AGNC Investment Corp. SEC 10-Q Report

AGNC Investment Corp., a prominent player in the U.S. housing market, has released its Form 10-Q report for the quarter ended September 30, 2024. The report provides a comprehensive overview of the company's financial performance, business operations, strategic initiatives, and the challenges it faces. AGNC primarily invests in Agency residential mortgage-backed securities (Agency RMBS) and other mortgage-related securities, aiming to generate favorable long-term stockholder returns with a substantial yield component.

Financial Highlights

AGNC Investment Corp. reported the following key financial metrics for the three and nine months ended September 30, 2024:

• Interest Income: $756 million for the three months, $2,093 million for the nine months.
• Interest Expense: $820 million for the three months, $2,190 million for the nine months.
• Net Interest Income (Expense): $(64) million for the three months, $(97) million for the nine months.
• Net Income (Loss): $346 million for the three months, $741 million for the nine months.
• Net Income (Loss) Available (Attributable) to Common Stockholders: $313 million for the three months, $645 million for the nine months.
• Net Income (Loss) Per Common Share - Basic: $0.39 for the three months, $0.86 for the nine months.
• Net Income (Loss) Per Common Share - Diluted: $0.39 for the three months, $0.86 for the nine months.
• Comprehensive Income (Loss): $546 million for the three months, $846 million for the nine months.
• Comprehensive Income (Loss) Available (Attributable) to Common Stockholders: $513 million for the three months, $750 million for the nine months.

Business Highlights

AGNC's business performance for the period included the following highlights:

• Revenue Segments: The company primarily invests in Agency RMBS, including residential mortgage pass-through securities and collateralized mortgage obligations guaranteed by U.S. Government-sponsored enterprises or U.S. Government agencies. Additionally, AGNC invests in credit risk transfer (CRT) securities and non-Agency residential and commercial mortgage-backed securities (non-Agency RMBS and CMBS).
• Geographical Performance: AGNC operates primarily within the U.S. housing market, enhancing liquidity in the residential real estate mortgage markets and facilitating home ownership in the U.S.
• Sales Units: As of September 30, 2024, AGNC held $68.9 billion in investment securities at fair value, $4.1 billion in net TBA securities at fair value, and other mortgage credit investments of $61 million.
• Future Outlook: The company intends to continue distributing 100% of its taxable income within the time limits prescribed by the Internal Revenue Code, which may extend into the subsequent tax year. The principal objective remains generating favorable long-term stockholder returns with a substantial yield component.

Strategic Initiatives

AGNC has undertaken several strategic initiatives to enhance its capital structure and improve liquidity:

• Investment Focus: The company has increased its investment in Agency RMBS and other mortgage-related securities. As of September 30, 2024, AGNC’s investment portfolio consisted of $68.9 billion in investment securities, $4.1 billion in net TBA securities, and $61 million in other mortgage credit investments.
• Capital Management: AGNC has a robust repurchase agreement program, with $65.979 billion in repurchase agreements outstanding, including $2.580 billion in U.S. Treasury repurchase agreements. The company has also been active in the reverse repurchase agreement market, with $13.494 billion in reverse repurchase agreements outstanding. AGNC has declared and paid dividends on its preferred stock amounting to $96 million and common dividends totaling $817 million for the nine months ended September 30, 2024.
• Future Outlook: Looking ahead, AGNC plans to continue its strategic focus on investing in Agency RMBS and other mortgage-related securities to enhance liquidity and generate favorable long-term stockholder returns. The company intends to maintain its REIT status by distributing 100% of its taxable income within the prescribed time limits. AGNC will also continue to manage its interest rate risk through the use of derivative instruments and may conduct further issuances of common stock to raise capital.

Challenges and Risks

AGNC faces several key risks and challenges, including:

• Interest Rate Risk: The company is subject to interest rate risk due to the fixed income nature of its assets and the short-term, variable rate nature of its financing obligations. Rising interest rates can increase borrowing costs while the yields on existing fixed-rate assets remain static, leading to a decline in net interest spread.
• Prepayment and Extension Risk: Prepayment risk arises when assets are repaid faster than anticipated, often due to declining mortgage rates. Extension risk occurs when assets are repaid slower than anticipated, typically in a rising interest rate environment.
• Spread Risk: The company faces spread risk, which is the risk that the market spread between the yield on its assets and the yield on benchmark interest rates linked to its hedges may vary.
• Liquidity Risk: Liquidity risk arises from financing long-term fixed-rate assets with shorter-term variable rate borrowings. Sudden decreases in collateral value or increases in margin requirements could adversely affect liquidity.
• Credit Risk: The company is exposed to credit risk from its credit-sensitive investments and from counterparties in repurchase and derivative agreements.
• Operational Risks: These include the effectiveness of hedging strategies and counterparty risk in repurchase and derivative agreements.
• Regulatory Risks: Changes in regulations related to housing finance, the GSEs, and REIT status could impact the company's operations.
• New and Emerging Risks: Geopolitical events and market volatility can significantly impact the company's financial performance and operations.

AGNC employs an active management strategy to mitigate these risks, including adjusting the size and composition of its asset and hedge portfolio, maintaining excess liquidity, and conducting capital-enhancing actions as needed.

SEC Filing: AGNC Investment Corp. [ AGNC ] - 10-Q - Nov. 01, 2024