AGNC_INVESTMENT_CORP Earningcall Transcript Of Q2 of 2024

Bernice E. Bell -- Executive Vice President, Chief Financial Officer

Thank you, Peter. For the second quarter, AGNC had a comprehensive loss of $0.13 per share
given the moderate spread widening that occurred for the quarter. Economic return on tangible
common equity was negative 0.9% for the quarter, comprised of $0.36 of dividends declared for
common share and a decline in our tangible net book value of $0.44 per share. As of late last
week, our tangible net book value per share was up about 2% for July or 1% after deducting our
monthly dividend accrual.

Leverage increased modestly for the quarter to 7.4 times tangible equity as of the end of Q2
from 7.1 times as of Q1. At the same time, our liquidity remained very strong with
unencumbered cash and agency MBS of $5.3 billion or 65% of our tangible equity as of quarter
end. Consistent with the increase in interest rates, the average projected life CPR for our
portfolio at quarter end decreased 120 basis points to 9.2%. Seasonal factors drove an increase
in our actual CPRs for the quarter to an average of 7.1%, up from 5.7% for the prior quarter.

Net spread and dollar roll income for the quarter remained well above our dividend at $0.53 per
share. The $0.05 per share decline for the quarter was due to a decrease in our net interest rate
spread of approximately 30 basis points to just under 270 basis points for the quarter as higher
swap costs more than offset the increase in the average yield on our asset portfolio. Lastly, in
the second quarter, we issued $434 million of common equity through our aftermarket offering
program. Our capital management framework provides us the ability to opportunistically create
incremental value for existing stockholders through book value and earnings accretion.

In the second quarter, we issued stock at a substantial price-to-book premium and invested
those proceeds in attractively priced assets. And with that, I'll now turn the call over to Chris
Kuehl to discuss the agency mortgage market.

Christopher Jon Kuehl -- Executive Vice President, Agency Portfolio Investments

Thank you, Bernie. From a macro perspective, the second quarter was similar to the first quarter
in many ways with economic data repricing Fed expectations and heavily influencing fixed
income market sentiment. Strong economic data at the start of the quarter caused the market
to lower its expectations for Fed easing in 2024. Fed rhetoric also turned hawkish in April with
Chair Powell expressing disappointment in the recent progress against the Fed's inflation
objective.

As a result, rate volatility increased as 10-year yields moved through the upper end of the
year-to-date range, ultimately reaching just over 4.7% in late April. These macro and market
dynamics, coupled with higher seasonal supply, negatively impacted agency MBS performance
early in the quarter. Market sentiment shifted, however, in May and June following weaker labor
and inflation data. Notably, headline unemployment increased from 3.8% in the April nonfarm
payroll release to 4% in June.

Softer labor data and favorable CPI reports in both May and June allowed for a more balanced
market focus on the Fed's dual mandate of maximum employment and stable prices. As a
result, treasury yields and agency MBS spreads partially retraced the negative performance by
the end of the quarter. Despite elevated rate volatility, agency MBS traded in a much tighter
range than they did during periods of stress seen last year. This is encouraging and is a result of
many factors, including much stronger high-grade fixed income inflows year to date.

The Fed's decision to start tapering QT, stability in bank deposits, and most importantly, a
growing consensus firmly rooted in economic data that the Fed may begin normalizing rates
over the next couple of months. During the second quarter, we added approximately $3 billion in
agency MBS. And as a result, the investment portfolio increased to $66 billion as of June 30.
Our TBA position declined by $3 billion as conventional rolls traded somewhat weaker, and we
opportunistically added approximately $6 billion in specified pools, most of which in lower
pay-up categories.

Our Ginnie Mae TBA holdings in aggregate were largely unchanged as of June 30 as valuations
remained attractive and roll implied financing rates continued to offer a significant advantage
versus repo funding. Our hedge portfolio increased to $58.8 billion as of June 30, largely due to
the increase in our asset portfolio. During the second quarter, we continued to gradually shift the
hedge composition to a heavier allocation of swap-based hedges. As a result, swap-based

hedges currently represent approximately 65% of our hedge portfolio on a duration dollars
basis.

Our swap-based hedges were a drag on our book value performance in the second quarter as
swap spreads tightened 5 to 8 basis points across the yield curve. Lastly, as Peter discussed,
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 in liquid financing markets. I'll now turn the call over to Aaron to
discuss the non-agency markets.

Aaron Joshua Pas -- Senior Vice President, Non-Agency Portfolio Management

Thank you, Chris. Credit spread performance in the second quarter was mixed with some areas
widening marginally, while others were a bit firmer. Early in the quarter, spreads across credit
products generally weakened as rates test at local highs. Subsequently, the backdrop of
improving inflation ratings and a softer employment outlook, combined with relatively high
issuance in the structured product market, led to the divergent performance of credit products
during the quarter.

As an indicator of credit spreads in Q2, the synthetic investment-grade and high-yield indices
widened by approximately 3 and 14 basis points, respectively. This widening retraced just over
half of the tightening we saw in the first quarter. Credit fundamentals remain consistent with
past trends we have noted, showing a bifurcated consumer base. Lower-income households are
currently stretched as reflected by increasing auto loan and credit card delinquency rates.

Conversely, higher-income or wealthier households appear to be in reasonably good shape.
Turning to our portfolio. Our portfolio of non-agency securities ended the quarter at $940
million, down roughly 10% from the prior quarter end. This decline was largely anticipated and
driven primarily by our participation in the GSE tender offers for its outstanding credit risk
transfer securities.

Additionally, a significant portion of our CMBS holdings paid off or paid down in Q2. In both
segments of the non-agency portfolio, we were able to opportunistically redeploy a portion of
the freed-up capital. Lastly, the funding landscape for non-agency securities remains stable and
relatively attractive by historical standards. With that, I'll hand the call back to Peter.

Peter J. Federico -- President and Chief Operating Officer

Thank you, Aaron. With that, we'll now open the call up to your questions.

Questions & Answers: