AGNC INVESTMENT CORP. ANNOUNCES SECOND QUARTER 2022 FINANCIAL RESULTS

Cision

BETHESDA, Md., July 25, 2022 /PRNewswire/ — AGNC Investment Corp. (“AGNC” or the “Company”) (Nasdaq: AGNC) today announced financial results for the quarter ended June 30, 2022.

SECOND QUARTER 2022 FINANCIAL HIGHLIGHTS

  • $(1.34) comprehensive loss per common share, comprised of:

  • $0.83 net spread and dollar roll income per common share, excluding estimated “catch-up” premium amortization benefit 1

  • $11.43 tangible net book value per common share as of June 30, 2022

  • $0.36 dividends declared per common share for the second quarter

  • -10.1% economic return on tangible common equity for the quarter

OTHER SECOND QUARTER HIGHLIGHTS

  • $61.3 billion investment portfolio as of June 30, 2022, comprised of:

  • 7.4x tangible net book value “at risk” leverage as of June 30, 2022

  • Cash and unencumbered Agency MBS totaled approximately $2.8 billion as of June 30, 2022

  • 7.2% average projected portfolio life CPR as of June 30, 2022

  • 2.70% annualized net interest spread and TBA dollar roll income for the quarter, excluding estimated “catch-up” premium amortization benefit

  • Capital markets activity

____________

1.

Represents a non-GAAP measure. Please refer to a reconciliation to the most applicable GAAP measure and additional
information regarding the use of non-GAAP financial information later in this release.

MANAGEMENT REMARKS
“Financial markets remained under significant pressure in the second quarter as the Federal Reserve indicated a more aggressive path of monetary policy tightening,” said Peter Federico, the Company’s President and Chief Executive Officer. “The expectation of materially higher short-term rates drove significant interest rate volatility and increased the probability of a recession. This challenging monetary policy and macro-economic environment led to broad-based financial market weakness during the second quarter. Agency MBS were no exception, as the spread between Agency MBS and swap and Treasury rates widened meaningfully in April and again in June.

“Looking ahead, while the near-term outlook continues to be uncertain, the longer-term outlook for Agency MBS has improved substantially. At current valuation levels, Agency MBS are extremely attractive relative to historical levels. The Federal Reserve has begun to reduce its portfolio organically, but that runoff will occur at a slower pace than previously anticipated as a result of reduced prepayments. Finally, and perhaps most importantly, the net supply of Agency MBS is now expected to be meaningfully lower than prior expectations.

“These positive developments provide reason for optimism that this period of weakness in the Agency MBS market is nearing its end. The favorable returns associated with Agency MBS in this wider spread regime and an improving technical outlook for mortgage supply and demand should provide a supportive backdrop for Agency MBS investors. Moreover, in this compelling investment environment, we believe AGNC is well-positioned to generate strong risk-adjusted returns for our stockholders.”

“As a result of the challenging market conditions during the quarter, AGNC continued to maintain a defensive position, highlighted by lower leverage and our low interest rate exposure,” said Bernice Bell, the Company’s Executive Vice President and Chief Financial Officer. “Importantly, however, despite this defensive positioning, our net spread and dollar roll income per common share, excluding ‘catch-up’ premium amortization, increased to $0.83 for the second quarter, from $0.72 for the first quarter, due to exceptionally strong TBA dollar roll performance, higher asset yields and stable funding costs, net of our interest rate hedges. While dollar roll performance has moderated, our net spread and dollar roll income should be well protected against higher short-term rates as a result of our significant hedge portfolio.”

TANGIBLE NET BOOK VALUE PER COMMON SHARE
As of June 30, 2022, the Company’s tangible net book value per common share was $11.43 per share, a decrease of -12.9% for the quarter compared to $13.12 per share as of March 31, 2022. The Company’s tangible net book value per common share excludes $526 million, or approximately $1.01 per share, of goodwill as of June 30, 2022 and March 31, 2022.

INVESTMENT PORTFOLIO
As of June 30, 2022, the Company’s investment portfolio totaled $61.3 billion, comprised of:

  • $59.5 billion of Agency MBS and TBA securities, including:

  • $1.8 billion of CRT and non-Agency securities.

As of June 30, 2022, 30-year and 15-year fixed-rate Agency MBS and TBA securities represented 91% and 3%, respectively, of the Company’s investment portfolio, unchanged from March 31, 2022. The Company’s TBA position is net of short TBA securities held as of the reporting date.

As of June 30, 2022, the Company’s fixed-rate Agency MBS and TBA securities’ weighted average coupon was 3.58%, compared to 3.20% as of March 31, 2022, comprised of the following weighted average coupons:

  • 3.62% for 30-year fixed-rate securities;

  • 3.27% 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 June 30, 2022, such positions had a fair value of $15.9 billion and a GAAP net carrying value of $(107) million reported in derivative assets/(liabilities) on the Company’s balance sheet, compared to $19.5 billion and $(609) million, respectively, as of March 31, 2022.

CONSTANT PREPAYMENT RATES
The Company’s weighted average projected CPR for the remaining life of its Agency securities held as of June 30, 2022 decreased to 7.2% from 7.9% as of March 31, 2022. The Company’s weighted average CPR for the second quarter was of 12.4%, compared to 14.5% for the prior quarter.

The weighted average cost basis of the Company’s investment portfolio was 103.2% of par value as of June 30, 2022. The Company’s investment portfolio generated net premium amortization cost of $(127) thousand, or less than $(0.01) per common share, for the second quarter, which includes a “catch-up” premium amortization benefit of $66 million, or $0.13 per common share, due to a decrease in the Company’s CPR projections for certain securities acquired prior to the second quarter. This compares to net premium amortization benefit for the prior quarter of $78 million, or $0.15 per common share, including “catch-up” premium amortization benefit of $159 million, or $0.30 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 3.09% for the second quarter, compared to 3.55% for the prior quarter. Excluding “catch-up” premium amortization, the Company’s average asset yield was 2.58% for the second quarter, compared to 2.36% for the prior quarter. Including the TBA position and excluding “catch-up” premium amortization, the Company’s average asset yield for the second quarter was 2.88%, compared to 2.28% for the prior quarter.

For the second quarter, the weighted average interest rate on the Company’s repurchase agreements was 0.74%, compared to 0.23% for the prior quarter. For the second quarter, the Company’s TBA position had an implied financing benefit of -0.04%, compared to a benefit of -0.49% for the prior quarter. Inclusive of interest rate swaps, the Company’s combined weighted average cost of funds for the second quarter was a net cost of 0.18%, compared to a net cost of 0.09% 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 second quarter was 2.70%, compared to 2.19% 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 second quarter of $0.83 per common share, excluding $0.13 per common share of “catch-up” premium amortization benefit, compared to $0.72 per common share for the prior quarter, excluding 0.30 per common share of “catch-up” premium amortization benefit.

A reconciliation of the Company’s net interest income to net spread and dollar roll income and additional information regarding the Company’s use of non-GAAP measures are included later in this release.

LEVERAGE
As of June 30, 2022, $41.3 billion of repurchase agreements, $16.0 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 $1.9 billion, of the Company’s repurchase agreements was used to fund 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 7.4x as of June 30, 2022, compared to 7.5x as of March 31, 2022. The Company’s average “at risk” leverage for the second quarter was 7.8x tangible net book value, unchanged from the prior quarter.

As of June 30, 2022, the Company’s repurchase agreements had a weighted average interest rate of 1.25%, compared to 0.37% as of March 31, 2022, and a weighted average remaining maturity of 46 days, compared to 64 days as of March 31, 2022. As of June 30, 2022, $17.8 billion, or 43%, of the Company’s repurchase agreements were funded through the Company’s captive broker-dealer subsidiary, Bethesda Securities, LLC.

As of June 30, 2022, the Company’s repurchase agreements had remaining maturities of:

  • $36.8 billion of three months or less;

  • $3.0 billion from three to six months; and

  • $1.4 billion from six to twelve months.

HEDGING ACTIVITIES
As of June 30, 2022, interest rate swaps, swaptions and U.S. Treasury positions equaled 126% of the Company’s outstanding balance of repurchase agreements, TBA position and other debt, compared to 121% as of March 31, 2022.

As of June 30, 2022, the Company’s interest rate swap position totaled $49.9 billion in notional amount, compared to $51.1 billion as of March 31, 2022. As of June 30, 2022, the Company’s interest rate swap portfolio had an average fixed pay rate of 0.28%, an average receive rate of 1.51% and an average maturity of 3.9 years, compared to 0.26%, 0.30% and 4.0 years, respectively, as of March 31, 2022. As of June 30, 2022, 81% and 19% 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 June 30, 2022, the Company had payer swaptions outstanding totaling $6.8 billion, compared to $10.3 billion as of March 31, 2022, receiver swaptions outstanding totaling $0.2 billion, compared to none outstanding as of March 31, 2022, and net short U.S. Treasury positions outstanding totaling $15.9 billion, compared to $16.2 billion as of March 31, 2022.

OTHER GAIN (LOSS), NET
For the second quarter, the Company recorded a net loss of $(729) million in other gain (loss), net, or $(1.39) per common share, compared to a net loss of $(1,078) million, or $(2.06) per common share, for the prior quarter. Other gain (loss), net for the second quarter was comprised of:

  • $(946) million of net realized losses on sales of investment securities;

  • $(987) million of net unrealized losses on investment securities measured at fair value through net income;

  • $49 million of interest rate swap periodic income;

  • $786 million of net gains on interest rate swaps;

  • $309 million of net gains on interest rate swaptions;

  • $647 million of net gains on U.S. Treasury positions;

  • $182 million of TBA dollar roll income;

  • $(786) million of net mark-to-market losses on TBA securities; and

  • $17 million of other miscellaneous gains.

OTHER COMPREHENSIVE LOSS
During the second quarter, the Company recorded other comprehensive loss of $(245) million, or $(0.47) per common share, consisting of net unrealized losses on the Company’s Agency securities recognized through OCI, compared to $(491) million, or $(0.94) per common share, of other comprehensive loss for the prior quarter.

COMMON STOCK DIVIDENDS
During the second quarter, the Company declared dividends of $0.12 per share to common stockholders of record as of April 29, May 31, and June 30, 2022, totaling $0.36 per share for the quarter. Since its May 2008 initial public offering through the second quarter of 2022, the Company has declared a total of $11.6 billion in common stock dividends, or $45.04 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; estimated taxable income; 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.

AGNC INVESTMENT CORP.

CONSOLIDATED BALANCE SHEETS

(in millions, except per share data)

June 30,
2022

March 31,
2022

December 31,
2021

September 30,
2021

June 30,
2021

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Assets:

Agency securities, at fair value (including pledged securities of $40,107, $43,261, $47,601, $46,741 and $49,686, respectively)

$ 43,459

$ 47,214

$ 52,396

$ 53,517

$ 57,896

Agency securities transferred to consolidated variable interest entities, at fair value (pledged securities)

167

184

208

226

245

Credit risk transfer securities, at fair value (including pledged securities of $629, $471, $510, $534 and $502, respectively)

894

885

974

1,072

1,105

Non-Agency securities, at fair value (including pledged securities of $643, $466, $571, $380 and $377, respectively)

881

804

843

578

553

U.S. Treasury securities, at fair value (including pledged securities of $1,882, $684, $471, $645 and $397, respectively)

1,882

684

471

645

397

Cash and cash equivalents

906

1,004

998

981

947

Restricted cash

1,333

1,087

527

464

623

Derivative assets, at fair value

536

647

317

402

381

Receivable for investment securities sold (including pledged securities of $1,907, $2,160, $0, $252 and $147, respectively)

2,006

2,317

272

147

Receivable under reverse repurchase agreements

8,438

10,645

10,475

9,617

11,979

Goodwill

526

526

526

526

526

Other assets

212

397

414

505

256

Total assets

$ 61,240

$ 66,394

$ 68,149

$ 68,805

$ 75,055

Liabilities:

Repurchase agreements

$ 43,153

$ 44,715

$ 47,381

$ 46,532

$ 48,737

Debt of consolidated variable interest entities, at fair value

107

116

126

134

148

Payable for investment securities purchased

547

857

80

1,821

3,697

Derivative liabilities, at fair value

237

668

86

178

14

Dividends payable

88

88

88

88

88

Obligation to return securities borrowed under reverse repurchase agreements, at fair value

8,265

10,277

9,697

8,896

10,920

Accounts payable and other liabilities

803

743

400

477

783

Total liabilities

53,200

57,464

57,858

58,126

64,387

Stockholders’ equity:

Preferred Stock – aggregate liquidation preference of $1,538

1,489

1,489

1,489

1,489

1,489

Common stock – $0.01 par value; 522.7, 523.3, 522.2, 524.9 and 524.9 shares issued and outstanding, respectively

5

5

5

5

5

Additional paid-in capital

13,707

13,704

13,710

13,747

13,741

Retained deficit

(6,726)

(6,078)

(5,214)

(4,973)

(4,972)

Accumulated other comprehensive income (loss)

(435)

(190)

301

411

405

Total stockholders’ equity

8,040

8,930

10,291

10,679

10,668

Total liabilities and stockholders’ equity

$ 61,240

$ 66,394

$ 68,149

$ 68,805

$ 75,055

Tangible net book value per common share 1

$ 11.43

$ 13.12

$ 15.75

$ 16.41

$ 16.39

AGNC INVESTMENT CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share data)

(unaudited)

Three Months Ended

June 30,
2022

March 31,
2022

December 31,
2021

September 30,
2021

June 30,
2021

Interest income:

Interest income

$ 395

$ 475

$ 262

$ 293

$ 249

Interest expense

80

27

15

14

17

Net interest income

315

448

247

279

232

Other loss, net:

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

(946)

(342)

(64)

(5)

25

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

(987)

(2,532)

(378)

(141)

(28)

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

1,204

1,796

188

101

(618)

Total other loss, net

(729)

(1,078)

(254)

(45)

(621)

Expenses:

Compensation and benefits

12

13

12

14

12

Other operating expense

8

8

8

8

10

Total operating expense

20

21

20

22

22

Net income (loss)

(434)

(651)

(27)

212

(411)

Dividend on preferred stock

25

25

25

25

25

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

$ (459)

$ (676)

$ (52)

$ 187

$ (436)

Net income (loss)

$ (434)

$ (651)

$ (27)

$ 212

$ (411)

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

(245)

(491)

(110)

6

(77)

Comprehensive income (loss)

(679)

(1,142)

(137)

218

(488)

Dividend on preferred stock

25

25

25

25

25

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

$ (704)

$ (1,167)

$ (162)

$ 193

$ (513)

Weighted average number of common shares outstanding – basic

526.2

524.3

525.5

526.7

526.6

Weighted average number of common shares outstanding – diluted

526.2

524.3

525.5

528.6

526.6

Net income (loss) per common share – basic

$ (0.87)

$ (1.29)

$ (0.10)

$ 0.36

$ (0.83)

Net income (loss) per common share – diluted

$ (0.87)

$ (1.29)

$ (0.10)

$ 0.35

$ (0.83)

Comprehensive income (loss) per common share – basic

$ (1.34)

$ (2.23)

$ (0.31)

$ 0.37

$ (0.97)

Comprehensive income (loss) per common share – diluted

$ (1.34)

$ (2.23)

$ (0.31)

$ 0.37

$ (0.97)

Dividends declared per common share

$ 0.36

$ 0.36

$ 0.36

$ 0.36

$ 0.36

AGNC INVESTMENT CORP.

RECONCILIATION OF GAAP NET INTEREST INCOME TO NET SPREAD AND DOLLAR ROLL INCOME (NON-GAAP MEASURE) 2

(in millions, except per share data)

(unaudited)

Three Months Ended

June 30,
2022

March 31,
2022

December 31,
2021

September 30,
2021

June 30,
2021

GAAP net interest income:

Interest income

$ 395

$ 475

$ 262

$ 293

$ 249

Interest expense

80

27

15

14

17

GAAP net interest income

315

448

247

279

232

TBA dollar roll income, net 3,4

182

152

165

175

162

Interest rate swap periodic (cost) benefit, net 3,8

49

(18)

(16)

(13)

(19)

Adjusted net interest and dollar roll income

546

582

396

441

375

Operating expense

(20)

(21)

(20)

(22)

(22)

Net spread and dollar roll income

526

561

376

419

353

Dividend on preferred stock

25

25

25

25

25

Net spread and dollar roll income available to common stockholders

501

536

351

394

328

Estimated “catch-up” premium amortization cost (benefit) due to change in CPR forecast 11

(66)

(159)

44

2

71

Net spread and dollar roll income, excluding “catch-up” premium amortization, available to common stockholders

$ 435

$ 377

$ 395

$ 396

$ 399

Weighted average number of common shares outstanding – basic

526.2

524.3

525.5

526.7

526.6

Weighted average number of common shares outstanding – diluted

527.1

525.7

527.6

528.6

528.3

Net spread and dollar roll income per common share – basic

$ 0.95

$ 1.02

$ 0.67

$ 0.75

$ 0.62

Net spread and dollar roll income per common share – diluted

$ 0.95

$ 1.02

$ 0.67

$ 0.75

$ 0.62

Net spread and dollar roll income, excluding “catch-up” premium amortization, per common share – basic

$ 0.83

$ 0.72

$ 0.75

$ 0.75

$ 0.76

Net spread and dollar roll income, excluding “catch-up” premium amortization, per common share – diluted

$ 0.83

$ 0.72

$ 0.75

$ 0.75

$ 0.76

AGNC INVESTMENT CORP.

RECONCILIATION OF GAAP NET INCOME TO ESTIMATED TAXABLE INCOME (NON-GAAP MEASURE) 2

(in millions, except per share data)

(unaudited)

Three Months Ended

June 30,
2022

March 31,
2022

December 31,
2021

September 30,
2021

June 30,
2021

Net income/(loss)

$ (434)

$ (651)

$ (27)

$ 212

$ (411)

Book to tax differences:

Premium amortization, net

(78)