2020
A N N U A L R E P O R T
Providing Private Capital
to the U.S. Housing Market
Through Investment Excellence
DEAR FELLOW STOCKHOLDERS
As we enter 2021, I am proud to state that AGNC has emerged from 2020 a stronger company, and our
performance in 2020 provides further validation of the durability of our business model and investment
philosophy across a wide range of macroeconomic environments. In March, the COVID-19 pandemic created
the most adverse market and operating conditions that AGNC and modern U.S. financial markets have ever
experienced. Despite these significant and historical challenges, AGNC successfully navigated the instability
of the first quarter and, importantly, was able to maintain substantially all of our asset portfolio. As a result,
AGNC was able to recover from the crisis in March and generated a positive annual economic return of 3.5%
for our stockholders, consisting of $1.56 in cash dividends and a $(0.95) decline in tangible net book value
per share of common stock.
Our success in preserving our net book value during this volatility further extended AGNC’s track record of
producing economic returns significantly in excess of our peer group average:
ECONOMIC RETURNS ENDED DECEMBER 31, 20201,2
1 YEAR
3 YEAR
5 YEAR
PEER AVERAGE
PEER AVERAGE
PEER AVERAGE
3.5%
5%
0%
(5%)
(10%)
(15%)
(20%)
(25%)
(30%)
13.9%
20%
10%
0%
(10%)
(20%)
(30%)
(25.3%)
23.4%
25%
20%
15%
10%
5%
0%
(5%)
(10%)
(4.0%)
(20.5%)
Looking ahead, we continue to believe that AGNC is positioned to provide attractive risk-adjusted returns
for our stockholders over the long-term. The three primary levers that we utilize to generate returns—our
Agency residential mortgage-backed securities (“RMBS”)-focused portfolio, our funding through repurchase
agreements (“repo”), and our risk management strategies—all benefit from favorable technical factors. In
addition, AGNC has maintained the lowest cost structure as a percentage of stockholders’ equity among
residential mortgage REITs despite the operational challenges resulting from the COVID-19 pandemic, which
provides further support to AGNC’s earnings profile relative to the mortgage REIT sector.
ASSETS: AGENCY RMBS
The experience of 2020 clearly illustrates the unique value of AGNC’s predominately Agency RMBS portfolio.
In times of significant market stress, the Federal Reserve (the “Fed”) has repeatedly shown a commitment
to supporting and stabilizing the U.S. housing finance system because of the significant impact this market
A G N C 2 0 2 0 A N N U A L R E P O R T
1
has on both the U.S. financial markets and the broader social and economic well-being of the country. 2020
was no exception, as the Fed purchased $1.5 trillion of Agency RMBS during the year and held approximately
30% of all outstanding Agency RMBS at year-end. Our active portfolio management throughout the year,
coupled with the Fed’s continued support of the Agency RMBS market, ultimately facilitated AGNC’s recovery
of substantially all of the tangible net book value decline experienced in the first quarter.
Looking ahead, the Fed has signaled its intention to maintain its accommodative monetary policy stance
until its objectives of maximum employment and long-term average inflation targets are achieved. The Fed
has further indicated that it expects to continue to purchase U.S. Treasury securities and Agency RMBS
until substantial further progress has been made toward achieving these goals. This ongoing commitment
by the Fed should ensure that AGNC’s primary asset class, Agency RMBS, remains well-supported for the
foreseeable future.
FUNDING: AGENCY RMBS REPO
AGNC’s funding also benefits from significant Fed involvement to ensure properly functioning government
repo markets, which include both Treasury and Agency RMBS repo. The Fed’s recent support for these
markets predates the March COVID-19 disruption, as period-end funding pressures in 2019 served as a
catalyst for the Fed to initiate open market operations to inject liquidity into government repo markets. As
a result, funding liquidity remained strong for levered Agency RMBS investors even during the tumultuous
first quarter. The Fed also quickly lowered short-term interest rates to near-zero. Our borrowing rates fell
sharply and led to AGNC’s net interest margin improvement, driving our net spread and dollar roll income
per share to levels not seen in over five years. We expect this favorable funding environment to continue
over the near to intermediate term, consistent with the Fed’s guidance.
RISK MANAGEMENT
AGNC’s disciplined risk management has been a meaningful differentiator for AGNC over the years. Despite
the significant widening of mortgage spreads to benchmark rates and extreme volatility in interest rates in
early 2020, AGNC’s active and disciplined portfolio management allowed us to outperform relative to our
sensitivity models at the start of the crisis. As the markets stabilized and benchmark interest rates remained at
low absolute levels, we were able to take advantage of the essentially one-way rate exposure by adding hedges
to our portfolio at attractive levels, which provide incremental protection against increasing interest rates.
OPERATIONS
The global COVID-19 pandemic, resulting “stay at home” orders, and massive societal and economic
disruptions presented a significant business interruption risk for AGNC in 2020. We implemented our
business continuity and contingency planning for our operations in February and mobilized to fully
remote operations in mid-March, in advance of any state or local governmental mandates and without
any business disruption. Managing through these events was critical in March and early April, as the
dislocations in the financial markets required elevated levels of trading and portfolio management actions
in a compressed timeframe. We took steps to ensure AGNC’s continuous and uninterrupted operations,
while simultaneously prioritizing the health, safety, and welfare of our employees.
Based upon our experiences in 2020, we have implemented a number of incremental operational processes
that collectively improve our robust operational infrastructure. We also significantly enhanced our IT
security architecture and governance to adapt to our newly remote workforce. In aggregate, these actions
position us more favorably for future adverse environments without compromising AGNC’s low operating
cost infrastructure.
LONG-TERM PERFORMANCE
While we are proud of our performance in 2020 and our positioning as we enter 2021, we continue to manage
our company for long-term results. From our May 2008 IPO through December 31, 2020, AGNC has exceeded
2
A G N C 2 0 2 0 A N N U A L R E P O R T
the S&P 500 Index (+148%), the Bloomberg Mortgage REIT Index (+311%), and the S&P 500 Financials Index
(+316%) over the same time period on a total stock return basis. We have achieved these results across a time
horizon that has included a myriad of financial environments—rising and falling rates, bull and bear markets,
historically high and low unemployment—and a number of exogenous market shock events—the Great
Financial Crisis, the Taper Tantrum, Brexit, the 2016 U.S. presidential election, the COVID-19 pandemic, and the
domestic political unrest in 2020.
TOTAL STOCK RETURNS SINCE AGNC’S MAY 2008 IPO3
AGNC
S&P 500 INDEX
BLOOMBERG MORTGAGE REIT INDEX
S&P 500 FINANCIALS INDEX
500%
400%
300%
200%
100%
0%
(100%)
396%
248%
85%
80%
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
This cumulative performance represents a 13.5% annualized total stock return, assuming reinvestment of
dividends. One of the primary drivers of our total stock return has been our strong dividend yield over the
years, which is particularly notable at present considering the lack of yield alternatives as asset prices have
rebounded to pre-COVID-19 levels.
DIVIDEND YIELD BY SECTOR AS OF DECEMBER 31, 20204,5
10%
8%
6%
4%
2%
0%
AGNC’s dividend yield provides a substantial
income component to returns.
9.2%
3.6%
3.4%
2.4%
1.8%
REAL ESTATE
UTILITIES
FINANCIALS
S&P 500
A G N C 2 0 2 0 A N N U A L R E P O R T
3
As always, we remain focused on the future of AGNC. Substantial Fed support of Agency RMBS and
low borrowing rates provide reason for optimism for continued stability in AGNC’s asset values and
funding costs and availability. While projected returns on equity have declined as mortgage spreads to
benchmark rates have tightened, we continue to see favorable relative value investments through both
specified pool assets and dollar roll opportunities. These factors, coupled with significant fiscal stimulus
packages and a burgeoning likelihood of a broader macroeconomic reopening as the global population
is vaccinated, will hopefully provide for a less volatile 2021 and a more favorable backdrop for AGNC to
generate economic and total stock returns consistent with longer-term performance.
We thank you for your continued support of AGNC.
Best regards,
Best regards,
Gary Kain
Chief Executive Officer and Chief Investment Officer
ENDNOTES
1. 1- and 3-year economic returns represent the change in tangible net book value per common share and dividends
declared on common stock during the period divided by the beginning tangible net book value per common share.
AGNC’s peer group is unweighted and includes Anworth Mortgage Asset Corporation (“ANH”), ARMOUR Residential
REIT, Inc. (“ARR”), Capstead Mortgage Corporation (“CMO”), Dynex Capital, Inc. (“DX”), Invesco Mortgage Capital Inc.
(“IVR”), Annaly Capital Management, Inc. (“NLY”), and Two Harbors Investment Corp. (“TWO”).
2. 5-year economic returns represent the change in net book value per common share and dividends declared on
common stock during the period divided by the beginning net book value per common share.
3. Stock return is measured from AGNC’s IPO through December 31, 2020. Total stock return over a period includes price
appreciation and dividend reinvestment; dividends are assumed to be reinvested at the closing price of the security
on the ex-dividend date. Source: S&P Global Market Intelligence and Bloomberg.
4. Sectors reflect component companies of the various S&P 500 sector indices as they appear on Bloomberg as of
December 31, 2020: Financials (S5FINL Index), Real Estate (S5RLST Index), and Utilities (S5UTIL Index).
5. Dividend yields as of December 31, 2020. Source: Bloomberg.
4
A G N C 2 0 2 0 A N N U A L R E P O R T
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒
☐
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-34057
AGNC INVESTMENT CORP.
(Exact name of registrant as specified in its charter)
__________________________________________________
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
26-1701984
(I.R.S. Employer
Identification No.)
2 Bethesda Metro Center, 12th Floor
Bethesda, Maryland 20814
(Address of principal executive offices)
(301) 968-9315
(Registrant’s telephone number, including area code)
__________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol(s)
Name of Exchange on Which Registered
Common Stock, par value $0.01 per share
Depositary shares of 7.000% Series C Fixed-to-Floating Rate Cumulative
Redeemable Preferred Stock
Depositary shares of 6.875% Series D Fixed-to-Floating Rate Cumulative
Redeemable Preferred Stock
Depositary shares of 6.50% Series E Fixed-to-Floating Rate Cumulative
Redeemable Preferred Stock
Depositary shares of 6.125% Series F Fixed-to-Floating Rate Cumulative
Redeemable Preferred Stock
AGNC
AGNCN
AGNCM
AGNCO
AGNCP
The Nasdaq Global Select Market
The Nasdaq Global Select Market
The Nasdaq Global Select Market
The Nasdaq Global Select Market
The Nasdaq Global Select Market
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨ No ý
Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes x No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule
12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
Emerging growth company
☒
☐
☐
Accelerated filer
Smaller Reporting Company
☐
☐
If an emerging growth company, indicate by check mark if registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its
audit report. ý
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x
As of June 30, 2020, the aggregate market value of the Registrant's common stock held by non-affiliates of the Registrant was approximately $5.7 billion
based upon the closing price of the Registrant's common stock of $12.90 per share as reported on The Nasdaq Global Select Market on that date. (For this
computation, the Registrant has excluded the market value of all shares of its common stock reported as beneficially owned by executive officers and directors of
the Registrant and certain other stockholders; such an exclusion shall not be deemed to constitute an admission that any such person is an "affiliate" of the
Registrant.)
The number of shares of the issuer's common stock, $0.01 par value, outstanding as of January 31, 2021 was 537,899,803.
DOCUMENTS INCORPORATED BY REFERENCE. The information required by Part III will be incorporated by reference from the Registrant's definitive
proxy statement for the 2021 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A.
Certain exhibits previously filed with the Securities and Exchange Commission are incorporated by reference into Part IV of this report.
AGNC INVESTMENT CORP.
TABLE OF CONTENTS
PART I.
Item 1.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A.
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B.
Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2.
Item 3.
Item 4.
PART II.
Item 5.
Item 6.
Item 7.
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . .
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8.
Item 9.
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . .
Item 9A.
Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B.
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III.
Item 10.
Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 11.
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters . . . . . .
Item 13.
Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 14.
Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART IV.
Item 15.
Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2
8
22
22
22
22
23
33
25
45
48
80
81
81
82
82
82
82
82
83
88
1
Item 1. Business
PART I.
AGNC Investment Corp. ("AGNC," the "Company," "we," "us" and "our") was organized on January 7, 2008 and
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."
We are a leading provider of private capital to the U.S. housing market, enhancing liquidity in the residential real estate
mortgage markets and, in turn, facilitating home ownership in the U.S. 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 the Federal National Mortgage Association ("Fannie Mae") and the Federal Home
Loan Mortgage Corporation ("Freddie Mac," and together with Fannie Mae, the "GSEs"), or by a U.S. Government agency,
such as the Government National Mortgage Association ("Ginnie Mae"). We may also invest in other assets related to the
housing, mortgage or real estate markets that are not guaranteed by a GSE or U.S. Government agency.
We operate to qualify to be taxed as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as
amended (the "Internal Revenue Code"). As a REIT, we are required to distribute annually 90% of our taxable income. As a
REIT, we will generally not be subject to U.S. federal or state corporate taxes on our taxable income 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 are an internally managed REIT with the principal objective of providing 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 collateralized borrowings structured as
repurchase agreements.
Investment Strategy
Our investment strategy is intended to:
•
generate attractive risk-adjusted returns for our stockholders through monthly dividend distributions and tangible net
book value accretion;
• manage an investment portfolio consisting primarily of Agency securities;
•
•
invest a subset of the portfolio in credit-oriented and other assets related to the housing, mortgage or real estate
markets that are not guaranteed by a GSE or U.S. Government agency;
capitalize on discrepancies in the relative valuations in the Agency and non-Agency securities market;
• manage financing, interest rate, prepayment, extension and credit risks;
•
•
continue to qualify as a REIT; and
remain exempt from the requirements of the Investment Company Act of 1940 (the "Investment Company Act").
Targeted Investments
Agency Securities
•
Agency Residential Mortgage-Backed Securities. Our primary investments consist of Agency pass-through
certificates representing interests in "pools" of mortgage loans secured by residential real property. Monthly
payments of principal and interest made by the individual borrowers on the mortgage loans underlying the pools are
in effect "passed through" to the security holders, after deducting GSE or U.S. Government agency guarantee and
servicer fees. In general, mortgage pass-through certificates distribute cash flows from the underlying collateral on a
pro rata basis among the security holders. Security holders also receive guarantor advances of principal and interest
for delinquent loans in the mortgage pools. We also invest in Agency collateralized mortgage obligations ("CMOs"),
which are structured instruments representing interests in Agency residential pass-through certificates, and interest-
only, inverse interest-only and principal-only securities, which represent the right to receive a specified proportion of
the contractual interest or principal flows of specific Agency CMO securities.
2
•
To-Be-Announced Forward Contracts ("TBAs"). TBAs are forward contracts to purchase or sell Agency RMBS.
TBA contracts specify the coupon rate, issuer, term and face value of the bonds to be delivered, with the actual bonds
to be delivered only identified shortly before the TBA settlement date.
Non-Agency Securities
• Credit Risk Transfer ("CRT") Securities. CRT securities are risk sharing instruments that transfer a portion of the
risk associated with credit losses within pools of conventional residential mortgage loans from the GSEs and/or third-
parties to private investors. Full repayment of the original principal balance of CRT securities is not guaranteed by
the GSE or other third-party; rather, "credit risk transfer" is achieved by writing down the outstanding principal
balance of the CRT security if credit losses on the related pool of loans exceed certain thresholds. The reduced
amount that issuers are obligated to repay to the security holders offsets the issuer's credit losses on the related pool
of loans.
• Non-Agency Residential Mortgage-Backed Securities ("Non-Agency RMBS"). Non-Agency RMBS are
securities backed by pools of residential mortgages, for which payment of principal and interest is not guaranteed by
a GSE or U.S. Government agency. Instead, a private institution such as a commercial bank will package residential
mortgage loans and securitize them through the issuance of RMBS. Non-Agency RMBS may benefit from credit
enhancement derived from structural elements, such as subordination, overcollateralization or insurance. We may
purchase investment grade instruments that benefit from credit enhancement and non-investment grade instruments
that are structured to absorb more credit risk. We focus primarily on non-Agency securities where the underlying
mortgages are secured by residential properties within the United States. Residential non-Agency securities are
backed by residential mortgages that can be comprised of prime, non-prime, qualified and non-qualified mortgage
loans. We may also purchase Agency and non-Agency multifamily securities where the collateral backing the
securitization consists of loans for multi-unit housing properties.
• Commercial Mortgage-Backed Securities ("CMBS"). CMBS are securities backed by pools of commercial
mortgage loans. CMBS can be structured as pass-through securities, where the cash flows generated by the collateral
pool are passed on a pro rata basis to investors after netting servicer or other fees, or where cash flows are distributed
to numerous classes of securities following a predetermined waterfall, which may give priority to selected classes
while subordinating other classes. We may invest across the capital structure of these securities, and we intend to
focus on CMBS where the underlying collateral is secured by commercial properties located within the United
States.
Active Portfolio Management Strategy
We employ an active management strategy designed to achieve our principal objectives of generating attractive risk-
adjusted returns and managing our tangible net book value within reasonable bands. As part of our investment strategy, we use
leverage on our investment portfolio to increase potential returns to our stockholders. We invest in securities based on our
assessment of the relative risk-return profile of the securities and our ability to effectively hedge a portion of the securities'
exposure to market risks. The composition of our portfolio and strategies that we use will vary based on our view of prevailing
market conditions and the availability of suitable investment, hedging and funding opportunities. We may experience
investment gains or losses when we sell securities that we believe no longer provide attractive risk-adjusted returns or when we
believe more attractive alternatives exist elsewhere in the mortgage or mortgage-related securities market. We may also
experience gains or losses from our hedging strategies and losses on our non-Agency securities due to credit impairments.
Financing Strategy
The primary source of financing for our investments is repurchase agreement transactions. A repurchase (or "repo")
agreement transaction acts as a financing arrangement under which we effectively pledge our investment securities as collateral
to secure a loan. Our borrowings through repurchase transactions are generally short-term and have maturities ranging from one
day to one year but may have maturities up to five or more years. Our financing rates are typically impacted by the U.S. federal
funds rate and other short-term benchmark rates and liquidity in the Agency repo and other short-term funding markets.
Our leverage depends on market conditions, our assessment of risk and returns and our ability to borrow sufficient funds
to acquire mortgage securities. We generally expect our leverage to be within six to twelve times the amount of our tangible
stockholders' equity. However, under certain market conditions, we may operate at leverage levels outside of this range for
extended periods of time.
We diversify our funding exposure by entering into repurchase agreements with multiple counterparties. The terms of our
master repurchase agreements generally conform to the terms in the standard master repurchase agreement as published by the
Securities Industry and Financial Markets Association ("SIFMA") as to repayment, margin requirements and the segregation of
3
all securities sold under the repurchase transaction. In addition, each lender may require that we include supplemental terms and
conditions to the standard master repurchase agreement to address such matters as additional margin maintenance requirements,
cross default and other provisions. The specific provisions may differ for each lender and certain terms may not be determined
until we engage in individual repurchase transactions.
We finance a portion of our investments through our wholly-owned captive broker-dealer subsidiary, Bethesda Securities,
LLC ("BES"). BES is a member of the Fixed Income Clearing Corporation ("FICC") and has direct access to bilateral and
triparty repo funding as a Financial Industry Regulatory Authority ("FINRA") member broker-dealer. As an eligible institution,
BES also raises repo funding through the General Collateral Finance ("GCF") Repo service offered by the FICC, with the FICC
acting as the central counterparty, which provides us greater depth and diversity of repurchase agreement funding while also
lowering our funding cost, reducing our collateral requirements and limiting our counterparty exposure.
We also effectively finance the acquisition of Agency RMBS by entering into TBA dollar roll transactions through which
we sell a TBA contract for current month settlement and simultaneously purchase a similar TBA contract for a forward
settlement date. Prior to the forward settlement date, we may choose to roll the position to a later date by entering into an
offsetting TBA position, net settling the paired off positions for cash, and simultaneously entering into a similar TBA contract
for a forward settlement date. The TBA contract purchased for the forward settlement date is priced at a discount to the TBA
contract sold for settlement/pair off in the current month. The difference (or discount) is referred to as the "price drop" and is
the economic equivalent of net interest carry income (interest income less implied financing cost) on the underlying Agency
RMBS over the roll period, which is commonly referred to as "dollar roll income." We recognize TBA contracts as derivative
instruments on our consolidated financial statements at their net carrying value, which is their fair value less the purchase price
to be paid or received under the TBA contract. Consequently, dollar roll transactions represent a form of off-balance sheet
financing. In evaluating our overall leverage, we consider both our on-balance sheet and off-balance sheet financing.
Risk Management Strategy
We are exposed to a variety of market risks, including interest rate, prepayment, extension and credit risks. Our
investment strategies are based on our assessment of these risks, our ability to hedge a portion of these risks and our intention to
qualify as a REIT. Our hedging strategies are generally not designed to protect our net book value from "spread risk," which as
a levered investor in mortgage-backed securities is the inherent risk we take that the spread between the market yield on our
investments and the benchmark interest rates linked to our interest rate hedges fluctuates. In addition, although we attempt to
protect our net book value against moves in interest rates, we may not fully hedge against interest rate, prepayment and
extension risks if we believe that bearing such risks enhances our return profile, or if the hedging transaction would negatively
impact our REIT status.
•
•
Interest Rate Risk. We hedge a portion of our interest rate risk with respect to both the fixed income nature of our
long-term assets and the short-term, variable rate nature of our financing. A majority of our funding is in the form of
repurchase agreements, and, as a result, our financing costs fluctuate based on short-term benchmark rates, such as the
U.S. federal funds rate, Secured Overnight Financing Rate ("SOFR"), and three-month London Interbank Offered Rate
("LIBOR"). Our investments are assets that primarily have fixed rates of interest with maturities up to 30 years, and
the interest we earn on those assets generally does not move in tandem with the interest that we pay on our repurchase
agreements. As such, we may experience reduced income or losses due to adverse interest rate movements. To
mitigate a portion of such risk, we utilize hedging techniques to attempt to lock in a portion of the net interest spread
between the interest we earn on our assets and the interest we pay on our borrowings.
Fluctuations in the shape of the yield curve or changes in the market's expectation about future interest rate volatility
can also adversely affect the value of our assets. Furthermore, because prepayments on residential mortgages generally
accelerate when interest rates decrease and slow when interest rates rise, mortgage securities may increase in value
more slowly than similar duration bonds, or even fall in value, as interest rates decline. Mortgage securities could also
decrease in value more quickly than similar duration bonds as interest rates rise. This is referred to as "negative
convexity." We attempt to manage this risk through asset selection and the use of a variety of hedging techniques. We
monitor the "duration gap" of our portfolio, or differences in the interest rate sensitivity of our assets relative to our
liabilities, inclusive of interest rate hedges, and how our convexity and duration gap could change if interest rates and
prepayment expectations were to increase or decrease under a variety of scenarios.
Prepayment Risk. Because residential borrowers have the option to prepay their mortgage loans at par at any time, we
face the risk that we will experience a return of principal on our investments faster than anticipated. Prepayment risk
generally increases when interest rates decline, and our financial results could be adversely affected as we may have to
reinvest principal repayments at lower yields.
4
•
•
•
Extension Risk. Because residential borrowers have the option to make only scheduled payments on their mortgage
loans, we face the risk that a return of capital on our investment will occur slower than anticipated. Extension risk
generally increases when interest rates rise, and our financial results could be adversely affected as we may have to
finance our investments at potentially higher costs without the ability to simultaneously reinvest principal repayments
into higher yielding securities due to a lack of or slower than anticipated borrower prepayments.
Spread Risk. Because the market spread between the yield on our investments and the yield on benchmark interest
rates, such as U.S. Treasury rates and interest rate swap rates, may vary, we are exposed to spread risk. When spreads
widen, we will typically experience a loss in our tangible net book value, conversely, when spreads tighten, we will
typically experience a gain in our tangible net book value. Spread movements can occur independent of interest rates
and may relate to other factors impacting the mortgage and fixed income markets, such as actual or anticipated
monetary policy actions by the U.S. Federal Reserve (the "Fed"), liquidity, or changes in required rates of return on
different assets. Spread risk is an inherent risk we take as a levered investor in mortgage-backed securities and, as
such, our strategies are generally not designed to protect our tangible net book value from adverse spread movements.
Credit Risk. We accept mortgage credit exposure related to our CRT and other non-Agency securities at levels we
deem to be appropriate within the context of our overall investment strategy. We attempt to manage this risk through
prudent asset selection, pre-acquisition due diligence, post-acquisition performance monitoring, and 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 attempt to adjust our credit exposure and/or to
improve the return profile of our investment portfolio by varying the mix of our Agency and non-Agency mortgage
investments and adjusting our duration gap when we believe credit performance is inversely correlated with changes in
interest rates.
Our risk management actions may lower our earnings and dividends in the short-term to further our objective of
preserving our net book value and maintaining attractive levels of earnings and dividends over the long-term. In addition, some
of our hedges are intended to provide protection against larger rate moves and as a result may be relatively ineffective for
smaller interest rate changes. Our projections of exposures to interest rate, prepayment, extension and other risks are also based
on models that are dependent on a number of assumptions and inputs, and actual results could differ materially from our
projections.
Exemption from Regulation under the Investment Company Act
We conduct our business so as not to become regulated as an investment company under the Investment Company Act, in
reliance on the exemption provided by Section 3(c)(5)(C) of the Act. So long as we qualify for this exemption, we will not be
subject to leverage and other restrictions imposed on registered investment companies, which would significantly reduce our
ability to use leverage. Section 3(c)(5)(C), as interpreted by the staff of the U.S. Securities and Exchange Commission ("SEC"),
requires us to invest at least 55% of our assets in "mortgages and other liens on and interest in real estate" or "qualifying real
estate interests" ("55% asset test") and at least 80% of our assets in qualifying real estate interests and "real estate-related
assets." In satisfying this 55% requirement, based on pronouncements of the SEC staff and in certain instances our own
judgment, we treat Agency RMBS issued with respect to an underlying pool of mortgage loans in which we hold all the
certificates issued by the pool ("whole pool" securities) as qualifying real estate interests. We typically treat "partial pool" and
other mortgage securities where we hold less than all the certificates issued by the pool as real estate-related assets.
Real Estate Investment Trust Requirements
We have elected to be taxed as a REIT under the Internal Revenue Code. As a REIT, we generally will not be subject to
U.S. federal or state corporate income tax on our taxable income to the extent that we distribute annually all our taxable income
to stockholders within the time limits prescribed by the Internal Revenue Code. Qualification and taxation as a REIT depend on
our ability to continually meet requirements imposed upon REITs by the Internal Revenue Code, including satisfying certain
organizational requirements, an annual distribution requirement and quarterly asset and annual income tests. The REIT asset
and income tests are significant to our operations as they restrict the extent to which we can invest in certain types of securities
and conduct certain hedging activities within the REIT. Consequently, we may be required to limit these activities or conduct
them through a taxable REIT subsidiary ("TRS"). We believe that we have been organized and operate in such a manner as to
qualify for taxation as a REIT.
Income Tests
To continue to qualify as a REIT, we must satisfy two gross income requirements on an annual basis.
5
1. At least 75% of our gross income for each taxable year generally must be derived from investments in real property or
mortgages on real property.
2. At least 95% of our gross income in each taxable year generally must be derived from some combination of income
that qualifies under the 75% gross income test described above, as well as other dividends, interest, and gains from the
sale or disposition of stock or securities, which need not have any relation to real property.
Interest income from obligations secured by mortgages on real property (such as Agency and non-Agency MBS)
generally constitutes qualifying income for purposes of the 75% gross income test described above. There is no direct authority
with respect to the qualification of income or gains from TBAs for the 75% gross income test; however, we treat these as
qualifying income for this purpose based on an opinion of legal counsel. The treatment of interest income from other real estate
securities depends on their specific tax structure. Income and gains from instruments that we use to hedge the interest rate risk
associated with our borrowings incurred, or to be incurred, to acquire real estate assets will generally be excluded from both
gross income tests, provided that specified requirements are met.
Asset Tests
At the close of each calendar quarter, we must satisfy five tests relating to the nature of our assets.
1. At least 75% of the value of our total assets must be represented by some combination of "real estate assets," cash,
cash items, U.S. Government securities, and, under some circumstances, temporary investments in stock or debt
instruments purchased with new capital. For this purpose, mortgage-backed securities and mortgage loans are
generally treated as "real estate assets." Assets that do not qualify for purposes of the 75% asset test are subject to the
additional asset tests described below.
2. The value of any one issuer's securities that we own may not exceed 5% of the value of our total assets.
3. We may not own more than 10% of any one issuer's outstanding securities, as measured by either voting power or
value. The 5% and 10% asset tests do not apply to securities of TRSs and qualified REIT subsidiaries and the 10%
asset test does not apply to "straight debt" having specified characteristics and to certain other securities.
4. The aggregate value of all securities of all TRSs that we hold may not exceed 20% of the value of our total assets.
5. No more than 25% of the total value of our assets may be represented by certain non-mortgage debt instruments issued
by publicly offered REITs (even though such debt instruments qualify under the 75% asset test).
A failure to satisfy the income or asset tests would not immediately cause us to lose our REIT qualification; rather, we
could retain our REIT qualification if we were able to satisfy certain relief provisions and pay any applicable penalty taxes and
other fines, or, in the case of a failure to satisfy the asset test, eliminate the discrepancy within a 30-day cure period. Please also
refer to the "Risks Related to Our Taxation as a REIT" in "Item 1A. Risk Factors" of this Form 10-K for further discussion of
REIT qualification requirements and related items.
Human Capital Management
We believe our success as a company ultimately depends on the strength, wellness, and dedication of our workforce. We
pride ourselves on robust practices in the area of human capital management that are constantly evolving to meet the needs of
our people. As of December 31, 2020, our workforce consisted of 50 full-time employees. We strive to provide each of our
highly skilled employees an engaging, rewarding, supportive, and inclusive atmosphere in which to grow professionally. Our
competitive and comprehensive benefits package is carefully designed to attract and retain talented personnel. We believe our
low voluntary employee turnover and favorable employee survey results are a testament to the success of our human capital
management initiatives.
Year
2020
2019
2018
Employee Turnover Metrics
January 1
Terminations 1
New Hires
December 31
51
56
56
-1
-6
-2
0
1
2
50
51
56
________________________________
1.
Employee terminations include voluntary and involuntary terminations. Terminations during 2018 and 2019 were primarily associated with the
termination of MTGE Investment Corp.’s management services agreement with our subsidiary MTGE Management, LLC due to the sale of MTGE
Investment Corp. to a third party in 2018.
6
Employee Communications and Engagement
We recognize the importance of ongoing open communication and engagement with our employees, and we greatly value
their input. We regularly engage with our employees in a variety of ways through regular feedback with each member of our
staff, anonymous employee surveys and frequent town hall meetings.
Our anonymous employee surveys are a key component of our employee engagement that provide a means of assessing
job satisfaction and specific concerns of our employees. To enhance the candor and comfort of our employees, we use an
outside vendor that provides verbatim comments and analysis of engagement levels on an anonymous basis. A recent
anonymous employee survey indicated the Company had a satisfaction rating above 90% in many areas, including AGNC’s
treatment of its employees, physical working conditions, commitment to integrity, and overall culture and environment. Based
on the results of our surveys, our Board and management have implemented various ideas and recommendations received from
employees.
Workplace Culture and Ethics
Our corporate culture promotes open and honest communication, fair treatment, collegiality and high ethics and
compliance standards. Our Code of Ethics and Conduct ("Code of Conduct") applies to all directors, officers and employees
and provides clear expectations and guidance to facilitate appropriate decisioning. Our Code of Conduct covers topics such as
compliance with securities laws, conflicts of interest, giving and receiving gifts, discrimination, harassment, privacy,
appropriate use of Company assets, protecting confidential information, and reporting Code of Conduct violations (including
through an anonymous hotline). All employees are required to affirm their understanding of these standards on at least an
annual basis. Our executive officers and human resources department maintain "open door" policies and any form of retaliation
for bona fide reporting of Code of Conduct violations is expressly prohibited.
Employee Development
We have a number of policies and programs to further the professional development of our employees, including our
professional certification and continuing education policy. This includes reimbursement for any supervisor-approved courses
for our employees. We also maintain a regular "Lunch and Learn" series and recently launched a formal mentoring program for
employees to provide direct one-on-one career guidance and cross-functional experience across various operations. These
initiatives have advanced unique and professional skill sets throughout the organization.
Diversity and Inclusion
Central to our core values is that every individual deserves respect and equal treatment, regardless of gender, race,
ethnicity, age, disability, sexual orientation, gender identity, cultural background or religious belief. We strive to have a diverse
workforce and an inclusive and welcoming work environment that is free from wrongful discrimination. We have long
maintained policies against discrimination and harassment in our workplace. Although we have a relatively small workforce
and low turnover rate, our recruitment and hiring practices attempt to ensure the diversity of applicant pools for posted job
openings. We also seek to engage our employees and provide them opportunities on a non-discriminatory and inclusive basis.
As of December 31, 2020, 43% of our employees were women and 33% were ethnically diverse. Our Board also strives to
maintain diversity and inclusion among its directors. As of December 31, 2020, three of seven directors were women and one
director was ethnically diverse.
Compensation and Benefits
We seek to attract and retain the most talented employees in our industry by offering competitive compensation and
benefits. Our pay-for-performance compensation philosophy is based on rewarding each employee’s individual contributions
through a combination of fixed and variable pay elements. Each employee receives a total compensation package that includes
base salary, short-term incentives in the form of an annual cash bonus and long-term equity incentives. The proportion of each
employee’s variable incentive versus fixed-based elements of their compensation is directly correlated to the individual’s level
of responsibility and role in the organization. Generally, higher level employees have higher proportions of variable incentive-
based compensation in their target mix. Similarly, within the incentive-based elements, the proportion of long-term incentive-
based elements generally increases with the individual’s level of responsibility in the organization.
As the success of our business is fundamentally connected to the well-being of our people, we offer benefits that support
their physical, financial and emotional well-being. We provide our employees with access to flexible, comprehensive and
convenient medical coverage intended to meet their needs and the needs of their families. In addition to standard medical
coverage, we offer employees dental and vision coverage, health savings and flexible spending accounts, paid time off,
employee assistance programs, voluntary short-term and long-term disability insurance, term life insurance and other benefits.
7
We also believe in the long-term financial wellness of our employees, and to foster maximum savings rates by our employees
we offer a 401(k) Savings Plan and Company matching contributions of 100% up to 6% of each employee’s eligible
compensation, subject to IRS limits.
COVID-19 and Workforce Safety
To protect the health and safety of our workforce, during the COVID-19 pandemic (the "Pandemic" or "COVID-19"), we
shifted to a fully remote work-from home environment prior to any jurisdiction’s mandate to do so. We also instituted a survey
in mid-2020 to understand our employees' perspective during the extreme circumstances brought about by the Pandemic,
including work-from-home environment and resource issues, employee mental health and wellbeing, child-care considerations
and similar matters. We used their feedback to inform decisions regarding matters such as implementing flexible work
schedules, providing additional resources and equipment to improve our employees work from home experience, and
demonstrating flexibility with respect to the timing and manner of eventual office re-openings. Finally, we hosted town hall
meetings on a frequent basis – including weekly during the early phases of the COVID-19 pandemic in March and April and on
a monthly basis thereafter – to ensure sufficient company-wide communication with our workforce during this time. Employee
survey results indicated that 100% of our employees believe we responded to the COVID-19 outbreak very well or extremely
well.
Competition
Our success depends, in large part, on our ability to acquire assets at favorable spreads over our borrowing costs. In
acquiring mortgage assets, we compete with mortgage REITs, mortgage finance and specialty finance companies, savings and
loan associations, banks, mortgage bankers, insurance companies, mutual funds, institutional investors, investment banking
firms, other lenders, governmental bodies and other entities. These entities and others that may be organized in the future may
have similar asset acquisition objectives and increase competition for the available supply of mortgage assets suitable for
purchase. Additionally, our investment strategy is dependent on the amount of financing available to us through repurchase
agreements and would be adversely impacted if we are not able to secure financing on favorable terms, if at all.
Corporate Information
Our executive offices are located at Two Bethesda Metro Center, 12th Floor, Bethesda, MD 20814 and our telephone
number is (301) 968-9315.
We make available our Annual Reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and
amendments to such reports as well as our Code of Ethics and Conduct on our internet website at www.AGNC.com as soon as
reasonably practical after such material is electronically filed with or furnished to the SEC. These reports are also available on
the SEC internet website at www.sec.gov.
Item 1A. Risk Factors
You should carefully consider the risks described below and all other information contained in this Annual Report on
Form 10-K, including our annual consolidated financial statements and the related notes thereto before deciding to purchase our
securities. If any of the following risks were to occur, our business, financial condition or results of operations could be
materially adversely affected. If that happens, the trading price of our securities could decline, and you may lose all or part of
your investment. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties
not presently known to us, or not presently deemed material by us, may also impair our operations and performance.
Risks Related to Our Investment and Portfolio Management Activities
We may change our targeted investments, investment guidelines and other operational policies without stockholder consent.
We may change our targeted investments and investment guidelines at any time without the consent of our stockholders,
which could result in our making investments that are different from, and possibly riskier than, those described in this Annual
Report or under our current guidelines. Our Board of Directors also determines our other operational policies, including our
policies with respect to our REIT qualification, acquisitions, dispositions, operations, indebtedness and distributions. Our Board
of Directors may amend or revise such policies or authorize transactions that deviate from them, without a vote of, or notice to,
our stockholders. Any such change may increase our exposure to risks described herein or expose us to new risks that are not
currently contemplated, which could materially impair our operations and financial performance.
8
The human and economic impacts of the COVID-19 pandemic and related events are uncertain and may negatively impact
our business.
The global outbreak of the COVID-19 pandemic has extracted a significant human toll and adversely affected both the
U.S. and global economies. Our business was materially impacted by the severe market disruptions and volatility resulting from
the Pandemic in March and April 2020. (See Recent Trends and Market Impacts under Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations of this Form 10-K for additional information). While the U.S.
government and the Fed have taken actions to reduce the negative impacts of the Pandemic, and several vaccines have begun to
be deployed, the extent and rate at which these actions will be effective over the longer-term are unclear, and further fiscal,
monetary or other actions may be required but are not assured. Furthermore, if new, potentially more severe strains of the virus
emerge, adverse conditions could persist or worsen leading to further economic and financial market instability. There may also
be unintended adverse consequences resulting from the magnitude of the Fed’s stimulative measures and other actions of other
policy makers that could negatively impact our business. For example:
• we may experience elevated rates of prepayments on our portfolio due to lower mortgage rates resulting from the
Fed’s ongoing asset purchase program or buyouts of delinquent loans from the pools of mortgages underlying our
Agency RMBS by Fannie Mae and Freddie Mac;
an actual or anticipated reduction in the Fed’s asset purchase program or other stimulative policy measures may expose
us to materially higher mortgage spread, interest rate and market volatility risks as well as lead to less favorable or
potentially negative conditions in the TBA dollar roll and repo funding markets; and
•
• we may be exposed to increased model and forecast risks due to a lack of relevant or reliable historical correlations
due to the unprecedented conditions and policy measures associated with the Pandemic.
We may be unable to take actions necessary to mitigate these or other adverse consequences resulting from the Pandemic
or they may be ineffective. Consequently, our operating results may be impaired, and we could incur significant losses.
Our active portfolio management strategy may expose us to greater losses and lower returns than compared to passive
strategies.
We employ an active management strategy to achieve our principal objective of preserving our tangible net book value
while generating attractive risk-adjusted returns. The composition of our investment portfolio, leverage ratio and hedge
composition will vary as we believe changes to market conditions, risks and valuations warrant. We may experience significant
investment gains or losses when we sell investments that we no longer believe provide attractive risk-adjusted returns or when
we believe more attractive alternatives are available. We may be incorrect in our assessment and select an investment portfolio
that may generate lower returns than a more static management strategy. Furthermore, because of our active strategy, investors
may be unable to assess changes in our financial position solely by observing changes in the mortgage market.
The Fed’s participation in the Agency mortgage market could adversely affect the value of and returns on Agency RMBS.
In March 2020, the Fed launched a series of quantitative easing measures and began unprecedented large-scale purchases
of U.S. Treasury securities and Agency RMBS to restore proper market functioning and the flow of credit to U.S. households
and businesses disrupted by the COVID-19 financial crisis. Although its position on these matters may change over time, the
Fed has stated its intent to maintain accommodative monetary policies until its objectives of maximum employment and a long-
term average target inflation rate of 2% are achieved and that it will continue to increase its holdings of Treasury securities and
Agency RMBS until substantial further progress has been made towards these goals. There is no certainty that these programs
will be continued, and the Fed may determine to reduce its level of purchases, curtail reinvestment in Agency RMBS or engage
in outright sales.
The Fed’s involvement in the Agency mortgage market can materially impact the availability, price and returns
associated with Agency RMBS. As of December 31, 2020, the Fed owned approximately 30% of all outstanding Agency
RMBS. When the Fed is actively purchasing securities, asset prices and liquidity typically increase, but we may simultaneously
experience materially faster rates of prepayment and we may be unable to reinvest the repayments at acceptable yields. The
Fed’s participation may also adversely impact mortgage spreads. For example, mortgage spreads could widen due to increased
prepayment risk when the Fed is actively conducting asset purchases. Mortgage spreads may also widen due to an actual or
anticipated reduction in the Fed’s asset purchases, reinvestment rate or outright sales. Given the scale of the Fed’s asset
purchases, the adverse effects of the Fed’s involvement in the Agency mortgage market (and the timing and effects of any
changes in Fed programs) may be difficult to predict and could result in a material decline in our financial position. In an
attempt to mitigate the impact of spread widening, we may reduce our leverage to below our normal target leverage range. We
may also attempt to adjust our asset and hedge composition, but these and other actions we may take could be ill timed or
ineffective.
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A decline in the fair value of our assets may adversely affect our financial condition and make it costlier to finance our
assets.
We record our investments at fair value with changes in fair value reported in net income or other comprehensive income.
A decline in the fair value of our investments could reduce both our net income and stockholders' equity. We also use our
investments as collateral for our financings and certain hedge transactions; consequently, a decline in fair value, or perceived
market uncertainty about the value of our assets, could make it difficult for us to obtain financing on favorable terms or at all, or
for us to maintain our compliance with terms of agreements already in place. Since we primarily invest in long-term fixed rate
securities, our investment portfolio is particularly sensitive to changes in longer-term interest rates. If interest rates or other
market conditions result in a decline in the fair value of our assets, we would be subject to margin calls on our existing
agreements and it would decrease the amount we may borrow to purchase additional investments. If this occurs, we could be
required to sell assets at adverse prices and our ability to maintain or increase our net income would be significantly restricted.
Changes in prepayment rates may adversely affect the return on our investments.
Our investment portfolio includes securities backed by pools of mortgage loans, which receive payments related to the
underlying mortgage loans. When borrowers prepay their mortgage loans at rates faster or slower than anticipated, it exposes us
to prepayment or extension risk. 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 as other factors can affect the rate of
prepayments, including loan age and size, loan-to-value ratios, housing price trends, general economic conditions and other
factors.
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 margins would be negatively impacted. We
also amortize or accrete into interest income any premiums and discounts we pay or receive at purchase relative to the stated
principal of our assets 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, which could negatively affect our interest income.
If our assets prepay at a slower rate than anticipated, our assets could extend beyond their expected maturities and we
may have to finance our investments at potentially higher costs without the ability to reinvest principal into higher yielding
securities. Additionally, if prepayment rates decrease due to a rising interest rate environment, the average life or duration of
our fixed-rate assets would extend, but our interest rate swap maturities would remain fixed and, therefore, cover a smaller
percentage of our funding exposure. This situation may also cause the market value of our assets to decline, while most of our
hedging instruments would not receive any incremental offsetting gains.
To the extent that actual prepayment speeds differ from our expectations, our operating results could be adversely
affected, and we could be forced to sell assets to maintain adequate liquidity, which could cause us to incur realized losses. In
addition, should significant prepayments occur, there is no certainty that we will be able to identify acceptable new investments,
which could reduce our invested capital or result in us investing in less favorable securities.
Prepayment rates are difficult to predict, and market conditions and technology advancements in mortgage origination
channels may disrupt the historical correlation between interest rate changes and prepayment trends.
Our success depends on our ability to predict prepayment behavior under a variety of economic conditions and
particularly the relationship between changing interest rates and other market conditions and the rate of prepayments. As part of
our overall portfolio risk management, we analyze interest rate changes and prepayment trends to assess their effects on our
investment portfolio. Our analysis is based on models that depend on multiple assumptions and inputs. Many of the
assumptions we use are based upon historical trends with respect to the relationship between interest rates and prepayments
under normal market conditions, which may not correctly predict future prepayment activity. Dislocations in the residential
mortgage market and other developments may disrupt the relationship between the way that prepayment trends have historically
responded to interest rate changes and our actual prepayment experience.
Prepayment rates are also impacted by other factors beyond interest rates, such as when borrowers sell their property and
use the proceeds to prepay their mortgage or when borrowers default on their mortgages and the defaulted loans are either
purchased from the RMBS trust or the mortgages are prepaid from the proceeds of a foreclosure sale of the property.
Historically, Fannie Mae and Freddie Mac repurchased mortgages that are 120 days or more delinquent from RMBS trusts.
However, in response to the unprecedented circumstances of COVID-19, the GSEs temporarily extended the timeline for
repurchasing delinquent loans that are in forbearance. The GSE delinquent loan buyout policy was further modified on
September 30, 2020 to extend the timeline for its delinquent loan buyout trigger from 4 consecutively missed monthly
payments to 24 consecutively missed monthly payments. However, most delinquent loans are likely to be repurchased before
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the 24-month period expires for numerous reasons, including repayment or satisfaction in full, debt forgiveness, repurchases by
seller/servicers under their guidelines, loan modifications, short-sales or deeds in lieu of foreclosure or referrals of loans to
foreclosure. There is no guarantee that the GSEs will continue to defer buyouts of loans from the RMBS trusts during the
forbearance period. Thus, the large number of loans currently delinquent or in forbearance could accelerate prepayments on our
investment portfolio.
Changes to or new U.S. Government programs could also increase the availability of mortgage credit to homeowners,
which could impact prepayment rates. Furthermore, current and future technological advancements are expected to improve
efficiencies in mortgage origination and servicing, which may reduce borrowing costs and increase the rate of prepayment
activity. The impacts of these factors are difficult to predict and may negatively affect our ability to assess prepayment risk or to
implement effective hedging strategies and other techniques to reduce our exposure to prepayment risk.
The analytical models and third-party data that we rely on to manage our portfolio and conduct our business objectives may
be incorrect, misleading or incomplete.
We use analytical models, data and other information to value assets, assess potential asset purchases and in connection
with our risk management and hedging activities. We may source our models and data from third-parties or develop them
internally. Models are dependent on multiple assumptions and inputs. Models typically also assume a static portfolio. If either
the models, their underlying assumptions or data inputs prove to be incorrect, misleading or incomplete, any decisions we make
in reliance on such information may be faulty and expose us to potential risks.
Many of the analytical models we use are predictive in nature, such as mortgage prepayment and default models. The use
of predictive models has inherent risks and may incorrectly forecast future behavior, leading to potential losses. Furthermore,
since predictive models are usually constructed based on historical trends using data supplied by third parties, the success of
relying on such models depends heavily on the accuracy and reliability of the supplied historical data. Additionally, multiple
factors could disrupt the relationships between data and historical trends, reducing the ability of our models to predict future
outcomes, or even render them invalid. We are at greater risk of this occurring during periods of high volatility or
unprecedented financial or economic events, such as during the COVID-19 pandemic. Consequently, actual results could differ
materially from our projections. Moreover, use of different models could result in materially different projections.
Valuation models rely on the accuracy of market data inputs. If incorrect market data is entered into even a well-founded
valuation model, the resulting valuations will be incorrect. However, even if market data is inputted correctly, "model prices"
may differ substantially from market prices, especially for securities with complex characteristics or illiquid instruments.
Analytical models and third-party data used to analyze securitizations backed by non-Agency and residential and commercial
mortgages also expose us to the risk that the (i) collateral cash flows and/or liability structures may be incorrectly modeled in all
or only certain scenarios, or may be modeled based on simplifying assumptions that lead to errors; (ii) information about
collateral may be incorrect, incomplete or misleading; (iii) collateral or bond historical performance (such as historical
prepayments, defaults, cash flows, etc.) may be incorrectly reported, or subject to interpretation (e.g., different issuers may
report delinquency statistics based on different definitions of what constitutes a delinquent loan); or (iv) collateral or bond
information may be outdated, in which case the models may contain incorrect assumptions as to what has occurred since the
date information was last updated.
The models we use may include LIBOR as an input. The expected transition away from LIBOR may require changes to
these models that may change the underlying economic relationships being modeled and the models may be run with less
historical data than is currently available for LIBOR.
The fair value of our investments may not be readily determinable or may be materially different from the value that we
ultimately realize upon their disposal.
We measure the fair value of our investments in accordance with guidance set forth in Accounting Standards Codification
Topic 820, Fair Value Measurements and Disclosures. Fair value is only an estimate based on good faith judgment of the price
at which an investment can be sold since market prices of investments can only be determined by negotiation between a willing
buyer and seller. Our determination of the fair value of our investments includes inputs provided by pricing services and third-
party dealers. Valuations of certain investments in which we invest may be difficult to obtain or unreliable. In general, pricing
services and dealers heavily disclaim their valuations and we do not have recourse against them in the event of inaccurate price
quotes or other inputs used to determine the fair value of our investments. Depending on the complexity and illiquidity of a
security, valuations of the same security can vary substantially from one pricing service or dealer to another. Moreover, fair
value and estimates of fair value may fluctuate over short periods of time. For these reasons, the fair value at which our
investments are recorded may not be an accurate indication of their realizable value. The ultimate realization of the value of an
asset depends on economic and other conditions that are beyond our control. Consequently, if we were to sell an asset,
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particularly in a forced liquidation, the realized value may be less than the amount at which the asset is recorded, which would
negatively affect our results of operations and financial condition.
The mortgage loans referenced by our CRT securities or that underlie our non-Agency securities may be or could become
subject to delinquency or foreclosure, which could result in significant losses to us.
Investments in credit-oriented securities, such as CRT securities and non-Agency MBS, where repayment of principal
and interest is not guaranteed by a GSE or U.S. Government agency, subject us to the potential risk of loss of principal and/or
interest due to delinquency, foreclosure and related losses on the underlying mortgage loans.
CRT securities are risk sharing instruments issued by Fannie Mae and Freddie Mac, and similarly structured transactions
arranged by third-party market participants, that are designed to synthetically transfer mortgage credit risk from the issuing
entity to private investors. The transactions are structured as unsecured and unguaranteed bonds whose principal payments are
determined by the delinquency and prepayment experience of a reference pool of mortgages guaranteed by Fannie Mae or
Freddie Mac. An investor in CRT securities bears the risk that the borrowers in the reference pool of loans may default on their
obligations to make full and timely payments of principal and interest.
Residential mortgage loans underlying non-Agency RMBS are secured by residential property and are subject to risks of
delinquency, foreclosure and loss. The ability of a borrower to repay a loan secured by residential property is dependent upon
the income or assets of the borrower. Many factors could impair a borrower's ability to repay the loan, including loss of
employment, divorce, illness, acts of God (including pandemics), acts of war or terrorism, adverse changes in economic and
market conditions, changes in laws and regulations, changes in fiscal policies and zoning ordinances, costs of remediation and
liabilities associated with environmental conditions such as mold, and the potential for uninsured or under-insured property
losses.
Commercial mortgage loans underlying CMBS are generally secured by multifamily or other commercial properties and
are subject to risks of delinquency and foreclosure and risks of loss that are greater than similar risks associated with loans
made on the security of residential property. The ability of a borrower to repay a loan secured by an income-producing property
typically is dependent primarily upon the successful operation of such property rather than upon the existence of independent
income or assets of the borrower. If the net operating income of the property is reduced, the borrower's ability to repay the loan
may be impaired. Net operating income of an income producing property can be affected by numerous factors, such as:
occupancy rates, tenant mix, success of tenant businesses, property management decisions, property location and condition,
changes in economic or operating conditions (such as a pandemic) and other factors.
Geographic concentration of our assets can expose us to greater risk of default and loss. Repayments by borrowers and
the market value of the related assets underlying our investments are affected by national as well as local and regional economic
and other conditions. As a result, concentrations of investments tied to geographic regions increase the risk that adverse
economic conditions or other developments affecting a region could increase the frequency and severity of losses on our
investments. Additionally, assets in certain regional areas may be more susceptible to certain hazards (such as earthquakes,
widespread fires, rising sea levels, disease, floods, hurricanes and certain climate risks) than properties in other parts of the
country, and assets located in coastal states may be more susceptible to hurricanes or sea level rise than properties in other parts
of the country. Areas affected by these types of events often experience disruptions in travel, transportation and tourism, loss of
jobs, a decrease in consumer activity, and a decline in real estate-related investments, and their economies may not recover
sufficiently to support income producing real estate at pre-event levels. These types of occurrences may increase over time or
become more severe due to changes in weather patterns and other climate changes.
Private mortgage insurance may not cover losses on loans referenced to or underlying our CRT and non-Agency RMBS.
In certain instances, mortgage loans referenced to our CRT securities or underlying our non-Agency RMBS may have
private mortgage insurance. This insurance is often structured to absorb only a portion of the loss if a loan defaults and, as such,
we may be exposed to losses on these loans greater than the mortgage insurance. Rescission and denial of mortgage insurance
may affect the ability to collect on this insurance. If private mortgage insurers fail to remit insurance payments for insured
portions of loans when losses are incurred and where applicable, whether due to breach of contract or to an insurer's insolvency,
we may experience a loss on related CRT or non-Agency RMBS securities for the amount that was insured by such insurers.
Changes in credit spreads may adversely affect our profitability.
A significant component of the fair value of CRT and non-Agency securities and other credit risk-oriented investments is
attributable to the credit spread, or the difference between the value of the credit instrument and the value of a financial
instrument with similar interest rate exposure, but with no credit risk, such as a U.S. Treasury note. Credit spreads can be highly
volatile and may fluctuate due to changes in economic conditions, liquidity, investor demand and other factors. Credits spreads
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typically widen in times of increased market uncertainty or when economic conditions have or are expected to deteriorate.
Credit spreads may also widen due to actual or anticipated rating downgrades on the securities we hold or similar securities.
Hedging fair value changes associated with credit spreads can be inefficient and our hedging strategies are generally not
designed to mitigate credit spread risk. Consequently, changes in credit spreads could adversely affect our profitability and
financial condition.
Actions of the U.S. Government, including the U.S. Congress, Fed, U.S. Treasury, Federal Housing Finance Administration
("FHFA") and other governmental and regulatory bodies may adversely affect our business.
U.S. Government actions may have an adverse impact on the financial markets. To the extent the markets do not respond
favorably to any such actions or such actions do not function as intended, they could have broad adverse market implications
and could negatively impact our financial condition and results of operations. U.S. banking and financial regulators have begun
to examine root causes of financial dislocations that occurred in March and April 2020 in response to the Pandemic and to
identify areas for potential regulatory reforms that may be adopted in the future. New regulatory requirements could adversely
affect the availability or terms of financing from our lender counterparties, impose more stringent capital rules on financial
institutions, restrict the origination of residential mortgage loans and the formation of new issuances of mortgage-backed
securities and limit the trading activities of certain banking entities and other systemically significant organizations that are
important to our business. Together or individually these new regulatory requirements could materially affect our financial
condition or results of operations in an adverse way.
Federal housing finance reform and potential changes to the Federal conservatorship of Fannie Mae and Freddie Mac or to
laws or regulations affecting the relationship between the GSEs and the U.S. Government may adversely affect our business.
The payments of principal and interest we receive on our Agency RMBS are guaranteed by Fannie Mae, Freddie Mac or
Ginnie Mae. The guarantees on Agency securities created by Ginnie Mae are explicitly backed by the full faith and credit of the
U.S. Government, whereas the guarantees on Agency securities created by Fannie Mae and Freddie Mac are not.
In September 2008, Fannie Mae and Freddie Mac were placed into the conservatorship of the FHFA, their federal
regulator, pursuant to its powers under The Federal Housing Finance Regulatory Reform Act of 2008, a part of the Housing and
Economic Recovery Act of 2008. In addition to FHFA becoming the conservator of Fannie Mae and Freddie Mac, the U.S.
Department of the Treasury has provided a liquidity backstop to Fannie Mae and Freddie Mac to ensure their financial stability.
Shortly after the start of the federal conservatorships, the Secretary of the U.S. Treasury suggested that the guarantee payment
structure of Fannie Mae and Freddie Mac in the U.S. housing finance market should be re-examined. In 2019, the U.S. Treasury
Department and Department of Housing and Urban Development issued housing reform plans that expressed support for a
future end to the conservatorships. In November 2020, the FHFA promulgated regulations that established new regulatory
capital requirements for Fannie Mae and Freddie Mac. In January 2021, the U.S. Treasury Department amended the terms of its
liquidity backstop to enable Fannie Mae and Freddie Mac to retain a greater amount of capital in order to achieve these levels,
subject to certain conditions. These administrative actions may have significant impact on the source, pricing, volume and
nature of Agency RMBS and other mortgage securities that Fannie Mae and Freddie Mac issue, which may reduce or otherwise
impact their availability in the future.
Further administrative and/or legislative actions may be taken that affect structural GSE and federal housing reform, alter
the amount or nature of the credit support provided by the U.S. Treasury to Fannie Mae and Freddie Mac, or modify the future
roles of Fannie Mae and Freddie Mac in housing finance. Any legal or administrative actions affecting these GSEs may create
market uncertainty, may have the effect of reducing the actual or perceived credit quality of securities issued or guaranteed by
them or may otherwise impact the size and scope of the Agency RMBS markets. Administrative or legislative action that would
terminate the conservatorships without simultaneously providing for a sufficiently robust U.S. government guaranty could re-
define what constitutes an Agency security and have broad adverse implications for the mortgage markets and our business:
such changes could subject Agency RMBS to Fannie Mae or Freddie Mac credit risk, make them more difficult to finance, and
cause their values to decline.
We may be unable to acquire desirable investments due to competition, a reduction in the supply of new production Agency
RMBS having the specific attributes we seek, and other factors.
Our profitability depends on our ability to acquire our target assets at attractive prices. We may seek assets that include
specific attributes that affect their propensity for prepayment under certain market conditions or enable us to satisfy asset test
requirements to maintain our REIT qualification status or exemption from regulation under the Investment Company Act (such
as "whole pool" Agency RMBS). The supply of our target assets may be impacted by policies and procedures adopted by the
GSEs, such as pooling practices, or their regulator, the FHFA, or actions by other governmental agencies. Housing finance
reform measures may also impact the supply and availability of our target assets. Consequently, a sufficient supply of our target
assets may not be available or available at attractive prices. We may also compete for these assets with a variety of other
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investors, including other REITs, specialty finance companies, public and private funds, government entities, banks, insurance
companies and other financial institutions, who may have competitive advantages over us, such as a lower cost of funds and
access to funding sources not available to us. If we are unable to acquire a sufficient supply of our target assets, we may be
unable to achieve our investment objectives or to maintain our REIT qualification status or exemption from regulation under the
Investment Company Act.
Risks Related to Our Financing and Hedging Activities
Our use of significant leverage increases the risk that we may incur substantial losses.
Our strategy involves the significant use of leverage which will vary depending on our assessment of market conditions
and risk adjusted returns. We generally expect to maintain our leverage between six to twelve times the amount of our tangible
stockholders' equity, but we may operate at levels outside of this range for extended periods. We incur leverage by borrowing
against a substantial portion of the market value of our assets. While leverage is fundamental to our investment strategy, it also
creates significant risks because leverage amplifies the effect of changes in underlying asset values. Because of our leverage,
we may incur substantial losses if the value of our investments declines or if mortgage spreads widen and our investments
underperform our interest rate hedges.
Spread risk is an inherent component of our business as a levered investor.
When the spread between the market yield on our mortgage assets and benchmark interest rates widens, our tangible net
book value will typically decline. We refer to this as "spread risk" or "basis risk." As a levered investor primarily in fixed-rate
Agency RMBS, spread risk is an inherent component of our investment strategy. Although we use hedging instruments to
attempt to protect against moves in interest rates, our hedges will typically not protect us against spread risk. Spreads may
widen due to numerous factors, including changes in mortgage and fixed income markets due to actual or expected monetary
policy actions by U.S. and foreign central banks, market liquidity or changes in investor return requirements and sentiment.
Wider spreads can occur independent of moves in interest rates.
We may be unable to procure adequate financing or to renew or replace existing financing as it matures.
We rely primarily on short-term borrowings to finance our mortgage investments. Consequently, our ability to achieve
our investment objectives depends not only on our ability to borrow sufficient amounts and on favorable terms, but also our
ability to renew or replace our maturing short-term borrowings on a continuous basis. A variety of factors could prevent us
from being able to achieve our intended borrowing and leverage objectives, including:
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disruptions in the repo market that adversely impact the availability and cost of repo funding, including failure of the
Fed and other policy makers to stabilize the repo market or a discontinuation of such stabilization measures;
lenders require additional collateral to cover our borrowings, which we may be unable to deliver;
lenders exit the market or are unwilling to make repurchase agreements or other financing arrangements available to us
at acceptable rates and terms;
regulatory capital requirements or other limitations imposed on our lenders that may negatively impact their ability or
willingness to lend to us;
our failure to satisfy covenants, leverage limits, or other requirements imposed by our lenders, in which case our
lenders may terminate and cease entering into repurchase transactions with us; and
our wholly-owned captive broker-dealer’s inability to continually meet FINRA and FICC regulatory and membership
requirements, which may change over time, resulting in our inability to access triparty repo funding through the
FICC's GCF Repo service, which represents a significant portion of our total borrowing capacity.
Because of these and other factors, there is no assurance that we will be able to secure financing on terms that are
acceptable to us. If we cannot obtain sufficient funding on acceptable terms, we may have to sell assets possibly under adverse
market conditions.
Our borrowing costs may increase at a faster pace than the yield on our investments.
Our borrowing costs are particularly sensitive to changes in short-term interest rates, as well as overall funding
availability and market liquidity, whereas the yield on our fixed rate assets is largely influenced by longer-term rates and
conditions in the mortgage market. Consequently, our borrowing costs may rise at a faster pace or decline at a slower pace than
the yield on our assets, negatively impacting our net interest margin. In extreme scenarios, our net interest margin could even
turn negative.
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It may be uneconomical to roll our TBA dollar roll transactions and we may be required to take physical delivery of the
underlying securities and fund our obligations with cash or other financing sources.
We utilize TBA dollar roll transactions as an alternate means of investing in and financing Agency RMBS, which
represent a form of off-balance sheet financing and increase our "at risk" leverage. It may become uneconomical for us to roll
forward our TBA positions prior to their settlement dates due to market conditions, which can be impacted by a variety of
factors including the Fed’s purchases and sales of Agency RMBS in the TBA market. TBA dollar roll transactions include a
deferred purchase price obligation on our part, and an inability or unwillingness to continue to roll forward our position has
effects similar to a termination of financing: In that circumstance, we would be required to settle the obligations for cash and
would then take physical delivery of underlying Agency RMBS. We may not have sufficient funds or alternative financing
sources available to settle such obligations. If we take delivery of the underlying securities, we expect to receive the "cheapest
to deliver" securities with the least favorable prepayment attributes that satisfy the terms of the TBA contract. Additionally, the
specific securities that we receive may include few, if any, “whole pool” securities, which could inhibit our ability to remain
exempt from and regulation as an investment company under the Investment Company Act (see “Loss of our exemption from
regulation pursuant to the Investment Company Act would adversely affect us” below). TBA contracts also subject us to margin
requirements as described further below. Our inability to roll forward our TBA positions or failure to obtain adequate financing
to settle our obligations or to meet margin calls under our TBA contracts could force us to sell assets under adverse market
conditions potentially causing us to incur significant losses.
Our funding and derivative agreements subject us to margin calls that could result in defaults or force us to sell assets under
adverse market conditions or through foreclosure.
Our financing and hedging arrangements require that we maintain certain levels of collateral with our counterparties,
called margin, to protect them from loss in the event we default on our obligations. Our counterparties in these arrangements
require us to post additional margin if the value of the posted collateral declines to re-establish the agreed-upon collateral level.
Our fixed-rate collateral is generally more susceptible to margin calls due to its price sensitivity to changes in interest rates. In
addition, some collateral may be less liquid than other instruments, which could cause it to be more susceptible to margin calls
in a volatile market environment. Additionally, faster rates of prepayment increase the magnitude of potential margin calls as
there is a time lag between the effective date of the prepayment and when we receive the principal payment.
Our derivative agreements also subject us to margin calls. Collateral requirements under our derivative agreements are
typically dictated by contract or clearinghouse rules and regulations adopted by the U.S. Commodity Futures Trading
Commission (“CFTC”) and regulators of other countries. Thus, changes in clearinghouse rules and other regulations can
increase our margin requirements and the cost of our hedges. Our counterparties typically have the sole discretion to determine
eligible collateral, the value of our collateral and, in the case of our derivative counterparties, the value of our derivative
instruments. Additionally, for cleared swaps and futures, the futures commission merchant, or FCM, that we transact through
typically has the right to require more collateral than the clearinghouse requires.
The requirement to meet margin calls can create liquidity risks. In the event of a margin call, we must generally provide
additional collateral on the same business day. Following an event of default, we could be required to settle our obligations
under the agreements. Our derivative agreements may also contain cross default provisions under which a default under our
other indebtedness may cause an event of default under the derivative agreement. The threat or occurrence of margin calls or
the forced settlement of our obligations under our agreements could force us to sell our investments under adverse market
conditions and result in substantial losses.
Our funding and derivative agreement counterparties may not fulfill their obligations to us as and when due.
If a repurchase agreement counterparty defaults on its obligation to resell collateral to us, we could incur a loss on the
transaction equal to the difference between the value of our collateral and the amount of our borrowing. Similarly, if a
derivative agreement counterparty fails to return collateral to us at the conclusion of the derivative transaction or fails to pledge
collateral to us or to make other payments we are entitled to under the terms of our agreement as and when due, we could incur
a loss equal to the value of our collateral and other amounts due to us.
We attempt to limit our counterparty exposure by diversifying our funding across multiple counterparties and limiting our
counterparties to registered central clearing exchanges and major financial institutions with acceptable credit ratings. However,
these measures may not sufficiently reduce our risk of loss. Central clearing exchanges typically attempt to reduce the risk of
default by requiring initial and daily variation margin from their clearinghouse members and maintain guarantee funds and
other resources that are available in the event of default. Nonetheless, we could be exposed to a risk of loss if an exchange or
one or more of its clearing members defaults on its obligations. Most of the swaps that we enter into must be cleared by a
Derivatives Clearing Organization, or DCO. DCOs are subject to regulatory oversight, use extensive risk management
processes, and might receive "too big to fail" support from the government in the case of insolvency. We access the DCO
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through several FCMs, which may establish their own collateral requirements beyond that of the DCO. Consequently, for any
cleared swap, we bear the credit risk of both the DCO and the relevant FCM as to obligations under our swap agreements. The
enforceability of our derivative and repurchase agreements may also depend on compliance with applicable statutory,
commodity and other regulatory requirements and, depending on the domicile of the counterparty, applicable international
requirements.
Our rights under repurchase agreements in the event bankruptcy or insolvency may be limited.
In the event of our bankruptcy or insolvency, our repurchase agreements may qualify for special treatment under the U.S.
Bankruptcy Code, the effect of which, among other things, would be to allow the lender under the applicable repurchase
agreement to avoid the automatic stay provisions of the U.S. Bankruptcy Code and to foreclose on the collateral without delay.
In the event of a lender’s insolvency or bankruptcy, the lender may be permitted, under applicable insolvency laws, to repudiate
the contract, and our claim against the lender for damages may be treated simply as an unsecured creditor. In addition, if the
lender is a broker or dealer subject to the Securities Investor Protection Act of 1970, or an insured depository institution subject
to the Federal Deposit Insurance Act, our ability to recover our assets under a repurchase agreement or to be compensated for
any damages resulting from the lender's insolvency may be further limited by those statutes. Recoveries on these claims could
be subject to significant delay and, if received, could be substantially less than the damages incurred.
Our hedging strategies may be ineffective.
We attempt to limit, or hedge against, the adverse effect of changes in interest rates on the value of our assets and
financing costs, subject to complying with REIT tax requirements. Hedging strategies are complex and do not fully protect
against adverse changes under all circumstances. Our business model also calls for accepting certain amounts of risk.
Consequently, our hedging activities are generally designed to limit interest rate exposure, but not to eliminate it, and they are
generally not designed to hedge against spread risk and other risks inherent to our business model.
Our hedging strategies may vary in scope based on our portfolio composition, liabilities and our assessment of the level
and volatility of interest rates, expected prepayments, credit and other market conditions, and are expected to change over time.
We could fail to properly assess a risk or fail to recognize a risk entirely, leaving us exposed to losses without the benefit of any
offsetting hedges. Furthermore, the techniques and derivative instruments we select may not have the effect of reducing our
risk. Poorly designed hedging strategies or improperly executed transactions could increase our risk of loss. Hedging activities
could also result in losses if the hedged event does not occur. Numerous other factors can impact the effectiveness of our
hedging strategies, including the following:
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the cost of interest rate hedges;
the degree to which the interest rate hedge benchmark rate correlates to the interest rate risk being hedged;
the degree to which the duration of the hedge matches that of the related asset or liability, particularly as interest rates
change;
the amount of income that a REIT may earn from hedging transactions that do not satisfy certain requirements of the
Internal Revenue Code or that are not done through a TRS; and
the degree to which the value of our interest rate hedges changes relative to our assets as a result of fluctuations in
interest rates, passage of time, or other factors.
Additionally, regulations adopted by the CFTC and regulators of other countries could adversely affect our ability to
engage in derivative transactions or impose increased margin requirements and require additional operational and compliance
costs. Consequently, our hedging strategies may fail to protect us from loss and could even result in greater losses than if we
had not entered in the hedge transaction.
The discontinuation of LIBOR could negatively impact the dividends we pay on our fixed-to-floating rate cumulative
redeemable preferred stock and the value of our variable rate financial instruments.
Our outstanding fixed-to-floating rate cumulative redeemable preferred stock agreements are indexed to three-month
USD LIBOR. In addition, we also have certain investments and interest rate derivatives that reference USD LIBOR. In July
2017, the United Kingdom Financial Conduct Authority announced that it intends to phase out the use of LIBOR by the end of
2021. In November 2020, ICE Benchmark Administration (IBA), the administrator of LIBOR, signaled a potential extension of
USD LIBOR, announcing a December consultation on its intention to publish one-month and three-month USD LIBOR, along
with three other tenors, through June 30, 2023.
The Alternative Reference Rates Committee (“ARRC”), a group convened by the Federal Reserve Board and the Federal
Reserve Bank of New York, has recommended the Secured Overnight Financing Rate (“SOFR”) as its preferred alternative rate
for USD LIBOR. SOFR is a measure of the cost of borrowing cash overnight, collateralized by U.S. Treasury securities, and is
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based on directly observable U.S. Treasury-backed repurchase transactions. The U.S. Treasury-backed overnight repo market is
highly liquid, but there is currently no robust market for determining forward-looking SOFR term rates. Switching existing
financial instruments from LIBOR to SOFR requires calculations of a fixed spread to account for differences between the two,
which may not favor all parties equally. Additionally, certain of our LIBOR based contracts may not contain fallback language
for the permanent discontinuation of LIBOR, which may result in disputes or litigation over the appropriateness of the
substitute index and fixed spread to LIBOR.
Risks Related to Our Business Operations
Our executive officers and other key personnel are critical to our success and the loss of any executive officer or key
employee may materially adversely affect our business.
We operate in a highly specialized industry and our success is dependent upon the efforts, experience, diligence, skill and
network of business contacts of our executive officers and key personnel. The departure of any of our executive officers and/or
key personnel could have a material adverse effect on our operations and performance.
We are highly dependent on information systems and third-parties, and system failures or cybersecurity incidents incurred
by us or the third-parties that we rely on could significantly disrupt our ability to operate our business.
Our business is highly dependent on communications and information systems. Any failure or interruption of our systems
or cyber-attacks or security breaches of our networks or systems could cause delays or other problems in our securities trading
and risk management activities. A disruption or breach could also lead to unauthorized access to and release, misuse, loss or
destruction of our confidential information or confidential information of our employees or third parties, which could lead to
regulatory fines, costs of remediating the breach, reputational harm, financial losses, litigation and increased difficulty doing
business with third parties that rely on us to meet their own data protection requirements. In addition, we also face the risk of
operational failure, termination or capacity constraints of any of the third parties with which we do business or that facilitate our
business activities, including clearing agents or other financial intermediaries we use to facilitate our securities transactions, if
their respective systems experience failure, interruption, cyberattacks, or security breaches. We may face increased costs as we
continue to evolve our cyber defenses to contend with changing risks. These costs and losses associated with these risks are
difficult to predict and quantify but could have a significant adverse effect on our operating results. Additionally, the legal and
regulatory environment surrounding information privacy and security in the U.S. and international jurisdictions is constantly
evolving.
Computer malware, viruses, computer hacking and phishing attacks have become more prevalent in our industry and we
are from time to time subject to such attempted attacks. We rely heavily on financial, accounting and other data processing
systems maintained by us and by third parties with whom we contract for information technology, network, data, storage and
other related services. Although we have not detected a material cybersecurity breach to date, other financial services
institutions have reported material breaches of their systems, some of which have been significant. Even with all reasonable
security efforts, not every breach can be prevented or even detected. It is possible that we or the third parties with whom we
contract have experienced an undetected breach. There is no assurance that we, or the third parties that facilitate our business
activities, have not or will not experience a breach. It is difficult to determine what, if any, negative impact may directly result
from any specific interruption or cyber-attacks or security breaches of our networks or systems (or the networks or systems of
third parties that facilitate our business activities) or any failure to maintain performance, reliability and security of our
technical infrastructure, but such computer malware, viruses, and computer hacking and phishing attacks may negatively affect
our operations.
Risks Related to Our Taxation as a REIT
Our failure to qualify as a REIT would have adverse tax consequences.
We believe that we operate in a manner that allows us to qualify as a REIT for U.S. federal income tax purposes under
Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, and Treasury Regulations promulgated
thereunder. We plan to continue to meet the requirements for taxation as a REIT. The determination that we are a REIT requires
an analysis of various factual matters and circumstances that may not be totally within our control, and our compliance with the
annual REIT income and quarterly asset requirements depends upon our ability to successfully manage the composition of our
income and assets on an ongoing basis. For example, to qualify as a REIT, at least 75% of our gross income must come from
real estate sources and 95% of our gross income must come from real estate sources and certain other sources that are itemized
in the REIT tax laws. Additionally, our ability to satisfy the REIT asset tests depends upon our analysis of the characterization
and fair market values of our assets, some of which are not susceptible to a precise determination, and for which we will not
obtain independent appraisals. Furthermore, the proper classification of an instrument as debt or equity for federal income tax
purposes may be uncertain in some circumstances, which could affect the application of the REIT asset requirements. We are
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also required to distribute to stockholders at least 90% of our REIT taxable income (determined without regard to the deduction
for dividends paid and by excluding any net capital gain).
If we fail to qualify as a REIT in any tax year, we would be subject to U.S. federal and state corporate income tax on our
taxable income at regular corporate rates, and dividends paid to our stockholders would not be deductible by us in computing
our taxable income. Also, unless the IRS granted us relief under certain statutory provisions, we would remain disqualified as a
REIT for four years following the year we first fail to qualify. If we fail to qualify as a REIT, we would have to pay significant
income taxes and would, therefore, have less money available for investments or for distributions to our stockholders. This
would likely have a significant adverse effect on the value of our equity. In addition, the tax law would no longer require us to
make distributions to our stockholders.
If we should fail to satisfy one or more requirements for REIT qualification, we may still qualify as a REIT if there is
reasonable cause for the failure and not due to willful neglect and other applicable requirements are met, including completion
of applicable IRS filings. It is not possible to state whether we would be entitled to the benefit of these relief provisions in all
circumstances. If these relief provisions are inapplicable, we will not qualify as a REIT. Furthermore, if we satisfy the relief
provisions and maintain our qualification as a REIT, we may be still subject to a penalty tax. The amount of the penalty tax will
be at least $50,000 per failure, and, in the case of certain asset test failures, will be determined as the amount of net income
generated by the assets in question multiplied by the highest U.S. federal corporate tax rate in effect at the time of the failure if
that amount exceeds $50,000 per failure, and, in case of income test failures, will be a 100% tax on an amount based on the
magnitude of the failure, as adjusted to reflect the profit margin associated with our gross income.
New legislation or administrative or judicial action could make it more difficult or impossible for us to remain qualified as a
REIT or it could otherwise adversely affect REITs and their stockholders.
The present U.S. federal income tax treatment of REITs may be modified, possibly with retroactive effect, by legislative,
judicial or administrative action at any time, which could affect our ability to maintain our REIT status and/or the federal
income tax treatment of an investment in us. The federal income tax rules dealing with REITs constantly are under review by
persons involved in the legislative process, the IRS and the U.S. Treasury Department, which results in statutory changes as
well as frequent revisions to regulations and interpretations. Revisions in Federal tax laws and interpretations thereof could
affect or cause us to change our investments and affect the tax considerations of an investment in us.
REIT distribution requirements could adversely affect our ability to execute our business plan.
We generally must distribute annually at least 90% of our taxable income, subject to certain adjustments and excluding
any net capital gain, for U.S. federal and state corporate income tax not to apply to earnings that we distribute. Distributions of
our taxable income must generally occur in the taxable year to which they relate, or in the following taxable year if declared
before we timely file our tax return for the year and if paid with or before the first regular dividend payment after such
declaration. We may also elect to retain, rather than distribute, our net long-term capital gains and pay tax on such gains if
required, in which case, we could elect for our stockholders to include their proportionate share of such undistributed long-term
capital gains in income, and to receive a corresponding credit for their share of the tax that we paid. Our stockholders would
then increase the adjusted basis of their stock by the difference between (a) the amounts of capital gain dividends that we
designated and that they include in their taxable income, minus (b) the tax that we paid on their behalf with respect to that
income. We intend to make distributions to our stockholders to comply with the REIT qualification requirements of the Internal
Revenue Code, which limits our ability to retain earnings and thereby replenish or increase capital from operations.
To the extent that we satisfy this distribution requirement, but distribute less than 100% of our taxable income, we will be
subject to U.S. federal and state corporate income tax on our undistributed taxable income. Furthermore, if we should fail to
distribute during each calendar year at least the sum of (a) 85% of our REIT ordinary income for such year, (b) 95% of our
REIT capital gain net income for such year, and (c) any undistributed taxable income from prior periods, we would be subject
to a non-deductible 4% excise tax on the excess of such required distribution over the sum of (x) the amounts actually
distributed, (y) the amounts of income we retained and on which we have paid corporate income tax and (z) any excess
distributions from prior periods.
We may generate taxable income greater than our reported income prepared in accordance with GAAP. Differences in the
timing of the recognition of taxable income and deductible expenses and the actual receipt or disbursement of cash may also
occur. For example, market gains and losses on our hedging instruments, such as interest rate swaps, may be deferred for
income tax purposes and amortized into taxable income over the original contract term of the instrument even if we have exited
the instrument and settled such gains or losses for cash. We are also not allowed to reduce our taxable income for a net capital
loss incurred; instead, the net capital loss may be carried forward for a period of up to five years and applied against future
capital gains subject to our ability to generate sufficient capital gains, which cannot be assured. If we do not have funds
available in these situations to meet our REIT distribution requirements or to avoid corporate income taxes or the 4% excise tax
18
altogether, we could be required to borrow funds on unfavorable terms, sell investments at disadvantageous prices or distribute
amounts that would otherwise be invested in future acquisitions.
We may choose to pay dividends in our own stock, in which case stockholders may be required to pay income taxes in excess
of cash dividends received.
We may in the future distribute taxable dividends that are payable in cash and shares of our common stock at the election
of each stockholder. Taxable stockholders receiving such dividends will be required to include the full amount of the dividend
as ordinary income to the extent of our current and accumulated earnings and profits for U.S. federal income tax purposes. As a
result, stockholders may be required to pay income taxes with respect to such dividends that are in excess of the cash dividends
received. If a U.S. stockholder sells the stock that it receives as a dividend to pay this tax, the sales proceeds may be less than
the amount included in income with respect to the dividend, depending on the market price of our stock at the time of the sale.
Furthermore, with respect to certain non-U.S. stockholders, we may be required to withhold U.S. tax with respect to such
dividends, including in respect of all or a portion of such dividend that is payable in stock.
Even if we remain qualified as a REIT, we may face other tax liabilities that reduce our cash flow.
Even if we remain qualified for taxation as a REIT, we may nonetheless be subject to certain federal, state and local taxes
on our income and assets, including the following items. Any of these or other taxes we may incur would decrease cash
available for distribution to our stockholders.
• Regular U.S. federal and state corporate income taxes on any undistributed taxable income, including undistributed net
capital gains.
• A non-deductible 4% excise tax if the actual amount distributed to our stockholders in a calendar year is less than a
minimum amount specified under Federal tax laws.
• Corporate income taxes on the earnings of subsidiaries, to the extent that such subsidiaries are subchapter C
corporations and are not qualified REIT subsidiaries or other disregarded entities for federal income tax purposes.
• A 100% tax on certain transactions between us and our TRSs that do not reflect arm's-length terms.
•
If we acquire appreciated assets from a corporation that is not a REIT (i.e., a corporation taxable under subchapter C of
the Internal Revenue Code) in a transaction in which the adjusted tax basis of the assets in our hands is determined by
reference to the adjusted tax basis of the assets in the hands of the subchapter C corporation, we may be subject to tax
on such appreciation at the highest corporate income tax rate then applicable if we subsequently recognize a gain on a
disposition of any such assets during the five-year period following their acquisition from the subchapter C
corporation.
• A 100% tax on net income and gains from "prohibited transactions."
• Penalty taxes and other fines for failure to satisfy one or more requirements for REIT qualification.
Complying with REIT requirements may cause us to forgo otherwise attractive opportunities.
To remain qualified as a REIT for U.S. federal income tax purposes, we must continually satisfy tests concerning, among other
things, the sources of our income, the nature and diversification of our assets, the amounts that we distribute to our stockholders
and the ownership of our stock. We may be required to make distributions to stockholders at disadvantageous times or when we
do not have funds readily available for distribution, and we may be unable to pursue investments that would be otherwise
advantageous to us in order to remain qualified as a REIT. Thus, compliance with the REIT requirements may hinder our ability
to make and, in certain cases, to maintain ownership of, certain attractive investments.
Complying with REIT requirements may force us to liquidate otherwise attractive investments.
To remain qualified as a REIT, we must ensure that, at the end of each calendar quarter, at least 75% of the value of our
assets consists of cash, cash items, government securities and qualified real estate assets. The remainder of our investments in
securities (other than government securities and qualified real estate assets) generally cannot include more than 10% of the
outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one
issuer. In addition, in general, no more than 5% of the value of our assets (other than government securities and qualified real
estate assets) can consist of the securities of any one issuer, and no more than 20% of the value of our total assets can be
represented by securities of one or more TRSs. If we fail to comply with these requirements at the end of any calendar quarter,
we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions
to avoid losing our REIT qualification and suffering adverse tax consequences. As a result, we may be required to sell
otherwise attractive investments from our investment portfolio. These actions could have the effect of reducing our income and
amounts available for distribution to our stockholders.
19
Liquidation of assets may jeopardize our REIT qualification or create additional tax liability for us.
To remain qualified as a REIT, we must comply with requirements regarding the composition of our assets and our
sources of income. If we are compelled to liquidate our investments to repay obligations to our lenders, we may be unable to
comply with these requirements, ultimately jeopardizing our qualification as a REIT, or we may be subject to a 100% tax on
any resultant gain if we sell assets that are treated as dealer property or inventory.
Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities.
The REIT provisions of the Internal Revenue Code could substantially limit our ability to hedge our liabilities. Any
income from a properly designated hedging transaction to manage risk of interest rate changes with respect to borrowings made
or to be made, or ordinary obligations incurred or to be incurred, to acquire or carry real estate assets generally does not
constitute "gross income" for purposes of the 75% or 95% gross income tests. To the extent that we enter into other types of
hedging transactions, the income from those transactions is likely to be treated as non-qualifying income for purposes of both
gross income tests. As such, we may have to limit our use of advantageous hedging techniques or implement those hedges
through a TRS. This could increase the cost of our hedging activities as our TRS would be subject to tax on gains or expose us
to greater risks associated with changes in interest rates than we would otherwise want to bear. In addition, losses in a TRS will
generally not provide any tax benefit, except for being carried forward against future taxable income in the TRS.
Uncertainty exists with respect to the treatment of our TBAs for purposes of the REIT asset and income tests.
There is no direct authority with respect to the qualification of TBAs as real estate assets or U.S. Government securities
for purposes of the 75% asset test or the qualification of income or gains from dispositions of TBAs as gains from the sale of
real property or other qualifying income for purposes of the 75% gross income test. However, we treat our TBAs as qualifying
assets for purposes of the REIT 75% asset test, and we treat income and gains from our TBAs as qualifying income for
purposes of the 75% gross income test, based on a legal opinion of Skadden, Arps, Slate, Meagher & Flom LLP (“Skadden”)
substantially to the effect that (i) for purposes of the REIT asset tests, our ownership of a TBA should be treated as ownership
of the underlying Agency RMBS, and (ii) for purposes of the 75% REIT gross income test, any gain recognized by us in
connection with the settlement of our TBAs should be treated as gain from the sale or disposition of the underlying Agency
RMBS. Opinions of counsel are not binding on the IRS, and no assurance can be given that the IRS will not successfully
challenge the conclusions set forth in such opinions. In addition, it must be emphasized that Skadden’s opinion is based on
various assumptions relating to our TBAs and is conditioned upon fact-based representations and covenants made by our
management regarding our TBAs. No assurance can be given that the IRS would not assert that such assets or income are not
qualifying assets or income. If the IRS were to successfully challenge Skadden’s opinion, we could be subject to a penalty tax
or we could fail to remain qualified as a REIT if a sufficient portion of our assets consists of TBAs or a sufficient portion of our
income consists of income or gains from the disposition of TBAs.
Qualifying as a REIT involves highly technical and complex provisions of the Internal Revenue Code.
Qualification as a REIT involves the application of highly technical and complex Internal Revenue Code provisions on a
continuous basis for which only limited judicial and administrative authorities exist. Our application of such provisions may be
dependent on interpretations of the provisions by the staff of the Internal Revenue Service, which may change over time. Even a
technical or inadvertent violation of the Internal Revenue Code provisions could jeopardize our REIT qualification.
The tax on prohibited transactions could limit our ability to engage in certain transactions.
Net income that we derive from a "prohibited transaction" is subject to a 100% tax. The term "prohibited transaction"
generally includes a sale or other disposition of property that is held primarily for sale to customers in the ordinary course of a
trade or business by us or by a borrower that has issued a shared appreciation mortgage or similar debt instrument to us. We
could be subject to this tax if we were to dispose of assets or structure transactions in a manner that is treated as a prohibited
transaction for federal income tax purposes.
We intend to structure our activities to avoid classification as prohibited transactions. As a result, we may choose not to
engage in certain transactions at the REIT level that might otherwise be beneficial to us. In addition, whether property is held
"primarily for sale to customers in the ordinary course of a trade or business" depends on the particular facts and circumstances.
Thus, no assurance can be given that any property that we sell will not be treated as such or that we can comply with certain
safe-harbor provisions of the Internal Revenue Code that would prevent such treatment. The 100% tax does not apply to gains
from the sale of property that is held through a TRS or other taxable corporation, although such income will be subject to tax at
the entity’s regular corporate rates.
20
Distributions to tax-exempt investors may be classified as unrelated business taxable income.
Although distributions with respect to our common stock generally do not constitute unrelated business taxable income,
there are some circumstances where they may. If (i) we generate "excess inclusion income" as a result of all or a portion of our
assets being subject to rules relating to "taxable mortgage pools" or as a result of holding residual interests in a REMIC or (ii)
we become a "pension held REIT," then a portion of the distributions to tax exempt investors may be subject to U.S. federal
income tax as unrelated business taxable income under the Code.
Risks Related to Our Business Structure
Loss of our exemption from regulation pursuant to the Investment Company Act would adversely affect us.
We conduct our business so as not to become regulated as an investment company under the Investment Company Act in
reliance on the exemption provided by Section 3(c)(5)(C) of the Investment Company Act. Section 3(c)(5)(C), as interpreted by
the staff of the SEC, requires that: (i) at least 55% of our investment portfolio consists of "mortgages and other liens on and
interest in real estate," or "qualifying real estate interests," and (ii) at least 80% of our investment portfolio consists of
qualifying real estate interests plus "real estate-related assets."
The specific real estate related assets that we acquire are limited by the provisions of the Investment Company Act and
the rules and regulations promulgated thereunder. In satisfying the 55% requirement, we treat Agency RMBS issued with
respect to an underlying pool of mortgage loans in which we directly or indirectly hold all the certificates issued by the pool
("whole pool" securities) as qualifying real estate interests based on pronouncements of the SEC staff. We treat partial pool
securities, CRT and other mortgage related securities as real estate-related assets. Consequently, our ability to satisfy the
exemption under the Investment Company Act is dependent upon our ability to acquire and hold on a continuous basis a
sufficient amount of whole pool securities. The availability of whole pool securities may be adversely impacted by a variety of
factors, including GSE pooling practices, which can change over time, housing finance reform initiatives and competition for
whole pool securities with other mortgage REITs.
Additionally, if the SEC determines that any of our securities are not qualifying interests in real estate or real estate-
related assets, otherwise believes we do not satisfy the above exceptions or changes its interpretation with respect to these
securities or the above exceptions, we could be required to restructure our activities or sell certain of our assets. As such, we
cannot guarantee that we will be able to acquire or hold enough whole pool securities to maintain our exemption under the
Investment Company Act, and our compliance with these requirements may at times lead us to adopt less efficient methods of
financing certain of our investments or to forego acquiring higher yielding securities. Importantly, if we fail to qualify for this
exemption, our ability to use leverage would be substantially reduced and we would be unable to conduct our business as we
currently conduct it, which could materially and adversely affect our business.
Risks Related to Our Common Stock
The market price and trading volume of our common stock may be volatile.
The market price and trading volume of our common stock may be highly volatile and subject to wide fluctuations. If the
market price of our common stock declines significantly, stockholders may be unable to resell shares at a gain. Furthermore,
fluctuations in the trading price of our common stock may adversely affect the liquidity of our common stock and our ability to
raise additional equity capital. Price fluctuations may result in our stock trading below our reported net tangible book value per
share for extended periods of time. Variations in the price of our common stock can be affected by any one of the risk factors
described herein. Variations may also occur due to a variety of factors unrelated to our financial performance, such as:
•
•
•
•
•
•
•
•
•
general market and economic conditions;
changes in government policy, rules and regulations applicable to mortgage REITs, including tax laws, financial
accounting and reporting standards, and exemptions from the Investment Company Act of 1940, as amended;
actual or anticipated variations in our quarterly operating results as well as relative to levels expected by securities
analysts;
issuance of shares of common stock or securities convertible into common stock, which may be issued at a price below
tangible net book value per share of common stock;
changes in market valuations of similar companies;
adverse market reaction to any increased indebtedness we incur in the future or issuance of preferred stock senior in
priority to our common stock;
actions by stockholders, individually or collectively;
additions or departures of key management personnel;
speculation in the press or investment community;
21
•
•
actual or anticipated changes in our dividend policy; and
changes to our targeted investments or investment guidelines.
We have not established a minimum dividend payment level and may be unable to pay dividends in the future.
We intend to pay monthly dividends to our common stockholders in an amount that all or substantially all our taxable
income is distributed within the limits prescribed by the Internal Revenue Code. However, we have not established a minimum
dividend payment level and the amount of our dividend may fluctuate. Our ability to pay dividends may be adversely affected
by the risk factors described herein. All distributions will be made at the discretion of our Board of Directors and will depend
on our earnings and financial condition, the requirements for REIT qualification and such other factors as our Board of
Directors deems relevant from time to time. Additionally, our preferred stock has a preference on dividend payments and
liquidating distributions that could limit our ability to pay dividends to the holders of our common stock. Therefore, we may not
be able to make distributions in the future or our Board of Directors may change our dividend policy.
Our certificate of incorporation generally does not permit ownership of more than 9.8% of our common or capital stock and
attempts to acquire amounts above this limit will be ineffective unless an exemption is granted by our Board of Directors.
For the purpose of complying with REIT ownership limitations under the Internal Revenue Code, our amended and
restated certificate of incorporation generally prohibits beneficial or constructive ownership by any person of more than 9.8% of
our common or capital stock (by value or by number of shares, whichever is more restrictive), unless exempted by our Board of
Directors. Such constructive ownership rules are complex and may cause the outstanding stock owned by a group of related
individuals or entities to be deemed to be constructively owned by one individual or entity. As a result, the acquisition of 9.8%
or less of the outstanding stock by an individual, entity or group could result in constructive ownership greater than 9.8% and
thus be subject to our amended and restated certificate of incorporation's ownership limit. Any attempt to own or transfer shares
of our common or preferred stock more than the ownership limit without the consent of the Board of Directors will result in the
shares being automatically transferred to a charitable trust or, if the transfer to a charitable trust would not be effective, such
transfer being treated as invalid from the outset. Such ownership limit could also delay or prevent a transaction or a change in
our control that might involve a premium price for our common stock or otherwise be in the best interest of our stockholders.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We do not own any property. Our executive offices are in Bethesda, Maryland.
Item 3. Legal Proceedings
Neither we, nor any of our consolidated subsidiaries, are currently subject to any material litigation nor, to our
knowledge, is any material litigation threatened against us or any consolidated subsidiary, other than routine litigation and
administrative proceedings arising in the ordinary course of business. Such proceedings are not expected to have a material
adverse effect on the business, financial conditions, or results of our operations.
Item 4. Mine Safety Disclosures
Not applicable.
22
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
PART II.
Our common stock is listed on the Nasdaq Global Select Market under the symbol "AGNC." As of January 31, 2021,
537,899,803 shares of common stock were issued and outstanding, which were held by 1,224 stockholders of record. Most of
the shares of our common stock are held by brokers and other institutions on behalf of stockholders.
Dividends
We intend to pay dividends monthly to our common stockholders and to continue to qualify for the tax benefits accorded
to a REIT under the Internal Revenue Code. We have not established a minimum dividend payment level and our ability to pay
dividends may be adversely affected for the reasons described under the caption "Risk Factors." Additionally, holders of
depositary shares underlying our preferred stock are entitled to receive cumulative cash dividends before holders of our
common stock are entitled to receive any dividends. See Note 9 to our Consolidated Financial Statements in this Form 10-K for
a description of our preferred stock and for common and preferred stock dividends paid for the three years ended December 31,
2020. All distributions to stockholders will be made at the discretion of our Board of Directors and will depend on our earnings,
financial condition, maintenance of our REIT status and other factors as our Board of Directors may deem relevant from time to
time.
Stock Repurchase Program
On October 26, 2020, we announced that our Board of Directors terminated a previously existing stock repurchase
authorization that was due to expire December 31, 2020 and replaced it with a new authorization to repurchase up to $1 billion
of common stock through December 31, 2021. As of December 31, 2020, the Company had repurchased shares an aggregate
amount of $101 million under the program and had $0.9 billion of common stock remaining available for repurchase. The
following table presents information with respect to purchases of our common stock made during the fourth quarter ended
December 31, 2020 by us or any "affiliated purchaser" of us, as defined in Rule 10b-18(a)(3) under the Exchange Act (in
millions, except per share amounts).
Period 1
Total Number
of Shares
Purchased
Average Net
Price Paid Per
Share
Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs
October 1, 2020 - October 31, 2020..................................
November 1, 2020 - November 30, 2020..........................
December 1, 2020 - December 31, 2020...........................
Total...................................................................................
0.0
0.9
5.7
6.6
$—
$14.17
$15.50
$15.32
0.0
0.9
5.7
6.6
___________________________
1.
Amounts are reported based on the trade date of the share repurchase.
Equity Compensation Plan Information
Maximum Number (or
Approximate Dollar
Value) of Shares That
May Yet Be Purchased
Under the Publicly
Announced Plans or
Programs (in millions)
$1,000
987
899
$899
The following table summarizes information, as of December 31, 2020, concerning shares of our common stock
authorized for issuance under our equity compensation plans, pursuant to which grants of equity-based awards, namely
restricted stock units ("RSUs"), may be granted from time to time. See Note 10 to our Consolidated Financial Statements in this
Form 10-K for a description of our equity compensation plans.
Plan Category
Number of securities
to be issued upon
exercise of
outstanding options,
warrants
and rights 1
Weighted average
exercise price of
outstanding
options, warrants
and rights
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in the first
column of this table) 2
Equity compensation plans approved by security holders....................
4,911,475
Equity compensation plans not approved by security holders.............
—
Total
________________________________
4,911,475
$
$
—
—
—
4,803,022
—
4,803,022
1.
Includes (i) unvested time and performance-based RSU awards (unvested performance-based awards assume the maximum payout under the terms
of the award); (ii) outstanding previously vested awards, if distribution of such awards has been deferred beyond the vesting date; and (iii) accrued
dividend equivalent units on items (i) and (ii) through December 31, 2020.
23
2.
Available shares are reduced by items (i), (ii) and (iii) noted above and by shares issued for vested awards, net of units withheld to cover minimum
statutory tax withholding requirements paid by us in cash on behalf of the employee.
Performance Graph
The following graph and table compare a stockholder's cumulative total return, assuming $100 invested at December 31,
2015, with the reinvestment of all dividends, as if such amounts had been invested in: (i) our common stock; (ii) the stocks
included in the Standard & Poor's 500 Stock Index ("S&P 500"); (iii) the stocks included in the FTSE NAREIT Mortgage REIT
Index; and (iv) an index of selected issuers in our peer group, composed of Annaly Capital Management, Inc., Anworth
Mortgage Asset Corporation, Capstead Mortgage Corporation, Armour Residential REIT, Inc, Two Harbors Investment Corp,
Invesco Mortgage Capital, Inc and Dynex Capital, Inc (collectively, the "Agency REIT Peer Group").
________________________________
*
$100 invested on 12/31/15 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.
AGNC Investment Corp...............................................................................................
S&P 500........................................................................................................................
FTSE NAREIT Mortgage REITs..................................................................................
Agency REIT Peer Group 1...........................................................................................
________________________________
December 31,
2020
2019
2018
2017
2016
$
$
$
$
158.88 $
161.53 $
142.54 $
146.20 $
118.19
203.04 $
171.49 $
130.42 $
136.40 $
111.96
141.38 $
174.05 $
143.45 $
147.16 $
122.85
129.36 $
158.51 $
141.08 $
154.71 $
121.24
1. Agency REIT Peer Group annual return is calculated on a weighted basis by market cap at the end of the previous year.
The information in the share performance graph and table has been obtained from sources believed to be reliable, but
neither its accuracy nor its completeness can be guaranteed. The historical information set forth above is not necessarily
indicative of future performance. Accordingly, we do not make or endorse any predictions as to future share performance.
24
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*Among AGNC Investment Corp., The S&P 500 Index,The FTSE NAREIT Mortgage REITs Index, and Agency REIT Peer GroupAGNC Investment Corp.S&P 500FTSE NAREIT Mortgage REITsAgency REIT Peer group12/31/1512/31/1612/31/1712/31/1812/31/1912/31/206080100120140160180200220
Item 6. Selected Financial Data
Not applicable. (Please refer to Results of Operations under Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations for selected financial data for the three years ended December 31, 2020.)
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
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 Annual Report on Form 10-K. Our MD&A is presented in eight sections:
•
•
•
•
•
•
•
•
Executive Overview
Financial Condition
Summary of Critical Accounting Estimates
Results of Operations
Liquidity and Capital Resources
Off-Balance Sheet Arrangements
Aggregate Contractual Obligations
Forward-Looking Statements
EXECUTIVE OVERVIEW
We are a leading provider of private capital to the U.S. housing market, enhancing liquidity in the residential real estate
mortgage markets and, in turn, facilitating home ownership in the U.S. We invest primarily in 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 Fannie Mae and
Freddie Mac, or by a U.S. Government agency, such as Ginnie Mae. We may also invest in other assets related to the housing,
mortgage or real estate markets that are not guaranteed by a GSE or U.S. Government agency.
We are internally managed with the principal objective of providing 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 collateralized borrowings structured as repurchase
agreements. We operate in a manner to qualify to be taxed as a REIT under the Internal Revenue Code.
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
In March 2020, the COVID-19 pandemic triggered one of the most severe and sudden financial market downturns in U.S.
history. As the U.S and the world grappled with the rapidly deteriorating public health situation late in the first quarter,
financial markets experienced historically rapid and severe liquidity shortfalls and declined precipitously. The Fed and the U.S.
Treasury, together with their global counterparts, took decisive actions to allay the global financial crisis in late March and early
April, which stabilized the financial markets and ultimately drove a recovery throughout the remainder of the year. In the U.S.,
the Fed's unprecedented monetary accommodation, which included substantial outright purchases of U.S. Treasury and Agency
RMBS securities and a near-zero interest rate policy, and a massive fiscal stimulus package drove a rebound across
substantially all asset categories. By year-end, U.S. Treasury and Agency RMBS markets had fully stabilized, equity markets
had rebounded to new highs, and credit spreads had tightened to pre-COVID levels as a result of the ongoing monetary and
fiscal stimulus and optimism regarding vaccine efficacy, the combination of which boosted prospects for a broad-based
economic recovery that is expected to gain significant momentum in the latter half of 2021.
In response to the Pandemic and resulting market disruptions and volatility, we took early action to strengthen our
liquidity position and mitigate risk across our portfolio. We repositioned the portfolio and increased more efficient funding
sourced from our captive broker-dealer subsidiary, benefiting AGNC’s overall liquidity position and, in turn, avoiding the need
to make significant portfolio sales at distressed levels to meet margin calls. As a result, after experiencing a significant book
25
value decline in the first quarter of 2020, resulting in an economic loss for the quarter of -20.2%, AGNC posted three straight
quarters of substantial economic returns: 12.2%, 8.8%, and 7.5%, respectively. This strong performance drove a full year 2020
economic return of 3.5%, comprised of $1.56 in cash dividends per common share and a ($0.95) per share decline in tangible
net book value per common share. Considering the extraordinarily difficult market conditions in the first quarter, these results
demonstrate the importance and value of AGNC's disciplined investment framework and risk management practices. Moreover,
the experience of 2020 clearly illustrates the unique value of a predominately Agency RMBS portfolio. In times of significant
market stress, the Fed has repeatedly shown a commitment to supporting and stabilizing the U.S. housing finance system
because of the significant impact this market has on the broader social and economic well-being of the country. 2020 was no
exception, as the Fed purchased $1.5 trillion of Agency RMBS during the year and held approximately 30% of all outstanding
Agency RMBS at year end. Our portfolio management throughout the year, coupled with the Fed's continued support of the
RMBS market, ultimately facilitated AGNC's recovery of substantially all of the tangible net book value decline experienced in
the first quarter. Importantly, the Fed has signaled that it intends to maintain its accommodative monetary policy stance until its
objectives of maximum employment and long-term average inflation targets are achieved and that it expects to continue to
increase its holdings of U.S. Treasury securities and Agency RMBS until substantial further progress has been made toward
achieving these goals.
The Fed's actions and strong demand for Agency RMBS drove primary mortgage rates to historic lows during the year
and triggered the largest mortgage refinance wave in almost 20 years. To manage the risk of increased prepayments on our
portfolio, we shifted the composition of our portfolio to include a greater share to lower coupon 30 and 15-year TBA securities,
while maintaining our higher coupon holdings concentrated in high quality, specified Agency RMBS pools. In this elevated
prepayment environment, our higher coupon specified pools performed considerably better than more generic RMBS, while our
lower coupon holdings benefited from the extremely favorable funding conditions in the TBA dollar roll market, a result of
significant new Agency RMBS issuance and the Fed's high level of participation.
As of December 31, 2020, our investment portfolio totaled $97.9 billion, consisting of $65.1 billion Agency RMBS, $31.5
billion TBA securities, and $1.3 billion of CRT and non-Agency securities. Our "at risk" leverage, as of December 31, 2020,
was 8.5x our tangible equity, and our liquidity position, consisting of unencumbered Agency RMBS and cash, was $5.4 billion,
which excludes unencumbered credit assets and assets held at our broker-dealer subsidiary. The average prepayment rate on our
Agency RMBS holdings during the year peaked at an annualized rate of 27.6% for the fourth quarter, significantly below
speeds for similar coupon generic securities. As of December 31, 2020, our Agency RMBS had an average remaining life CPR
forecast of 17.6%.
Our interest rate exposure remained limited throughout the year despite significant movements in interest rates as we
actively managed the size and composition of our interest rate hedge position in response to changing market conditions. In the
fourth quarter, we increased our interest rate hedge ratio to 80% of our funding liabilities (compared to our intra-year low of
66% at the end of the second quarter) as the macroeconomic outlook became more favorable and the risk of higher longer term
interest rates increased. Our duration gap, which is a measure of the difference between the interest rate sensitivity of our assets
and liabilities, inclusive of our interest rate hedges, was -0.5 years as of December 31, 2020, consistent with the reduction of
our asset durations and our bias in the current environment to operate with incrementally more up-rate protection.
The funding environment for Agency RMBS remained favorable throughout the year. The Agency MBS repo market
remained highly liquid and functioned normally, even during the broad financial market turmoil experienced in March. Our
average funding cost moved steadily lower over the course of the year as the Fed acted quickly to reduce the Fed Funds rate to
the zero bound range early in the crisis. As of December 31, 2020, our average repo rate was 0.24%, down substantially from
2.17% at the start of the year. These favorable repo rates, even lower implied financing rates in the TBA dollar roll market, and
reduced interest rate swap costs collectively drove a substantial improvement in our aggregate cost of funds, which declined to
0.05% in the fourth quarter from 1.67% in the first quarter. This very favorable funding dynamic more than offset the decline in
asset yields on our portfolio and drove a significant improvement in our net interest spread. As a result of our materially higher
net interest spread, net spread and dollar roll income (a non-GAAP measure) totaled $2.70 per common share, excluding
"catch-up" amortization cost, for the year. (Refer to Results of Operations below for further information regarding non-GAAP
measures.)
Looking ahead, valuations of all financial assets have become elevated and, in many cases, are now above pre-COVID
levels. With Agency RMBS valuations similarly elevated, the expected return profile on new investments has correspondingly
declined. As a result, the net interest spread on our investment portfolio is likely to compress moderately as asset cash flows are
reinvested at lower prevailing asset yields and the implied funding advantage of TBAs reverts to more historical norms.
Nevertheless, we believe Agency RMBS remain attractive on a relative basis for levered investors given the dual benefits of
low funding costs and the likelihood of ongoing Fed purchases. We believe that the near zero short-term interest rate
environment is likely to remain in place through at least 2023, the Fed is unlikely to begin tapering its Agency RMBS purchases
before 2022, and any such tapering will likely be gradual over a multi-month period. Although any decisions by the Fed to taper
26
its investments in Agency RMBS could occur earlier or later than our current expectation, the Fed has indicated that it will seek
to communicate its intentions well in advance of taking any such action so as to reduce market uncertainty. Importantly, even
after the Fed completes the taper process, it has indicated an intention to continue to reinvest portfolio paydowns for an
extended period of time, likely until it begins to raise the Federal Funds target.
Nonetheless, we may experience periods of increased volatility as markets begin to price in an eventual shift in the Fed's
monetary policy. In the current environment with asset valuations elevated, we may choose to operate at comparatively lower
leverage for periods of time to mitigate the potential downside risk to our tangible net book value associated with a reduced Fed
presence, as well as to afford us the ability to increase leverage opportunistically when expected return levels are more
favorable. That said, the recent increase in longer term interest rates, if it continues, should ultimately lead to a more benign
prepayment environment for mortgage assets. Although Agency RMBS valuations have increased along with the vast majority
of financial assets over the past several quarters, we believe significant ongoing Fed purchases, potentially slower prepayments,
and attractive funding levels should continue to be positive factors for AGNC.
Net Interest Spread Information
The following table summarizes the components of our average net interest spread the four quarters ended December 31,
2020:
Net interest spread, excluding "catch-up" amortization:
Average asset yield:
Investment securities - average asset yield
1.64 %
2.28 %
2.39 %
2.01 %
2.09 %
Quarter Ended
December 31,
2020
September 30,
2020
June 30,
2020
March 31,
2020
Year Ended
December 31,
2020
Estimated "catch-up" premium amortization cost due to change in CPR
forecast
Investment securities average asset yield, excluding "catch-up" premium
amortization
TBA securities - average implied asset yield 1
Average asset yield, excluding "catch-up" premium amortization 2
Average total cost of funds:
Repurchase agreements and other debt - average funding cost
TBA securities - average implied funding (benefit) cost 3
Average cost of funds, before interest rate swap periodic cost (income),
net 2
Interest rate swap periodic cost (income), net 4
Average total cost of funds 5
Average net interest spread, excluding "catch-up" premium amortization
________________________________
0.75 %
0.31 %
0.32 %
0.99 %
0.63 %
2.39 %
1.53 %
2.07 %
0.38 %
(0.54) %
0.02 %
0.03 %
0.05 %
2.02 %
2.59 %
1.64 %
2.30 %
0.40 %
(0.58) %
0.09 %
0.06 %
0.15 %
2.15 %
2.71 %
1.90 %
2.56 %
0.76 %
(0.09) %
0.61 %
0.27 %
0.88 %
1.68 %
3.00 %
2.54 %
2.97 %
1.80 %
1.67 %
1.79 %
(0.12) %
1.67 %
1.30 %
2.72 %
1.73 %
2.50 %
0.96 %
(0.27) %
0.67 %
0.05 %
0.72 %
1.78 %
1.
2.
3.
4.
5.
The average implied asset yield for TBA dollar roll transactions is extrapolated by adding the average TBA implied funding cost (benefit) (Note 3)
to the net dollar roll yield. The net dollar roll yield is calculated by dividing dollar roll income by the average net TBA balance (cost basis)
outstanding for the period. 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. Amount includes dollar roll income (loss) on long and short TBA securities. Amount excludes
TBA mark-to-market adjustments.
Amount calculated on a weighted average basis based on average balances outstanding during the period and their respective asset yield/funding
cost.
The implied funding cost/(benefit) of TBA dollar roll transactions is determined using the "price drop" 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 the
daily average TBA balance outstanding for the period.
Represents interest rate swap periodic cost/(income) measured as a percent of total mortgage funding (Agency repurchase agreements, other debt
and net TBA securities). Amount excludes interest rate swap termination fees and mark-to-market adjustments.
Cost of funds excludes other supplemental hedges used to hedge a portion of the Company's interest rate risk (such as swaptions and U.S. Treasury
positions) and U.S. Treasury repurchase agreements.
27
Market Information
The following table summarizes interest rates and prices of generic fixed rate Agency RMBS as of each date presented
below:
Interest Rate/Security Price 1
Target Federal Funds Rate:
Dec. 31,
2019
Mar. 31,
2020
June 30,
2020
Sept. 30,
2020
Dec. 31,
2020
Dec. 31, 2020
vs
Dec. 31, 2019
Target Federal Funds Rate - Upper Band...................................................
1.75%
0.25%
0.25%
0.25%
0.25%
-150 bps
LIBOR:
1-Month.......................................................................................................
3-Month.......................................................................................................
U.S. Treasury Security Rate:
2-Year U.S. Treasury..................................................................................
5-Year U.S. Treasury..................................................................................
10-Year U.S. Treasury................................................................................
30-Year U.S. Treasury................................................................................
Interest Rate Swap Rate:
2-Year Swap................................................................................................
5-Year Swap................................................................................................
10-Year Swap..............................................................................................
30-Year Swap..............................................................................................
30-Year Fixed Rate Agency Price:
1.5%............................................................................................................
2.0%............................................................................................................
2.5%............................................................................................................
1.76%
1.91%
1.57%
1.69%
1.92%
2.39%
1.70%
1.73%
1.90%
2.09%
N/A
$94.89
$98.89
0.99%
1.45%
0.25%
0.38%
0.67%
1.32%
0.49%
0.52%
0.72%
0.88%
0.16%
0.30%
0.15%
0.29%
0.66%
1.41%
0.23%
0.33%
0.64%
0.92%
0.15%
0.23%
0.13%
0.28%
0.69%
1.46%
0.22%
0.35%
0.71%
1.12%
0.14%
0.24%
0.12%
0.36%
0.92%
1.65%
0.20%
0.43%
0.93%
1.40%
N/A
N/A
$100.66
$101.05
$100.91
$102.33
$103.39
$103.88
$103.59
$104.26
$104.90
$105.41
3.0%............................................................................................................
$101.42
$104.83
$105.33
$104.75
$104.77
3.5%............................................................................................................
$102.86
$105.70
$105.18
$105.40
$105.66
4.0%............................................................................................................
$104.01
$106.67
$105.98
$106.64
$106.78
15-Year Fixed Rate Agency Price:
1.5%............................................................................................................
N/A
N/A
$101.83
$102.31
$102.89
2.0%............................................................................................................
$98.68
$102.66
$103.46
$103.95
$104.55
2.5%............................................................................................................
$100.91
$103.72
$104.70
$104.44
$104.30
3.0%............................................................................................................
$102.50
$104.61
$105.09
$104.94
$104.97
3.5%............................................................................................................
$103.69
$105.19
$105.06
$105.81
$106.03
4.0%............................................................................................................
$104.28
$105.56
$105.75
$106.15
$106.28
-162 bps
-167 bps
-145 bps
-133 bps
-100 bps
-74 bps
-150 bps
-130 bps
-97 bps
-69 bps
N/A
+$8.99
+$6.52
+$3.35
+$2.80
+$2.77
N/A
+$5.87
+$3.39
+$2.47
+$2.34
+$2.00
________________________________
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 in the table above were obtained from Barclays. Interest and LIBOR rates were obtained from
Bloomberg.
28
FINANCIAL CONDITION
As of December 31, 2020 and 2019, our investment portfolio consisted of $66.4 billion and $100.4 billion of investment
securities, at fair value, respectively, and $31.5 billion and $7.4 billion of TBA securities, at fair value, respectively. The
following table is a summary of our investment portfolio as of December 31, 2020 and 2019 (dollars in millions):
Investment Portfolio (Includes TBAs)
Fixed rate Agency RMBS and TBA securities:
≤ 15-year:
December 31, 2020
December 31, 2019
Amortized
Cost
Fair
Value
Average
Coupon
%
Amortized
Cost
Fair
Value
Average
Coupon
%
≤ 15-year RMBS.................................................
$
9,256 $
9,482
2.48 % 10 % $
6,140 $
6,239
15-year TBA securities, net 1...............................
6,916
6,980
1.74 %
7 %
Total ≤ 15-year..........................................................
16,172
16,462
2.16 % 17 %
20-year RMBS..........................................................
2,409
2,470
2.58 %
3 %
2,222
8,362
752
2,226
8,465
773
3.29 %
2.91 %
3.19 %
3.87 %
6 %
2 %
8 %
1 %
30-year:
30-year RMBS......................................................
50,312
52,663
3.55 % 54 %
89,483
91,062
3.67 % 84 %
30-year TBA securities, net 1...............................
24,288
24,499
2.05 % 25 %
5,182
5,203
2.92 %
5 %
Total 30-year.............................................................
74,600
77,162
3.06 % 79 %
94,665
96,265
3.63 % 89 %
Total fixed rate Agency RMBS and TBA securities...
93,181
96,094
2.89 % 98 %
103,779
105,503
3.60 % 98 %
Adjustable rate Agency RMBS...................................
Multifamily.................................................................
CMO Agency RMBS:
CMO.....................................................................
Interest-only strips................................................
Principal-only strips.............................................
Total CMO Agency RMBS.........................................
69
17
289
45
60
394
70
19
2.35 % — %
3.31 % — %
301
3.30 %
1 %
59
67
5.57 % — %
— % — %
427
4.10 %
1 %
160
37
441
63
83
587
163
39
3.04 % — %
3.37 % — %
447
3.44 %
1 %
77
87
4.22 % — %
— % — %
611
3.48 %
1 %
Total Agency RMBS and TBA securities...................
93,661
96,610
2.90 % 99 %
104,563
106,316
3.59 % 99 %
Non-Agency RMBS....................................................
CMBS..........................................................................
CRT.............................................................................
178
333
733
188
358
737
4.28 % — %
4.13 % — %
3.43 %
1 %
198
352
961
209
370
976
4.05 %
1 %
4.49 % — %
5.07 %
1 %
Total investment portfolio...........................................
$
94,905 $ 97,893
2.91 % 100 % $ 106,074 $ 107,871
3.61 % 100 %
________________________________
1.
TBA securities are presented net of long and short positions. For further details of our TBA securities refer to Note 5 of our Consolidated Financial
Statements in this Form 10-K..
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 December 31, 2020 and 2019, our TBA
positions had a net carrying value of $275 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 December 31, 2020 and 2019, the weighted average yield on our investment securities (excluding TBA securities)
was 2.33% and 3.07%, respectively.
29
The following tables summarize certain characteristics of our fixed rate Agency RMBS portfolio, inclusive of TBAs, as
of December 31, 2020 and 2019 (dollars in millions):
December 31, 2020
Includes Net TBA Position
Excludes Net TBA Position
Weighted Average
Fixed Rate Agency RMBS and
TBA Securities
Par
Value
Amortized
Cost
Fair
Value
Specified
Pool % 1
Amortized
Cost Basis
WAC 2
Yield 3
Age
(Months)
Projected
CPR 3
Fixed rate
≤ 15-year:
1.5%...................................
$ 5,001 $
5,107 $ 5,144
2.0%...................................
2.5%...................................
3.0%...................................
3.5%...................................
≥ 4.0%...............................
6,718
795
1,168
1,249
788
6,958
836
1,186
1,275
810
7,023
840
1,248
1,356
851
Total ≤ 15-year......................
15,719
16,172
16,462
20-year:
≤ 2.0%................................
1,168
1,202
1,215
2.5%....................................
3.0%....................................
3.5%....................................
≥ 4.0%...............................
597
48
226
296
620
50
230
307
630
52
246
327
Total 20-year:........................
2,335
2,409
2,470
30-year:
≤ 2.0%...............................
23,805
24,445
24,628
2.5%...................................
3.0%....................................
8,995
3,507
9,423
3,619
9,506
3,709
3.5%....................................
12,913
13,428
14,151
4.0%....................................
14,245
14,847
15,734
≥ 4.5%................................
8,417
8,838
9,434
Total 30-year.........................
71,882
74,600
77,162
Total fixed rate..........................
$ 89,936 $
93,181 $ 96,094
________________________________
—%
—%
59%
94%
100%
92%
23%
—%
—%
98%
81%
96%
23%
—%
4%
17%
88%
92%
98%
48%
43%
102.4%
103.8%
105.5%
101.5%
102.1%
102.8%
103.1%
103.0%
103.9%
103.0%
101.6%
103.6%
103.2%
103.2%
105.2%
102.9%
104.0%
104.2%
105.0%
104.3%
104.0%
2.28%
2.62%
3.07%
3.55%
4.03%
4.63%
3.09%
2.87%
3.28%
3.78%
4.05%
4.73%
3.34%
2.89%
3.43%
3.74%
4.07%
4.51%
5.01%
4.17%
3.98%
0.91%
1.01%
1.10%
2.46%
2.75%
2.92%
1.59%
1.29%
1.33%
2.10%
2.93%
3.05%
1.70%
1.51%
1.35%
2.03%
2.48%
2.81%
3.04%
2.43%
2.28%
1
2
13
44
40
47
17
3
6
17
89
48
18
—
4
33
66
52
38
42
37
13%
15%
15%
16%
18%
19%
16%
15%
20%
19%
18%
20%
17%
11%
16%
22%
17%
19%
21%
18%
18%
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 December 31, 2020, lower balance specified pools had a weighted average original loan balance of
$117,000 and $117,000 for 15-year and 30-year securities, respectively, and HARP pools had a weighted average original LTV of 126% and 137%
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, 2020.
30
December 31, 2019
Includes Net TBA Position
Excludes Net TBA Position
Weighted Average
Fixed Rate Agency RMBS and
TBA Securities
Par
Value
Amortized
Cost
Fair
Value
Specified
Pool % 1
Amortized
Cost Basis
WAC 2
Yield 3
Age
(Months)
Projected
CPR 3
Fixed rate
≤ 15-year:
≤ 2.5%..............................
$ 1,720 $
1,735 $ 1,738
3.0%...................................
3.5%...................................
4.0%...................................
4.5%...................................
≥ 5.0%...............................
2,985
2,299
1,075
117
1
3,041
2,354
1,109
122
1
3,067
2,401
1,135
123
1
Total ≤ 15-year.......................
8,197
8,362
8,465
20-year:
3.5%....................................
4.0%....................................
4.5%....................................
≥ 5.0%...............................
Total 20-year:.........................
30-year:
284
196
194
1
675
289
202
204
1
696
297
209
210
1
717
≤ 3.0%..............................
27,864
28,218
28,252
3.5%....................................
23,760
24,525
24,902
4.0%....................................
26,934
28,062
28,795
4.5%....................................
12,730
13,381
13,831
5.0%...................................
≥ 5.5%...............................
380
63
410
69
416
69
Total 30-year..........................
91,731
94,665
96,265
Total fixed rate..........................
$ 100,603 $ 103,723 $ 105,447
________________________________
40%
59%
71%
84%
98%
100%
63%
81%
92%
100%
—%
90%
3%
60%
84%
93%
94%
49%
55%
56%
101.0%
101.7%
102.2%
103.1%
103.5%
101.9%
102.0%
102.0%
103.3%
104.8%
105.1%
103.2%
101.4%
103.3%
104.2%
105.1%
108.0%
109.6%
103.3%
103.3%
2.98%
3.52%
4.04%
4.60%
4.87%
6.55%
3.82%
4.05%
4.45%
5.00%
5.95%
4.40%
3.85%
4.05%
4.51%
4.98%
5.50%
6.18%
4.29%
4.26%
2.11%
2.45%
2.86%
3.05%
3.00%
4.55%
2.65%
2.97%
3.18%
3.23%
3.33%
3.05%
2.73%
2.97%
3.25%
3.45%
3.28%
3.33%
3.07%
3.04%
86
58
25
26
111
146
47
77
34
37
141
49
8
49
37
23
39
158
31
32
11%
10%
13%
14%
13%
15%
12%
12%
13%
15%
18%
13%
9%
10%
11%
13%
14%
13%
11%
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.
For additional details regarding our CRT and non-Agency securities, including credit ratings, as of December 31, 2020
and 2019, please refer to Note 3 of our Consolidated Financial Statements in this Form 10-K.
SUMMARY OF CRITICAL ACCOUNTING ESTIMATES
Our critical accounting estimates involve estimates that require management to make judgments that are subjective in
nature. We rely on our experience and analysis of historical and current market data to arrive at what we believe to be
reasonable estimates. Under different conditions, we could report materially different amounts based on such estimates. For
additional information regarding our significant accounting policies please refer to Note 2 to our Consolidated Financial
Statements included under Item 8 of this Annual Report on Form 10-K.
Interest Income
The effective yield on our Agency RMBS and non-Agency securities of high credit quality is highly impacted by our
estimate of future prepayments. We accrue interest income based on the outstanding principal amount and contractual terms of
these securities, and we amortize or accrete premiums and discounts associated with our purchase of these securities into
interest income over their projected lives, taking into account scheduled contractual payments and estimated prepayments, using
the interest method. The weighted average cost basis of our securities as of December 31, 2020 was 104.0% of par value;
therefore, faster actual or projected prepayments than our estimates could significantly reduce the yield on our assets.
Future prepayment rates are difficult to predict, and we rely on a third-party service provider and our experience and
analysis of historical and current market data to arrive at what we believe to be reasonable estimates. Our third-party service
provider estimates prepayment speeds using models that incorporate the forward yield curve, current mortgage rates, mortgage
31
rates on the outstanding loans, age and size of the outstanding loans, loan-to-value ratios, interest rate volatility and other
factors. We review the prepayment speeds estimated and compare the results to market consensus prepayment speeds, if
available. We also consider historical prepayment speeds and current market conditions to validate the reasonableness of the
third-party estimates and, based on our judgment, we may adjust the estimates.
We review our actual and anticipated prepayment experience on at least a quarterly basis, and effective yields are
recalculated when differences arise between (i) our previous estimate of future prepayments and (ii) actual prepayments to date
and current estimates of future prepayments. If the actual and estimated future prepayment experience differs from our prior
estimate of prepayments, we are required to record an adjustment in the current period to the amortization or accretion of
premiums and discounts for the cumulative difference in the effective yield through the reporting date.
The most significant factor impacting prepayment rates on our securities is changes to long-term interest rates.
Prepayment rates generally increase when interest rates fall and decrease when interest rates rise. However, there are a variety
of other factors that may impact the rate of prepayments on our securities. Consequently, under different conditions, we could
report materially different amounts. Item 7A. Quantitative and Qualitative Disclosures About Market Risk in this Form 10-K
includes the estimated change in the weighted average projected CPR of our investments and in the corresponding weighted
average yield on our investments should interest rates instantaneously go up or down by 50, 75 and 100 basis points.
At the time we purchase non-Agency securities that are not of high credit quality, we determine an effective interest rate
based on our estimate of the timing and amount of cash flows and our cost basis. On at least a quarterly basis, we review the
estimated cash flows and make appropriate adjustments, based on input and analysis received from external sources, internal
models, and our judgment about interest rates, prepayment rates, timing and amount of estimated credit losses, and other
factors. Any resulting changes in effective yield are recognized prospectively based on the current amortized cost of the
investment as adjusted for credit impairment, if any.
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/(benefit) and interest rate swap periodic cost/(income). "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 that we are required to distribute to maintain our REIT qualification status.
32
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 annual financial statements for the three years ended December
31, 2020. The selected financial data should be read in conjunction with the more detailed information contained in Item 8.
Financial Statements and in this Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations (in millions, except per share amounts):
Balance Sheet Data
Investment securities, at fair value...................................................................................
Total assets.......................................................................................................................
Repurchase agreements and other debt............................................................................
Total liabilities.................................................................................................................
Total stockholders' equity................................................................................................
Net book value per common share 1................................................................................
Tangible net book value per common share 2..................................................................
Statement of Comprehensive Income Data
December 31,
2020
2019
2018
66,414 $
100,442 $
84,287
81,817 $
113,082 $
109,241
52,543 $
89,410 $
70,738 $
102,041 $
11,079 $
11,041 $
17.68 $
16.71 $
18.63 $
17.66 $
75,992
99,335
9,906
17.54
16.56
$
$
$
$
$
$
$
Fiscal Year
2020
2019
2018
Interest income....................................................................................................................................
$
1,519 $
2,842 $
Interest expense...................................................................................................................................
Net interest income..............................................................................................................................
Other gain (loss), net...........................................................................................................................
Operating expenses..............................................................................................................................
Net income (loss).................................................................................................................................
Dividends on preferred stock..............................................................................................................
Issuance cost of redeemed preferred stock..........................................................................................
Net income (loss) available (attributable) to common stockholders...................................................
Net income (loss).................................................................................................................................
Other comprehensive income (loss), net.............................................................................................
Comprehensive income (loss).............................................................................................................
Dividends on preferred stock..............................................................................................................
Issuance cost of redeemed preferred stock..........................................................................................
674
845
(1,018)
93
(266)
96
—
2,149
693
78
83
688
54
6
$
$
(362) $
628 $
(266) $
688 $
622
356
96
—
1,040
1,728
54
6
1,949
1,173
776
(547)
100
129
36
—
93
129
(598)
(469)
36
—
Comprehensive income (loss) available (attributable) to common stockholders................................
$
260 $
1,668 $
(505)
Weighted average number of common shares outstanding - basic.....................................................
Weighted average number of common shares outstanding - diluted..................................................
Net income (loss) per common share - basic......................................................................................
Net income (loss) per common share - diluted....................................................................................
Comprehensive income (loss) per common share - basic...................................................................
Comprehensive income (loss) per common share - diluted................................................................
Dividends declared per common share...............................................................................................
$
$
$
$
$
551.6
551.6
(0.66) $
(0.66) $
0.47 $
0.47 $
1.56 $
540.6
541.4
1.16 $
1.16 $
3.09 $
3.08 $
2.00 $
441.1
441.4
0.21
0.21
(1.14)
(1.14)
2.16
33
Other Data (Unaudited) *
Average investment securities - at par................................................................................................
Average investment securities - at cost...............................................................................................
Net TBA dollar roll position - at par (as of period end)......................................................................
Net TBA dollar roll position - at cost (as of period end).....................................................................
Net TBA dollar roll position - at market value (as of period end)......................................................
Net TBA dollar roll position - at carrying value (as of period end) 3..................................................
Average net TBA portfolio - at cost....................................................................................................
Average total assets - at fair value.......................................................................................................
Average repurchase agreements and other debt outstanding 4............................................................
Average stockholders' equity 5............................................................................................................
Average tangible net book value "at risk" leverage 6..........................................................................
Tangible net book value "at risk" leverage (as of period end) 7..........................................................
Economic return on tangible common equity 8...................................................................................
Expenses % of average total assets 9...................................................................................................
Expenses % of average assets, including average net TBA position 9................................................
Expenses % of average stockholders' equity 9.....................................................................................
________________________________
2020
70,077
72,543
30,364
31,204
31,479
275
21,224
88,403
69,370
10,684
$
$
$
$
$
$
$
$
$
$
Fiscal Year
2019
89,234
92,207
7,322
7,404
7,429
25
9,262
110,112
86,231
10,380
$
$
$
$
$
$
$
$
$
$
2018
60,733
63,348
7,152
7,252
7,322
70
14,697
79,094
55,592
9,050
$
$
$
$
$
$
$
$
$
$
8.9:1
8.5:1
3.5 %
0.11 %
0.08 %
0.87 %
9.7:1
9.4:1
18.7 %
0.08 %
0.07 %
0.80 %
8.3:1
9.0:1
(4.9) %
0.09 %
0.08 %
0.81 %
* 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.
Tangible net book value per common share excludes goodwill.
The carrying value of our net TBA position represents the difference between the market value and the cost basis of the TBA contract as of period-
end and is reported in derivative assets/(liabilities), at fair value on our accompanying consolidated balances sheets.
Amount excludes U.S. Treasury repurchase agreements and TBA contracts. Other debt includes debt of consolidated VIEs.
Average stockholders' equity calculated as average month-ended stockholders' equity during the period.
Average tangible net book value "at risk" leverage is calculated by dividing the sum of daily weighted average repurchase agreements used to fund
our investment securities, other debt and TBA securities (at cost) (together "mortgage borrowings") outstanding for the period by the sum of average
stockholders' equity adjusted to exclude goodwill for the period. Leverage excludes U.S. Treasury repurchase agreements.
"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.
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.
Expenses for fiscal year 2018 have been adjusted to exclude $27 million of non-recurring expenses associated with the sale of MTGE Investment
Corp., an entity we previously managed, and corresponding termination of MTGE's management agreement. Excluded amounts include the write-off
of our intangible asset associated with our acquisition of the MTGE management agreement and other miscellaneous expenses.
2.
3.
4.
5.
6.
7.
8.
9.
34
Economic Interest Income and Asset Yields
The following table summarizes our economic interest income (a non-GAAP measure) for fiscal years 2020, 2019 and
2018, 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):
Fiscal Year 2020
Fiscal Year 2019
Fiscal Year 2018
Amount
Yield
Amount
Yield
Amount
Yield
Interest income:
Cash/coupon interest income.............................................................................................
$ 2,601
3.71 % $ 3,443
3.84 % $ 2,280
3.76 %
Net premium amortization.................................................................................................
(1,082)
(1.62) % (601)
(0.76) % (331)
(0.68) %
Interest income (GAAP measure)........................................................................................
1,519
2.09 % 2,842
3.08 % 1,949
3.08 %
Estimated "catch-up" premium amortization cost (benefit) due to change in CPR
forecast ..............................................................................................................................
Interest income, excluding "catch-up" premium amortization............................................
TBA dollar roll income - implied interest income 1,2........................................................
Economic interest income, excluding "catch-up" amortization (non-GAAP measure) 3....
457
1,976
365
$ 2,341
0.63 % 104
0.11 %
(23)
(0.04) %
2.72 % 2,946
3.19 % 1,926
1.73 % 306
3.30 % 500
2.50 % $ 3,252
3.20 % $ 2,426
3.04 %
3.40 %
3.11 %
Weighted average actual portfolio CPR for investment securities held during the period..
19.9 %
Weighted average projected CPR for the remaining life of investment securities held as
of period end........................................................................................................................
Average 30-year fixed rate mortgage rate as of period end 4...............................................
10-year U.S. Treasury rate as of period end........................................................................
17.6 %
2.67 %
0.92 %
11.4 %
10.8 %
3.74 %
1.92 %
8.7 %
7.9 %
4.55 %
2.68 %
________________________________
1.
2.
3.
4.
Reported in gain (loss) on derivatives instruments and other securities, net in the accompanying consolidated statements of operations.
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.
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.
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 fiscal years 2020 and 2019 compared to the prior year period (in millions):
Impact of Changes in the Principal Elements Impacting Economic Interest Income
Fiscal Year 2020 vs 2019
Due to Change in Average
Total Increase /
(Decrease)
Portfolio
Size
Asset
Yield
Interest Income (GAAP measure)................................................................................................
$
(1,323) $
(606) $
Estimated "catch-up" premium amortization due to change in CPR forecast..............................
Interest income, excluding "catch-up" premium amortization.....................................................
TBA dollar roll income - implied interest income.......................................................................
353
(970)
59
—
(606)
395
Economic interest income, excluding "catch-up" amortization (non-GAAP measure)...............
$
(911) $
(211) $
Fiscal Year 2019 vs 2018
Due to Change in Average
Total Increase /
(Decrease)
Portfolio
Size
Asset
Yield
Interest Income (GAAP measure)................................................................................................
$
893 $
888 $
Estimated "catch-up" premium amortization due to change in CPR forecast .............................
Interest income, excluding "catch-up" premium amortization.....................................................
TBA dollar roll income - implied interest income.......................................................................
127
1,020
(194)
—
888
(185)
Economic interest income, excluding "catch-up" amortization (non-GAAP measure)...............
$
826 $
703 $
(717)
353
(364)
(336)
(700)
5
127
132
(9)
123
Our average investment portfolio, inclusive of TBAs (at cost), decreased 8% for fiscal year 2020 and increased 30% for
fiscal year 2019, compared to the prior year periods, largely due to shifts in our targeted operating leverage and changes to our
35
total stockholders equity outstanding as a result of new equity issuances, a preferred stock redemption and common stock
repurchases. (See Note 9 of our Consolidated Financial Statements in this Form 10-K for additional information regarding our
equity capital markets transactions). The decrease in our average investment portfolio for fiscal year 2020 was in particular
impacted by the decline in our tangible net stockholders' equity in the first quarter due to the COVID-19 financial crisis and our
decision to operate with somewhat lower leverage for the balance of the year as compared to 2019. The decrease in our average
asset yield for fiscal year 2020 was due to changes in asset composition and faster actual and projected CPRs resulting from
historically low mortgage rates resulting from the Fed's unprecedented monetary stimulus measures. The moderate increase in
our asset yield during 2019 was due to changes in asset composition and somewhat slower CPR projections.
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):
Quarter Ended
Repurchase Agreements
and Other Debt 1
Net TBA Position
Long/(Short) 2
Average
Daily
Amount
Maximum
Daily
Amount
Ending
Amount
Average
Daily
Amount
Ending
Amount
Average Tangible
Net Book Value
"At Risk"
Leverage during
the Period 3
Tangible Net
Book Value "At
Risk" Leverage
as of
Period End 4
December 31, 2020................................................
$ 53,645 $ 55,249 $ 52,543 $ 33,753 $ 31,204
September 30, 2020...............................................
$ 61,008 $ 69,628 $ 54,558 $ 27,785 $ 29,460
June 30, 2020.........................................................
$ 69,552 $ 72,399 $ 69,370 $ 15,662 $ 20,413
March 31, 2020......................................................
$ 93,538 $ 104,773 $ 63,241 $
7,487 $ 20,648
December 31, 2019................................................
$ 88,677 $ 92,672 $ 89,313 $
7,038 $
7,404
September 30, 2019...............................................
$ 87,938 $ 92,420 $ 90,462 $ 10,146 $
1,820
June 30, 2019.........................................................
$ 86,147 $ 86,969 $ 85,367 $ 11,864 $ 11,086
March 31, 2019......................................................
$ 82,070 $ 87,877 $ 86,590 $
8,002 $
6,885
December 31, 2018................................................
$ 68,499 $ 77,442 $ 75,992 $
8,066 $
7,252
September 30, 2018...............................................
$ 56,265 $ 66,969 $ 65,975 $ 18,270 $
9,436
June 30, 2018.........................................................
$ 47,823 $ 49,892 $ 49,152 $ 16,912 $ 19,898
March 31, 2018......................................................
$ 49,567 $ 50,645 $ 49,292 $ 15,585 $ 13,529
8.4:1
8.9:1
8.8:1
9.9:1
9.5:1
10.0:1
10.0:1
9.3:1
8.4:1
8.5:1
8.0:1
8.2:1
8.5:1
8.8:1
9.2:1
9.4:1
9.4:1
9.8:1
9.8:1
9.4:1
9.0:1
8.2:1
8.3:1
8.2:1
________________________________
1.
2.
3.
4.
Other debt includes debt of consolidated VIEs. Amounts exclude U.S. Treasury repo agreements.
Daily average and ending net TBA position outstanding measured at cost.
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.
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
fiscal years 2020, 2019 and 2018 (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 cost (income):
36
Economic Interest Expense and Aggregate Cost of Funds 1
Repurchase agreement and other debt - interest expense (GAAP measure)...................
TBA dollar roll income - implied interest expense (benefit) 2,3.......................................
Economic interest expense - before interest rate swap periodic cost (income), net 4.
Interest rate swap periodic interest cost (income), net 2,5................................................
Fiscal Year 2020
Fiscal Year 2019
Fiscal Year 2018
Amount
Cost of
Funds
Amount
Cost of
Funds
Amount
$
674
0.96 % $ 2,149
2.46 % $ 1,173
(60)
(0.27) %
212
2.26 %
273
Cost of
Funds
2.11 %
1.85 %
2.06 %
614
48
0.67 %
2,361
2.44 %
1,446
0.05 %
(402)
(0.42) %
(151)
(0.22) %
Total economic interest expense (non-GAAP measure).............................................
$
662
0.72 % $ 1,959
2.02 % $ 1,295
1.84 %
________________________________
1.
2.
3.
4.
5.
Amounts exclude interest rate swap termination fees and variation margin settlements paid or received, repurchase agreement termination fees,
forward starting swaps and the impact of other supplemental hedges, such as swaptions and U.S. Treasury positions.
Reported in gain (loss) on derivative instruments and other securities, net in our consolidated statements of comprehensive income.
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.
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.
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 fiscal years 2020 and 2019 compared
to the prior year period (in millions):
Impact of Changes in the Principal Elements of Economic Interest Expense
Fiscal Year 2020 vs 2019
Due to Change in Average
Total Increase /
(Decrease)
Borrowing /
Swap Balance
Borrowing /
Swap Rate
Repurchase agreements and other debt interest expense.................................................
$
(1,475) $
(415) $
(1,060)
TBA dollar roll income - implied interest expense..........................................................
Interest rate swap periodic interest income/cost..............................................................
(272)
450
274
87
(546)
363
Total change in economic interest expense......................................................................
$
(1,297) $
(54) $
(1,243)
Fiscal Year 2019 vs 2018
Due to Change in Average
Total Increase /
(Decrease)
Borrowing /
Swap Balance
Borrowing /
Swap Rate
Repurchase agreements and other debt interest expense.................................................
$
976 $
641 $
TBA dollar roll income - implied interest expense..........................................................
Interest rate swap periodic interest income/cost..............................................................
(61)
(251)
(101)
(73)
Total change in economic interest expense......................................................................
$
664 $
467 $
335
40
(178)
197
Our average mortgage borrowings, inclusive of TBAs, decreased 5% and increased 36% for fiscal years 2020 and 2019,
respectively, largely due to shifts in our targeted operating leverage and changes to our total stockholders equity outstanding
due to equity capital markets transactions. The decline in our average interest rate (actual and implied) on our mortgage
borrowings during fiscal year 2020 was largely due to a decline in the Fed Funds target rate to the zero bound range early in the
COVID-19 financial crisis, compared to moderate increases in the Fed Funds rate in the prior two year periods. TBA implied
funding rates particularly benefited from a significant volume of new Agency RMBS issuance and the Fed's purchases of
Agency RMBS through the TBA market. Additionally, during fiscal year 2020, we terminated $3.7 billion of longer-dated
repurchase agreements and replaced them with shorter duration repurchase agreements at lower prevailing market rates. We
recognized losses on debt extinguishment totaling $146 million in other gain (loss) during the period associated with the
terminated agreements, which is excluded from economic interest expense in the tables above. We did not terminate any
repurchase agreements during fiscal years 2019 or 2018.
The increase in our interest rate swap periodic cost for fiscal year 2020 was largely due to a decline in the average floating
rate received, consistent with lower short-term interest rates, which was partly offset by a decline in the average fixed rate paid
on our interest rate swaps and a decline in our average swap balance outstanding. The decrease in our interest rate swap cost
during fiscal year 2019, was largely due to the combination of an increase in the average floating rate received and a decrease in
the average fixed-rate paid on our interest rate swaps. During fiscal years 2020 and 2019, we also adjusted the duration and
37
composition of our interest rates swaps, taking advantage of favorable repricing events in the interest rate swap markets,
benefiting our interest rate swap cost. For additional details regarding our interest rate swaps as of December 31, 2020 and
2019, please refer to Note 5 of our Consolidated Financial Statements in this Form 10-K.
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 fiscal years 2020, 2019 and 2018 (dollars in millions):
Average Ratio of Interest Rate Swaps (Excluding Forward Starting Swaps) to Mortgage
Borrowings Outstanding
2020
2019
2018
Average Agency repo and other debt outstanding.............................................................................
$ 69,370
$ 86,231
$ 55,592
Average net TBA portfolio outstanding - at cost...............................................................................
$ 21,224
$
9,262
$ 14,697
Average mortgage borrowings outstanding.......................................................................................
$ 90,594
$ 95,493
$ 70,289
Average notional amount of interest rate swaps outstanding (excluding forward starting swaps)....
$ 49,978
$ 63,890
$ 43,137
Ratio of average interest rate swaps to mortgage borrowings outstanding.......................................
55 %
67 %
61 %
Fiscal Year
Average interest rate swap pay-fixed rate (excluding forward starting swaps).................................
Average interest rate swap receive-floating rate................................................................................
Average interest rate swap net pay/(receive) rate..............................................................................
0.66 %
(0.56) %
0.10 %
1.61 %
(2.24) %
(0.63) %
1.83 %
(2.18) %
(0.35) %
For fiscal years 2020, 2019 and 2018, we had an average forward starting swap balance of $0.8 billion, $3.0 billion and
$4.5 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 fiscal years 2020, 2019 and 2018
was 56%, 70% and 68%, respectively.
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 fiscal years 2020, 2019 and 2018:
Investment and TBA Securities - Net Interest Spread
Average asset yield, excluding "catch-up" premium amortization....................................................
Average aggregate cost of funds........................................................................................................
Average net interest spread, excluding "catch-up" premium amortization.......................................
Fiscal Year
2020
2019
2018
2.50 %
(0.72) %
1.78 %
3.20 %
(2.02) %
1.18 %
3.11 %
(1.84) %
1.27 %
38
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 fiscal years 2020, 2019 and 2018 (dollars in millions):
Fiscal Year
2020
2019
2018
Net interest income (GAAP measure)....................................................................................................................
TBA dollar roll income, net 1..............................................................................................................................
Interest rate swap periodic (cost) income, net 1..................................................................................................
Other interest and dividend income 1..................................................................................................................
$
845
425
(48)
3
$
693
$
94
402
14
776
227
151
3
Adjusted net interest and dollar roll income..........................................................................................................
1,225
1,203
1,157
Other operating income (expense)
Operating expense...............................................................................................................................................
Less non-recurring write-off of intangible asset and other expenses associated with termination of
management agreement......................................................................................................................................
Management fee income.....................................................................................................................................
Less non-recurring management agreement termination fee income.................................................................
Adjusted other operating income (expense), net....................................................................................................
Net spread and dollar roll income..........................................................................................................................
Dividend on preferred stock...............................................................................................................................
Net spread and dollar roll income available to common stockholders (non-GAAP measure)..............................
Estimated "catch-up" premium amortization cost (benefit) due to change in CPR forecast..............................
(93)
—
—
—
(93)
1,132
96
1,036
457
(83)
—
—
—
(83)
1,120
54
1,066
104
(100)
27
54
(42)
(61)
1,096
36
1,060
(23)
Net spread and dollar roll income, excluding "catch-up" premium amortization, available to common
stockholders (non-GAAP measure).......................................................................................................................
$
1,493
$
1,170
$
1,037
Weighted average number of common shares outstanding - basic........................................................................
Weighted average number of common shares outstanding - diluted.....................................................................
Net spread and dollar roll income per common share - basic................................................................................
Net spread and dollar roll income per common share - diluted.............................................................................
Net spread and dollar roll income, excluding "catch-up" premium amortization, per common share - basic.......
Net spread and dollar roll income, excluding "catch-up" premium amortization, per common share - diluted....
551.6
552.7
1.88
1.87
2.71
2.70
$
$
$
$
540.6
541.4
1.97
1.97
2.16
2.16
$
$
$
$
441.1
441.4
2.40
2.40
2.35
2.35
$
$
$
$
________________________________
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 fiscal years 2020, 2019 and 2018 (in
millions):
Gain (Loss) on Investment Securities, Net 1
Gain (loss) on sale of investment securities, net......................................................................................................
Unrealized gain (loss) on investment securities measured at fair value through net income, net 2.........................
Unrealized gain (loss) on investment securities measured at fair value through other comprehensive income,
net.............................................................................................................................................................................
Fiscal Year
2020
2019
2018
$
1,126 $
388 $
319
622
2,014
1,040
(137)
(297)
(598)
Total gain (loss) on investment securities, net.........................................................................................................
$
2,067 $
3,442 $
(1,032)
________________________________
1.
2.
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.
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-K).
39
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 fiscal years
2020, 2019 and 2018 (in millions):
Fiscal Year
2020
2019
2018
Interest rate swap periodic income (cost), net......................................................................................
$
(48) $
402 $
151
Realized gain (loss) on derivative instruments and other securities, net:
TBA securities - dollar roll income, net...........................................................................................
TBA securities - mark-to-market net gain (loss)..............................................................................
Payer swaptions................................................................................................................................
U.S. Treasury securities - long position...........................................................................................
U.S. Treasury securities - short position..........................................................................................
U.S. Treasury futures - short position..............................................................................................
425
822
(87)
104
(760)
(90)
94
362
(37)
11
(885)
(166)
Interest rate swaps - termination fees and variation margin settlements, net...................................
(2,698)
(1,932)
Losses on debt extinguishment.........................................................................................................
Other.................................................................................................................................................
(146)
28
—
3
Total realized gain (loss) on derivative instruments and other securities, net......................................
(2,402)
(2,550)
Unrealized gain (loss) on derivative instruments and other securities, net:
TBA securities - mark-to-market net gain (loss)..............................................................................
Interest rate swaps............................................................................................................................
Payer swaptions................................................................................................................................
U.S. Treasury securities - long position...........................................................................................
U.S. Treasury securities - short position..........................................................................................
U.S. Treasury futures - short position..............................................................................................
Other.................................................................................................................................................
Total unrealized gain (loss) on derivative instruments and other securities, net..................................
250
(20)
(69)
(2)
(145)
(16)
(11)
(13)
(45)
(115)
11
—
(82)
57
(2)
(176)
Total gain (loss) on derivative instruments and other securities, net....................................................
$
(2,463) $
(2,324) $
227
(592)
67
1
125
112
(44)
—
7
(97)
66
33
23
—
(286)
(64)
7
(221)
(167)
For further details regarding our use of derivative instruments and related activity refer to Notes 2 and 5 of our
Consolidated Financial Statements in this Form 10-K.
Estimated Taxable Income
For the fiscal years 2020, 2019 and 2018, we had estimated taxable income available to common stockholders of $745
million, $620 million and $490 million, or $1.35, $1.15 and $1.11 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 fiscal years 2020, 2019 and 2018 (dollars in
millions, except per share amounts):
40
Fiscal Year
2020
2019
2018
Net income (loss)....................................................................................................................
$
(266) $
688 $
129
Estimated book to tax differences:
Premium amortization, net..................................................................................................
Realized gain/loss, net.........................................................................................................
Net capital loss/(utilization of net capital loss carryforward).............................................
Unrealized (gain)/loss, net...................................................................................................
Other....................................................................................................................................
Total book to tax differences..........................................................................................
Estimated REIT taxable income.............................................................................................
Dividends on preferred stock..............................................................................................
292
1,535
(394)
(321)
(5)
1,107
841
96
91
1,530
212
(1,838)
(9)
(14)
674
54
Estimated REIT taxable income available to common stockholders.....................................
$
745 $
620 $
Weighted average number of common shares outstanding - basic.........................................
Weighted average number of common shares outstanding - diluted......................................
Estimated REIT taxable income per common share - basic...................................................
Estimated REIT taxable income per common share - diluted................................................
551.6
552.7
540.6
541.4
$
$
1.35 $
1.15 $
1.35 $
1.15 $
Beginning cumulative non-deductible net capital loss...........................................................
$
394 $
182 $
Increase (decrease) in net capital loss carryforward...............................................................
(394)
212
Ending cumulative non-deductible net capital loss................................................................
Ending cumulative non-deductible net capital loss per common share..................................
$
$
— $
— $
394 $
0.73 $
(51)
(236)
182
518
(16)
397
526
36
490
441.1
441.4
1.11
1.11
357
(175)
182
0.34
As of December 31, 2020, 2019 and 2018, we had distributed all our estimated taxable income for fiscal years 2020, 2019
and 2018, respectively. Accordingly, we do not expect to incur an income tax or excise tax liability on our 2020 taxable
income, nor did we incur such liabilities on our 2019 and 2018 taxable income. Please refer to Note 9 to our Consolidated
Financial Statements included in this Form 10-K for a summary of dividends declared on our common and preferred stock
during fiscal years 2020, 2019 and 2018.
41
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, 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 this Form 10-K.
Leverage and Financing Sources
Our leverage will vary depending on market conditions and our assessment of relative risks and returns, but we generally
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 8.5x and 9.4x as of
December 31, 2020 and 2019, respectively. The following table includes a summary of our mortgage borrowings outstanding as
of December 31, 2020 and 2019 (dollars in millions). For additional details of our mortgage borrowings refer to Notes 2, 4 and
5 to our Consolidated Financial Statements in this Form 10-K.
Mortgage Borrowings
December 31, 2020
December 31, 2019
Amount
%
Amount
%
Repurchase agreements 1,2...........................................................................................
$
52,366
63 % $
89,085
Debt of consolidated variable interest entities, at fair value.......................................
Total debt.....................................................................................................................
Net TBA position, at cost............................................................................................
Total mortgage borrowings.........................................................................................
$
177
52,543
31,204
83,747
— %
63 %
37 %
228
89,313
7,404
100 % $
96,717
100 %
92 %
— %
92 %
8 %
________________________________
1.
2.
Amount excludes $97 million of repurchase agreements used to fund purchases of U.S. Treasury securities as of December 31, 2019.
As of December 31, 2020 and 2019, 46% and 38%, respectively, of our repurchase agreement funding was through the GCF Repo service.
Our primary financing sources are collateralized borrowings structured as repurchase agreements. We enter into
repurchase agreements, or "repo," through bi-lateral arrangements with financial institutions and independent dealers. We also
enter into third-party repurchase agreements through our wholly-owned registered broker-dealer subsidiary, Bethesda
Securities, LLC, such as tri-party repo offered through the FICC's GCF Repo service. We manage our repurchase agreement
funding position through a variety of methods, including diversification of counterparties, maintaining a staggered maturity
profile and utilization of interest rate hedging strategies. We also use TBA dollar roll transactions as a means of synthetically
financing Agency RMBS.
The terms and conditions of our repurchase agreements are determined on a transaction-by-transaction basis when each
such borrowing is initiated or renewed and, in the case of GCF Repo, by the variable margin requirements calculated by the
FICC, which acts as the central counterparty. 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," which reflects the
underlying risk of the specific collateral and protects the counterparty against a change in its value. Interest rates are generally
fixed based on prevailing rates corresponding to the term of the borrowing. 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 typically have lower implied haircuts relative to Agency RMBS pools
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.
42
Collateral Requirements and Unencumbered Assets
Amounts available to be borrowed under our repurchase agreements are dependent upon prevailing interest rates, the
lender’s "haircut" requirements and collateral value. Each of these elements may fluctuate with changes in interest rates, credit
quality and liquidity conditions within the financial markets. To help manage the adverse impact of interest rate changes on our
borrowings, we utilize an interest rate risk management strategy involving the use of derivative financial instruments. In
particular, we attempt to mitigate the risk of the cost of our short-term funding liabilities increasing at a faster rate than the
earnings of our long-term fixed rate assets during a period of rising interest rates.
The collateral requirements, or haircut levels, under our repo agreements are typically determined on an individual
transaction basis or by the prevailing requirements established by the FICC for GCF tri-party repo. Consequently, haircut levels
and minimum margin requirements can change over time and may increase during periods of elevated market volatility. If the
fair value of our collateral declines, our counterparties will typically require that we post additional collateral to re-establish the
agreed-upon collateral levels, referred to as "margin calls." Similarly, if the estimated fair value of our investment securities
increases, we may request that counterparties release collateral back to us. Our counterparties typically have the sole discretion
to determine the value of pledged collateral but are 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 December 31, 2020, we had met all our margin requirements.
The value of Agency RMBS collateral is impacted by market factors and is reduced by monthly principal pay-downs on
the underlying mortgage pools. Fannie Mae and Freddie Mac publish monthly security pay-down factors for their mortgage
pools on the fifth day after month-end, but do not remit payment to security holders until generally the 25th day after month-
end. Bi-lateral repo counterparties assess margin to account for the reduction in value of Agency collateral when factors are
released. The FICC assesses margin on the last day of each month, prior to the factor release date, based on its internally
projected pay-down rates (referred to as the "blackout period exposure adjustment" or "blackout margin"). On the factor release
date, the blackout margin is released and collateralization requirements are adjusted to actual factor data. Due to the timing
difference between associated margin calls and our receipt of principal pay-downs, our liquidity is temporarily reduced each
month for principal repayments. We attempt to manage the liquidity risk associated with principal pay-downs by monitoring
conditions impacting prepayment rates and through asset selection. As of December 31, 2020, our portfolio largely consisted of
lower coupon 30 and 15-year TBA securities, which are not subject to monthly principal pay-downs, and higher coupon
holdings concentrated in high quality, specified Agency RMBS pools, which have a lower risk of prepayment than similar
coupon generic Agency RMBS.
Collateral requirements under our derivative agreements are subject to our counterparties' assessment of their maximum
risk of loss associated with the derivative instrument measured over a certain period of time, referred to as the initial or
minimum margin requirement. We are also subject to daily variation margin requirements based on changes in the value of the
derivative instrument and/or collateral pledged. Daily variation margin requirements also entitle us to receive collateral if the
value of amounts owed to us under the derivative agreement exceeds the minimum margin requirement. The collateral
requirements under our TBA contracts are governed by the Mortgage-Backed Securities Division ("MBSD") of the FICC and,
if applicable, by our third-party brokerage agreements, which may establish margin levels in excess of the MBSD. 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.
Haircut levels and minimum margin requirements imposed by our counterparties reduce the amount of our unencumbered
assets and limit the amount we can borrow against our investment securities. During fiscal year 2020, haircuts on Agency
RMBS collateral remained stable. Haircuts and funding levels for our less liquid, credit-oriented securities were adversely
impacted by the dislocation in the financial markets in the first quarter, but subsequently rebounded to levels consistent with
historical norms. As of December 31, 2020, the weighted average haircut on our repurchase agreements was approximately
4.6% of the value of our collateral, largely unchanged from December 31, 2019.
To mitigate the risk of future margins calls, we seek to maintain excess liquidity by holding unencumbered liquid assets
that can be used to satisfy collateral requirements, collateralize additional borrowings or sold for cash. As of December 31,
2020, our unencumbered assets totaled 60% of our tangible net equity, compared to 54% as of December 31, 2019. The
majority of our liquidity is held at AGNC, but we also maintain capital and excess liquidity at Bethesda Securities to meet
regulatory standards, satisfy counterparty and clearing organization expectations, and for risk management purposes. As of
December 31, 2020, we had cash and unencumbered Agency RMBS totaling $5.4 billion, which excludes unencumbered CRT
securities, non-Agency securities and assets held at Bethesda Securities.
43
Counterparty Risk
Collateral requirements imposed by counterparties subject us to the risk that the counterparty does not return pledged
assets to us as and when required. 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 December 31, 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 2% of our tangible
stockholders' equity, with our top five repo counterparties, excluding the FICC, representing less than 6% of our tangible
stockholders' equity. As of December 31, 2020, approximately 9% of our tangible stockholder's equity was at risk with the
FICC. Excluding central clearing exchanges, as of December 31, 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 of our specified pool securities, or premium relative to generic
Agency RMBS. We attempt to manage this risk by maintaining a minimum level of securities that trade at or near TBA values
that in our estimation enhances our 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,
among other conditions, we may repurchase shares of our common stock. Please refer to Note 9 of our Consolidated Financial
Statements in this Form 10-K for further details regarding our recent equity capital transactions and our stock repurchase plan.
OFF-BALANCE SHEET ARRANGEMENTS
As of December 31, 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 December 31, 2020, we had
not guaranteed obligations of unconsolidated entities or entered into a commitment or intent to provide funding to such entities.
AGGREGATE CONTRACTUAL OBLIGATIONS
The following table summarizes the effect on our liquidity and cash flows from contractual obligations for repurchase
agreements and related interest expense (in millions):
Fiscal Year
2021
2022
2023
2024
2025
Total
Repurchase agreements........................................................................................
$ 52,366 $
— $
— $
— $
— $ 52,366
Interest expense 1..................................................................................................
19
—
—
—
—
19
Total......................................................................................................................
________________________________
$ 52,385 $
— $
— $
— $
— $ 52,385
1.
Interest expense is calculated based on the weighted average interest rates on our repurchase agreements as of December 31, 2020.
FORWARD-LOOKING STATEMENTS
The statements contained in this Annual 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,”
44
“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 Annual
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 COVID-19 pandemic and of measures taken in response to the COVID-19 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, including Fed purchases of Agency RMBS;
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 this document under Item 1A. Risk Factors. We caution readers not to
place undue reliance on our forward-looking statements.
Item 7A. 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.
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
45
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 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 December 31, 2020 and
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 December 31, 2020 and 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
December 31, 2020
December 31, 2019
Estimated
Change in
Portfolio
Market Value
Estimated
Change in
Tangible Net
Book Value Per
Common Share
Estimated
Change in
Portfolio
Market Value
Estimated
Change in
Tangible Net
Book Value Per
Common Share
-1.2%
-0.9%
-0.5%
-0.1%
-0.4%
-0.8%
-12.6%
-9.7%
-5.8%
-1.1%
-4.0%
-8.1%
-0.5%
-0.3%
-0.1%
-0.4%
-0.8%
-1.3%
-6.0%
-3.0%
-0.9%
-4.7%
-9.1%
-14.8%
Change in Interest Rate
-100 Basis Points......................................
-75 Basis Points........................................
-50 Basis Points........................................
+50 Basis Points.......................................
+75 Basis Points.......................................
+100 Basis Points.....................................
________________________________
1.
2.
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.
Includes the effect of derivatives and other securities used for hedging purposes. Interest rates are assumed to be 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. 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.
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 rising or higher interest rate environment, 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.
46
As of December 31, 2020 and 2019, our investment securities (excluding TBAs) had a weighted average projected CPR
of 17.6% and 10.8%, respectively, and a weighted average yield of 2.33% 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.
Change in Interest Rate
-100 Basis Points.......................................
-75 Basis Points.........................................
-50 Basis Points.........................................
Actual as of Period End...........................
+50 Basis Points........................................
+75 Basis Points........................................
+100 Basis Points......................................
Interest Rate Sensitivity 1
December 31, 2020
December 31, 2019
Weighted
Average
Projected CPR
Weighted
Average Asset
Yield 2
Weighted
Average
Projected CPR
Weighted
Average Asset
Yield 2
25.6%
23.9%
21.9%
17.6%
14.3%
13.0%
11.9%
1.91%
1.99%
2.09%
2.33%
2.45%
2.51%
2.56%
20.3%
17.7%
15.0%
10.8%
8.1%
7.5%
6.8%
2.73%
2.82%
2.90%
3.07%
3.12%
3.15%
3.16%
________________________________
1.
2.
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.
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 December 31,
2020 and 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 December 31, 2020 and 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.
Spread Sensitivity 1,2
December 31, 2020
December 31, 2019
Estimated
Change in
Portfolio
Market Value
Estimated
Change in
Tangible Net
Book Value Per
Common Share
Estimated
Change in
Portfolio
Market Value
Estimated
Change in
Tangible Net
Book Value Per
Common Share
+2.2%
+1.1%
+0.4%
-0.4%
-1.1%
-2.2%
+23.9%
+11.9%
+4.8%
-4.8%
-11.9%
-23.9%
+2.5%
+1.2%
+0.5%
-0.5%
-1.2%
-2.5%
+28.0%
+14.0%
+5.6%
-5.6%
-14.0%
-28.0%
Change in MBS Spread
-50 Basis Points.........................................
-25 Basis Points.........................................
-10 Basis Points.........................................
+10 Basis Points........................................
+25 Basis Points........................................
+50 Basis Points........................................
________________________________
1.
2.
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.
Includes the effect of derivatives and other securities used for hedging purposes.
47
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 December 31, 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-K 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 may 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 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 December 31, 2020, our maximum amount at risk with any counterparty related to our repurchase agreements
was less than 2% of tangible stockholders' equity and related to our derivative agreements was less than 1% of tangible
stockholders' equity.
48
Item 8. Financial Statements
Our management is responsible for the accompanying consolidated financial statements and the related financial
information. The financial statements have been prepared in conformity with accounting principles generally accepted in the
United States and necessarily include certain amounts that are based on estimates and informed judgments. Our management
also prepared the related financial information included in this Annual Report on Form 10-K and is responsible for its accuracy
and consistency with the consolidated financial statements.
The consolidated financial statements as of December 31, 2020 and 2019 and fiscal years 2020, 2019 and 2018 have been
audited by Ernst & Young LLP, an independent registered public accounting firm, who conducted their audit in accordance
with the standards of the Public Company Accounting Oversight Board (United States). The independent registered public
accounting firm's responsibility is to express an opinion on these consolidated financial statements based on their audit. For
further information refer to the Ernst & Young LLP audit opinion included in this Item 8 of our Annual Report.
Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as
defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is designed
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial
statements for external purposes in accordance with generally accepted accounting principles. Our internal control over
financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of our
management and Board of Directors; and (iii) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of our assets that could have a material effect on the consolidated financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2020, utilizing
the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in its Internal
Control-Integrated Framework (2013 framework). Based on this assessment and those criteria, management determined that our
internal control over financial reporting was effective as of December 31, 2020. The effectiveness of our internal control over
financial reporting as of December 31, 2020 has been audited by Ernst & Young LLP, our independent registered public
accounting firm, as stated in their attestation report included in this Form 10-K.
49
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of AGNC Investment Corp.
Opinion on Internal Control over Financial Reporting
We have audited AGNC Investment Corp.’s internal control over financial reporting as of December 31, 2020, based on criteria
established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework) (the COSO criteria). In our opinion, AGNC Investment Corp. maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of AGNC Investment Corp. as of December 31, 2020 and 2019, and the related
consolidated statements of comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period
ended December 31, 2020, and the related notes, and our report dated February 26, 2021 expressed an unqualified opinion
thereon.
Basis for Opinion
AGNC Investment Corp.’s management is responsible for maintaining effective internal control over financial reporting, and
for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s
Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal
control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to AGNC Investment Corp. in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Tysons, Virginia
February 26, 2021
50
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of AGNC Investment Corp.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of AGNC Investment Corp. as of December 31, 2020 and
2019, and the related consolidated statements of comprehensive income, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial
statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position
of AGNC Investment Corp. at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), AGNC Investment Corp.’s internal control over financial reporting as of December 31, 2020, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework) and our report dated February 26, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of AGNC Investment Corp.'s management. Our responsibility is to express an
opinion on these financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to AGNC Investment Corp. in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess
the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in
the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that
was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that
are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The
communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken
as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit
matter or on the accounts or disclosures to which it relates.
51
Description
of the Matter
How We Addressed the
Matter in Our Audit
Agency securities and non-agency securities of high credit quality net premium amortization
As of December 31, 2020, the Company’s investment securities had a net unamortized premium
balance of $2.3 billion, including interest and principal-only securities, and it recorded $1.1 billion
of net premium amortization for the year then ended. As explained in Note 2 to the financial
statements, premiums or discounts associated with the purchase of Agency residential mortgage-
backed securities (“Agency RMBS") and non-Agency mortgage-backed securities of high credit
quality are amortized or accreted into interest income, respectively, over the projected lives of the
securities, including contractual payments and estimated prepayments using the effective interest
method. The effective yield on the Company’s Agency RMBS and non-Agency mortgage-backed
securities of high credit quality is highly impacted by the Company’s estimate of future
prepayments. The Company estimates long-term prepayment speeds of such securities using a
third-party service provider and market data. The third-party service provider estimates long-term
prepayment speeds using models that incorporate the forward yield curve, current mortgage rates,
mortgage rates of the outstanding loans, age and size of the outstanding loans, loan-to-value ratios,
interest rate volatility and other factors.
Auditing the Company's estimation of long-term prepayment speeds used for the amortization of
premiums and accretion of discounts is subjective due to the significant judgments and estimates
required by management and the third-party service provider, as inputs into prepayment models are
prone to fluctuation based on changing macroeconomic conditions.
We obtained an understanding, evaluated the design and tested the operating effectiveness of
internal controls over the estimation of long-term prepayment speeds, including management’s
review of the estimated prepayment speeds provided by the third-party service provider.
Our audit procedures included, among others, performing comparative analyses between the
Company’s long-term prepayment speed estimates and long-term prepayment speed estimates data
from independent third-party sources, reconciling the Company’s estimates of long-term
prepayment speeds to source prepayment speeds data provided by management’s third-party
service provider, evaluating the competency and objectivity of management’s third-party service
provider, and identifying potential sources of contrary information, with the assistance of an
internal valuation specialist.
/s/ Ernst & Young LLP
We have served as AGNC Investment Corp.’s auditor since 2008.
Tysons, Virginia
February 26, 2021
52
AGNC INVESTMENT CORP.
CONSOLIDATED BALANCE SHEETS
(in millions, except per share data)
December 31,
2020
2019
Assets:
Agency securities, at fair value (including pledged securities of $53,698 and $92,608,
respectively)..................................................................................................................................... $
64,836 $
98,516
Agency securities transferred to consolidated variable interest entities, at fair value (pledged
securities).........................................................................................................................................
Credit risk transfer securities, at fair value (including pledged securities of $455 and $309,
respectively).....................................................................................................................................
Non-Agency securities, at fair value (including pledged securities of $458 and $0, respectively)
U.S. Treasury securities, at fair value (including pledged securities of $0 and $97, respectively).
Cash and cash equivalents...............................................................................................................
Restricted cash.................................................................................................................................
Derivative assets, at fair value.........................................................................................................
Receivable for investment securities sold (including pledged securities of $207 and $0,
respectively).....................................................................................................................................
Receivable under reverse repurchase agreements...........................................................................
Goodwill..........................................................................................................................................
Other assets......................................................................................................................................
295
737
546
—
1,017
1,307
391
210
11,748
526
204
371
976
579
97
831
451
190
—
10,181
526
364
Total assets.............................................................................................................................. $
81,817 $
113,082
Liabilities:
Repurchase agreements................................................................................................................... $
52,366 $
Debt of consolidated variable interest entities, at fair value............................................................
Payable for investment securities purchased...................................................................................
Derivative liabilities, at fair value...................................................................................................
Dividends payable...........................................................................................................................
Obligation to return securities borrowed under reverse repurchase agreements, at fair value........
Accounts payable and other liabilities.............................................................................................
Total liabilities.........................................................................................................................
177
6,157
2
90
11,727
219
70,738
Stockholders' equity:
Preferred Stock - aggregate liquidation preference of $1,538 and $963, respectively....................
1,489
Common stock - $0.01 par value; 1,500 and 900 shares authorized, respectively; 539.5 and
540.9 shares issued and outstanding, respectively
Additional paid-in capital................................................................................................................
Retained deficit................................................................................................................................
Accumulated other comprehensive income.....................................................................................
Total stockholders' equity........................................................................................................
5
13,972
(5,106)
719
11,079
Total liabilities and stockholders' equity................................................................................. $
81,817 $
See accompanying notes to consolidated financial statements.
89,182
228
2,554
6
104
9,543
424
102,041
932
5
13,893
(3,886)
97
11,041
113,082
53
AGNC INVESTMENT CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions, except per share data)
Interest income:
Interest income................................................................................................... $ 1,519 $ 2,842 $ 1,949
Interest expense..................................................................................................
Net interest income.....................................................................................
674
845
2,149
1,173
693
776
For the year ended December 31,
2020
2019
2018
Other gain (loss), net:
Gain (loss) on sale of investment securities, net................................................
Unrealized gain (loss) on investment securities measured at fair value
through net income, net......................................................................................
1,126
388
(137)
319
2,014
Loss on derivative instruments and other securities, net....................................
(2,463)
(2,324)
Management fee income....................................................................................
—
Total other gain (loss), net:.........................................................................
(1,018)
Expenses:
Compensation and benefits................................................................................
Other operating expense.....................................................................................
Total operating expense..............................................................................
56
37
93
—
78
47
36
83
Net income (loss)......................................................................................................
(266)
688
Dividends on preferred stock.............................................................................
Issuance costs of redeemed preferred stock.......................................................
96
—
54
6
Net income (loss) available (attributable) to common stockholders................... $
(362) $
628 $
(297)
(167)
54
(547)
45
55
100
129
36
—
93
Net income (loss)...................................................................................................... $
(266) $
688 $
129
Unrealized gain (loss) on investment securities measured at fair value
through other comprehensive income (loss), net...............................................
Comprehensive income (loss).................................................................................
Dividends on preferred stock.............................................................................
Issuance costs of redeemed preferred stock.......................................................
622
356
96
—
1,040
1,728
54
6
(598)
(469)
36
—
Comprehensive income (loss) available (attributable) to common
stockholders............................................................................................................. $
260 $ 1,668 $
(505)
Weighted average number of common shares outstanding - basic.....................
Weighted average number of common shares outstanding - diluted.................
551.6
551.6
540.6
541.4
Net income (loss) per common share - basic......................................................... $
(0.66) $
1.16 $
Net income (loss) per common share - diluted...................................................... $
(0.66) $
1.16 $
441.1
441.4
0.21
0.21
See accompanying notes to consolidated financial statements.
54
AGNC INVESTMENT CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in millions)
Preferred
Stock
Common Stock
Shares
Amount
Additional
Paid-in
Capital
Retained
Deficit
Accumulated
Other
Comprehensive
Income (Loss)
Total
Balance, December 31, 2017............................................... $
Net income......................................................................
Other comprehensive loss:
Unrealized loss on available-for-sale securities, net ...
Stock-based compensation..............................................
Issuance of common stock, net of offering costs............
Preferred dividends declared..........................................
Common dividends declared..........................................
Balance, December 31, 2018............................................... $
Net income......................................................................
Other comprehensive income:
Unrealized gain on available-for-sale securities, net ..
Stock-based compensation..............................................
Issuance of preferred stock, net of offering cost.............
Redemption of preferred stock.......................................
Issuance of common stock, net of offering cost.............
Repurchase of common stock.........................................
Preferred dividends declared..........................................
Common dividends declared..........................................
Balance, December 31, 2019............................................... $
Net loss...........................................................................
Other comprehensive income:
Unrealized gain on available-for-sale securities, net ..
Stock-based compensation..............................................
Issuance of preferred stock, net of offering cost.............
Issuance of common stock, net of offering cost.............
Repurchase of common stock.........................................
Preferred dividends declared..........................................
Common dividends declared..........................................
484
—
—
—
—
—
—
484
—
—
—
617
(169)
—
—
—
—
932
—
—
—
557
—
—
—
—
391.3 $
4 $
11,173 $
(2,562) $
(345) $
8,754
—
—
—
145.0
—
—
—
—
—
1
—
—
—
—
10
2,610
—
—
129
—
—
—
(36)
(964)
—
129
(598)
—
—
—
—
(598)
10
2,611
(36)
(964)
536.3 $
5 $
13,793 $
(3,433) $
(943) $
9,906
688
—
688
—
—
0.1
—
—
11.4
(6.9)
—
—
—
—
—
—
—
—
—
—
—
—
—
13
—
—
190
(103)
—
—
—
—
—
(6)
—
—
(54)
(1,081)
540.9 $
5 $
13,893 $
(3,886) $
—
—
0.1
—
26.7
(28.2)
—
—
—
—
—
—
1
(1)
—
—
—
—
18
—
438
(377)
—
—
(266)
—
—
—
—
—
(96)
(858)
1,040
1,040
—
—
—
—
—
—
—
97
—
622
—
—
—
—
—
—
13
617
(175)
190
(103)
(54)
(1,081)
$
11,041
(266)
622
18
557
439
(378)
(96)
(858)
Balance, December 31, 2020............................................... $
1,489
539.5 $
5 $
13,972 $
(5,106) $
719
$
11,079
See accompanying notes to consolidated financial statements.
55
AGNC INVESTMENT CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
For the year ended December 31,
2020
2019
2018
Operating activities:
Net income (loss).......................................................................................................................... $
(266) $
688 $
129
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of premiums and discounts on mortgage-backed securities, net....................
1,082
Amortization of intangible assets..........................................................................................
Stock-based compensation....................................................................................................
—
18
601
—
13
(Gain) loss on sale of investment securities, net...................................................................
(1,126)
(388)
Unrealized (gain) loss on investment securities measured at fair value through net
income, net............................................................................................................................
Loss on derivative instruments and other securities, net......................................................
(Increase) decrease in other assets........................................................................................
Increase (decrease) in accounts payable and other accrued liabilities..................................
Net cash provided by operating activities.....................................................................................
(319)
2,463
119
(224)
1,747
(2,014)
2,324
(35)
(9)
1,180
331
25
6
137
297
167
(100)
121
1,113
Investing activities:
Purchases of Agency mortgage-backed securities................................................................
(56,521)
(47,548)
(42,586)
Purchases of credit risk transfer and non-Agency securities................................................
(765)
(1,406)
(1,572)
Proceeds from sale of Agency mortgage-backed securities.................................................
Proceeds from sale of credit risk transfer and non-Agency securities..................................
Principal collections on Agency mortgage-backed securities..............................................
Principal collections on credit risk transfer and non-Agency securities...............................
77,294
896
17,373
131
23,212
1,437
12,810
20
8,132
891
7,170
15
Payments on U.S. Treasury securities...................................................................................
(24,497)
(26,823)
(10,829)
Proceeds from U.S. Treasury securities................................................................................
Net proceeds from (payments on) reverse repurchase agreements.......................................
Net proceeds from (payments on) derivative instruments....................................................
Net proceeds from other investing activity...........................................................................
25,978
(1,530)
(1,834)
—
13,555
11,962
(1,437)
—
21,308
(10,571)
76
30
Net cash provided by (used in) investing activities......................................................................
36,525
(14,218)
(27,936)
Financing activities:
Proceeds from repurchase arrangements..............................................................................
3,133,008
4,234,972
2,031,463
Payments on repurchase agreements....................................................................................
(3,169,824)
(4,221,507) (2,006,042)
Payments on debt of consolidated variable interest entities.................................................
Net proceeds from preferred stock issuances........................................................................
Payments for preferred stock repurchases............................................................................
Net proceeds from common stock issuances........................................................................
Payments for common stock repurchases.............................................................................
Cash dividends paid..............................................................................................................
(62)
557
—
439
(378)
(970)
(55)
617
(175)
190
(103)
(1,139)
(78)
—
—
2,611
—
(974)
Net cash provided by (used in) financing activities......................................................................
(37,230)
12,800
26,980
Net change in cash, cash equivalents and restricted cash.............................................................
Cash, cash equivalents and restricted cash at beginning of period...............................................
1,042
1,282
(238)
1,520
Cash, cash equivalents and restricted cash at end of period......................................................... $
2,324 $
1,282 $
157
1,363
1,520
Supplemental disclosure to cash flow information:
Interest paid................................................................................................................................... $
866 $
2,097 $
1,090
See accompanying notes to consolidated financial statements.
56
AGNC INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Organization
We were organized in Delaware on January 7, 2008 and 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."
We invest primarily in Agency residential mortgage-backed securities ("Agency RMBS") for which the principal and
interest payments are guaranteed by a U.S. Government-sponsored enterprise ("GSE") or a U.S. Government agency. We also
invest in other types of mortgage and mortgage-related securities, such as credit risk transfer ("CRT") securities and non-
Agency residential and commercial mortgage-backed securities ("non-Agency RMBS" and "CMBS," respectively), where
repayment of principal and interest is not guaranteed by a GSE or U.S. Government agency, and other assets related to the
housing, mortgage or real estate markets. We fund our investments primarily through collateralized borrowings structured as
repurchase agreements.
We operate to qualify to be taxed as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as
amended (the "Internal Revenue Code"). 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 our annual taxable
income to our stockholders on a timely basis. It is our intention to distribute 100% of our taxable income, after application of
available tax attributes, within the limits prescribed by the Internal Revenue Code, which may extend into the subsequent tax
year.
We are internally managed with the principal objective of providing 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.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation and Consolidation
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the
United States ("GAAP"). Our consolidated financial statements include the accounts of all subsidiaries and variable interest
entities for which we are the primary beneficiary. Significant intercompany accounts and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of
the financial statements and revenues and expenses during the period reported. Actual results could differ from those estimates.
Investment Securities
Agency RMBS consist of residential mortgage pass-through securities and collateralized mortgage obligations ("CMOs")
guaranteed by the Federal National Mortgage Association ("Fannie Mae"), Federal Home Loan Mortgage Corporation
("Freddie Mac," and together with Fannie Mae, the "GSEs") or the Government National Mortgage Association ("Ginnie
Mae").
CRT securities are risk sharing instruments issued by the GSEs, and similarly structured transactions issued by third-party
market participants, that synthetically transfer a portion of the risk associated with credit losses within pools of conventional
residential mortgage loans from the GSEs and/or third parties to private investors. Unlike Agency RMBS, full repayment of the
original principal balance of CRT securities is not guaranteed by a GSE or U.S. Government agency; rather, "credit risk
transfer" is achieved by writing down the outstanding principal balance of the CRT securities if credit losses on a related pool
of loans exceed certain thresholds. By reducing the amount that they are obligated to repay to holders of CRT securities, the
GSEs and/or other third parties offset credit losses on the related loans.
Non-Agency RMBS and CMBS (together, "Non-Agency MBS") are backed by residential and commercial mortgage
loans, respectively, packaged and securitized by a private institution, such as a commercial bank. Non-Agency MBS typically
57
benefit from credit enhancements derived from structural elements, such as subordination, overcollateralization or insurance,
but nonetheless carry a higher level of credit exposure than Agency RMBS.
All of our securities are reported at fair value on our consolidated balance sheet. Accounting Standards Codification
("ASC") Topic 320, Investments—Debt and Equity Securities, requires that at the time of purchase, we designate a security as
held-to-maturity, available-for-sale or trading, depending on our ability and intent to hold such security to maturity.
Alternatively, we may elect the fair value option of accounting for securities pursuant to ASC Topic 825, Financial
Instruments. Prior to fiscal year 2017, we primarily designated our investment securities as available-for-sale. On January 1,
2017, we began electing the fair value option of accounting for all investment securities newly acquired after such date.
Unrealized gains and losses on securities classified as available-for-sale are reported in accumulated other comprehensive
income ("OCI"), whereas unrealized gains and losses on securities for which we elected the fair value option, or are classified
as trading, are reported in net income through other gain (loss). Upon the sale of a security designated as available-for-sale, we
determine the cost of the security and the amount of unrealized gain or loss to reclassify out of accumulated OCI into earnings
based on the specific identification method. In our view, the election of the fair value option simplifies the accounting for
investment securities and more appropriately reflects the results of our operations for a reporting period by presenting the fair
value changes for these assets in a manner consistent with the presentation and timing of the fair value changes for our
derivative instruments.
We generally recognize gains or losses through net income on available-for-sale securities only if the security is sold;
however, if the fair value of a security declines below its amortized cost and we determine that it is more likely than not that we
will incur a realized loss on the security when we sell the asset, we will recognize the difference between the amortized cost and
the fair in net income as a component of other gain (loss). Since all of our available-for-sale designated securities consist of
Agency RMBS, we do not have an allowance for credit losses. We have not recognized impairment losses on our available-for-
sale securities through net income for the periods presented in our consolidated financial statements.
Interest Income
Interest income is accrued based on the outstanding principal amount of the investment securities and their contractual
terms. Premiums or discounts associated with the purchase of Agency RMBS and non-Agency MBS of high credit quality are
amortized or accreted into interest income, respectively, over the projected lives of the securities, including contractual
payments and estimated prepayments, using the effective interest method in accordance with ASC Subtopic 310-20,
Receivables—Nonrefundable Fees and Other Costs.
We estimate long-term prepayment speeds of our mortgage securities using a third-party service and market data. The
third-party service provider estimates prepayment speeds using models that incorporate the forward yield curve, primary to
secondary mortgage rate spreads, current mortgage rates, mortgage rates of the outstanding loans, age and size of the
outstanding loans, loan-to-value ratios, interest rate volatility and other factors. We review the prepayment speeds estimated by
the third-party service for reasonableness with consideration given to both historical prepayment speeds and current market
conditions. If based on our assessment, we believe that the third-party model does not fully reflect our expectations of the
current prepayment landscape, such as during periods of elevated market uncertainty or unique market conditions, we may
make adjustments to the models. We review our actual and anticipated prepayment experience on at least a quarterly basis and
effective yields are recalculated when differences arise between (i) our previous estimate of future prepayments and (ii) actual
prepayments to date and our current estimate of future prepayments. We are required to record an adjustment in the current
period to premium amortization / discount accretion for the cumulative effect of the difference in the effective yields as if the
recalculated yield had been in place as of the security's acquisition date through the reporting date.
At the time we purchase CRT securities and non-Agency MBS that are not of high credit quality, we determine an
effective yield based on our estimate of the timing and amount of future cash flows and our cost basis. Our initial cash flow
estimates for these investments are based on our observations of current information and events and include assumptions related
to interest rates, prepayment rates and the impact of default and severity rates on the timing and amount of credit losses. On at
least a quarterly basis, we review the estimated cash flows and make appropriate adjustments based on inputs and analysis
received from external sources, internal models, and our judgment regarding such inputs and other factors. Any resulting
changes in effective yield are recognized prospectively based on the current amortized cost of the investment adjusted for credit
impairments, if any.
Repurchase Agreements
We finance the acquisition of securities for our investment portfolio primarily through repurchase agreements with
financial institutions. Repurchase arrangements involve the sale and a simultaneous agreement to repurchase the transferred
assets at a future date. 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. Pursuant to ASC Topic 860, Transfers and Servicing,
58
we account for repurchase agreements as collateralized financing transactions, which are carried at their contractual amounts
(cost), plus accrued interest. Our repurchase agreements typically have maturities of less than one year but may extend up to
five years or more.
Reverse Repurchase Agreements and Obligation to Return Securities Borrowed under Reverse Repurchase Agreements
We borrow securities to cover short sales of U.S. Treasury securities through reverse repurchase transactions under our
master repurchase agreements (see Derivative Instruments below). We account for these as securities borrowing transactions
and recognize an obligation to return the borrowed securities at fair value on the balance sheet based on the value of the
underlying borrowed securities as of the reporting date. We may also enter into reverse repurchase agreements to earn a yield
on excess cash balances. The securities received as collateral in connection with our reverse repurchase agreements mitigate our
credit risk exposure to counterparties. Our reverse repurchase agreements typically have maturities of 30 days or less.
Derivative Instruments
We use a variety of derivative instruments to hedge a portion of our exposure to market risks, including interest rate,
prepayment, extension and liquidity risks. The objective of our risk management strategy is to reduce fluctuations in net book
value over a range of interest rate scenarios. In particular, we attempt to mitigate the risk of the cost of our variable rate
liabilities increasing during a period of rising interest rates. The primary instruments that we use are interest rate swaps, options
to enter into interest rate swaps ("swaptions"), U.S. Treasury securities and U.S. Treasury futures contracts. We also use
forward contracts in the Agency RMBS "to-be-announced" market, or TBA securities, to invest in and finance Agency
securities and to periodically reduce our exposure to Agency RMBS.
We account for derivative instruments in accordance with ASC Topic 815, Derivatives and Hedging ("ASC 815"). ASC
815 requires an entity to recognize all derivatives as either assets or liabilities in our accompanying consolidated balance sheets
and to measure those instruments at fair value. None of our derivative instruments have been designated as hedging instruments
for accounting purposes under the provisions of ASC 815, consequently changes in the fair value of our derivative instruments
are reported in gain (loss) on derivative instruments and other securities, net in our consolidated statements of comprehensive
income.
Our derivative agreements generally contain provisions that allow for netting or setting off derivative assets and liabilities
with the counterparty; however, we report related assets and liabilities on a gross basis in our consolidated balance sheets.
Derivative instruments in a gain position are reported as derivative assets at fair value and derivative instruments in a loss
position are reported as derivative liabilities at fair value in our consolidated balance sheets. Changes in fair value of derivative
instruments and periodic settlements related to our derivative instruments are recorded in gain (loss) on derivative instruments
and other securities, net in our consolidated statements of comprehensive income. Cash receipts and payments related to
derivative instruments are classified in our consolidated statements of cash flows according to the underlying nature or purpose
of the derivative transaction, generally in the investing section.
Interest rate swap agreements
We use interest rate swaps to economically hedge the variable cash flows associated with our borrowings made under
repurchase agreements. Under our interest rate swap agreements, we typically pay a fixed rate and receive a floating rate
("payer swaps") based on a short-term benchmark rate, such as the Secured Overnight Financing Rate ("SOFR"), Overnight
Index Swap Rate ("OIS") or three-month London Interbank Offered Rate ("LIBOR"). Our interest rate swaps typically have
terms from one to 10 years but may extend up to 20 years or more. Our interest rate swaps are centrally cleared through a
registered commodities exchange. The clearing exchange requires that we post an "initial margin" amount determined by the
exchange, which is generally intended to be set at a level sufficient to protect the exchange from the interest rate swap's
maximum estimated single-day price movement. We also exchange daily settlements of "variation margin" based upon changes
in fair value, as measured by the exchange. Pursuant to rules governing central clearing activities, we recognize variation
margin settlements as a direct reduction of the carrying value of the interest rate swap asset or liability.
Interest rate swaptions
We purchase interest rate swaptions to help mitigate the potential impact of larger, more rapid changes in interest rates on
the performance of our investment portfolio. Interest rate swaptions provide us the option to enter into an interest rate swap
agreement for a predetermined notional amount, stated term and pay and receive interest rates in the future. Our interest rate
swaption agreements are not subject to central clearing. The premium paid for interest rate swaptions is reported as an asset in
our consolidated balance sheets. The difference between the premium paid and the fair value of the swaption is reported in gain
(loss) on derivative instruments and other securities, net in our consolidated statements of comprehensive income. If a swaption
expires unexercised, the realized loss on the swaption would be equal to the premium paid. If we sell or exercise a swaption, the
59
realized gain or loss on the swaption would be equal to the difference between the cash or the fair value of the underlying
interest rate swap and the premium paid.
TBA securities
A TBA security is a forward contract for the purchase or sale of Agency RMBS at a predetermined price, face amount,
issuer, coupon and stated maturity on an agreed-upon future date. The specific Agency RMBS to be delivered into the contract
are not known until shortly before the settlement date. We may choose, prior to settlement, to move the settlement of these
securities out to a later date by entering into an offsetting TBA position, net settling the offsetting positions for cash, and
simultaneously purchasing or selling a similar TBA contract for a later settlement date (together referred to as a "dollar roll
transaction"). The Agency securities purchased or sold for a forward settlement date are typically priced at a discount to
equivalent securities settling in the current month. This difference, or "price drop," is the economic equivalent of interest
income on the underlying Agency securities, less an implied funding cost, over the forward settlement period (referred to as
"dollar roll income"). Consequently, forward purchases of Agency securities and dollar roll transactions represent a form of off-
balance sheet financing.
We account for TBA contracts as derivative instruments since either the TBA contracts do not settle in the shortest period
of time possible or we cannot assert that it is probable at inception and throughout the term of the TBA contract that we will
physically settle the contract on the settlement date. We account for TBA dollar roll transactions as a series of derivative
transactions.
U.S. Treasury securities
We use U.S. Treasury securities and U.S. Treasury futures contracts to mitigate the potential impact of changes in interest
rates on the performance of our portfolio. We borrow U.S. Treasury securities under reverse repurchase agreements to cover
short sales of U.S. Treasury securities. We account for these as securities borrowing transactions and recognize an obligation to
return the borrowed securities at fair value on our accompanying consolidated balance sheets based on the value of the
underlying U.S. Treasury security as of the reporting date. Gains and losses associated with U.S. Treasury securities and U.S.
Treasury futures contracts are recognized in gain (loss) on derivative instruments and other securities, net in our consolidated
statements of comprehensive income.
Fair Value Measurements
We determine the fair value of financial instruments based on our estimate of the price that would be received to sell the
asset or paid to transfer the liability in an orderly transaction between market participants at the measurement date. We utilize a
three-level valuation hierarchy for disclosure of fair value measurements based upon the transparency of inputs to the valuation
of the instrument as of the measurement date. We categorize a financial instrument within the hierarchy based upon the lowest
level of input that is significant to the fair value measurement.
The three levels of valuation hierarchy are defined as follows:
•
•
•
Level 1 Inputs —Quoted prices (unadjusted) for identical unrestricted assets and liabilities in active markets that are
accessible at the measurement date.
Level 2 Inputs —Quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar
instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose
significant value drivers are observable.
Level 3 Inputs —Instruments with primarily unobservable market data that cannot be corroborated.
The majority of our financial instruments are classified as Level 2 inputs. The availability of observable inputs can be
affected by a wide variety of factors, including the type of instrument, whether the instrument is new and not yet established in
the marketplace and other characteristics particular to the instrument. We typically obtain price estimates from multiple third-
party pricing sources, such as pricing services and dealers, or, if applicable, the registered clearing exchange. We make
inquiries of third-party pricing sources to understand the significant inputs and assumptions they used to determine their prices
and that they are derived from orderly transactions, particularly during periods of elevated market turbulence and reduced
market liquidity. We also review third-party price estimates and perform procedures to validate their reasonableness, including
an analysis of the range of estimates for each position, comparison to recent trade activity for similar securities and for
consistency with market conditions observed as of the measurement date. While we do not adjust prices we obtain from pricing
sources, we will exclude prices for securities from our estimation of fair value if we determine based on our validation
procedures and our market knowledge and expertise that the price is significantly different from what observable market data
60
would indicate and we cannot obtain an understanding from the third-party source as to the significant inputs used to determine
the price.
The following is a description of the valuation methodologies used for instruments measured at fair value on a recurring
basis classified as Level 2 inputs. These instruments trade in active markets such that participants transact with sufficient
frequency and volume to provide transparent pricing information on an ongoing basis. The liquidity of these markets and the
similarity of our securities and derivative instruments to those actively traded enable our pricing sources and us to observe
quoted prices in the market and utilize those prices as a basis for formulating fair value measurements.
Investment securities - are valued based on prices obtained from multiple third-party pricing sources. The pricing sources
utilize various valuation approaches, including market and income approaches. For Agency RMBS, the pricing sources
primarily utilize a matrix pricing technique that interpolates the estimated fair value based on observed quoted prices for
forward contracts in the Agency RMBS "to-be-announced" market ("TBA securities") of the same coupon, maturity and issuer,
adjusted to reflect the specific characteristics of the pool of mortgages underlying the Agency security, which may include
maximum loan balance, loan vintage, loan-to-value ratio, geography and other characteristics as may be appropriate. For other
investment securities, the pricing sources primarily utilize discounted cash flow model-derived pricing techniques to estimate
the fair value. Such models incorporate market-based discount rate assumptions based on observable inputs such as recent
trading activity, credit data, volatility statistics, benchmark interest rate curves, spread measurements to benchmark curves and
other market data that are current as of the measurement date and may include certain unobservable inputs, such as assumptions
of future levels of prepayment, defaults and loss severities.
TBA securities - are valued using prices obtained from third-party pricing sources based on pricing models that reference
recent trading activity.
Interest rate swaps - are valued using the daily settlement price, or fair value, determined by the clearing exchange based
on a pricing model that references observable market inputs, including current benchmark rates and the forward yield curve.
Interest rate swaptions - are valued using prices obtained from the counterparty and other third-party pricing models. The
pricing models are based on the value of the future interest rate swap that we have the option to enter into as well as the
remaining length of time that we have to exercise the option based on observable market inputs, adjusted for non-performance
risk, if any.
U.S. Treasury securities and futures are valued based on quoted prices for identical instruments in active markets and are
classified as Level 1 assets. None of our financial instruments are classified as Level 3 inputs.
Consolidated Variable Interest Entities
ASC Topic 810, Consolidation ("ASC 810"), requires an enterprise to consolidate a variable interest entity ("VIE") if it is
deemed the primary beneficiary of the VIE. As of December 31, 2020 and 2019, our consolidated financial statements reflect
the consolidation of certain VIEs for which we have determined we are the primary beneficiary. The consolidated VIEs consist
of CMO trusts backed by fixed or adjustable-rate Agency RMBS. Fannie Mae or Freddie Mac guarantees the payment of
interest and principal and acts as the trustee and administrator of their respective securitization trusts. Accordingly, we are not
required to provide the beneficial interest holders of the CMO securities any financial or other support. Our maximum exposure
to loss related to our involvement with the CMO trusts is the fair value of the CMO securities and interest and principal-only
securities held by us, less principal amounts guaranteed by Fannie Mae and Freddie Mac.
Cash and Cash Equivalents
Cash and cash equivalents include cash held in bank accounts and cash held in money market funds on an overnight basis.
Restricted Cash
Restricted cash includes cash pledged as collateral for clearing and executing trades, repurchase agreements and other
borrowings, and interest rate swaps and other derivative instruments.
Goodwill
Goodwill is the cost of an acquisition in excess of the fair value of identified assets acquired and liabilities assumed and is
recognized as an asset on our consolidated balance sheets. As of December 31, 2020 and 2019, we had $526 million of
goodwill related to our acquisition of AGNC Management, LLC, our former manager, on July 1, 2016. Goodwill is not subject
to amortization but must be tested for impairment at least annually and at interim periods when events or circumstances may
make it more likely than not that an impairment has occurred. If a qualitative analysis indicates that there may be an
61
impairment, a quantitative analysis is performed. The quantitative analysis requires that we compare the carrying value of the
identified reporting unit comprising the goodwill to the reporting unit's fair value. If the reporting units' carrying value is greater
than its fair value, an impairment charge is recognized to the extent the carrying amount of the reporting unit exceeds its fair
value. During fiscal years 2020, 2019, and 2018, we did not recognize a goodwill impairment charge.
Stock-Based Compensation
Under our 2016 AGNC Investment Corp. Equity and Incentive Compensation Plan (the "2016 Equity Plan" or "the
Plan"), we may grant equity-based compensation to our officers and other employees and non-employee directors for the
purpose of providing incentives and rewards for service or performance. Stock-based awards issued under the Plan include
time-based and performance-based restricted stock unit awards ("RSU" and "PSU" awards, respectively), but may include other
forms of equity-based compensation. RSU and PSU awards are an agreement to issue an equivalent number of shares of our
common stock, plus any equivalent shares for dividends declared on our common stock, at the time the award vests, or later if
distribution of such shares has been deferred beyond the vesting date. RSU awards vest over a specified service period. PSU
awards vest over a specified service period subject to achieving long-term performance criteria.
We measure and recognize compensation expense for all stock-based payment awards made to employees and non-
employee directors based on their fair values. We value RSU and PSU awards based on the fair value of our common stock on
the date of grant. Compensation expense is recognized over each award’s respective service period. In the case of PSU awards,
we estimate the probability that the performance criteria will be achieved and recognize expense only for those awards expected
to vest. We reevaluate our estimates each reporting period and recognize a cumulative effect adjustment to expense if our
estimates change from the prior period. We do not estimate forfeiture rates; rather, we adjust for forfeitures in the periods in
which they occur.
Shares underlying RSU and PSU awards are issued on the vesting dates, or later if distribution of such shares has been
deferred beyond the vesting date, net of shares withheld for minimum statutory tax withholdings to be paid by us on behalf of
our employees. As a result, the actual number of shares issued will be fewer than the actual number of awards outstanding.
When shares are withheld for statutory tax withholdings, we record a liability for tax withholding amounts to be paid by us as a
reduction to additional paid-in capital.
Recent Accounting Pronouncements
We consider the applicability and impact of all ASUs issued by the FASB. There are no unadopted ASUs that are
expected to have a significant impact on our consolidated financial statements when adopted or other recently adopted ASUs
that had a significant impact on our consolidated financial statements upon adoption.
Note 3. Investment Securities
As of December 31, 2020 and 2019, our investment portfolio consisted of $66.4 billion and $100.4 billion of investment
securities, at fair value, respectively, and $31.5 billion and $7.4 billion of net TBA securities, at fair value, respectively. Our net
TBA position is reported at its net carrying value of $275 million and $25 million as of December 31, 2020 and 2019,
respectively, in derivative assets / (liabilities) on our accompanying consolidated balance sheets. The net carrying value of our
TBA position represents the difference between the fair value of the underlying Agency security in the TBA contract and the
cost basis or the forward price to be paid or received for the underlying Agency security.
As of December 31, 2020 and 2019, our investment securities had a net unamortized premium balance of $2.4 billion and
$3.1 billion, respectively.
62
The following tables summarize our investment securities as of December 31, 2020 and 2019, excluding TBA securities,
(dollars in millions). Details of our TBA securities as of each of the respective dates are included in Note 5.
Investment Securities
Agency RMBS:
December 31, 2020
December 31, 2019
Amortized
Cost
Fair Value
Amortized
Cost
Fair Value
Fixed rate.........................................................................................................
$
61,977 $
64,615
$
96,375 $
98,074
Adjustable rate.................................................................................................
CMO................................................................................................................
Interest-only and principal-only strips.............................................................
Multifamily......................................................................................................
69
289
105
17
70
301
126
19
160
441
146
37
163
447
164
39
Total Agency RMBS...........................................................................................
62,457
65,131
97,159
98,887
Non-Agency RMBS............................................................................................
CMBS..................................................................................................................
CRT securities.....................................................................................................
178
333
733
188
358
737
198
352
961
209
370
976
Total investment securities..................................................................................
$
63,701 $
66,414
$
98,670 $
100,442
Investment Securities
Available-for-sale securities:
Agency RMBS
Non-Agency
December 31, 2020
Fannie
Mae
Freddie
Mac
Ginnie
Mae
RMBS
CMBS
CRT
Total
Par value.....................................................................................
$
9,325
$
3,416
$
Unamortized discount................................................................
Unamortized premium...............................................................
(4)
389
(1)
152
Amortized cost...........................................................................
9,710
3,567
Gross unrealized gains...............................................................
Gross unrealized losses..............................................................
539
—
180
—
Total available-for-sale securities, at fair value
10,249
3,747
Securities remeasured at fair value through earnings:
Par value.....................................................................................
32,824
14,447
Unamortized discount................................................................
(18)
Unamortized premium...............................................................
Amortized cost...........................................................................
Gross unrealized gains...............................................................
1,314
34,120
1,280
Gross unrealized losses..............................................................
(5)
(1)
607
15,053
683
(1)
Total securities remeasured at fair value through earnings.............
35,395
15,735
Total securities, at fair value...........................................................
$ 45,644
$ 19,482
$
2
—
—
2
—
—
2
3
—
—
3
—
—
3
5
$
$
—
—
—
—
—
—
—
187
(12)
4
179
11
(2)
188
188
$
$
—
—
—
—
—
—
—
331
(3)
6
334
28
(4)
358
358
$
$
—
—
—
—
—
—
—
735
(12)
10
733
12
(8)
737
737
$ 12,743
(5)
541
13,279
719
—
13,998
48,527
(46)
1,941
50,422
2,014
(20)
52,416
$ 66,414
Weighted average coupon as of December 31, 2020......................
Weighted average yield as of December 31, 2020 1........................
3.30 %
2.25 %
3.56 %
2.39 %
4.73 %
2.46 %
4.28 %
4.33 %
4.13 %
4.29 %
3.43 %
3.71 %
3.39 %
2.33 %
________________________________
1.
Incorporates a weighted average future constant prepayment rate assumption of 17.6% based on forward rates as of December 31, 2020.
63
Investment Securities
Available-for-sale securities:
Agency RMBS
Non-Agency
December 31, 2019
Fannie
Mae
Freddie
Mac
Ginnie
Mae
RMBS
CMBS
CRT
Total
Par value......................................................................................
$ 14,301
$
4,762
$
Unamortized discount.................................................................
Unamortized premium................................................................
(10)
711
(2)
276
Amortized cost...........................................................................
15,002
5,036
Gross unrealized gains................................................................
Gross unrealized losses...............................................................
142
(50)
29
(25)
Total available-for-sale securities, at fair value...............................
15,094
5,040
Securities remeasured at fair value through earnings:
Par value....................................................................................
45,106
29,881
Unamortized discount................................................................
(68)
Unamortized premium...............................................................
Amortized cost...........................................................................
Gross unrealized gains...............................................................
Gross unrealized losses..............................................................
1,218
46,256
991
(32)
(2)
967
30,846
691
(18)
Total securities remeasured at fair value through earnings..............
47,215
31,519
Total securities, at fair value............................................................
$ 62,309
$ 36,559
$
18
—
—
18
1
—
19
—
—
—
—
—
—
—
19
$
$
—
—
—
—
—
—
—
208
(10)
1
199
10
—
209
209
$
$
—
—
—
—
—
—
—
348
(3)
7
352
19
(1)
370
370
$
$
—
—
—
—
—
—
—
937
(2)
26
961
18
(3)
976
976
$ 19,081
(12)
987
20,056
172
(75)
20,153
76,480
(85)
2,219
78,614
1,729
(54)
80,289
$ 100,442
Weighted average coupon as of December 31, 2019.......................
Weighted average yield as of December 31, 2019 1........................
3.62 %
3.03 %
3.75 %
3.09 %
3.77 %
2.08 %
4.05 %
4.39 %
4.49 %
4.38 %
5.07 %
4.05 %
3.68 %
3.07 %
________________________________
1.
Incorporates a weighted average future constant prepayment rate assumption of 10.8% based on forward rates as of December 31, 2019.
As of December 31, 2020 and 2019, our investments in CRT and non-Agency securities had the following credit ratings:
December 31, 2020
December 31, 2019
CRT and Non-Agency Security Credit Ratings 1
CRT
RMBS
CMBS
CRT
RMBS
CMBS
AAA................................................................................
$
— $
— $
35
$
— $
— $
AA...................................................................................
A......................................................................................
BBB.................................................................................
BB...................................................................................
B......................................................................................
Not Rated........................................................................
—
—
28
167
304
238
20
32
83
36
6
11
190
28
55
43
7
—
—
13
67
471
308
117
81
25
71
21
4
7
43
214
34
69
10
—
—
Total................................................................................
$
737 $
188 $
358
$
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.
Our CRT securities reference the performance of loans underlying Agency RMBS issued by Fannie Mae or Freddie Mac,
which were subject to their underwriting standards.
The actual maturities of our investment securities are generally shorter than their stated contractual maturities. The actual
maturities of our Agency and high credit quality non-Agency RMBS are primarily affected by principal prepayments and to a
lesser degree the contractual lives of the underlying mortgages and periodic contractual principal repayments. The actual
maturities of our credit-oriented investments are primarily impacted by their contractual lives and default and loss recovery
rates. As of December 31, 2020 and 2019, the weighted average expected constant prepayment rate ("CPR") over the remaining
life of our Agency and high credit quality non-Agency RMBS investment portfolio was 17.6% and 10.8%, respectively. Our
estimates can differ materially for different securities and thus our individual holdings have a wide range of projected CPRs.
The following table summarizes our investments as of December 31, 2020 and 2019 according to their estimated weighted
average life classification (dollars in millions):
64
December 31, 2020
December 31, 2019
Estimated Weighted Average Life
of Investment Securities
Fair Value
Amortized
Cost
Weighted
Average
Coupon
Weighted
Average
Yield
≤ 3 years..............................................
$
3,642 $
3,569
> 3 years and ≤ 5 years.......................
> 5 years and ≤10 years......................
> 10 years............................................
47,740
15,019
13
45,578
14,541
13
Total....................................................
$ 66,414 $
63,701
3.56%
3.54%
2.87%
5.56%
3.39%
2.15%
2.42%
2.08%
3.59%
2.33%
Fair Value
Amortized
Cost
$
2,671 $
2,654
10,822
86,492
457
10,563
85,002
451
$ 100,442 $
98,670
Weighted
Average
Coupon
Weighted
Average
Yield
3.54%
3.85%
3.67%
3.31%
3.68%
2.61%
3.20%
3.07%
3.06%
3.07%
The following table presents the gross unrealized loss and fair values of securities classified as available-for-sale by
length of time that such securities have been in a continuous unrealized loss position as of December 31, 2020 and 2019 (in
millions):
Securities Classified as Available-for-Sale
December 31, 2020..........................................................
December 31, 2019..........................................................
$
$
Unrealized Loss Position For
Less than 12 Months
12 Months or More
Total
Fair
Value
Unrealized
Loss
Fair Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
— $
— $
— $
— $
— $
1,653 $
(12) $
6,984 $
(63) $
8,637 $
—
(75)
Gains and Losses on Sale of Investment Securities
The following table is a summary of our net gain (loss) from the sale of investment securities for fiscal years 2020, 2019
and 2018 by investment classification of accounting (in millions):
Investment Securities
Available-
for-Sale
Securities 2
Fair Value
Option
Securities
Total
Available-
for-Sale
Securities 2
Fair Value
Option
Securities
Total
Available-
for-Sale
Securities 2
Fair Value
Option
Securities
Total
Investment securities sold, at cost.......
$
(2,310) $ (74,964) $ (77,274) $
(732) $ (23,040) $ (23,772) $
(4,306) $
(5,344) $
(9,650)
Fiscal Year 2020
Fiscal Year 2019
Fiscal Year 2018
Proceeds from investment securities
sold 1....................................................
Net gain (loss) on sale of investment
securities..............................................
Gross gain on sale of investment
securities..............................................
Gross loss on sale of investment
securities..............................................
Net gain (loss) on sale of investment
securities..............................................
________________________________
$
$
2,391
76,009
78,400
723
23,437
24,160
4,227
5,286
9,513
81 $
1,045 $
1,126 $
(9) $
397 $
388 $
(79) $
(58) $
(137)
81 $
1,149 $
1,230 $
— $
401 $
401 $
6 $
16 $
22
—
(104)
(104)
(9)
(4)
(13)
(85)
(74)
(159)
$
81 $
1,045 $
1,126 $
(9) $
397 $
388 $
(79) $
(58) $
(137)
1.
2.
Proceeds include cash received during the period, plus receivable for investment securities sold during the period as of period end.
See Note 9 for a summary of changes in accumulated OCI.
Note 4. Repurchase Agreements and Reverse Repurchase Agreements
Repurchase Agreements
We pledge our securities as collateral under our borrowings structured as repurchase agreements with financial
institutions. Amounts available to be borrowed are dependent upon the fair value of the securities pledged as collateral, which
fluctuates with changes in interest rates, type of security and liquidity conditions within the banking, mortgage finance and real
estate industries. If the fair value of our pledged securities declines, lenders will typically require us to post additional collateral
or pay down borrowings to re-establish agreed upon collateral requirements, referred to as "margin calls." Similarly, if the fair
value of our pledged securities increases, lenders may release collateral back to us. As of December 31, 2020, we had met all
margin call requirements. For additional information regarding our pledged assets, please refer to Note 6.
As of December 31, 2020 and 2019, we had $52.4 billion and $89.2 billion, respectively, of repurchase agreements
outstanding used to fund our investment portfolio and temporary holdings of U.S. Treasury securities. The terms and conditions
of our repurchase agreements are typically negotiated on a transaction-by-transaction basis. Our repurchase agreements with
original maturities greater than one year may have floating interest rates based on an index plus or minus a fixed spread. The
65
following table summarizes our borrowings under repurchase agreements by their remaining maturities as of December 31,
2020 and 2019 (dollars in millions):
December 31, 2020
December 31, 2019
Remaining Maturity
Agency repo:
Repurchase
Agreements
Weighted
Average
Interest
Rate
Weighted
Average Days
to Maturity
≤ 1 month................................
$
> 1 to ≤ 3 months....................
> 3 to ≤ 6 months....................
> 6 to ≤ 9 months....................
> 9 to ≤ 12 months..................
> 12 to ≤ 24 months................
> 24 to ≤ 36 months................
29,505
13,434
7,317
660
1,450
—
—
0.22 %
0.27 %
0.28 %
0.24 %
0.15 %
— %
— %
Total Agency repo..................
52,366
0.24 %
U.S. Treasury repo:
> 1 day to ≤ 1 month...............
—
Total...........................................
$
52,366
— %
0.24 %
12
57
142
208
354
—
—
54
—
54
Repurchase
Agreements
$
56,664
20,761
5,683
1,500
2,152
625
1,700
89,085
97
$
89,182
Weighted
Average
Interest
Rate
Weighted
Average Days
to Maturity
2.19 %
2.01 %
2.19 %
2.66 %
2.41 %
2.38 %
2.45 %
2.17 %
1.63 %
2.17 %
10
53
100
182
351
411
833
55
2
55
As of December 31, 2020 and 2019, $11.2 billion and $17.0 billion, respectively, of our repurchase agreements had a
remaining maturity of one business day and none of our repurchase agreements were due on demand. As of December 31,
2020, we had $2.9 billion of forward commitments to enter into repurchase agreements, with a weighted average forward start
date of 4 days and a weighted average interest rate of 0.12%. As of 2019, we had $4.5 billion of forward commitments to enter
into repurchase agreements, with a weighted average forward start date of 12 days and a weighted average interest rate of
1.60%. As of December 31, 2020 and 2019, 47% and 40%, respectively, of our repurchase agreement funding was sourced
through our wholly-owned captive broker-dealer subsidiary, Bethesda Securities, LLC ("BES"). Amounts sourced through BES
include funding from the General Collateral Finance Repo service ("GCF Repo") offered by the Fixed Income Clearing
Corporation ("FICC"), which totaled 46% and 38% of our repurchase agreement funding outstanding as of December 31, 2020
and 2019, respectively.
During fiscal year 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 fiscal year 2020 associated with the terminated repurchase agreements. We did not terminate any repurchase
agreements during the prior two year period.
Reverse Repurchase Agreements
As of December 31, 2020 and 2019, we had $11.7 billion and $10.2 billion, respectively, of reverse repurchase
agreements outstanding used primarily to borrow securities to cover short sales of U.S. Treasury securities, for which we had
associated obligations to return borrowed securities at fair value of $11.7 billion and $9.5 billion, respectively. As of December
31, 2020 and 2019, $3.6 billion and $5.4 billion, respectively, of our reverse repurchase agreements were with the FICC
sourced through BES.
Note 5. Derivative and Other Hedging Instruments
We hedge a portion of our interest rate risk primarily utilizing interest rate swaps, interest rate swaptions, U.S. Treasury
securities and U.S. Treasury futures contracts. We utilize TBA securities primarily as a means of investing in the Agency
securities market. For additional information regarding our derivative instruments and our overall risk management strategy,
please refer to the discussion of derivative and other hedging instruments in Note 2.
66
Derivative and Other Hedging Instrument Assets (Liabilities), at Fair Value
The table below summarizes fair value information about our derivative and other hedging instrument assets/(liabilities)
as of December 31, 2020 and 2019 (in millions):
Derivative and Other Hedging Instruments
Balance Sheet Location
2020
2019
Interest rate swaps........................................................ Derivative assets, at fair value..................................
$
— $
Swaptions...................................................................... Derivative assets, at fair value..................................
TBA securities.............................................................. Derivative assets, at fair value..................................
U.S. Treasury futures - short........................................ Derivative assets, at fair value..................................
116
275
—
Total derivative assets, at fair value.........................
$
391 $
December 31,
Interest rate swaps........................................................ Derivative liabilities, at fair value............................
$
— $
TBA securities.............................................................. Derivative liabilities, at fair value............................
U.S. Treasury futures - short........................................ Derivative liabilities, at fair value............................
Total derivative liabilities, at fair value....................
—
(2)
$
(2) $
21
126
29
14
190
(2)
(4)
—
(6)
U.S. Treasury securities - long..................................... U.S. Treasury securities, at fair value.......................
$
— $
97
U.S. Treasury securities - short....................................
Total U.S. Treasury securities, net at fair value.......
Obligation to return securities borrowed under
reverse repurchase agreements, at fair value............
(11,727)
$
(11,727) $
(9,543)
(9,446)
The following tables summarize certain characteristics of our derivative and other hedging instruments outstanding as of
December 31, 2020 and 2019 (dollars in millions):
December 31, 2020
December 31, 2019
Pay Fixed / Receive Variable
Interest Rate Swaps
Notional
Amount
Average
Fixed Pay
Rate
Average
Receive
Rate
Average
Maturity
(Years)
≤ 3 years................................
$
8,750
0.04%
> 3 to ≤ 5 years......................
17,000
0.10%
> 5 to ≤ 7 years......................
> 7 to ≤ 10 years....................
> 10 years..............................
9,800
6,200
1,475
0.21%
0.28%
0.47%
Total .....................................
$ 43,225
0.15%
0.08%
0.08%
0.08%
0.07%
0.07%
0.08%
2.4
4.1
5.8
8.5
14.2
5.1
Notional
Amount
$ 59,700
9,850
5,650
2,850
1,025
$ 79,075
Average
Fixed Pay
Rate
Average
Receive
Rate
Average
Maturity
(Years)
1.30%
1.17%
1.34%
1.36%
1.64%
1.29%
1.58%
1.55%
1.70%
1.58%
1.78%
1.59%
1.6
3.8
6.4
8.9
15.4
2.7
Pay Fixed / Receive Variable Interest Rate Swaps
by Receive Index (% of Notional Amount)
December 31,
2020
December 31,
2019
SOFR.................................................................
OIS....................................................................
3M LIBOR........................................................
Total .................................................................
71 %
29 %
— %
100 %
3 %
86 %
11 %
100 %
67
Swaptions
Option
Underlying Payer Swap
Current Option Expiration Date
Cost Basis
Fair Value
December 31, 2020
≤ 1 year....................................................................
$
123 $
> 1 year ≤ 2 years....................................................
> 2 year ≤ 3 years....................................................
> 3 year ≤ 4 years....................................................
41
65
8
15
33
60
8
Total ........................................................................
$
237 $
116
December 31, 2019
≤ 1 year....................................................................
$
123 $
> 1 year ≤ 2 years....................................................
53
Total ........................................................................
$
176 $
80
46
126
________________________________
Average
Months to
Current
Option
Expiration
Date 1
Notional
Amount
Average
Fixed Pay
Rate 2
Average
Term
(Years)
5
20
33
40
15
8
16
11
$
5,900
2,000
2,250
250
$
10,400
2.17%
1.38%
1.40%
1.43%
1.84%
$
$
5,650
3,200
8,850
2.26%
2.50%
2.34%
9.2
10.0
10.0
10.0
9.5
9.3
10.0
9.5
1.
2.
As of December 31, 2020 and 2019, ≤ 1 year notional amount includes $700 million of Bermudan swaptions where the options may be exercised on
predetermined dates up to their final exercise date, which is six months prior to the underlying swaps' maturity date.
As of December 31, 2020, 33% and 67% of the underlying swap receive rates were tied to 3-Month LIBOR and SOFR, respectively, and, as of
2019, 100% of the underlying payer swap receive rates were tied to 3-Month LIBOR.
U.S. Treasury Securities
December 31, 2020
December 31, 2019
Maturity
Face Amount
Long/(Short)
Cost Basis 1
Fair Value
Face Amount
Long/(Short)
Cost Basis 1
Fair Value
5 years.....................................................
$
(425) $
(425) $
(425) $
7 years.....................................................
10 years...................................................
(1,083)
(9,780)
(1,081)
(9,862)
(1,089)
(10,213)
$
95
—
$
95
—
97
—
(9,224)
(9,329)
(9,543)
Total U.S. Treasury securities.................
$
(11,288) $
(11,368) $
(11,727) $
(9,129) $
(9,234) $
(9,446)
________________________________
1.
As of December 31, 2020 and 2019, short U.S. Treasury securities had a weighted average yield of 1.20% and 2.19%, respectively, and, as of 2019,
long U.S. Treasury securities had a weighted average yield of 2.21%.
U.S. Treasury Futures
December 31, 2020
December 31, 2019
Maturity
Notional
Amount
Long (Short)
Cost
Basis
Fair
Value
Net
Carrying
Value 1
Notional
Amount
Long (Short)
Cost
Basis
Fair
Value
Net
Carrying
Value 1
10 years...........................................
$
(1,000) $
(1,379) $
(1,381) $
(2) $
(1,000) $
(1,298) $
(1,284) $
14
________________________________
1.
Net carrying value represents the difference between the fair market value and the cost basis (or the forward price to be paid/(received) for the
underlying U.S. Treasury security) of the U.S. Treasury futures contract as of period-end and is reported in derivative assets/(liabilities), at fair value
in our consolidated balance sheets.
68
December 31, 2020
December 31, 2019
Notional
Amount
Long (Short)
Cost
Basis
Fair
Value
Net
Carrying
Value 1
Notional
Amount
Long (Short)
Cost
Basis
Fair
Value
Net
Carrying
Value 1
TBA Securities by Coupon
15-Year TBA securities:
≤ 2.0%......................................
$
6,540 $
6,708 $
6,771
63
$
— $
— $
— $
2.5%.........................................
3.0%.........................................
3.5%.........................................
4.0%.........................................
200
—
—
—
208
—
—
—
209
—
—
—
Total 15-Year TBA securities
6,740
6,916
6,980
1
—
—
—
64
805
1,059
241
75
811
1,083
250
78
812
1,086
250
78
2,180
2,222
2,226
30-Year TBA securities:
≤ 2.0%......................................
19,805
20,314
20,480
166
2.5%.........................................
3,167
3,291
3,335
3.0%.........................................
3.5%.........................................
4.0%.........................................
≥ 4.5%......................................
528
124
—
—
552
131
—
—
553
131
—
—
44
1
—
—
—
Total 30-Year TBA securities, net
23,624
24,288
24,499
211
—
—
5,008
1,226
—
—
5,052
1,259
—
—
5,073
1,261
(1,507)
(1,565)
(1,568)
415
5,142
436
5,182
437
5,203
Total TBA securities, net............... $
30,364 $
31,204 $ 31,479 $
275
$
7,322 $
7,404 $
7,429 $
—
1
3
—
—
4
—
—
21
2
(3)
1
21
25
________________________________
1.
Net carrying value represents the difference between the fair market value and the cost basis (or the forward price to be paid/(received) for the
underlying Agency security) of the TBA contract as of period-end and is reported in derivative assets/(liabilities), at fair value in our consolidated
balance sheets.
Gain (Loss) From Derivative Instruments and Other Securities, Net
The following table summarizes changes in our derivative and other hedge portfolio and their effect on our consolidated
statements of comprehensive income for fiscal years 2020, 2019 and 2018 (in millions):
Derivative and Other Hedging Instruments
Fiscal Year 2020:
TBA securities, net.............................................................
Interest rate swaps - payer..................................................
Payer swaptions.................................................................
U.S. Treasury securities - short position............................
U.S. Treasury securities - long position.............................
U.S. Treasury futures contracts - short position................
Fiscal Year 2019:
TBA securities, net.............................................................
Interest rate swaps - payer..................................................
Interest rate swaps - receiver..............................................
Payer swaptions.................................................................
U.S. Treasury securities - short position............................
U.S. Treasury securities - long position.............................
U.S. Treasury futures contracts - short position................
$
$
$
$
$
$
$
$
$
$
$
$
$
Beginning
Notional
Amount
Additions
Settlement,
Termination,
Expiration or
Exercise
Ending
Notional
Amount
Gain/(Loss)
on Derivative
Instruments
and Other
Securities, Net 1
7,322
79,075
8,850
286,586
101,950
7,000
(263,544) $
30,364
$
(137,800) $
(5,450) $
43,225
10,400
(9,224)
(18,912)
16,849 $
(11,287)
95
(1,000)
7,011
(4,000)
(7,106) $
—
4,000 $
(1,000)
1,497
(2,766)
(156)
(905)
102
(106)
$
(2,334)
7,152
51,625
—
3,500
95,169
166,975
(175)
7,650
(94,999) $
7,322
$
(139,525) $
79,075
175 $
—
(2,300) $
8,850
(21,345)
(12,601)
24,722 $
(9,224)
45
(1,650)
1,776
(5,300)
(1,726) $
95
5,950 $
(1,000)
411
(1,645)
—
(26)
(967)
11
(109)
$
(2,325)
69
Fiscal Year 2018:
TBA securities, net.............................................................
Interest rate swaps - payer..................................................
Payer swaptions.................................................................
U.S. Treasury securities - short position............................
U.S. Treasury securities - long position.............................
U.S. Treasury futures contracts - short position................
$
$
$
$
$
$
15,474
43,700
6,650
194,534
(202,856) $
7,152
$
14,350
1,250
(6,425) $
51,625
(4,400) $
3,500
(10,699)
(19,278)
8,632 $
(21,345)
—
(2,910)
1,949
(7,859)
(1,904) $
45
9,119 $
(1,650)
(299)
140
90
(161)
1
48
$
(181)
________________________________
1.
Amounts exclude $146 million of losses on debt extinguishment for fiscal year 2020 (see Note 4) and other miscellaneous gains and losses for all
periods presented recognized in gain (loss) on derivative instruments and other securities, net in our consolidated statements of comprehensive
income.
Note 6. Pledged Assets
Our funding agreements require us to fully collateralize our obligations under the agreements based upon our
counterparties' collateral requirements and their 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. Our derivative contracts similarly require us to fully collateralize our obligations under such
agreements, which will vary over time based on similar factors as well as our counterparties' determination of the value of the
derivative contract. We are typically required to post initial margin upon execution of derivative transactions, such as under our
interest rate swap agreements and TBA contracts, and subsequently post or receive variation margin based on daily fluctuations
in fair value. Our brokerage and custody agreements and the clearing organizations utilized by our wholly-owned captive
broker-dealer subsidiary, Bethesda Securities, LLC, also require that we post minimum daily clearing deposits. If we breach our
collateral requirements, we will be required to fully settle our obligations under the agreements, which could include a forced
liquidation of our pledged collateral.
Our counterparties also apply a "haircut" to our pledged collateral, which means our collateral is valued at slightly less
than market value and limits the amount we can borrow against our securities. This haircut reflects the underlying risk of the
specific collateral and protects our counterparty against a change in its value. Our agreements do not specify the haircut; rather,
haircuts are determined on an individual transaction basis. Consequently, our funding agreements and derivative contracts
expose us to credit risk relating to potential losses that could be recognized if our counterparties fail to perform their obligations
under such agreements. We minimize this risk by limiting our counterparties to major financial institutions with acceptable
credit ratings or to registered clearinghouses and U.S. government agencies, and we monitor our positions with individual
counterparties. In the event of a default by a counterparty, we may have difficulty obtaining our assets pledged as collateral to
such counterparty and may not receive payments as and when due to us under the terms of our derivative agreements. In the
case of centrally cleared instruments, we could be exposed to credit risk if the central clearing agency or a clearing member
defaults on its respective obligation to perform under the contract. However, we believe that the risk is minimal due to the
clearing exchanges' initial and daily mark-to-market margin requirements, clearinghouse guarantee funds and other resources
that are available in the event of a clearing member default.
As of December 31, 2020, our maximum amount at risk with any counterparty related to our repurchase agreements,
excluding the Fixed Income Clearing Corporation, was less than 2% of our tangible stockholders' equity (measured as the
excess of the value of collateral pledged over the amount of our repurchase liabilities). As of December 31, 2020,
approximately 9% of our tangible stockholder's equity was at risk with the Fixed Income Clearing Corporation.
70
Assets Pledged to Counterparties
The following tables summarize our assets pledged as collateral under our funding, derivative and brokerage and clearing
agreements by type, including securities pledged related to securities sold but not yet settled, as of December 31, 2020 and 2019
(in millions):
December 31, 2020
Assets Pledged to Counterparties 1
Repurchase
Agreements 2
Debt of
Consolidated
VIEs
Derivative
Agreements
Brokerage and
Clearing
Agreements 3
Total
Agency RMBS - fair value.....................................................
$
53,401 $
295 $
365 $
258 $
54,319
CRT - fair value......................................................................
Non-Agency - fair value.........................................................
U.S. Treasury securities - fair value.......................................
Accrued interest on pledged securities...................................
Restricted cash........................................................................
455
458
—
147
417
—
—
—
1
—
—
—
—
1
890
—
—
—
1
—
455
458
—
150
1,307
Total...................................................................................
$
54,878 $
296 $
1,256 $
259 $
56,689
December 31, 2019
Assets Pledged to Counterparties 1
Repurchase
Agreements 2
Debt of
Consolidated
VIEs
Derivative
Agreements
Brokerage and
Clearing
Agreements 3
Total
Agency RMBS - fair value.....................................................
$
92,142 $
371 $
404 $
206 $
93,123
CRT - fair value......................................................................
U.S. Treasury securities - fair value.......................................
Accrued interest on pledged securities...................................
Restricted cash........................................................................
309
453
267
111
—
—
1
—
—
—
1
340
—
28
1
—
309
481
270
451
Total...................................................................................
$
93,282 $
372 $
745 $
235 $
94,634
________________________________
1.
2.
3.
Includes repledged assets received as collateral from counterparties and securities sold but not yet settled.
Includes $119 million and $144 million of retained interests in our consolidated VIEs pledged as collateral under repurchase agreements as of
December 31, 2020 and 2019, respectively.
Includes margin for TBAs cleared through prime brokers and other clearing deposits.
The following table summarizes our securities pledged as collateral under our repurchase agreements by the remaining
maturity of our borrowings, including securities pledged related to sold but not yet settled securities, as of December 31, 2020
and 2019 (in millions). For the corresponding borrowings associated with the following amounts and the interest rates thereon,
refer to Note 4.
Securities Pledged by Remaining Maturity of
Repurchase Agreements 1,2
December 31, 2020
December 31, 2019
Fair Value of
Pledged
Securities
Amortized
Cost of
Pledged
Securities
Accrued
Interest on
Pledged
Securities
Fair Value of
Pledged
Securities
Amortized
Cost of
Pledged
Securities
Accrued
Interest on
Pledged
Securities
≤ 30 days......................................................................
$
29,674 $
28,208 $
82 $
56,990 $
55,951 $
167
> 30 and ≤ 60 days.......................................................
> 60 and ≤ 90 days.......................................................
> 90 days......................................................................
8,438
5,782
10,420
8,013
5,495
10,068
23
16
26
14,410
7,637
13,510
14,114
7,536
13,286
42
20
38
Total..........................................................................
$
54,314 $
51,784 $
147 $
92,547 $
90,887 $
267
________________________________
1.
2.
Includes $119 million and $144 million of retained interests in our consolidated VIEs pledged as collateral under repurchase agreements as of
December 31, 2020 and 2019, respectively.
Excludes $357 million of repledged U.S. Treasury securities received as collateral from counterparties as of December 31, 2019.
Assets Pledged from Counterparties
As of December 31, 2020 and 2019, we had assets pledged to us from counterparties as collateral under our reverse
repurchase and derivative agreements summarized in the tables below (in millions).
71
Assets Pledged to AGNC
U.S. Treasury securities - fair
value 1..................................
December 31, 2020
December 31, 2019
Reverse
Repurchase
Agreements
Derivative
Agreements
Repurchase
Agreements
Total
Reverse
Repurchase
Agreements
Derivative
Agreements
Repurchase
Agreements
Total
$
11,727 $
— $
13 $
11,740 $
10,099 $
— $
1 $
10,100
Cash ........................................
—
107
3
110
—
116
—
116
Total
$
11,727 $
107 $
16 $
11,850 $
10,099 $
116 $
1 $
10,216
________________________________
1.
As of December 31, 2019, $357 million of U.S. Treasury securities received from counterparties were repledged as collateral and, as of December
31, 2020 and 2019, $11.7 billion and $9.5 billion, respectively, were used to cover short sales of U.S. Treasury securities.
Offsetting Assets and Liabilities
Certain of our repurchase agreements and derivative transactions are governed by underlying agreements that generally
provide for a right of setoff under master netting arrangements (or similar agreements), including in the event of default or in
the event of bankruptcy of either party to the transactions. We present our assets and liabilities subject to such arrangements on
a gross basis in our consolidated balance sheets. The following tables present information about our assets and liabilities that
are subject to master netting arrangements and can potentially be offset on our consolidated balance sheets as of December 31,
2020 and 2019 (in millions):
Offsetting of Financial and Derivative Assets
Gross
Amounts
Offset in the
Consolidated
Balance
Sheets
Net Amounts
of Assets
Presented in
the
Consolidated
Balance
Sheets
Gross
Amounts of
Recognized
Assets
Gross Amounts Not Offset
in the
Consolidated Balance Sheets
Financial
Instruments
Collateral
Received 2
Net Amount
December 31, 2020
Interest rate swap and swaption agreements, at fair
value 1............................................................................
$
116 $
— $
116 $
— $
(105) $
TBA securities, at fair value.........................................
Receivable under reverse repurchase agreements.........
275
11,748
—
—
275
11,748
—
—
(6,522)
(5,223)
Total ..........................................................................
$
12,139 $
— $
12,139 $
(6,522) $
(5,328) $
December 31, 2019
Interest rate swap and swaption agreements, at fair
value 1............................................................................
$
147 $
— $
147 $
TBA securities, at fair value.........................................
29
Receivable under reverse repurchase agreements.........
10,181
—
—
29
10,181
(2) $
(4)
(9,852)
(116) $
—
(329)
Total ..........................................................................
$
10,357 $
— $
10,357 $
(9,858) $
(445) $
11
275
3
289
29
25
—
54
Offsetting of Financial and Derivative Liabilities
Gross
Amounts
Offset in the
Consolidated
Balance
Sheets
Net Amounts
of Liabilities
Presented in
the
Consolidated
Balance
Sheets
Gross
Amounts of
Recognized
Liabilities
Gross Amounts Not Offset
in the
Consolidated Balance Sheets
Financial
Instruments
Collateral
Pledged 2
Net Amount
December 31, 2020
Interest rate swap agreements, at fair value 1...............
$
TBA securities, at fair value........................................
— $
—
Repurchase agreements................................................
52,366
— $
—
—
— $
—
— $
—
— $
—
52,366
(6,522)
(45,844)
Total .........................................................................
$
52,366 $
— $
52,366 $
(6,522) $
(45,844) $
December 31, 2019
Interest rate swap agreements, at fair value 1...............
$
TBA securities, at fair value........................................
2 $
4
Repurchase agreements................................................
89,182
— $
—
—
2 $
4
(2) $
(4)
— $
—
89,182
(9,852)
(79,330)
Total .........................................................................
$
89,188 $
— $
89,188 $
(9,858) $
(79,330) $
—
—
—
—
—
—
—
—
72
________________________________
1.
2.
Reported under derivative assets / liabilities, at fair value in the accompanying consolidated balance sheets. Refer to Note 5 for a reconciliation of
derivative assets / liabilities, at fair value to their sub-components.
Includes cash and securities pledged / received as collateral, at fair value. Amounts include repledged collateral. Amounts presented are limited to
collateral pledged sufficient to reduce the net amount to zero for individual counterparties, as applicable.
Note 7. Fair Value Measurements
The following table provides a summary of our assets and liabilities that are measured at fair value on a recurring basis,
as of December 31, 2020 and 2019, based on their categorization within the valuation hierarchy (in millions). There were no
transfers between valuation hierarchy levels during fiscal years 2020 and 2019.
December 31, 2020
December 31, 2019
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
Assets:
Agency securities......................................................................
$
— $
64,836 $
Agency securities transferred to consolidated VIEs..................
Credit risk transfer securities.....................................................
Non-Agency securities..............................................................
U.S. Treasury securities............................................................
Interest rate swaps.....................................................................
Swaptions..................................................................................
TBA securities...........................................................................
U.S. Treasury futures................................................................
—
—
—
—
—
—
—
—
295
737
546
—
—
116
275
—
Total...............................................................................................
$
— $
66,805 $
—
—
—
—
—
—
—
—
—
—
Liabilities:
$
— $
98,516 $
—
—
—
97
—
—
—
14
371
976
579
—
21
126
29
—
$
111 $ 100,618 $
Debt of consolidated VIEs........................................................
$
— $
177 $
—
$
— $
228 $
Obligation to return U.S. Treasury securities borrowed under
reverse repurchase agreements..................................................
11,727
Interest rate swaps.....................................................................
TBA securities...........................................................................
U.S. Treasury futures................................................................
—
—
2
—
—
—
—
Total...............................................................................................
$
11,729 $
177 $
—
—
—
—
—
9,543
—
—
—
—
2
4
—
$
9,543 $
234 $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Excluded from the table above are financial instruments presented in our consolidated financial statements at cost. The
fair value of our repurchase agreements approximated cost as of December 31, 2020 and 2019, as the rates on our outstanding
repurchase agreements largely corresponded to prevailing rates observed in the repo market. The fair value of cash and cash
equivalents, restricted cash, receivables and other payables were determined to approximate cost as of December 31, 2020 and
2019 due to their short duration. We estimate the fair value of these instruments carried at cost using "Level 1" or "Level 2"
inputs.
Note 8. Net Income (Loss) Per Common Share
Basic net income (loss) per common share is computed by dividing (i) net income (loss) available (attributable) to
common stockholders by (ii) the sum of our weighted-average number of common shares outstanding and the weighted-average
number of vested but not yet issued time and performance-based restricted stock units ("RSUs") outstanding for the period
granted under our long-term incentive program to employees and non-employee Board of Directors. Diluted net income (loss)
per common share assumes the issuance of all potential common stock equivalents unless the effect is to reduce a loss or
increase the income per common share. Our potential common stock equivalents consist of unvested time and performance-
based RSUs. The following table presents the computations of basic and diluted net income (loss) per common share for the
periods indicated (shares and dollars in millions):
73
Fiscal Year
2020
2019
2018
Weighted average number of common shares issued and outstanding.............................................................................
Weighted average number of fully vested restricted stock units outstanding...................................................................
Weighted average number of common shares outstanding - basic...................................................................................
Weighted average number of dilutive unvested restricted stock units outstanding..........................................................
Weighted average number of common shares outstanding - diluted................................................................................
Net income (loss) available (attributable) to common stockholders.................................................................................
Net income (loss) per common share - basic....................................................................................................................
Net income (loss) per common share - diluted.................................................................................................................
550.6
1.0
551.6
—
551.6
540.2
0.4
540.6
0.8
541.4
$
$
$
(362) $
628 $
(0.66) $
1.16 $
(0.66) $
1.16 $
440.9
0.2
441.1
0.3
441.4
93
0.21
0.21
For fiscal year 2020, 1.1 million of potentially dilutive unvested time and performance based RSUs outstanding were
excluded from the computation of diluted net income (loss) per common share because to do so would have been anti-dilutive
for the period.
Note 9. Stockholders' Equity
Preferred Stock
We are authorized to designate and issue up to 10.0 million shares of preferred stock in one or more classes or series. As
of December 31, 2019, 13,800, 10,350, and 16,100 shares of preferred stock were designated as 7.00% Series C Fixed-to-
Floating Rate Cumulative Redeemable Preferred Stock, 6.875% Series D Fixed-to-Floating Rate Cumulative Redeemable
Preferred Stock, and 6.50% Series E Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, respectively, (referred to
as "Series C, D, and E Preferred Stock", respectively). As of December 31, 2020, an additional 23,000 shares were designated
as 6.125% Series F Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock (referred to as "Series F Preferred Stock").
As of December 31, 2019, 13,000, 9,400, and 16,100 shares of Series C, D, and E Preferred Stock, respectively, were issued
and outstanding. As of December 31, 2020, an additional 23,000 shares of Series F Preferred Stock were issued and
outstanding. Each share of preferred stock is represented by 1,000 depositary shares. Each share of preferred stock has a
liquidation preference of $25,000 per share (or $25 per depositary share).
Our preferred stock ranks senior to our common stock with respect to the payment of dividends and the distribution of
assets upon a voluntary or involuntary liquidation, dissolution or winding up of the Company. Our preferred stock has no stated
maturity, is not subject to any sinking fund or mandatory redemption and each series of preferred stock ranks on parity with one
another. Under certain circumstances upon a change of control, our preferred stock is convertible to shares of our common
stock. Holders of our preferred stock and depositary shares underlying our preferred stock have no voting rights, except under
limited conditions. Beginning on each series' optional redemption date, we may redeem shares at $25.00 per depositary share,
plus accumulated and unpaid dividends (whether or not declared), exclusively at our option.
The following table includes a summary of preferred stock depositary shares issued and outstanding as of December 31,
2020 (dollars and shares in millions):
Fixed-to-Floating Rate
Cumulative Redeemable
Preferred Stock 1
Series C............................
Series D...........................
Series E............................
Series F............................
Issuance
Date
August 22,
2017
March 6,
2019
October 3,
2019
February 11,
2020
Depositary
Shares
Issued
and
Outstanding
13.0
9.4
16.1
23.0
Carrying
Value
Aggregate
Liquidation
Preference
Fixed
Rate
315
227
390
557
325
7.000%
235
6.875%
403
6.500%
575
6.125%
Fixed-to-
Floating
Rate
Conversion
Date
October 15,
2022
April 15, 2024
Optional
Redemption
Date 2
October 15,
2022
April 15,
2024
October 15,
2024
October 15,
2024
April 15,
2025
April 15, 2025
Floating
Annual Rate
3M LIBOR +
5.111%
3M LIBOR +
4.332%
3M LIBOR +
4.993%
3M LIBOR +
4.697%
Total.................................
61.5
$
1,489 $
1,538
________________________________
1.
2.
Fixed-to-floating rate redeemable preferred stock accrue dividends at an annual fixed rate of the $25.00 liquidation preference per depositary share
from the issuance date up to, but not including, the fixed-to-floating rate conversion date; thereafter, dividends will accrue on a floating rate basis
equal to 3-month LIBOR plus a fixed spread.
Shares may be redeemed prior to our optional redemption date under certain circumstances intended to preserve our qualification as a REIT for U.S
federal income tax purposes.
74
In November 2019, we redeemed all of the outstanding shares (and corresponding depositary shares) of our Series B
Preferred Stock for $175 million (or $25.00 per depositary share), plus accrued and unpaid dividends to, but not including, the
redemption date. In December, 2019, we filed a Certificate of Elimination of our Series B Preferred Stock with the Secretary of
State of the State of Delaware, which eliminated the designation of Series B Preferred Stock from our amended and restated
certificate of incorporation. Prior to the redemption date, holders of Series B Preferred Stock were entitled to receive
cumulative cash dividends at a fixed rate of 7.750% per annum of their $25.00 per depositary share liquidation preference.
Common Stock Offerings
During fiscal years 2020 and 2019, we did not complete a follow-on public offering of our common stock. During fiscal
year 2018, we completed three follow-on public offerings of our common stock summarized in the table below (in millions,
except for per share data).
Follow-On Public Offerings
Fiscal Year 2018:
May 2018............................................
August 2018........................................
November 2018..................................
Total fiscal year 2018......................
Price Received
Per Share, Net
Shares
Net Proceeds
$18.35
$18.68
$17.09
34.5 $
43.7
46.0
124.2 $
633
817
786
2,236
At-the-Market Offering Program
We are authorized by our Board of Directors to enter into agreements with sales agents to publicly offer and sell shares of
our common stock in privately negotiated and/or at-the-market transactions from time-to-time up to a maximum aggregate
offering price of our common stock. The following table includes a summary of shares of our common stock sold under sales
the agreements during fiscal years 2020, 2019 and 2018. As of December 31, 2020, shares of our common stock with an
aggregate offering price of $26 million remained authorized for issuance under this program through June 14, 2021.
ATM Offerings
Fiscal Year 2020
Fiscal Year 2019
Fiscal Year 2018
Average Price
Received Per
Share, Net
$16.46
$16.67
$18.03
Shares
Net Proceeds
26.7 $
11.4 $
20.8 $
439
190
375
Common Stock Repurchase Program
We are authorized by our Board of Directors to repurchase shares of our common stock under certain conditions. In
October 2020, our Board of Directors terminated its existing stock repurchase authorization that was due to expire on December
31, 2020 and replaced it with a new authorization to repurchase up to $1 billion of common stock through December 31, 2021.
The following table includes a summary of shares of our common stock repurchased during fiscal years 2020 and 2019. We did
not repurchase shares of our common stock during fiscal year 2018. As of December 31, 2020, we had $0.9 billion of common
stock remaining available for repurchase.
Common Stock Repurchases
Fiscal Year 2020 2...............................
Fiscal Year 2019.................................
Average Price
Paid Per Share 1
$13.33
$14.90
Shares
Net Cost
28.2 $
6.9 $
378
103
________________________________
1.
2.
Average price paid per share includes transaction costs.
Excludes December 2020 share repurchases settling in January 2021 totaling $24 million, or 1.6 million shares.
75
Distributions to Stockholders
The following table summarizes dividends declared during fiscal years 2020, 2019 and 2018 (in millions, except per
share amounts):
Series B Preferred Stock
Fiscal year 2019............................................................................................................................
Fiscal year 2018............................................................................................................................
Series C Preferred Stock
Fiscal year 2020............................................................................................................................
Fiscal year 2019............................................................................................................................
Fiscal year 2018............................................................................................................................
Series D Preferred Stock
Fiscal year 2020............................................................................................................................
Fiscal year 2019............................................................................................................................
Series E Preferred Stock
Fiscal year 2020............................................................................................................................
Fiscal year 2019............................................................................................................................
$
$
$
$
$
$
$
$
$
Series F Preferred Stock
Dividends
Declared
Dividends
Declared Per
Share 1
12 $
14 $
23 $
23 $
23 $
16 $
14 $
26 $
7 $
1.673785
1.937500
1.750000
1.750000
1.750000
1.718750
1.475263
1.625000
0.460420
Fiscal year 2020............................................................................................................................
$
33 $
1.420658
Common Stock
Fiscal year 2020............................................................................................................................
Fiscal year 2019............................................................................................................................
Fiscal year 2018............................................................................................................................
$
$
$
858 $
1,081 $
964 $
1.560000
2.000000
2.160000
________________________________
1.
Preferred stock per share amounts are per depositary share.
76
The following table summarizes our tax characterization of distributions to stockholders for fiscal years 2020, 2019 and
2018. Distributions included in the table below are based on the fiscal tax year for which the distribution is attributed to for
stockholders in accordance with rules promulgated under the Internal Revenue Code:
Fiscal Tax Year
Series B Preferred Stock
Distribution
Rate 1
Ordinary
Dividend Per
Share
Qualified
Dividends
Capital Gain
Dividend Per
Share
Non-Dividend
Distributions
Section 199A
Dividend
Tax Characterization 1
Fiscal year 2019...................................
Fiscal year 2018...................................
Series C Preferred Stock
Fiscal year 2020...................................
Fiscal year 2019...................................
Fiscal year 2018...................................
Series D Preferred Stock
Fiscal year 2020...................................
Fiscal year 2019...................................
$
$
$
$
$
$
$
Series E Preferred Stock
2.158160 $
2.158160 $
1.937500 $
1.937500 $
— $
— $
— $
— $
— $
2.158160
— $
1.937500
1.750000 $
0.570268 $
— $
1.179732 $
— $
0.570268
1.750000 $
1.750000 $
1.750000 $
1.750000 $
— $
— $
— $
— $
— $
1.750000
— $
1.750000
1.718750 $
0.560086 $
— $
1.158664 $
— $
0.560086
1.045575 $
1.045575 $
— $
— $
— $
1.045575
Fiscal year 2020...................................
$
1.679170 $
0.547188 $
— $
1.131982 $
— $
0.547188
Series F Preferred Stock
Fiscal year 2020...................................
$
1.037845 $
0.338201 $
— $
0.699644 $
— $
0.338201
Common Stock
Fiscal year 2020...................................
Fiscal year 2019...................................
Fiscal year 2018...................................
________________________________
$
$
$
1.720000 $
0.560492 $
— $
1.159508 $
— $
0.560492
2.020000 $
1.159504 $
2.160000 $
1.127208 $
— $
— $
— $
0.860496 $
1.159504
— $
1.032792 $
1.127208
1.
Preferred stock per share amounts are per depositary share.
Accumulated Other Comprehensive Income (Loss)
The following table summarizes changes to accumulated OCI for fiscal years 2020, 2019 and 2018 (in millions):
Accumulated Other Comprehensive Income (Loss)
Fiscal Year
2020
2019
2018
Beginning Balance ....................................................................................................................................
$
97 $
(943) $
OCI before reclassifications....................................................................................................................
703
1,031
(345)
(677)
Net loss amounts for available-for-sale securities reclassified from accumulated OCI to realized
gain (loss) on sale of investment securities, net......................................................................................
(81)
9
79
Ending Balance..........................................................................................................................................
$
719 $
97 $
(943)
Note 10. Long-Term Incentive Compensation
Stock-Based Incentive Plans
The 2016 Equity Plan authorizes a total of 10 million shares of our common stock that may be used to satisfy awards
under the Plan, subject to the share counting rules set forth within the Plan. During fiscal years 2020, 2019 and 2018, we
granted RSU awards to employees with a grant date fair value of $7 million, $7 million and $4 million, respectively, which vest
annually over a three-year period. Additionally, during fiscal year 2018, we granted fully vested RSU awards to employees with
a grant date fair value of $4 million in exchange for satisfaction and conversion of AGNC's obligations of an equivalent value
under outstanding long-term incentive compensation awards granted to employees under the MTGE Incentive Plan ("RSU
Exchange Awards") (see Other Long-Term Incentive Compensation below). During fiscal years 2020, 2019 and 2018, we
77
granted RSU awards to independent directors of $0.8 million, $0.5 million and $0.5 million, respectively, which vest at the end
of a one-year period from grant date.
The following table summarizes RSU awards under our 2016 Equity Plan for fiscal years 2020, 2019 and 2018:
2016 Equity Incentive Plan
Weighted
Average Grant
Date Fair
Value 1
Weighted
Average Vest
Date Fair
Value
RSU Awards
Unvested balance as of December 31, 2017.....................................................................
Granted 2..........................................................................................................................
Accrued RSU dividend equivalents................................................................................
Vested 2...........................................................................................................................
Forfeitures.......................................................................................................................
Unvested balance as of December 31, 2018.....................................................................
Granted............................................................................................................................
Accrued RSU dividend equivalents................................................................................
335,228 $
261,036 $
56,618 $
(150,423) $
(546) $
501,913 $
432,149 $
83,355 $
Vested..............................................................................................................................
(252,375) $
Forfeitures.......................................................................................................................
Unvested balance as of December 31, 2019.....................................................................
Granted............................................................................................................................
Accrued RSU dividend equivalents................................................................................
(6,812) $
758,230 $
433,414 $
95,809 $
Vested..............................................................................................................................
(377,244) $
Forfeitures.......................................................................................................................
Unvested balance as of December 31, 2020.....................................................................
________________________________
1.
2.
Accrued RSU award dividend equivalents have a weighted average grant date fair value of $0.
Excludes 185,285 of RSU Exchange Awards.
(1,225) $
908,984 $
17.46 $
18.05 $
— $
16.52 $
16.98 $
16.08 $
17.59 $
— $
15.30 $
16.00 $
15.44 $
18.60 $
— $
14.82 $
17.87 $
15.57 $
—
—
—
18.60
—
—
—
—
17.91
—
—
—
—
11.82
—
—
During fiscal years 2020, 2019 and 2018, we granted PSU awards to employees under our 2016 Equity Plan, which vest at
the end of a three-year period provided that specified performance criteria are met. The performance criteria are based on a
formula tied to our achievement of long-term economic returns consisting of the change in tangible net book value and
dividends paid per common share on an absolute basis and relative to a select group of our peers. The fair value of the PSU
awards granted during fiscal years 2020, 2019 and 2018 as of the grant date was $10 million, $9 million and $5 million,
respectively, assuming the target levels of performance are achieved. The actual value of the awards will vary within a range of
0% to 200% of the target based on the actual performance achieved relative to the targets. The following table summarizes PSU
awards under our 2016 Equity Plan for fiscal years 2020, 2019 and 2018.
78
PSUs
at Target
Performance
Level
Weighted
Average Grant
Date Fair
Value 1
Weighted
Average Vest
Date Fair
Value 1
2016 Equity Incentive Plan
Unvested balance as of December 31, 2017
Granted......................................................................................................................
Accrued PSU dividend equivalents...........................................................................
Vested........................................................................................................................
Unvested balance as of December 31, 2018
Granted......................................................................................................................
Accrued PSU dividend equivalents...........................................................................
Performance adjustment - Granted............................................................................
Performance adjustment - Accrued PSU dividend equivalents................................
Vested........................................................................................................................
Forfeitures.................................................................................................................
273,376 $
272,228 $
61,171 $
— $
606,775 $
494,016 $
123,594 $
95,427 $
35,825 $
— $
(4,224) $
Unvested balance as of December 31, 2019...............................................................
1,351,413 $
Granted......................................................................................................................
Accrued PSU dividend equivalents...........................................................................
Performance adjustment - Granted............................................................................
Performance adjustment - Accrued PSU dividend equivalents................................
508,757 $
160,442 $
62,796 $
26,183 $
Vested........................................................................................................................
(482,806) $
Forfeitures.................................................................................................................
— $
17.78 $
17.98 $
— $
— $
16.08 $
17.56 $
— $
19.39 $
— $
— $
15.84 $
14.96 $
19.62 $
— $
17.98 $
— $
13.84 $
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
11.81
—
—
Unvested balance as of December 31, 2020...............................................................
1,626,785 $
15.15 $
_______________________
1.
Accrued PSU award dividend equivalents have a weighted average grant date fair value of $0.
As of December 31, 2020, 4.8 million shares remained available for awards under the 2016 Equity Plan. For purposes of
determining the total number of shares available for awards under the 2016 Equity Plan, available shares are reduced by (i)
shares issued for vested RSU awards, net of units withheld to cover minimum statutory tax withholding requirements paid by us
in cash on behalf of the employee and (ii) outstanding unvested awards, (iii) outstanding previously vested awards, if
distribution of such awards has been deferred beyond the vesting date ("deferred awards"), and (iv) accrued dividend equivalent
units on outstanding awards through December 31, 2012. Unvested performance-based awards assume the maximum potential
payout under the terms of the award. As of December 31, 2020, 1.2 million of deferred awards, including accrued DEUs, were
outstanding.
During fiscal years 2020, 2019 and 2018, we recognized compensation expense of $20.6 million, $13.7 million and $6.1
million, respectively, for stock-based awards to employees and we recognized other operating expense of $0.7 million, $0.5
million and $0.5 million, respectively, for stock-based awards to independent directors. As of December 31, 2020, we had
unrecognized expense related to stock-based awards of approximately $13 million, which is expected to be recognized over a
weighted average period of 1.4 years.
Other Long-Term Incentive Compensation
During fiscal year 2018, we granted long-term incentive compensation awards to employees under our MTGE Incentive
Plan (the "Incentive Plan"), with original grant date fair values of $2 million. During 2018, all outstanding awards under the
Incentive Plan became fully vested and the Incentive Plan was terminated. Awards for which distribution of vested amounts had
been deferred beyond the vesting date were exchanged for RSU awards granted under the 2016 Equity Plan of equal value.
During fiscal year 2018, we recognized long-term incentive compensation expense associated with awards under the Incentive
Plan of $5 million.
Note 11. Income Taxes
As of December 31, 2020, we have distributed all of our estimated taxable income for fiscal year 2020. Accordingly, we
do not expect to incur an income tax liability on our 2020 taxable income. For fiscal years 2019 and 2018, we distributed all of
our taxable income within the time limits prescribed by the Internal Revenue Code. Accordingly, we did not incur an income
tax liability on our taxable income for such periods.
79
Based on our analysis of any potential uncertain income tax positions, we concluded that we do not have any uncertain
tax positions that meet the recognition or measurement criteria of ASC 740 as of December 31, 2020 or prior periods. Our tax
returns for tax years 2017 and forward are open to examination by the IRS. If we incur income tax related interest and penalties,
our policy is to classify them as a component of provision for income taxes.
80
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in
our Securities Exchange Act of 1934, as amended (the "Exchange Act") reports is recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosure based on the definition of "disclosure controls and procedures" as promulgated
under the Exchange Act and the rules and regulations thereunder. In designing and evaluating the disclosure controls and
procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide
only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its
judgment in evaluating the cost-benefit relationship of possible controls and procedures.
We, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and
operation of our disclosure controls and procedures as of December 31, 2020. Based on the foregoing, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective.
Management's Report on Internal Control over Financial Reporting
Management Report on Internal Control over Financial Reporting is included in "Item 8. Financial Statements and
Supplementary Data."
Attestation Report of Registered Public Accounting Firm
The attestation report of our registered public accounting firm is included in "Item 8. Financial Statements and
Supplementary Data."
Changes in Internal Control over Financial Reporting
There have been no changes in our "internal control over financial reporting" (as defined in Rule 13a-15(f) of the
Exchange Act) that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
Item 9B. Other Information
None.
81
Item 10. Directors, Executive Officers and Corporate Governance
PART III.
Information in response to this Item is incorporated herein by reference to the information provided in our Proxy
Statement for our 2021 Annual Meeting of Stockholders (the "2021 Proxy Statement") under the headings "PROPOSAL 1:
ELECTION OF DIRECTORS", "EXECUTIVE OFFICERS", and "BOARD AND GOVERNANCE MATTERS."
Item 11. Executive Compensation
Information in response to this Item is incorporated herein by reference to the information provided in the 2021 Proxy
Statement under the headings "PROPOSAL 1: ELECTION OF DIRECTORS", "EXECUTIVE COMPENSATION",
"COMPENSATION DISCUSSION AND ANALYSIS", "REPORT OF THE COMPENSATION AND CORPORATE
GOVERNANCE COMMITTEE",
INSIDER
PARTICIPATION."
"COMPENSATION COMMITTEE
INTERLOCKS AND
and
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information in response to this Item is incorporated herein by reference to the information provided in the 2021 Proxy
Statement under the heading "SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS."
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information in response to this Item is incorporated herein by reference to the information provided in the 2021 Proxy
Statement under the headings "CERTAIN TRANSACTIONS WITH RELATED PERSONS" and "PROPOSAL 1: ELECTION
OF DIRECTORS."
Item 14. Principal Accounting Fees and Services
Information in response to this Item is incorporated herein by reference to the information provided in the 2021 Proxy
Statement under the heading "PROPOSAL 4: RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC
ACCOUNTANT."
82
PART IV.
Item 15.
Exhibits and Financial Statement Schedules
(a)
List of documents filed as part of this report:
(1) The following financial statements are filed herewith:
Consolidated Balance Sheets as of December 31, 2020 and 2019
Consolidated Statements of Comprehensive Income for fiscal years 2020, 2019 and 2018
Consolidated Statements of Stockholders' Equity for fiscal years 2020, 2019 and 2018
Consolidated Statements of Cash Flows for fiscal years 2020, 2019 and 2018
(2) The following exhibits are filed herewith or incorporated herein by reference
Exhibit No.
Description
*3.1
*3.2
*3.3
*3.4
*3.5
*3.6
*3.7
*3.8
*4.1
*4.2
*4.3
*4.4
*4.5
AGNC Investment Corp. Amended and Restated Certificate of Incorporation, as amended, incorporated by
reference from Exhibit 3.1 of Form 10-Q for the quarter ended March 31, 2020 (File No. 001-34057), filed
May 11, 2020.
AGNC Investment Corp. Third Amended and Restated Bylaws, as amended, incorporated herein by reference
to Exhibit 3.2 of Form 10-Q for the quarter ended September 30, 2016 (File No. 001-34057), filed November
7, 2016.
Certificate of Designations of 7.00% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred
Stock, incorporated herein by reference to Exhibit 3.5 of Form 8-A (File No. 001-34057), filed August 18,
2017.
Certificate of Elimination of 8.000% Series A Cumulative Redeemable Preferred Stock, incorporated herein
by reference to Exhibit 3.1 of Form 8-K (File No 001-34057), filed October 26, 2017.
Certificate of Designations of 6.875% Series D Fixed-to-Floating Rate Cumulative Redeemable Preferred
Stock, incorporated herein by reference to Exhibit 3.5 of Form 8-A (File No 001-34057), filed March 6, 2019.
Certificate of Designations of 6.50% Series E Fixed-to-Floating Rate Cumulative Redeemable Preferred
Stock, incorporated herein by reference to Exhibit 3.6 of Form 8-A (File No 001-34057), filed October 3,
2019.
Certificate of Elimination of 7.750% Series B Cumulative Redeemable Preferred Stock, incorporated herein
by reference to Exhibit 3.1 of Form 8-K (File No 001-34057), filed December 13, 2019.
Certificate of Designations of 6.125% Series F Fixed-to-Floating Rate Cumulative Redeemable Preferred
Stock, incorporated herein by reference to Exhibit 3.6 of Form 8-A (File No 001-34057), filed February 11,
2020.
Instruments defining the rights of holders of securities: See Article IV of our Amended and Restated
Certificate of Incorporation, as amended, incorporated herein by reference to Exhibit 3.1 of Form 10-Q for the
quarter ended March 31, 2018 (File No. 001-34057) filed May 7, 2018.
Instruments defining the rights of holders of securities: See Article VI of our Third Amended and Restated
Bylaws, as amended, incorporated herein by reference to Exhibit 3.2 of Form 10-Q for the quarter ended
September 30, 2016 (File No. 001-34057) filed November 7, 2016.
Form of Certificate for Common Stock, incorporated herein by reference to Exhibit 4.3 of Form 10-Q for the
quarter ended September 30, 2016 (File No. 001-34057), filed November 7, 2016.
Specimen 7.00% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock Certificate,
incorporated herein by reference to Exhibit 4.1 of Form 8-A (File No. 001-34057), filed August 18, 2017.
Specimen 6.875% Series D Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock Certificate,
incorporated herein by reference to Exhibit 4.1 of Form 8-A (File No. 001-34057), filed March 6, 2019.
83
*4.6
*4.7
*4.8
*4.9
*4.10
*4.11
*4.12
*4.13
*4.14
*4.15
4.16
†* 10.1
†* 10.2
†* 10.3
†* 10.4
Specimen 6.50% Series E Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock Certificate,
incorporated herein by reference to Exhibit 4.1 of Form 8-A (File No. 001-34057), filed October 3, 2019.
Specimen 6.125% Series F Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock Certificate,
incorporated herein by reference to Exhibit 4.1 of Form 8-A (File No 001-34057), filed February 11, 2020.
Deposit Agreement relating to 7.00% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred
Stock, dated August 22, 2017, among AGNC Investment Corp., Computershare Inc. and Computershare
Trust Company, N.A., jointly as depositary, incorporated herein by reference to Exhibit 4.2 of Form 8-K (File
No. 001-34057) filed August 22, 2017.
Form of Depositary Receipt representing 1/1,000th of a share of 7.00% Series C Fixed-to-Floating Rate
Cumulative Redeemable Preferred Stock (included as part of Exhibit 4.8), incorporated herein by reference to
Exhibit A of Exhibit 4.2 of Form 8-K (File No. 001-34057) filed August 22, 2017.
Deposit Agreement relating to 6.875% Series D Fixed-to-Floating Rate Cumulative Redeemable Preferred
Stock, dated March 6, 2019, among AGNC Investment Corp., Computershare Inc. and Computershare Trust
Company, N.A., jointly as depositary, incorporated herein by reference to Exhibit 4.2 of Form 8-K (File No.
001-34057) filed March 6, 2019.
Form of Depositary Receipt representing 1/1,000th of a share of 6.875% Series D Fixed-to-Floating Rate
Cumulative Redeemable Preferred Stock (included as part of Exhibit 4.10), incorporated herein by reference
to Exhibit A of Exhibit 4.2 of Form 8-K (File No. 001-34057) filed March 6, 2019.
Deposit Agreement relating to 6.50% Series E Fixed-to-Floating Rate Cumulative Redeemable Preferred
Stock, dated October 3, 2019, among AGNC Investment Corp., Computershare Inc. and Computershare Trust
Company, N.A., jointly as depositary, incorporated herein by reference to Exhibit 4.2 of Form 8-K (File No.
001-34057) filed October 3, 2019.
Form of Depositary Receipt representing 1/1,000th of a share of 6.50% Series E Fixed-to-Floating Rate
Cumulative Redeemable Preferred Stock (included as part of Exhibit 4.12), incorporated herein by reference
to Exhibit A of Exhibit 4.2 of Form 8-K (File No. 001-34057) filed October 3, 2019.
Deposit Agreement relating to 6.125% Series F Fixed-to-Floating Rate Cumulative Redeemable Preferred
Stock, dated February 11, 2020, among AGNC Investment Corp., Computershare Inc. and Computershare
Trust Company, N.A., jointly as depositary, incorporated herein by reference to Exhibit 4.1 of Form 8-K (File
No. 001-34057) filed February 11, 2020.
Form of Depositary Receipt representing 1/1,000th of a share of 6.125% Series F Fixed-to-Floating Rate
Cumulative Redeemable Preferred Stock (included as part of Exhibit 4.14), incorporated herein by reference
to Exhibit A of Exhibit 4.1 of Form 8-K (File No. 001-34057) filed February 11, 2020.
Description of the Registrant’s Securities, filed herewith.
Fourth Amended and Restated Employment Agreement, dated January 25, 2019, by and between AGNC
Mortgage Management, LLC and Gary Kain, incorporated herein by reference to Exhibit 10.2 of Form 8-K
(File No. 001-34057), filed January 25, 2019.
Fifth Amended and Restated Employment Agreement, dated December 10, 2020, by and between AGNC
Mortgage Management, LLC and Gary Kain, incorporated herein by reference to Exhibit 10.1 of Form 8-K
(File No. 001-34057), filed December 10, 2020.
Third Amended and Restated Employment Agreement, dated November 1, 2016, by and between AGNC
Mortgage Management, LLC and Peter J. Federico, incorporated herein by reference to Exhibit 10.2 of Form
8-K (File No. 001-34057), filed November 4, 2016.
Third Amended and Restated Employment Agreement, dated November 1, 2016, by and between AGNC
Mortgage Management, LLC and Christopher J. Kuehl, incorporated herein by reference to Exhibit 10.3 of
Form 8-K (File No. 001-34057), filed November 4, 2016.
84
†* 10.5
†* 10.6
†* 10.7
†* 10.8
†* 10.9
†* 10.10
†* 10.11
†* 10.12
†* 10.13
†* 10.14
† 10.15
†* 10.16
†* 10.17
†* 10.18
†* 10.19
†* 10.20
Form of First Amendment to the Amended and Restated Employment Agreement, dated February 13, 2020,
by and between AGNC Mortgage Management, LLC and each of Peter Federico and Christopher Kuehl,
incorporated herein by reference to Exhibit 10.1 of Form 8-K (File No. 001-34057), filed February 14, 2020.
Second Amended and Restated Employment Agreement, dated December 10, 2020, by and between AGNC
Mortgage Management, LLC and Peter Federico, incorporated herein by reference to Exhibit 10.2 of Form 8-
K (File No. 001-34057), filed December 10, 2020.
Second Amended and Restated Employment Agreement, dated December 10, 2020, by and between AGNC
Mortgage Management, LLC and Christopher Kuehl, incorporated herein by reference to Exhibit 10.3 of
Form 8-K (File No. 001-34057), filed December 10, 2020.
Employment Agreement, dated as of January 25, 2019, by and between Bernice Bell and AGNC Mortgage
Management, LLC, incorporated herein by reference to Exhibit 10.1 of Form 8-K (File No. 001-34057), filed
January 25, 2019.
Employment Agreement, dated as of January 25, 2019, by and between Aaron J. Pas and AGNC Mortgage
Management, LLC, incorporated herein by reference to Exhibit 10.3 of Form 8-K (File No. 001-34057), filed
January 25, 2019.
Employment Agreement, dated December 18, 2017, by and between Kenneth L. Pollack and AGNC
Mortgage Management, LLC, incorporated herein by reference to Exhibit 10.3 of Form 8-K (File No.
001-34057), filed December 18, 2017.
First Amendment to Employment Agreement by and between Kenneth L. Pollack and AGNC Mortgage
Management, LLC, incorporated herein by reference to Exhibit 10.4 of Form 8-K (File No. 001-34057), filed
January 25, 2019.
Form of Amendment to the Amended and Restated Employment Agreement, dated February 13, 2020, by and
between AGNC Mortgage Management, LLC and each of Bernice Bell, Aaron Pas and Kenneth Pollack,
incorporated herein by reference to Exhibit 10.2 of Form 8-K (File No. 001-34057), filed February 14, 2020.
Amended and Restated Employment Agreement, dated January 22, 2021, by and between AGNC Mortgage
Management, LLC and Bernice Bell, incorporated herein by reference to Exhibit 10.1 of Form 8-K (File No.
001-34057), filed January 22, 2021.
Amended and Restated Employment Agreement, dated January 22, 2021, by and between AGNC Mortgage
Management, LLC and Aaron Pas, incorporated herein by reference to Exhibit 10.2 of Form 8-K (File No.
001-34057), filed January 22, 2021.
Amended and Restated Employment Agreement, dated January 22, 2021, by and between AGNC Mortgage
Management, LLC and Kenneth Pollack, filed herewith.
AGNC Investment Corp. 2016 Equity and Incentive Compensation Plan, incorporated herein by reference to
Exhibit 10.7 of Form 10-K (File No. 001-34057), filed February 27, 2017.
Form of AGNC Investment Corp. 2016 Equity and Incentive Compensation Plan Restricted Stock Unit
Agreement for Section 16 Officers with Employment Contracts, incorporated herein by reference to Exhibit
10.8 of Form 10-K (File No. 001-34057), filed February 27, 2017.
Form of AGNC Investment Corp. 2016 Equity and Incentive Compensation Plan Performance-Based
Restricted Stock Unit Agreement for Section 16 Officers with Employment Contracts, incorporated herein by
reference to Exhibit 10.9 of Form 10-K (File No. 001-34057), filed February 27, 2017.
Form of AGNC Investment Corp. 2016 Equity and Incentive Compensation Plan Restricted Stock Unit
Agreement for Section 16 Officers without Employment Contracts, incorporated herein by reference to
Exhibit 10.10 of Form 10-K (File No. 001-34057), filed February 27, 2017.
Form of AGNC Investment Corp. 2016 Equity and Incentive Compensation Plan Performance-Based
Restricted Stock Unit Agreement for Section 16 Officers without Employment Contracts, incorporated herein
by reference to Exhibit 10.11 of Form 10-K (File No. 001-34057), filed February 27, 2017.
85
†* 10.21
†* 10.22
†* 10.23
†* 10.24
†* 10.25
†10.26
†10.27
†10.28
†10.29
*14
21
23
24
31.1
31.2
32
Form of AGNC Investment Corp. 2016 Equity and Incentive Compensation Plan Restricted Stock Unit
Agreement for Non-Employee Directors, incorporated herein by reference to Exhibit 10.14 of Form 10-K
(File No. 001-34057), filed February 26, 2018.
Form of AGNC Investment Corp. 2016 Equity and Incentive Compensation Plan Deferred Stock Unit
Agreement incorporated herein by reference to Exhibit 10 of Form 10-Q for the quarter ended September 30,
2018 (File No. 001-34057), filed November 5, 2018.
Form of AGNC Investment Corp. 2016 Equity and Incentive Compensation Plan Restricted Stock Unit
Agreement for Section 16 Officers with Retirement Provisions, incorporated herein by reference to Exhibit
10.15 of Form 10-K (File No. 001-34057), filed February 22, 2019.
Form of AGNC Investment Corp. 2016 Equity and Incentive Compensation Plan Performance-Based
Restricted Stock Unit Agreement for Section 16 Officers with Retirement Provisions, incorporated herein by
reference to Exhibit 10.16 of Form 10-K (File No. 001-34057), filed February 22, 2019.
Form of AGNC Investment Corp. 2016 Equity and Incentive Compensation Plan Performance-Based
Restricted Stock Unit Agreement for Section 16 Officers with Employment Contracts, incorporated herein by
reference to Exhibit 10.17 of Form 10-K (File No. 001-34057), filed February 22, 2019.
Form of AGNC Investment Corp. 2016 Equity and Incentive Compensation Plan Restricted Stock Unit
Agreement for Section 16 Officers with Retirement Provisions, filed herewith.
Form of AGNC Investment Corp. 2016 Equity and Incentive Compensation Plan Performance-Based
Restricted Stock Unit Agreement for Section 16 Officers with Retirement Provisions, filed herewith.
Form of AGNC Investment Corp. 2016 Equity and Incentive Compensation Plan Restricted Stock Unit
Agreement for Section 16 Officers with Employment Contracts, filed herewith.
Form of AGNC Investment Corp. 2016 Equity and Incentive Compensation Plan Performance-Based
Restricted Stock Unit Agreement for Section 16 Officers with Employment Contracts, filed herewith.
AGNC Investment Corp. Code of Ethics and Conduct, adopted January 23, 2020, incorporated herein by
reference to Exhibit 14 of Form 10-K (File No. 001-34057), filed February 25, 2020.
Subsidiaries of the Company and jurisdiction of incorporation:
1) AGNC TRS, LLC, a Delaware limited liability company
2) Old Georgetown Insurance Co. LLC, a Missouri limited liability company
3) Bethesda Securities, LLC, a Delaware limited liability company
4) AGNC Mortgage Management, LLC, a Delaware limited liability company
5) CT Collateral Funding, LLC, a Delaware limited liability company
Consent of Ernst & Young LLP, filed herewith.
Powers of Attorney of directors, filed herewith.
Certification of CEO Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.
Certification of CFO Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.
Certification of CEO and CFO Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS**
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within the inline XBRL document
101.SCH**
XBRL Taxonomy Extension Schema Document
101.CAL**
XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB**
XBRL Taxonomy Extension Labels Linkbase Document
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XBRL Taxonomy Extension Presentation Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document
101.DEF**
________________________________
Previously filed
*
This exhibit is being furnished rather than filed, and shall not be deemed incorporated by reference into any filing, in
**
accordance with Item 601 of Regulation S-K
Management contract or compensatory plan or arrangement
†
(b) Exhibits
See the exhibits filed herewith.
(c) Additional financial statement schedules
None.
87
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
AGNC INVESTMENT CORP.
By:
/s/ GARY D. KAIN
Gary D. Kain
Chief Executive Officer and
Chief Investment Officer (Principal Executive Officer)
Date: February 26, 2021
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Name
Title
Date
/s/ GARY D. KAIN
Gary D. Kain
/s/ BERNICE E. BELL
Bernice E. Bell
*
Morris A. Davis
*
Donna J. Blank
*
John D. Fisk
*
Prue B. Larocca
*
Paul E. Mullings
*
Frances R. Spark
*By:
/s/ KENNETH L. POLLACK
Kenneth L. Pollack
Attorney-in-fact
Director, Chief Executive Officer
and Chief Investment Officer
(Principal Executive Officer)
February 26, 2021
February 26, 2021
February 26, 2021
February 26, 2021
February 26, 2021
February 26, 2021
February 26, 2021
February 26, 2021
Senior Vice President and Chief
Financial Officer (Principal
Financial Officer and Principal
Accounting Officer)
Director
Director
Director
Director
Director
Director
88
BOARD OF DIRECTORS
Prue B. Larocca
Independent Board Chair
Donna J. Blank
Independent Director
Morris A. Davis, Ph.D.
Independent Director
John D. Fisk
Independent Director
Gary D. Kain
Chief Executive Officer and Chief Investment Officer
Paul E. Mullings
Independent Director
Frances R. Spark
Independent Director
EXECUTIVE OFFICERS
Gary D. Kain
Chief Executive Officer and Chief Investment Officer
Christopher J. Kuehl
Executive Vice President
Peter J. Federico
President and Chief Operating Officer
Aaron J. Pas
Senior Vice President
Bernice E. Bell
Senior Vice President and Chief Financial Officer
Kenneth L. Pollack
Senior Vice President, General Counsel,
Chief Compliance Officer and Secretary
CORPORATE INFORMATION
Auditors
Ernst & Young LLP, Tysons, VA
Legal Counsel
Skadden, Arps, Slate, Meagher & Flom LLP
New York, NY
Equity Securities
Common Stock I Nasdaq: AGNC
Preferred Stock I Nasdaq: AGNCN,
AGNCM, AGNCO, AGNCP
Transfer Agent and Registrar
Computershare Investor Services
P.O. Box 505000
Louisville, KY 40233-5000
(800) 733-5001
www.computershare.com/investor
Financial Publications
Stockholders may receive a copy of our 2020
Annual Report on Form 10-K and our quarterly
reports on Form 10-Q filed with the Securities
and Exchange Commission on our website
at www.ir.agnc.com or by writing to:
AGNC Investment Corp.
Investor Relations
2 Bethesda Metro Center
12th Floor
Bethesda, MD 20814
Investor Inquiries
Stockholders, securities analysts, portfolio
managers and others seeking information
about our business operations and financial
performance are invited to contact Investor
Relations at: (301) 968-9300 or IR@AGNC.com.
2 Bethesda Metro Center | 12th Floor | Bethesda, MD 20814 | Phone: (301) 968-9315 | Fax: (301) 968-9301 | Email: IR@AGNC.com
AGNC.COM | NASDAQ: AGNC