AGNC Investment Corp. (NASDAQ:AGNC) is a leading provider of private capital to the U.S. housing market. The company primarily invests in Agency residential mortgage-backed securities (Agency RMBS) on a leveraged basis, with the principal and interest payments guaranteed by U.S. Government-sponsored enterprises or agencies. AGNC also invests in other assets related to the housing, mortgage or real estate markets.

Business Overview

AGNC enhances liquidity in the residential real estate mortgage markets, facilitating home ownership in the U.S. The company's investment strategy focuses on Agency RMBS, which are backed by the U.S. government or its agencies, providing a level of security to its portfolio.

Financials

For the full year 2023, AGNC reported net income of $155 million on revenue of $251 million. The company's annual operating cash flow and free cash flow were both -$118 million. In the second quarter of 2024, AGNC had a comprehensive loss of $0.13 per share, given the moderate spread widening that occurred during the quarter. The company's economic return on tangible common equity was negative 0.9% for the quarter, comprised of $0.36 of dividends declared per common share and a decline in tangible net book value of $0.44 per share.

As of late last week, AGNC's tangible net book value per share was up about 2% for July, or 1% after deducting the monthly dividend accrual. Leverage increased modestly for the quarter to 7.4 times tangible equity as of the end of Q2, up from 7.1 times as of Q1. At the same time, the company's liquidity remained very strong, with unencumbered cash and Agency MBS of $5.3 billion, or 65% of its tangible equity, as of quarter-end.

Consistent with the increase in interest rates, the average projected life constant prepayment rate (CPR) for AGNC's portfolio at quarter-end decreased 120 basis points to 9.2%. Seasonal factors drove an increase in the company's actual CPRs for the quarter to an average of 7.1%, up from 5.7% in the prior quarter.

Net spread and dollar roll income for the second quarter remained well above AGNC's dividend at $0.53 per share. The $0.05 per share decline from the prior quarter was due to a decrease in the company's net interest rate spread of approximately 30 basis points to just under 270 basis points, as higher swap costs more than offset the increase in the average yield on its asset portfolio.

Recent Developments

In the second quarter, AGNC issued $434 million of common equity through its at-the-market offering program. The company's capital management framework provides the ability to opportunistically create incremental value for existing stockholders through book value and earnings accretion. In the second quarter, AGNC issued stock at a substantial price-to-book premium and invested those proceeds in attractively priced assets.

During the second quarter, AGNC added approximately $3 billion in Agency MBS, increasing its investment portfolio to $66 billion as of June 30. The company's TBA position declined by $3 billion, as conventional rolls traded somewhat weaker, and AGNC opportunistically added approximately $6 billion in specified pools, most of which were in lower pay-up categories.

Outlook

Looking ahead, the data-dependent nature of Fed policy will likely continue to create volatility in markets, but the earnings environment for Agency MBS remains very favorable, with historically wide spreads, low levels of prepayment risk, and liquid financing markets. AGNC's active management strategy, strategic focus on high-quality Agency RMBS assets, attractive funding sources, and strong liquidity position should allow the company to navigate this environment and take advantage of attractive investment opportunities as they arise.

Conclusion

AGNC Investment Corp. continues to navigate the evolving mortgage market with a focus on prudent asset selection and active portfolio management. Despite challenges in the market, the company maintains a strong liquidity position and continues to generate income above its dividend. The company's strategic focus on high-quality Agency RMBS assets positions it well to capitalize on opportunities in the current market environment.