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AGNC Investment Corp. [AGNCP] Filings
AGNC Investment Corp. [AGNC] Filings
AGNC Investment Corp. [AGNCM] Filings
AGNC Investment Corp. [AGNCN] Filings
AGNC Investment Corp. [AGNCO] Filings
AGNC Investment Corp. [AGNCL] Filings
10-Q	[2024-11-01]
10-Q	[2024-08-05]
10-Q	[2024-05-07]
10-K	[2024-02-22]
10-Q	[2023-11-06]
10-Q	[2023-08-03]
10-Q	[2023-05-08]
10-K	[2023-02-27]
10-Q	[2022-11-07]
10-Q	[2022-08-04]
10-Q	[2022-05-09]
10-K	[2022-02-23]
10-Q	[2021-11-05]
10-Q	[2021-08-05]
10-Q	[2021-05-07]
10-K	[2021-02-26]
10-Q	[2020-11-05]
10-Q	[2020-08-07]
10-Q	[2020-05-11]
10-K	[2020-02-25]
10-Q	[2019-11-05]
10-Q	[2019-08-05]
10-Q	[2019-05-03]
10-K	[2019-02-22]
10-Q	[2018-11-05]
10-Q	[2018-08-06]
10-Q	[2018-05-07]
10-K	[2018-02-26]
10-Q	[2017-11-03]
10-Q	[2017-08-03]
10-Q	[2017-05-08]
10-K	[2017-02-27]
10-Q	[2016-11-07]
10-Q	[2016-08-05]
10-Q	[2016-05-05]
10-K	[2016-02-23]
10-Q	[2015-11-06]
10-Q	[2015-08-05]
10-Q	[2015-05-06]
10-K	[2015-02-25]
10-Q	[2014-11-06]
10-Q	[2014-08-07]
10-Q	[2014-05-09]
10-K	[2014-02-27]
10-Q	[2013-11-07]
10-Q	[2013-08-08]
10-Q	[2013-05-09]
10-K	[2013-02-27]
10-Q	[2012-11-08]
10-Q	[2012-08-09]
10-Q	[2012-05-10]
10-K	[2012-02-23]

10-Q 1 agnc-20240930.htm 10-Q agnc-20240930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2024

OR


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-34057

AGNC INVESTMENT CORP.

(Exact name of registrant as specified in its charter)

_________________________________________________________


Delaware						26-1701984
(State or Other Jurisdiction of Incorporation or Organization)						(I.R.S. Employer Identification No.)

7373 Wisconsin Avenue, 22nd Floor

Bethesda, Maryland 20814

(Address of principal executive offices)

(301) 968-9315

(Registrant’s telephone number, including area code)

_________________________________________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol(s)

Name of Exchange on Which Registered

Common Stock, par value $0.01 per share

AGNC

The Nasdaq Global Select Market

Depositary shares of 7.000% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock

AGNCN

The Nasdaq Global Select Market

Depositary shares of 6.875% Series D Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock

AGNCM

The Nasdaq Global Select Market

Depositary shares of 6.50% Series E Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock

AGNCO

The Nasdaq Global Select Market

Depositary shares of 6.125% Series F Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock

AGNCP

The Nasdaq Global Select Market

Depositary shares of 7.75% Series G Fixed-Rate Reset Cumulative
Redeemable Preferred Stock

AGNCL

The Nasdaq Global Select Market

Securities Registered Pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller Reporting Company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

The number of shares of the issuer's common stock, $0.01 par value, outstanding as of October 31, 2024 was 885,639,833.

AGNC INVESTMENT CORP.

TABLE OF CONTENTS


PART I.			FINANCIAL INFORMATION
Item 1.			Financial Statements			2
Item 2.			Management's Discussion and Analysis of Financial Condition and Results of Operations			26
Item 3.			Quantitative and Qualitative Disclosures About Market Risk			44
Item 4.			Controls and Procedures			47

PART II.			OTHER INFORMATION
Item 1.			Legal Proceedings			48
Item 1A.			Risk Factors			48
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds			48
Item 3.			Defaults upon Senior Securities			48
Item 4.			Mine Safety Disclosures			48
Item 5.			Other Information			48
Item 6.			Exhibits			48

Signatures						51

1

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

AGNC INVESTMENT CORP.

CONSOLIDATED BALANCE SHEETS

(in millions, except per share data)



			September 30, 2024						December 31, 2023
			(Unaudited)
Assets:
Agency securities, at fair value (including pledged securities of $62,331 and $49,575, respectively)			$	67,938					$	53,673
Agency securities transferred to consolidated variable interest entities, at fair value (pledged securities)			106						121
Credit risk transfer securities, at fair value (including pledged securities of $588 and $678, respectively)			620						723
Non-Agency securities, at fair value, and other mortgage credit investments (including pledged securities of $224 and $262, respectively)			334						351
U.S. Treasury securities, at fair value (including pledged securities of $2,527 and $1,530, respectively)			2,570						1,540
Cash and cash equivalents			507						518
Restricted cash			1,279						1,253
Derivative assets, at fair value			157						185
Receivable for investment securities sold (including pledged securities of $1,612 and $0, respectively)			1,706						—
Receivable under reverse repurchase agreements			13,494						11,618
Goodwill			526						526
Other assets			353						1,088
Total assets			$	89,590					$	71,596
Liabilities:
Repurchase agreements			$	65,979					$	50,426
Debt of consolidated variable interest entities, at fair value			69						80
Payable for investment securities purchased			324						210
Derivative liabilities, at fair value			53						362
Dividends payable			134						115
Obligation to return securities borrowed under reverse repurchase agreements, at fair value			13,009						10,894
Other liabilities			366						1,252
Total liabilities			79,934						63,339
Stockholders' equity:
Preferred Stock - aggregate liquidation preference of $1,688			1,634						1,634
Common stock - $0.01 par value; 1,500 shares authorized; 844.2 and 694.3 shares issued and outstanding, respectively			8						7
Additional paid-in capital			16,746						15,281
Retained deficit			(8,320)						(8,148)
Accumulated other comprehensive loss			(412)						(517)
Total stockholders' equity			9,656						8,257
Total liabilities and stockholders' equity			$	89,590					$	71,596

See accompanying notes to consolidated financial statements.

2

AGNC INVESTMENT CORP.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(in millions, except per share data)


			Three Months Ended September 30,												Nine Months Ended September 30,
			2024						2023						2024						2023
Interest income:
Interest income			$	756					$	593					$	2,093					$	1,401
Interest expense			820						646						2,190						1,621
Net interest income (expense)			(64)						(53)						(97)						(220)
Other gain (loss), net:
Gain (loss) on sale of investment securities, net			106						(534)						(100)						(870)
Unrealized gain (loss) on investment securities measured at fair value through net income, net			1,742						(1,356)						1,010						(1,125)
Gain (loss) on derivative instruments and other investments, net			(1,408)						1,574						6						2,026
Total other gain (loss), net:			440						(316)						916						31
Expenses:
Compensation and benefits			21						14						52						42
Other operating expense			9						9						26						26
Total operating expense			30						23						78						68
Net income (loss)			346						(392)						741						(257)
Dividends on preferred stock			33						31						96						92

Net income (loss) available (attributable) to common stockholders			$	313					$	(423)					$	645					$	(349)

Net income (loss)			$	346					$	(392)					$	741					$	(257)
Unrealized gain (loss) on investment securities measured at fair value through other comprehensive income (loss), net			200						(213)						105						(136)
Comprehensive income (loss)			546						(605)						846						(393)
Dividends on preferred stock			33						31						96						92

Comprehensive income (loss) available (attributable) to common stockholders			$	513					$	(636)					$	750					$	(485)

Weighted average number of common shares outstanding - basic			807.2						622.0						750.0						600.2
Weighted average number of common shares outstanding - diluted			810.1						622.0						752.3						600.2
Net income (loss) per common share - basic			$	0.39					$	(0.68)					$	0.86					$	(0.58)
Net income (loss) per common share - diluted			$	0.39					$	(0.68)					$	0.86					$	(0.58)
Dividends declared per common share			$	0.36					$	0.36					$	1.08					$	1.08

See accompanying notes to consolidated financial statements.

3

AGNC INVESTMENT CORP.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)

(in millions)


			Preferred Stock						Common Stock												Additional Paid-in Capital						Retained Deficit						Accumulated Other Comprehensive Income (Loss)						Total
									Shares						Amount
Balance, June 30, 2023			$	1,634					603.3						$	6					$	14,466					$	(7,633)					$	(595)					$	7,878
Net loss			—						—						—						—						(392)						—						(392)
Other comprehensive loss:
Unrealized loss on available-for-sale securities, net			—						—						—						—						—						(213)						(213)
Stock-based compensation, net			—						—						—						3						—						—						3

Issuance of common stock			—						44.7						—						432						—						—						432

Preferred dividends declared			—						—						—						—						(31)						—						(31)
Common dividends declared			—						—						—						—						(227)						—						(227)
Balance, September 30, 2023			$	1,634					648.0						$	6					$	14,901					$	(8,283)					$	(808)					$	7,450

Balance, June 30, 2024			$	1,634					766.1						$	8					$	15,960					$	(8,338)					$	(612)					$	8,652
Net income			—						—						—						—						346						—						346
Other comprehensive income:
Unrealized gain on available-for-sale securities, net			—						—						—						—						—						200						200
Stock-based compensation, net			—						—						—						5						—						—						5


Issuance of common stock			—						78.1						—						781						—						—						781

Preferred dividends declared			—						—						—						—						(33)						—						(33)
Common dividends declared			—						—						—						—						(295)						—						(295)
Balance, September 30, 2024			$	1,634					844.2						$	8					$	16,746					$	(8,320)					$	(412)					$	9,656

Balance, December 31, 2022			$	1,634					574.6						$	6					$	14,186					$	(7,284)					$	(672)					$	7,870
Net loss			—						—						—						—						(257)						—						(257)
Other comprehensive loss:
Unrealized loss on available-for-sale securities, net			—						—						—						—						—						(136)						(136)
Stock-based compensation, net			—						0.9						—						6						—						—						6

Issuance of common stock			—						72.5						—						709						—						—						709

Preferred dividends declared			—						—						—						—						(92)						—						(92)
Common dividends declared			—						—						—						—						(650)						—						(650)
Balance, September 30, 2023			$	1,634					648.0						$	6					$	14,901					$	(8,283)					$	(808)					$	7,450

Balance, December 31, 2023			$	1,634					694.3						$	7					$	15,281					$	(8,148)					$	(517)					$	8,257
Net income			—						—						—						—						741						—						741
Other comprehensive income:
Unrealized gain on available-for-sale securities, net			—						—						—						—						—						105						105
Stock-based compensation, net			—						0.9						—						10						—						—						10

Issuance of common stock			—						149.0						1						1,455						—						—						1,456

Preferred dividends declared			—						—						—						—						(96)						—						(96)
Common dividends declared			—						—						—						—						(817)						—						(817)
Balance, September 30, 2024			$	1,634					844.2						$	8					$	16,746					$	(8,320)					$	(412)					$	9,656

See accompanying notes to consolidated financial statements.

4

AGNC INVESTMENT CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in millions)


			Nine Months Ended September 30,
			2024						2023
Operating activities:
Net income (loss)			$	741					$	(257)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Amortization of premiums and discounts on mortgage-backed securities, net			134						185
Stock-based compensation, net			10						6
Loss on sale of investment securities, net			100						870
Unrealized (gain) loss on investment securities measured at fair value through net income, net			(1,010)						1,125
Gain on derivative instruments and other securities, net			(6)						(2,026)
(Increase) decrease in other assets			735						(75)
Increase (decrease) in other liabilities			(697)						85
Net cash provided by (used in) operating activities			7						(87)
Investing activities:
Purchases of Agency mortgage-backed securities			(28,166)						(27,386)
Purchases of credit risk transfer and non-Agency securities and other mortgage credit investments			(222)						(299)
Proceeds from sale of Agency mortgage-backed securities			9,316						5,675
Proceeds from sale of credit risk transfer and non-Agency securities			278						650
Principal collections on Agency mortgage-backed securities			3,854						3,158
Principal collections on credit risk transfer and non-Agency securities			101						56
Payments on U.S. Treasury securities			(16,462)						(24,576)
Proceeds from U.S. Treasury securities			17,010						26,973
Net payments on reverse repurchase agreements			(1,343)						(1,938)
Net proceeds from (payments on) derivative instruments			(461)						1,515
Net cash used in investing activities			(16,095)						(16,172)
Financing activities:
Proceeds from repurchase arrangements			3,980,103						2,590,724
Payments on repurchase agreements			(3,964,550)						(2,574,879)
Payments on debt of consolidated variable interest entities			(12)						(14)


Net proceeds from common stock issuances			1,455						709

Cash dividends paid			(893)						(733)
Net cash provided by financing activities			16,103						15,807
Net change in cash, cash equivalents and restricted cash			15						(452)
Cash, cash equivalents and restricted cash at beginning of period			1,771						2,334
Cash, cash equivalents and restricted cash at end of period			$	1,786					$	1,882

Reconciliation of cash, cash equivalents and restricted cash end of period:
Cash and cash equivalents			$	507					$	493
Restricted cash			1,279						1,389
Total cash, cash equivalents and restricted cash, end of period			$	1,786					$	1,882

See accompanying notes to consolidated financial statements.

5

AGNC INVESTMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Organization

AGNC Investment Corp. (referred throughout this report as the "Company," "we," "us" and "our") was organized in Delaware on January 7, 2008 and commenced operations on May 20, 2008 following the completion of our initial public offering. Our common stock is traded on The Nasdaq Global Select Market under the symbol "AGNC."

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") for which the principal and interest payments are guaranteed by a U.S. Government-sponsored enterprise ("GSE") or a U.S. Government agency. We also invest in other types of mortgage and mortgage-related securities, such as credit risk transfer ("CRT") securities and non-Agency residential and commercial mortgage-backed securities ("non-Agency RMBS" and "CMBS," respectively), where repayment of principal and interest is not guaranteed by a GSE or U.S. Government agency, and other assets related to the housing, mortgage or real estate markets. We fund our investments primarily through collateralized borrowings structured as repurchase agreements.

We operate to qualify to be taxed as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"). As a REIT, we are required to distribute annually 90% of our taxable income, and we will generally not be subject to U.S. federal or state corporate income tax to the extent that we distribute our annual taxable income to our stockholders on a timely basis. It is our intention to distribute 100% of our taxable income within the time limits prescribed by the Internal Revenue Code, which may extend into the subsequent tax year.

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.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation

Our accompanying consolidated financial statements and related notes have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X. The accompanying consolidated financial statements and related notes are unaudited and include the accounts of all our wholly-owned subsidiaries and variable interest entities for which we are the primary beneficiary. Significant intercompany accounts and transactions have been eliminated. The accompanying consolidated financial statements and related notes should be read in conjunction with the audited consolidated financial statements included in our most recent Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of income and expenses during the reporting period. In the opinion of management, all adjustments, consisting solely of normal recurring accruals, necessary for the fair presentation of consolidated financial statements for the interim period have been included. The current period’s results of operations are not necessarily indicative of results that ultimately may be achieved for the year.

Investment Securities

Agency RMBS consist of residential mortgage pass-through securities and collateralized mortgage obligations ("CMOs") guaranteed by the Federal National Mortgage Association ("Fannie Mae"), Federal Home Loan Mortgage Corporation ("Freddie Mac," and together with Fannie Mae, the "GSEs") or the Government National Mortgage Association ("Ginnie Mae").

CRT securities are risk sharing instruments issued by the GSEs, and similarly structured transactions issued by third-party market participants, that synthetically transfer a portion of the risk associated with credit losses within pools of conventional residential mortgage loans from the GSEs and/or third parties to private investors. Unlike Agency RMBS, full repayment of the original principal balance of CRT securities is not guaranteed by a GSE or U.S. Government agency; rather, "credit risk transfer" is achieved by writing down the outstanding principal balance of the CRT securities if credit losses on a related pool

6

of loans exceed certain thresholds. By reducing the amount that they are obligated to repay to holders of CRT securities, the GSEs and/or other third parties offset credit losses on the related loans.

Non-Agency RMBS and CMBS (together, "Non-Agency MBS") are backed by residential and commercial mortgage loans, respectively, packaged and securitized by a private institution, such as a commercial bank. Non-Agency MBS typically benefit from credit enhancements derived from structural elements, such as subordination, over-collateralization or insurance, but nonetheless carry a higher level of credit exposure than Agency RMBS.

All of our securities are reported at fair value on our consolidated balance sheet. Accounting Standards Codification ("ASC") Topic 320, Investments—Debt and Equity Securities, requires that at the time of purchase, we designate a security as held-to-maturity, available-for-sale or trading, depending on our ability and intent to hold such security to maturity. Alternatively, we may elect the fair value option of accounting for securities pursuant to ASC Topic 825, Financial Instruments. Prior to fiscal year 2017, we primarily designated our investment securities as available-for-sale. On January 1, 2017, we began electing the fair value option of accounting for all investment securities newly acquired after such date. Unrealized gains and losses on securities classified as available-for-sale are reported in accumulated other comprehensive income ("OCI"), whereas unrealized gains and losses on securities for which we elected the fair value option, or are classified as trading, are reported in net income through other gain (loss). Upon the sale of a security designated as available-for-sale, we determine the cost of the security and the amount of unrealized gain or loss to reclassify out of accumulated OCI into earnings based on the specific identification method. In our view, the election of the fair value option simplifies the accounting for investment securities and more appropriately reflects the results of our operations for a reporting period by presenting the fair value changes for these assets in a manner consistent with the presentation and timing of the fair value changes for our derivative instruments.

We generally recognize gains or losses through net income on available-for-sale securities only if the security is sold; however, if the fair value of a security declines below its amortized cost and we determine that it is more likely than not that we will incur a realized loss on the security when we sell the asset, we will recognize the difference between the amortized cost and the fair value in net income as a component of other gain (loss). We did not recognize any loss on available for sale securities through net income that we held as of September 30, 2024 because, as of such date, we neither intended to sell any securities in an unrealized loss position nor was it more likely than not that we would be required to sell such securities before recovery of their amortized cost basis. Since all of our available-for-sale designated securities consist of Agency RMBS, we do not have an allowance for credit losses. We have not recognized impairment losses on our available-for-sale securities through net income for the periods presented in our consolidated financial statements.

Interest Income

Interest income is accrued based on the outstanding principal amount of the investment securities and their contractual terms. Premiums or discounts associated with the purchase of Agency RMBS and non-Agency MBS of high credit quality are amortized or accreted into interest income, respectively, over the projected lives of the securities, including contractual payments and estimated prepayments, using the effective interest method in accordance with ASC Subtopic 310-20, Receivables—Nonrefundable Fees and Other Costs.

We estimate long-term prepayment speeds of our mortgage securities using a third-party service and market data. The third-party service provider estimates prepayment speeds using models that incorporate the forward yield curve, primary to secondary mortgage rate spreads, current mortgage rates, mortgage rates of the outstanding loans, age and size of the outstanding loans, loan-to-value ratios, interest rate volatility and other factors. We review the prepayment speeds estimated by the third-party service for reasonableness with consideration given to both historical prepayment speeds and current market conditions. If based on our assessment, we believe that the third-party model does not fully reflect our expectations of the current prepayment landscape we may make adjustments to the models. We review our actual and anticipated prepayment experience on at least a quarterly basis and effective yields are recalculated when differences arise between (i) our previous estimate of future prepayments and (ii) actual prepayments to date and our current estimate of future prepayments. We are required to record an adjustment in the current period to premium amortization / discount accretion for the cumulative effect of the difference in the effective yields as if the recalculated yield had been in place as of the security's acquisition date through the reporting date.

At the time we purchase CRT securities and non-Agency MBS that are not of high credit quality, we determine an effective yield based on our estimate of the timing and amount of future cash flows and our cost basis. Our initial cash flow estimates for these investments are based on our observations of current information and events and include assumptions related to interest rates, prepayment rates, collateral call provisions, and the impact of default and severity rates on the timing and amount of credit losses. On at least a quarterly basis, we review the estimated cash flows and make appropriate adjustments based on inputs and analysis received from external sources, internal models, and our judgment regarding such inputs and other

7

factors. Any resulting changes in effective yield are recognized prospectively based on the current amortized cost of the investment adjusted for credit impairments, if any.

Repurchase Agreements

We finance the acquisition of securities for our investment portfolio primarily through repurchase agreements with our lending counterparties. Repurchase arrangements involve the sale and a simultaneous agreement to repurchase the securities at a future date. We maintain a beneficial interest in the specific securities pledged during the term of each repurchase arrangement and we receive the related principal and interest payments. Pursuant to ASC Topic 860, Transfers and Servicing, we account for repurchase agreements as collateralized financing transactions, which are carried at their contractual amounts (cost), plus accrued interest. Our repurchase agreements typically have maturities of less than one year.

Reverse Repurchase Agreements and Obligation to Return Securities Borrowed under Reverse Repurchase Agreements

We borrow securities to cover short sales of U.S. Treasury securities through reverse repurchase transactions under our master repurchase agreements (see Derivative Instruments below). We account for these as securities borrowing transactions and recognize an obligation to return the borrowed securities at fair value on the balance sheet based on the value of the underlying borrowed securities as of the reporting date. We may also enter into reverse repurchase agreements to earn a yield on excess cash balances. The securities received as collateral in connection with our reverse repurchase agreements mitigate our credit risk exposure to counterparties. Our reverse repurchase agreements typically have maturities of 30 days or less.

Derivative Instruments

We use a variety of derivative instruments to hedge a portion of our exposure to market risks, including interest rate, prepayment, extension and liquidity risks. The objective of our risk management strategy is to reduce fluctuations in net book value over a range of interest rate scenarios. In particular, we attempt to mitigate the risk of the cost of our variable rate liabilities increasing during a period of rising interest rates. The primary instruments that we use are interest rate swaps, options to enter into interest rate swaps ("swaptions"), U.S. Treasury securities and U.S. Treasury futures contracts. We also use forward contracts in the Agency RMBS "to-be-announced" market, or TBA securities, to invest in and finance Agency securities and to periodically reduce our exposure to Agency RMBS.

We account for derivative instruments in accordance with ASC Topic 815, Derivatives and Hedging ("ASC 815"). ASC 815 requires an entity to recognize all derivatives as either assets or liabilities in our accompanying consolidated balance sheets and to measure those instruments at fair value. None of our derivative instruments have been designated as hedging instruments for accounting purposes under the provisions of ASC 815, consequently changes in the fair value of our derivative instruments are reported in gain (loss) on derivative instruments and other securities, net in our consolidated statements of comprehensive income.

Our derivative agreements generally contain provisions that allow for netting or setting off derivative assets and liabilities with the counterparty; however, we report related assets and liabilities on a gross basis in our consolidated balance sheets. Derivative instruments in a gain position are reported as derivative assets at fair value and derivative instruments in a loss position are reported as derivative liabilities at fair value in our consolidated balance sheets. Changes in fair value of derivative instruments and periodic settlements related to our derivative instruments are recorded in gain (loss) on derivative instruments and other securities, net in our consolidated statements of comprehensive income. Net cash receipts from and payments on our derivative instruments are classified in our consolidated statements of cash flows according to the underlying nature or purpose of the derivative transaction, generally in the investing section.

Interest rate swap agreements

We use interest rate swaps to economically hedge the variable cash flows associated with our borrowings made under repurchase agreements. Under our interest rate swap agreements, we typically pay a fixed rate and receive a floating rate ("payer swaps") based on a short-term benchmark rate, such as the Secured Overnight Financing Rate ("SOFR") and Overnight Index Swap Rate ("OIS"). Our interest rate swaps typically have terms from one to 10 years. Our interest rate swaps are centrally cleared through a registered commodities exchange. The clearing exchange requires that we post an "initial margin" amount determined by the exchange. The initial margin amount is intended to be set at a level sufficient to protect the exchange from the interest rate swap's maximum estimated single-day price movement and is subject to adjustment based on changes in market volatility and other factors. We also exchange daily settlements of "variation margin" based upon changes in fair value, as measured by the exchange. Pursuant to rules governing central clearing activities, we recognize variation margin settlements as a direct reduction of the carrying value of the interest rate swap asset or liability.

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Interest rate swaptions

We purchase interest rate swaptions to help mitigate the potential impact of larger, more rapid changes in interest rates on the performance of our investment portfolio. Interest rate swaptions provide us the option to enter into an interest rate swap agreement for a predetermined notional amount, stated term and pay and receive interest rates in the future. Our interest rate swaption agreements are not subject to central clearing. The difference between the premium paid and the fair value of the swaption is reported in gain (loss) on derivative instruments and other securities, net in our consolidated statements of comprehensive income. If a swaption expires unexercised, the realized loss on the swaption would be equal to the premium paid. If we sell or exercise a swaption, the realized gain or loss on the swaption would be equal to the difference between the cash or the fair value of the underlying interest rate swap and the premium paid.

TBA securities

A TBA security is a forward contract for the purchase or sale of Agency RMBS at a predetermined price, face amount, issuer, coupon and stated maturity on an agreed-upon future date. The specific Agency RMBS to be delivered into the contract are not known until shortly before the settlement date. We may choose, prior to settlement, to move the settlement of these securities out to a later date by entering into an offsetting TBA position, net settling the offsetting positions for cash, and simultaneously purchasing or selling a similar TBA contract for a later settlement date (together referred to as a "dollar roll transaction"). The Agency securities purchased or sold for a forward settlement date are typically priced at a discount to equivalent securities settling in the current month. This difference, or "price drop," is the economic equivalent of interest income on the underlying Agency securities, less an implied funding cost, over the forward settlement period (referred to as "dollar roll income"). Consequently, forward purchases of Agency securities and dollar roll transactions represent a form of off-balance sheet financing.

We account for TBA contracts as derivative instruments since either the TBA contracts do not settle in the shortest period of time possible or we cannot assert that it is probable at inception and throughout the term of the TBA contract that we will physically settle the contract on the settlement date. We account for TBA dollar roll transactions as a series of derivative transactions.

U.S. Treasury securities and US Treasury futures contracts

We use U.S. Treasury securities and U.S. Treasury futures contracts to mitigate the potential impact of changes in interest rates on the performance of our portfolio. We enter into short-sales of U.S. Treasury securities by borrowing the securities under reverse repurchase agreements and selling them into the market. We account for these as securities borrowing transactions and recognize an obligation to return the borrowed securities at fair value on our accompanying consolidated balance sheets based on the value of the underlying U.S. Treasury security as of the reporting date. Treasury futures contracts are standardized contracts that obligate us to sell or buy U.S. Treasury securities for future delivery. Gains and losses associated with U.S. Treasury securities and U.S. Treasury futures contracts are recognized in gain (loss) on derivative instruments and other securities, net in our consolidated statements of comprehensive income.

Fair Value Measurements

We determine the fair value of financial instruments based on our estimate of the price that would be received to sell the asset or paid to transfer the liability in an orderly transaction between market participants at the measurement date. We utilize a three-level valuation hierarchy for disclosure of fair value measurements based upon the transparency of inputs to the valuation of the instrument as of the measurement date. We categorize a financial instrument within the hierarchy based upon the lowest level of input that is significant to the fair value measurement.

The three levels of valuation hierarchy are defined as follows:

•Level 1 Inputs —Quoted prices (unadjusted) for identical unrestricted assets and liabilities in active markets that are accessible at the measurement date.

•Level 2 Inputs —Quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

•Level 3 Inputs —Instruments with primarily unobservable market data that cannot be corroborated.

The majority of our financial instruments are classified as Level 2 inputs. The availability of observable inputs can be affected by a wide variety of factors, including the type of instrument, whether the instrument is new and not yet established in the marketplace and other characteristics particular to the instrument. We typically obtain price estimates from multiple third-

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party pricing sources, such as pricing services and dealers, or, if applicable, from the registered clearing exchange. We make inquiries of third-party pricing sources to understand the significant inputs and assumptions they used to determine their prices and that they are derived from orderly transactions, particularly during periods of elevated market turbulence and reduced market liquidity. We also review third-party price estimates and perform procedures to validate their reasonableness, including an analysis of the range of estimates for each position, comparison to recent trade activity for similar securities and for consistency with market conditions observed as of the measurement date. While we do not adjust prices we obtain from pricing sources, we will exclude prices for securities from our estimation of fair value if we determine based on our validation procedures and our market knowledge and expertise that the price is significantly different from what observable market data would indicate and we cannot obtain an understanding from the third-party source as to the significant inputs used to determine the price.

The following is a description of the valuation methodologies used for financial instruments measured at fair value on a recurring basis classified as Level 2 inputs. These instruments trade in active markets such that participants transact with sufficient frequency and volume to provide transparent pricing information on an ongoing basis. The liquidity of these markets and the similarity of our instruments to those actively traded enable our pricing sources and us to utilize the observed quoted prices as a basis for formulating fair value measurements.

Investment securities - are valued based on prices obtained from multiple third-party pricing sources. The pricing sources utilize various valuation approaches, including market and income approaches. For Agency RMBS, the pricing sources primarily utilize a matrix pricing technique that interpolates the estimated fair value based on observed quoted prices for TBA securities having the same coupon, maturity and issuer, adjusted to reflect the specific characteristics of the pool of mortgages underlying the Agency security, such as maximum loan balance, loan vintage, loan-to-value ratio, geography and other characteristics as may be appropriate. For other investment securities, the pricing sources primarily utilize discounted cash flow model-derived pricing techniques to estimate the fair value. Such models incorporate market-based discount rate assumptions based on observable inputs such as recent trading activity, credit data, volatility statistics, benchmark interest rate curves, spread measurements to benchmark curves and other market data that are current as of the measurement date and may include certain unobservable inputs, such as assumptions of future levels of prepayment, defaults and loss severities.

TBA securities - are valued using prices obtained from third-party pricing sources based on pricing models that reference recent trading activity.

Interest rate swaps - are valued using the daily settlement price, or fair value, determined by the clearing exchange based on a pricing model that references observable market inputs, including current benchmark rates and the forward yield curve.

Interest rate swaptions - are valued using prices obtained from the counterparty and other third-party pricing models. The pricing models are based on the value of the future interest rate swap that we have the option to enter into as well as the remaining length of time that we have to exercise the option based on observable market inputs, adjusted for non-performance risk, if any.

U.S. Treasury securities and futures are valued based on quoted prices for identical instruments in active markets and are classified as Level 1 assets. None of our financial instruments are classified as Level 3 inputs.

Recent Accounting Pronouncements

We consider the applicability and impact of all ASUs issued by the FASB. There are no unadopted ASUs that are expected to have a significant impact on our consolidated financial statements when adopted or other recently adopted ASUs that had a significant impact on our consolidated financial statements upon adoption.

Note 3. Investment Securities

As of September 30, 2024 and December 31, 2023, our investment portfolio consisted of $68.9 billion and $54.8 billion investment securities, at fair value, respectively, $4.1 billion and $5.4 billion net TBA securities, at fair value, respectively, and other mortgage credit investments of $61 million and $44 million, respectively, which we account for under the equity method of accounting. Our TBA position is reported at its net carrying value totaling $1 million and $66 million as of September 30, 2024 and December 31, 2023, respectively, in derivative assets / (liabilities) on our accompanying consolidated balance sheets. The net carrying value of our TBA position represents the difference between the fair value of the underlying security and the cost basis or the forward price to be paid or received for the underlying security.

As of September 30, 2024 and December 31, 2023, our investment securities had a net unamortized premium balance of $0.9 billion and $1.2 billion, respectively.

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The following tables summarize our investment securities as of September 30, 2024 and December 31, 2023, excluding TBA securities and other mortgage credit investments (dollars in millions). Details of our TBA securities are included in Note 5.


						September 30, 2024												December 31, 2023
Investment Securities						Amortized Cost						Fair Value						Amortized Cost						Fair Value
Agency RMBS:
Fixed rate						$	67,727					$	66,668					$	55,289					$	53,161
Adjustable rate						768						776						293						290
CMO						108						104						127						120
Interest-only and principal-only strips						61						57						67						61
Multifamily						429						439						161						162
Total Agency RMBS						69,093						68,044						55,937						53,794
Non-Agency RMBS 1						17						15						43						34
CMBS						278						258						303						273
CRT securities						573						620						682						723
Total investment securities						$	69,961					$	68,937					$	56,965					$	54,824


						September 30, 2024
						Agency RMBS																		Non-Agency 1
Investment Securities						Fannie Mae						Freddie Mac						Ginnie Mae						RMBS						CMBS						CRT						Total
Available-for-sale securities:
Par value 2						$	3,541					$	1,049					$	1					$	—					$	—					$	—					$	4,591
Unamortized discount						(1)						—						—						—						—						—						(1)
Unamortized premium						204						66						—						—						—						—						270
Amortized cost						3,744						1,115						1						—						—						—						4,860
Gross unrealized gains						—						—						—						—						—						—						—
Gross unrealized losses						(312)						(100)						—						—						—						—						(412)
Total available-for-sale securities, at fair value						3,432						1,015						1						—						—						—						4,448
Securities remeasured at fair value through earnings:
Par value 2						34,734						28,811						30						19						285						562						64,441
Unamortized discount						(270)						(208)						(1)						(3)						(8)						(8)						(498)
Unamortized premium						694						443						—						1						1						19						1,158
Amortized cost						35,158						29,046						29						17						278						573						65,101
Gross unrealized gains						405						352						—						—						3						47						807
Gross unrealized losses						(953)						(441)						—						(2)						(23)						—						(1,419)
Total securities remeasured at fair value through earnings						34,610						28,957						29						15						258						620						64,489
Total securities, at fair value						$	38,042					$	29,972					$	30					$	15					$	258					$	620					$	68,937
Weighted average coupon as of September 30, 2024 3						4.81		%				5.13		%				4.51		%				5.28		%				6.68		%				11.20		%				5.01		%
Weighted average yield as of September 30, 2024 4						4.44		%				4.86		%				4.98		%				6.69		%				7.40		%				8.96		%				4.68		%

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						December 31, 2023
						Agency RMBS																		Non-Agency 1
Investment Securities						Fannie Mae						Freddie Mac						Ginnie Mae						RMBS						CMBS						CRT						Total
Available-for-sale securities:
Par value 2						$	3,881					$	1,152					$	1					$	—					$	—					$	—					$	5,034
Unamortized discount						(1)						—						—						—						—						—						(1)
Unamortized premium						227						73						—						—						—						—						300
Amortized cost						4,107						1,225						1						—						—						—						5,333
Gross unrealized gains						—						—						—						—						—						—						—
Gross unrealized losses						(392)						(125)						—						—						—						—						(517)
Total available-for-sale securities, at fair value						3,715						1,100						1						—						—						—						4,816
Securities remeasured at fair value through earnings:
Par value 2						29,910						19,503						283						44						307						679						50,726
Unamortized discount						(108)						(59)						(3)						(3)						(7)						(9)						(189)
Unamortized premium						702						376						—						2						3						12						1,095
Amortized cost						30,504						19,820						280						43						303						682						51,632
Gross unrealized gains						170						111						1						—						2						41						325
Gross unrealized losses						(1,270)						(638)						—						(9)						(32)						—						(1,949)
Total securities remeasured at fair value through earnings						29,404						19,293						281						34						273						723						50,008
Total securities, at fair value						$	33,119					$	20,393					$	282					$	34					$	273					$	723					$	54,824
Weighted average coupon as of December 31, 2023 3						4.68		%				4.90		%				4.94		%				4.61		%				7.27		%				10.45		%				4.85		%
Weighted average yield as of December 31, 2023 4						4.22		%				4.53		%				5.16		%				4.92		%				7.04		%				8.87		%				4.41		%

________________________________

1.Non-Agency amounts exclude other mortgage credit investments of $61 million and $44 million as of September 30, 2024 and December 31, 2023, respectively.

2.Par value excludes interest-only securities. As of September 30, 2024 and December 31, 2023, Agency RMBS interest-only securities had a par value of $319 million and $336 million, respectively, and non-Agency interest-only securities had a par value of $97 million and $98 million, respectively.

3.Weighted average coupon excludes interest-only and principle-only securities. As of September 30, 2024 and December 31, 2023 Agency RMBS interest-only securities have a weighted average coupon of 1.83% and 1.77%, respectively, and non-Agency interest-only securities had a weighted average coupon of 0.81% and 0.71%, respectively.

4.Incorporates a weighted average future constant prepayment rate assumption of 13.2% and 11.4% based on forward rates as of September 30, 2024 and December 31, 2023, respectively.

As of September 30, 2024 and December 31, 2023, our investments in CRT and non-Agency securities had the following credit ratings (in millions):


						September 30, 2024																		December 31, 2023
CRT and Non-Agency Security Credit Ratings 1						CRT						RMBS 2						CMBS						CRT						RMBS 2						CMBS
AAA						$	—					$	1					$	21					$	—					$	1					$	9
AA						9						—						35						—						—						31
A						—						—						29						—						—						25
BBB						8						1						28						144						14						44
BB						75						1						57						137						7						81
B						40						—						36						39						2						55
Not Rated						488						12						52						403						10						28
Total						$	620					$	15					$	258					$	723					$	34					$	273

________________________________

1.Represents the lowest of Standard and Poor's ("S&P"), Moody's, Fitch, DBRS, Kroll Bond Rating Agency ("KBRA") and Morningstar credit ratings, stated in terms of the S&P equivalent rating as of each date.

2.RMBS excludes other mortgage credit investments of $61 million and $44 million as of September 30, 2024 and December 31, 2023, respectively.

Our CRT securities reference the performance of loans underlying Agency RMBS issued by Fannie Mae or Freddie Mac, which were subject to their underwriting standards.

The actual maturities of our investment securities are generally shorter than their stated contractual maturities. The actual maturities of our Agency and high credit quality non-Agency RMBS are primarily affected by principal prepayments and to a lesser degree the contractual lives of the underlying mortgages and periodic contractual principal repayments. The actual maturities of our credit-oriented investments are primarily impacted by their contractual lives and default and loss recovery

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rates. As of September 30, 2024 and December 31, 2023, the weighted average expected constant prepayment rate ("CPR") over the remaining life of our Agency and high credit quality non-Agency RMBS investment portfolio was 13.2% and 11.4%, respectively. Our estimates can differ materially for different securities and thus our individual holdings have a wide range of projected CPRs. The following table summarizes our investments as of September 30, 2024 and December 31, 2023 according to their estimated weighted average life classification (dollars in millions):


						September 30, 2024																								December 31, 2023
Estimated Weighted Average Life of Investment Securities 1						Fair Value						Amortized Cost						Weighted Average Coupon						Weighted Average Yield						Fair Value						Amortized Cost						Weighted Average Coupon						Weighted Average Yield
≤ 3 years						$	6,517					$	6,440					6.21%						5.71%						$	942					$	961					6.57%						5.93%
> 3 years and ≤ 5 years						18,818						18,580						5.83%						5.45%						10,381						10,331						5.94%						5.52%
> 5 years and ≤10 years						40,879						42,219						4.52%						4.17%						40,895						42,988						4.55%						4.10%
> 10 years						2,723						2,722						4.19%						4.70%						2,606						2,685						4.77%						4.63%
Total						$	68,937					$	69,961					5.01%						4.68%						$	54,824					$	56,965					4.85%						4.41%

________________________________

1.Table excludes other mortgage credit investments of $61 million and $44 million as of September 30, 2024 and December 31, 2023, respectively.

The following table presents the gross unrealized loss and fair values of securities classified as available-for-sale by length of time that such securities have been in a continuous unrealized loss position as of September 30, 2024 and December 31, 2023 (in millions):


						Unrealized Loss Position For
						Less than 12 Months												12 Months or More												Total
Securities Classified as Available-for-Sale						Fair Value						Unrealized Loss						Fair Value						Unrealized Loss						Fair Value						Unrealized Loss
September 30, 2024						$	—					$	—					$	4,430					$	(412)					$	4,430					$	(412)
December 31, 2023						$	—					$	—					$	4,797					$	(517)					$	4,797					$	(517)

Gains and Losses on Sale of Investment Securities

The following table is a summary of our net gain (loss) from the sale of investment securities for the three and nine months ended September 30, 2024 and 2023 by investment classification of accounting (in millions):

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						Three Months Ended September 30,
						2024																		2023
Investment Securities						Available-for-Sale Securities 2,3						Fair Value Option Securities						Total						Available-for-Sale Securities 2,3						Fair Value Option Securities						Total
Investment securities sold, at cost						$	—					$	(4,805)					$	(4,805)					$	—					$	(3,175)					$	(3,175)
Proceeds from investment securities sold 1						—						4,911						4,911						—