AGNC Investment Corp. (AGNC) Earnings

Management highlights

### Overall Financial and Dividend Track Record - AGNC delivered a strong 6.7% economic return in Q2 2026, composed of stable monthly dividends and an improvement in tangible book value per common share, despite challenging market conditions. - The firm marked its 75th consecutive monthly common stock dividend of $0.12 per share, a track record management credits to its disciplined risk management and portfolio construction approach across varying market environments. ### Agency MBS Market Fundamentals - Agency MBS generated positive excess returns over U.S. Treasuries for the fifth consecutive quarter, an unusual streak given the similar credit profile of the two asset classes. Favorable technical supply/demand dynamics drove this outperformance. - With primary mortgage rates holding above 6.5%, 2026 net new supply of Agency MBS is projected to drop to ~$150 billion, far lower than beginning-of-year estimates. Elevated rates have also slowed prepayment speeds, reducing expected MBS runoff from the Federal Reserve's portfolio. - Demand for Agency MBS has remained strong: year-to-date bond fund inflows through the first half of 2026 exceed $400 billion, double the 2025 pace, with a large share allocated to Agency MBS. Banks, foreign investors, and mortgage REITs are all expected to remain net purchasers of Agency MBS through the end of the year. - Agency MBS spreads remain wide by historical standards this year, despite lower-than-expected supply and higher-than-expected demand. By contrast, corporate bond spreads have narrowed to multi-decade lows even amid record $1.1+ trillion projected 2026 issuance and rising credit concerns, creating a compelling relative value opportunity for Agency MBS. ### Portfolio and Capital Management - Higher-coupon and production-coupon MBS saw the strongest outperformance in Q2 2026, as rising rates curtailed supply and prepayment concerns, reversing Q1 2026's coupon performance trend. MBS hedged with swaps outperformed MBS hedged with Treasuries as swap spreads widened during the quarter. - During Q2, management repositioned the portfolio: selling lower-coupon MBS (to lock in gains from Q1 2026's low-coupon outperformance) and purchasing $2.2 billion of primarily intermediate-coupon specified pools with more favorable prepayment profiles. - The firm maintained a duration gap of 0.7 years (unchanged from Q1 2026), and continues to favor a positive duration gap given current interest rate levels, the portfolio's convexity profile, and the expected correlation between mortgage spreads and interest rates. - AGNC issued $167 million of common equity through its at-the-market (ATM) offering program in Q2 2026 at a premium to tangible book value per share, maintaining a disciplined, opportunistic approach to capital issuance.

Guidance

- Management maintains an encouraging outlook for Agency MBS performance in the second half of 2026, expecting that current supply/demand fundamentals and attractive relative value will drive spread tightening once near-term geopolitical and monetary policy uncertainty eases. - Current coupon MBS spreads to a blended hedge curve were ~145 basis points at quarter end, near the midpoint of management's expected 120-160 basis point range, which management views as sustainable in the near term. - Management expects TBA dollar roll specialness to remain attractive relative to repo funding going forward, averaging roughly 10 to 20 basis points, in line with long-term historical averages. - GSEs currently hold approximately $120 billion of remaining purchasing capacity under their annual caps, giving them dry powder to step in and support the market if spreads widen, which underpins the constructive technical outlook for Agency MBS.

Segment performance

AGNC Investment Corp is a residential mortgage REIT focused almost exclusively on Agency mortgage-backed securities (Agency MBS). As of Q2 2026, the total market value of the firm's asset portfolio was $97 billion, with Agency MBS representing the entire investment portfolio. 79% of portfolio assets hold favorable prepayment characteristics, up slightly from the prior quarter. The weighted average coupon of the portfolio increased to 5.04% after portfolio repositioning during the quarter. Financial performance for Q2 2026: comprehensive income of $0.52 per common share; economic return on tangible common equity of 6.7%; total stock return (with dividends reinvested) of 12.3%, bringing the one-year total stock return to 36.1%. Net spread and dollar roll income totaled $0.40 per common share, down $0.02 from Q1 2026. Average leverage remained unchanged at 7.4x tangible equity. Ending quarter unencumbered cash and Agency MBS totaled $7.5 billion, equal to 62% of tangible equity. The notional value of the firm's interest rate hedge portfolio was $66 billion at quarter end, with 66% of hedges allocated to swap-based instruments (down from the prior quarter after $3 billion in swap hedges matured and were replaced by Treasury-based hedges).

Risks & headwinds

- Elevated geopolitical tension between the U.S. and Iran has constrained Strait of Hormuz ship traffic, driving higher energy prices and global supply chain disruptions. This uncertainty has caused Treasury yields to rise, the yield curve to flatten, and shifted market expectations from year-end rate cuts to rate hikes, increasing market volatility. - Sustained macroeconomic and monetary policy uncertainty, driven by inflationary pressures from energy disruptions and a new, more hawkish Federal Reserve leadership, continues to create near-term volatility for fixed income markets including Agency MBS. - While GSE purchasing activity provides a stabilizing backdrop, a faster-than-expected drawdown of their remaining purchasing capacity could reduce this supportive force for mortgage spreads. - Persistently elevated market volatility from macro and geopolitical factors could offset the spread volatility reduction from GSE activity, limiting the potential for higher leverage in the near term.

Analyst Q&A

• Q: What are the expected returns on incremental Agency MBS investments at current spreads, and how does your stock's current valuation impact capital raising strategy? /

  A: At current spreads of 130-150 basis points hedged primarily with swaps, leveraged at 7-7.5x, incremental investments generate ROEs of 15-17%, which aligns well with the firm's dividend requirements. Management follows a disciplined, opportunistic approach to ATM equity issuance with no preset schedule, and reduced issuance activity in Q2 2026 because the stock was trading lightly, to avoid disrupting trading performance. Management will only continue to raise capital if it benefits existing shareholders, and is comfortable with the firm's current size and scale even if no additional capital is raised.

• Q: What is your outlook for Agency MBS in the second half of 2026, given elevated geopolitical risk, a new hawkish Fed chair, and expectations for rate hikes? /

  A: Near-term negatives (elevated geopolitical volatility, shifted monetary policy expectations from rate cuts to two hikes) are still present and will persist for some time. However, the market is already pricing in these risks, and beyond the near-term uncertainty, Agency MBS have very attractive underlying fundamentals relative to overvalued corporate bonds. Seasonal mortgage activity trends will also improve in the second half after a weak Q2. Once near-term uncertainty eases, these fundamentals will drive spread tightening.

• Q: If GSE purchases act to cap mortgage spread volatility, does that allow the firm to use higher leverage than it otherwise would? /

  A: All else equal, lower spread volatility from any market force (including GSE stabilizing activity) does allow the market and AGNC to operate with higher leverage, as it reduces downside price risk. However, current elevated macroeconomic uncertainty is still increasing interest rate and spread volatility, which offsets this dynamic for now.

• Q: What changes do you expect from the Fed's balance sheet task force, and how would that impact the Agency MBS market? /

  A: The Fed is currently focused on maintaining ample reserves in the system to keep funding market rates stable. Potential changes include: allowing the Fed to reduce its balance sheet further by cutting required bank reserve levels, or expanding Fed repo facilities to provide liquidity without permanent balance sheet expansion, both of which would be positive for Agency MBS and Treasury funding markets. A key open question is whether the Fed will keep a permanent portfolio of Agency MBS (rather than allowing its full organic runoff), which would be neutral-to-positive for the market as it would maintain the Fed's operational presence for future market stabilization needs.