AGNC Posts 7% Book Value Drop in Q2

Core Insights - AGNC Investment Corp. reported a tangible net book value (TNBV) decline of 7.0% and net spread earnings that fell short of expectations, with non-GAAP earnings per share at $0.38, below the $0.41 analyst estimate [1][2] - Revenue for the quarter was $830 million, lower than the estimated $862.75 million, although it represented a 19.4% increase year-over-year [2][6] - The company faces ongoing pressure on margins and capital, with a narrowing buffer between earnings and dividend obligations [1][10] Financial Performance - Non-GAAP EPS decreased from $0.53 in Q2 2024 to $0.38 in Q2 2025, reflecting a year-over-year decline of 28.3% [2] - TNBV per share fell from $8.40 to $7.81, a 7.0% decrease year-over-year [2][6] - Net income per share (diluted) reported a loss of $0.17, compared to a loss of $0.11 in the previous year, marking a 54.5% decline [2] Business Overview - AGNC operates as a mortgage REIT, primarily investing in securities backed by U.S. government agencies [3] - The company's strategy focuses on profiting from the spread between yields on mortgage-backed securities and borrowing costs [3] Market Conditions - The company faced significant spread widening due to interest rate swings and negative sentiment towards Agency MBS, leading to margin compression [5][9] - The annualized net interest spread declined to 2.01% from 2.12% in the prior quarter, with average asset yields at 4.83% and funding costs at 2.86% [5] Risk Management - AGNC's risk management strategy includes using interest rate swaps and short positions in U.S. Treasuries to hedge funding costs, with a notional swap hedge of $45.1 billion [9] - The company maintained a leverage ratio of 7.6 times at quarter-end, with a robust liquidity position of $6.4 billion in unencumbered cash and Agency MBS [7][9] Dividend and Future Outlook - The declared dividend remained unchanged at $0.36 per share, reflecting the company's REIT status requirement [10] - Management expressed a favorable outlook for levered and hedged Agency MBS investments, citing high mortgage spreads and potential regulatory changes [11]