Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") is designed to provide a reader of AGNC Investment Corp.'s
consolidated financial statements with a narrative from the perspective of
management and should be read in conjunction with the consolidated financial
statements and accompanying notes included in this Quarterly Report on Form 10-Q
for quarterly period ended June 30, 2020. Our MD&A is presented in six sections:
•Executive Overview
•Financial Condition
•Results of Operations
•Liquidity and Capital Resources
•Off-Balance Sheet Arrangements
•Forward-Looking Statements
EXECUTIVE OVERVIEW
We are an internally managed Real Estate Investment Trust ("REIT"). We 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."
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 all 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 taxable year.
We invest primarily in Agency residential mortgage-backed securities ("Agency
RMBS") on a leveraged basis. These investments consist of residential mortgage
pass-through securities and collateralized mortgage obligations for which the
principal and interest payments are guaranteed by a U.S. Government-sponsored
enterprise, such as Federal National Mortgage Association ("Fannie Mae") and
Federal Home Loan Mortgage Corporation ("Freddie Mac," and together with Fannie
Mae, the "GSEs"), or by a U.S. Government agency, such as Government National
Mortgage Association ("Ginnie Mae"). We also invest in other types of mortgage
and mortgage-related residential and commercial mortgage-backed securities where
repayment of principal and interest is not guaranteed by a GSE or U.S.
Government agency and in other investments in, or related to, the housing,
mortgage or real estate markets.
Our principal objective is to provide our stockholders with attractive
risk-adjusted returns through a combination of monthly dividends and tangible
net book value accretion. 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. We fund our
investments primarily through borrowings structured as repurchase agreements.
The size and composition of our investment portfolio depends on the investment
strategies we implement, availability of attractively priced investments,
suitable financing to appropriately leverage our investment portfolio and
overall market conditions. Market conditions are influenced by a variety of
factors, including interest rates, prepayment expectations, liquidity, housing
prices, unemployment rates, general economic conditions, government
participation in the mortgage market, regulations and relative returns on other
assets.

Trends and Recent Market Impacts
On March 11, 2020, the World Health Organization declared COVID-19 a global
pandemic (the "Pandemic"), with President Trump declaring the health crisis a
national emergency shortly thereafter on March 13, 2020. Stay-at-home orders,
school closures and widespread business shutdowns adversely affected worldwide
economies and sparked concerns that containment measures could lead to severe
unemployment and a contraction of U.S. gross domestic product output at rates
not experienced since the Great Depression. The ensuing financial market turmoil
had a material negative impact on our business and financial results for the
first quarter, resulting in a first quarter economic loss on our tangible common
equity of -20.2%.
Market conditions improved considerably during the second quarter, as
unprecedented monetary and fiscal stimulus drove a broad rebound in most asset
categories. Market liquidity improved substantially after declining to
unprecedented levels in March. Equity markets retraced much of their March
decline, and credit spreads for most fixed income products recovered a
substantial portion of their first quarter widening.
                                       24
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Since the peak of the financial crisis in March, the Federal Reserve's ongoing
purchases of Agency RMBS have been supportive of the Agency mortgage market. The
performance of Agency RMBS, however, was somewhat mixed during the second
quarter. Lower coupon generic Agency RMBS outperformed higher coupon generic
securities, with the latter being negatively impacted by elevated prepayment
concerns. Meanwhile, specified Agency RMBS significantly outperformed generic
securities as specified pool "pay-up" values recovered a substantial portion of
their March decline, which was the primary driver of the increase in our
tangible net book value for the second quarter. For the second quarter, our
tangible net book value increased 9.5% to $14.92 per common share as of June 30,
2020, from $13.62 per common share as of March 31, 2020. Including dividends per
common share, our economic return on tangible common equity was 12.2% for the
second quarter.
After a steep drop in rates during the first quarter, interest rate volatility
was muted during the second quarter. The 10-year U.S. Treasury rate ended the
second quarter nearly unchanged from March 31, 2020, while the short end of the
yield curve shifted lower as the U.S. Federal Reserve communicated its intention
to hold the federal funds rate near zero for several years.
Contrary to earlier expectations and despite widespread Pandemic related
lockdowns and social distancing measures, refinancing activity and housing
turnover were robust during the second quarter and led to a significant increase
in prepayment rates for the quarter. Our weighted average portfolio CPR
increased to 19.9% for the second quarter, compared to 12.2% for the first
quarter, while our weighted average projected CPR for the remaining life of our
securities increased to 16.6% as of June 30, 2020, from 14.5% as of March 31,
2020 and 10.8% as of December 31, 2019, as mortgage rates declined to
historically low levels during the quarter.
During the second quarter, we reduced our holdings of higher quality specified
pools after their relative outperformance earlier in the quarter and we reduced
our holdings of higher coupon, generic RMBS in favor of lower coupon, new
production Agency RMBS. We also shifted a larger portion of our holdings from
30-year to 15-year fixed rate Agency RMBS. As of June 30, 2020, the weighted
average coupon on our fixed rate securities, inclusive of TBA securities, was
3.40%, compared to 3.62% as of March 31, 2020 and 3.60% as of December 31, 2019.
Additionally, the combination of heavy origination volume and large-scale Fed
purchases during the second quarter favored the TBA dollar roll market. With
implied financing rates in the dollar roll market well below comparable repo
levels for most coupons, we increased our average TBA position to $15.7 billion
for the second quarter, from $7.5 billion for the first quarter. As of June 30,
2020, our net TBA position totaled $20.5 billion.
The repo markets continued to perform very well during the second quarter. The
Fed's open market repo operations, strong demand for Agency RMBS collateral and
the Fed's apparent willingness to keep the fed funds rate near the zero bound
range, have led to a meaningful repricing of repo across all tenors. As a
result, our weighted average repo rate for the second quarter declined to 0.766%
from 1.80% for the first quarter, and our weighted average repo rate as of June
30, 2020 declined to 0.41%, as an increasing portion of our repo have reset to
lower prevailing rates.
With our near-term hedging requirements somewhat lower given the shorter
duration of our assets and muted interest rate volatility, our interest rate
hedge position decreased to 66% of our funding liabilities, inclusive of our net
TBA position (at cost), as of June 30, 2020, compared to 70% as of March 31,
2020 and 102% as of December 31, 2019. With swap rates declining to historically
low levels, we have also continued to adjust the composition of our interest
rate swap portfolio, terminating shorter-term swaps and replacing them with
longer-dated swaps. The average pay rate on our interest rate swaps decreased to
0.39% as of June 30, 2020, from 0.94% as of March 31, 2020 and 1.29% as of
December 31, 2019, while the average maturity of our interest rate swap
portfolio increased to 5.1 years as of June 30, 2020, from 4.5 years as of March
31, 2020 and 2.7 years as of December 31, 2019. Our duration gap, which is a
measure of the difference between the interest rate sensitivity of our assets
and liabilities, inclusive of interest rate hedges, was -0.1 year as of June 30,
2020, compared to 0.0 and 0.4 years, as of March 31, 2020 and December 31, 2019,
respectively.
Our aggregate cost of funds for the second quarter, inclusive of TBA implied
financing rates and interest rate swaps, decreased to 0.88%, from 1.67% for the
first quarter, more than offsetting lower asset yields. Our net interest spread,
inclusive of TBAs and swaps and excluding catch-up premium amortization,
increased to 1.68% for the second quarter, from 1.30% for the first quarter. The
improvement in our net interest margin offset the decline in our average
portfolio balance and tangible leverage for the second quarter, driving the
slight increase in our net spread and dollar roll income to $0.58 per common
share for the second quarter, excluding catch-up amortization, compared to $0.57
per common share for the first quarter.
Our average leverage for the second quarter declined to 8.8x tangible equity,
compared to 9.9x for the first quarter. As of June 30, 2020, our leverage was
9.2x tangible equity, compared to 9.4x as of March 31, 2020 and December 31,
2019. Following the actions we took during the first quarter to prioritize
liquidity and risk management, our liquidity position remained strong during the
second quarter with cash and unencumbered Agency RMBS totaling $4.5 billion as
of June 30, 2020, which excludes unencumbered CRT and non-Agency securities as
well as assets held at our broker-dealer subsidiary Bethesda Securities, LLC.
                                       25
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As we look ahead, we believe liquidity concerns during the first quarter have
given way to fundamental performance metrics. Although prepayments are likely to
somewhat negatively impact earnings, the broad availability of funding at rates
near zero and muted interest rate volatility are positives for our business, and
we expect the earnings environment for Agency RMBS to remain favorable for the
foreseeable future despite the ongoing economic uncertainties associated with
the COVID-19 pandemic. Nonetheless, longer-term risks remain, and you should
carefully review our Risk Factors and additional information regarding our
interest rate and spread sensitivity in our Quantitative and Qualitative
Disclosures about Market Risk located in this Form 10-Q.
Market Information
The following table summarizes interest rates and prices of generic fixed rate
Agency RMBS as of each date presented below:
                                                                                                                                                                    June 30, 2020                      June 30, 2020
                                                                                                                                                                         vs                                  vs
  Interest Rate/Security Price 1            June 30, 2019          Sept. 30, 2019           Dec. 31, 2019           Mar. 31, 2020           June 30, 2020           Mar. 31, 2020                      Dec. 31, 2019
Target Federal Funds Rate:
Target Federal Funds Rate - Upper
Band                                            2.50%                   2.00%                   1.75%                   0.25%                   0.25%                   -    bps            -150    bps
LIBOR:
1-Month                                         2.40%                   2.02%                   1.76%                   0.99%                   0.16%                 -83    bps            -160    bps
3-Month                                         2.32%                   2.09%                   1.91%                   1.45%                   0.30%                -115    bps            -161    bps
U.S. Treasury Security Rate:
2-Year U.S. Treasury                            1.75%                   1.62%                   1.57%                   0.25%                   0.15%                 -10    bps            -142    bps
5-Year U.S. Treasury                            1.77%                   1.54%                   1.69%                   0.38%                   0.29%                  -9    bps            -140    bps
10-Year U.S. Treasury                           2.01%                   1.66%                   1.92%                   0.67%                   0.66%                  -1    bps            -126    bps
30-Year U.S. Treasury                           2.53%                   2.11%                   2.39%                   1.32%                   1.41%                  +9    bps             -98    bps
Interest Rate Swap Rate:
2-Year Swap                                     1.81%                   1.63%                   1.70%                   0.49%                   0.23%                 -26    bps            -147    bps
5-Year Swap                                     1.77%                   1.50%                   1.73%                   0.52%                   0.33%                 -19    bps            -140    bps
10-Year Swap                                    1.96%                   1.56%                   1.90%                   0.72%                   0.64%                  -8    bps            -126    bps
30-Year Swap                                    2.21%                   1.71%                   2.09%                   0.88%                   0.92%                  +4    bps            -117    bps
30-Year Fixed Rate Agency Price:
2.5%                                           $99.36                  $99.55                  $98.89                  $103.59                 $104.26                 +$0.67                              +$5.37
3.0%                                           $100.84                 $101.51                 $101.42                 $104.83                 $105.33                 +$0.50                              +$3.91
3.5%                                           $102.24                 $102.58                 $102.86                 $105.70                 $105.18                 -$0.52                              +$2.32
4.0%                                           $103.36                 $103.77                 $104.01                 $106.67                 $105.98                 -$0.69                              +$1.97
4.5%                                           $104.49                 $105.29                 $105.29                 $107.47                 $107.46                 -$0.01                              +$2.17
15-Year Fixed Rate Agency Price:
2.5%                                           $100.67                 $100.85                 $100.91                 $103.72                 $104.70                 +$0.98                              +$3.79
3.0%                                           $101.95                 $102.21                 $102.50                 $104.61                 $105.09                 +$0.48                              +$2.59
3.5%                                           $103.20                 $103.42                 $103.69                 $105.19                 $105.06                 -$0.13                              +$1.37
4.0%                                           $103.84                 $104.08                 $104.28                 $105.56                 $105.75                 +$0.19                              +$1.47

________________________________


1.Price information is for generic instruments only and is not reflective of our
specific portfolio holdings. Price information is as of 3:00 p.m. (EST) on such
date and can vary by source. Prices and interest rates in the table above were
obtained from Barclays. LIBOR rates were obtained from Bloomberg.


                                       26
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FINANCIAL CONDITION
As of June 30, 2020 and December 31, 2019, our investment portfolio consisted of
$77.1 billion and $100.4 billion of investment securities, at fair value,
respectively, and $20.5 billion and $7.4 billion of TBA securities, at fair
value, respectively. The following table is a summary of our investment
portfolio as of June 30, 2020 and December 31, 2019 (dollars in millions):
                                                                    June 30, 2020                                                                                                       December 31, 2019
Investment Portfolio (Includes                                                      Average                                                                      Average
TBAs)                                    Amortized Cost         Fair Value           Coupon             %            Amortized Cost          Fair Value           Coupon               %
Fixed rate Agency RMBS and TBA
securities:
 ? 15-year:
 ? 15-year RMBS                         $       4,210          $   4,391               3.38  %           4  %       $        6,140          $   6,239               3.29  %               6  %
15-year TBA securities, net 1                   7,601              7,636               2.11  %           8  %                2,222              2,226               2.91  %               2  %
Total ? 15-year                                11,811             12,027               2.56  %          12  %                8,362              8,465               3.19  %               8  %
20-year RMBS                                    2,743              2,786               2.88  %           3  %                  752                773               3.87  %               1  %
30-year:
30-year RMBS                                   64,932             67,988               3.73  %          70  %               89,483             91,062               3.67  %              84  %
30-year TBA securities, net 1                  12,812             12,907               2.59  %          13  %                5,182              5,203               2.92  %               5  %
Total 30-year                                  77,744             80,895               3.54  %          83  %               94,665             96,265               3.63  %              89  %
Total fixed rate Agency RMBS and
TBA securities                                 92,298             95,708               3.40  %          98  %              103,779            105,503               3.60  %              98  %
Adjustable rate Agency RMBS                       109                112               2.66  %           -  %                  160                163               3.04  %               -  %
Multifamily                                        17                 19               3.31  %           -  %                   37                 39               3.37  %               -  %
CMO Agency RMBS:
CMO                                               365                381               3.39  %           -  %                  441                447               3.44  %               1  %
Interest-only strips                               56                 73               5.55  %           -  %                   63                 77               4.22  %               -  %
Principal-only strips                              72                 82                  -  %           -  %                   83                 87                  -  %               -  %
Total CMO Agency RMBS                             493                536               4.10  %           1  %                  587                611               3.48  %               1  %
Total Agency RMBS and TBA
securities                                     92,917             96,375               3.40  %          99  %              104,563            106,316               3.59  %              99  %
Non-Agency RMBS                                   221                222               4.15  %           -  %                  198                209               4.05  %               1  %
CMBS                                              361                377               4.20  %           1  %                  352                370               4.49  %               -  %
CRT                                               742                712               3.46  %           1  %                  961                976               5.07  %               1  %
Total investment portfolio              $      94,241          $  97,686               3.41  %         100  %       $      106,074          $ 107,871               3.61  %             100  %


________________________________


1.TBA securities are presented net of long and short positions. As of June 30,
2020, 30-year TBA securities consisted of $12.9 billion long and $(26.0) million
short TBA securities (at fair value) at an average coupon of 2.59% and 2.50%,
respectively, and 15-year TBA securities consisted of entirely long TBA
securities at an average coupon of 2.11%. As of December 31, 2019, 30-year TBA
securities consisted of $6.8 billion long and $(1.6) billion short TBA
securities at an average coupon of 3.17% and 4.00%, respectively, and 15-year
TBA securities consisted entirely of long TBA securities at an average coupon of
2.91%. For further details of our TBA securities held as of each date refer to
Note 6 of the accompanying consolidated financial statements.
TBA securities are recorded as derivative instruments in our accompanying
consolidated financial statements and our TBA dollar roll transactions represent
a form of off-balance sheet financing. As of June 30, 2020 and December 31,
2019, our TBA positions had a net carrying value of $130 million and $25
million, respectively, reported in derivative assets /(liabilities) on our
accompanying consolidated balance sheets. The net carrying value represents the
difference between the fair value of the underlying Agency security in the TBA
contract and the contract price to be paid or received for the underlying Agency
security.
As of June 30, 2020 and December 31, 2019, the weighted average yield on our
investment securities (excluding TBA securities) was 2.64% and 3.07%,
respectively.
                                       27
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The following tables summarize certain characteristics of our fixed rate Agency
RMBS portfolio, inclusive of TBAs, as of June 30, 2020 and December 31, 2019
(dollars in millions):
                                                                                                                    June 30, 2020
                                                             Includes Net TBA Position                                                                                                                      Excludes Net TBA Position
Fixed Rate Agency RMBS and                             Amortized                                                         Amortized                             Weighted Average                                                      Projected
TBA Securities                       Par Value           Cost            Fair Value         Specified Pool % 1           Cost Basis                                                                                                    CPR 3               WAC 2        Yield 3       Age (Months)
Fixed rate
 ? 15-year:
2.0%                                $  5,885          $  6,048          $   6,081                   -%                       -%                      -%                    -%               -              -%
2.5%                                   1,751             1,824              1,832                   3%                     103.3%                   3.11%                1.48%             17              17%
3.0%                                   1,421             1,447              1,506                  88%                     101.6%                   3.55%                2.50%             38              12%
3.5%                                   1,465             1,497              1,567                  100%                    102.2%                   4.03%                2.81%             34              14%
4.0%                                     864               890                933                  91%                     103.0%                   4.60%                3.00%             32              16%
? 4.5%                                   102               105                108                  97%                     103.1%                   4.89%                2.98%             118             16%
Total ? 15-year                       11,488            11,811             12,027                  33%                     102.3%                   3.94%                2.64%             36              14%
20-year:
2.5%                                   1,776             1,847              1,855                   -%                     103.9%                   3.37%                1.15%              3              24%
3.0%                                     257               270                272                  21%                     104.9%                   3.81%                0.98%              7              28%
3.5%                                     259               263                277                  81%                     101.8%                   4.05%                2.94%             82              15%
4.0%                                     175               180                189                  92%                     103.1%                   4.45%                3.08%             40              17%
? 4.5%                                   175               183                193                  100%                    104.5%                   5.01%                3.16%             44              17%
Total 20-year:                         2,642             2,743              2,786                  23%                     103.8%                   3.66%                1.56%             16              23%
30-year:
? 2.5%                                15,102            15,583             15,716                   -%                     103.4%                   3.41%                1.65%              2              18%
3.0%                                   7,909             8,209              8,369                  10%                     103.7%                   3.80%                1.95%             19              19%
3.5%                                  17,594            18,334             19,167                  84%                     104.2%                   4.07%                2.54%             56              14%
4.0%                                  23,367            24,429             25,723                  89%                     104.5%                   4.51%                2.90%             44              16%
? 4.5%                                10,646            11,189             11,920                  98%                     105.1%                   5.00%                3.19%             32              18%
Total 30-year                         74,618            77,744             80,895                  64%                     104.3%                   4.32%                2.66%             39              17%
Total fixed rate                    $ 88,748          $ 92,298          $  95,708                  59%                     104.2%                   4.27%                2.61%             38              17%

________________________________


1.Specified pools include pools backed by lower balance loans with original loan
balances of up to $200K, HARP pools (defined as pools that were issued between
May 2009 and December 2018 and backed by 100% refinance loans with original LTVs
? 80%), and pools backed by loans 100% originated in New York and Puerto Rico.
As of June 30, 2020, lower balance specified pools had a weighted average
original loan balance of $118,000 and $118,000 for 15-year and 30-year
securities, respectively, and HARP pools had a weighted average original LTV of
126% and 136% for 15-year and 30-year securities, respectively.
2.WAC represents the weighted average coupon of the underlying collateral.
3.Portfolio yield incorporates a projected life CPR based on forward rate
assumptions as of June 30, 2020.


                                       28
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                                                                                                                    December 31, 2019
                                                               Includes Net TBA Position                                                                                                                       Excludes Net TBA Position
Fixed Rate Agency RMBS and TBA                           Amortized                                                          Amortized                             Weighted Average                                                       Projected
Securities                            Par Value             Cost            Fair Value         Specified Pool % 1           Cost Basis                                                                                                     CPR 3               WAC 2        Yield 3       Age (Months)
Fixed rate
 ? 15-year:
 ? 2.5%                              $   1,720          $   1,735          $   1,738                  40%                     101.0%                   2.98%                2.11%             86              11%
3.0%                                     2,985              3,041              3,067                  59%                     101.7%                   3.52%                2.45%             58              10%
3.5%                                     2,299              2,354              2,401                  71%                     102.2%                   4.04%                2.86%             25              13%
4.0%                                     1,075              1,109              1,135                  84%                     103.1%                   4.60%                3.05%             26              14%
4.5%                                       117                122                123                  98%                     103.5%                   4.87%                3.00%             111             13%
? 5.0%                                       1                  1                  1                  100%                    101.9%                   6.55%                4.55%             146             15%
Total ? 15-year                          8,197              8,362              8,465                  63%                     102.0%                   3.82%                2.65%             47              12%
20-year:
3.5%                                       284                289                297                  81%                     102.0%                   4.05%                2.97%             77              12%
4.0%                                       196                202                209                  92%                     103.3%                   4.45%                3.18%             34              13%
4.5%                                       194                204                210                  100%                    104.8%                   5.00%                3.23%             37              15%
? 5.0%                                       1                  1                  1                   -%                     105.1%                   5.95%                3.33%             141             18%
Total 20-year:                             675                696                717                  90%                     103.2%                   4.40%                3.05%             49              13%
30-year:
 ? 3.0%                                 27,864             28,218             28,252                   3%                     101.4%                   3.85%                2.73%              8               9%
3.5%                                    23,760             24,525             24,902                  60%                     103.3%                   4.05%                2.97%             49              10%
4.0%                                    26,934             28,062             28,795                  84%                     104.2%                   4.51%                3.25%             37              11%
4.5%                                    12,730             13,381             13,831                  93%                     105.1%                   4.98%                3.45%             23              13%
5.0%                                       380                410                416                  94%                     108.0%                   5.50%                3.28%             39              14%
? 5.5%                                      63                 69                 69                  49%                     109.6%                   6.18%                3.33%             158             13%
Total 30-year                           91,731             94,665             96,265                  55%                     103.3%                   4.29%                3.07%             31              11%
Total fixed rate                     $ 100,603          $ 103,723          $ 105,447                  56%                     103.3%                   4.26%                3.04%             32              11%

________________________________


1.See Note 1 of preceding table for specified pool composition. As of December
31, 2019, lower balance specified pools had a weighted average original loan
balance of $115,000 and $118,000 for 15-year and 30-year securities,
respectively, and HARP pools had a weighted average original LTV of 119% and
136% for 15-year and 30-year securities, respectively.
2.WAC represents the weighted average coupon of the underlying collateral.
3.Portfolio yield incorporates a projected life CPR based on forward rate
assumptions as of December 31, 2019.
As of June 30, 2020 and December 31, 2019, our investments in CRT and non-Agency
securities had the following credit ratings:
                                                        June 30, 2020                                                         December 31, 2019
CRT and Non-Agency Security Credit
Ratings 1                                   CRT 2           RMBS            CMBS            CRT 2           RMBS               CMBS
AAA                                       $    -          $    -          $   34          $    -          $    -          $      43
AA                                             -              69             223               -              81                214
A                                              -              32              31              13              25                 34
BBB                                           99              80              59              67              71                 69
BB                                           244              26              30             471              21                 10
B                                            251               5               -             308               4                  -
Not Rated                                    118              10               -             117               7                  -
Total                                     $  712          $  222          $  377          $  976          $  209          $     370

________________________________


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.CRT securities reference the performance of loans underlying Agency RMBS
issued by Fannie Mae or Freddie Mac, each of which were subject to Fannie Mae
and Freddie Mac's underwriting standards.
                                       29
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RESULTS OF OPERATIONS
Non-GAAP Financial Measures
In addition to the results presented in accordance with GAAP, our results of
operations discussed below include certain non-GAAP financial information,
including "economic interest income," "economic interest expense," "net spread
and dollar roll income," "net spread and dollar roll income, excluding
'catch-up' premium amortization," "estimated taxable income" and the related per
common share measures and certain financial metrics derived from such non-GAAP
information, such as "cost of funds" and "net interest spread."
"Economic interest income" is measured as interest income (GAAP measure),
adjusted (i) to exclude "catch-up" premium amortization associated with changes
in CPR estimates and (ii) to include TBA dollar roll implied interest income.
"Economic interest expense" is measured as interest expense (GAAP measure)
adjusted to include TBA dollar roll implied interest expense and interest rate
swap periodic income/(cost). "Net spread and dollar roll income, excluding
"catch-up" premium amortization" includes (i) the components of economic
interest income and economic interest expense and other interest and dividend
income (referred to as "adjusted net interest and dollar roll income"), less
(ii) total operating expenses (GAAP measure).
By providing such measures, in addition to the related GAAP measures, we believe
we give greater transparency into the information used by our management in its
financial and operational decision-making. We also believe it is important for
users of our financial information to consider information related to our
current financial performance without the effects of certain measures and
one-time events that are not necessarily indicative of our current investment
portfolio performance and operations.
Specifically, in the case of "adjusted net interest and dollar roll income," we
believe the inclusion of TBA dollar roll income is meaningful as TBAs, which are
accounted for under GAAP as derivative instruments with gains and losses
recognized in other gain (loss) in our consolidated statement of comprehensive
income, are economically equivalent to holding and financing generic Agency RMBS
using short-term repurchase agreements. Similarly, we believe that the inclusion
of periodic interest rate swap settlements in "economic interest expense" is
meaningful as interest rate swaps are the primary instrument we use to
economically hedge against fluctuations in our borrowing costs and it is more
indicative of our total cost of funds than interest expense alone. In the case
of "economic interest income" and "net spread and dollar roll income, excluding
'catch-up' premium amortization," we believe the exclusion of "catch-up"
adjustments to premium amortization cost or benefit is meaningful as it excludes
the cumulative effect from prior reporting periods due to current changes in
future prepayment expectations and, therefore, exclusion of such cost or benefit
is more indicative of the current earnings potential of our investment
portfolio. In the case of estimated taxable income, we believe it is meaningful
information because it directly relates to the amount of dividends we are
required to distribute to maintain our REIT qualification status.
However, because such measures are incomplete measures of our financial
performance and involve differences from results computed in accordance with
GAAP, they should be considered as supplementary to, and not as a substitute
for, results computed in accordance with GAAP. In addition, because not all
companies use identical calculations, our presentation of such non-GAAP measures
may not be comparable to other similarly-titled measures of other companies.
Furthermore, estimated taxable income can include certain information that is
subject to potential adjustments up to the time of filing our income tax
returns, which occurs after the end of our fiscal year.
Selected Financial Data

The following selected financial data is derived from our interim consolidated
financial statements and the notes thereto. The tables below present our
condensed consolidated balance sheets as of June 30, 2020 and December 31, 2019
and our condensed consolidated statements of comprehensive income and key
statistics for the three and six months ended June 30, 2020 and 2019 (in
millions, except per share amounts):
                                       30
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($ in Millions, Except Per Share Amounts)

June 30,
    Balance Sheet Data                                   2020          

December 31, 2019


                                                       (Unaudited)
    Investment securities, at fair value            $    77,143       $        100,442
    Total assets                                    $    89,853       $        113,082
    Repurchase agreements and other debt            $    69,889       $         89,410
    Total liabilities                               $    79,503       $        102,041
    Total stockholders' equity                      $    10,350       $         11,041
    Net book value per common share 1               $     15.86       $          18.63
    Tangible net book value per common share 2      $     14.92       $          17.66


                                                                Three Months Ended                                Six Months Ended
                                                                     June 30,                                         June 30,
Statement of Comprehensive Income Data (Unaudited)             2020              2019             2020               2019
Interest income                                            $    429           $   693          $    920          $  1,398
Interest expense                                                134               570               560             1,111
Net interest income                                             295               123               360               287
Other gain (loss), net                                          447              (547)           (2,016)             (427)
Operating expenses                                               24                20                47                39
Net income (loss)                                               718              (444)           (1,703)             (179)
Dividends on preferred stock                                     25                13                46                23
Net income (loss) available (attributable) to common
stockholders                                               $    693           $  (457)         $ (1,749)         $   (202)

Net income (loss)                                          $    718           $  (444)         $ (1,703)         $   (179)
Other comprehensive income, net                                 203               379               667               779
Comprehensive income (loss)                                     921               (65)           (1,036)              600
Dividends on preferred stock                                     25                13                46                23

Comprehensive income (loss) available (attributable) to common stockholders

$    896

$ (78) $ (1,082) $ 577

Weighted average number of common shares outstanding - basic

                                                       560.3             537.8             554.2             537.2

Weighted average number of common shares outstanding - diluted

                                                     560.8             537.8             554.2             537.2
Net income (loss) per common share - basic                 $   1.24           $ (0.85)         $  (3.16)         $  (0.38)
Net income (loss) per common share - diluted               $   1.24           $ (0.85)         $  (3.16)         $  (0.38)
Comprehensive income (loss) per common share - basic       $   1.60           $ (0.15)         $  (1.95)         $   1.07
Comprehensive income (loss) per common share -
diluted                                                    $   1.60           $ (0.15)         $  (1.95)         $   1.07
Dividends declared per common share                        $   0.36

$ 0.50 $ 0.84 $ 1.04


                                       31
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                                                                Three Months Ended                                    Six Months Ended
                                                                     June 30,                                             June 30,
Other Data (Unaudited) *                                     2020               2019               2020                  2019
Average investment securities - at par                    $ 68,994

$ 89,586 $ 81,964 $ 88,304 Average investment securities - at cost

$ 71,787

$ 92,610 $ 84,840 $ 91,264 Average net TBA portfolio - at cost

$ 15,662

$ 11,864 $ 11,575 $ 9,944 Average total assets - at fair value

$ 86,851

$ 113,625 $ 100,392 $ 114,281 Average repurchase agreements and other debt outstanding 3

$ 69,552

$ 86,147 $ 81,545 $ 84,120 Average stockholders' equity 4

$ 10,262

$ 10,371 $ 10,598 $ 10,247 Average tangible net book value "at risk" leverage 5

                                                               8.8:1             10.0:1              9.2:1                    9.7:1
Tangible net book value "at risk" leverage (as of
period end) 6                                                   9.2:1              9.8:1              9.2:1                    9.8:1
Economic return on tangible common equity 7                   12.2  %            (0.9) %           (10.8) %                   6.4  %
Expenses % of average total assets                            0.11  %            0.07  %            0.09  %                  0.07  %

Expenses % of average assets, including average net TBA position

                                                  0.09  %            0.06  %            0.08  %                  0.06  %
Expenses % of average stockholders' equity                    0.94  %            0.77  %            0.89  %                  0.76  %


________________________________


* Except as noted below, average numbers for each period are weighted based on
days on our books and records.
1.Net book value per common share is calculated as total stockholders' equity,
less preferred stock liquidation preference, divided by number of common shares
outstanding as of period end.
2.Tangible net book value per common share excludes goodwill.
3.Amount excludes U.S. Treasury repurchase agreements and TBA contracts. Other
debt includes debt of consolidated VIEs.
4.Average stockholders' equity calculated as average month-ended stockholders'
equity during the period.
5.Average tangible net book value "at risk" leverage is calculated by dividing
the sum of daily weighted average mortgage borrowings outstanding (Agency and
non-Agency MBS repurchase agreements, other debt and TBA securities (at cost))
for the period by the sum of average stockholders' equity adjusted to exclude
goodwill for the period. Leverage excludes U.S. Treasury repurchase agreements.
6."At risk" leverage as of period end is calculated by dividing the sum of
mortgage borrowings outstanding and receivable/payable for unsettled investment
securities as of period end (at cost) by the sum of total stockholders' equity
adjusted to exclude goodwill as of period end. Leverage excludes U.S. Treasury
repurchase agreements.
7.Economic return on tangible common equity represents the sum of the change in
tangible net book value per common share and dividends declared per share of
common stock during the period over beginning tangible net book value per common
share.

Economic Interest Income and Asset Yields
The following table summarizes our economic interest income (a non-GAAP measure)
for the three and six months ended June 30, 2020 and 2019, which includes the
combination of interest income (a GAAP measure) on our holdings reported as
investment securities on our consolidated balance sheets, adjusted to exclude
estimated "catch-up" premium amortization adjustments for the cumulative effect
from prior reporting periods of changes in our CPR forecast, and implied
interest income on our TBA securities (dollars in millions):
                                                             Three Months Ended June 30,                                                                                  Six Months Ended June 30,
                                                        2020                                                2019                                                 2020                          2019
                                              Amount              Yield           Amount           Yield            Amount            Yield            Amount            Yield
Interest income:
Cash/coupon interest income               $      652               3.77  %       $ 876              3.88  %       $ 1,527              3.72  %       $ 1,723              3.88  %
Net premium amortization                        (223)             (1.38) %        (183)            (0.89) %          (607)            (1.55) %          (325)            (0.82) %
Interest income (GAAP measure)                   429               2.39  %         693              2.99  %           920              2.17  %         1,398              3.06  %
Estimated "catch-up" premium
amortization cost (benefit) due to
change in CPR forecast                            57               0.32  %          58              0.25  %           300              0.71  %            97              0.22  %
Interest income, excluding
"catch-up" premium amortization                  486               2.71  %         751              3.24  %         1,220              2.88  %         1,495              3.28  %
TBA dollar roll income - implied
interest income 1,2                               74               1.90  %          96              3.21  %           122              2.11  %           167              3.35  %
Economic interest income, excluding
"catch-up" amortization (non-GAAP
measure) 3                                $      560               2.56  %       $ 847              3.24  %       $ 1,342              2.78  %       $ 1,662              3.28  %

Weighted average actual portfolio
CPR for investment securities held
during the period                               19.9   %                          10.0  %                            15.4  %                             8.2  %
Weighted average projected CPR for
the remaining life of investment
securities held as of period end                16.6   %                          12.4  %                            16.6  %                            12.4  %
Average 30-year fixed rate mortgage
rate as of period end 4                         3.13   %                          3.73  %                            3.13  %                            3.73  %
10-year U.S. Treasury rate as of
period end                                      0.66   %                          2.01  %                            0.66  %                            2.01  %


                                       32

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________________________________


1.Reported in gain (loss) on derivatives instruments and other securities, net
in the accompanying consolidated statements of operations.
2.Implied interest income from TBA dollar roll transactions is computed as the
sum of (i) TBA dollar roll income and (ii) estimated TBA implied funding cost
(see Economic Interest Expense and Aggregate Cost of Funds below). TBA dollar
roll income represents the price differential, or "price drop," between the TBA
price for current month settlement versus the TBA price for forward month
settlement and is the economic equivalent to interest income on the underlying
Agency securities, less an implied funding cost, over the forward settlement
period. Amount is net of TBAs used for hedging purposes. Amount excludes TBA
mark-to-market adjustments.
3.The combined asset yield is calculated on a weighted average basis based on
our average investment and TBA balances outstanding during the period and their
respective yields.
4.Source: Freddie Mac Primary Fixed Mortgage Rate Mortgage Market Survey
The principal elements impacting our economic interest income are the size of
our average investment portfolio and the yield (actual and implied) on our
securities. The following table includes a summary of the estimated impact of
each of these elements on our economic interest income for the three and six
months ended June 30, 2020 compared to the prior year period (in millions):
                   Impact of Changes in the Principal Elements Impacting 

Economic Interest Income


                                   Periods ended June 30, 2020 vs. June 30, 2019
                                                                                       Due to Change in Average
                                                           Total Increase /           Portfolio             Asset
                                                              (Decrease)                Size                Yield
Three months ended:
Interest Income (GAAP measure)                            $          (264)         $      (156)          $   (108)
Estimated "catch-up" premium amortization due to
change in CPR forecast                                                 (1)                   -                 (1)
Interest income, excluding "catch-up" premium
amortization                                                         (265)                (156)              (109)
TBA dollar roll income - implied interest income                      (22)                  31                (53)
Economic interest income, excluding "catch-up"
amortization (non-GAAP measure)                           $          (287)         $      (125)          $   (162)
Six months ended:
Interest Income (GAAP measure)                            $          (478)         $       (98)          $   (380)
Estimated "catch-up" premium amortization due to
change in CPR forecast                                                203                    -                203
Interest income, excluding "catch-up" premium
amortization                                                         (275)                 (98)              (177)
TBA dollar roll income - implied interest income                      (46)                  27                (73)
Economic interest income, excluding "catch-up"
amortization (non-GAAP measure)                           $          (321)  

$ (71) $ (250)




Our average investment portfolio, inclusive of TBAs, decreased -16% and -5% (at
cost) for the three and six months ended June 30, 2020, respectively, compared
to the prior year periods primarily due to lower operating leverage. The
decrease in our average asset yield for the three and six months ended June 30,
2020 was due to the combination of changes in asset composition and higher
premium amortization cost resulting from faster prepayment expectations.
Leverage
Our primary measure of leverage is our tangible net book value "at risk"
leverage ratio, which is measured as the sum of our repurchase agreements and
other debt used to fund our investment securities and net TBA position (at cost)
(together referred to as "mortgage borrowings") and our net receivable/payable
for unsettled investment securities, divided by our total stockholders' equity
adjusted to exclude goodwill and other intangible assets.
We include our net TBA position in our measure of leverage because a forward
contract to acquire Agency RMBS in the TBA market carries similar risks to
Agency RMBS purchased in the cash market and funded with on-balance sheet
liabilities. Similarly, a TBA contract for the forward sale of Agency securities
has substantially the same effect as selling the underlying Agency RMBS and
reducing our on-balance sheet funding commitments. (Refer to Liquidity and
Capital Resources for further discussion of TBA securities and dollar roll
transactions). Repurchase agreements used to fund short-term investments in U.S.
Treasury securities ("U.S. Treasury repo") are excluded from our measure of
leverage due to the temporary and highly liquid nature of these investments. The
following table presents a summary of our leverage ratios for the periods listed
(dollars in millions):
                                       33
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                                                                                                                                                                                                         Average       Tangible
                                                                                                                                                                                                        Tangible       Net Book
                                                        Repurchase Agreements                                                                                                                           Net Book       Value "At
                                                           and Other Debt 1                                                                           Net TBA Position Long/(Short) 2                     Value          Risk"
                                                                                                                                                                                               "At Risk"      Leverage
                                                                                                                                                                                               Leverage         as of
                                        Average Daily             Maximum             Ending           Average Daily           Ending                                                         during the     Period End
Quarter Ended                               Amount             Daily Amount           Amount               Amount              Amount                                                          Period 3           4
June 30, 2020                          $      69,552          $     72,399          $ 69,370          $      15,662          $ 20,413               8.8:1                          9.2:1
March 31, 2020                         $      93,538          $    104,773          $ 63,241          $       7,487          $ 20,648               9.9:1                          9.4:1
December 31, 2019                      $      88,677          $     92,672          $ 89,313          $       7,038          $  7,404               9.5:1                          9.4:1
September 30, 2019                     $      87,938          $     92,420          $ 90,462          $      10,146          $  1,820               10.0:1                         9.8:1
June 30, 2019                          $      86,147          $     86,969          $ 85,367          $      11,864          $ 11,086               10.0:1                         9.8:1
March 31, 2019                         $      82,070          $     87,877          $ 86,590          $       8,002          $  6,885               9.3:1                          9.4:1

________________________________


1.Other debt includes debt of consolidated VIEs. Amounts exclude U.S. Treasury
repo agreements.
2.Daily average and ending net TBA position outstanding measured at cost.
3.Average tangible net book value "at risk" leverage during the period
represents the sum of our daily weighted average repurchase agreements and other
debt used to fund acquisitions of investment securities and net TBA position
outstanding divided by the sum of our average month-ended stockholders' equity,
adjusted to exclude goodwill.
4.Tangible net book value "at risk" leverage as of period end represents the sum
of our repurchase agreements and other debt used to fund acquisitions of
investments securities, net TBA position (at cost) and net receivable/payable
for unsettled investment securities outstanding as of period end divided by
total stockholders' equity, adjusted to exclude goodwill as of period end.
Economic Interest Expense and Aggregate Cost of Funds
The following table summarizes our economic interest expense and aggregate cost
of funds (non-GAAP measures) for the three and six months ended June 30, 2020
and 2019 (dollars in millions), which includes the combination of interest
expense on Agency repurchase agreements and other debt (GAAP measure), implied
financing cost (benefit) of our TBA securities and interest rate swap periodic
interest (income) cost:
                                                               Three Months Ended June 30,                                                                               Six Months Ended June 30,
                                                          2020                                               2019                                               2020                          2019
Economic Interest Expense and                                      Cost of                          Cost of                         Cost of                            Cost of
Aggregate Cost of Funds 1                       Amount              Funds           Amount           Funds           Amount          Funds            Amount            Funds
Repurchase agreement and other debt -
interest expense (GAAP measure)             $      134               0.76  %       $ 570              2.62  %       $ 560             1.36  %       $ 1,111              2.63  %
TBA dollar roll income - implied
interest (expense) benefit 2,3                      (4)             (0.09) %          74              2.47  %          28             0.48  %           126              2.51  %
Economic interest expense - before
interest rate swap periodic (income)
costs, net 4                                       130               0.61  %         644              2.60  %         588             1.25  %         1,237              2.61  %
Interest rate swap periodic interest
(income) cost, net 2,5                              59               0.27  %         (88)            (0.36) %          28             0.06  %          (171)            (0.36) %
Total economic interest expense
(non-GAAP measure)                          $      189               0.88  %       $ 556              2.24  %       $ 616             1.31  %       $ 1,066              2.25  %


________________________________


1.Amounts exclude interest rate swap termination fees and variation margin
settlements paid or received, forward starting swaps and the impact of other
supplemental hedges, such as swaptions and U.S. Treasury positions.
2.Reported in gain (loss) on derivative instruments and other securities, net in
our consolidated statements of comprehensive income.
3.The implied funding cost (benefit) of TBA dollar roll transactions is
determined using the price differential, or "price drop," between the TBA price
for current month settlement versus the TBA price for forward month settlement
and market based assumptions regarding the "cheapest-to-deliver" collateral that
can be delivered to satisfy the TBA contract, such as the anticipated
collateral's weighted average coupon, weighted average maturity and projected
1-month CPR.  The average implied funding cost (benefit) for all TBA
transactions is weighted based on our daily average TBA balance outstanding for
the period.
4.The combined cost of funds for total mortgage borrowings outstanding, before
interest rate swap costs, is calculated on a weighted average basis based on
average repo, other debt and TBA balances outstanding during the period and
their respective cost of funds.
5.Interest rate swap periodic interest (income) cost is measured as a percent of
average mortgage borrowings outstanding for the period.

The principal elements impacting our economic interest expense are (i) the size
of our average mortgage borrowings and interest rate swap portfolio outstanding
during the period, (ii) the average interest rate (actual and implied) on our
mortgage borrowings and (iii) the average net interest rate paid/received on our
interest rate swaps. The following table includes a summary of the estimated
impact of these elements on our economic interest expense for the three and six
months ended June 30, 2020 compared to the prior year period (in millions):
                                       34
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                         Impact of Changes in the Principal Elements of 

Economic Interest Expense


                                      Periods ended June 30, 2020 vs. June 30, 2019
                                                                                          Due to Change in Average
                                                           Total Increase /        Borrowing / Swap          Borrowing /
                                                              (Decrease)                Balance               Swap Rate
Three months ended:
Repurchase agreements and other debt interest
expense                                                   $       (437)            $      (110)            $     (327)
TBA dollar roll income - implied interest expense                  (78)                     24                   (102)
Interest rate swap periodic interest income/cost                   147                      13                    134
Total change in economic interest expense                 $       (368)            $       (73)            $     (295)

Six months ended:
Repurchase agreements and other debt interest
expense                                                   $       (552)            $       (34)            $     (518)
TBA dollar roll income - implied interest expense                  (98)                     21                   (119)
Interest rate swap periodic interest income/cost                   199                     (33)                   232
Total change in economic interest expense                 $       (451)            $       (46)            $     (405)


Our average mortgage borrowings, inclusive of TBAs, decreased by -13% and -1%
for the three and six months ended June 30, 2020, respectively, due to lower
operating leverage. The decline in our average interest rate (actual and
implied) on our mortgage borrowings for the three and six month periods was due
to lower short-term interest rates. Additionally, during the three months ended
June 30, 2020, we terminated $3.7 billion of repurchase agreements with a
weighted average interest rate of 2.11% and a weighted average remaining
maturity of 2.2 years. The terminated agreements were replaced with shorter
duration repurchase agreements at lower prevailing market rates. We recognized
losses on debt extinguishment of $146 million in other gain (loss), net for the
three and six months ended June 30, 2020 associated with the terminated
repurchase agreements.
The increase in our interest rate swap periodic cost for the three and six
months ended June 30, 2020 was due to declines in the average rate received on
our interest rate swaps as the receive leg of our pay-fixed interest rate swaps
reset to lower prevailing rates, which were partially offset by a decline in our
average pay-rate. The following table presents a summary of the ratio of our
average interest rates swaps outstanding, excluding forward starting swaps, to
our average mortgage borrowings and the weighted average pay-fixed /
receive-floating rates on our interest rate swaps for the three and six months
ended June 30, 2020 and 2019 (dollars in millions):
                                                                  Three Months Ended                                Six Months Ended
                                                                       June 30,                                         June 30,
Average Ratio of Interest Rate Swaps (Excluding
Forward Starting Swaps) to Mortgage Borrowings
Outstanding                                                     2020              2019              2020               2019
Average Agency repo and other debt outstanding               $ 69,552          $ 86,147          $ 81,545          $  84,120
Average net TBA portfolio outstanding - at cost              $ 15,662          $ 11,864          $ 11,575          $   9,944
Average mortgage borrowings outstanding                      $ 85,214          $ 98,011          $ 93,120          $  94,064
Average notional amount of interest rate swaps
outstanding (excluding forward starting swaps)               $ 44,173          $ 52,035          $ 57,916          $  48,616
Ratio of average interest rate swaps to mortgage
borrowings outstanding                                             52  %             53  %             62  %              52  %

Average interest rate swap pay-fixed rate (excluding forward starting swaps)

                                          0.65  %           1.90  %           1.00  %            1.93  %
Average interest rate swap receive-floating rate                (0.11) %          (2.58) %          (0.90) %           (2.64) %
Average interest rate swap net pay/(receive) rate                0.54  %          (0.68) %           0.10  %           (0.71) %


For the three and six months ended June 30, 2020, we had an average forward
starting swap balance of $0.9 billion and $1.2 billion, respectively. For the
three and six months ended June 30, 2019, we had an average forward starting
swap balance of $3.5 billion and $4.3 billion, respectively. Forward starting
interest rate swaps do not impact our economic interest expense and aggregate
cost of funds until they commence accruing net interest settlements on their
forward start dates. Including forward starting swaps, our average ratio of
interest rate swaps outstanding to our average mortgage borrowings for the three
and six months ended June 30, 2020 was 53% and 63%, respectively, and 57% and
56%, respectively, for the corresponding prior year periods.
Net Interest Spread
The following table presents a summary of our net interest spread (including the
impact of TBA dollar roll income, interest rate swaps and excluding "catch-up"
premium amortization) for the three and six months ended June 30, 2020 and 2019:
                                       35
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                                                                                                                           Six Months Ended
                                                              Three Months Ended June 30,                                      June 30,
Investment and TBA Securities - Net Interest Spread            2020                 2019                 2020                 2019
Average asset yield, excluding "catch-up" premium
amortization                                                     2.56  %              3.24  %              2.78  %              3.28  %
Average aggregate cost of funds                                 (0.88) %             (2.24) %             (1.31) %             (2.25) %
Average net interest spread, excluding "catch-up"
premium amortization                                             1.68  %              1.00  %              1.47  %              1.03  %


Net Spread and Dollar Roll Income
The following table presents a summary of our net spread and dollar roll income,
excluding estimated "catch-up" premium amortization, per diluted common share (a
non-GAAP financial measure) and a reconciliation to our net interest income (the
most comparable GAAP financial measure) for the three and six months ended June
30, 2020 and 2019 (dollars in millions):
                                                                                                                      Six Months Ended
                                                                 Three Months Ended June 30,                              June 30,
                                                                     2020               2019            2020             2019
Net interest income (GAAP measure)                             $        295

$ 123 $ 360 $ 287 TBA dollar roll income, net 1

                                            78               22              94                41

Interest rate swap periodic interest income (cost), net 1

                                                                       (59)              88             (28)              171
Other interest and dividend income 1                                      1                4               3                 7
Adjusted net interest and dollar roll income                            315              237             429               506
Operating expense                                                       (24)             (20)            (47)              (39)
Net spread and dollar roll income                                       291              217             382               467
Dividend on preferred stock                                              25               13              46                23

Net spread and dollar roll income available to common stockholders (non-GAAP measure)

                                         266              204             336               444

Estimated "catch-up" premium amortization cost due to change in CPR forecast

                                                   57               58             300                97

Net spread and dollar roll income, excluding "catch-up" premium amortization, available to common stockholders (non-GAAP measure)

$        323

$ 262 $ 636 $ 541

Weighted average number of common shares outstanding - basic

                                                                 560.3            537.8           554.2             537.2

Weighted average number of common shares outstanding - diluted

                                                               560.8            538.4           555.0             537.8

Net spread and dollar roll income per common share - basic

$       0.47

$ 0.38 $ 0.61 $ 0.83 Net spread and dollar roll income per common share - diluted

$       0.47

$ 0.38 $ 0.61 $ 0.83 Net spread and dollar roll income, excluding "catch-up" premium amortization, per common share - basic

$       0.58

$ 0.49 $ 1.15 $ 1.01 Net spread and dollar roll income, excluding "catch-up" premium amortization, per common share - diluted

$       0.58

$ 0.49 $ 1.15 $ 1.01

________________________________


1.Reported in gain (loss) on derivative instruments and other securities, net in
our consolidated statements of comprehensive income
Gain (Loss) on Investment Securities, Net
The following table is a summary of our net gain (loss) on investment securities
for the three and six months ended June 30, 2020 and 2019 (in millions):
                                                                                                                          Six Months Ended
                                                                  Three Months Ended June 30,                                 June 30,
Gain (Loss) on Investment Securities, Net 1                          2020                 2019             2020              2019
Gain on sale of investment securities, net                     $         153           $   132          $   647          $    192

Unrealized gain (loss) on investment securities measured at fair value through net income, net 2

                                  679               759              876             1,819

Unrealized gain (loss) on investment securities measured at fair value through other comprehensive income, net

                    203               379              667               779
Total gain (loss) on investment securities, net                $       1,035           $ 1,270          $ 2,190          $  2,790

________________________________


1.Amounts exclude gain (loss) on TBA securities, which are reported in gain
(loss) on derivative instruments and other securities, net in our Consolidated
Statements of Comprehensive Income.
2.Investment securities acquired after fiscal year 2016 are measured at fair
value through net income (see Note 3 of our Consolidated Financial Statements in
this Form 10-Q).
                                       36
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Gain (Loss) on Derivative Instruments and Other Securities, Net
The following table is a summary of our gain (loss) on derivative instruments
and other securities, net for the three and six months ended June 30, 2020 and
2019 (in millions):
                                                                                                                              Six Months Ended
                                                                      Three Months Ended June 30,                                 June 30,
                                                                        2020                2019              2020               2019
Interest rate swap periodic interest income (cost), net            $       

(59) $ 88 $ (28) $ 171 Realized gain (loss) on derivative instruments and other securities, net: TBA securities - dollar roll income, net

                                    78                 22                94                 41
TBA securities - mark-to-market net gain (loss)                            584                126               713                191
Payer swaptions                                                             (8)               (17)              (30)               (27)
U.S. Treasury securities - long position                                    26                  1                86                  1
U.S. Treasury securities - short position                                  (79)              (551)             (713)              (617)
U.S. Treasury futures - short position                                     (74)               (50)              (95)               (95)

Interest rate swaps - termination fees and variation margin settlements, net

                                                          (320)              (940)           (3,126)            (1,639)
Losses on debt extinguishment                                             (146)                 -              (146)                 -
Other                                                                        1                 (2)               28                 (8)

Total realized gain (loss) on derivative instruments and other securities, net

                                                       62             (1,411)           (3,189)            (2,153)

Unrealized gain (loss) on derivative instruments and other securities, net: TBA securities - mark-to-market net gain (loss)


(442)                15               106                 14
Interest rate swaps                                                          -               (167)              (20)              (147)
Payer swaptions                                                             (6)                (8)             (118)               (25)
U.S. Treasury securities - long position                                   (22)                 5                15                  5
U.S. Treasury securities - short position                                   19                 46              (284)              (313)
U.S. Treasury futures - short position                                      66                 (7)              (17)                 7
Other                                                                       (3)                 1                (4)                 3

Total unrealized gain (loss) on derivative instruments and other securities, net

                                                     (388)              (115)             (322)              (456)

Total gain (loss) on derivative instruments and other securities, net

                                                    $      

(385) $ (1,438) $ (3,539) $ (2,438)




For further details regarding our use of derivative instruments and related
activity refer to Notes 3 and 6 of our Consolidated Financial Statements in this
Form 10-Q.
Estimated Taxable Income
For the three months ended June 30, 2020 and 2019, we had estimated taxable
income (loss) available (attributable) to common stockholders of $(4) million
and $171 million, or $(0.01) and $0.32 per diluted common share, respectively.
For the six months ended June 30, 2020 and 2019, we had estimated taxable income
available to common stockholders of $107 million and $367 million, or $0.19 and
$0.68 per diluted common share, respectively. Income determined under GAAP
differs from income determined under U.S. federal income tax rules because of
both temporary and permanent differences in income and expense recognition. The
primary differences are (i) unrealized gains and losses on investment securities
and derivative instruments marked-to-market in current income for GAAP purposes,
but excluded from taxable income until realized, settled or amortized over the
instrument's original term, (ii) timing differences, both temporary and
potentially permanent, in the recognition of certain realized gains and losses
and (iii) temporary differences related to the amortization of premiums and
discounts on investments. Furthermore, our estimated taxable income is subject
to potential adjustments up to the time of filing our appropriate tax returns,
which occurs after the end of our fiscal year. The following is a reconciliation
of our GAAP net income to our estimated taxable income for the three and six
months ended June 30, 2020 and 2019 (dollars in millions, except per share
amounts):
                                       37
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                                                                                                                        Six Months Ended
                                                                 Three Months Ended June 30,                                June 30,
                                                                    2020                2019             2020              2019
Net income (loss)                                             $         718

$ (444) $ (1,703) $ (179) Estimated book to tax differences: Premium amortization, net

                                                22               67               259               121
Realized gain/loss, net                                                   -              886             2,555             1,513
Net capital loss/(utilization of net capital loss
carryforward)                                                          (426)             320              (394)              308
Unrealized (gain)/loss, net                                            (291)            (644)             (554)           (1,363)
Other                                                                    (2)              (1)              (10)              (10)
Total book to tax differences                                          (697)             628             1,856               569
Estimated REIT taxable income                                            21              184               153               390
Dividends on preferred stock                                             25               13                46                23
Estimated REIT taxable income (loss) available
(attributable) to common stockholders                         $          

(4) $ 171 $ 107 $ 367 Weighted average number of common shares outstanding - basic

                                                                 560.3            537.8             554.2             537.2

Weighted average number of common shares outstanding - diluted

                                                               560.3            538.4             555.0             537.8

Estimated REIT taxable income (loss) per common share - basic

                                                         $       

(0.01) $ 0.32 $ 0.19 $ 0.68 Estimated REIT taxable income (loss) per common share - diluted

                                                       $       

(0.01) $ 0.32 $ 0.19 $ 0.68

Beginning cumulative non-deductible net capital loss $ 426

$ 170 $ 394 $ 182 Increase (decrease) in net capital loss carryforward

                   (426)             320              (394)              308
Ending cumulative non-deductible net capital loss             $           -           $  490          $      -          $    490
Ending cumulative non-deductible net capital loss per
common share                                                  $           -           $ 0.89          $      -          $   0.89


                                       38

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LIQUIDITY AND CAPITAL RESOURCES
Our business is dependent on our ability to maintain adequate levels of
liquidity and capital resources to fund day-to-day operations, fulfill
collateral requirements under our funding and derivative agreements, and to
satisfy our dividend distribution requirement of at least 90% of our taxable
income to maintain our qualification as a REIT. Our primary sources of liquidity
are unencumbered cash and securities, borrowings available under repurchase
agreements, TBA dollar roll financing and monthly receipts of principal and
interest payments. We may also conduct asset sales, change our asset or funding
mix, issue equity or undertake other capital enhancing actions to maintain
adequate levels of liquidity and capital resources.
We believe that we have sufficient liquidity and capital resources available to
meet our obligations and execute our business strategy. In assessing our
liquidity, we consider a number of factors, including our current leverage,
haircut and minimum collateral levels, access to capital markets, overall market
conditions, and the sensitivity of our tangible net book value over a range of
scenarios. However, these and other factors impacting our liquidity are subject
to numerous risks and uncertainties, including as described in the Quantitative
and Qualitative Disclosures of Market Risks and Risk Factors sections of our
Annual Report on Form 10-K for the year ended December 31, 2019, as amended (our
"2019 Form 10-K") and this Form 10-Q.
Leverage
Our leverage will vary depending on market conditions and our assessment of
relative risks and returns, but we generally would expect our leverage to be
between six and twelve times the amount of our tangible stockholders' equity,
measured as the sum of our total mortgage borrowings and net payable /
(receivable) for unsettled investment securities, divided by the sum of our
total stockholders' equity adjusted to exclude goodwill. Our tangible net book
value "at risk" leverage ratio was 9.2x and 9.4x as of June 30, 2020 and
December 31, 2019, respectively. The following table includes a summary of our
mortgage borrowings outstanding as of June 30, 2020 and December 31, 2019
(dollars in millions). For additional details of our mortgage borrowings refer
to Notes 3, 5 and 6 to our Consolidated Financial Statements in this Form 10-Q.
                                                              June 30, 2020                                     December 31, 2019
Mortgage Borrowings                                      Amount                %              Amount                 %
Repurchase agreements 1                              $     69,166               77  %       $ 89,085                    92  %
Debt of consolidated variable interest
entities, at fair value                                       204                -  %            228                     -  %
Total debt                                                 69,370               77  %         89,313                    92  %
Net TBA position, at cost                                  20,413               23  %          7,404                     8  %
Total mortgage borrowings                            $     89,783              100  %       $ 96,717                   100  %

________________________________


1.Amount excludes $519 million and $97 million of repurchase agreements used to
fund purchases of U.S. Treasury securities as of June 30, 2020 and December 31,
2019, respectively.
Repurchase arrangements involve the sale and a simultaneous agreement to
repurchase the transferred assets at a future date and are accounted for as
collateralized financing transactions. 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.
The terms and conditions of secured borrowings are negotiated on a
transaction-by-transaction basis when each such borrowing is initiated or
renewed. The amount borrowed is generally equal to the fair value of the
securities pledged, as determined by the lending counterparty, less an
agreed-upon discount, referred to as a "haircut." This haircut reflects the
underlying risk of the specific collateral and protects our counterparty against
a change in its value, but conversely subjects us to counterparty credit risk
and limits the amount we can borrow against our investment securities. Interest
rates are generally fixed based on prevailing rates corresponding to the terms
of the borrowings. Interest may be paid monthly or at the termination of a
borrowing at which time we may enter into a new borrowing at prevailing haircuts
and rates with the same lending counterparty or repay that counterparty and
negotiate financing with a different lending counterparty. None of our repo
counterparties are obligated to renew or otherwise enter into new borrowings at
the conclusion of our existing borrowings.
The use of TBA dollar roll transactions increases our funding diversification,
expands our available pool of assets, and increases our overall liquidity
position, as TBA contracts have lower implied haircuts relative to Agency RMBS
pools held on balance sheet and funded with repo financing. However, if it were
to become uneconomical to roll our TBA contracts into future months it may be
necessary to take physical delivery of the underlying securities and fund those
assets with cash or other financing sources, which could reduce our liquidity
position. The collateral requirements under our TBA contracts are governed by
the Mortgage-Backed Securities Division ("MBSD") of the FICC and by our
brokerage agreements, which may establish margin levels in excess of the MBSD.
                                       39
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To help manage the adverse impact of interest rate changes on the value of our
investment portfolio as well as our cash flows, we utilize an interest rate risk
management strategy under which we use derivative financial instruments. In
particular, we attempt to mitigate the risk of the cost of our variable rate
liabilities increasing at a faster rate than the earnings of our long-term fixed
rate assets during a period of rising interest rates. Collateral levels for
interest rate derivative agreements are typically governed by the central
clearing exchange and the associated futures commission merchants ("FCMs"),
which may establish margin levels in excess of the clearing exchange. Collateral
levels for interest rate derivative agreements not subject to central clearing
are established by the counterparty financial institution.
Collateral Requirements and Unencumbered Assets
Amounts available to be borrowed under our repurchase agreements are dependent
upon lender collateral requirements and the lender's determination of the fair
value of the securities pledged as collateral, which fluctuates with changes in
interest rates, credit quality and liquidity conditions within the investment
banking, mortgage finance and real estate industries. If the fair value of our
collateral declines due to changes in market conditions or the publishing of
monthly security pay-down factors, our counterparties will typically require
that we post additional collateral to re-establish the agreed-upon collateral
requirements, referred to as "margin calls." Similarly, if the estimated fair
value of our investment securities increases due to changes in interest rates or
other factors, we may request that counterparties release collateral back to us.
Our derivative agreements also require that we maintain a minimum collateral
balance regardless of the value of the derivative instrument based on our
counterparties' assessment of risk specific to the derivative instrument and
clearing exchange rules.
Collateral requirements under our repurchase and derivative agreements are
dependent on our counterparties' determination of the fair value of securities
pledged and the "haircut" levels they apply against the value of our securities.
Haircuts under repo agreements are typically determined on an individual
transaction basis and reflect our counterparties' assessment of the underlying
risk associated with the specific collateral. Our derivative agreements also
require that we maintain a minimum collateral balance regardless of the value of
the derivative instrument based on our counterparties' assessment of risk
specific to the derivative instrument and clearing exchange rules. Haircut
levels and minimum margin requirements can change overtime and could be expected
to increase during periods of elevated market volatility. We are also subject to
daily variation margin requirements based on changes in the value of our
collateral and, in the case of derivative agreements, changes in the value of
the derivative instrument. Daily variation margin requirements under our
interest rate derivative agreements also entitle us to receive collateral if the
value of amounts owed to us under the derivative instrument exceeds a minimum
margin requirement. Our agreements may provide that the valuations of securities
securing our obligations under the agreement are to be obtained from a generally
recognized source agreed to by both parties to the agreement. Other agreements
provide that our counterparty has the sole discretion to determine the value of
pledged collateral, but is required to act in good faith in making
determinations of value. Our agreements generally provide that in the event of a
margin call, collateral must be posted on the same business day, subject to
notice requirements. As of June 30, 2020, we had met all our margin
requirements.
The value of Agency RMBS is reduced by principal pay-downs on the mortgage pools
underlying them. Fannie Mae and Freddie Mac publish monthly security pay-down
factors for their mortgage pools on the fifth day after month-end and remit
payment based on these factors generally on the 25th day after month-end.
Counterparties to our bi-lateral repurchase agreements typically assess margin
to account for these principal pay-downs prior to our receipt of the principal
repayment when pool level principal payment data becomes available. The FICC
assesses margin based on its internally projected pay-down rates on the last day
of each month (referred to as the "blackout period exposure adjustment" or
"blackout margin"). On the fifth day of the month, the blackout margin is
released and collateralization requirements are adjusted to the actual published
factor data. Consequently, our liquidity is temporarily reduced each month until
we receive payment of the pay-down amounts. We attempt to manage the liquidity
risk associated with principal pay-downs by monitoring conditions impacting
prepayment rates and through asset selection. As of June 30, 2020, given the
current market conditions and elevated prepayment risk associated with
historically low interest rates, our portfolio largely consisted of higher
coupon specified pool securities, which have a lower risk of prepayment compared
to generic Agency RMBS, and TBA securities, which do not expose us to margin
calls due to prepayments.
Haircut levels and minimum margin requirements imposed by counterparties reduce
the amount of our unencumbered assets and limit the amount we can borrow against
our investment securities. For the six months ended June 30, 2020, haircuts on
Agency RMBS collateral remained stable. Haircuts and funding levels for our less
liquid, credit-oriented securities, however, were adversely impacted by the
dislocation in the financial markets in the first quarter, but improved to more
normal levels during the second quarter. As of June 30, 2020, the weighted
average haircut on our repurchase agreements was approximately 4.4% of the value
of our collateral, inclusive of collateral funded through BES, unchanged from
December 31, 2019.
                                       40
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As of June 30, 2020, our unencumbered assets totaled 54% of our tangible net
equity, unchanged from December 31, 2019. The majority of our liquidity is held
at AGNC, but we also maintain capital and excess liquidity at BES for regulatory
standards, risk management purposes, and to meet expectations of its
counterparties, clearing banks and clearing organizations. As of June 30, 2020,
we had cash and unencumbered Agency RMBS totaling $4.5 billion, which excludes
unencumbered CRT and non-Agency securities and assets held at BES.
Collateral haircuts and minimum margin requirements imposed by counterparties
subject us to counterparty credit risk. We attempt to manage this risk by
monitoring our collateral positions and limiting our counterparties to
registered clearinghouses and major financial institutions with acceptable
credit ratings. We also diversify our funding across multiple counterparties and
by region. As of June 30, 2020, we had master repurchase agreements with 47
financial institutions located throughout North America, Europe and Asia,
including repo counterparties accessed through BES. BES' direct access to the
General Collateral Finance Repo service offered by the FICC and other triparty
and bi-lateral repo funding provides us greater depth and diversity of funding
at favorable terms relative to traditional bilateral repurchase agreement
funding. As of June 30, 2020, $33.3 billion of our repurchase agreement funding
was sourced through BES.
The table below includes a summary of our Agency RMBS repurchase agreement
funding by number of repo counterparties and counterparty region as of June 30,
2020.
                                                                                        June 30, 2020
                                                                                                           Percent of Repurchase
Counter-Party Region                                            Number of Counter-Parties                   Agreement Funding 1
North America:
FICC                                                                        1                                       48%
Other                                                                       27                                      39%
Total North America                                                         28                                      87%
Europe                                                                      14                                      10%
Asia                                                                        5                                        3%
Total                                                                       47                                      100%

________________________________


1.Percent of repurchase agreement funding includes U.S. Treasury repurchase
agreements.
As of June 30, 2020, our maximum amount at risk (or the excess value of
collateral pledged over our repurchase liabilities) with any of our repurchase
agreement counterparties, excluding the FICC, was less than 3% of our tangible
stockholders' equity, with our top five repo counterparties, excluding the FICC,
representing less than 9% of our tangible stockholders' equity. As of June 30,
2020, approximately 11% of our tangible stockholder's equity was at risk with
the FICC. Excluding central clearing exchanges, as of June 30, 2020, our amount
at risk with any counterparty to our derivative agreements was less than 1% of
our stockholders' equity.
Asset Sales
Agency RMBS securities are among the most liquid fixed income securities, and
the TBA market is the second most liquid market (after the U.S. Treasury
market). The vitality of these markets enables us to sell assets under most
market conditions to generate liquidity through direct sales or delivery into
TBA contracts, subject to "good delivery" provisions promulgated by the
Securities Industry and Financial Markets Association ("SIFMA"). Under certain
market conditions, however, we may be unable to realize the full "pay-up" value,
or premium relative to generic Agency RMBS, of our specified pool securities;
consequently, we seek to operate with a minimum level of securities that trade
at or near TBA values that in our estimation enhances portfolio liquidity across
a wide range of market conditions.
Capital Markets
The equity capital markets serve as a source of capital to grow our business and
to meet potential liquidity needs of our business. The availability of equity
capital is dependent on market conditions and investor demand for our common and
preferred stock. We will typically not issue common stock when the price of our
common stock trades below our tangible net book value or issue preferred equity
when its cost exceeds acceptable hurdle rates of return on our equity. There can
be no assurance that we will be able to raise additional equity capital at any
particular time or on any particular terms. Furthermore, when the trading price
of our common stock is less than our estimate of our current tangible net book
value per common share,
                                       41
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among other conditions, we may repurchase shares of our common stock. Please
refer to Note 10 of our Consolidated Financial Statements in this Form 10-Q for
further details regarding our recent equity capital transactions.
OFF-BALANCE SHEET ARRANGEMENTS
As of June 30, 2020, we did not maintain relationships with unconsolidated
entities or financial partnerships, such as entities often referred to as
structured finance, or special purpose or variable interest entities,
established to facilitate off-balance sheet arrangements or other contractually
narrow or limited purposes. Additionally, as of June 30, 2020, we had not
guaranteed obligations of unconsolidated entities or entered into a commitment
or intent to provide funding to such entities.
FORWARD-LOOKING STATEMENTS
The statements contained in this Quarterly Report that are not historical facts,
including estimates, projections, beliefs, expectations concerning conditions,
events, or the outlook for our business, strategy, performance, operations or
the markets or industries in which we operate, are forward-looking statements
within the meaning of the Private Securities Litigation Reform Act.
Forward-looking statements are typically identified by words such as "believe,"
"plan," "expect," "anticipate," "see," "intend," "outlook," "potential,"
"forecast," "estimate," "will," "could," "should," "likely" and other similar,
correlative or comparable words and expressions.
Forward looking statements are based on management's assumptions, projections
and beliefs as of the date of this Quarterly Report, but they involve a number
of risks and uncertainties. Actual results may differ materially from those
anticipated in forward-looking statements, as well as from historical
performance. Factors that could cause actual results to vary from our
forward-looking statements include, but are not limited to, the following:
•the impact of the Pandemic and of measures taken in response to the Pandemic by
various governmental authorities, businesses and other third parties;
•actions by the federal, state, or local governments to stabilize the economy,
the housing sector or financial markets;
•changes in U.S. monetary policy or interest rates;
•fluctuations in the yield curve;
•fluctuations in mortgage prepayment rates on the loans underlying our Agency
RMBS;
•the availability and terms of financing;
•changes in the market value of our assets, including from changes in net
interest spreads, and changes in market liquidity or depth;
•the effectiveness of our risk mitigation strategies;
•conditions in the market for Agency RMBS and other mortgage securities;
•legislative or regulatory changes that affect our status as a REIT, our
exemption from the Investment Company Act of 1940 or the mortgage markets in
which we participate; and
•other risks discussed under the heading "Risk Factors" herein and in our Annual
Report on Form 10-K.
Forward-looking statements speak only as of the date made, and we do not assume
any duty and do not undertake to update forward-looking statements. A further
discussion of risks and uncertainties that could cause actual results to differ
from any of our forward-looking statements is included in our most recent Annual
Report on Form 10-K and this document under Item 1A. Risk Factors.  We caution
readers not to place undue reliance on our forward-looking statements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market risk is the exposure to loss resulting from changes in market factors
such as interest rates, foreign currency exchange rates, commodity prices and
equity prices. The primary market risks that we are exposed to are interest
rate, prepayment, spread, liquidity, extension and credit risk.
Interest Rate Risk
We are subject to interest rate risk in connection with the fixed income nature
of our assets and the short-term, variable rate nature of our financing
obligations. Our operating results depend in large part on differences between
the income earned on our assets and our cost of borrowing and hedging
activities. The costs associated with our borrowings are generally based on
prevailing market interest rates. During a period of rising interest rates, our
borrowing costs generally will increase while the yields earned on our existing
portfolio of leveraged fixed-rate assets will largely remain static. This can
result in a decline in our net interest spread. Changes in the level of interest
rates can also affect the rate of mortgage prepayments and the value of our
assets.
                                       42
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Interest rates are highly sensitive to many factors, including fiscal and
monetary policies and domestic and international economic and political
considerations, as well as other factors beyond our control. Subject to
maintaining our qualification as a REIT, we engage in a variety of interest rate
management techniques to mitigate the influence of interest rate changes on our
net interest income and fluctuations of our tangible net book value. The
principal instruments that we use to hedge our interest rate risk are interest
rate swaps, swaptions, U.S. Treasury securities and U.S. Treasury futures
contracts. Our hedging techniques are highly complex and are partly based on
assumed levels of prepayments of our assets. If prepayments are slower or faster
than assumed, the maturity our investments will also differ from our
expectations, which could reduce the effectiveness of our hedging strategies and
may cause losses on such transactions and adversely affect our cash flow.
The severity of potential declines in our tangible net book value due to
fluctuations in interest rates would depend on our asset, liability and hedge
composition at the time, as well as the magnitude and duration of the interest
rate change. Primary measures of an instrument's price sensitivity to interest
rate fluctuations are its duration and convexity. Duration measures the
estimated percentage change in market value of an instrument that would be
caused by a parallel change in short and long-term interest rates. The duration
of our assets will vary with changes in interest rates and tends to increase
when interest rates rise and decrease when interest rates fall. This "negative
convexity" generally increases the interest rate exposure of our investment
portfolio in excess of what is measured by duration alone.
We estimate the duration and convexity of our assets using both a third-party
risk management system and market data. We review the duration estimates from
the third-party model and may make adjustments based on our judgment to better
reflect any unique characteristics and market trading conventions associated
with certain types of securities.
The table below quantifies the estimated changes in the fair value of our
investment portfolio (including derivatives and other securities used for
hedging purposes) and in our tangible net book value per common share as of June
30, 2020 and December 31, 2019 should interest rates go up or down by 50, 75 and
100 basis points, assuming instantaneous parallel shifts in the yield curve and
including the impact of both duration and convexity. All values in the table
below are measured as percentage changes from the base interest rate scenario.
The base interest rate scenario assumes interest rates and prepayment
projections as of June 30, 2020 and December 31, 2019.
To the extent that these estimates or other assumptions do not hold true, which
is likely in a period of high volatility, actual results could differ materially
from our projections. Moreover, if different models were employed in the
analysis, materially different projections could result. Lastly, while the table
below reflects the estimated impact of interest rate changes on a static
portfolio, we actively manage our portfolio and we continuously adjust the size
and composition of our asset and hedge portfolio.
                                                             Interest Rate Sensitivity 1,2
                                                                    June 30, 2020                                                               December 31, 2019
                                                                                  Estimated Change                                     Estimated Change
                                                                                   in Tangible Net                                      in Tangible Net
                                                   Estimated Change in             Book Value Per          Estimated Change in          Book Value Per
Change in Interest Rate                           Portfolio Market Value            Common Share          Portfolio Market Value         Common Share
-100 Basis Points                                         -0.1%                         -1.2%                     -0.5%                      -6.0%
-75 Basis Points                                          +0.1%                         +0.9%                     -0.3%                      -3.0%
-50 Basis Points                                          +0.1%                         +1.6%                     -0.1%                      -0.9%
+50 Basis Points                                          -0.1%                         -1.7%                     -0.4%                      -4.7%
+75 Basis Points                                          -0.4%                         -4.9%                     -0.8%                      -9.1%
+100 Basis Points                                         -0.8%                         -9.5%                     -1.3%                     -14.8%

________________________________


1.Derived from models that are dependent on inputs and assumptions provided by
third parties, assumes there are no changes in mortgage spreads and assumes a
static portfolio. Actual results could differ materially from these estimates.
2.Includes the effect of derivatives and other securities used for hedging
purposes. Interest rates are floored at 0% in down rate scenarios.
Prepayment Risk
Prepayment risk is the risk that our assets will be repaid at a faster rate than
anticipated. Interest rates and numerous other factors affect the rate of
prepayments, such as housing prices, general economic conditions, loan age, size
and loan-to-value ratios, and GSE buyouts of delinquent loans underlying our
securities among. Generally, prepayments increase during periods of falling
mortgage interest rates and decrease during periods of rising mortgage interest
rates. However, this may not always be the case.
                                       43
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If our assets prepay at a faster rate than anticipated, we may be unable to
reinvest the repayments at acceptable yields. If the proceeds are reinvested at
lower yields than our existing assets, our net interest income would be
negatively impacted. We also amortize or accrete premiums and discounts we pay
or receive at purchase relative to the stated principal of our assets into
interest income over their projected lives using the effective interest method.
If the actual and estimated future prepayment experience differs from our prior
estimates, we are required to record an adjustment to interest income for the
impact of the cumulative difference in the effective yield.
Extension Risk
Extension risk is the risk that our assets will be repaid at a slower rate than
anticipated and generally increases when interest rates rise. In which case, we
may have to finance our investments at potentially higher costs without the
ability to reinvest principal into higher yielding securities because borrowers
prepay their mortgages at a slower pace than originally expected, adversely
impacting our net interest spread, and thus our net interest income.
As of June 30, 2020 and December 31, 2019, our investment securities (excluding
TBAs) had a weighted average projected CPR of 16.6% and 10.8%, respectively, and
a weighted average yield of 2.64% and 3.07%, respectively. The table below
presents estimated weighted average projected CPRs and yields for our investment
securities should interest rates go up or down instantaneously by 50, 75 and 100
basis points. Estimated yields exclude the impact of retroactive "catch-up"
premium amortization adjustments from prior periods due to changes in the
projected CPR assumption.
                                                         Interest Rate Sensitivity 1
                                                              June 30, 2020                                                      December 31, 2019
                                                Weighted Average         

Weighted Average Weighted Average Weighted Average Change in Interest Rate

                          Projected CPR             Asset Yield 2            Projected CPR            Asset Yield 2
-100 Basis Points                                    22.3%                     2.32%                    20.3%                    2.73%
-75 Basis Points                                     21.6%                     2.36%                    17.7%                    2.82%
-50 Basis Points                                     20.2%                     2.42%                    15.0%                    2.90%
 Actual as of Period End                             16.6%                     2.64%                    10.8%                    3.07%
+50 Basis Points                                     12.7%                     2.79%                     8.1%                    3.12%
+75 Basis Points                                     11.0%                     2.87%                     7.5%                    3.15%
+100 Basis Points                                     9.8%                     2.93%                     6.8%                    3.16%

________________________________


1.Derived from models that are dependent on inputs and assumptions provided by
third parties and assumes a static portfolio. Actual results could differ
materially from these estimates. Table excludes TBA securities.
2.Asset yield based on historical cost basis and does not include the impact of
retroactive "catch-up" premium amortization adjustments due to changes in
projected CPR.
Spread Risk
Spread risk is the risk that the market spread between the yield on our assets
and the yield on benchmark interest rates linked to our interest rate hedges,
such as U.S. Treasury rates and interest rate swap rates, may vary. As a levered
investor in mortgage-backed securities, spread risk is an inherent component of
our investment strategy. Consequently, although we use hedging instruments to
attempt to protect against moves in interest rates, our hedges are generally not
designed to protect against spread risk, and our tangible net book value could
decline if spreads widen.
Fluctuations in mortgage spreads can occur due to a variety of factors,
including changes in interest rates, prepayment expectations, actual or
anticipated monetary policy actions by the U.S. and foreign central banks,
liquidity conditions, required rates of returns on different assets and other
market supply and demand factors. The table below quantifies the estimated
changes in the fair value of our assets, net of hedges, and our tangible net
book value per common share as of June 30, 2020 and December 31, 2019 should
spreads widen or tighten by 10, 25 and 50 basis points. The estimated impact of
changes in spreads is in addition to our interest rate shock sensitivity
included in the interest rate shock table above. The table below assumes a
spread duration of 4.4 and 5.0 years as of June 30, 2020 and December 31, 2019,
respectively, based on interest rates and prices as of such dates; however, our
portfolio's sensitivity to mortgage spread changes will vary with changes in
interest rates and in the size and composition of our portfolio. Therefore,
actual results could differ materially from our estimates.
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                                                             Spread Sensitivity 1,2
                                                              June 30, 2020                                                              December 31, 2019
                                                                           Estimated Change                                     Estimated Change
                                                                            in Tangible Net                                      in Tangible Net
                                              Estimated Change in           Book Value Per          Estimated Change in          Book Value Per
Change in MBS Spread                         Portfolio Market Value          Common Share          Portfolio Market Value         Common Share
-50 Basis Points                                     +2.2%                      +26.0%                     +2.5%                     +28.0%
-25 Basis Points                                     +1.1%                      +13.0%                     +1.2%                     +14.0%
-10 Basis Points                                     +0.4%                       +5.2%                     +0.5%                      +5.6%
+10 Basis Points                                     -0.4%                       -5.2%                     -0.5%                      -5.6%
+25 Basis Points                                     -1.1%                      -13.0%                     -1.2%                     -14.0%
+50 Basis Points                                     -2.2%                      -26.0%                     -2.5%                     -28.0%

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1.Spread sensitivity is derived from models that are dependent on inputs and
assumptions provided by third parties, assumes there are no changes in interest
rates and assumes a static portfolio. Actual results could differ materially
from these estimates.
2.Includes the effect of derivatives and other securities used for hedging
purposes.
Liquidity Risk
Our liquidity risk principally arises from financing long-term fixed rate assets
with shorter-term variable rate borrowings.  Future borrowings are dependent
upon the willingness of lenders to finance our investments, lender collateral
requirements and the lenders' determination of the fair value of the securities
pledged as collateral, which fluctuates with changes in interest rates and
liquidity conditions within the commercial banking and mortgage finance
industries.
As of June 30, 2020, we believe that we have sufficient liquidity and capital
resources available to execute our business strategy (see Liquidity and Capital
Resources in this Form 10-Q for additional details). However, should the value
of our collateral or the value of our derivative instruments suddenly decrease,
margin calls relating to our funding liabilities and derivative agreements could
increase, causing an adverse change in our liquidity position. Furthermore,
there is no assurance that we will always be able to renew (or roll) our
short-term funding liabilities. In addition, our counterparties have the option
to increase our haircuts (margin requirements) on the assets we pledge against
our funding liabilities, thereby reducing the amount that can be borrowed
against an asset even if they agree to renew or roll our funding
liabilities. Significantly higher haircuts can reduce our ability to leverage
our portfolio or even force us to sell assets, especially if correlated with
asset price declines or faster prepayment rates on our assets.
Credit Risk
Our credit sensitive investments, such as CRT and non-Agency securities, expose
us to the risk of nonpayment of principal, interest or other remuneration we are
contractually entitled to. We are also exposed to credit risk in the event our
repurchase agreement counterparties default on their obligations to resell the
underlying collateral back to us at the end of the repo term or in the event our
derivative counterparties do not perform under the terms of our derivative
agreements.
We accept credit exposure related to our credit sensitive assets at levels we
deem to be prudent within the context of our overall investment strategy. We
attempt to manage this risk through careful asset selection, pre-acquisition due
diligence, post-acquisition performance monitoring, and the sale of assets where
we identify negative credit trends. We may also manage credit risk with credit
default swaps or other financial derivatives that we believe are appropriate.
Additionally, we may vary the mix of our interest rate and credit sensitive
assets or our duration gap to adjust our credit exposure and/or improve the
return profile of our assets, such as when we believe credit performance is
inversely correlated with changes in interest rates. Our credit risk related to
derivative and repurchase agreement transactions is largely mitigated by
limiting our counterparties to major financial institutions with acceptable
credit ratings or to registered central clearinghouses and monitoring
concentration levels with any one counterparty. We also continuously monitor and
adjust the amount of collateral pledged based on changes in market value.
There is no guarantee that our efforts to manage credit risk will be successful
and we could suffer losses if credit performance is worse than our expectations
or our counterparties default on their obligations. Excluding central clearing
exchanges, as of June 30, 2020, our maximum amount at risk with any counterparty
related to our repurchase agreements was less than 3% of tangible stockholders'
equity and related to our derivative agreements was less than 1% of tangible
stockholders' equity.
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