AGNC Investment Corp. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; balance-sheet comparisons are to December 31, 2023. Amounts are in U.S. dollars. AGNC is a mortgage REIT investing primarily in leveraged Agency residential mortgage-backed securities (RMBS), funded mainly through repurchase agreements and managed with interest-rate hedges.
Financial performance and position
| Metric | Q1 2024 / March 31, 2024 | Comparable period / prior year-end |
|---|---|---|
| Interest income | $642 million | $351 million in Q1 2023 |
| Interest expense; net interest income (expense) | $672 million; $(30) million | $449 million; $(98) million in Q1 2023 |
| Net income (loss) | $443 million; $0.59 per diluted common share | $(151) million; $(0.31) per diluted share in Q1 2023 |
| Comprehensive income available to common holders | $335 million; $0.48 per diluted share | $(39) million; $(0.07) per diluted share in Q1 2023 |
| Net spread and dollar roll income (non-GAAP) | $406 million; $0.58 per diluted share | $408 million; $0.70 per diluted share in Q1 2023 |
| Common dividend declared | $0.36 per share | $0.36 per share in Q1 2023 |
| Total assets; total liabilities; stockholders’ equity | $71.9 billion; $63.3 billion; $8.6 billion | $71.6 billion; $63.3 billion; $8.3 billion at Dec. 31, 2023 |
| Net book value per common share; tangible net book value | $9.57; $8.84 | $9.46; $8.70 at Dec. 31, 2023 |
| Repurchase agreements | $50.0 billion; weighted-average rate 5.46% | $50.4 billion; 5.60% at Dec. 31, 2023 |
| Cash and restricted cash | $1.873 billion combined | Cash-flow statement reports a $102 million increase during Q1 |
| Cash flow | $20 million operating; $582 million investing; $(500) million financing | Q1 2023: $26 million; $(11.571) billion; $12.050 billion, respectively |
AGNC’s investment portfolio, including net TBA positions, was $63.2 billion at quarter-end, up from $60.2 billion at year-end. GAAP results were substantially affected by valuation movements: investment securities generated a net loss of $639 million, while derivatives and other securities generated a net gain of $1.059 billion. These included a $471 million unrealized loss on securities measured through earnings and a $77 million other-comprehensive loss on available-for-sale securities. Net income therefore should not be read as a measure of recurring spread earnings alone.
Changes and management commentary
- Compared with Q1 2023, interest income rose, but interest expense also increased. The company reported positive GAAP net income versus a loss a year earlier; non-GAAP net spread and dollar roll income per share fell from $0.70 to $0.58.
- Management attributed the higher average asset yield to shifting toward higher-coupon, high-quality specified pools. The average asset yield, including TBA income and excluding catch-up amortization, was 4.56%, versus 3.90% a year earlier; average aggregate cost of funds was 1.58%, versus 1.02%. The resulting average net interest spread was 2.98%, compared with 2.88%.
- Management reported Q1 total economic return on tangible common equity of 5.7%, comprising the $0.36 common dividend and a $0.14 increase in tangible net book value per share. Its reported $0.48 comprehensive income per diluted share is a separate GAAP measure.
- At-risk leverage was 7.1x at quarter-end versus 7.0x at year-end; average leverage during Q1 was 7.0x versus 7.7x in Q1 2023. The interest-rate hedge position covered 99% of the outstanding investment-securities repo, TBA position and other debt, down from 112% at year-end.
- AGNC issued 25.1 million common shares under its at-the-market program for $241 million net, or $9.61 per share. Management described the issuance as accretive, citing a market price premium to tangible book value. $0.6 billion of offering capacity remained through December 31, 2024.
Outlook, risks and contingencies
Management described Q1 market conditions as supportive for Agency RMBS, citing lower volatility, stable spreads, reduced mortgage supply and stronger-than-expected bank demand. It said the outlook shifted in April: stronger economic data and persistent inflation led to sharply higher benchmark rates and volatility and modestly wider Agency RMBS spreads. Management nevertheless characterized the long-term Agency RMBS outlook as positive, while noting near-term market turbulence and geopolitical risk. It expects lower volatility, a steeper yield curve and an end to quantitative tightening if monetary policy broadly follows expectations. The filing provides no numerical earnings or return guidance.
- Leverage and liquidity: Management’s general leverage range is 6x–12x tangible equity. Unencumbered assets were approximately $5.4 billion, reported as 68% of tangible equity; repo haircuts averaged about 3.0%. The company said it had met margin requirements and believed liquidity was sufficient. These resources remain exposed to collateral-value declines, higher haircuts, margin calls and counterparties declining to renew short-term funding.
- Rate and spread exposure: AGNC’s estimated sensitivity for a static portfolio indicated a 25-basis-point rate rise could reduce tangible book value per share by 0.9%; a 50-basis-point rise could reduce it by 2.5%. A 25-basis-point widening in mortgage spreads was estimated to reduce tangible book value per share by 11.9%. The filing cautions that these model-based estimates rely on assumptions and exclude some real-world portfolio changes.
- Other risks: Prepayment and extension behavior, funding availability and costs, hedge effectiveness, mortgage-spread changes, market liquidity, credit performance, counterparty exposure, policy and regulatory developments, and geopolitical events could materially affect results. TBA dollar-roll financing can add liquidity, but becoming uneconomic to roll could require taking delivery and finding other funding.
- Legal and controls: The company reported no material litigation, no material changes to previously disclosed risk factors, and effective disclosure controls. It reported no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Review the composition of GAAP gains and losses versus the company’s non-GAAP spread and dollar roll income, including the calculation and limitations of that measure.
- Track tangible book value, mortgage-spread sensitivity and hedge coverage as rates and spreads change; the filing’s sensitivity estimates assume a static portfolio.
- Monitor repo maturities, renewal terms, collateral haircuts, margin needs and unencumbered liquidity, particularly given the short-term funding structure.
- Assess whether the common-share issuance and remaining ATM capacity are accretive to book value and per-share results, and monitor the $0.36 quarterly dividend against taxable income and cash needs.
- Compare management’s favorable long-term market view with subsequent interest-rate, inflation, volatility and geopolitical developments; the filing contains no numerical forward earnings guidance.