and $1.4 billion as of September 30, 2025 and December 31, 2024, respectively.

As of September 30, 2025 and December 31, 2024, 44% and 47%, respectively, of our total repurchase agreements, including 47% and 49% or our investment securities repurchase agreements, respectively, were funded through the Fixed Income Clearing Corporation's GCF Repo service.

We primarily finance our assets through collateralized borrowings structured as repurchase agreements (“repo”).

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Margin calls are typically due on the same business day, subject to notice provisions.

As of June 30, 2025, we were in compliance with all margin requirements.

As of September 30, 2025, we were in compliance with all margin requirements.

Fannie Mae and Freddie Mac publish monthly pay-down factors on the fifth business day following month-end, and repo counterparties typically reduce the values they assign to Agency RMBS collateral to account for the pay-down factor data, even though principal payments on Agency RMBS are generally not received until the 25th calendar day following month-end.

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We manage this liquidity risk by monitoring factors that influence prepayment activity and through disciplined asset selection.

As of June 30, 2025, approximately 10% of our investment portfolio consisted of TBA securities, which are not subject to monthly principal pay-downs.

As of September 30, 2025, approximately 15% of our investment portfolio consisted of TBA securities, which are not subject to monthly principal pay-downs.

The remainder of our portfolio, primarily consisting of Agency RMBS, had an average one-year CPR forecast of 10%.

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Haircut levels and initial or minimum margin requirements reduce the amount of our unencumbered assets and limit our borrowing capacity.

During the three and six months ended June 30, 2025, haircuts and initial margin requirements on our repo funding arrangements remained stable.

As of June 30, 2025, the weighted average haircut and initial margin on our repurchase agreements was approximately 3.0% of the value of our collateral, compared to 3.2% as of December 31, 2024.

During the three and nine months ended September 30, 2025, haircuts and initial margin requirements on our repo funding arrangements remained stable.

As of September 30, 2025, the weighted average haircut and initial margin on our repurchase agreements was approximately 2.9% 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 June 30, 2025, our unencumbered assets totaled approximately $6.5 billion, or 66% of tangible equity, consisting of $6.4 billion of cash and unencumbered Agency RMBS and $0.1 billion of unencumbered credit assets.

As of September 30, 2025, our unencumbered assets totaled approximately $7.3 billion, or 66% of tangible equity, consisting of $7.2 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 sources across multiple counterparties and geographic region.

As of June 30, 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 June 30, 2025, 10% of our tangible stockholders' equity was at risk with the FICC.

Excluding central clearing exchanges, as of June 30, 2025, our amount at risk with any counterparty to our derivative agreements was less than 1% of our stockholders' equity.

As of September 30, 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 less than 5% of our tangible stockholders' equity.

As of September 30, 2025, less than 8% of our tangible stockholders' equity was at risk with the FICC.

Excluding central clearing exchanges, as of September 30, 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, which as of June 30, 2025, shares of our common stock with an aggregate repurchase price of $1.0 billion remained authorized for repurchase 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 September 30, 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 Note 9 of our Consolidated Financial Statements in this Form 10-Q for further details regarding our recent equity capital transactions.

OFF-BALANCE SHEET ARRANGEMENTS

As of June 30, 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 June 30, 2025, 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, 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 September 30, 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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Factors that could cause actual results to vary from our forward-looking statements include, but are not limited to, the following:

• changes in U.S.

monetary policy or interest rates, including actions taken by the Federal Reserve to normalize monetary policy and to reduce the size of its U.S.

Treasury and Agency RMBS bond portfolio;

• fluctuations in the yield curve;

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

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

• the availability and terms of financing and our hedge positions;

• the availability and terms of our financing and hedge positions;

• changes in the market value of our assets, including from changes in net interest spreads, market liquidity or depth, and changes in our "at risk" leverage or hedge positions;

• fluctuations in the yield curve;

• the effectiveness of our risk mitigation strategies;

• conditions in the market for Agency RMBS and other mortgage securities, including changes in the available supply of such securities or investor appetite therefor;

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

• changes in U.S.

monetary policy or interest rates, including actions taken by the Federal Reserve to normalize monetary policy and to reduce the size of its U.S.

Treasury and Agency RMBS bond portfolio;

• the direct or indirect effects of actions by the federal, state, or local governments that affect the economy, the housing sector or financial markets, including actions relating to fiscal policy;

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

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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