AGNC Investment Corp. (AGNC)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is designed to provide a reader of AGNC Investment Corp.’s consolidated financial statements with a narrative from the perspective of management and should be read in conjunction with the consolidated financial statements and accompanying notes included in this Quarterly Report on Form 10-Q for quarterly period ended June 30, 2026. Our MD&A is presented in the following sections:

•Executive Overview

•Financial Condition

•Results of Operations

•Liquidity and Capital Resources

•Off-Balance Sheet Arrangements

•Forward-Looking Statements

•Website and Social Media Disclosure

EXECUTIVE OVERVIEW

We are a leading provider of private capital to the U.S. housing market, enhancing liquidity in the residential real estate mortgage markets and, in turn, facilitating home ownership in the U.S. We invest primarily in Agency residential mortgage-backed securities (“Agency RMBS”) on a leveraged basis. These investments consist of residential mortgage pass-through securities and collateralized mortgage obligations for which the principal and interest payments are guaranteed by a U.S. Government-sponsored enterprise, such as Federal National Mortgage Association (“Fannie Mae”) and Federal Home Loan Mortgage Corporation (“Freddie Mac,” and together with Fannie Mae, the “GSEs”), or by a U.S. Government agency, such as Government National Mortgage Association (“Ginnie Mae”). We may also invest in Agency multifamily MBS that are similarly guaranteed by a GSE and in other assets related to the housing, mortgage or real estate markets that are not guaranteed by a GSE or U.S. Government agency.

We are internally managed with the principal objective of generating favorable long-term stockholder returns with a substantial yield component. We generate income from the interest earned on our investments, net of associated borrowing and hedging costs, and net realized gains and losses on our investment and hedging activities. We fund our investments primarily through collateralized borrowings structured as repurchase agreements. We operate in a manner to qualify to be taxed as a REIT under the Internal Revenue Code.

We employ an active management strategy that is dynamic and responsive to evolving market conditions. The composition of our portfolio and our investment, funding, and hedging strategies are tailored to reflect our analysis of market conditions and the relative values of available options. Market conditions are influenced by a variety of factors, including interest rates, prepayment expectations, liquidity, housing prices, unemployment rates, general economic conditions, government participation in the mortgage market, regulations and relative returns on other assets.

Trends and Recent Market Impacts

Market Trends

The investment environment during the second quarter of 2026 was shaped by heightened geopolitical uncertainty as escalating rhetoric and hostilities between the United States and Iran dominated financial market performance. With ship traffic through the Strait of Hormuz severely constrained, elevated energy prices and supply chain disruptions became the primary macroeconomic concerns. These developments caused Treasury yields to increase, the yield curve to flatten, and market expectations for Federal Reserve policy to shift from anticipated rate cuts toward potential rate hikes by year-end. Despite this challenging backdrop, Agency RMBS generated a positive excess return relative to U.S. Treasuries for the fifth consecutive quarter, contributing to AGNC's economic return on tangible common equity per share of 6.7%, comprised of our monthly dividend and the improvement in tangible book value.1

Agency RMBS Performance Drivers

In aggregate, Agency RMBS in the second quarter outperformed both Treasury and swap-based hedges, with performance varying meaningfully by coupon and hedge type. Higher-coupon and production-coupon Agency RMBS outperformed lower-coupon securities as rising interest rates reduced both expected supply and prepayment concerns, reversing the coupon performance observed in the first quarter.

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Agency RMBS hedged with interest rate swaps also outperformed Treasury-hedged positions. At quarter-end, the spread differential between a current-coupon mortgage-backed security and a blend of hedges was approximately 145 basis points across the swap curve and 115 basis points across the Treasury curve, compared to approximately 170 basis points and 135 basis points, respectively, as of March 31, 2026. At June 30, 2026 spread levels, Agency RMBS were trading near the midpoint of our expected range.

Market Outlook

Looking forward, our outlook for Agency RMBS remains constructive. With primary mortgage rates remaining well above 6.0%, net new Agency RMBS supply is estimated to be approximately $150 billion this year, materially below expectations at the beginning of the year. Elevated mortgage rates have also slowed prepayment activity, reducing expected Federal Reserve portfolio runoff. At the same time, demand for Agency RMBS has remained strong, supported by more than $400 billion of bond fund inflows during the first six months of the year and continued demand from banks, foreign investors, and REITs. Agency RMBS spreads remain wide by historical standards despite improving supply-demand fundamentals, while corporate bond spreads remain near historic tights despite record issuance and rising credit concerns. Accordingly, we believe Agency RMBS continue to offer compelling relative value. Once geopolitical and monetary policy uncertainty subsides, these constructive dynamics should become more apparent and, over time, support favorable Agency RMBS performance.

Portfolio and Summary Financial Highlights

AGNC generated total comprehensive income of $0.52 per diluted common share and an economic return on tangible common equity per share of 6.7% for the second quarter, consisting of $0.36 of dividends declared per common share during the second quarter and a $0.20 increase in tangible net book value per common share. This compares to a total comprehensive loss of $(0.18) per diluted common share and an economic loss of -1.6% per common share for the first quarter of 2026.

Net spread and dollar roll income (a non-GAAP measure) was $0.40 per diluted common share, compared to $0.42 in the prior quarter. The decrease primarily reflects a 6-basis point decline in net interest spread for the second quarter driven by lower asset yields associated with portfolio repositioning, partly offset by modestly lower funding costs.

At June 30, 2026, our investment portfolio, inclusive of TBAs, totaled $97.2 billion, compared to $94.7 billion as of March 31, 2026. During the second quarter, we added approximately $2.2 billion of primarily intermediate-coupon specified pools and repositioned a portion of the portfolio from lower-coupon into higher-coupon holdings. As a result, the weighted average coupon at quarter-end increased to 5.04% from 4.95% as of March 31, 2026, while the portion of our fixed-rate portfolio with favorable prepayment attributes (“specified pools”) increased to 79% from 77% as of March 31, 2026.2

The average projected life Constant Prepayment Rate ("CPR") for our portfolio declined to 8.6% at quarter-end from 10.3% as of March 31, 2026, primarily reflecting coupon and TBA versus specified pool repositioning. Actual CPRs averaged 13.0% during the quarter, largely unchanged from 13.2% in the prior quarter.

At June 30, 2026, "at-risk" leverage was 7.4x tangible equity, unchanged from March 31, 2026, while average leverage for the quarter also remained at 7.4x, unchanged from the first quarter. AGNC ended the quarter with $7.5 billion of unencumbered cash and Agency RMBS, representing 62% of tangible equity, compared to $7.0 billion and 60%, respectively, at March 31, 2026.

At June 30, 2026, our hedge ratio was 82%, reflecting the level of interest rate swap and U.S. Treasury hedges (excluding option-based hedges) relative to total funding liabilities, compared to 83% as of March 31, 2026.

The notional balance of our interest rate swaps decreased to $73.8 billion, representing 83% of our funding liabilities as of June 30, 2026, compared to $76.5 billion and 89%, respectively, as of March 31, 2026. Our duration gap, which measures the estimated difference between the interest rate sensitivity of our assets and liabilities, including hedges, was 0.7 years as of quarter-end, unchanged from March 31, 2026. We continued to favor a positive duration gap given the current level of interest rates, the convexity profile of our portfolio, and the additional prepayment protection it provides in a declining interest rate environment.

For information regarding non-GAAP financial measures, including reconciliations to the most comparable GAAP measure, please refer to Results of Operations included in this MD&A below. For information regarding the sensitivity of our tangible net book value per common share to changes in interest rates and mortgage spreads, please refer to Item 3. Quantitative and Qualitative Disclosures about Market Risk in this form 10-Q.

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1.Economic return represents the sum of the change in tangible net book value per common share and dividends declared per share of common stock during the period over beginning tangible net book value per common share.

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2.Specified pools include pools backed by loans with characteristics related to loan size, borrower credit profiles, loan-to-value ratios, geographic concentrations, occupancy types, and other characteristics that are expected to result in more favorable prepayment behavior than generic TBA-eligible collateral.

Market Information

The following table summarizes benchmark interest rates and prices of generic fixed rate Agency RMBS as of each date presented below:

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is designed to provide a reader of AGNC Investment Corp.'s consolidated financial statements with a narrative from the perspective of management and should be read in conjunction with the consolidated financial statements and accompanying notes included in this Annual Report on Form 10-K. Our MD&A is presented in the following sections:

•Executive Overview

•Financial Condition

•Summary of Critical Accounting Estimates

•Results of Operations

•Liquidity and Capital Resources

•Off-Balance Sheet Arrangements

•Forward-Looking Statements

•Website and Social Media Disclosure

EXECUTIVE OVERVIEW

We are a leading provider of private capital to the U.S. housing market, enhancing liquidity in the residential real estate mortgage markets and, in turn, facilitating home ownership in the U.S. We invest primarily in Agency RMBS on a leveraged basis. These investments consist of residential mortgage pass-through securities and collateralized mortgage obligations for which the principal and interest payments are guaranteed by a U.S. Government-sponsored enterprise, such as Fannie Mae and Freddie Mac, or by a U.S. Government agency, such as Ginnie Mae. We may also invest in Agency multifamily MBS that are similarly guaranteed by a GSE and in other assets related to the housing, mortgage or real estate markets that are not guaranteed by a GSE or U.S. Government agency.

We are internally managed with the principal objective of generating favorable long-term stockholder returns with a substantial yield component. We generate income from the interest earned on our investments, net of associated borrowing and hedging costs, and net realized gains and losses on our investment and hedging activities. We fund our investments primarily through collateralized borrowings structured as repurchase agreements. We operate in a manner to qualify to be taxed as a REIT under the Internal Revenue Code.

We employ an active management strategy that is dynamic and responsive to evolving market conditions. The composition of our portfolio and our investment, funding, and hedging strategies are tailored to reflect our analysis of market conditions and the relative values of available options. Market conditions are influenced by a variety of factors, including interest rates, prepayment expectations, liquidity, housing prices, unemployment rates, general economic conditions, government participation in the mortgage market, regulations and relative returns on other assets.

Trends and Recent Market Impacts

Market Trends

Agency RMBS outperformed domestic fixed income alternatives in 2025, and this favorable asset class performance, coupled with AGNC's active portfolio management strategies, drove AGNC's best-in-class economic return for the year.1 In 2025, the Bloomberg US Mortgage Backed Securities Index (the "Agency MBS Index"), which represents the entire Agency RMBS market, generated a total return of 8.6% for the year, its best annual performance since 2002. Also notable, given the similar credit profile, the Agency MBS Index outperformed the Bloomberg US Treasury Index by 2.3 percentage points, or 36%.

A number of factors that materialized over the course of the year catalyzed the strong performance of Agency RMBS, including:

•The Federal Reserve (the "Fed") shifted monetary policy toward lower short-term interest rates and greater accommodation, which contributed to the positive performance of all domestic fixed income asset classes.

•Greater fiscal policy clarity and the stable supply outlook for U.S. Treasury securities contributed to reduced interest rate volatility.

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•Improved conditions in short-term funding markets, particularly late in the year, benefited Agency RMBS, as the Fed announced an expansion of its balance sheet through reserve management purchases of short-term Treasury bills, as well as other actions that improved the functionality and accessibility of its Standing Repo Program.

•The Administration articulated a framework for GSE reform that focused on reducing Agency mortgage spreads, maintaining mortgage market stability, and improving housing affordability.

Collectively, these factors—along with sizable Agency MBS purchases by the GSEs later in the year—led to lower Agency RMBS spread volatility, tighter mortgage spreads to benchmark rates, and the outperformance of Agency RMBS relative to other fixed income asset classes.

As we enter 2026, many of these favorable dynamics remain in place, and the Administration's focus on housing affordability and maintaining mortgage market stability provide a favorable backdrop for mortgage spreads. Looking ahead, the supply and demand outlook for Agency RMBS appears well balanced. At current interest rate levels, the net supply of new Agency RMBS in 2026 is expected to be approximately $200 billion, which, when coupled with $200 billion of anticipated runoff of the Fed's Agency RMBS holdings, yields approximately $400 billion of total net supply to be absorbed by the market in 2026, an amount comparable to the prior two years. Offsetting this supply, demand for Agency RMBS should remain robust, assuming conditions remain generally consistent with current expectations. GSE purchases have the potential to account for approximately half of the projected 2026 supply, and banks, money managers, foreign investors, and REITs are expected to continue to be active purchasers of Agency RMBS.

Taken together, this favorable fundamental and technical backdrop for Agency RMBS is supportive of our positive outlook.

Portfolio and Summary Financial Highlights

For 2025, AGNC generated total comprehensive income of $1.74 per diluted common share and an economic return of 22.7% on tangible common equity, comprised of $1.44 in dividends declared and a $0.47 increase in tangible net book value per common share. This compares to total comprehensive income of $0.84 per diluted common share and an economic return of 13.2% for 2024, comprised of $1.44 in dividends and a $0.29 decline in tangible net book value per common share.

Net spread and dollar roll income (a non-GAAP measure) per diluted common share decreased to $1.50 in 2025 from $1.88 in 2024. The decline was primarily driven by lower swap income resulting from the maturity of legacy interest rate swaps with low fixed pay rates, as well as a timing mismatch between the issuance and deployment of $345 million and $2.0 billion of new preferred and common equity capital, respectively, during the year.

Another driver of net spread and dollar roll income in 2025 was the level of unhedged short-term debt in our funding mix. As of December 31, 2025, our hedge ratio was 77%, reflecting the level of interest rate swap and U.S. Treasury hedges (excluding option based-hedges) relative to total funding liabilities, compared to 88% as of December 31, 2024. Our average hedge ratio for 2025 (excluding option based-hedges) was approximately 82%, compared to 93% for 2024. This decline reflects the shift toward a more accommodative monetary policy environment and moderately reduced our net spread and dollar roll income in the near term, while positioning AGNC's earnings profile to benefit from rate cuts as they occur.

Our investment portfolio totaled $94.8 billion as of December 31, 2025, an increase of $21.5 billion for the year, including a $6.1 billion increase in our TBA position to $13.0 billion. As of December 31, 2025, 30-year fixed-rate Agency RMBS and TBAs represented 95% of our investment portfolio, largely unchanged from December 31, 2024.

The weighted average coupon of our portfolio, excluding TBAs, increased to 5.19% as of December 31, 2025, compared to 5.03% as of December 31, 2024. Including TBAs, the weighted average coupon of our fixed-rate portfolio increased to 5.12%, compared to 5.02% as of December 31, 2024. At the same time, the portion of our fixed-rate investment portfolio, including TBAs, with favorable prepayment attributes2 increased to 76% as of December 31, 2025, compared to 74% as of December 31, 2024.

The average projected life Constant Prepayment Rate ("CPR") for our portfolio increased to 9.6% as of December 31, 2025, from 7.7% as of December 31, 2024, largely reflecting a 70 basis point decline in the average 30-year mortgage rate, which was 6.16% at year end. Actual CPRs averaged 8.4% for the year, compared to 7.5% for the prior year.

As of December 31, 2025, our "at risk" leverage was 7.2x tangible equity, unchanged from December 31, 2024. Average leverage for the year was 7.4x, compared to 7.2x for the prior year. We ended the year with a large liquidity position of $7.6 billion in unencumbered cash and Agency RMBS, representing 64% of tangible equity, compared to $6.1 billion and 66%, respectively, as of December 31, 2024.

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Lastly, given the convexity profile of our assets and the significant decline in interest rate volatility, we increased our receiver swaption position by $6.9 billion during the year to provide additional protection in a declining rate environment. Our duration gap, which measures the estimated difference between the interest rate sensitivity of our assets and liabilities including hedges, extended slightly to 0.4 years as of year end, compared to 0.3 years as of December 31, 2024.

Looking ahead, in addition to the favorable fundamental and technical backdrop for Agency RMBS, we expect net spread and dollar roll income to benefit from several factors, including lower funding costs resulting from the September, October and December 2025 rate cuts totaling 75 basis points, potential future rate cuts, greater stability in funding markets, and a shift in our hedge mix toward a greater share of swap-based hedges in the fourth quarter of 2025. Notwithstanding these favorable factors, higher hedging costs due to the maturity of legacy lower pay-rate swaps, as well as reduced mortgage spreads, if they materialize in 2026, could offset some or all of these benefits.

For information regarding non-GAAP financial measures, including reconciliations to the most comparable GAAP measure, please refer to Results of Operations included in this MD&A below. For information regarding the sensitivity of our tangible net book value per common share to changes in interest rates and mortgage spreads, please refer to Item 7A. Quantitative and Qualitative Disclosures about Market Risk in this form 10-K.

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1.Economic return represents the sum of the change in tangible net book value per common share and dividends declared per share of common stock during the period over beginning tangible net book value per common share. Peer group includes Annaly Capital Management, Inc. ("NLY"), ARMOUR Residential REIT, Inc. ("ARR"), Dynex Capital, Inc. ("DX"), Invesco Mortgage Capital Inc. ("IVR"), Orchid Island Capital, Inc. ("ORC"), and Two Harbors Investment Corp. ("TWO")

2.Agency RMBS with favorable prepayment attributes include: (i) specified pools backed by lower balance loans with original loan balances of up to $200K, HARP pools (defined as pools that were issued between May 2009 and December 2018 and backed by 100% refinance loans with original LTVs ≥ 80%), and pools backed by loans 100% originated in New York and Puerto Rico and (ii) other pools backed by loans with credit, loan balances, geographies, occupancy types, and other characteristics that exhibit favorable prepayment behavior.

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Market Information

The following table summarizes benchmark interest rates and prices of generic fixed rate Agency RMBS as of each date presented below:

[Excerpt truncated for page length; the complete text is on the linked full-MD&A page.]