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SEC Filings

AGNC INVESTMENT CORP. filed this Form 10-Q on 11/06/2015
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share as of March 31, 2015. Our economic return for the second quarter was a loss of -3.6%, based on $0.62 in dividends per common share and the decline in our net book value per common share.
Third Quarter Highlights
During the third quarter, interest rates declined and the yield curve flattened moderately. The yield on the 10-year U.S. Treasury note fell 27 bps to 2.06%, while the yield on the 2-year U.S. Treasury remained unchanged during the quarter. More importantly, the spreads on most fixed income instruments, such as corporate, high yield and emerging market debt, widened relative to Treasury and swap benchmark rates. The spread on agency MBS relative to our interest rate swap hedges also widened materially during the quarter, driving a $(1.00) per common share decline in our net book value to $23.00 per common share as of September 30, 2015. Including $0.60 in dividends per common share, economic return for the quarter was a loss of -1.7%.
Given the cumulative spread widening during the second and third quarters, we chose to increase our “at risk” leverage to 6.8x as of September 30, 2015, with the majority of our asset purchases concentrated in 30 year MBS, as we continued to reduce our position in shorter duration, lower yielding ≤ 15 year MBS. Inclusive of our net TBA position, ≤ 15-year fixed rate securities declined to 29% and 30-year fixed rate securities increased to 66% of our investment portfolio as of September 30, 2015. Our net duration gap decreased to less than half a year during the quarter, with an increase in our hedge ratio to 96% of our funding liabilities as of September, 30, 2015 and the significant decline in swap rates and corresponding reduction in our asset duration.
Net spread and dollar roll income during the third quarter (a non-GAAP measure further defined below) decreased to $0.41 per common share for the third quarter, compared to $0.70 and $0.65 per common share for the second and first quarters, respectively. Excluding “catch-up” premium amortization due to changes in forecasted prepayment rates, net spread and dollar roll income decreased to $0.51 per common share for the third quarter from $0.60 and $0.70 per common share for the second and first quarters, respectively. The sequential quarterly decline was due to the combination of lower leverage and higher funding costs, with the latter consisting of higher repo costs, a higher percentage of interest rate swaps outstanding relative to our agency borrowings and weaker funding levels in the dollar roll market.
As we look forward, if spreads on agency MBS continue to widen or if interest rate volatility returns to more normal levels, we would expect to opportunistically reposition our portfolio toward more normal risk levels, which would likely mean increasing leverage and/or increasing our net duration gap, potentially improving our expected return on equity.
For the estimated impact of changes in interests rates and mortgage spreads on our net book value please refer to "Quantitative and Qualitative Disclosures about Market Risk" under Item 3 of this Quarterly Report on Form 10-Q.
Share Repurchases
During the second and third quarters, we repurchased approximately 4.0 million and 2.4 million shares of our common stock, respectively, at an average price of $19.86 and $19.08, respectively, per common share, including expenses, totaling $79 million and $45 million, respectively. Our decision to repurchase shares of our common stock is based on a variety of factors, including our price to net book value ratio, an assessment of the overall MBS landscape, our views on interest rates and our overall expectations about the drivers and sustainability of share price weakness among other factors. Since commencing a stock repurchase program in the fourth quarter of 2012, we have repurchased 52.7 million shares of our outstanding common stock for total consideration of approximately $1.1 billion, including expenses. As of September 30, 2015, we had $0.9 billion available under our current Board of Director authorization for repurchases of our common stock. In October 2015, our Board of Directors extended its authorization through December 31, 2016.
Modification to Investment Guidelines
In October 2015, our Board of Directors approved limited investments of up to 10% of our assets in AAA non-agency and commercial mortgage-backed securities. We believe this modification to our investment guidelines offers incremental return potential with limited credit exposure, while ensuring that our investment portfolio remains highly liquid.


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