AGNC Financial Analysis

Analysis Date: 1/30/2025

Business Model

AGNC generates revenue primarily through net interest income from its investment portfolio of agency residential mortgage-backed securities (MBS) and related instruments

Revenue Sources

• Net interest income from agency MBS portfolio
• TBA dollar roll income
• Interest rate swap periodic income

Revenue Distribution by Channel

• 97.2% from 30-year fixed rate agency MBS
• 2.8% from ≤15-year fixed rate, 20-year fixed rate, and agency CMO/ARM

Income Statement Analysis

• Net interest income improved to $115M in Q4 from -$64M in Q3
• Interest income increased 13.2% while interest expense decreased 9.6%
• Average asset yield increased to 4.80% from 4.73% in Q3

Balance Sheet Analysis

• Agency MBS portfolio decreased slightly to $65.4B from $67.9B
• Leverage ratio stable at 7.2x
• Tangible net book value per share declined to $8.41 from $8.82

Cash Flow Analysis

• Strong liquidity position with $6.1B in unencumbered cash and agency MBS
• 66% of tangible equity remains unencumbered

Capital Allocation

The company maintains a balanced approach focused on risk-adjusted returns while preserving book value. Key elements include: 1) $0.36 quarterly dividend representing a 15.6% yield, 2) Active portfolio management with hedge ratio increased to 91% from 72%, 3) Conservative leverage at 7.2x

Management Commentary

Increased hedge ratio to 91% from 72% to protect against rate volatility

Maintained stable leverage at 7.2x

Net book value declined 4.6% quarter-over-quarter

Overall Sentiment: Cautiously optimistic while maintaining defensive positioning given market uncertainty

Recommendation

Rating: Hold

Reason for Rating: While the dividend yield is attractive at 15.6%, book value remains under pressure from rate volatility

Disclaimer: This analysis is based on company filings and public information. It is for informational purposes only and not financial advice. Past performance does not guarantee future results.

Generated on: 1/30/2025, 8:40:41 AM