AGNC AGNC Investment Corporation

BETHESDA, Md., Oct. 30, 2023 /PRNewswire/ -- AGNC Investment Corp. ("AGNC" or the "Company") (Nasdaq: AGNC) today announced financial results for the quarter ended September 30, 2023.

THIRD QUARTER 2023 FINANCIAL HIGHLIGHTS

• $(1.02) comprehensive loss per common share, comprised of:
  • $(0.68) net loss per common share
  • $(0.34) other comprehensive loss ("OCI") per common share on investments marked-to-market through OCI
• $0.65 net spread and dollar roll income per common share, excluding estimated "catch-up" premium amortization benefit ¹
  • Includes less than $0.01 per common share of dollar roll income associated with the Company's $7.3 billion average net long position in Agency mortgage-backed securities ("MBS") in the "to-be-announced" ("TBA") market
  • Excludes $0.05 per common share of estimated "catch-up" premium amortization benefit due to change in projected constant prepayment rate ("CPR") estimates
• $8.08 tangible net book value per common share as of September 30, 2023
  • Decreased $(1.31) per common share, or -14.0%, from $9.39 per common share as of June 30, 2023
• $0.36 dividends declared per common share for the third quarter
• -10.1% economic return on tangible common equity for the quarter
  • Comprised of $0.36 dividends per common share and $(1.31) decrease in tangible net book value per common share

OTHER THIRD QUARTER HIGHLIGHTS

• $59.3 billion investment portfolio as of September 30, 2023, comprised of:
  • $55.9 billion Agency MBS
  • $2.4 billion net TBA mortgage position
  • $1.1 billion credit risk transfer ("CRT") and non-Agency securities and other mortgage credit investments
• 7.9x tangible net book value "at risk" leverage as of September 30, 2023
  • 7.5x average tangible net book value "at risk" leverage for the quarter
• Unencumbered cash and Agency MBS totaled $3.6 billion as of September 30, 2023
  • Excludes unencumbered CRT and non-Agency securities
  • Represents 52% of the Company's tangible equity as of September 30, 2023
• 8.3% average projected portfolio life CPR as of September 30, 2023
  • 7.1% actual portfolio CPR for the quarter
• 3.03% annualized net interest spread and TBA dollar roll income for the quarter, excluding estimated "catch-up" premium amortization benefit
  • Excludes 20 bps of "catch-up" premium amortization benefit due to change in projected CPR estimates
• Capital markets activity
  • Issued 44.7 million common shares through At-the-Market ("ATM") Offerings at an average offering price of $9.67 per share, net of offering costs, or $432 million

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MANAGEMENT REMARKS
"A complex set of domestic and global factors, including heightened geopolitical risks, Treasury supply concerns, and an approaching inflection point in the Federal Reserve's monetary policy, drove the significant volatility and underperformance in the Treasury and other fixed income markets," said Peter Federico, the Company's President and Chief Executive Officer. "In environments in which Treasury securities experience considerable price instability and the market struggles to find a new equilibrium, Agency MBS typically underperform, which was indeed the case in the third quarter. As challenging as this period has been for all bond market participants, the current opportunity for both levered and unlevered investments in Agency MBS remains historically attractive on both an absolute and relative basis. Once the uncertainties associated with the current market environment subside, we believe that a durable and attractive investment environment will emerge."

"In the third quarter, AGNC generated $0.65 per common share of net spread and dollar roll income, excluding 'catch-up' premium amortization," said Bernice Bell, the Company's Executive Vice President and Chief Financial Officer. "AGNC's economic return for the quarter was -10.1%, comprised of $0.36 of dividends per common share and a $(1.31) decline in tangible net book value per common share as a result of the significant mortgage spread widening during the quarter. Despite the decline in book value, AGNC's "at risk" leverage as of September 30, 2023 was 7.9x, and AGNC's liquidity throughout the quarter remained in line with typical operating parameters. During the quarter, AGNC also raised over $430 million through accretive equity raises under its at-the-market offering program."

TANGIBLE NET BOOK VALUE PER COMMON SHARE
As of September 30, 2023, the Company's tangible net book value per common share was $8.08 per share, a decrease of -14.0% for the quarter compared to $9.39 per share as of June 30, 2023. The Company's tangible net book value per common share excludes $526 million, or $0.81 and $0.87 per share, of goodwill as of September 30, 2023 and June 30, 2023, respectively.

INVESTMENT PORTFOLIO
As of September 30, 2023, the Company's investment portfolio totaled $59.3 billion, comprised of:

• $58.3 billion of Agency MBS and TBA securities, including:
  • $57.8 billion of fixed-rate securities, comprised of:
    • $53.3 billion 30-year MBS,
    • $2.3 billion 30-year TBA securities, net,
    • $0.9 billion 15-year MBS,
    • $0.1 billion 15-year TBA securities, and
    • $1.2 billion 20-year MBS; and
  • $0.5 billion of collateralized mortgage obligations ("CMOs"), adjustable-rate and other Agency securities; and
• $1.1 billion of CRT and non-Agency securities and other mortgage credit investments.

As of September 30, 2023, 30-year and 15-year fixed-rate Agency MBS and TBA securities represented 94% and 2%, respectively, of the Company's investment portfolio, compared to 92% and 3%, respectively, as of June 30, 2023.

As of September 30, 2023, the Company's fixed-rate Agency MBS and TBA securities' weighted average coupon was 4.71%, compared to 4.42% as of June 30, 2023, comprised of the following weighted average coupons:

• 4.79% for 30-year fixed-rate securities;
• 3.45% for 15-year fixed rate securities; and
• 2.50% for 20-year fixed-rate securities.

The Company accounts for TBA securities and other forward settling securities as derivative instruments and recognizes TBA dollar roll income in other gain (loss), net on the Company's financial statements. As of September 30, 2023, such positions had a fair value of $2.4 billion and a GAAP net carrying value of $(31) million reported in derivative assets/(liabilities) on the Company's balance sheet, compared to $10.2 billion and $(92) million, respectively, as of June 30, 2023.

CONSTANT PREPAYMENT RATES
The Company's weighted average projected CPR for the remaining life of its Agency securities held as of September 30, 2023 decreased to 8.3% from 9.8% as of June 30, 2023. The Company's weighted average CPR for the third quarter was 7.1%, compared to 6.6% for the prior quarter.

The weighted average cost basis of the Company's investment portfolio was 101.8% of par value as of September 30, 2023. The Company's investment portfolio generated net premium amortization cost of $(20) million, or $(0.03) per common share, for the third quarter, which includes a "catch-up" premium amortization benefit of $31 million, or $0.05 per common share, due to a decrease in the Company's CPR projections for certain securities acquired prior to the third quarter. This compares to net premium amortization cost for the prior quarter of $(45) million, or $(0.08) per common share, including a "catch-up" premium amortization benefit of $11 million, or $0.02 per common share.

ASSET YIELDS, COST OF FUNDS AND NET INTEREST RATE SPREAD 
The Company's average asset yield on its investment portfolio, excluding the TBA position, was 4.26% for the third quarter, compared to 3.72% for the prior quarter. Excluding "catch-up" premium amortization, the Company's average asset yield was 4.04% for the third quarter, compared to 3.63% for the prior quarter. Including the TBA position and excluding "catch-up" premium amortization, the Company's average asset yield for the third quarter was 4.20%, compared to 3.89% for the prior quarter.

For the third quarter, the weighted average interest rate on the Company's repurchase agreements was 5.37%, compared to 5.01% for the prior quarter. For the third quarter, the Company's TBA position had an implied financing cost of 5.28%, compared to 4.89% for the prior quarter. Inclusive of interest rate swaps, the Company's combined weighted average cost of funds for the third quarter was 1.17%, compared to 0.63% for the prior quarter.

The Company's annualized net interest spread, including the TBA position and interest rate swaps and excluding "catch-up" premium amortization, for the third quarter was 3.03%, compared to 3.26% for the prior quarter.

NET SPREAD AND DOLLAR ROLL INCOME
The Company recognized net spread and dollar roll income (a non-GAAP financial measure) for the third quarter of $0.65 per common share, excluding $0.05 per common share of "catch-up" premium amortization benefit, compared to $0.67 per common share for the prior quarter, excluding $0.02 per common share of "catch-up" premium amortization benefit.

A reconciliation of the Company's total comprehensive income (loss) to net spread and dollar roll income, excluding "catch-up" premium amortization, and additional information regarding the Company's use of non-GAAP measures are included later in this release.

LEVERAGE
As of September 30, 2023, $51.9 billion of repurchase agreements, $2.4 billion of net TBA dollar roll positions (at cost) and $0.1 billion of other debt were used to fund the Company's investment portfolio. The remainder, or approximately $0.3 billion, of the Company's repurchase agreements was used to fund short-term purchases of U.S. Treasury securities ("U.S. Treasury repo") and is not included in the Company's leverage measurements. Inclusive of its TBA position and net payable/(receivable) for unsettled investment securities, the Company's tangible net book value "at risk" leverage ratio was 7.9x as of September 30, 2023, compared to 7.2x June 30, 2023. The Company's average "at risk" leverage for the third quarter was 7.5x tangible net book value, compared to 7.2x for the prior quarter.

As of September 30, 2023, the Company's repurchase agreements used to fund its investment portfolio ("Investment Securities Repo") had a weighted average interest rate of 5.47%, compared to 5.23% as of June 30, 2023, and a weighted average remaining maturity of 16 days, compared to 15 days as of June 30, 2023. As of September 30, 2023, $24.1 billion, or 46%, of the Company's Investment Securities Repo was funded through the Company's captive broker-dealer subsidiary, Bethesda Securities, LLC.

As of September 30, 2023, the Company's Investment Securities Repo had remaining maturities of:

• $51.7 billion of three months or less and
• $0.2 billion from three to six months.

HEDGING ACTIVITIES 
As of September 30, 2023, interest rate swaps, swaptions, U.S. Treasury positions and other interest rate hedges equaled 116% of the Company's outstanding balance of Investment Securities Repo, TBA position and other debt, compared to 119% as of June 30, 2023.

As of September 30, 2023, the Company's net interest rate swap position totaled $44.4 billion in notional amount, compared to $47.7 billion as of June 30, 2023. As of September 30, 2023, the Company's interest rate swap portfolio had an average fixed pay rate of 0.74%, an average receive rate of 5.30% and an average maturity of 3.5 years, compared to 0.55%, 5.08% and 3.1 years, respectively, as of June 30, 2023. As of September 30, 2023, 80% and 20% of the Company's interest rate swap portfolio were linked to the Secured Overnight Financing Rate ("SOFR") and Overnight Index Swap Rate ("OIS"), respectively.

As of September 30, 2023, the Company had payer swaptions totaling $1.4 billion, a two-year swap equivalent long SOFR futures position of $1.1 billion and a net short U.S. Treasury position of $18.6 billion outstanding, compared to $1.6 billion, $1.3 billion and $13.2 billion, respectively, as of June 30, 2023.

OTHER GAIN (LOSS), NET
For the third quarter, the Company recorded a net loss of $(316) million in other gain (loss), net, or $(0.51) per common share, compared to a net gain of $378 million, or $0.63 per common share, for the prior quarter. Other gain (loss), net for the third quarter was comprised of:

• $(534) million of net realized losses on sales of investment securities;
• $(1,356) million of net unrealized losses on investment securities measured at fair value through net income;
• $583 million of interest rate swap periodic income;
• $170 million of net gains on interest rate swaps;
• $89 million of net gains on interest rate swaptions;
• $(6) million of net losses on SOFR futures;
• $929 million of net gains on U.S. Treasury positions;
• $73 thousand of TBA dollar roll income;
• $(148) million of net mark-to-market losses on TBA securities;
• $(42) million of other interest income (expense), net; and
• $(1) million of other miscellaneous losses.

OTHER COMPREHENSIVE LOSS
During the third quarter, the Company recorded other comprehensive loss of $(213) million, or $(0.34) per common share, consisting of net unrealized losses on the Company's Agency securities recognized through OCI, compared to $(65) million, or $(0.11) per common share, of other comprehensive loss for the prior quarter.

COMMON STOCK DIVIDENDS
During the third quarter, the Company declared dividends of $0.12 per share to common stockholders of record as of July 31, August 31, and September 29, 2023, totaling $0.36 per share for the quarter. Since its May 2008 initial public offering through the third quarter of 2023, the Company has declared a total of $12.6 billion in common stock dividends, or $46.84 per common share.

FINANCIAL STATEMENTS, OPERATING PERFORMANCE AND PORTFOLIO STATISTICS
The following measures of operating performance include net spread and dollar roll income; net spread and dollar roll income, excluding "catch-up" premium amortization; economic interest income; economic interest expense; and the related per common share measures and financial metrics derived from such information, which are non-GAAP financial measures. Please refer to "Use of Non-GAAP Financial Information" later in this release for further discussion of non-GAAP measures.

*Except as noted below, average numbers for each period are weighted based on days on the Company's books and records. All percentages are annualized, unless otherwise noted.
Numbers in financial tables may not total due to rounding.

1. Tangible net book value per common share excludes preferred stock liquidation preference and goodwill.
2. Table includes non-GAAP financial measures and/or amounts derived from non-GAAP measures. Refer to "Use of Non-GAAP Financial Information" for additional discussion of non-GAAP financial measures.
3. Amount reported in gain (loss) on derivatives instruments and other securities, net in the accompanying consolidated statements of operations.
4. Dollar roll income represents the price differential, or "price drop," between the TBA price for current month settlement versus the TBA price for forward month settlement. Amount includes dollar roll income (loss) on long and short TBA securities. Amount excludes TBA mark-to-market adjustments.
5. The implied funding cost/benefit of TBA dollar roll transactions is determined using the "price drop" (Note 4) and market-based assumptions regarding the "cheapest-to-deliver" collateral that can be delivered to satisfy the TBA contract, such as the anticipated collateral's weighted average coupon, weighted average maturity and projected 1-month CPR. The average implied funding cost/benefit for all TBA transactions is weighted based on the Company's daily average TBA balance outstanding for the period.
6. The average implied asset yield for TBA dollar roll transactions is extrapolated by adding the average TBA implied funding cost (Note 5) to the net dollar roll yield. The net dollar roll yield is calculated by dividing dollar roll income (Note 4) by the average net TBA balance (cost basis) outstanding for the period.
7. Amount calculated on a weighted average basis based on average balances outstanding during the period and their respective asset yield/funding cost.
8. Represents periodic interest rate swap settlements. Amount excludes interest rate swap termination fees, mark-to-market adjustments and price alignment interest income (expense) on margin deposits.
9. Cost of funds excludes other supplemental hedges used to hedge a portion of the Company's interest rate risk (such as swaptions, SOFR futures, and U.S. Treasury positions) and U.S. Treasury repurchase agreements.
10. Represents interest rate swap periodic cost measured as a percent of total mortgage funding (Investment Securities Repo, other debt and net TBA securities (at cost)).
11. "Catch-up" premium amortization cost/benefit is reported in interest income on the accompanying consolidated statements of operations.
12. Investment securities include Agency MBS, CRT and non-Agency securities. Amounts exclude TBA and forward settling securities accounted for as derivative instruments in the accompanying consolidated balance sheets and statements of operations.
13. Average repurchase agreements and other debt excludes U.S. Treasury repurchase agreements.
14. Average stockholders' equity calculated as the average month-ended stockholders' equity during the quarter.
15. Average tangible net book value "at risk" leverage during the period was calculated by dividing the sum of the daily weighted average Investment Securities Repo, other debt, and TBA and forward settling securities (at cost) outstanding for the period by the sum of average stockholders' equity adjusted to exclude goodwill. Leverage excludes U.S. Treasury repurchase agreements.
16. Tangible net book value "at risk" leverage as of period end was calculated by dividing the sum of the amount outstanding under Investment Securities Repo, other debt, net TBA position and forward settling securities (at cost), and net receivable / payable for unsettled investment securities outstanding by the sum of total stockholders' equity adjusted to exclude goodwill. Leverage excludes U.S. Treasury repurchase agreements.
17. Average TBA coupon is for the long TBA position only.
18. Includes forward starting swaps not yet in effect as of reported period-end.
19. Economic return (loss) on tangible common equity represents the sum of the change in tangible net book value per common share and dividends declared on common stock during the period over the beginning tangible net book value per common share.
20. Includes TBA dollar roll position and, if applicable, forward settling securities accounted for as derivative instruments in the accompanying consolidated balance sheets and statements of operations. Amount is net of short TBA securities.
21. Non-Agency MBS, at fair value, excludes $45 million, $28 million, $25 million, $25 million and $26 million of other mortgage credit investments held as of September 30, June 30, and March 31, 2023 and December 31, and September 30, 2022, respectively.
22. Other interest income (expense), net includes interest income on cash and cash equivalents, price alignment interest income (expense) on margin deposits, and other miscellaneous interest income (expense).

STOCKHOLDER CALL
AGNC invites stockholders, prospective stockholders and analysts to attend the AGNC stockholder call on October 31, 2023 at 8:30 am ET. Interested persons who do not plan on asking a question and have internet access are encouraged to utilize the free webcast at www.AGNC.com. Those who plan on participating in the Q&A or do not have internet available may access the call by dialing (877) 300-5922 (U.S. domestic) or (412) 902-6621 (international). Please advise the operator you are dialing in for the AGNC Investment Corp. stockholder call.

A slide presentation will accompany the call and will be available at www.AGNC.com. Select the Q3 2023 Earnings Presentation link to download the presentation in advance of the stockholder call.

An archived audio of the stockholder call combined with the slide presentation will be available on the AGNC website after the call on October 31, 2023. In addition, there will be a phone recording available one hour after the call on October 31, 2023 through November 7, 2023. Those who are interested in hearing the recording of the presentation, can access it by dialing (877) 344-7529 (U.S. domestic) or (412) 317-0088 (international), passcode 2598892.

For further information, please contact Investor Relations at (301) 968-9300 or IR@AGNC.com.

ABOUT AGNC INVESTMENT CORP.
AGNC Investment Corp. is an internally managed real estate investment trust ("REIT") that invests primarily in residential mortgage-backed securities for which the principal and interest payments are guaranteed by a U.S. Government-sponsored enterprise or a U.S. Government agency. For further information, please refer to www.AGNC.com.

FORWARD LOOKING STATEMENTS
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Forward-looking statements are based on estimates, projections, beliefs and assumptions of management of the Company at the time of such statements and are not guarantees of future performance. Forward-looking statements involve risks and uncertainties in predicting future results and conditions. Actual results could differ materially from those projected in these forward-looking statements or from our historic performance due to a variety of important factors, including, without limitation, changes in monetary policy and other factors that affect interest rates, MBS spreads to benchmark interest rates, the forward yield curve, or prepayment rates; the availability and terms of financing; changes in the market value of the Company's assets; general economic or geopolitical conditions; liquidity and other conditions in the market for Agency securities and other financial markets; and legislative and regulatory changes that could adversely affect the business of the Company. Certain factors that could cause actual results to differ materially from those contained in the forward-looking statements are included in the Company's periodic reports filed with the Securities and Exchange Commission ("SEC"). Copies are available on the SEC's website, www.sec.gov. The Company disclaims any obligation to update or revise any forward-looking statements based on the occurrence of future events, the receipt of new information, or otherwise.

USE OF NON-GAAP FINANCIAL INFORMATION
In addition to the results presented in accordance with GAAP, the Company's results of operations discussed in this release include certain non-GAAP financial information, including "net spread and dollar roll income"; "net spread and dollar roll income, excluding 'catch-up' premium amortization"; "economic interest income" and "economic interest expense"; and the related per common share measures and certain financial metrics derived from such non-GAAP information, such as "cost of funds" and "net interest spread."

Net spread and dollar roll income available to common stockholders is measured as comprehensive income (loss) available (attributable) to common stockholders (GAAP measure) adjusted to: (i) exclude gains/losses on investment securities recognized through net income or other comprehensive income and gains/losses on derivative instruments and other securities (GAAP measures) and (ii) include interest rate swap periodic income/cost, TBA dollar roll income and other miscellaneous interest income/expense. As defined, net spread and dollar roll income available to common stockholders represents net interest income (GAAP measure) adjusted to include TBA dollar roll income, interest rate swap periodic income/cost and other miscellaneous interest income/expense, less total operating expense (GAAP measure) and dividends on preferred stock (GAAP measure). Net spread and dollar roll income, excluding 'catch-up' premium amortization, available to common stockholders further excludes retrospective "catch-up" adjustments to premium amortization cost due to changes in projected CPR estimates.

By providing users of the Company's financial information with such measures in addition to the related GAAP measures, the Company believes users have greater transparency into the information used by the Company's management in its financial and operational decision-making. The Company also believes that it is important for users of its financial information to consider information related to the Company's current financial performance without the effects of certain transactions that are not necessarily indicative of its current investment portfolio performance and operations.

Specifically, the Company believes the inclusion of TBA dollar roll income is meaningful as TBAs are economically equivalent to holding and financing generic Agency MBS using short-term repurchase agreements but are recognized under GAAP in gain/loss on derivative instruments in the Company's statement of operations. Similarly, the Company believes that the inclusion of periodic interest rate swap settlements in such measure, which are recognized under GAAP in gain/loss on derivative instruments, is meaningful as interest rate swaps are the primary instrument the Company uses to economically hedge against fluctuations in the Company's borrowing costs and inclusion of periodic interest rate swap settlements is more indicative of the Company's total cost of funds than interest expense alone. In the case of net spread and dollar roll income, excluding "catch-up" premium amortization, the Company believes the exclusion of "catch-up" adjustments to premium amortization cost is meaningful as it excludes the cumulative effect from prior reporting periods due to current changes in future prepayment expectations and, therefore, exclusion of such "catch-up" cost or benefit is more indicative of the current earnings potential of the Company's investment portfolio.

However, because such measures are incomplete measures of the Company's financial performance and involve differences from results computed in accordance with GAAP, they should be considered as supplementary to, and not as a substitute for, results computed in accordance with GAAP. In addition, because not all companies use identical calculations, the Company's presentation of such non-GAAP measures may not be comparable to other similarly-titled measures of other companies.

A reconciliation of GAAP comprehensive income (loss) to non-GAAP "net spread and dollar roll income, excluding 'catch-up' premium amortization" is included in this release.

CONTACT:
Investors - (301) 968-9300
Media - (301) 968-9303

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SOURCE AGNC Investment Corp.