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, 2024
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
26-1701984
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
7373 Wisconsin Avenue, 22nd 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
AGNC
The Nasdaq Global Select Market
Depositary shares of 7.000% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred
Stock
AGNCN
The Nasdaq Global Select Market
Depositary shares of 6.875% Series D Fixed-to-Floating Rate Cumulative Redeemable Preferred
Stock
AGNCM
The Nasdaq Global Select Market
Depositary shares of 6.50% Series E Fixed-to-Floating Rate Cumulative Redeemable Preferred
Stock
AGNCO
The Nasdaq Global Select Market
Depositary shares of 6.125% Series F Fixed-to-Floating Rate Cumulative Redeemable Preferred
Stock
AGNCP
The Nasdaq Global Select Market
Depositary shares of 7.75% Series G Fixed-Rate Reset Cumulative
Redeemable Preferred Stock
AGNCL
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 ☒ 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 ☒
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
☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller Reporting Company
☐
Emerging growth 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. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to
previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive
officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
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, 2024, the aggregate market value of the Registrant's common stock held by non-affiliates of the Registrant was approximately $6.7 billion based upon the closing price of the
Registrant's common stock of $9.54 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, 2025 was 900,421,216.
DOCUMENTS INCORPORATED BY REFERENCE. The information required by Part III will be incorporated by reference from the Registrant's definitive proxy statement for the 2025 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
2
Item 1A.
Risk Factors
7
Item 1B.
Unresolved Staff Comments
21
Item 1C.
Cybersecurity
21
Item 2.
Properties
22
Item 3.
Legal Proceedings
22
Item 4.
Mine Safety Disclosures
22
PART II.
Item 5.
Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities
23
Item 6.
Selected Financial Data
24
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
25
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
43
Item 8.
Financial Statements
46
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
79
Item 9A.
Controls and Procedures
79
Item 9B.
Other Information
79
PART III.
Item 10.
Directors, Executive Officers and Corporate Governance
79
Item 11.
Executive Compensation
80
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
80
Item 13.
Certain Relationships and Related Transactions, and Director Independence
80
Item 14.
Principal Accounting Fees and Services
80
PART IV.
Item 15.
Exhibits
81
Signatures
85
1
PART I.
Item 1. Business
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, and we will generally not be subject to U.S. federal or state corporate
income tax to the extent that we distribute all our annual taxable income to our stockholders on a timely basis. It is our intention to distribute 100% of our
taxable income within the time limits prescribed by the Internal Revenue Code, which may extend into the subsequent taxable year.
We are internally managed with the principal objective of generating favorable long-term stockholder returns with a substantial yield component. 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 Management Strategy
We employ an active management strategy that is dynamic and responsive to evolving market conditions. The composition of our portfolio and our
investment, funding, and hedging strategies are tailored to reflect our analysis of market conditions and the relative values of available options. Our portfolio
management philosophy is based upon the following core objectives:
•
deliver attractive risk-adjusted returns for our stockholders primarily through monthly dividend distributions;
•
maintain an investment portfolio consisting predominantly of Agency RMBS;
•
capitalize on discrepancies in the relative valuations in the Agency and non-Agency securities market;
•
manage financing, interest rate, prepayment, extension and credit risks;
•
qualify as a REIT; and
•
remain exempt from the requirements of the Investment Company Act of 1940 (the "Investment Company Act").
Targeted Investments
Asset selection is a central component of our overall investment approach. Our investments consist predominantly of Agency RMBS which, in addition to
carrying a GSE or U.S. Government guarantee against loss of principal, are considered a cornerstone of the U.S. financial system. The $8 trillion Agency market
plays a vital role in providing liquidity to homeowners and prospective homeowners to purchase or refinance homes.
Our team of investment professionals has decades of experience investing in Agency RMBS. Our asset selection process involves assessing relative risk-
return profiles against the backdrop of broader market conditions. Utilizing sophisticated modeling techniques, we identify assets with favorable underlying loan
characteristics with the objective of optimizing returns over the life of the investment.
Agency Securities
•
Agency Residential Mortgage-Backed Securities. Agency RMBS consist of 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 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
2
also receive guarantor advances of principal and interest for delinquent loans in the mortgage pools. We may also invest in Agency collateralized
mortgage obligations ("CMOs"), which are structured instruments backed by a pool of Agency mortgage-backed securities.
•
To-Be-Announced Forward Contracts ("TBAs"). TBAs are forward contracts to purchase or sell Agency RMBS in the TBA market. 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.
•
Non-Agency Residential Mortgage-Backed Securities ("Non-Agency RMBS"). Non-Agency RMBS are structured securities backed by pools of
residential mortgages packaged and issued by private institutions, such as a commercial bank or non-bank lender. Certain tranches of non-Agency
RMBS may benefit from credit enhancement derived from structural elements, such as subordination, over-collateralization 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, which may be comprised of prime, non-prime, qualified and non-qualified mortgage loans.
•
Commercial Mortgage-Backed Securities ("CMBS"). CMBS are securities backed by a pool of loans secured by one or more commercial
properties. CMBS may also consist of a single loan for a single asset or multiple loans for a group of cross-collateralized assets of a single-borrower.
CMBS are typically structured as multiple classes of securities where cash flows are distributed 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. We intend to focus on
CMBS where the underlying collateral is secured by commercial properties located within the United States.
Financing Strategy
Our investments in Agency RMBS benefit from asset-driven, as well as AGNC-specific, funding advantages, that enable us to enhance returns using
leverage via low-cost and highly liquid collateralized borrowings structured as repurchase agreements.
Repurchase agreements ("repo") involve the sale and a simultaneous agreement to repurchase the transferred assets at a future date. Our borrowings
through repurchase transactions are generally short-term, with maturities typically ranging from one day to one year, but may sometimes have maturities of up to
five or more years. Our financing rates are primarily impacted by short-term benchmark rates and liquidity in the Agency repo and short-term funding markets.
The amount of leverage that we utilize depends on market conditions, our assessment of risk and returns and our ability to borrow sufficient funds on
favorable terms to acquire mortgage securities. We generally expect our leverage to be within six to twelve times the amount of our tangible stockholders' equity,
but under certain conditions we may operate at leverage levels outside of this range.
We diversify our funding exposure by entering into repurchase agreements with multiple counterparties. 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 tri-party 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. Thus, through BES, we have greater depth and diversity of funding than solely through traditional bilateral repo, while also lowering our funding
cost, reducing our collateral requirements and limiting our counterparty exposure.
We also finance the acquisition of Agency RMBS by entering into TBA dollar roll transactions through which we simultaneously sell a TBA contract for
the current month's settlement date and purchase a similar TBA contract for a forward month's settlement date. The TBA contract purchased for the forward
settlement date is typically priced at a discount to the TBA contract sold for the current month. The discount, or "price drop", is the economic equivalent of
interest income on the underlying Agency RMBS, less an implied financing cost, between the current month and forward month settlement dates.
3
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 new forward settlement date. Hence the discount or price drop from rolling
TBA positions forward is commonly referred to as "TBA 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
As a levered investor in fixed income securities, risk management is core to our business. We are exposed to a variety of market risks, including interest
rate, prepayment, extension, spread 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. We employ a variety of investment and risk management strategies to reduce our exposure to market risks, and we
continuously monitor and adjust our hedge portfolio, the net duration (or interest rate sensitivity) of our investment portfolio, and leverage in order to optimize
returns over the longer term as market conditions warrant.
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. 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. For additional explanation of our market risks please refer to Item 1A. Risk
Factors and Item 7A. Quantitative and Qualitative Disclosures about Market Risk within this Form 10-K.
Regulatory Requirements
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. For
additional information regarding our exemption under the Investment Company Act please refer to Item 1A. Risk Factors within this Form 10-K.
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.
4
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.
Regulatory Requirements of our Captive Broker-Dealer Subsidiary
BES is subject to ongoing membership and regulatory requirements as a member of the FICC and FINRA and as an SEC registered broker-dealer that
include but are not limited to trade practices, use and safekeeping of funds and securities, capital structure, recordkeeping and conduct of directors, officers and
employees. Additionally, as a self-clearing, registered broker-dealer, BES is subject to minimum net capital requirements. Thus, our ability to access tri-party
repo funding through the FICC's GCF Repo service, which represents a significant portion of our total borrowing capacity, is reliant on BES' ability to
continually meet FINRA and FICC regulatory and membership requirements.
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, 2024, our workforce consisted of 53
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, which averaged less than 1 employee per year the past three years, and favorable employee survey results are a testament to the success of
our human capital management initiatives.
5
Employee Communications and Engagement
We recognize the importance of ongoing open communication and engagement with our employees and we greatly value their input. To foster this, we
regularly engage with our employees in a variety of ways through direct interaction with each member of our staff, periodic anonymous employee surveys and
regular town hall meetings. Our anonymous employee surveys provide important information about their job satisfaction, engagement, and specific concerns.
Results consistently reflect high levels of employee satisfaction, including in areas of leadership, benefits, engagement, training, and development. To encourage
candid feedback, we partner with outside vendors who analyze survey results and provide verbatim comments on an anonymous basis. In recognition of these
efforts, AGNC was recertified as a Great Place to Work™ in 2023 based entirely on employee feedback. In 2024, Fortune named AGNC one of the Best Small
Workplaces
, recognizing our commitment to creating a best-in-class employee experience. Our Board of Directors (our "Board") and management use survey
results and regular direct feedback from employees in making adjustments to our work environment and benefits package.
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 third-party hotline). All employees are required to affirm their understanding of these standards on at least an annual basis. We also regularly
conduct mandatory compliance training on the Code of Conduct, insider trading, whistleblower protections, anti-harassment and other legal and corporate
policies. 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. These include our professional certification and
continuing education policy, reimbursement for any supervisor-approved courses, one-on-one coaching to enhance skills in a number of areas of personal and
professional development, and memberships to organizations that provide employees with access to educational webinars. We also conduct periodic "Lunch and
Learn" seminars and offer a formal mentoring program for employees to receive direct one-on-one career guidance and cross-functional experience across
various operations. Our employees also have the opportunity to lead and/or participate in employee-led initiatives, such as our employee-led Volunteerism &
Community Outreach Committee, which is responsible for implementing and leading new volunteer opportunities, as well as identifying ways the Company can
have a positive impact on the community. These initiatives have advanced unique and professional skill sets throughout the organization.
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 an inclusive and welcoming work environment that is free from wrongful
discrimination. We have long maintained policies against discrimination and harassment in our workplace, and we periodically conduct workplace trainings and
workshops attended by all employees related to these topics. 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, 2024, 40% of our employees were women and 32% were 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 in the form of time-vesting and/or performance-vesting restricted stock units. 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 corresponds to the individual’s role and level of responsibility in the organization.
TM
6
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, parental leave and adoption assistance, voluntary short-term and long-term disability insurance, term life insurance, employee assistance programs,
and other benefits. 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 with Company matching contributions of 100% up to 6% of each employee’s eligible compensation, subject to IRS limits.
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 a variety of other investors, including other mortgage REITs, government entities, banks, specialty finance companies, public and private funds, insurance
companies and other financial institutions, who may have competitive advantages over us as to the price they are willing to pay due to factors such as a lower
cost of funds, access to funding sources not available to us or a lack of REIT and Investment Company Act regulatory constraints.
Corporate Information
Our executive offices are located at 7373 Wisconsin Avenue, 22 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. 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. Any of the following risks could materially affect our
business, financial condition or results of operations. 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. Our risk factors discussed below are classified among:
•
risks related to our investment and portfolio management activities;
•
risks related to our financing and hedging activities;
•
risks related to our business operations;
•
legislative and regulatory risks; and
•
risks related to our common stock.
Risks Related to Our Investment and Portfolio Management Activities
Spread risk is inherent to our business as a levered investor in Agency RMBS.
When the differential between the market yield on our assets and our interest rate hedges widens, our tangible net book value will typically decline, a
dynamic we refer to as "spread risk." As a levered investor primarily in fixed-rate Agency RMBS, spread risk is an inherent component of our business.
Although we use hedging instruments in an effort 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 actual or expected monetary policy actions by U.S. and foreign central banks; legislative, regulatory or other
administrative actions affecting the Agency RMBS market; changes in fiscal policy and rising federal budget deficits; increased market volatility; reduced
market liquidity; higher Agency RMBS supply; and shifts in investor return requirements and sentiment.
Interest rate and spread volatility represent significant risks to our business, potentially affecting our liquidity, increasing our costs, and impacting our
ability to manage risks effectively.
Interest rate and spread volatility can materially and adversely impact our business, financial condition, and operating results. Elevated volatility amplifies
market risks that affect the value of our assets and liabilities and can reduce earnings stability. Increased volatility also heightens our exposure to margin calls,
including higher risk-based margin requirements,
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7
which may require us to post additional collateral, thereby reducing our unencumbered liquidity, limiting resources available for operational needs and further
margin obligations.
Volatility further increases the complexity and cost of hedging against interest rate fluctuations, which can adversely affect our profitability. In addition,
heightened volatility may reduce liquidity in the mortgage market as investors scale back exposure to mitigate risk, making it more difficult to buy or sell assets
without significantly impacting market prices. Volatility may also diminish the effectiveness and accuracy of the predictive models we rely on for decision-
making and risk management.
Sustained interest rate and spread volatility has the potential to materially impact our liquidity, increase our costs, and impair our ability to manage risk
effectively. While we actively monitor market conditions and adjust our strategies in response, there is no assurance that these measures will be sufficient to
offset the negative effects of volatility on our business, operations, and financial results.
The Fed’s participation in the Agency mortgage market could have an adverse effect on our Agency RMBS investments.
The Federal Reserve’s (the "Fed") participation in the Agency RMBS market can materially impact mortgage market conditions, affecting supply, pricing,
and returns. Asset purchases by the Fed generally drive Agency RMBS values higher and tighten mortgage spreads, which increases our tangible net book value
but reduces the return potential on new investments. Conversely, actual or anticipated reductions in the amount of its Agency RMBS holdings typically lead to
lower values and wider spreads, thereby lowering our tangible net book value while improving the return potential on new acquisitions.
The Fed first implemented large-scale asset purchases, known as quantitative easing ("QE"), during the 2008-2009 financial crisis to stabilize markets and
support economic recovery. In response to the COVID-19 crisis, the Fed’s balance sheet more than doubled from $4.2 trillion in March 2020 to $8.9 trillion in
May 2022, with its Agency RMBS holdings rising to nearly one-third of all outstanding Agency RMBS. Since 2022, the Fed has reduced these holdings by
approximately $500 billion through prepayment runoff. While the Fed currently favors gradual balance sheet reduction through prepayment runoff, there is no
assurance that it will not undertake asset sales. A faster-than-expected unwinding of Fed holdings could increase market volatility, reduce liquidity, and widen
RMBS spreads, materially impacting our tangible net book value and financial condition.
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, meaning our investment portfolio composition, leverage ratio, and hedge positions will fluctuate based on our
assessment of market conditions. We may realize significant gains or losses when selling investments or adjusting hedge positions that we no longer believe
offer attractive risk-adjusted returns or when reallocating to perceived better opportunities. However, our market assessments may be incorrect, leading to
portfolio, leverage, or hedge decisions that underperform a more static strategy. Additionally, due to our active approach, investors may not be able to assess
changes in our financial position solely by tracking changes in the mortgage market.
A decline in the fair value of our assets may adversely affect our financial condition and make it costlier to finance our assets.
Our investment securities are reported at fair value on our consolidated balance sheet, with changes in fair value reported in net income or other
comprehensive income. Therefore, a decline in the fair value of our assets reduces our total comprehensive income and adversely affects our financial position.
We use our investments as collateral for our financing arrangements and certain hedge transactions; consequently, a decline in fair value, or perceived market
uncertainty about the value of our assets, could reduce the amount of our unencumbered assets, subject us to margin calls or make it more difficult for us to
maintain our compliance with the terms of our financing agreements. It could also reduce our ability to purchase additional investments or to renew or replace
our existing borrowings as they mature. As a result, we could be required to sell assets at adverse prices and our ability to maintain or grow our total
comprehensive income could be reduced.
The value of our assets is influenced by multiple factors. In particular, the value of our long-term fixed-rate securities is highly sensitive to fluctuations in
longer-term interest rates. Additionally, market liquidity can significantly impact asset values, as reduced liquidity may lead to price declines and increased
volatility. Several factors can negatively impact market liquidity, including shifts in macro-economic conditions, market uncertainties, changes in investor
sentiment, reduced or negative global money flows into U.S. fixed income markets, and regulatory capital requirements that constrain the market-making or
funding capacity of banks and financial institutions. Liquidity could also be affected by the Fed’s monetary policy, particularly if balance sheet reduction occurs
more rapidly than expected, as well as by legislative, regulatory or other administrative actions that affect the Agency RMBS market or changes in fiscal policy
that increase the federal budget deficit.
8
Changes in prepayment rates may adversely affect the return on our investments.
Our investment portfolio largely consists of 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, but other factors can also
affect the rate of prepayments, including loan age and size, loan-to-value ratios, housing price trends, general economic conditions and GSE buyouts of
delinquent loans.
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 maturity, 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. At the same time, the market value of our assets could decline, while most of our hedging
instruments would not receive any incremental offsetting gains.
To the extent that actual prepayment rates 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 making less favorable investments.
Prepayment rates are difficult to predict, and market conditions and other factors impacting mortgage origination channels may disrupt the historical
correlation between interest rate changes and prepayment trends.
Our success depends in part on our ability to predict prepayment behavior over a variety of economic conditions. 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 largely based on
predictive models and reliance on historical correlations between interest rates and other factors and the rate of prepayments. However, unprecedented events,
market dislocations, advances in origination channel technologies and other factors may impair the usefulness of these historical correlations or render them
completely invalid, reducing our ability to accurately predict future prepayment activity. Other factors beyond interest rates also impact the rate of prepayments
and may be difficult to predict, such as housing turnover, lending conditions and the availability of credit to homeowners, and GSE buyouts of delinquent loans
from the underlying mortgage pool.
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 our assets and assess potential investment opportunities 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 unanticipated and/or unprecedented financial or economic
events, including any actual or anticipated shifts in monetary or fiscal policy resulting from these events. Consequently, actual results could differ materially
from our projections. Moreover, the use of different models could result in materially different projections.
Analytical models and third-party data used to analyze credit sensitive assets also expose us to the risk that the (i) collateral cash flows and/or liability
structures may be incorrectly modeled, 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
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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 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 source to another. Moreover, values can fluctuate significantly, even 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, particularly through 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 investment losses.
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
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.
Non-Agency RMBS are backed by residential mortgage loans, which carry the risk of delinquency, foreclosure and loss based on the borrower's ability to
repay. The ability to repay is primarily influenced by the borrower's income and assets. Factors such as loss of employment, divorce, illness, acts of God, acts of
war or terrorism, adverse changes in economic and market conditions, declining home values, changes in laws and regulations, changes in fiscal policies and
zoning ordinances, environmental hazards such as mold, and property losses (insured or not) can impede repayment.
CMBS are backed by commercial loans, secured by multifamily or other commercial properties. These loans typically face higher risks of delinquency and
loss compared to residential loans. Repayment largely depends on the property's operational success. Factors affecting the property's net operating income, such
as occupancy rates, tenant mix, the success of tenant businesses, property management, location, condition, and economic conditions, can influence the
borrower's repayment capacity.
Geographic concentration of our assets can heighten the risk of default and loss. Both borrower repayment and the market value of the assets underlying
our investments are affected by national, local and regional economic conditions. As a result, concentrations of investments tied to geographic regions increase
the risk that adverse conditions 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 environmental hazards (such as earthquakes, widespread fires, rising sea levels, disease, floods, drought, hurricanes and
certain climate risks) than properties in other areas; for example, 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.
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Private mortgage insurance may not cover losses on loans referenced by our CRT securities and underlying our non-Agency RMBS.
Certain mortgage loans referenced by our CRT securities or underlying our non-Agency RMBS may have private mortgage insurance; however, coverage
is not guaranteed. Insurance may not fully protect against losses in the event of a loan default due to several factors, including coverage limits that absorb only a
portion of the loss, the insurer rescinding or denying a claim, or the insurer failing to meet its obligations—whether due to breach of contract or insolvency. As a
result, we may still incur losses despite the presence of mortgage insurance.
Changes in credit spreads may adversely affect our profitability.
A significant portion of the fair value of CRT and non-Agency securities, as well as other credit risk-oriented investments, is typically driven by the credit
spread—the difference between the value of a credit instrument and a comparable financial instrument with similar interest rate exposure but no credit risk, such
as a U.S. Treasury note. Credit spreads fluctuate due to changes in economic conditions, liquidity, investor demand and other factors and can be highly volatile.
Credit spreads typically widen during periods of market uncertainty or actual or anticipated economic deterioration. They may also widen due to actual or
anticipated rating downgrades of the securities or similar instruments. Hedging fair value changes related to credit spreads is often inefficient, and our hedging
strategies are generally not designed to mitigate credit spread risk. As a result, fluctuations in credit spreads could negatively impact our profitability and
financial condition.
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 with specific attributes that influence their
prepayment behavior under certain market conditions or that 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, their regulator—the Federal Housing Finance Administration ("FHFA")—or other governmental agencies, such as policies
impacting origination and pooling practices, as well as by legislative, regulatory or other administrative actions related to the GSEs’ government-like status or
changes to their Federal conservatorships. As a result, our target assets may not be available in sufficient supply or at attractive prices. We may also compete for
these assets with a variety of other investors, including other REITs, specialty finance companies, public and private funds, government entities, banks,
insurance companies and other financial institutions, which 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 enough target assets, we may be unable to achieve our investment objectives or maintain our REIT
qualification status or exemption from regulation under the Investment Company Act.
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. We may also amend or
revise our other operational policies, including our policies with respect to our REIT qualification, acquisitions, dispositions, operations, indebtedness and
distributions 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.
Risks Related to Our Financing and Hedging Activities
Our strategy involves the use of significant leverage, which increases the risk that we may incur substantial losses.
We expect our leverage to vary with market conditions and our assessment of the tradeoffs between risk and return on investments. 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 this leverage by borrowing against a substantial portion of the market value of our assets. Leverage, which is fundamental to our
investment strategy, creates significant risks and amplifies our risk exposure to higher borrowing costs, changes in underlying asset values, changes in mortgage
spreads, and other market factors. Leverage also exposes us to the risk of margin calls and defaults under our funding agreements, which may result in forced
sales of assets in adverse market conditions. The risks associated with leverage are more acute during volatile market environments and periods of reduced
market liquidity. Because of our leverage, we may incur substantial losses.
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We may be unable to procure or renew funding on favorable terms, or at all.
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:
•
disruptions in the repo market generally or the infrastructure that supports it;
•
higher short-term interest rates;
•
a decline in the market value of our investments available to collateralize borrowings;
•
increases in the "haircut" lenders require on the value of our assets under repurchase agreements, resulting in higher collateral requirements;
•
increases in member specific margin requirements assessed by the FICC for tri-party repo accessed by our wholly-owned captive broker-dealer
subsidiary, BES, through the FICC's GCF Repo service;
•
regulatory capital requirements or other limitations imposed on our lenders that negatively impact their ability or willingness to lend to us;
•
an exit by lenders from the market;
•
circumstances that could result in 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
•
the inability of BES to continually meet FINRA and FICC regulatory and membership requirements, which may change over time.
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.
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, which represent a form of off-balance sheet financing and increase our "at risk" leverage, as an alternate means of
investing in and financing Agency RMBS. 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, such as changes in the pace or manner of the Fed’s runoff of its portfolio of Agency RMBS or, if they
occur, the Fed’s purchases or sales of Agency RMBS in the TBA market. TBA dollar roll transactions include a deferred purchase price obligation on our part.
An inability or unwillingness to continue rolling 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 the underlying Agency RMBS. We may not have sufficient funds or
alternative financing sources available to settle such obligations. Additionally, if we take delivery of the underlying securities, we can expect to receive the
"cheapest to deliver" securities with the least favorable prepayment attributes that satisfy the terms of the TBA contract. Further, the specific securities that we
receive may include few, if any, "whole pool" securities, which could inhibit our ability to remain exempt from 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, failure to obtain adequate financing
to settle our obligations, or failure to meet margin calls under our TBA contracts could force us to sell assets under adverse market conditions causing us to incur
significant losses.
Our funding and derivative agreements subject us to margin calls that could result in defaults and force us to sell assets under adverse market conditions or
through foreclosure.
Our funding and derivative agreements require that we maintain certain levels of collateral with our counterparties and may result in margin calls initiated
against us if, for example, the value of our collateral declines. A margin call means that the counterparty requires us to pledge additional collateral to re-establish
the required collateral level to protect them from loss in the event we default on our obligations. 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. If we fail to meet the margin call, we would be
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in default, and our counterparty could terminate outstanding transactions, require us to settle our entire obligation under the agreement and enforce their interests
against existing collateral. Furthermore, we may also be subject to certain cross-default and acceleration rights, such that if we were to fail to meet a margin call
under one agreement that failure could lead to defaults, accelerations, or other adverse events under other agreements, as well. The threat or occurrence of
margin calls or the accelerated settlement of our obligations under our agreements could force us to sell our investments under adverse market conditions and
result in substantial losses.
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. Furthermore, 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 the date 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.
Changes to FICC margin requirements could limit our ability to enter tri-party repo transactions with the FICC’s GCF Repo service and TBA transactions
with the FICC’s MBSD
We finance a significant portion of our investments and execute TBA transactions through our wholly-owned captive broker-dealer subsidiary, BES. As an
eligible institution, BES accesses repo funding through the FICC’s GCF Repo service and central clearing in the TBA market through the FICC's Mortgage-
Backed Securities Division (MBSD).
The FICC continually assesses potential changes to rules governing the calculation of margin and minimum margin requirements. The FICC may also levy
member specific margin requirements, including requirements related to a member's specific portfolio risk factors as a ratio to that member’s net capital,
requirements related to "back-testing" failures of collected FICC margin requirements to cover losses from a simulated liquidation of a member’s portfolio, and
other charges that the FICC has the ability to implement, in some cases without a significant notice period.
Increases in FICC margin requirements would have the effect of reducing our unencumbered assets and could potentially limit our ability to utilize tri-
party repo funding through the FICC's GCF Repo service and engage in centrally-cleared TBA transactions through the FICC’s MBSD. Furthermore, BES'
inability to meet FICC margin requirements may result in the FICC declaring an event of default and ceasing to act for BES as a member along with a
liquidation of any margin collateral as well as the portfolio of outstanding transactions for which the FICC serves as BES’ central counterparty, potentially in
adverse market conditions. If BES were to fail to continually meet FICC margin requirements and default on its obligations to the FICC it could have a material
financial impact on our financial position.
Our repurchase agreements and agreements governing certain derivative instruments may contain financial and nonfinancial covenants subjecting us to the
risk of default.
A number of our bilateral repurchase agreements and derivative agreements require that we comply with certain financial and non-financial covenants.
These financial covenants typically limit declines in our stockholders’ equity for any given quarter, calendar year, or 12-month period and limit our leverage to a
maximum amount. Compliance with these covenants depends on market factors and the strength of our business and operating results. In addition, a number of
these agreements require, among other things, that we maintain our status as a publicly listed REIT and remain exempt from the provisions of the 1940 Act.
Various risks, uncertainties and events beyond our control, including significant fluctuations in interest rates, market volatility and changes in market conditions,
could affect our ability to comply with these covenants. Unless we were able to negotiate a waiver or forbearance of such covenants, failure to comply with them
could result in an event of default and generally would give the counterparty the right to exercise certain other remedies under the agreement, including
termination of one or more repo or hedging transactions, acceleration of all amounts owed under an agreement, and the right to sell the collateral held by that
counterparty. Any waiver or forbearance, if granted, could carry additional conditions that may be unfavorable to us. Additionally, certain of our agreements
contain cross-default, cross-acceleration or similar provisions, such that if we were to violate a covenant under one agreement, that violation could lead to
defaults, accelerations, or other adverse events under other agreements, as well.
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Our rights under repurchase and derivative agreements in the event bankruptcy or insolvency may be limited.
In the event of our bankruptcy or insolvency, our repurchase agreements and hedging arrangements may qualify for special treatment under the U.S.
Bankruptcy Code, the effect of which, among other things, would be to allow the counterparty under the applicable 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 an insolvency or bankruptcy of one of our repurchase
agreement or derivative counterparties, the counterparty may be permitted, under applicable insolvency laws, to repudiate the contract, and our claim against the
counterparty for damages may be treated simply as an unsecured creditor. In addition, if the counterparty 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 our agreements
or to be compensated for any damages resulting from the counterparty'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 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 and futures transactions 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 through several FCMs, which may establish their own collateral requirements beyond that of
the DCO. Consequently, for any cleared swap or futures transaction, we bear the credit risk of both the DCO and the relevant FCM as to obligations under our
swap and futures 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 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 inaccurately 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:
•
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.
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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.
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-party service providers to conduct our operations, and system failures, cybersecurity incidents or
failure of our providers to fulfill their obligations to us could significantly disrupt our ability to operate our business.
Our business heavily depends on information and communication systems, including services provided by third parties and cloud-based platforms. A
failure in these systems, or a failure by a third-party provider, could significantly disrupt our operations. These systems may be subject to damage or interruption
from, among other things, natural disasters, public health issues such as pandemics or epidemics, terrorist attack, rogue employees, power loss,
telecommunications failures, internet disruptions, and other interruptions beyond our control. Additionally, our reliance on these systems exposes us to risks of
disruption or damage from cybersecurity risks, such as malware, virus, hacking, denial of service, ransomware, physical or electronic break-ins, insider threats,
and phishing attacks, all of which are increasingly sophisticated and prevalent. Our systems may be misconfigured or configured in a way that exacerbates our
exposure to these risks. Despite having no significant breaches detected so far, we regularly are targeted by threat actors, and completely preventing or detecting
such incidents promptly is increasingly challenging.
The complex nature of cybersecurity threats means a breach could go undetected for a long time, if ever, and responding to such incidents may not always
be immediate or sufficient. Moreover, we depend on third-party vendors to implement security programs commensurate with their own risk. They may not be
successful at defending against or detecting cybersecurity threats, and they may not be obligated to inform us of such incidents. The consequences of a cyber-
attack may include operational disruption, unauthorized access to sensitive data, regulatory fines, reputational damage, liability to third parties, and financial
losses.
The impact of cybersecurity incidents is difficult to predict, and legal and regulatory requirements around data privacy and security could lead to increased
costs and stricter compliance requirements. During an investigation of a cybersecurity incident, or a series of events, it is possible we may not necessarily know
the extent of the harm or how to remediate it, which could further adversely impact us, and we may be compelled to disclose information about a material
cybersecurity incident before it has been mitigated or resolved, or even fully investigated. Furthermore, whether a single or series of cyber events is material is
often a matter of judgment rather than quantitative measures and might only be determinable well after the fact. Despite our efforts to enhance our cybersecurity
defenses, we cannot assure complete protection against all cybersecurity threats. A cybersecurity incident, if one were to occur, could adversely affect our
business, results of operations, or financial condition.
Risks Related to Our Taxation as a REIT
Our failure to qualify as a REIT would have adverse tax consequences.
We believe we qualify as a REIT for U.S. federal income tax purposes under Sections 856–860 of the Internal Revenue Code of 1986, as amended, and
related Treasury Regulations, and we intend to maintain our REIT status. The determination that we are a REIT requires an analysis of various factual matters
and circumstances that may not be entirely within our control. Qualification and taxation as a REIT also depend on our ability to continually meet requirements
imposed on REITs by the Internal Revenue Code, including satisfying certain organizational requirements, an annual distribution requirement, and quarterly
asset and annual income tests. These tests depend on our ability to effectively manage the composition of our income and assets on an ongoing basis. At least
75% of our gross income must come from real estate sources, and 95% must come from real estate and certain other qualifying sources. Our ability to satisfy the
asset tests depends on determining the characterization and fair market value of our assets, which may not be precisely measurable and lack independent
appraisals. Additionally, the classification of certain instruments as debt or equity for tax purposes may be uncertain, which could impact the application of the
REIT asset requirements. The distribution requirement mandates that we distribute at least 90% of our REIT taxable income to stockholders annually,
determined without regard to the dividends paid deduction and excluding net capital gains.
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Failure to qualify as a REIT would have significant consequences. We would lose the ability to deduct dividends paid to stockholders when computing our
taxable income and would be subject to U.S. federal and state corporate income tax as a regular C corporation for any taxable year for which we did not qualify.
This could result in substantial tax liabilities and reduce funds available for investments and distributions, likely adversely impacting our stock value.
Additionally, we would no longer be required to make stockholder distributions. 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.
Relief provisions may be available if we fail to meet the REIT requirements, provided the failure was due to reasonable cause, not willful neglect, and we
satisfy other requirements, including completion of applicable IRS filings. It is not possible to predict if we would be entitled to benefit from such provisions.
Even if we were to qualify for relief, we may still incur penalty taxes. The penalty for failing an asset test is the greater of $50,000 per failure or the net income
from non-qualifying assets that resulted in the failure multiplied by the highest U.S. federal corporate tax rate. For failing one or both gross income tests, the
penalty equals 100% of the net profit from non-qualifying income that resulted in the failure, as determined under the Internal Revenue Code.
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 and to retain our REIT status. 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.
Our taxable income will typically differ from income prepared in accordance with GAAP due to temporary and permanent differences. For example,
realized 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 remaining 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 net capital losses incurred; instead, the capital losses 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. Therefore, it is possible that our taxable income could be
in excess of the net cash generated from our operations. If we do not have funds available in these situations to meet our REIT distribution requirements or to
avoid corporate and excise taxes 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 at least in part in shares of our common stock. 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.
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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 liquidate or forgo attractive investment opportunities.
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. We must also satisfy tests
concerning the sources of our income and the amounts that we distribute to our stockholders. Complying with these requirements may prevent us from acquiring
certain attractive investments or we may be required to sell otherwise attractive investments. Thus, the potential returns on our investment portfolio may be
lower than if we were not subject to such requirements. Additionally, if we must liquidate our investments to repay our lenders or to satisfy other obligations, we
may be unable to comply with these requirements, potentially jeopardizing our qualification as a REIT.
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 risks. 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 ("qualified hedges"). To the extent that
we enter into other types of hedging transactions, or fail to properly designate qualified hedges, 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 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
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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.
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 Internal Revenue Code.
Legislative and Regulatory Risks
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. In addition to the conservatorships, the U.S.
Department of the Treasury has provided a liquidity backstop to Fannie Mae and Freddie Mac to ensure their financial stability. Over time, efforts to end the
conservatorships and the guarantee-payment structure of Fannie Mae and Freddie Mac have garnered attention from U.S. Government policymakers. During the
final year of the first Trump Administration, FHFA established new regulatory capital requirements necessary for Fannie Mae and Freddie Mac to exit
conservatorship, and 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. In the final months of 2020 and early 2021, the Director of the FHFA was reported to
have considered various actions to bring a prompt end to the conservatorships. The Biden Administration and the FHFA delayed implementation or reversed
many of these initiatives and took steps intended to advance other housing finance policy objectives. In the final month of the Biden Administration, the FHFA
and Department of Treasury further amended the liquidity backstop to, among other things, require the written consent of the Department of Treasury after a
period of public notice and opportunity to comment prior to
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terminating the conservatorships (other than through receivership) and would further require that Fannie Mae and Freddie Mac achieve sufficient capital levels
prior to being released from conservatorship. Since the 2024 election, speculation has grown that the Trump Administration or Congress would take actions to
bring an end to the conservatorships although it is not clear what form any such actions may take or what the timeline would be to implement them, and it is
possible that the Department of Treasury and FHFA will further amend the liquidity backstop to eliminate or modify provisions that would otherwise slow or
add conditionality to an end to the conservatorships.
These or other administrative and/or legislative actions may be taken that affect the GSEs or the housing finance system, alter the amount or nature of the
credit support provided by the U.S. Treasury to Fannie Mae and Freddie Mac, modify the future roles of Fannie Mae and Freddie Mac in housing finance or
otherwise impact the value or relative fungibility of Agency RMBS issued by each GSE. Such actions may create market uncertainty, may have the effect of
reducing the actual or perceived credit quality of securities issued or guaranteed by the GSEs, may impact the ability of banks, foreign investors, mutual funds or
others to own Agency RMBS, or may otherwise impact the liquidity, size and scope of the Agency RMBS markets. Actions that would terminate the
conservatorships without also providing for sufficiently robust U.S. government backing to preserve their government-like status or otherwise retain the
functionality, scale and efficiency of the primary and secondary mortgage markets as they exist today could re-define what constitutes an Agency security. This
could subject Agency RMBS to greater credit risk, make them more difficult to finance or less liquid, and cause their values to decline, all of which could have
broad adverse implications for primary and secondary mortgage markets and our business.
Actions of the U.S. Government, including the U.S. Congress, Fed, U.S. Treasury, FHFA and other governmental and regulatory bodies may adversely
affect our business.
U.S. Government legislative and administrative actions may have an adverse impact on financial markets for fixed income securities, including Agency
RMBS. 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. For example, the actual or anticipated actions or inaction on
U.S. fiscal policy matters, including the U.S. dept ceiling and the amount and tenor of U.S. Treasury debt required to fund the government, could result in a wide
range of negative economic effects, including increased financial market and interest rate volatility and wider market spreads between mortgage assets and
benchmark interest rates.
Additionally, new regulatory requirements, including the imposition of more stringent bank capital rules and changes to the manner and timing of clearing
U.S. Treasury and Agency RMBS transactions, could adversely affect the availability or terms of financing from our lending counterparties, reduce market
liquidity or demand for Agency RMBS, restrict the origination of residential mortgage loans and the formation of new issuances of mortgage-backed securities,
or limit the trading activities of certain banking entities and other systemically significant organizations that are important to our business. In 2023, the FDIC and
Fed proposed revisions to bank capital rules that would have applied risk weights (and costs) to Agency RMBS that, if adopted, might have impacted the source,
pricing, volume, financing, and nature of Agency RMBS. Although these proposals are not expected to be finally adopted in their original form, they have not
yet been withdrawn, and aspects of them may be re-proposed or adopted in the future. In addition, SEC regulations that mandate the central clearing of U.S.
Treasury and U.S. Treasury repurchase agreement ("U.S. Treasury Repo") transactions will necessitate significant changes to trading operations and have the
potential to adversely impact liquidity, funding and efficiency of these markets. Such changes could adversely affect the cost and other terms or availability of
financing and hedging arrangements for our business. Together or individually new regulatory requirements could materially affect our financial condition or
results of operations in adverse ways.
Failure to satisfy regulatory requirements of our captive broker-dealer subsidiary could result in our inability to access tri-party repo funding through the
FICC’s GCF Repo service and could be harmful to our business operations.
BES is subject to ongoing membership and regulatory requirements as a member of the FICC and FINRA and as an SEC registered broker-dealer that
include but are not limited to trade practices, use and safekeeping of funds and securities, capital structure, recordkeeping and conduct of directors, officers and
employees. Additionally, as a self-clearing, registered broker-dealer, BES is subject to minimum net capital requirements. Our ability to access tri-party repo
funding through the FICC's GCF Repo service, which represents a significant portion of our total borrowing capacity, and our ability to conduct self-clearing of
our investment and funding activity through BES are reliant on BES' ability to continually meet these regulatory and membership requirements. If BES were to
lose its memberships in FICC and FINRA or its status as a self-clearing registered broker-dealer, we may be unable to find alternative sources of financing on
favorable terms and we may experience business interruptions as we attempt to transfer custody and clearing activities to alternative providers that would be
harmful to our business.
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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 investing in
certain securities or to forego acquiring more desirable 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.
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.
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, including actual and anticipated changes in interest rates and mortgage spreads;
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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;
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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;
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•
speculation in the press or investment community;
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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 and will depend on our earnings and financial condition, the requirements for REIT qualification and such other factors as our Board 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 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. 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 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 1C. Cybersecurity
Risk Management and Strategy
We maintain an active cybersecurity risk management and strategy program to address the risks of cybersecurity threats to our business. Our cybersecurity
program aligns with the NIST Cybersecurity Framework, and we conduct reviews of its effectiveness on a regular basis through annual testing, periodic third-
party evaluations of our processes and controls, and ongoing surveillance. This program involves the use of cybersecurity tools to identify, protect, detect,
respond, and recover from cybersecurity threats. Additionally, we engage with third-party cybersecurity consultants and other professional advisors to gain
insight and knowledge into emerging threats, industry trends and emerging practices. Annually, we review cybersecurity risk in the context of our overall
enterprise risk management assessment. As a component of these processes, our management team, including our Senior Vice President and Chief Technology
Officer, identifies and assesses the likelihood and magnitude of risks, on both inherent and residual basis. These evaluations inform our overall cybersecurity
strategy.
Our business operations depend significantly on third party service providers. We have processes in place to evaluate the operational and cybersecurity
risks posed to us by third parties on whom we are reliant for these services at the inception of our engagement, and we continuously monitor third-party firms
that pose the greatest risks to our business and operations from cybersecurity threats. Nonetheless, we rely on the third parties we use to implement security
programs commensurate with their own risk, and we cannot ensure that their efforts will be successful.
Our primary business involves investments in mortgages and mortgage instruments, but we do not perform mortgage servicing, maintain customer
accounts, or provide any direct mortgage lending. Nor do we receive personal information on individual mortgage borrowers as part of our regular operations.
However, our business is highly dependent on the availability of information systems, and a cybersecurity incident, if one were to occur, could have the potential
to disrupt our operations. To date, the Company has not identified any cybersecurity incidents which have materially affected, or are reasonably likely to
materially affect, our operations, business strategy, or financial condition. As discussed more fully under Risks Related to Our Business Operations in Item 1A.
Risk Factors of this Form 10-K, given the evolving nature and increasing sophistication of cyber threats, there is no guarantee that future incidents will not have
a material impact. While we continuously assess, identify,
21
and mitigate cybersecurity risks through policies, procedures, and industry-standard security measures, cyber threats remain dynamic and could potentially
disrupt our operations, expose us to legal or regulatory liabilities, or cause reputational harm.
Governance and Oversight
The Audit Committee of the Board has responsibility to oversee management’s strategy to address risks from cybersecurity threats. The Audit Committee
periodically reviews with management the Company’s policies, controls, and procedures used to identify, mitigate, and manage cybersecurity risks. To
accomplish this objective, we have established processes for reporting cybersecurity risks to the Audit Committee of the Board on a quarterly basis. This report,
which is prepared by our Senior Vice President and Chief Technology Officer, includes performance as against key performance indicators (KPIs) and service
level objectives specifically defined to measure the effectiveness of our cybersecurity controls and risk management efforts, current threat landscape, and
strategy. In addition, on at least an annual basis the Company’s Senior Vice President and Chief Technology Officer presents to the Audit Committee on
cybersecurity matters, including material changes to the Company’s information systems, policies and controls, the results of penetration and other testing and
findings from any third-party reviews. Our Audit Committee is committed to maintaining a well-informed and cybersecurity-aware posture, regularly engaging
by receiving scheduled and requested updates on our strategy to address risks from cybersecurity threats and the evolving threat landscape. The Board also is
apprised of cybersecurity risks as part of its review of management’s annual enterprise risk management assessment.
Management plays a pivotal role in identifying, assessing, and managing material risks from cybersecurity threats. This involves continuous monitoring,
analyzing emerging threats, and developing and implementing risk mitigation strategies. The Company, led by our Senior Vice President and Chief Technology
Officer—who holds the Certified Information Systems Security Professional (CISSP) designation and has over 20 years of cyber and risk management
experience—actively implements and enforces cybersecurity policies, procedures, and strategies, including employee training programs, security assessments,
and updates to ensure alignment with our evolving threat landscape.
Item 2. Properties
None.
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
PART II.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is listed on the Nasdaq Global Select Market under the symbol "AGNC." As of January 31, 2025, 900,421,216 shares of common stock
were issued and outstanding, which were held by 1,491 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, 2024. All distributions to
stockholders will be made at the discretion of our Board and will depend on our earnings, financial condition, maintenance of our REIT status and other factors
as our Board may deem relevant from time to time.
Equity Compensation Plan Information
The following table summarizes information, as of December 31, 2024, 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 Notes 2
and 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
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)
Equity compensation plans approved by security holders
10,312,795
$
—
25,983,630
Equity compensation plans not approved by security holders
—
—
—
Total
10,312,795
$
—
25,983,630
________________________________
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, 2024.
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, 2019, 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"); and
(iii) the stocks included in the FTSE NAREIT Mortgage REIT Index. In prior years, we compared the cumulative total return on our common stock with that of
the S&P 500 and the Bloomberg Mortgage REIT Index; however, the Bloomberg Mortgage REIT Index was discontinued in February 2024 and consequently
we are not able to include it in the graph.
1
2
23
________________________________
*
$100 invested on 12/31/19 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.
December 31,
2024
2023
2022
2021
2020
AGNC Investment Corp.
$
97.05
$
89.13
$
81.01
$
103.51
$
98.36
S&P 500
$
196.85
$
157.48
$
124.73
$
152.34
$
118.39
FTSE NAREIT Mortgage REITs
$
79.80
$
79.52
$
68.94
$
93.93
$
81.23
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.
Item 6. [Reserved]
24
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 the following sections:
•
Executive Overview
•
Financial Condition
•
Summary of Critical Accounting Estimates
•
Results of Operations
•
Liquidity and Capital Resources
•
Off-Balance Sheet Arrangements
•
Forward-Looking Statements
•
Website and Social Media Disclosure
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 generating favorable long-term stockholder returns with a substantial yield component. 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.
We employ an active management strategy that is dynamic and responsive to evolving market conditions. The composition of our portfolio and our
investment, funding, and hedging strategies are tailored to reflect our analysis of market conditions and the relative values of available options. 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 2024, an increasingly favorable market environment for Agency RMBS investors emerged as the Fed pivoted from its restrictive monetary policy and
began lowering short-term rates toward a neutral level. Declining inflationary pressures and the Fed’s more accommodative monetary policy helped reduce
interest rate volatility and steepen the yield curve. These dynamics provided an improved investment backdrop that enabled AGNC to generate a positive
economic return of 13.2% in 2024, comprised of our monthly dividends totaling $1.44 per common share for the year and a modest decline of our tangible net
book value of $0.29 per common share.
The U.S. presidential election and its implications for deficit spending, fiscal policy and future Treasury issuance tempered the positive investment
sentiment that existed during the first three quarters of the year. In addition, strong economic data late in the fourth quarter extended the Fed’s anticipated easing
timeline as evidenced by its December Summary of Economic Projections, which indicated fewer expected rate cuts in 2025 and 2026 than previously projected.
Looking forward, our outlook for Agency mortgage-backed securities in 2025 remains very favorable. We anticipate that Agency RMBS spreads relative
to benchmark rates will remain wide compared to historical averages and continue to trade within the well-defined range that has been established over the past
several quarters. Agency RMBS spreads to benchmark rates in the current range offer investors attractive return opportunities. Further, longer-term interest rates
have risen meaningfully, and as of year-end, the 30-year primary mortgage rate was once again near 7%. At current rate levels, we expect the supply of Agency
RMBS in 2025 to be similar to that of 2024 and reasonably well-aligned with investor demand. Potential increases in bank demand as regulatory constraints ease
could also provide incremental additional support for Agency RMBS valuations. Together, these positive dynamics create a constructive investment backdrop
for AGNC in 2025.
25
Notwithstanding our favorable outlook for Agency RMBS as we begin 2025, financial market and macroeconomic uncertainty remains elevated as the new
administration implements sweeping changes to tariff, immigration, fiscal, and regulatory policy. In addition, while GSE reform does not appear to be an
immediate focus of the administration, it is possible that this topic could be revisited at some point during the next four years. Favorably in our view, there also
appears to be a growing consensus that any change to the structure of the GSE’s and the Agency RMBS market should be done in a way that preserves the
current functionality of the conventional mortgage market, avoids disrupting the real estate market and ensures that housing affordability does not decline
further. Please refer to Item 1A. Risk Factors for additional information regarding potential changes to the Federal conservatorships of Fannie Mae and Freddie
Mac, laws or regulations affecting the relationship between the GSEs and the U.S. Government or other housing finance reform initiatives.
Financial Highlights
AGNC earned total comprehensive income of $0.84 per diluted common share for fiscal year 2024, an increase from $0.30 per share in 2023. Net spread
and dollar roll income per diluted common share decreased to $1.88 in 2024 from $2.61 in 2023, primarily due to a narrowing of our net interest rate spread,
which averaged 242 basis points in 2024, down from 306 basis points in 2023.
The reduction in our net interest spread was largely driven by higher swap costs following the expiration of lower-cost pay-fixed interest rate swaps during
the year and a strategic shift toward a greater proportion of Treasury-based hedges, which are not included in our reported net interest spread or net spread
income. Additionally, we expanded our use of longer-term hedges in response to changes in monetary policy and expectations of further yield curve steepening.
As of December 31, 2024, our interest rate hedge position covered 91% of the outstanding balance of our repurchase agreements used to fund our
investment portfolio ("Investment Securities Repo"), TBA position, and other debt, compared to 112% at the end of 2023. Our duration gap, which measures the
estimated difference between the interest rate sensitivity of our assets and our liabilities, inclusive of interest rate hedges, extended to 0.3 years as of December
31, 2024, from -0.5 years as of December 31, 2023, consistent with higher long-term rates and shifts in portfolio and hedge composition.
The weighted average coupon on our fixed-rate Agency RMBS and TBA securities increased to 5.02% at the end of 2024, up from 4.83% at the end of
2023. The average projected life Constant Prepayment Rate (CPR) for the portfolio decreased to 7.7% at year-end, from 11.4% at the end of 2023. Actual CPRs
for 2024 averaged 7.5%, slightly up from 6.3% in 2023.
AGNC's average and ending "at risk" leverage for 2024 was 7.2x tangible stockholders’ equity, compared to 7.4x and 7.0x, respectively, for 2023. We
concluded 2024 with $6.1 billion in cash and unencumbered Agency RMBS, representing 66% of tangible stockholders’ equity, compared to $5.1 billion and
66% of tangible equity as of December 31, 2023.
During 2024, we raised $2.0 billion of common stock through our at-the-market offering program at a considerable premium to tangible net book value,
generating meaningful book value accretion for our common stockholders.
For information regarding non-GAAP financial measures, including reconciliations to the most comparable GAAP measure please refer to Results of
Operations included in this MD&A below. For information regarding the sensitivity of our tangible net book value per common share to changes in interest rates
and mortgage spreads, please refer to Item 7A. Quantitative and Qualitative Disclosures about Market Risk in this form 10-K.
26
Market Information
The following table summarizes benchmark interest rates and prices of generic fixed rate Agency RMBS as of each date presented below:
Interest Rate/Security Price
Dec. 31,
2023
Mar. 31,
2024
June 30,
2024
Sept. 30,
2024
Dec. 31,
2024
Dec. 31, 2024
vs
Dec. 31, 2023
Target Federal Funds Rate:
Target Federal Funds Rate - Upper Band
5.50%
5.50%
5.50%
5.00%
4.50%
-100 bps
SOFR:
SOFR Rate
5.38%
5.34%
5.33%
4.96%
4.49%
-89 bps
SOFR Interest Rate Swap Rate:
2-Year Swap
4.07%
4.55%
4.61%
3.44%
4.08%
+1 bps
5-Year Swap
3.53%
3.98%
4.10%
3.25%
4.04%
+51 bps
10-Year Swap
3.47%
3.84%
3.98%
3.32%
4.07%
+60 bps
30-Year Swap
3.32%
3.62%
3.76%
3.30%
3.93%
+61 bps
U.S. Treasury Security Rate:
2-Year U.S. Treasury
4.25%
4.62%
4.76%
3.64%
4.24%
-1 bps
5-Year U.S. Treasury
3.85%
4.21%
4.38%
3.56%
4.38%
+53 bps
10-Year U.S. Treasury
3.88%
4.20%
4.40%
3.78%
4.57%
+69 bps
30-Year U.S. Treasury
4.03%
4.34%
4.56%
4.12%
4.78%
+75 bps
30-Year Fixed Rate Agency Price:
2.5%
$85.24
$82.77
$81.87
$86.22
$81.38
-$3.86
3.0%
$88.58
$86.16
$85.26
$89.68
$84.88
-$3.70
3.5%
$91.86
$89.61
$88.67
$93.09
$88.38
-$3.48
4.0%
$94.69
$92.74
$91.68
$95.98
$91.32
-$3.37
4.5%
$97.04
$95.34
$94.45
$98.27
$93.98
-$3.06
5.0%
$99.04
$97.70
$96.81
$99.90
$96.44
-$2.60
5.5%
$100.56
$99.58
$98.76
$101.15
$98.61
-$1.95
6.0%
$101.63
$100.98
$100.39
$102.19
$100.45
-$1.18
6.5%
$102.51
$102.21
$101.88
$103.10
$102.10
-$0.41
15-Year Fixed Rate Agency Price:
1.5%
$86.86
$86.69
$85.61
$89.16
$85.80
-$1.06
2.0%
$89.47
$88.71
$88.00
$91.41
$88.34
-$1.13
2.5%
$92.14
$91.07
$90.44
$93.68
$90.83
-$1.31
3.0%
$94.30
$93.17
$92.61
$95.82
$93.12
-$1.18
3.5%
$96.39
$95.13
$94.61
$97.88
$94.56
-$1.83
4.0%
$98.10
$96.95
$96.24
$99.28
$96.01
-$2.09
________________________________
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. Price
information is sourced from Barclays. Interest rate information is sourced from Bloomberg.
1
27
The following table summarizes mortgage and credit spreads as of each date presented below:
Mortgage Rate/Credit Spread
Dec. 31,
2023
Mar. 31,
2024
June 30,
2024
Sept. 30,
2024
Dec. 31,
2024
Dec. 31, 2024
vs
Dec. 31, 2023
Mortgage Rate:
30-Year Agency Current Coupon Yield to 5-Year U.S. Treasury Spread
140
139
149
140
145
+5
30-Year Agency Current Coupon Yield to 10-Year U.S. Treasury Spread
137
140
147
118
126
-11
30-Year Agency Current Coupon Yield to 5/10-Year U.S. Treasury Spread
139
139
149
129
135
-4
30-Year Agency Current Coupon Yield
5.25%
5.60%
5.87%
4.96%
5.83%
+58 bps
30-Year Mortgage Rate
6.56%
6.74%
6.94%
6.14%
6.86%
+30 bps
Credit Spread (in bps):
CRT M2
206
182
166
159
137
-69
CMBS AAA
118
88
100
91
72
-46
CDX IG
56
51
54
53
50
-6
________________________________
1.
30-Year Current Coupon Yield represents yield on new production Agency RMBS. 30-Year Current Coupon Yields are sourced from Bloomberg and 30-Year Mortgage Rates are sourced
from Clear Blue.
2.
CRT and CDX spreads sourced from JP Morgan. CMBS spreads are the average of spreads sourced from Bank of America, JP Morgan and Wells Fargo.
1
2
28
FINANCIAL CONDITION
As of December 31, 2024 and 2023, our investment portfolio totaled $73.3 billion and $60.2 billion, respectively, consisting of: $65.5 billion and $53.8
billion Agency RMBS, at fair value, respectively; $6.9 billion and $5.4 billion net TBA securities, at fair value, respectively; $0.9 billion and $1.0 billion CRT,
non-Agency RMBS and CMBS, at fair value, respectively; and other mortgage credit investments of $64 million and $44 million, respectively, which we
account for under the equity method of accounting. The following table is a summary of our investment securities (including TBA securities) as of December
31, 2024 and 2023 (dollars in millions):
December 31, 2024
December 31, 2023
Investment Securities (Includes TBAs)
Amortized
Cost
Fair Value
Average
Coupon
%
Amortized Cost
Fair Value
Average
Coupon
%
Fixed rate Agency RMBS and TBA securities:
≤ 15-year:
≤ 15-year RMBS
$
97
$
90
2.68 %
— %
$
759
$
718
3.25 %
1 %
15-year TBA securities
—
—
— %
— %
89
91
5.00 %
— %
Total ≤ 15-year
97
90
2.68 %
— %
848
809
3.44 %
1 %
20-year RMBS
578
506
3.12 %
1 %
872
768
2.82 %
1 %
30-year:
30-year RMBS
66,464
63,453
5.01 %
87 %
53,658
51,675
4.82 %
86 %
30-year TBA securities, net
6,887
6,861
5.37 %
9 %
5,199
5,263
5.50 %
9 %
Total 30-year
73,351
70,314
5.04 %
96 %
58,857
56,938
4.88 %
95 %
Total fixed rate Agency RMBS and TBA securities
74,026
70,910
5.02 %
97 %
60,577
58,515
4.83 %
97 %
Adjustable rate Agency RMBS
796
790
4.85 %
1 %
293
290
4.67 %
— %
Multifamily
485
476
4.62 %
1 %
161
162
4.47 %
— %
CMO Agency RMBS:
CMO
102
96
3.34 %
— %
127
120
3.28 %
— %
Interest-only strips
35
30
2.08 %
— %
40
35
1.77 %
— %
Principal-only strips
25
23
— %
— %
27
26
— %
— %
Total CMO Agency RMBS
162
149
3.34 %
— %
194
181
3.28 %
1 %
Total Agency RMBS and TBA securities
75,469
72,325
5.02 %
99 %
61,225
59,148
4.83 %
98 %
Non-Agency RMBS
17
15
5.29 %
— %
43
34
4.61 %
— %
CMBS
264
236
6.59 %
— %
303
273
7.27 %
— %
CRT
583
633
10.44 %
1 %
682
723
10.45 %
1 %
Total investment securities
$
76,333
$
73,209
5.06 %
100 %
$
62,253
$
60,178
4.90 %
100 %
________________________________
1.
Table excludes other mortgage credit investments of $64 million and $44 million as of December 31, 2024 and 2023, respectively.
2.
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
3.
Average coupon excludes interest-only and principal-only securities.
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, 2024 and 2023, our TBA securities had a net carrying value of $(26) million and $66
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 security in the TBA contract and the price to be paid or received for the underlying security.
As of December 31, 2024 and 2023, the weighted average yield on our investment securities (excluding TBA and forward settling securities) was 4.77%
and 4.41%, respectively.
1
2
3
3
1,3
3
3
29
The following tables summarize certain characteristics of our fixed rate Agency RMBS portfolio, inclusive of TBA securities, as of December 31, 2024
and 2023 (dollars in millions):
December 31, 2024
Includes Net TBA Position
Excludes Net TBA Position
Fixed Rate Agency RMBS and TBA
Securities
Par Value
Amortized
Cost
Fair Value
Specified Pool
%
Weighted
Average
Coupon
Amortized
Cost Basis
Weighted Average
Projected
CPR
Yield
Age (Months)
Fixed rate
≤ 15-year:
2.0%
34
35
30
100%
2.00%
102.6%
1.34%
48
8%
2.5%
12
12
12
100%
2.50%
99.4%
2.80%
142
15%
3.0%
34
35
33
100%
3.00%
100.9%
2.38%
136
15%
3.5%
9
9
9
100%
3.50%
101.2%
2.61%
137
15%
4.0%
5
5
5
9%
4.00%
101.2%
1.96%
164
34%
≥ 4.5%
1
1
1
100%
4.50%
101.0%
2.71%
165
28%
Total ≤ 15-year
95
97
90
95%
2.68%
101.4%
2.05%
107
14%
20-year:
2.5%
307
321
267
—%
2.50%
104.5%
1.74%
54
5%
3.0%
23
24
21
97%
3.00%
103.5%
2.29%
65
7%
3.5%
98
99
93
78%
3.50%
101.7%
2.97%
136
9%
4.0%
58
60
56
92%
4.00%
103.7%
3.09%
93
9%
≥ 4.5%
71
74
69
97%
4.64%
104.8%
3.42%
87
10%
Total 20-year:
557
578
506
42%
3.12%
103.9%
2.33%
77
7%
30-year:
≤ 3.0%
3,734
3,726
3,052
66%
2.41%
97.9%
2.73%
43
6%
3.5%
4,910
5,114
4,439
86%
3.50%
104.1%
2.84%
109
6%
4.0%
5,980
6,302
5,567
90%
4.00%
105.7%
3.10%
92
7%
4.5%
8,206
8,273
7,786
45%
4.50%
103.4%
3.92%
55
8%
5.0%
12,013
11,898
11,663
32%
5.00%
99.6%
5.03%
20
7%
5.5%
19,627
19,758
19,502
31%
5.50%
100.4%
5.44%
15
7%
6.0%
13,334
13,517
13,512
38%
6.00%
101.6%
5.72%
16
9%
≥ 6.5%
4,641
4,763
4,793
37%
6.51%
102.7%
5.97%
15
11%
Total 30-year
72,445
73,351
70,314
44%
5.04%
101.5%
4.74%
36
8%
Total fixed rate
$
73,097
$
74,026
$
70,910
44%
5.02%
101.5%
4.71%
36
8%
________________________________
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, 2024, lower balance
specified pools had a weighted average original loan balance of $188,000 and $148,000 for 15-year and 30-year securities, respectively, and HARP pools had a weighted average original
LTV of 128% and 141% for 15-year and 30-year securities, respectively.
2.
Portfolio yield incorporates a projected life CPR based on forward rate assumptions as of December 31, 2024.
1
2
2
30
December 31, 2023
Includes Net TBA Position
Excludes Net TBA Position
Fixed Rate Agency RMBS and TBA
Securities
Par Value
Amortized
Cost
Fair Value
Specified Pool
%
Weighted
Average
Coupon
Amortized
Cost Basis
Weighted Average
Projected
CPR
Yield
Age (Months)
Fixed rate
≤ 15-year:
≤ 2.5%
58
59
54
100%
2.16%
101.7%
1.77%
65
10%
3.0%
442
450
423
99%
3.00%
101.5%
2.54%
71
10%
3.5%
14
14
13
100%
3.50%
101.5%
2.60%
126
14%
4.0%
229
235
227
95%
4.00%
102.8%
2.98%
70
13%
4.5%
1
1
1
99%
4.50%
101.7%
2.70%
154
21%
≥ 5.0%
90
89
91
—%
5.00%
100.9%
2.54%
168
41%
Total ≤ 15-year
834
848
809
87%
3.44%
101.9%
2.62%
71
11%
20-year:
≤ 2.0%
219
225
188
—%
2.00%
102.6%
1.58%
37
5%
2.5%
337
352
301
—%
2.50%
104.7%
1.72%
42
6%
3.0%
27
28
25
97%
3.00%
103.6%
2.28%
53
8%
3.5%
117
119
113
79%
3.50%
101.7%
2.96%
125
10%
≥ 4.0%
142
148
141
96%
4.26%
104.3%
3.14%
83
11%
Total 20-year:
842
872
768
32%
2.82%
103.6%
2.11%
59
7%
30-year:
≤ 3.0%
3,816
3,861
3,263
55%
2.43%
101.0%
2.28%
34
6%
3.5%
5,580
5,811
5,230
86%
3.50%
104.1%
2.84%
97
7%
4.0%
6,586
6,960
6,358
92%
4.00%
105.7%
3.08%
80
8%
4.5%
6,542
6,763
6,426
64%
4.50%
103.9%
3.83%
46
8%
5.0%
9,696
9,719
9,657
39%
5.00%
100.5%
4.91%
14
9%
5.5%
12,352
12,391
12,486
25%
5.50%
100.6%
5.39%
10
12%
6.0%
9,305
9,384
9,507
22%
6.00%
101.0%
5.71%
7
19%
≥ 6.5%
3,889
3,968
4,011
29%
6.50%
102.3%
5.78%
6
21%
Total 30-year
57,766
58,857
56,938
46%
4.88%
102.2%
4.41%
35
11%
Total fixed rate
$
59,442
$
60,577
$
58,515
47%
4.83%
102.2%
4.34%
35
11%
________________________________
1.
See Note 1 of preceding table for specified pool composition. As of December 31, 2023, lower balance specified pools had a weighted average original loan balance of $132,000 and
$153,000 for 15-year and 30-year securities, respectively, and HARP pools had a weighted average original LTV of 128% and 141% for 15-year and 30-year securities, respectively.
2.
Portfolio yield incorporates a projected life CPR based on forward rate assumptions as of December 31, 2023.
For additional details regarding our CRT and non-Agency securities, including credit ratings, as of December 31, 2024 and 2023, please refer to Note 3 of
our Consolidated Financial Statements included under Item 8 of 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 of our Consolidated
Financial Statements included under Item 8 of this 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, incorporating scheduled contractual payments and estimated
prepayments, using the effective interest method. The weighted average cost basis of our securities as of December 31, 2024 was 101.5% of par value; therefore,
changes in our actual or projected prepayments can significantly alter the effective yield on our assets.
1
2
2
31
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 rates over the remaining life of our
securities using models that incorporate the forward yield curve, current mortgage rates, mortgage 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 estimated prepayment rates for reasonableness, giving consideration to
historical prepayment rates, current market conditions and other factors we believe are likely to impact the rate of prepayments on our portfolio, and based on
our judgment we may adjust the third-party 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 prepayment estimates 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 from inception through the reporting date. We commonly refer to this
adjustment as "catch-up" premium amortization cost/benefit.
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. Item 7A. Quantitative and Qualitative Disclosures About Market Risk in this Form 10-K includes the
estimated weighted average projected CPR of our investments and the corresponding weighted average yield on our investments should interest rates
instantaneously go up or down by 25, 50, and 75 basis points. However, there are a variety of other factors that may impact the rate of prepayments on our
securities. Consequently, our actual experience and future estimates of prepayments could differ materially from our estimates.
At the time we purchase CRT and 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, our judgment about interest rates, prepayment rates, including collateral call
provisions, 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," and "net spread and dollar roll income available to common stockholders" and the related
per common share measures and certain financial metrics derived from such non-GAAP information.
"Economic interest income" is measured as interest income (GAAP measure), adjusted to (i) exclude retrospective "catch-up" adjustments to premium
amortization cost associated with changes in projected CPR estimates and (ii) 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 available to common stockholders" is measured as comprehensive income (loss) available (attributable) to common
stockholders (GAAP measure) adjusted to: (i) exclude gains/losses on investment securities recognized through net income and other comprehensive income and
gains/losses on derivative instruments and other securities (GAAP measures); (ii) exclude retrospective "catch-up" adjustments to premium amortization cost
associated with changes in projected CPR estimates; and (iii) include interest rate swap periodic income/cost, TBA dollar roll income and other interest
income/expense. As defined "Net spread and dollar roll income available to common stockholders" includes (i) the components of "economic interest income"
and "economic interest expense", plus (ii) other interest income/expense, and less (iii) total operating expenses and dividends on preferred stock (GAAP
measures).
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 "net spread and dollar roll income available to common stockholders" and components of such measure, "economic interest
income" and "economic interest expense," 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
32
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 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. Additionally, we believe the exclusion of "catch-up" premium amortization adjustments 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 adjustments is more indicative of the current
earnings potential of our investment portfolio.
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.
Selected Financial Data
The following selected financial data is derived from our annual financial statements for the three years ended December 31, 2024. 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):
December 31,
Balance Sheet Data
2024
2023
2022
Investment securities, at fair value of $66,348, $54,824 and $40,904, respectively, and other mortgage credit
investments
$
66,412
$
54,868
$
40,929
Total assets
$
88,015
$
71,596
$
51,748
Repurchase agreements and other debt
$
60,862
$
50,506
$
36,357
Total liabilities
$
78,253
$
63,339
$
43,878
Total stockholders' equity
$
9,762
$
8,257
$
7,870
Net book value per common share
$
9.00
$
9.46
$
10.76
Tangible net book value per common share
$
8.41
$
8.70
$
9.84
Fiscal Year
Statement of Comprehensive Income Data
2024
2023
2022
Interest income
$
2,949
$
2,041
$
1,590
Interest expense
2,931
2,287
625
Net interest income (expense)
18
(246)
965
Other gain (loss), net
955
497
(2,081)
Operating expenses
110
96
74
Net income (loss)
863
155
(1,190)
Dividends on preferred stock
132
123
105
Net income (loss) available (attributable) to common stockholders
$
731
$
32
$
(1,295)
Net income (loss)
$
863
$
155
$
(1,190)
Other comprehensive income (loss), net
(74)
155
(973)
Comprehensive income (loss)
789
310
(2,163)
Dividends on preferred stock
132
123
105
Comprehensive income (loss) available (attributable) to common stockholders
$
657
$
187
$
(2,268)
Weighted average number of common shares outstanding - basic
783.4
618.4
537.0
Weighted average number of common shares outstanding - diluted
786.0
619.6
537.0
Net income (loss) per common share - basic
$
0.93
$
0.05
$
(2.41)
Net income (loss) per common share - diluted
$
0.93
$
0.05
$
(2.41)
Comprehensive income (loss) per common share - basic
$
0.84
$
0.30
$
(4.22)
Comprehensive income (loss) per common share - diluted
$
0.84
$
0.30
$
(4.22)
Dividends declared per common share
$
1.44
$
1.44
$
1.44
1
2
33
Fiscal Year
Other Data (Unaudited) *
2024
2023
2022
Average investment securities - at par
$
61,613
$
50,878
$
47,761
Average investment securities - at cost
$
62,698
$
52,262
$
49,195
Net TBA portfolio - at par (as of period end)
$
6,955
$
5,331
$
19,050
Net TBA portfolio - at cost (as of period end)
$
6,887
$
5,288
$
18,407
Net TBA portfolio - at market value (as of period end)
$
6,861
$
5,354
$
18,574
Net TBA portfolio - at carrying value (as of period end)
$
(26)
$
66
$
167
Average net TBA dollar roll position - at cost
$
5,389
$
10,000
$
20,631
Average total assets - at fair value
$
79,058
$
63,409
$
61,028
Average repurchase agreements and other debt outstanding
$
54,658
$
44,027
$
41,363
Average stockholders' equity
$
8,885
$
7,817
$
8,475
Average tangible net book value "at risk" leverage
7.2:1
7.4:1
7.8:1
Tangible net book value "at risk" leverage (as of period end)
7.2:1
7.0:1
7.4:1
Economic return on tangible common equity
13.2 %
3.0 %
(28.4)%
Expenses % of average total assets
0.14 %
0.15 %
0.12 %
Expenses % of average assets, including average net TBA position
0.13 %
0.13 %
0.09 %
Expenses % of average stockholders' equity
1.24 %
1.23 %
0.87 %
________________________________
* Except as noted below, average numbers for each period are weighted based on days on our books and records.
1.
Net book value per common share is calculated as total stockholders' equity, less preferred stock liquidation preference, divided by number of common shares outstanding as of period end.
2.
Tangible net book value per common share excludes goodwill.
3.
Includes net TBA dollar roll position and, if applicable, forward settling securities.
4.
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.
5.
Amount represents the daily weighted average repurchase agreements outstanding for the period used to fund our investment securities and other debt. Amount excludes U.S. Treasury
repurchase agreements and TBA contracts. Other debt includes debt of consolidated VIEs.
6.
Average stockholders' equity calculated as average month-ended stockholders' equity during the period.
7.
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 and forward settling securities (at cost) (collectively "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.
8.
Tangible net book value "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 by the sum of total stockholders' equity adjusted to exclude goodwill as of period end. Leverage excludes U.S. Treasury repurchase agreements.
9.
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.
3
3
3
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 2024, 2023 and 2022, 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 due to changes in our CPR forecast, and implied
interest income on our TBA securities (dollars in millions):
Fiscal Year
2024
2023
2022
Amount
Yield
Amount
Yield
Amount
Yield
Interest income:
Cash/coupon interest income
$
3,072
4.99 %
$
2,242
4.41 %
$
1,603
3.36 %
Net premium amortization benefit (cost)
(123)
(0.29)%
(201)
(0.50)%
(13)
(0.13)%
Interest income (GAAP measure)
2,949
4.70 %
2,041
3.91 %
1,590
3.23 %
Estimated "catch-up" premium amortization cost (benefit) due to change in CPR
forecast
(51)
(0.08)%
(5)
(0.01)%
(238)
(0.48)%
Interest income, excluding "catch-up" premium amortization
2,898
4.62 %
2,036
3.90 %
1,352
2.75 %
TBA dollar roll income - implied interest income
300
5.55 %
524
5.24 %
746
3.60 %
Economic interest income (non-GAAP measure)
$
3,198
4.70 %
$
2,560
4.11 %
$
2,098
3.00 %
Weighted average actual portfolio CPR for investment securities held during the
period
7.5 %
6.3 %
11.1 %
Weighted average projected CPR for the remaining life of investment securities
held as of period end
7.7 %
11.4 %
7.4 %
30-year fixed rate mortgage rate as of period end
6.86 %
6.56 %
6.52 %
10-year U.S. Treasury rate as of period end
4.57 %
3.88 %
3.88 %
________________________________
1.
Reported in gain (loss) on derivatives instruments and other securities, net in the accompanying consolidated statements of operations.
2.
Implied interest income from TBA dollar roll transactions is computed as the sum of (i) TBA dollar roll income and (ii) estimated TBA implied funding cost (see Economic Interest Expense
and Aggregate Cost of Funds below). TBA dollar roll income represents the price differential, or "price drop," between the TBA price for current month settlement versus the TBA price for
forward month settlement and is the economic equivalent to interest income on the underlying Agency securities, less an implied funding cost, over the forward settlement period. Amount is
net of TBAs used for hedging purposes. Amount excludes TBA mark-to-market adjustments.
3.
The combined asset yield is calculated on a weighted average basis based on our average investment and TBA balances outstanding during the period and their respective yields.
4.
30-year fixed rate mortgage rates are sourced from Optimal Blue. 10-year U.S. Treasury rates are sourced from Bloomberg.
The principal elements impacting our economic interest income are the average size of our investment portfolio and the average yield 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 2024 and 2023
compared to the prior year period (in millions):
Impact of Changes in the Principal Elements Impacting Economic Interest Income
Due to Change in Average
Fiscal Year 2024 vs 2023
Total Increase /
(Decrease)
Portfolio
Size
Asset
Yield
Interest Income (GAAP measure)
$
908
$
408
$
500
Estimated "catch-up" premium amortization due to change in CPR forecast
(46)
—
(46)
Interest income, excluding "catch-up" premium amortization
862
408
454
TBA dollar roll income - implied interest income
(224)
(242)
18
Economic interest income, excluding "catch-up" amortization (non-GAAP measure)
$
638
$
166
$
472
Due to Change in Average
Fiscal Year 2023 vs 2022
Total Increase /
(Decrease)
Portfolio
Size
Asset
Yield
Interest Income (GAAP measure)
$
451
$
99
$
352
Estimated "catch-up" premium amortization due to change in CPR forecast
233
—
233
Interest income, excluding "catch-up" premium amortization
684
99
585
TBA dollar roll income - implied interest income
(222)
(384)
162
Economic interest income, excluding "catch-up" amortization (non-GAAP measure)
$
462
$
(285)
$
747
1,2
3
4
4
35
Our average investment portfolio (at cost), inclusive of TBAs, increased 9% and decreased 11% for fiscal years 2024 and 2023, respectively, primarily due
to changes in our capital base. The average yield on our investment portfolio, including TBA implied asset yields and excluding "catch-up" premium
amortization, increased 59 and 111 basis points for fiscal years 2024 and 2023, respectively, largely as a result of shifting our asset portfolio from lower coupon
holdings toward a greater share of higher coupon, specified pools.
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 and forward settling securities 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.
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 in this Form 10-K 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):
Investment Securities Repurchase Agreements and
Other Debt
Net TBA Position
Long/(Short)
Average Tangible Net
Book Value
"At Risk" Leverage
during the Period
Tangible Net Book
Value "At Risk"
Leverage
as of
Period End
Quarter Ended
Average Daily
Amount
Maximum
Daily Amount
Ending
Amount
Average Daily
Amount
Ending
Amount
December 31, 2024
$
59,690
$
63,759
$
59,426
$
5,936
$
6,887
7.2:1
7.2:1
September 30, 2024
$
59,322
$
64,585
$
63,468
$
2,650
$
4,067
7.2:1
7.2:1
June 30, 2024
$
50,784
$
55,507
$
54,682
$
6,805
$
5,318
7.2:1
7.4:1
March 31, 2024
$
48,730
$
49,894
$
48,216
$
6,190
$
8,405
7.0:1
7.1:1
December 31, 2023
$
47,548
$
52,643
$
48,959
$
4,993
$
5,288
7.4:1
7.0:1
September 30, 2023
$
47,073
$
52,888
$
51,931
$
7,340
$
2,407
7.5:1
7.9:1
June 30, 2023
$
41,546
$
42,408
$
40,962
$
9,985
$
10,320
7.2:1
7.2:1
March 31, 2023
$
39,824
$
42,919
$
42,022
$
17,851
$
10,385
7.7:1
7.2:1
December 31, 2022
$
35,486
$
39,399
$
36,002
$
18,988
$
18,407
7.8:1
7.4:1
September 30, 2022
$
40,530
$
41,834
$
39,169
$
20,331
$
19,116
8.1:1
8.7:1
June 30, 2022
$
42,997
$
44,243
$
41,406
$
19,653
$
16,001
7.8:1
7.4:1
March 31, 2022
$
46,570
$
47,940
$
44,150
$
23,605
$
20,152
7.8:1
7.5:1
________________________________
1.
Other debt includes debt of consolidated VIEs. Amounts exclude U.S. Treasury Repo agreements.
2.
Daily average and ending net TBA position outstanding measured at cost. Includes forward settling non-Agency securities.
3.
Average tangible net book value "at risk" leverage during the period represents the sum of our daily weighted average repurchase agreements and other debt used to fund acquisitions of
investment securities and net TBA and forward settling securities position outstanding, divided by the sum of our average month-ended stockholders' equity, adjusted to exclude goodwill.
4.
Tangible net book value "at risk" leverage as of period end represents the sum of our repurchase agreements and other debt used to fund acquisitions of investments securities, net TBA and
forward settling securities 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 2024, 2023 and 2022
(dollars in millions), which includes the combination of interest expense on repurchase agreements and other debt used to fund acquisitions of investment
securities (GAAP measure), implied financing cost of our TBA securities and interest rate swap periodic income:
1
2
3
4
36
Fiscal Year
2024
2023
2022
Economic Interest Expense and Aggregate Cost of Funds
Amount
Cost of Funds
Amount
Cost of Funds
Amount
Cost of Funds
Investment securities repurchase agreement and other debt - interest expense (GAAP
measure)
$
2,931
5.27 %
$
2,287
5.12 %
$
625
1.49 %
TBA dollar roll income - implied interest expense
279
5.07 %
493
4.86 %
228
1.08 %
Economic interest expense - before interest rate swap periodic income, net
3,210
5.25 %
2,780
5.07 %
853
1.35 %
Interest rate swap periodic income, net
(1,815)
(2.97)%
(2,202)
(4.02)%
(675)
(1.08)%
Total economic interest expense (non-GAAP measure)
$
1,395
2.28 %
$
578
1.05 %
$
178
0.27 %
________________________________
1.
Amounts exclude interest rate swap termination fees and variation margin settlements paid or received, forward starting swaps and the impact of other supplemental hedges, such as
swaptions and U.S. Treasury positions.
2.
Reported in gain (loss) on derivative instruments and other securities, net in our consolidated statements of comprehensive income.
3.
The implied funding cost (benefit) of TBA dollar roll transactions is determined using the price differential, or "price drop," between the TBA price for current month settlement versus the
TBA price for forward month settlement and market based assumptions regarding the "cheapest-to-deliver" collateral that can be delivered to satisfy the TBA contract, such as the anticipated
collateral’s weighted average coupon, weighted average maturity and projected 1-month CPR. The average implied funding cost (benefit) for all TBA transactions is weighted based on our
daily average TBA balance outstanding for the period.
4.
The combined cost of funds for total mortgage borrowings outstanding, before interest rate swap periodic income, is calculated on a weighted average basis based on average investment
securities repurchase agreements, other debt and TBA securities outstanding during the period and their respective cost of funds.
5.
Interest rate swap periodic income 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 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 2024 and 2023
compared to the prior year period (in millions):
Impact of Changes in the Principal Elements of Economic Interest Expense
Due to Change in Average
Fiscal Year 2024 vs 2023
Total Increase /
(Decrease)
Borrowing / Swap
Balance
Borrowing / Swap
Rate
Investment securities repurchase agreement and other debt interest expense
$
644
$
552
$
92
TBA dollar roll income - implied interest expense
(214)
(227)
13
Interest rate swap periodic income/cost
387
171
216
Total change in economic interest expense
$
817
$
496
$
321
Due to Change in Average
Fiscal Year 2023 vs 2022
Total Increase /
(Decrease)
Borrowing / Swap
Balance
Borrowing / Swap
Rate
Investment securities repurchase agreement and other debt interest expense
$
1,662
$
40
$
1,622
TBA dollar roll income - implied interest benefit/expense
265
(117)
382
Interest rate swap periodic income/cost
(1,527)
32
(1,559)
Total change in economic interest benefit/expense
$
400
$
(45)
$
445
Our average mortgage borrowings, inclusive of TBAs, increased 11% and decreased 13% for fiscal years 2024 and 2023, respectively, consistent with
changes to our average investment portfolio. The average interest rate on our mortgage borrowings, excluding the impact of interest rate swap periodic income,
increased 18 and 372 basis points for fiscal years 2024 and 2023, respectively, due to higher short-term interest rates.
Interest rate swap periodic income declined for fiscal years 2024 and 2023 primarily due to higher pay rates on our pay-fixed swaps largely driven by the
maturity of low cost interest rate swaps. The following is a summary of our interest rate swaps outstanding during fiscal years 2024, 2023 and 2022 (dollars in
millions). Amounts exclude forward starting swaps not yet in effect.
1
2,3
4
2,5
37
Fiscal Year
Average Ratio of Interest Rate Swaps (Excluding Forward Starting Swaps) to Mortgage Borrowings Outstanding
2024
2023
2022
Average investment securities repo and other debt outstanding
$
54,658
$
44,027
$
41,363
Average net TBA dollar roll position outstanding - at cost
$
5,389
$
10,000
$
20,631
Average mortgage borrowings outstanding
$
60,047
$
54,027
$
61,994
Average notional amount of interest rate swaps outstanding (excluding forward starting swaps), net
$
43,351
$
47,012
$
49,334
Ratio of average interest rate swaps to mortgage borrowings outstanding
72 %
87 %
80 %
Average interest rate swap pay-fixed rate (excluding forward starting swaps)
1.16 %
0.55 %
0.25 %
Average interest rate swap receive-floating rate
(5.25)%
(5.17)%
(1.60)%
Average interest rate swap net pay/(receive) rate
(4.09)%
(4.62)%
(1.35)%
For fiscal years 2024, 2023 and 2022, we had an average forward starting net pay-fixed rate swap balance of $672 million, $43 million and $48 million,
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.
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 2024, 2023 and 2022:
Fiscal Year
Investment and TBA Securities - Net Interest Spread
2024
2023
2022
Average asset yield
4.70 %
4.11 %
3.00 %
Average aggregate cost of funds
(2.28)%
(1.05)%
(0.27)%
Average net interest spread
2.42 %
3.06 %
2.73 %
Net Spread and Dollar Roll Income
The following table presents a reconciliation of net spread and dollar roll income available to common stockholders (non-GAAP measure) from
comprehensive income (loss) available (attributable) to common stockholders (the most comparable GAAP financial measure) for fiscal years 2024, 2023 and
2022 (dollars in millions):
Fiscal Year
2024
2023
2022
Comprehensive income (loss) available (attributable) to common stockholders
$
657
$
187
$
(2,268)
Adjustments to exclude realized and unrealized (gains) losses reported through net income:
Realized loss on sale of investment securities, net
188
1,567
2,916
Unrealized (gain) loss on investment securities measured at fair value through net income, net
885
(1,678)
3,795
Gain on derivative instruments and other securities, net
(2,028)
(386)
(4,630)
Adjustment to exclude unrealized (gain) loss reported through other comprehensive income:
Unrealized (gain) loss on available-for-sale securities measure at fair value through other comprehensive income, net
74
(155)
973
Other adjustments:
Estimated "catch-up" premium amortization benefit due to change in CPR forecast
(51)
(5)
(238)
TBA dollar roll income, net
21
31
518
Interest rate swap periodic income, net
1,815
2,202
675
Other interest income (expense), net
(87)
(146)
(65)
Net spread and dollar roll income available to common stockholders (non-GAAP measure)
1,474
1,617
1,676
Weighted average number of common shares outstanding - basic
783.4
618.4
537.0
Weighted average number of common shares outstanding - diluted
786.0
619.6
538.1
Net spread and dollar roll income per common share - basic
$
1.88
$
2.61
$
3.12
Net spread and dollar roll income per common share - diluted
$
1.88
$
2.61
$
3.11
________________________________
1.
Reported in interest income in our consolidated statements of comprehensive income.
2.
Reported in gain (loss) on derivative instruments and other securities, net in our consolidated statements of comprehensive income.
1
2
2
2,3
38
3.
Other interest income (expense), net includes interest income on cash and cash equivalents; price alignment interest income (expense) ("PAI") on interest rate swap margin deposits posted by
or (to) the Company; and other miscellaneous interest income (expense).
Gain (Loss) on Investment Securities, Net
The following table is a summary of our net gain (loss) on investment securities for fiscal years 2024, 2023 and 2022 (in millions):
Fiscal Year
Gain (Loss) on Investment Securities, Net
2024
2023
2022
Loss on sale of investment securities, net
$
(188)
$
(1,567)
$
(2,916)
Unrealized (loss) gain on investment securities measured at fair value through net income, net
(885)
1,678
(3,795)
Unrealized (loss) gain on investment securities measured at fair value through other comprehensive income, net
(74)
155
(973)
Total (loss) gain on investment securities, net
$
(1,147)
$
266
$
(7,684)
________________________________
1.
Amounts exclude gain (loss) on TBA securities, which are reported in gain (loss) on derivative instruments and other securities, net in our Consolidated Statements of Comprehensive
Income.
2.
Investment securities acquired after fiscal year 2016 are measured at fair value through net income (see Note 2 of our Consolidated Financial Statements in this Form 10-K).
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 2024, 2023 and 2022 (in millions):
Fiscal Year
2024
2023
2022
TBA securities, dollar roll income
$
21
$
31
$
518
TBA securities, mark-to-market gain (loss)
(144)
18
(3,378)
Interest rate swaps, periodic income
1,815
2,202
675
Interest rate swaps, mark-to-market gain (loss)
(804)
(1,532)
3,802
Credit default swaps - buy protection
(7)
(13)
21
Payer swaptions
54
(21)
857
Recceiver swaptions
(3)
—
—
U.S. Treasury securities - short position
844
(54)
1,482
U.S. Treasury securities - long position
(85)
(30)
(32)
U.S. Treasury futures contracts - short position
409
(42)
811
SOFR futures contracts - long position
13
(10)
—
Other interest income (expense)
(87)
(146)
(77)
Other gain (loss)
2
(17)
(49)
Total gain (loss) on derivative instruments and other securities, net
$
2,028
$
386
$
4,630
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.
1
2
39
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. There are various risks and uncertainties that
can impact our liquidity, such as those described in Item 1A. Risk Factors and Item 7A. Quantitative and Qualitative Disclosures of Market Risks in this Form
10-K. 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. We believe that we have sufficient liquidity and capital resources
available to meet our obligations and execute our business strategy.
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 7.2x and 7.0x as of December 31, 2024 and 2023, respectively. The following table includes a summary of our mortgage borrowings
outstanding as of December 31, 2024 and 2023 (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.
December 31, 2024
December 31, 2023
Mortgage Borrowings
Amount
%
Amount
%
Investment securities repurchase agreements
$
59,362
90 %
$
48,879
90 %
Debt of consolidated variable interest entities, at fair value
64
— %
80
— %
Total debt
59,426
90 %
48,959
90 %
TBA and forward settling non-Agency securities, at cost
6,887
10 %
5,288
10 %
Total mortgage borrowings
$
66,313
100 %
$
54,247
100 %
________________________________
1.
Includes Agency RMBS, CRT and non-Agency MBS repurchase agreements. Excludes U.S. Treasury repurchase agreements totaling $1.4 billion and $1.5 billion as of December 31, 2024
and 2023, respectively.
2.
As of December 31, 2024 and 2023, 47% and 43%, respectively, of our total repurchase agreements, including 49% and 45% or our investment securities repurchase agreements,
respectively, were funded through the Fixed Income Clearing Corporation's 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 suitable 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 prevailing 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 assessed discount, referred to as a
"haircut," that 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. TBA dollar roll transactions may
also have a lower implied cost of funds than comparable repo funded transactions (referred to as "dollar roll specialness") offering incremental return potential.
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.
1,2
40
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, 2024, 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, 2024, approximately 9% of our investment portfolio
consisted of TBA securities, which are not subject to monthly principal pay-downs. The remainder of our portfolio primarily consisted of Agency RMBS, which
had an average one-year CPR forecast of 7% as of December 31, 2024.
Collateral requirements under our derivative agreements are subject to our counterparties' assessment of their maximum risk of loss associated with the
derivative instrument, referred to as the initial or minimum margin requirement, and may be adjusted based on changes in market volatility and other factors. 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. 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 the fiscal year 2024, haircuts on our repo funding arrangements remained stable. As of December 31, 2024,
the weighted average haircut on our repurchase agreements was approximately 3.2% of the value of our collateral, compared to 3.1% as of December 31, 2023.
To mitigate the risk of 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, 2024, our unencumbered assets totaled approximately $6.2 billion, or
67% of tangible equity, consisting of $6.1 billion of cash and unencumbered Agency RMBS and $0.1 billion of unencumbered credit assets. This compares to
$5.2 billion of unencumbered assets, or 67% of tangible equity, as of December 31, 2023, consisting of $5.1 billion of cash and unencumbered Agency RMBS
and $0.1 billion of unencumbered credit assets.
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.
41
As of December 31, 2024, our maximum amount at risk (or the excess/shortfall of the value of collateral pledged/received over our repurchase agreement
liabilities/reverse repurchase agreement receivables) 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 5% of our tangible stockholders' equity. As of December
31, 2024, 9% of our tangible stockholder's equity was at risk with the FICC. Excluding central clearing exchanges, as of December 31, 2024, 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). Although market conditions fluctuate, the vitality of these markets enables us to sell assets under most 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 carrying value of our securities. We attempt to manage this risk by
maintaining at least 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. Please refer to Trends and Recent Market Impacts of this Management Discussion and Analysis for further information regarding Agency
RMBS and TBA 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 at times when we
believe the capital raised will not be accretive to our tangible net book value or earnings, and we will typically not issue preferred equity when its cost exceeds
acceptable hurdle rates of return on our equity. We may also be unable to raise additional equity capital at suitable times or on favorable terms. Furthermore,
when the trading price of our common stock is less than our then-current estimate of our tangible net book value per common share, among other conditions, we
may repurchase shares of our common stock pursuant to the stock repurchase plan authorized by our Board. Please refer to Note 9 of our Consolidated Financial
Statements in this Form 10-K for further details regarding our recent equity capital transactions.
OFF-BALANCE SHEET ARRANGEMENTS
As of December 31, 2024, 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, 2024, we had not guaranteed obligations of unconsolidated entities or entered into a commitment or intent to provide
funding to such entities.
FORWARD-LOOKING STATEMENTS
The statements contained in this 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,” “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:
•
changes in U.S. monetary policy or interest rates, including actions taken by the Federal Reserve to normalize monetary policy and to reduce the size of
its U.S. Treasury and Agency RMBS bond portfolio;
•
fluctuations in the yield curve;
•
the level, degree and extent of volatility in interest rates or the yield on our assets relative to interest rate benchmarks;
•
fluctuations in mortgage prepayment rates on the loans underlying our Agency RMBS;
•
the availability and terms of financing and our hedge positions;
•
changes in the market value of our assets, including from changes in net interest spreads, market liquidity or depth, and changes in our "at risk"
leverage or hedge positions;
•
the effectiveness of our risk mitigation strategies;
42
•
conditions in the market for Agency RMBS and other mortgage securities, including changes in the available supply of such securities or investor
appetite therefor;
•
actions by the federal, state, or local governments that affect the economy, the housing sector or financial markets;
•
the direct or indirect effects of geopolitical events, including war, terrorism, civil discord, embargos, trade or other disputes, or natural disasters, on
conditions in the markets for Agency RMBS or other mortgage securities, the terms or availability of funding for our business, or our ongoing business
operations;
•
the availability of personnel, operational resources, information technology and other systems to conduct our operations;
•
changes to laws, regulations, rules or policies that affect the GSE's, the primary or secondary mortgage markets in which we participate or U.S. housing
finance activity, including actions that would end or alter the conservatorships of Fannie Mae or Freddie Mac or their quasi-governmental status; and
•
legislative or regulatory actions that affect our status as a REIT or our exemption from the Investment Company Act of 1940.
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 under Item 1A. Risk
Factors in Part I of this document. We caution readers not to place undue reliance on our forward-looking statements.
WEBSITE AND SOCIAL MEDIA DISCLOSURE
We
use
our
website
(www.AGNC.com)
and
AGNC’s
LinkedIn
(www.linkedin.com/company/agnc-investment-corp/)
and
X
(www.x.com/AGNCInvestment) accounts to distribute information about the Company. Investors should monitor these channels in addition to our press releases,
filings with the U.S. Securities and Exchange Commission (“SEC”), public conference calls and webcasts, as information posted through them may be deemed
material. Our website, alerts and social media channels are not incorporated by reference into, and are not a part of, this or any other report filed with or
furnished to the SEC. Investors and others may automatically receive emails and information about AGNC when they sign up for investor alerts on the "Investor
Resources" tab of the Investor Relations section of our website.
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 risks.
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 of 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
43
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 estimates for
reasonableness, giving consideration to any unique characteristics of our securities, market conditions and other factors likely to impact these estimates, and
based on our judgement we may make adjustments to the third-party estimates. Our estimated duration gap, which is a measure of the difference between the
interest rate sensitivity of our assets and our liabilities, inclusive of interest rate hedges, was 0.3 years as of December 31, 2024, compared to -0.5 years as of
2023.
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, 2024 and 2023 should interest rates go up or down by 25, 50 and 75 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, 2024 and 2023.
To the extent that these estimates or other assumptions do not hold true, which may be more likely during periods of elevated market 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
December 31, 2024
December 31, 2023
Change in Interest Rate
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
-75 Basis Points
-0.1%
-0.9%
-0.7%
-7.0%
-50 Basis Points
0.0%
+0.2%
-0.4%
-3.8%
-25 Basis Points
+0.1%
+0.5%
-0.1%
-1.5%
+25 Basis Points
-0.1%
-1.1%
+0.1%
+0.7%
+50 Basis Points
-0.3%
-2.8%
+0.1%
+0.7%
+75 Basis Points
-0.5%
-4.8%
0.0%
0.0%
________________________________
1.
Derived from models that are dependent on inputs and assumptions, assumes there are no changes in mortgage spreads and assumes a static portfolio. Actual results could differ materially
from these estimates.
2.
Includes the effect of derivatives and other securities used for hedging purposes. Interest rates are assumed to be floored at 0% in down rate scenarios.
Prepayment Risk and Extension 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, declining mortgage rates increase the rate of prepayments, while rising rates have the opposite effect.
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 is the risk that our assets will be repaid at a slower rate than anticipated and generally increases when interest rates rise. In a rising or higher
interest rate environment, we may be required to finance our investments at potentially higher costs without the ability to reinvest principal into higher yielding
securities as a result of borrowers prepaying their
1,2
44
mortgages at a slower pace than originally anticipated, adversely impacting our net interest spread, and thus our net interest income.
As of December 31, 2024 and 2023, our investment securities (excluding TBAs) had a weighted average projected CPR of 7.7% and 11.4%, respectively,
and a weighted average yield of 4.77% and 4.41%, 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 25, 50 and 75 basis points. Estimated yields exclude the impact of retroactive
"catch-up" premium amortization adjustments for prior periods due to changes in the projected CPR assumption.
Interest Rate Sensitivity
December 31, 2024
December 31, 2023
Change in Interest Rate
Weighted Average
Projected CPR
Weighted Average
Asset Yield
Weighted Average
Projected CPR
Weighted Average
Asset Yield
-75 Basis Points
11.7%
4.70%
17.8%
4.33%
-50 Basis Points
9.8%
4.73%
15.4%
4.36%
-25 Basis Points
8.5%
4.76%
13.2%
4.39%
Actual as of Period End
7.7%
4.77%
11.4%
4.41%
+25 Basis Points
7.3%
4.78%
9.7%
4.44%
+50 Basis Points
6.9%
4.79%
8.5%
4.46%
+75 Basis Points
6.7%
4.80%
7.7%
4.47%
________________________________
1.
Derived from models that are dependent on inputs and assumptions and assumes a static portfolio. Actual results could differ materially from these estimates. Table excludes TBA securities.
2.
Asset yield based on historical cost basis and does not include the impact of retroactive "catch-up" premium amortization adjustments due to changes in projected CPR.
Spread Risk
Spread risk is the risk that the market spread between the yield on our assets and the yield on benchmark interest rates linked to our interest rate hedges,
such as U.S. Treasury rates and interest rate swap rates, may vary. As a levered investor in mortgage-backed securities, spread risk is an inherent component of
our investment strategy. Therefore, 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, 2024 and 2023 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 5.1 and 4.7 years as of
December 31, 2024 and 2023, 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
December 31, 2024
December 31, 2023
Change in MBS Spread
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
-50 Basis Points
+2.5%
+24.5%
+2.3%
+23.1%
-25 Basis Points
+1.3%
+12.3%
+1.2%
+11.6%
-10 Basis Points
+0.5%
+4.9%
+0.5%
+4.6%
+10 Basis Points
-0.5%
-4.9%
-0.5%
-4.6%
+25 Basis Points
-1.3%
-12.3%
-1.2%
-11.6%
+50 Basis Points
-2.5%
-24.5%
-2.3%
-23.1%
1
2
2
1,2
45
________________________________
1.
Spread sensitivity is derived from models that are dependent on inputs and assumptions, assumes there are no changes in interest rates and assumes a static portfolio. Actual results could
differ materially from these estimates.
2.
Includes the effect of derivatives and other securities used for hedging purposes.
Liquidity Risk
Our liquidity risk principally arises from financing long-term fixed rate assets with shorter-term variable rate borrowings. Future borrowings are
dependent upon the willingness of lenders to finance our investments, lender collateral requirements and the lenders’ determination of the fair value of the
securities pledged as collateral, which fluctuates with changes in interest rates and liquidity conditions within the commercial banking and mortgage finance
industries.
As of December 31, 2024, 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, or margin requirements increase, we may be required to post additional collateral for these arrangements, 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. However, our efforts to manage credit risk may be unsuccessful and we could suffer losses as a result. Excluding central
clearing exchanges, as of December 31, 2024, our maximum amount at risk with any counterparty related to our repurchase agreements and derivative
agreements was less than 2% and less than 1%, respectively, of tangible stockholders' equity.
46
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, 2024 and 2023 and for fiscal years 2024, 2023 and 2022 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 audits. For further information refer to the Ernst & Young LLP (PCAOB ID: 42) 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, 2024, 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, 2024. The
effectiveness of our internal control over financial reporting as of December 31, 2024 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.
47
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors 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, 2024, 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. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31,
2024, 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 the Company as of December 31, 2024 and 2023, the related consolidated statements of comprehensive income, stockholders’ equity, and cash flows
for each of the three years in the period ended December 31, 2024, and the related notes, and our report dated February 21, 2025 expressed an unqualified
opinion thereon.
Basis for Opinion
The Company’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 the Company 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 21, 2025
48
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of AGNC Investment Corp.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of AGNC Investment Corp. (the Company) as of December 31, 2024 and 2023, the related
consolidated statements of comprehensive income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2024, 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 the Company at December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 2024, 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), the Company’s internal
control over financial reporting as of December 31, 2024, 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 21, 2025 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's 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 the Company 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 PCAOB. 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 presentation of the financial statements. 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.
49
Agency securities and non-agency securities of high credit quality net premium amortization
Description
of the Matter
As of December 31, 2024, the Company’s investment securities had a net unamortized premium balance of $1.0 billion,
including interest and principal-only securities, and it recorded $123 million 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 a prepayment model
that incorporates 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.
How We Addressed the Matter
in Our Audit
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 the Company’s auditor since 2008.
Tysons, Virginia
February 21, 2025
50
AGNC INVESTMENT CORP.
CONSOLIDATED BALANCE SHEETS
(in millions, except per share data)
December 31,
2024
2023
Assets:
Agency securities, at fair value (including pledged securities of $59,952 and $49,575, respectively)
$
65,367
$
53,673
Agency securities transferred to consolidated variable interest entities, at fair value (pledged securities)
97
121
Credit risk transfer securities, at fair value (including pledged securities of $590 and $678, respectively)
633
723
Non-Agency securities, at fair value, and other mortgage credit investments (including pledged securities of $206 and
$262, respectively)
315
351
U.S. Treasury securities, at fair value (including pledged securities of $1,565 and $1,530, respectively)
1,575
1,540
Cash and cash equivalents
505
518
Restricted cash
1,266
1,253
Derivative assets, at fair value
205
185
Receivable under reverse repurchase agreements
17,137
11,618
Goodwill
526
526
Other assets
389
1,088
Total assets
$
88,015
$
71,596
Liabilities:
Repurchase agreements
$
60,798
$
50,426
Debt of consolidated variable interest entities, at fair value
64
80
Payable for investment securities purchased
74
210
Derivative liabilities, at fair value
94
362
Dividends payable
143
115
Obligation to return securities borrowed under reverse repurchase agreements, at fair value
16,676
10,894
Other liabilities
404
1,252
Total liabilities
78,253
63,339
Stockholders' equity:
Preferred Stock - aggregate liquidation preference of $1,688
1,634
1,634
Common stock - $0.01 par value; 1,500 shares authorized; 897.4 and 694.3 shares issued and outstanding, respectively
9
7
Additional paid-in capital
17,264
15,281
Retained deficit
(8,554)
(8,148)
Accumulated other comprehensive loss
(591)
(517)
Total stockholders' equity
9,762
8,257
Total liabilities and stockholders' equity
$
88,015
$
71,596
See accompanying notes to consolidated financial statements.
51
AGNC INVESTMENT CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions, except per share data)
Year Ended December 31,
2024
2023
2022
Interest income:
Interest income
$
2,949 $
2,041 $
1,590
Interest expense
2,931
2,287
625
Net interest income (expense)
18
(246)
965
Other gain (loss), net:
Loss on sale of investment securities, net
(188)
(1,567)
(2,916)
Unrealized gain (loss) on investment securities measured at fair value through net income, net
(885)
1,678
(3,795)
Gain on derivative instruments and other investments, net
2,028
386
4,630
Total other gain (loss), net:
955
497
(2,081)
Expenses:
Compensation and benefits
74
62
41
Other operating expense
36
34
33
Total operating expense
110
96
74
Net income (loss)
863
155
(1,190)
Dividends on preferred stock
132
123
105
Net income (loss) available (attributable) to common stockholders
$
731 $
32 $
(1,295)
Net income (loss)
$
863 $
155 $
(1,190)
Unrealized gain (loss) on investment securities measured at fair value through other
comprehensive income (loss), net
(74)
155
(973)
Comprehensive income (loss)
789
310
(2,163)
Dividends on preferred stock
132
123
105
Comprehensive income (loss) available (attributable) to common stockholders
$
657 $
187 $
(2,268)
Weighted average number of common shares outstanding - basic
783.4
618.4
537.0
Weighted average number of common shares outstanding - diluted
786.0
619.6
537.0
Net income (loss) per common share - basic
$
0.93 $
0.05 $
(2.41)
Net income (loss) per common share - diluted
$
0.93 $
0.05 $
(2.41)
See accompanying notes to consolidated financial statements.
52
AGNC INVESTMENT CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in millions)
Preferred
Stock
Common Stock
Additional
Paid-in
Capital
Retained
Deficit
Accumulated
Other
Comprehensive
Income (Loss)
Total
Shares
Amount
Balance, December 31, 2021
$
1,489
522.2
$
5
$
13,710
$
(5,214)
$
301
$
10,291
Net loss
—
—
—
—
(1,190)
—
(1,190)
Other comprehensive loss:
Unrealized loss on available-for-sale securities, net
—
—
—
—
—
(973)
(973)
Stock-based compensation, net
—
1.1
—
2
—
—
2
Issuance of preferred stock
145
—
—
—
—
—
145
Issuance of common stock
—
56.0
1
525
—
—
526
Repurchase of common stock
—
(4.7)
—
(51)
—
—
(51)
Preferred dividends declared
—
—
—
—
(105)
—
(105)
Common dividends declared
—
—
—
—
(775)
—
(775)
Balance, December 31, 2022
$
1,634
574.6
$
6
$
14,186
$
(7,284)
$
(672)
$
7,870
Net income
—
—
—
—
155
—
155
Other comprehensive income:
Unrealized gain on available-for-sale securities, net
—
—
—
—
—
155
155
Stock-based compensation, net
—
0.9
—
11
—
—
11
Issuance of common stock
—
118.8
1
1,084
—
—
1,085
Preferred dividends declared
—
—
—
—
(123)
—
(123)
Common dividends declared
—
—
—
—
(896)
—
(896)
Balance, December 31, 2023
$
1,634
694.3
$
7
$
15,281
$
(8,148)
$
(517)
$
8,257
Net income
—
—
—
—
863
—
863
Other comprehensive loss:
Unrealized loss on available-for-sale securities, net
—
—
—
—
—
(74)
(74)
Stock-based compensation, net
—
1.0
—
18
—
—
18
Issuance of common stock
—
202.1
2
1,965
—
—
1,967
Preferred dividends declared
—
—
—
—
(132)
—
(132)
Common dividends declared
—
—
—
—
(1,137)
—
(1,137)
Balance, December 31, 2024
$
1,634
897.4
$
9
$
17,264
$
(8,554)
$
(591)
$
9,762
See accompanying notes to consolidated financial statements.
53
AGNC INVESTMENT CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
Year Ended December 31,
2024
2023
2022
Operating activities:
Net income (loss)
$
863
$
155
$
(1,190)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Amortization of premiums and discounts on mortgage-backed securities, net
123
201
13
Stock-based compensation, net
18
11
2
Loss on sale of investment securities, net
188
1,567
2,916
Unrealized (gain) loss on investment securities measured at fair value through net income, net
885
(1,678)
3,795
Gain on derivative instruments and other securities, net
(2,028)
(386)
(4,630)
(Increase) decrease in other assets
738
(892)
38
Increase (decrease) in other liabilities
(701)
904
69
Net cash provided by (used in) operating activities
86
(118)
1,013
Investing activities:
Purchases of Agency mortgage-backed securities
(41,762)
(32,216)
(26,842)
Purchases of credit risk transfer and non-Agency securities and other mortgage credit investments
(251)
(364)
(1,173)
Proceeds from sale of Agency mortgage-backed securities
22,825
13,608
25,978
Proceeds from sale of credit risk transfer and non-Agency securities
286
732
1,199
Principal collections on Agency mortgage-backed securities
5,832
4,327
6,525
Principal collections on credit risk transfer and non-Agency securities
121
68
209
Payments on U.S. Treasury securities
(18,831)
(30,535)
(27,494)
Proceeds from U.S. Treasury securities
24,601
33,229
25,878
Net proceeds from (payments on) reverse repurchase agreements
(4,793)
(4,510)
4,001
Net proceeds from derivative instruments
803
989
2,907
Net cash provided by (used in) investing activities
(11,169)
(14,672)
11,188
Financing activities:
Proceeds from repurchase arrangements
5,600,336
3,282,218
2,360,328
Payments on repurchase agreements
(5,589,964)
(3,268,054)
(2,371,447)
Payments on debt of consolidated variable interest entities
(15)
(17)
(24)
Net proceeds from preferred stock issuances
—
—
145
Net proceeds from common stock issuances
1,967
1,085
526
Payments for common stock repurchases
—
—
(51)
Cash dividends paid
(1,241)
(1,005)
(869)
Net cash provided by (used in) financing activities
11,083
14,227
(11,392)
Net change in cash, cash equivalents and restricted cash
—
(563)
809
Cash, cash equivalents and restricted cash at beginning of period
1,771
2,334
1,525
Cash, cash equivalents and restricted cash at end of period
$
1,771
$
1,771
$
2,334
Reconciliation of cash, cash equivalents and restricted cash end of period:
Cash and cash equivalents
$
505
$
518
$
1,018
Restricted cash
1,266
1,253
1,316
Total cash, cash equivalents and restricted cash, end of period
$
1,771
$
1,771
$
2,334
Supplemental disclosure to cash flow information:
Interest paid
$
2,899
$
2,246
$
557
See accompanying notes to consolidated financial statements.
54
AGNC INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Organization
AGNC Investment Corp. (referred throughout this report as the "Company," "we," "us" and "our") was 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 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") 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 within the time limits prescribed by the Internal Revenue Code, which may extend into the subsequent tax year.
We are internally managed with the principal objective of generating favorable long-term stockholder returns with a substantial yield component. 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 benefit from credit enhancements derived from structural elements,
such as subordination, over-collateralization or insurance, but nonetheless carry a higher level of credit exposure than Agency RMBS.
55
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 value in net income as a component of other gain (loss). We did not recognize any
loss on available for sale securities through net income that we held as of December 31, 2024 because, as of such date, we neither intended to sell any securities
in an unrealized loss position nor was it more likely than not that we would be required to sell such securities before recovery of their amortized cost basis. 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 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, collateral call provisions, 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 our lending counterparties. Repurchase
arrangements involve the sale and a simultaneous agreement to repurchase the securities at a future date. We maintain a beneficial interest in the specific
securities pledged during the term of each repurchase arrangement
56
and we receive the related principal and interest payments. Pursuant to ASC Topic 860, Transfers and Servicing, 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.
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. Net cash receipts from and payments on our 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") and Overnight Index Swap Rate ("OIS"). Our interest rate swaps typically have terms from one to 10 years. 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. The initial margin amount is intended to be set at a level sufficient to protect the exchange from the interest rate swap's maximum
estimated single-day price movement and is subject to adjustment based on changes in market volatility and other factors. 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 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
57
paid. If we sell or exercise a swaption, the 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 and US Treasury futures contracts
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 enter into short-sales of U.S. Treasury securities by borrowing the securities under reverse repurchase agreements and selling them into the market.
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. Treasury futures contracts are standardized
contracts that obligate us to sell or buy U.S. Treasury securities for future delivery. 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, from 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
58
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 financial 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 instruments to those actively traded enable our pricing sources and us to
utilize the observed quoted 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 TBA securities having the same coupon, maturity and issuer, adjusted to reflect the specific
characteristics of the pool of mortgages underlying the Agency security, such as 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, 2024 and 2023, 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 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, 2024 and 2023, 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 impairment, a
quantitative analysis is performed. The quantitative analysis requires that we compare the carrying value of the
59
identified reporting unit comprising the goodwill to the reporting unit's fair value. If the reporting unit's 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 the three fiscal years ended December 31,
2024, we did not recognize a goodwill impairment charge.
Stock-Based Compensation
Under our Amended and Restated AGNC Investment Corp. 2016 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. For 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 when the awards vest, or later if distribution of such shares has been deferred beyond the vest date.
Shares issued are net of shares withheld to cover minimum statutory tax withholding obligations. The fair value of shares withheld for tax withholdings is
recorded 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, 2024 and 2023, our investment portfolio consisted of $66.3 billion and $54.8 billion investment securities, at fair value, respectively,
$6.9 billion and $5.4 billion net TBA securities, at fair value, respectively, and other mortgage credit investments of $64 million and $44 million, respectively,
which we account for under the equity method of accounting. Our TBA position is reported at its net carrying value totaling $(26) million and $66 million as of
December 31, 2024 and 2023, 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 security and the cost basis or the forward price to be paid or received for the
underlying security.
As of December 31, 2024 and 2023, our investment securities had a net unamortized premium balance of $1.0 billion and $1.2 billion, respectively.
60
The following tables summarize our investment securities as of December 31, 2024 and 2023, excluding TBA securities and other mortgage credit
investments (dollars in millions). Details of our TBA securities are included in Note 5.
December 31, 2024
December 31, 2023
Investment Securities
Amortized
Cost
Fair Value
Amortized
Cost
Fair Value
Agency RMBS:
Fixed rate
$
67,139
$
64,049
$
55,289
$
53,161
Adjustable rate
796
790
293
290
CMO
102
96
127
120
Interest-only and principal-only strips
60
53
67
61
Multifamily
485
476
161
162
Total Agency RMBS
68,582
65,464
55,937
53,794
Non-Agency RMBS
17
15
43
34
CMBS
264
236
303
273
CRT securities
583
633
682
723
Total investment securities
$
69,446
$
66,348
$
56,965
$
54,824
December 31, 2024
December 31, 2023
Non-Agency
Non-Agency
Investment Securities
Agency
RMBS
RMBS
CMBS
CRT
Total
Agency
RMBS
RMBS
CMBS
CRT
Total
Available-for-sale securities:
Par value
$
4,447
$
—
$
—
$
—
$
4,447
$
5,034
$
—
$
—
$
—
$
5,034
Unamortized discount
(1)
—
—
—
(1)
(1)
—
—
—
(1)
Unamortized premium
265
—
—
—
265
300
—
—
—
300
Amortized cost
4,711
—
—
—
4,711
5,333
—
—
—
5,333
Gross unrealized gains
—
—
—
—
—
—
—
—
—
—
Gross unrealized losses
(591)
—
—
—
(591)
(517)
—
—
—
(517)
Total available-for-sale securities, at fair value
4,120
—
—
—
4,120
4,816
—
—
—
4,816
Securities remeasured at fair value through
earnings:
Par value
63,119
19
270
576
63,984
49,696
44
307
679
50,726
Unamortized discount
(374)
(3)
(8)
(11)
(396)
(170)
(3)
(7)
(9)
(189)
Unamortized premium
1,126
1
2
18
1,147
1,078
2
3
12
1,095
Amortized cost
63,871
17
264
583
64,735
50,604
43
303
682
51,632
Gross unrealized gains
93
—
4
50
147
282
—
2
41
325
Gross unrealized losses
(2,620)
(2)
(32)
—
(2,654)
(1,908)
(9)
(32)
—
(1,949)
Total securities remeasured at fair value through
earnings
61,344
15
236
633
62,228
48,978
34
273
723
50,008
Total securities, at fair value
$
65,464
$
15
$
236
$
633
$
66,348
$
53,794
$
34
$
273
$
723
$
54,824
________________________________
1.
Non-Agency amounts exclude other mortgage credit investments of $64 million and $44 million as of December 31, 2024 and 2023, respectively.
2.
Par value excludes interest-only securities. As of December 31, 2024 and 2023, Agency RMBS interest-only securities had a par value of $307 million and $336 million, respectively, and
non-Agency interest-only securities had a par value of $93 million and $98 million, respectively.
1
1
1
2
2
61
The following table presents the Company's Agency RMBS portfolio by issuing GSE or U.S. Government agency at fair value as of December 31, 2024
and 2023 (in millions):
December 31,
Investment Type
2024
2023
Fannie Mae
$
35,220
$
33,119
Freddie Mac
30,216
20,393
Ginnie Mae
28
282
Total
$
65,464
$
53,794
As of December 31, 2024 and 2023, our investments in CRT and non-Agency securities had the following credit ratings (in millions):
December 31, 2024
December 31, 2023
CRT and Non-Agency Security Credit Ratings
CRT
RMBS
CMBS
CRT
RMBS
CMBS
AAA
$
—
$
1
$
16
$
—
$
1
$
9
AA
8
—
35
—
—
31
A
—
—
31
—
—
25
BBB
6
1
22
144
14
44
BB
87
1
51
137
7
81
B
27
—
43
39
2
55
Not Rated
505
12
38
403
10
28
Total
$
633
$
15
$
236
$
723
$
34
$
273
________________________________
1.
Represents the lowest of Standard and Poor's ("S&P"), Moody's, Fitch, DBRS, Kroll Bond Rating Agency ("KBRA") and Morningstar credit ratings, stated in terms of the S&P equivalent
rating as of each date.
2.
RMBS excludes other mortgage credit investments of $64 million and $44 million as of December 31, 2024 and 2023, respectively.
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, 2024 and 2023, 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 7.7% and 11.4%, 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, 2024 and
2023 according to their estimated weighted average life classification (dollars in millions):
December 31, 2024
December 31, 2023
Estimated Weighted Average Life of
Investment Securities
Fair Value
Amortized
Cost
Weighted
Average
Coupon
Weighted
Average
Yield
Fair Value
Amortized
Cost
Weighted
Average
Coupon
Weighted
Average
Yield
≤ 3 years
$
539
$
530
7.37%
8.06%
$
942
$
961
6.57%
5.93%
> 3 years and ≤ 5 years
2,026
2,066
5.96%
5.48%
10,381
10,331
5.94%
5.52%
> 5 years and ≤10 years
56,551
59,479
4.97%
4.66%
40,895
42,988
4.55%
4.10%
> 10 years
7,232
7,371
5.14%
5.24%
2,606
2,685
4.77%
4.63%
Total
$
66,348
$
69,446
5.03%
4.77%
$
54,824
$
56,965
4.85%
4.41%
________________________________
1.
Table excludes other mortgage credit investments of $64 million and $44 million as of December 31, 2024 and 2023, respectively.
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, 2024 and 2023 (in millions):
1
2
2
1
62
Unrealized Loss Position For
Less than 12 Months
12 Months or More
Total
Securities Classified as Available-for-Sale
Fair
Value
Unrealized
Loss
Fair Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
December 31, 2024
$
—
$
—
$
4,104
$
(591)
$
4,104
$
(591)
December 31, 2023
$
—
$
—
$
4,797
$
(517)
$
4,797
$
(517)
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 2024, 2023 and 2022 by investment
classification of accounting (in millions):
Fiscal Year 2024
Fiscal Year 2023
Fiscal Year 2022
Investment Securities
Available-for-
Sale
Securities
Fair Value
Option
Securities
Total
Available-for-
Sale
Securities
Fair Value
Option
Securities
Total
Available-for-
Sale
Securities
Fair Value
Option
Securities
Total
Investment securities sold, at cost
$
—
$
(23,299)
$
(23,299)
$
(524)
$
(15,263)
$
(15,787)
$
(786)
$
(29,427)
$
(30,213)
Proceeds from investment securities sold
—
23,111
23,111
461
13,759
14,220
744
26,553
27,297
Net gain (loss) on sale of investment securities
$
—
$
(188)
$
(188)
$
(63)
$
(1,504)
$
(1,567)
$
(42)
$
(2,874)
$
(2,916)
Gross gain on sale of investment securities
$
—
$
164
$
164
$
—
$
19
$
19
$
2
$
10
$
12
Gross loss on sale of investment securities
—
(352)
(352)
(63)
(1,523)
(1,586)
(44)
(2,884)
(2,928)
Net gain (loss) on sale of investment securities
$
—
$
(188)
$
(188)
$
(63)
$
(1,504)
$
(1,567)
$
(42)
$
(2,874)
$
(2,916)
________________________________
1.
Proceeds include cash received during the period, plus receivable for investment securities sold during the period as of period end.
2.
See Note 9 for a summary of changes in accumulated OCI.
3.
During fiscal years 2024, 2023 and 2022, we received principal repayments on available-for-sale securities of $0.6 billion, $0.7 billion and $1.5 billion, respectively.
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, 2024, we had met all margin call requirements. For additional
information regarding our pledged assets, please refer to Note 6.
As of December 31, 2024 and 2023, we had $60.8 billion and $50.4 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 or subject to a tri-party repo agreement. The following table summarizes our borrowings under repurchase agreements by their
remaining maturities as of December 31, 2024 and 2023 (dollars in millions):
2,3
2,3
2,3
1
63
December 31, 2024
December 31, 2023
Remaining Maturity
Repurchase
Agreements
Weighted
Average
Interest
Rate
Weighted
Average Days
to Maturity
Repurchase
Agreements
Weighted
Average
Interest
Rate
Weighted
Average Days
to Maturity
Investment Securities Repo
≤ 1 month
$
55,580
4.77 %
10
$
40,946
5.61 %
11
> 1 to ≤ 3 months
3,782
4.68 %
39
7,933
5.55 %
64
Investment Securities Repo
59,362
4.76 %
11
48,879
5.60 %
19
U.S. Treasury Repo:
≤ 1 month
1,436
4.68 %
2
1,547
5.54 %
2
Total
$
60,798
4.76 %
11
$
50,426
5.60 %
19
As of December 31, 2024 and 2023, $25.4 billion and $16.7 billion, respectively, of our investment securities repurchase agreements and all of our U.S.
Treasury repurchase agreements had an overnight maturity of one business day and none of our repurchase agreements were due on demand. As of December
31, 2024, we had $17.3 billion of forward commitments to enter into repurchase agreements with a weighted average forward start date of 2 days and a weighted
average interest rate of 4.61%. As of December 31, 2023, we had $8.8 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 5.54%. As of December 31, 2024 and 2023, 50% and 48%, 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 47% and 43% of our repurchase agreement funding outstanding as of December 31, 2024 and 2023, respectively.
Reverse Repurchase Agreements
As of December 31, 2024 and 2023, we had $17.1 billion and $11.6 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 $16.7
billion and $10.9 billion, respectively. As of December 31, 2024 and 2023, $3.9 billion and $3.1 billion, respectively, of our reverse repurchase agreements were
with the FICC sourced through BES.
Note 5. Derivative and Other Hedging Instruments
For the periods presented, our interest rate based hedges primarily consisted of interest rate swaps, interest rate swaptions, U.S. Treasury securities and
U.S. Treasury futures contracts. We also utilized forward contracts, primarily consisting of TBA securities, for the purchase and sale of investment securities.
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.
64
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, 2024 and 2023
(in millions):
Derivative and Other Hedging Instruments
Balance Sheet Location
2024
2023
Interest rate swaps
Derivative assets, at fair value
$
22
$
15
Swaptions
Derivative assets, at fair value
39
89
TBA and forward settling non-Agency securities
Derivative assets, at fair value
61
81
U.S. Treasury futures - short
Derivative assets, at fair value
83
—
SOFR futures contracts - long
Derivative assets, at fair value
—
—
Total derivative assets, at fair value
$
205
$
185
Interest rate swaps
Derivative liabilities, at fair value
$
—
$
(1)
TBA and forward settling non-Agency securities
Derivative liabilities, at fair value
(87)
(15)
U.S. Treasury futures - short
Derivative liabilities, at fair value
—
(336)
SOFR futures contracts - long
Derivative liabilities, at fair value
(7)
(10)
Credit default swaps
Derivative liabilities, at fair value
—
—
Total derivative liabilities, at fair value
$
(94)
$
(362)
U.S. Treasury securities - long
U.S. Treasury securities, at fair value
$
1,575
$
1,540
U.S. Treasury securities - short
Obligation to return securities borrowed under reverse repurchase
agreements, at fair value
(16,676)
(10,894)
Total U.S. Treasury securities, net at fair value
$
(15,101)
$
(9,354)
________________________________
1.
As of December 31, 2024 and 2023, the net fair value of our interest rate swaps excluding the recognition of variation margin settlements as a direct reduction of carrying value (see Note 2)
was a net asset (liability) of $2.3 billion and $2.9 billion, respectively. As of December 31, 2023, the net fair value of our credit default swaps excluding the recognition of variation margin
settlements was a net asset (liability) of $(6) million.
The following tables summarize certain characteristics of our derivative and other hedging instruments outstanding as of December 31, 2024 and 2023
(dollars in millions):
Pay Fixed / Receive Variable Interest
Rate Swaps
December 31, 2024
December 31, 2023
Years to Maturity
Notional
Amount
Average
Fixed Pay
Rate
Average
Variable
Receive
Rate
Average
Maturity
(Years)
Notional
Amount
Average
Fixed Pay
Rate
Average
Variable
Receive
Rate
Average
Maturity
(Years)
≤ 1 year
$
8,500
0.14%
4.42%
0.5
$
13,750
0.14%
5.37%
0.4
> 1 to ≤ 3 years
10,550
0.22%
4.45%
1.8
15,800
0.17%
5.36%
2.0
> 3 to ≤ 5 years
3,800
0.25%
4.49%
3.9
5,800
0.24%
5.38%
3.9
> 5 to ≤ 7 years
4,150
2.14%
4.46%
5.7
3,900
0.92%
5.37%
6.2
> 7 to ≤ 10 years
12,646
3.52%
4.49%
8.8
5,226
3.06%
5.38%
9.2
Total
$
39,646
1.46%
4.46%
4.4
$
44,476
0.57%
5.37%
3.0
________________________________
1.
As of December 31, 2024, 82% and 18% of notional amount receive index references SOFR and OIS, respectively. As of December 31, 2023, 80% and 20% of notional amount receive index
references SOFR and OIS, respectively.
1
1
1
1
1
65
Receive Fixed / Pay Variable
Interest Rate Swaps
December 31, 2024
December 31, 2023
Years to Maturity
Notional
Amount
Average
Variable Pay
Rate
Average
Fixed Receive
Rate
Average
Maturity
(Years)
Notional
Amount
Average
Variable Pay
Rate
Average
Fixed Receive
Rate
Average
Maturity
(Years)
> 1 to ≤ 3 years
$
—
—%
—%
0.0
$
(1,000)
5.38%
4.65%
1.5
________________________________
1.
Pay index references SOFR.
Payer Swaptions
Option
Underlying Payer Swap
Option
Expiration Date
Cost Basis
Fair Value
Average
Months to Option
Expiration Date
Notional
Amount
Average Fixed
Pay
Rate
Average
Term
(Years)
December 31, 2024
≤ 1 year
$
23
$
38
5
$
2,000
4.16%
10.0
December 31, 2023
≤ 1 year
$
28
$
86
5
$
1,250
2.61%
10.0
________________________________
1.
Receive index references SOFR.
Receiver Swaptions
Option
Underlying Receiver Swap
Option
Expiration Date
Cost Basis
Fair Value
Average
Months to Option
Expiration Date
Notional
Amount
Average Fixed
Receive
Rate
Average
Term
(Years)
December 31, 2024
≤ 1 year
$
3
$
1
11
$
150
2.98%
5.0
December 31, 2023
≤ 1 year
$
3
$
3
24
$
150
2.98%
5.0
________________________________
1.
Pay index references SOFR.
U.S. Treasury Securities
December 31, 2024
December 31, 2023
Years to Maturity
Face Amount
Long/(Short)
Cost Basis
Fair Value
Face Amount
Long/(Short)
Cost Basis
Fair Value
≤ 5 years
$
956
$
961
$
956
$
1,408
$
1,419
$
1,454
> 5 year ≤ 7 years
(2,722)
(2,685)
(2,302)
(818)
(821)
(703)
> 7 year ≤ 10 years
(12,659)
(12,329)
(11,999)
(8,649)
(8,277)
(8,187)
> 10 years
(1,782)
(1,829)
(1,756)
(1,796)
(1,796)
(1,918)
Total U.S. Treasury securities
$
(16,207)
$
(15,882)
$
(15,101)
$
(9,855)
$
(9,475)
$
(9,354)
________________________________
1.
As of December 31, 2024 and 2023, short U.S. Treasury securities totaling $(16.7) billion and $(10.9) billion, at fair value, respectively, had a weighted average yield of 3.85% and 3.64%,
respectively. As of December 31, 2024 and 2023, long U.S. Treasury securities totaling $1.6 billion and $1.5 billion, at fair value, respectively, had a weighted average yield of 4.27% and
4.39%, respectively.
U.S. Treasury Futures
December 31, 2024
December 31, 2023
Years to Maturity
Notional
Amount
Long (Short)
Cost
Basis
Fair
Value
Net Carrying
Value
Notional
Amount
Long (Short)
Cost
Basis
Fair
Value
Net Carrying
Value
> 5 year ≤ 7 years
$
(1,582)
$
(1,734)
$
(1,721)
$
13
$
(2,714)
$
(2,961)
$
(3,064)
$
(103)
> 7 year ≤ 10 years
(500)
(566)
(557)
9
(2,924)
(3,294)
(3,451)
(157)
> 10 years
(2,291)
(2,669)
(2,608)
61
(791)
(913)
(989)
(76)
Total U.S. Treasury futures
$
(4,373)
$
(4,969)
$
(4,886)
$
83
$
(6,429)
$
(7,168)
$
(7,504)
$
(336)
________________________________
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.
1
1
1
1
1
1
1
66
December 31, 2024
December 31, 2023
TBA Securities by Coupon
Notional
Amount
Long (Short)
Cost
Basis
Fair
Value
Net Carrying
Value
Notional
Amount
Long (Short)
Cost
Basis
Fair
Value
Net Carrying
Value
15-Year TBA securities:
≥ 5.0%
$
—
$
—
$
—
$
—
$
90
$
89
$
91
$
2
Total 15-Year TBA securities
—
—
—
—
90
89
91
2
30-Year TBA securities:
≤ 3.0%
(586)
(504)
(497)
7
(29)
(24)
(25)
(1)
3.5%
—
2
—
(2)
—
—
—
—
4.0%
122
112
111
(1)
—
—
—
—
4.5%
2,342
2,210
2,204
(6)
363
343
352
9
5.0%
2,780
2,703
2,700
(3)
1,717
1,704
1,704
—
5.5%
(235)
(180)
(210)
(30)
2,034
2,014
2,047
33
6.0%
2,033
2,036
2,044
8
20
10
21
11
≥ 6.5%
499
508
509
1
1,137
1,152
1,164
12
Total 30-Year TBA securities, net
6,955
6,887
6,861
(26)
5,242
5,199
5,263
64
Total TBA securities, net
$
6,955
$
6,887
$
6,861
$
(26)
$
5,332
$
5,288
$
5,354
$
66
________________________________
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.
As of December 31, 2024 and 2023, we held SOFR futures contracts with a long notional position of $1.2 billion and $0.9 billion, respectively, measured
on a two-year swap equivalent basis, with a net carrying value of $(7) million and $(10) million, respectively.
As of December 31, 2023, we held centrally cleared credit default swaps ("CDS") with a notional value of $95 million that referenced the Markit CDX
Investment Grade or High Yield Grade Index, maturing in December 2028. Under the terms of these contracts, we made fixed periodic payments equal to 1%
per annum of the notional value and we were entitled to receive payments in the event of qualifying credit events. As of December 31, 2023, the credit default
swaps had a market value of $(6) million and a carrying value of zero dollars, net of variation margin settlements. Pursuant to rules governing central clearing
activities, we recognized variation margin settlements as a direct reduction of the carrying value of the CDS asset or liability.
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 2024, 2023 and 2022 (in millions):
1
1
67
Derivative and Other Hedging Instruments
Beginning
Notional Amount
Additions
Settlement,
Termination,
Expiration or
Exercise
Ending
Notional Amount
Gain/(Loss)
on Derivative
Instruments and
Other Securities, Net
Fiscal Year 2024:
TBA securities, net
$
5,332
123,959
(122,336)
$
6,955
$
(123)
Forward settling non-Agency securities
$
—
—
—
$
—
—
Interest rate swaps - payer
$
44,476
12,095
(16,925)
$
39,646
1,020
Interest rate swaps - receiver
$
(1,000)
—
1,000
$
—
(9)
Credit default swaps - buy protection
$
(96)
(192)
288
$
—
(7)
Payer swaptions
$
1,250
2,500
(1,750)
$
2,000
54
Receiver swaptions
$
(150)
—
—
$
(150)
(3)
U.S. Treasury securities - short position
$
(11,347)
(16,948)
10,503
$
(17,792)
844
U.S. Treasury securities - long position
$
1,492
7,780
(7,687)
$
1,585
(85)
U.S. Treasury futures contracts - short position
$
(6,429)
(11,723)
13,779
$
(4,373)
409
$
2,100
Fiscal Year 2023:
TBA securities, net
$
19,050
164,465
(178,183)
$
5,332
$
49
Interest rate swaps - payer
$
47,825
5,746
(9,095)
$
44,476
666
Interest rate swaps - receive, net
$
—
(1,000)
—
$
(1,000)
4
Credit default swaps - buy protection
$
(215)
(1,322)
1,441
$
(96)
(13)
Payer swaptions
$
3,050
—
(1,800)
$
1,250
(21)
Receiver swaptions
$
—
(150)
—
$
(150)
—
U.S. Treasury securities - short position
$
(7,373)
(20,143)
16,169
$
(11,347)
(54)
U.S. Treasury securities - long position
$
357
14,272
(13,137)
$
1,492
(30)
U.S. Treasury futures contracts - short position
$
(9,213)
(31,465)
34,249
$
(6,429)
(42)
$
559
Fiscal Year 2022:
TBA securities, net
$
26,673
312,307
(319,930)
$
19,050
$
(2,860)
Forward settling non-Agency securities
$
450
—
(450)
$
—
—
Interest rate swaps - payer
$
51,225
5,895
(9,295)
$
47,825
4,400
Credit default swaps - buy protection
$
—
(5,835)
5,620
$
(215)
21
Payer swaptions
$
13,000
1,750
(11,700)
$
3,050
857
Receiver swaptions
$
—
(150)
150
$
—
—
U.S. Treasury securities - short position
$
(9,590)
(15,548)
17,765
$
(7,373)
1,482
U.S. Treasury securities - long position
$
472
10,202
(10,317)
$
357
(32)
U.S. Treasury futures contracts - short position
$
(1,500)
(37,493)
29,780
$
(9,213)
811
$
4,679
________________________________
1.
Amounts exclude other miscellaneous gains and losses and other interest income (expense) recognized in gain (loss) on derivative instruments and other securities, net in our consolidated
statements of comprehensive income.
Additionally, as of December 31, 2024 and 2023, we held SOFR futures contracts with a long notional position of $1.2 billion and $0.9 billion,
respectively, measured on a two-year swap equivalent basis. For fiscal years December 31, 2024 and 2023, we recognized a gain (loss) of $13 million and $(10)
million, respectively, on our SOFR futures contracts 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
1
68
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, 2024, 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 (or the excess/shortfall of the value of collateral pledged/received over our repurchase
agreement liabilities/reverse repurchase agreement receivables). As of December 31, 2024, 9% of our tangible stockholder's equity was at risk with the Fixed
Income Clearing Corporation.
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, 2024 and 2023 (in millions):
December 31, 2024
Assets Pledged to Counterparties
Repurchase Agreements
Debt of
Consolidated
VIEs
Derivative Agreements
and Other
Total
Agency RMBS - fair value
$
59,958
$
97
$
27
$
60,082
CRT - fair value
590
—
—
590
Non-Agency - fair value
206
—
—
206
U.S. Treasury securities - fair value
1,414
—
151
1,565
Accrued interest on pledged securities
279
—
1
280
Restricted cash
386
—
880
1,266
Total
$
62,833
$
97
$
1,059
$
63,989
December 31, 2023
Assets Pledged to Counterparties
Repurchase Agreements
Debt of
Consolidated
VIEs
Derivative Agreements
and Other
Total
Agency RMBS - fair value
$
49,602
$
121
$
15
$
49,738
CRT - fair value
678
—
—
678
Non-Agency - fair value
262
—
—
262
U.S. Treasury securities - fair value
1,865
—
62
1,927
Accrued interest on pledged securities
217
—
—
217
Restricted cash
9
—
1,244
1,253
Total
$
52,633
$
121
$
1,321
$
54,075
1
2
1
2
69
________________________________
1.
Includes repledged assets received as collateral from counterparties and securities sold but not yet settled.
2.
Includes $33 million and $42 million of retained interests in our consolidated VIEs pledged as collateral under repurchase agreements as of December 31, 2024 and 2023, respectively.
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, 2024 and 2023 (in millions). For the corresponding borrowings
associated with the following amounts and the interest rates thereon, refer to Note 4.
December 31, 2024
December 31, 2023
Securities Pledged by Remaining Maturity of Repurchase
Agreements
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
≤ 1 month
$
58,180
$
60,506
$
266
$
43,701
$
44,918
$
188
> 1 and ≤ 2 months
3,842
4,227
13
2,847
3,069
10
> 2 and ≤ 3 months
146
149
—
5,524
5,947
19
Total
$
62,168
$
64,882
$
279
$
52,072
$
53,934
$
217
________________________________
1.
Includes $33 million and $42 million of retained interests in our consolidated VIEs pledged as collateral under repurchase agreements as of December 31, 2024 and 2023, respectively.
2.
Excludes $397 million of repledged U.S. Treasury securities received as collateral from counterparties as of December 31, 2023.
Assets Pledged from Counterparties
As of December 31, 2024 and 2023, we had assets pledged to us from counterparties as collateral under our reverse repurchase and derivative agreements
summarized in the tables below (in millions).
December 31, 2024
December 31, 2023
Assets Pledged to AGNC
Reverse
Repurchase
Agreements
Derivative
Agreements
Repurchase
Agreements
Total
Reverse
Repurchase
Agreements
Derivative
Agreements
Repurchase
Agreements
Total
Agency securities - fair value
$
—
$
—
$
17
$
17
$
—
$
—
$
—
$
—
U.S. Treasury securities - fair value
16,885
—
—
16,885
11,667
—
306
11,973
Cash
—
28
38
66
—
89
49
138
Total
$
16,885
$
28
$
55
$
16,968
$
11,667
$
89
$
355
$
12,111
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, 2024
and 2023 (in millions):
1,2
70
Offsetting of Financial and Derivative Assets
Gross Amounts
of Recognized
Assets
Gross Amounts
Offset in the
Consolidated
Balance Sheets
Net Amounts of
Assets Presented
in the
Consolidated
Balance Sheets
Gross Amounts Not Offset
in the
Consolidated Balance Sheets
Net Amount
Financial
Instruments
Collateral
Received
December 31, 2024
Interest rate swap and swaption agreements, at fair value
$
61
$
—
$
61
$
—
$
(28)
$
33
TBA securities, at fair value
61
—
61
(61)
—
—
Receivable under reverse repurchase agreements
17,137
—
17,137
(11,680)
(5,457)
—
Total
$
17,259
$
—
$
17,259
$
(11,741)
$
(5,485)
$
33
December 31, 2023
Interest rate swap and swaption agreements, at fair value
$
104
$
—
$
104
$
—
$
(89)
$
15
TBA securities, at fair value
80
—
80
(15)
(65)
—
Receivable under reverse repurchase agreements
11,618
—
11,618
(8,433)
(3,181)
4
Total
$
11,802
$
—
$
11,802
$
(8,448)
$
(3,335)
$
19
Offsetting of Financial and Derivative Liabilities
Gross Amounts
of Recognized
Liabilities
Gross Amounts
Offset in the
Consolidated
Balance Sheets
Net Amounts of
Liabilities
Presented in the
Consolidated
Balance Sheets
Gross Amounts Not Offset
in the
Consolidated Balance Sheets
Net Amount
Financial
Instruments
Collateral Pledged
December 31, 2024
TBA securities, at fair value
$
87
$
—
$
87
$
(61)
$
(26)
$
—
Repurchase agreements
60,798
—
60,798
(11,680)
(49,118)
—
Total
$
60,885
$
—
$
60,885
$
(11,741)
$
(49,144)
$
—
December 31, 2023
TBA securities, at fair value
$
15
$
—
$
15
$
(15)
$
—
$
—
Repurchase agreements
50,426
—
50,426
(8,433)
(41,993)
—
Total
$
50,441
$
—
$
50,441
$
(8,448)
$
(41,993)
$
—
________________________________
1.
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.
2.
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, 2024 and
2023, based on their categorization within the valuation hierarchy (in millions). There were no transfers between valuation hierarchy levels during the periods
presented in our accompanying consolidated statements of comprehensive income.
2
1
1
1
1
2
1
1
71
December 31, 2024
December 31, 2023
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
Assets:
Agency securities
$
—
$
65,367
$
—
$
—
$
53,673
$
—
Agency securities transferred to consolidated VIEs
—
97
—
—
121
—
Credit risk transfer securities
—
633
—
—
723
—
Non-Agency securities
—
251
—
—
307
—
U.S. Treasury securities
1,575
—
—
1,540
—
—
Interest rate swaps
—
22
—
—
15
—
Swaptions
—
39
—
—
89
—
TBA securities
—
61
—
—
81
—
U.S. Treasury futures
83
—
—
—
—
—
Total
$
1,658
$
66,470
$
—
$
1,540
$
55,009
$
—
Liabilities:
Debt of consolidated VIEs
$
—
$
64
$
—
$
—
$
80
$
—
Obligation to return U.S. Treasury securities borrowed under reverse
repurchase agreements
16,676
—
—
10,894
—
—
Interest rate swaps
—
—
—
—
1
—
Credit default swaps
—
—
—
—
—
—
TBA securities
—
87
—
—
15
—
U.S. Treasury futures
—
—
—
336
—
—
SOFR Futures
7
—
—
10
—
—
Total
$
16,683
$
151
$
—
$
11,240
$
96
$
—
________________________________
1.
As of December 31, 2024 and 2023, the net fair value of our interest rate swaps excluding the recognition of variation margin settlements as a direct reduction of carrying value was a net
asset (liability) of $2.3 billion and $2.9 billion, respectively, based on "Level 2" inputs. As of December 31, 2024 and 2023, the net fair value of our credit default swaps excluding the
recognition of variation margin settlements was a net asset (liability) of $0 million and $(6) million, respectively, based on "Level 2" inputs. See Notes 2 and 5 for additional details.
Excluded from the table above are financial instruments reported at cost and other mortgage credit investments reported under the equity method of
accounting in our consolidated financial statements. As of December 31, 2024 and 2023, the fair value of our repurchase agreements approximated cost, given
their short-term nature (less than one year) and 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 such dates due to
their short duration. We estimate the fair value of these instruments carried at cost using "Level 1" or "Level 2" inputs. As of December 31, 2024 and 2023, the
carrying value of other mortgage credit investments reported under the equity method of accounting was $64 million and $44 million, respectively.
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") that were outstanding during the period, which were granted under our long-term incentive program to employees and non-
employee members of the Board of Directors ("the Board"). Diluted net income (loss) per common share assumes the issuance of all potential common stock
equivalents unless doing so would reduce a loss or increase 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):
1
1
1
72
Fiscal Year
2024
2023
2022
Weighted average number of common shares issued and outstanding
781.2
616.6
535.4
Weighted average number of fully vested restricted stock units outstanding
2.2
1.8
1.6
Weighted average number of common shares outstanding - basic
783.4
618.4
537.0
Weighted average number of dilutive unvested restricted stock units outstanding
2.6
1.2
—
Weighted average number of common shares outstanding - diluted
786.0
619.6
537.0
Net income (loss) available (attributable) to common stockholders
$
731
$
32
$
(1,295)
Net income (loss) per common share - basic
$
0.93
$
0.05
$
(2.41)
Net income (loss) per common share - diluted
$
0.93
$
0.05
$
(2.41)
For the year ended December 31, 2022, 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 including them 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, 2024 and 2023,
13,800, 10,350, 16,100, 23,000 and 6,900 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, 6.50% Series E Fixed-to-Floating Rate Cumulative Redeemable
Preferred Stock, 6.125% Series F Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock and 7.75% Series G Fixed-Rate Reset Cumulative
Redeemable Preferred Stock, respectively, (referred to as "Series C, D, E, F and G Preferred Stock", respectively). As of December 31, 2024 and 2023, 13,000,
9,400, 16,100, 23,000 and 6,000 shares of Series C, D, E, F and G Preferred Stock, respectively, 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 ($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, 2024 (dollars and shares in
millions):
Cumulative Redeemable
Preferred Stock
Issue Date
Depositary
Shares
Issued
and
Outstanding
Carrying
Value
Aggregate
Liquidation
Preference
Per Annum
Dividend
Rate
First Optional
Redemption Date /
Conversion Date
Fixed-to-Floating Rate:
Series C
August 22, 2017
13.0
$
315
$
325
10.01991%
October 15, 2022
Series D
March 6, 2019
9.4
227
235
9.24091%
April 15, 2024
Series E
October 3, 2019
16.1
390
403
9.90191%
October 15, 2024
Series F
February 11, 2020
23.0
557
575
6.125%
April 15, 2025
Fixed-Rate Reset:
Series G
September 14, 2022
6.0
145
150
7.750%
October 15, 2027
Total
67.5
$
1,634
$
1,688
________________________________
1.
The depositary shares underlying our preferred stock accrue dividends at an initial 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 or fixed-rate-reset conversion date; thereafter, dividends will accrue on a floating rate or fixed-rate-reset basis equal to the conversion rate plus a fixed
spread.
2.
The Series C, D and E per annum dividend rates represent the rates in effect as of December 31, 2024.
3.
The Series C, D and E dividends accrue at a rate equal to the 3-Month CME Term SOFR plus 0.26161%, plus spreads of 5.111%, 4.332% and 4.993%, respectively, per annum, resetting
quarterly in accordance with the certificate of designations for such series and the Adjustable Interest Rate (LIBOR) Act of 2021 (the “LIBOR Act”). At the conclusion of the fixed rate
period (the conversion date) for the Series F Preferred Stock, the dividend for such series will accrue at a rate equal to the 3-Month CME Term SOFR plus 0.26161%, plus a spread of
4.697% per annum, resetting
1
2,3
3,4
73
quarterly in accordance with the certificate of designations for such series and the LIBOR Act. At the conclusion of the fixed rate period for the Series G Preferred Stock, the dividend will
accrue at a floating rate equal to the 5-Year US Treasury rate plus a spread of 4.39% per annum and will reset in accordance with the certificate of designations for such series.
4.
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.
At-the-Market Offering Program
We are authorized by our Board 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 the sales agreements during fiscal years 2024, 2023 and 2022 (in millions, except for per share data). As of December
31, 2024, shares of our common stock with an aggregate offering price of $1.2 billion remained authorized for issuance under this program through December
31, 2025.
ATM Offerings
Average Price Received
Per Share, Net
Shares
Net Proceeds
Fiscal Year 2024
$9.73
202.1
$
1,967
Fiscal Year 2023
$9.14
118.8
$
1,085
Fiscal Year 2022
$9.39
56.0
$
526
Common Stock Repurchase Program
We are authorized by our Board to repurchase shares of our common stock in open market, through privately negotiated transactions, or pursuant to a
trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended. The following table includes a summary
of shares of our common stock repurchased during fiscal year 2022 (in millions, except for per share data). During fiscal years 2023 and 2024, we did not
repurchase shares under this program. As of December 31, 2024, shares of our common stock with an aggregate repurchase price of $1.0 billion remained
authorized for repurchase through December 31, 2026.
Common Stock Repurchases
Average Price Paid Per
Share
Shares
Net Cost
Fiscal Year 2022
$10.78
4.7
$
51
1
74
Distributions to Stockholders
The following table summarizes dividends declared during fiscal years 2024, 2023 and 2022 (in millions, except per share amounts):
Dividends Declared
Dividends Declared Per
Share
Series C Preferred Stock
Fiscal year 2024
$
35
$
2.672820
Fiscal year 2023
$
34
$
2.660390
Fiscal year 2022
$
25
$
1.886880
Series D Preferred Stock
Fiscal year 2024
$
21
$
2.278248
Fiscal year 2023
$
16
$
1.718750
Fiscal year 2022
$
16
$
1.718750
Series E Preferred Stock
Fiscal year 2024
$
30
$
1.851370
Fiscal year 2023
$
26
$
1.625000
Fiscal year 2022
$
26
$
1.625000
Series F Preferred Stock
Fiscal year 2024
$
35
$
1.531250
Fiscal year 2023
$
35
$
1.531250
Fiscal year 2022
$
35
$
1.531250
Series G Preferred Stock
Fiscal year 2024
$
12
$
1.937520
Fiscal year 2023
$
12
$
1.937520
Fiscal year 2022
$
4
$
0.651220
Common Stock
Fiscal year 2024
$
1,137
$
1.440000
Fiscal year 2023
$
896
$
1.440000
Fiscal year 2022
$
775
$
1.440000
________________________________
1.
Preferred stock per share amounts are per depositary share.
1
75
The following table summarizes our tax characterization of distributions to stockholders for fiscal years 2024, 2023 and 2022. 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:
Tax Characterization
Tax Year
Distribution Rate
Ordinary Dividend
Per Share
Qualified
Dividends
Capital Gain
Dividend Per Share
Non-Dividend
Distributions
Section 199
Dividend
Series C Preferred Stock
Fiscal year 2024
$
2.721090
$
2.721090
$
—
$
—
$
—
$
2.72
Fiscal year 2023
$
2.546340
$
2.546340
$
—
$
—
$
—
$
2.54
Fiscal year 2022
$
1.750000
$
1.750000
$
—
$
—
$
—
$
1.75
Series D Preferred Stock
Fiscal year 2024
$
2.117545
$
2.117545
$
—
$
—
$
—
$
2.11
Fiscal year 2023
$
1.718750
$
1.718750
$
—
$
—
$
—
$
1.71
Fiscal year 2022
$
1.718750
$
1.718750
$
—
$
—
$
—
$
1.71
Series E Preferred Stock
Fiscal year 2024
$
1.625000
$
1.625000
$
—
$
—
$
—
$
1.62
Fiscal year 2023
$
1.625000
$
1.625000
$
—
$
—
$
—
$
1.62
Fiscal year 2022
$
1.625000
$
1.625000
$
—
$
—
$
—
$
1.62
Series F Preferred Stock
Fiscal year 2024
$
1.531250
$
1.531250
$
—
$
—
$
—
$
1.53
Fiscal year 2023
$
1.531250
$
1.531250
$
—
$
—
$
—
$
1.53
Fiscal year 2022
$
1.531250
$
1.531250
$
—
$
—
$
—
$
1.53
Series G Preferred Stock
Fiscal year 2024
$
1.937520
$
1.937520
$
—
$
—
$
—
$
1.93
Fiscal year 2023
$
2.104360
$
2.104360
$
—
$
—
$
—
$
2.104
Common Stock
Fiscal year 2024
$
1.440000
$
1.440000
$
—
$
—
$
—
$
1.44
Fiscal year 2023
$
1.560000
$
1.560000
$
—
$
—
$
—
$
1.56
Fiscal year 2022
$
1.440000
$
0.669420
$
—
$
—
$
0.770580
$
0.66
________________________________
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 2024, 2023 and 2022 (in millions):
Fiscal Year
Accumulated Other Comprehensive Income (Loss)
2024
2023
2022
Beginning Balance
$
(517)
$
(672)
$
301
OCI before reclassifications
(74)
92
(1,015)
Net loss amounts for available-for-sale securities reclassified from accumulated OCI to realized gain (loss) on sale of
investment securities, net
—
63
42
Ending Balance
$
(591)
$
(517)
$
(672)
Note 10. Segment Reporting
Our investment portfolio consists primarily of Agency RMBS, and we fund our investments primarily through collateralized borrowings structured as
repurchase agreements. As part of our operations, we are exposed to market risks, including interest rate, prepayment, extension, spread, and credit risks.
1
1
76
Our portfolio is managed as a whole, with investment and hedging decisions assessed collectively by the Chief Operating Decision Maker (CODM). The
CODM, represented by our Chief Executive Officer with the support of our Executive Management Committee, allocates resources and evaluates financial
performance by considering the market risks identified above. The CODM also considers factors such as total assets and repurchase agreements outstanding, as
reported on the consolidated balance sheet; our TBA position, as disclosed in Note 5. Derivative and Other Hedging Instruments; our ability to hedge certain
risks; and our intention to qualify as a REIT. Consequently, the Company operates as a single reportable segment, as reflected in the accompanying consolidated
financial statements and notes.
The CODM assesses performance using comprehensive income (loss), as reported on the consolidated statement of comprehensive income (loss).
Comprehensive income (loss) is a key determinant of the Company’s economic return, calculated as the change in tangible stockholders’ equity attributable to
common stockholders plus common stock dividends declared, divided by the prior period’s tangible stockholders’ equity attributable to common stockholders.
This measure is used to monitor actual results, benchmark performance against peers, and inform management’s compensation. Additionally, the CODM also
evaluates consolidated expense information, including interest expense, compensation and benefits, and other operating expenses, as significant metrics in
decision-making.
Note 11. Stock-Based Compensation
During fiscal years 2024, 2023 and 2022, we granted RSU awards to employees with a grant date fair value of $10 million, $11 million and $8 million,
respectively, which generally vest annually over a three-year period, and we granted RSU awards to independent directors of $1.2 million, $1.2 million and $1.0
million, respectively, which vest at the end of a one-year period from grant date. We also granted PSU awards to employees which generally 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 2024, 2023 and 2022 as of the grant date was $10 million, $10 million and $11 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.
Our 2016 Equity Plan, as amended, authorizes a total of 40 million shares of our common stock that may be used to satisfy awards granted under the Plan,
subject to the share counting rules set forth within the Plan. As of December 31, 2024, 26.0 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 awards, net of units withheld to cover minimum statutory tax withholding requirements paid by us in cash on behalf of the employee, (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, 2024. Unvested PSU awards assume the maximum potential payout under
the terms of the award. As of December 31, 2024, 2.0 million of deferred awards, including accrued dividend equivalents, were outstanding.
During fiscal years 2024, 2023 and 2022, we recognized total compensation expense of $23.5 million, $15.0 million and $11.6 million, respectively, for
stock-based awards to employees, and we recognized other operating expense of $1.2 million, $1.1 million and $1.0 million, respectively, for stock-based
awards to independent directors. Compensation expense for PSU awards is based on our estimate of the probability that the performance criteria for PSU awards
will be achieved and, if applicable, includes a cumulative effect adjustment for changes in our estimate from the prior year period. As of December 31, 2024, we
estimate that 75.5% of target for PSU awards granted in fiscal year 2022 will vest based on actual performance achieved through the end of the performance
measurement period and that 115% and 100% of target will vest for PSU awards granted in fiscal years 2023 and 2024, respectively, based on our estimate of the
probability that the performance criteria for these awards will be achieved. As of December 31, 2024, we had $18 million of unrecognized expense related to
stock-based awards that we expect to recognize over a weighted average period of 1.4 years.
The following tables summarizes awards under our 2016 Equity Plan for fiscal years 2024, 2023 and 2022:
77
RSU Awards
RSU Awards
Weighted Average
Grant Date Fair
Value
Weighted Average
Vest Date Fair
Value
Unvested balance as of December 31, 2021
1,050,027
$
15.15
$
—
Granted
687,733
$
12.85
$
—
Accrued RSU dividend equivalents
159,039
$
—
$
—
Vested
(558,796)
$
14.68
$
12.70
Forfeitures
(4,312)
$
13.43
$
—
Unvested balance as of December 31, 2022
1,333,691
$
12.36
$
—
Granted
1,140,758
$
10.67
$
—
Accrued RSU dividend equivalents
273,189
$
—
$
—
Vested
(703,557)
$
12.28
$
9.88
Unvested balance as of December 31, 2023
2,044,081
$
9.79
$
—
Granted
1,154,343
$
9.52
$
—
Accrued RSU dividend equivalents
337,739
$
—
$
—
Vested
(1,062,526)
$
9.71
$
9.56
Unvested balance as of December 31, 2024
2,473,637
$
8.36
$
—
________________________________
1.
There were no forfeitures of awards during the fiscal years 2023 and 2024.
2.
Accrued RSU award dividend equivalents have a weighted average grant date fair value of $0.
PSU Awards
PSUs
at Target
Performance
Level
Weighted Average
Grant Date Fair
Value
Weighted Average
Vest Date Fair
Value
Unvested balance as of December 31, 2021
2,212,660
$
14.52
$
—
Granted
826,971
$
12.99
$
—
Accrued PSU dividend equivalents
279,484
$
—
$
—
Vested
(938,540)
$
13.02
$
13.85
Unvested balance as of December 31, 2022
2,380,575
$
12.87
$
—
Granted
950,840
$
10.59
$
—
Accrued PSU dividend equivalents
402,368
$
—
$
—
Performance adjustment - March 2021 base grant
(210,425)
$
15.96
$
—
Performance adjustment - accrued PSU dividend equivalents
(87,375)
$
—
$
—
Vested
(699,128)
$
14.18
$
11.48
Unvested balance as of December 31, 2023
2,736,855
$
10.03
$
—
Granted
1,058,466
$
9.58
$
—
Accrued PSU dividend equivalents
489,216
$
—
$
—
Performance adjustment - March 2022 base grant
(142,273)
$
12.99
$
—
Performance adjustment - accrued PSU dividend equivalents
(74,832)
$
—
$
—
Vested
(595,992)
$
11.13
$
9.56
Unvested balance as of December 31, 2024
3,471,440
$
8.38
$
—
_______________________
1.
There were no forfeitures of awards during the periods presented.
2.
Accrued PSU award dividend equivalents have a weighted average grant date fair value of $0.
3.
Performance adjustments reflect adjustments for actual performance achieved relative to target, measured at the end of the performance period.
4.
The unvested balance as of December 31, 2024 assumes actual performance achievement of 75.5% of target for PSU awards granted in fiscal year 2022 that are scheduled to vest in fiscal
year 2024 and target levels of performance (100%) for PSU awards granted in fiscal years 2023 and 2024. The actual number of PSUs that will vest for the 2023 and 2024 PSU awards will
vary within a range of 0% to 200% of the target based on the actual performance achieved relative to the targets. As of December 31, 2024, we estimate that 115.0% and 100.0% of the 2023
and 2024 PSU awards, respectively, will vest based on our estimate of the probability that the performance criteria for the awards will be achieved.
1
2
1
2
4
3
3
3
4
78
Note 12. Income Taxes
We did not incur an income tax liability for the years ended December 31, 2023 and 2022 and we do not expect to incur an income tax liability for the year
ended December 31, 2024.
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 Topic 740, Income Taxes, as of December 31, 2024 or prior periods. Our tax returns for tax years 2021 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.
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 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, 2024. 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
During the fiscal quarter ended December 31, 2024, none of our directors or officers (as defined in Rule 16a-1(f) under the Exchange Act) informed us of
the adoption or termination of a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement” (as each term is defined in Regulation S-K, Item
408).
PART III.
Item 10. Directors, Executive Officers and Corporate Governance
Information in response to this Item is incorporated herein by reference to the information provided in our Proxy Statement for our 2025 Annual Meeting
of Stockholders (the "2025 Proxy Statement") under the headings "PROPOSAL 1: ELECTION OF DIRECTORS", "EXECUTIVE OFFICERS OF
REGISTRANT", and "BOARD AND GOVERNANCE MATTERS."
Insider Trading Policy
The Company has adopted the AGNC Investment Corp. Policy on Insider Trading that applies to our directors, officers, employees, independent
contractors, and certain of their respective family members. We believe the policy is reasonably designed to promote compliance with insider trading laws, rules
and regulations, and any applicable listing standards. A copy of our policy is filed as Exhibit 19 to this Annual Report on Form 10-K.
79
Item 11. Executive Compensation
Information in response to this Item is incorporated herein by reference to the information provided in the 2025 Proxy Statement under the headings
"PROPOSAL 1: ELECTION OF DIRECTORS", "EXECUTIVE COMPENSATION", "COMPENSATION DISCUSSION AND ANALYSIS", "REPORT OF
THE COMPENSATION AND CORPORATE GOVERNANCE COMMITTEE", and "COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION."
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 2025 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 2025 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 2025 Proxy Statement under the heading
"PROPOSAL 4: RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANT."
80
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, 2024 and 2023
Consolidated Statements of Comprehensive Income for fiscal years 2024, 2023 and 2022
Consolidated Statements of Stockholders' Equity for fiscal years 2024, 2023 and 2022
Consolidated Statements of Cash Flows for fiscal years 2024, 2023 and 2022
(2) The following exhibits are filed herewith or incorporated herein by reference
Exhibit No. Description
*3.1 AGNC Investment Corp. Amended and Restated Certificate of Incorporation, as amended, incorporated by reference from Exhibit 3.1 of Form 10-K for
the year ended December 31, 2021 (File No. 001-34057), filed February 23, 2022.
*3.2 AGNC Investment Corp. Amended and Restated Bylaws, as amended, incorporated herein by reference to Exhibit 3.1 of Form 8-K (File No. 001-34057),
filed July 21, 2023.
*3.3 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.
*3.4 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.
*3.5 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.
*3.6 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.
*3.7 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.
*3.8 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.
*3.9 Certificate of Designations of 7.75% Series G Fixed-Rate Reset Cumulative Redeemable Preferred Stock, incorporated herein by reference to Exhibit 3.7
of Form 8-A (File No 001-34057), filed September 14, 2022.
*4.1 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-K for the year ended December 31, 2021 (File No. 001-34057), filed February 23,
2022.
*4.2 Instruments defining the rights of holders of securities: See Article VI of our Amended and Restated Bylaws, as amended, incorporated herein by
reference to Exhibit 3.1 of Form 8-K, filed July 21, 2023.
*4.3 Form of Certificate for Common Stock, incorporated herein by reference to Exhibit 4.3 of Form 10-Q for the quarter ended September 30, 2022 (File No.
001-34057), filed November 7, 2022.
*4.4 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.
*4.5 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.
81
*4.6 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.
*4.7 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.
*4.8 Specimen 7.75% Series G Fixed-Rate Reset Cumulative Redeemable Preferred Stock Certificate, incorporated herein by reference to Exhibit 4.1 of Form
8-A (File No 001-34057), filed September 14, 2022.
*4.9 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.
*4.10 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 4.9), incorporated herein by reference to Exhibit A of Exhibit 4.2 of Form 8-K (File No. 001-34057) filed August
22, 2017.
*4.11 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.
*4.12 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 4.11), incorporated herein by reference to Exhibit A of Exhibit 4.2 of Form 8-K (File No. 001-34057) filed March
6, 2019.
*4.13 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.
*4.14 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 4.13), incorporated herein by reference to Exhibit A of Exhibit 4.2 of Form 8-K (File No. 001-34057) filed
October 3, 2019.
*4.15 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.
*4.16 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 4.15), incorporated herein by reference to Exhibit A of Exhibit 4.1 of Form 8-K (File No. 001-34057) filed
February 11, 2020.
*4.17 Deposit Agreement relating to 7.75% Series G Fixed-Rate Reset Cumulative Redeemable Preferred Stock, dated September 14, 2022, 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 September 14, 2022.
*4.18 Form of Depositary Receipt representing 1/1,000th of a share of 7.75% Series G Fixed-Rate Reset Cumulative Redeemable Preferred Stock (included as
part of Exhibit 4.17), incorporated herein by reference to Exhibit A of Exhibit 4.2 of Form 8-K (File No. 001-34057) filed September 14,
2022.
4.19 Description of the Registrant’s Securities, filed herewith.
†* 10.1 Form of Indemnification Agreement, incorporated herein by reference to Exhibit 10.1 of Form 8-K (File No. 001-34057) filed October 25, 2021.
†* 10.2 Sixth Amended and Restated Employment Agreement dated July18, 2024, 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 July 19, 2024.
82
†* 10.3 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.
†* 10.4 First Amendment to Second Amended and Restated Employment Agreement dated January 31, 2023 between AGNC Mortgage Management, LLC
and Peter Federico, incorporated herein by reference to Exhibit 10.4 of Form 10-K (File No. 001-34057), filed February 27, 2023.
†* 10.5 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.
†* 10.6 First Amendment to Second Amended and Restated Employment Agreement dated January 31, 2023 between AGNC Mortgage Management, LLC
and Christopher Kuehl, incorporated herein by reference to Exhibit 10.6 of Form 10-K (File No. 001-34057), filed February 27, 2023.
†* 10.7 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.
†* 10.8 First Amendment to Amended and Restated Employment Agreement dated January 21, 2022 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 21, 2022.
†* 10.9 Second Amendment to Amended and Restated Employment Agreement dated January 31, 2023 between AGNC Mortgage Management, LLC and
Bernice Bell, incorporated by reference to Exhibit 10.3 of Form 8-K (File No. 001-34057), filed February 3, 2023.
†* 10.10 Amended and Restated Employment Agreement, dated January 22, 2021, by and between AGNC Mortgage Management, LLC and Kenneth Pollack,
incorporated herein by reference to Exhibit 10.15 of Form 10-K (File No. 001-34057), filed February 26, 2021.
†* 10.11 First Amendment to Amended and Restated Employment Agreement dated January 21, 2022 between AGNC Mortgage Management, LLC and
Kenneth Pollack, incorporated herein by reference to Exhibit 10.2 of Form 8-K (File No. 001-34057), filed January 21, 2022.
†* 10.12 Second Amendment to Amended and Restated Employment Agreement dated January 31, 2023 between AGNC Mortgage Management, LLC and
Kenneth Pollack, incorporated by reference to Exhibit 10.4 of Form 8-K (File No. 001-34057), filed February 3, 2023.
†* 10.13 Amended and Restated Employment Agreement dated January 31, 2023 between AGNC Mortgage Management, LLC and Sean Reid, incorporated
by reference to Exhibit 10 of Form 10-Q (File No. 001-34057), filed May 7, 2024.
†* 10.14 Amended and Restated AGNC Investment Corp. 2016 Equity and Incentive Compensation Plan, incorporated herein by reference to Exhibit 10.11 of
Form 10-K (File No, 001-34057), filed February 23, 2022.
†* 10.15 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.
†* 10.16 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.
†* 10.17 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 10.26 of Form 10-K (File No. 001-34057), filed February 26, 2021.
†* 10.18 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 10.27 of Form 10-K (File No. 001-34057), filed February 26,
2021.
83
†* 10.19 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 10.28 of Form 10-K (File No. 001-34057), filed February 26, 2021.
†* 10.20 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 10.29 of Form 10-K (File No. 001-34057), filed February 26,
2021.
†* 10.21 Form of AGNC Investment Corp. 2016 Equity and Incentive Compensation Plan Restricted Stock Unit Agreement for Section 16 Officers with
Retirement Plan Language, incorporated herein by reference to Exhibit 10.20 of Form 10-K (File No. 001-34057), filed February 22, 2024.
†* 10.22 Form of AGNC Investment Corp. 2016 Equity and Incentive Compensation Plan Performance-Based Restricted Stock Unit Agreement for Section 16
Officers with Retirement Plan Language, incorporated herein by reference to Exhibit 10.21 of Form 10-K (File No. 001-34057), filed February
22, 2024.
*14 AGNC Investment Corp. Code of Ethics and Conduct, adopted July 18, 2024, incorporated herein by reference to Exhibit 14 of Form 10-Q (File No. 001-
34057) filed August 5, 2024.
19 AGNC Investment Corp. Policy on Insider Trading, adopted July 18, 2024, filed herewith.
21 Subsidiaries of the Company and jurisdiction of incorporation:
1) AGNC TRS, LLC, a Delaware limited liability company
2) Bethesda Securities, LLC, a Delaware limited liability company
3) AGNC Mortgage Management, LLC, a Delaware limited liability company
23 Consent of Ernst & Young LLP, filed herewith.
24 Powers of Attorney of directors, filed herewith.
31.1 Certification of CEO Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.
31.2 Certification of CFO Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.
32 Certification of CEO and CFO Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*97.1 AGNC Investment Corp. Compensation Clawback Policy, incorporated herein by reference to Exhibit 97.1 of Form 10-K (File No. 001-34057), filed
Februrary 22, 2024.
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101.CAL** XBRL Taxonomy Extension Calculation Linkbase Document
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________________________________
* 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.
84
SIGNATURES
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.
AGNC INVESTMENT CORP.
By:
/s/ PETER J. FEDERICO
Peter J. Federico
President and
Chief Executive Officer (Principal Executive Officer)
Date:
February 21, 2025
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/ PETER J. FEDERICO
Director, President and Chief Executive
Officer (Principal Executive Officer)
February 21, 2025
Peter J. Federico
/s/ BERNICE E. BELL
Executive Vice President and Chief
Financial Officer (Principal Financial
Officer and Principal Accounting Officer)
February 21, 2025
Bernice E. Bell
/s/ GARY D. KAIN
Director, Executive Chair
February 21, 2025
Gary D. Kain
*
Director
February 21, 2025
Donna J. Blank
*
Director
February 21, 2025
Morris A. Davis
*
Director
February 21, 2025
John D. Fisk
*
Director
February 21, 2025
Andrew A. Johnson, Jr.
*
Director
February 21, 2025
Prue B. Larocca
*
Director
February 21, 2025
Paul E. Mullings
*
Director
February 21, 2025
Frances R. Spark
*By:
/s/ KENNETH L. POLLACK
Kenneth L. Pollack
Attorney-in-fact
85
Exhibit 4.19
DESCRIPTION OF THE REGISTRANT’S SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF THE
SECURITIES EXCHANGE ACT OF 1934
The following description sets forth certain material terms and provisions of AGNC Investment Corp.’s securities that are registered under Section
12 of the Securities Exchange Act of 1934, as amended.
The description below does not purport to be complete and is qualified in its entirety by reference to our Amended and Restated Certificate of
Incorporation, as filed with the Secretary of State of Delaware on April 23, 2020 (the “Charter”), our Amended and Restated Bylaws (the
“Bylaws”), as in effect since July 20, 2023 and each prospectus, prospectus supplement and certificate of designations which was filed with the
U.S. Securities and Exchange Commission (“SEC”), as applicable, at or prior to the time of sale of the related security. If so indicated in the
applicable prospectus supplement, the terms of any such security may differ from the terms set forth below. If there are differences between the
prospectus supplement relating to a particular security and the applicable prospectus, the prospectus supplement controls. When used in this
exhibit, the terms “AGNC,” “we,” “our” and “us” refer solely to AGNC Investment Corp. and not to its subsidiaries. We urge you to read our
Charter, as amended, our Bylaws and each prospectus, prospectus supplement and certificate of designations applicable to the related security in
their entirety.
As of December 31, 2024, we had six classes of registered securities listed on The Nasdaq Global Select Market, our common stock and 7.000%
Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, 6.875% Series D Fixed-to-Floating Rate Cumulative Redeemable
Preferred Stock, 6.50% Series E Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, 6.125% Series F Fixed-to-Floating Rate
Cumulative Redeemable Preferred Stock, and 7.75% Series G Fixed-Rate Reset Cumulative Redeemable Preferred Stock.
DESCRIPTION OF EQUITY SECURITIES
General
Our Charter provides that we may issue up to 1,500,000,000 shares of common stock and 10,000,000 shares of preferred stock, both having a par
value of $0.01 per share. Of these shares of preferred stock, 13,800 shares have been designated as our 7.00% Series C Fixed-to-Floating
Cumulative Redeemable Preferred Stock (“Series C Preferred Stock”), 10,350 shares have been designated as our 6.875% Series D Fixed-to-
Floating Cumulative Redeemable Preferred Stock (“Series D Preferred Stock”), 16,100 shares have been designated as our 6.50% Series E Fixed-
to-Floating Rate Cumulative Redeemable Preferred Stock (“Series E Preferred Stock”), 23,000 shares have been designated as our 6.125% Series
F Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock (“Series F Preferred Stock”), and 6,900 shares have been designated as our
7.75% Series G Fixed-Rate Reset Cumulative Redeemable Preferred Stock (“Series G Preferred Stock”). As of December 31, 2024, 897,402,910
shares of our common stock, 13,000 shares of our Series C Preferred Stock, 9,400 shares of our Series D Preferred Stock, 16,100 shares of our
Series E Preferred Stock, 23,000 shares of our Series F Preferred Stock, and 6,000 shares of our Series G Preferred Stock were issued and
outstanding.
Common Stock
Voting Rights
Subject to the restrictions contained in our Charter regarding the transfer and ownership of our capital stock and except as may otherwise be
specified in the terms of any class or series of common stock, our common stockholders are entitled to one vote per share. Our common
stockholders are not entitled to cumulate their votes in the election of directors. Generally, all matters to be voted on by stockholders must be
approved by a majority of the votes entitled to be cast by all holders of our common stock present in person or represented by proxy, voting
together as a single class; provided, that if the number of nominees for director exceeds the number of directors to be elected at our annual
meeting, each director shall be elected by a plurality of the votes cast. Except as otherwise provided by
1
law, amendments to our Charter must be approved by a majority or, with respect to provisions relating to the powers, numbers, classes, elections,
terms and removal of our directors, the ability to fill vacancies on our Board of Directors and our election to qualify as a REIT, 66% of the
combined voting power of all shares of all classes of capital stock entitled to vote generally in the election of directors, voting together as a single
class.
Dividend Rights
Subject to the restrictions contained in our Charter regarding the transfer and ownership of our capital stock, our common stockholders will share
ratably (based on the number of common shares held) if and when any dividend is declared by our Board of Directors.
Liquidation Rights
On our liquidation, dissolution or winding up, each of our common stockholders will be entitled to a pro rata dividend of any assets available for
distribution to common stockholders.
Other Matters
In the event of our merger or consolidation with or into another company in connection with which shares of common stock are converted into or
exchangeable for shares of stock, other securities or property (including cash), all of our common stockholders will be entitled to receive the same
kind and amount of shares of stock and other securities and property (including cash).
Preferred Stock
Description of Series C Preferred Stock Underlying Our Depositary Shares
On August 17, 2017, we filed a certificate of designations (the “Series C Certificate of Designations”) with the Secretary of State of the State of
Delaware to designate 13,800 shares of our Series C Preferred Stock with the powers, designations, preferences and other rights set forth in the
Series C Certificate of Designations. The Series C Certificate of Designations became effective upon filing on August 17, 2017. On August 22,
2017, we issued 13,000 shares of the Series C Preferred Stock, which shares were deposited with Computershare Inc. and Computershare Trust
Company, N.A., jointly as depositary, against which depositary receipts evidencing 13,000,000 depositary shares were issued, all of which remain
outstanding as of December 31, 2024. Each depositary share represents 1/1,000th of a share of Series C Preferred Stock. The depositary shares
underlying the Series C Preferred Stock are listed on the Nasdaq Global Select Market under the symbol “AGNCN.”
Ranking. The Series C Preferred Stock ranks, with respect to rights to the payment of dividends and the distribution of assets upon our liquidation,
dissolution or winding up, (1) senior to all classes or series of our common stock and to all other equity securities issued by us other than equity
securities referred to in clauses (2) and (3); (2) on a parity with all equity securities issued by us with terms specifically providing that those equity
securities rank on a parity with the Series C Preferred Stock with respect to rights to the payment of dividends and the distribution of assets upon
our liquidation, dissolution or winding up; (3) junior to all equity securities issued by us with terms specifically providing that those equity
securities rank senior to the Series C Preferred Stock with respect to rights to the payment of dividends and the distribution of assets upon our
liquidation, dissolution or winding up; and (4) effectively junior to all of our existing and future indebtedness (including indebtedness convertible
to our common stock or preferred stock) and to the indebtedness of our existing subsidiary and any future subsidiaries.
Distributions. Holders of shares of the Series C Preferred Stock are entitled to receive, when, as and if declared by our Board of Directors, out of
funds legally available for the payment of dividends, cumulative cash dividends. The initial dividend rate for the Series C Preferred Stock from
and including the date of original issuance to, but not including, October 15, 2022 (the “Fixed Rate Period”) was at the rate of 7.00% of the
$25,000 liquidation preference per share of Series C Preferred Stock per annum (equivalent to $1,750 per annum per share of Series C Preferred
Stock or $1.75 per annum per depositary share). On and after October 15, 2022 (the “Floating Rate Period”) to, but not including, July 15, 2023
dividends on the Series C Preferred Stock accumulated at a percentage of the $25,000 liquidation preference per share of Series C Preferred Stock
equal to an annual floating rate of the Three-Month LIBOR Rate plus a spread of 5.111%. As a result of the termination of publication of the
Three-Month LIBOR Rate, on and after July 15, 2023, dividends on the Series C Preferred Stock began accumulating at a percentage of the
$25,000 liquidation preference per share of Series C Preferred Stock equal to Three-Month CME
2
Term SOFR plus 0.26161% plus a spread of 5.111%. Dividends on the Series C Preferred Stock accumulate daily and are cumulative from, and
including, the date of original issue (August 22, 2017) and are payable quarterly in arrears on the 15 day of each January, April, July and
October; provided that if any dividend payment date is not a business day, then the dividend which would otherwise have been payable on that
dividend payment date may be paid on the next succeeding business day. Dividends accumulate and are cumulative from, and including, the date
of original issuance. Dividends payable for any dividend period during the Fixed Rate Period will be calculated on the basis of a 360-day year
consisting of twelve 30-day months, and dividends payable for any dividend period during the Floating Rate Period will be calculated on the basis
of a 360-day year and the number of days actually elapsed. Dividends will be payable to holders of record as they appear in our stock records for
the Series C Preferred Stock at the close of business on the applicable record date, which shall be the first day of the calendar month, in which the
applicable dividend payment date falls.
Liquidation Preference. In the event of our voluntary or involuntary liquidation, dissolution or winding up, holders of the Series C Preferred Stock
will be entitled to be paid out of the assets we have legally available for distribution to our stockholders, subject to the preferential rights of the
holders of any class or series of our capital stock we may issue ranking senior to the Series C Preferred Stock with respect to the distribution of
assets upon liquidation, dissolution or winding up, a liquidation preference of $25,000 per share ($25.00 per depositary share), plus an amount
equal to any accumulated and unpaid dividends to, but not including, the date of payment, before any distribution of assets is made to holders of
our common stock or any other class or series of our stock that we may issue that ranks junior to the Series C Preferred Stock as to liquidation
rights.
Redemption. The Series C Preferred Stock became redeemable on October 15, 2022. We may, at our option, redeem any or all of the shares of the
Series C Preferred Stock at $25,000 per share ($25.00 per depositary share) plus any accumulated and unpaid dividends to, but not including, the
redemption date. In addition, upon the occurrence of a Change of Control (as defined in the Series C Certificate of Designations), we may, at our
option, redeem any or all of the shares of Series C Preferred Stock within 120 days after the first date on which such Change of Control occurred
at $25,000 per share ($25.00 per depositary share) plus any accumulated and unpaid dividends to, but not including, the redemption date.
Maturity. The Series C Preferred Stock has no stated maturity, is not subject to any sinking fund or mandatory redemption and will remain
outstanding indefinitely unless repurchased or redeemed by us or converted into our common stock in connection with a Change of Control by the
holders of Series C Preferred Stock.
Voting Rights. Holders of Series C Preferred Stock will generally have no voting rights. However, if we do not pay dividends on the Series C
Preferred Stock for six or more quarterly dividend periods (whether or not consecutive), the holders of the Series C Preferred Stock (voting
separately as a class with the holders of all other classes or series of our preferred stock we may issue upon which like voting rights have been
conferred and are exercisable and which are entitled to vote as a class with the Series C Preferred Stock in the election referred to below) will be
entitled to vote for the election of two additional directors to serve on our Board of Directors until we pay, or declare and set aside funds for the
payment of, all dividends that we owe on the Series C Preferred Stock, subject to certain limitations. In addition, the affirmative vote of the
holders of at least two-thirds of the outstanding shares of Series C Preferred Stock is required for us to authorize or issue any class or series of
stock ranking senior to the Series C Preferred Stock with respect to the payment of dividends or the distribution of assets on liquidation,
dissolution or winding up, to amend any provision of our Charter so as to materially and adversely affect any rights of the Series C Preferred
Stock or to take certain other actions.
Conversion. Upon the occurrence of a Change of Control, each holder of Series C Preferred Stock will have the right (subject to our election to
redeem the Series C Preferred Stock in whole or in part, as described above, prior to the Change of Control Conversion Date (as defined in the
Series C Certificate of Designations)) to convert some or all of the Series C Preferred Stock held by such holder on the Change of Control
Conversion Date into a number of shares of our common stock per share of Series C Preferred Stock determined by a formula, in each case, on the
terms and subject to the conditions described in the Series C Certificate of Designations, including provisions for the receipt, under specified
circumstances, of alternative consideration.
th
3
Description of Series D Preferred Stock Underlying Our Depositary Shares
On March 5, 2019, we filed a certificate of designations (the “Series D Certificate of Designations”) with the Secretary of State of the State of
Delaware to designate 10,350 shares of our Series D Preferred Stock with the powers, designations, preferences and other rights set forth in the
Series D Certificate of Designations. The Series D Certificate of Designations became effective upon filing on March 5, 2019. On March 6, 2019,
we issued 9,000 shares of the Series D Preferred Stock, which shares were deposited with Computershare Inc. and Computershare Trust
Company, N.A., jointly as depositary, against which depositary receipts evidencing 9,000,000 depositary shares were issued, and on March 20,
2019, we subsequently issued an additional 400 shares of the Series D Preferred Stock, which shares were deposited with Computershare Inc. and
Computershare Trust Company, N.A., jointly as depositary, against which depositary receipts evidencing 400,000 depositary shares were issued,
all of which remain outstanding as of December 31, 2024. Each depositary share represents 1/1,000th of a share of Series D Preferred Stock. The
depositary shares underlying the Series D Preferred Stock are listed on the Nasdaq Global Select Market under the symbol “AGNCM.”
Ranking. The Series D Preferred Stock ranks, with respect to rights to the payment of dividends and the distribution of assets upon our liquidation,
dissolution or winding up, (1) senior to all classes or series of our common stock and to all other equity securities issued by us other than equity
securities referred to in clauses (2) and (3); (2) on a parity with all equity securities issued by us with terms specifically providing that those equity
securities rank on a parity with the Series D Preferred Stock with respect to rights to the payment of dividends and the distribution of assets upon
our liquidation, dissolution or winding up, including the Series D Preferred Stock; (3) junior to all equity securities issued by us with terms
specifically providing that those equity securities rank senior to the Series D Preferred Stock with respect to rights to the payment of dividends
and the distribution of assets upon our liquidation, dissolution or winding up; and (4) effectively junior to all of our existing and future
indebtedness (including indebtedness convertible to our common stock or preferred stock) and to the indebtedness of our existing subsidiary and
any future subsidiaries.
Distributions. Holders of shares of the Series D Preferred Stock are entitled to receive, when, as and if declared by our Board of Directors, out of
funds legally available for the payment of dividends, cumulative cash dividends. The initial dividend rate for the Series D Preferred Stock from
and including the date of original issuance to, but not including, April 15, 2024 (the “Fixed Rate Period”) was at the rate of 6.875% of the $25,000
liquidation preference per share of Series D Preferred Stock per annum (equivalent to $1,718.75 per annum per share of Series D Preferred Stock
or $ 1.71875 per annum per depositary share). On and after April 15, 2024 (the “Floating Rate Period”), dividends on the Series D Preferred Stock
began accumulating at a percentage of the $25,000 liquidation preference per share of Series D Preferred Stock equal to an annual floating rate of
Three-Month CME Term SOFR plus 0.26161% plus a spread of 4.332%. Dividends on the Series D Preferred Stock accumulate daily and are
cumulative from, and including, the date of original issue (March 6, 2019) and are payable quarterly in arrears on the 15 day of each January,
April, July and October; provided that if any dividend payment date is not a business day, then the dividend which would otherwise have been
payable on that dividend payment date may be paid on the next succeeding business day. Dividends accumulate and are cumulative from, and
including, the date of original issuance. Dividends payable for any dividend period during the Fixed Rate Period will be calculated on the basis of
a 360-day year consisting of twelve 30-day months, and dividends payable for any dividend period during the Floating Rate Period will be
calculated on the basis of a 360-day year and the number of days actually elapsed. Dividends will be payable to holders of record as they appear in
our stock records for the Series D Preferred Stock at the close of business on the applicable record date, which shall be the first day of the
calendar month, in which the applicable dividend payment date falls.
Liquidation Preference. In the event of our voluntary or involuntary liquidation, dissolution or winding up, holders of the Series D Preferred Stock
will be entitled to be paid out of the assets we have legally available for distribution to our stockholders, subject to the preferential rights of the
holders of any class or series of our capital stock we may issue ranking senior to the Series D Preferred Stock with respect to the distribution of
assets upon liquidation, dissolution or winding up, a liquidation preference of $25,000 per share ($25.00 per depositary share), plus an amount
equal to any accumulated and unpaid dividends to, but not including, the date of payment, before any distribution of assets is made to holders of
our common stock or any other class or series of our stock that we may issue that ranks junior to the Series D Preferred Stock as to liquidation
rights.
th
4
Redemption. The Series D Preferred Stock became redeemable on April 15, 2024. We may, at our option, redeem any or all of the shares of the
Series D Preferred Stock at $25,000 per share ($25.00 per depositary share) plus any accumulated and unpaid dividends to, but not including, the
redemption date. In addition, upon the occurrence of a Change of Control, we may, at our option, redeem any or all of the shares of Series D
Preferred Stock within 120 days after the first date on which such Change of Control occurred at $25,000 per share ($25.00 per depositary share)
plus any accumulated and unpaid dividends to, but not including, the redemption date.
Maturity. The Series D Preferred Stock has no stated maturity, is not subject to any sinking fund or mandatory redemption and will remain
outstanding indefinitely unless repurchased or redeemed by us or converted into our common stock in connection with a Change of Control by the
holders of Series D Preferred Stock.
Voting Rights. Holders of Series D Preferred Stock will generally have no voting rights. However, if we do not pay dividends on the Series D
Preferred Stock for six or more quarterly dividend periods (whether or not consecutive), the holders of the Series D Preferred Stock (voting
separately as a class with the holders of all other classes or series of our preferred stock we may issue upon which like voting rights have been
conferred and are exercisable and which are entitled to vote as a class with the Series D Preferred Stock in the election referred to below) will be
entitled to vote for the election of two additional directors to serve on our Board of Directors until we pay, or declare and set aside funds for the
payment of, all dividends that we owe on the Series D Preferred Stock, subject to certain limitations. In addition, the affirmative vote of the
holders of at least two-thirds of the outstanding shares of Series D Preferred Stock is required for us to authorize or issue any class or series of
stock ranking senior to the Series D Preferred Stock with respect to the payment of dividends or the distribution of assets on liquidation,
dissolution or winding up, to amend any provision of our Charter so as to materially and adversely affect any rights of the Series D Preferred
Stock or to take certain other actions.
Conversion. Upon the occurrence of a Change of Control, each holder of Series D Preferred Stock will have the right (subject to our election to
redeem the Series D Preferred Stock in whole or in part, as described above, prior to the Change of Control Conversion Date (as defined in the
Series D Certificate of Designations)) to convert some or all of the Series D Preferred Stock held by such holder on the Change of Control
Conversion Date into a number of shares of our common stock per share of Series D Preferred Stock determined by a formula, in each case, on
the terms and subject to the conditions described in the Series D Certificate of Designations, including provisions for the receipt, under specified
circumstances, of alternative consideration.
Description of Series E Preferred Stock Underlying Our Depositary Shares
On October 2, 2019, we filed a certificate of designations (the “Series E Certificate of Designations”) with the Secretary of State of the State of
Delaware to designate 16,100 shares of our Series E Preferred Stock with the powers, designations, preferences and other rights set forth in the
Series E Certificate of Designations. The Series E Certificate of Designations became effective upon filing on October 2, 2019. On October 3,
2019, we issued 16,100 shares of the Series E Preferred Stock, which shares were deposited with Computershare Inc. and Computershare Trust
Company, N.A., jointly as depositary, against which depositary receipts evidencing 16,100,000 depositary shares were issued, all of which remain
outstanding as of December 31, 2024. Each depositary share represents 1/1,000th of a share of Series E Preferred Stock. The depositary shares
underlying the Series E Preferred Stock are listed on the Nasdaq Global Select Market under the symbol “AGNCO.”
Ranking. The Series E Preferred Stock ranks, with respect to rights to the payment of dividends and the distribution of assets upon our liquidation,
dissolution or winding up, (1) senior to all classes or series of our common stock and to all other equity securities issued by us other than equity
securities referred to in clauses (2) and (3); (2) on a parity with all equity securities issued by us with terms specifically providing that those equity
securities rank on a parity with the Series E Preferred Stock with respect to rights to the payment of dividends and the distribution of assets upon
our liquidation, dissolution or winding up, including the Series E Preferred Stock; (3) junior to all equity securities issued by us with terms
specifically providing that those equity securities rank senior to the Series E Preferred Stock with respect to rights to the payment of dividends and
the distribution of assets upon our liquidation, dissolution or winding up; and (4) effectively junior to all of our existing and future indebtedness
(including indebtedness convertible to our common stock or preferred stock) and to the indebtedness of our existing subsidiary and any future
subsidiaries.
5
Distributions. Holders of shares of the Series E Preferred Stock are entitled to receive, when, as and if declared by our Board of Directors, out of
funds legally available for the payment of dividends, cumulative cash dividends. The initial dividend rate for the Series E Preferred Stock from
and including the date of original issuance to, but not including, October 15, 2024 (the “Fixed Rate Period”) was at the rate of 6.50% of the
$25,000 liquidation preference per share of Series E Preferred Stock per annum (equivalent to $1,625 per annum per share of Series E Preferred
Stock or $1.625 per annum per depositary share). On and after October 15, 2024 (the “Floating Rate Period”), dividends on the Series E Preferred
Stock began accumulating at a percentage of the $25,000 liquidation preference per share of Series E Preferred Stock equal to an annual floating
rate of Three-Month CME Term SOFR plus 0.26161% plus a spread of 4.993%. Dividends on the Series E Preferred Stock accumulate daily and
are cumulative from, and including, the date of original issue (October 3, 2019) and are payable quarterly in arrears on the 15 day of each
January, April, July and October; provided that if any dividend payment date is not a business day, then the dividend which would otherwise have
been payable on that dividend payment date may be paid on the next succeeding business day. Dividends accumulate and are cumulative from,
and including, the date of original issuance. Dividends payable for any dividend period during the Fixed Rate Period will be calculated on the
basis of a 360-day year consisting of twelve 30-day months, and dividends payable for any dividend period during the Floating Rate Period will
be calculated on the basis of a 360-day year and the number of days actually elapsed. Dividends will be payable to holders of record as they
appear in our stock records for the Series E Preferred Stock at the close of business on the applicable record date, which shall be the first day of
the calendar month, in which the applicable dividend payment date falls.
Liquidation Preference. In the event of our voluntary or involuntary liquidation, dissolution or winding up, holders of the Series E Preferred Stock
will be entitled to be paid out of the assets we have legally available for distribution to our stockholders, subject to the preferential rights of the
holders of any class or series of our capital stock we may issue ranking senior to the Series E Preferred Stock with respect to the distribution of
assets upon liquidation, dissolution or winding up, a liquidation preference of $25,000 per share ($25.00 per depositary share), plus an amount
equal to any accumulated and unpaid dividends to, but not including, the date of payment, before any distribution of assets is made to holders of
our common stock or any other class or series of our stock that we may issue that ranks junior to the Series E Preferred Stock as to liquidation
rights.
Redemption. The Series E Preferred Stock became redeemable on October 15, 2024. We may, at our option, redeem any or all of the shares of the
Series E Preferred Stock at $25,000 per share ($25.00 per depositary share) plus any accumulated and unpaid dividends to, but not including, the
redemption date. In addition, upon the occurrence of a Change of Control, we may, at our option, redeem any or all of the shares of Series E
Preferred Stock within 120 days after the first date on which such Change of Control occurred at $25,000 per share ($25.00 per depositary share)
plus any accumulated and unpaid dividends to, but not including, the redemption date.
Maturity. The Series E Preferred Stock has no stated maturity, is not subject to any sinking fund or mandatory redemption and will remain
outstanding indefinitely unless repurchased or redeemed by us or converted into our common stock in connection with a Change of Control by the
holders of Series E Preferred Stock.
Voting Rights. Holders of Series E Preferred Stock will generally have no voting rights. However, if we do not pay dividends on the Series E
Preferred Stock for six or more quarterly dividend periods (whether or not consecutive), the holders of the Series E Preferred Stock (voting
separately as a class with the holders of all other classes or series of our preferred stock we may issue upon which like voting rights have been
conferred and are exercisable and which are entitled to vote as a class with the Series E Preferred Stock in the election referred to below) will be
entitled to vote for the election of two additional directors to serve on our Board of Directors until we pay, or declare and set aside funds for the
payment of, all dividends that we owe on the Series E Preferred Stock, subject to certain limitations. In addition, the affirmative vote of the
holders of at least two-thirds of the outstanding shares of Series E Preferred Stock is required for us to authorize or issue any class or series of
stock ranking senior to the Series E Preferred Stock with respect to the payment of dividends or the distribution of assets on liquidation,
dissolution or winding up, to amend any provision of our Charter so as to materially and adversely affect any rights of the Series E Preferred
Stock or to take certain other actions.
Conversion. Upon the occurrence of a Change of Control, each holder of Series E Preferred Stock will have the right (subject to our election to
redeem the Series E Preferred Stock in whole or in part, as described above, prior to the Change of Control Conversion Date (as defined in the
Series E Certificate of Designations)) to convert some or
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all of the Series E Preferred Stock held by such holder on the Change of Control Conversion Date into a number of shares of our common stock
per share of Series E Preferred Stock determined by a formula, in each case, on the terms and subject to the conditions described in the Series E
Certificate of Designations, including provisions for the receipt, under specified circumstances, of alternative consideration.
Description of Series F Preferred Stock Underlying Our Depositary Shares
On February 10, 2020, we filed a certificate of designations (the “Series F Certificate of Designations”) with the Secretary of State of the State of
Delaware to designate 23,000 shares of our Series F Preferred Stock with the powers, designations, preferences and other rights set forth in the
Series F Certificate of Designations. The Series F Certificate of Designations became effective upon filing on February 10, 2020. On February 11,
2020, we issued 23,000 shares of the Series F Preferred Stock, which shares were deposited with Computershare Inc. and Computershare Trust
Company, N.A., jointly as depositary, against which depositary receipts evidencing 23,000,000 depositary shares were issued, all of which remain
outstanding as of December 31, 2024. Each depositary share represents 1/1,000th of a share of Series F Preferred Stock. The depositary shares
underlying the Series F Preferred Stock are listed on the Nasdaq Global Select Market under the symbol “AGNCP.”
Ranking. The Series F Preferred Stock ranks, with respect to rights to the payment of dividends and the distribution of assets upon our liquidation,
dissolution or winding up, (1) senior to all classes or series of our common stock and to all other equity securities issued by us other than equity
securities referred to in clauses (2) and (3); (2) on a parity with all equity securities issued by us with terms specifically providing that those equity
securities rank on a parity with the Series F Preferred Stock with respect to rights to the payment of dividends and the distribution of assets upon
our liquidation, dissolution or winding up, including the Series F Preferred Stock; (3) junior to all equity securities issued by us with terms
specifically providing that those equity securities rank senior to the Series F Preferred Stock with respect to rights to the payment of dividends and
the distribution of assets upon our liquidation, dissolution or winding up; and (4) effectively junior to all of our existing and future indebtedness
(including indebtedness convertible to our common stock or preferred stock) and to the indebtedness of our existing subsidiary and any future
subsidiaries.
Distributions. Holders of shares of the Series F Preferred Stock are entitled to receive, when, as and if declared by our Board of Directors, out of
funds legally available for the payment of dividends, cumulative cash dividends. The initial dividend rate for the Series F Preferred Stock from
and including the date of original issuance to, but not including, April 15, 2025 (the “Fixed Rate Period”) is at the rate of 6.125% of the $25,000
liquidation preference per share of Series F Preferred Stock per annum (equivalent to $1,531.25 per annum per share of Series F Preferred Stock
or $ 1.53125 per annum per depositary share). On and after April 15, 2025 (the “Floating Rate Period”), dividends on the Series F Preferred Stock
will accumulate at a percentage of the $25,000 liquidation preference per share of Series F Preferred Stock equal to an annual floating rate of
Three-Month CME Term SOFR plus 0.26161% plus a spread of 4.697%. Dividends on the Series F Preferred Stock accumulate daily and are
cumulative from, and including, the date of original issue (February 11, 2020) and are payable quarterly in arrears on the 15 day of each January,
April, July and October; provided that if any dividend payment date is not a business day, then the dividend which would otherwise have been
payable on that dividend payment date may be paid on the next succeeding business day. Dividends accumulate and are cumulative from, and
including, the date of original issuance. Dividends payable for any dividend period during the Fixed Rate Period will be calculated on the basis of
a 360-day year consisting of twelve 30-day months, and dividends payable for any dividend period during the Floating Rate Period will be
calculated on the basis of a 360-day year and the number of days actually elapsed. Dividends will be payable to holders of record as they appear in
our stock records for the Series F Preferred Stock at the close of business on the applicable record date, which shall be the first day of the calendar
month, in which the applicable dividend payment date falls.
Liquidation Preference. In the event of our voluntary or involuntary liquidation, dissolution or winding up, holders of the Series F Preferred Stock
will be entitled to be paid out of the assets we have legally available for distribution to our stockholders, subject to the preferential rights of the
holders of any class or series of our capital stock we may issue ranking senior to the Series F Preferred Stock with respect to the distribution of
assets upon liquidation, dissolution or winding up, a liquidation preference of $25,000 per share ($25.00 per depositary share), plus an amount
equal to any accumulated and unpaid dividends to, but not including, the date of payment, before any
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distribution of assets is made to holders of our common stock or any other class or series of our stock that we may issue that ranks junior to the
Series F Preferred Stock as to liquidation rights.
Redemption. The Series F Preferred Stock will not be redeemable by us prior to April 15, 2025, except under circumstances intended to preserve
our qualification as a REIT for federal income tax purposes and except upon the occurrence of a Change of Control (as defined in the Series F
Certificate of Designations). On or after April 15, 2025, we may, at our option, redeem any or all of the shares of the Series F Preferred Stock at
$25,000 per share ($25.00 per depositary share) plus any accumulated and unpaid dividends to, but not including, the redemption date. In
addition, upon the occurrence of a Change of Control, we may, at our option, redeem any or all of the shares of Series F Preferred Stock within
120 days after the first date on which such Change of Control occurred at $25,000 per share ($25.00 per depositary share) plus any accumulated
and unpaid dividends to, but not including, the redemption date.
Maturity. The Series F Preferred Stock has no stated maturity, is not subject to any sinking fund or mandatory redemption and will remain
outstanding indefinitely unless repurchased or redeemed by us or converted into our common stock in connection with a Change of Control by the
holders of Series F Preferred Stock.
Voting Rights. Holders of Series F Preferred Stock will generally have no voting rights. However, if we do not pay dividends on the Series F
Preferred Stock for six or more quarterly dividend periods (whether or not consecutive), the holders of the Series F Preferred Stock (voting
separately as a class with the holders of all other classes or series of our preferred stock we may issue upon which like voting rights have been
conferred and are exercisable and which are entitled to vote as a class with the Series F Preferred Stock in the election referred to below) will be
entitled to vote for the election of two additional directors to serve on our Board of Directors until we pay, or declare and set aside funds for the
payment of, all dividends that we owe on the Series F Preferred Stock, subject to certain limitations. In addition, the affirmative vote of the
holders of at least two-thirds of the outstanding shares of Series F Preferred Stock is required for us to authorize or issue any class or series of
stock ranking senior to the Series F Preferred Stock with respect to the payment of dividends or the distribution of assets on liquidation,
dissolution or winding up, to amend any provision of our Charter so as to materially and adversely affect any rights of the Series F Preferred
Stock or to take certain other actions.
Conversion. Upon the occurrence of a Change of Control, each holder of Series F Preferred Stock will have the right (subject to our election to
redeem the Series F Preferred Stock in whole or in part, as described above, prior to the Change of Control Conversion Date (as defined in the
Series F Certificate of Designations)) to convert some or all of the Series F Preferred Stock held by such holder on the Change of Control
Conversion Date into a number of shares of our common stock per share of Series F Preferred Stock determined by a formula, in each case, on the
terms and subject to the conditions described in the Series F Certificate of Designations, including provisions for the receipt, under specified
circumstances, of alternative consideration.
Description of Series G Preferred Stock Underlying Our Depositary Shares
On September 13, 2022, we filed a certificate of designations (the “Series G Certificate of Designations”) with the Secretary of State of the State
of Delaware to designate 6,900 shares of our Series G Preferred Stock with the powers, designations, preferences and other rights set forth in the
Series G Certificate of Designations. The Series G Certificate of Designations became effective upon filing on September 13, 2022. On September
14, 2022, we issued 6,000 shares of the Series G Preferred Stock, which shares were deposited with Computershare Inc. and Computershare Trust
Company, N.A., jointly as depositary, against which depositary receipts evidencing 6,000,000 depositary shares were issued, all of which remain
outstanding as of December 31, 2024. Each depositary share represents 1/1,000th of a share of Series G Preferred Stock. The depositary shares
underlying the Series G Preferred Stock are listed on the Nasdaq Global Select Market under the symbol “AGNCL.”
Ranking. The Series G Preferred Stock ranks, with respect to rights to the payment of dividends and the distribution of assets upon our liquidation,
dissolution or winding up, (1) senior to all classes or series of our common stock and to all other equity securities issued by us other than equity
securities referred to in clauses (2) and (3); (2) on a parity with all equity securities issued by us with terms specifically providing that those equity
securities rank on a parity with the Series G Preferred Stock with respect to rights to the payment of dividends and the distribution of assets upon
our liquidation, dissolution or winding up, including the Series G Preferred Stock; (3) junior to all equity securities issued by us with terms
specifically providing that those equity securities rank senior to the Series G
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Preferred Stock with respect to rights to the payment of dividends and the distribution of assets upon our liquidation, dissolution or winding up;
and (4) effectively junior to all of our existing and future indebtedness (including indebtedness convertible to our common stock or preferred
stock) and to the indebtedness of our existing subsidiary and any future subsidiaries.
Distributions. Holders of shares of the Series G Preferred Stock are entitled to receive, when, as and if declared by our Board of Directors, out of
funds legally available for the payment of dividends, cumulative cash dividends. The initial dividend rate for the Series G Preferred Stock from
and including the date of original issuance to, but not including, October 15, 2027 is at the rate of 7.75% of the $25,000 liquidation preference per
share of Series G Preferred Stock per annum (equivalent to $1,937.50 per annum per share of Series G Preferred Stock or $1.93750 per annum per
depositary share). On and after October 15, 2027, dividends on the Series G Preferred Stock will accumulate at a percentage of the $25,000
liquidation preference per share of Series G Preferred Stock during each reset period at a rate per annum equal to the five-year U.S. Treasury Rate
as of the most recent dividend determination date plus a spread of 4.39% per annum. The “reset period” means the period from, and including, the
first reset date and each date falling on the fifth anniversary of the preceding reset date but excluding the next following reset date. Dividends on
the Series G Preferred Stock are payable quarterly in arrears on the 15 day of each January, April, July and October; provided that if any
dividend payment date is not a business day, then the dividend which would otherwise have been payable on that dividend payment date may be
paid on the next succeeding business day. Dividends accumulate and are cumulative from, and including, the date of original issuance. Dividends
payable for any dividend period will be calculated on the basis of a 360-day year consisting of twelve 30-day months. Dividends will be payable
to holders of record as they appear in our stock records for the Series G Preferred Stock at the close of business on the applicable record date,
which shall be the first day of the calendar month, in which the applicable dividend payment date falls.
Liquidation Preference. In the event of our voluntary or involuntary liquidation, dissolution or winding up, holders of the Series G Preferred Stock
will be entitled to be paid out of the assets we have legally available for distribution to our stockholders, subject to the preferential rights of the
holders of any class or series of our capital stock we may issue ranking senior to the Series G Preferred Stock with respect to the distribution of
assets upon liquidation, dissolution or winding up, a liquidation preference of $25,000 per share ($25.00 per depositary share), plus an amount
equal to any accumulated and unpaid dividends to, but not including, the date of payment, before any distribution of assets is made to holders of
our common stock or any other class or series of our stock that we may issue that ranks junior to the Series G Preferred Stock as to liquidation
rights.
Redemption. The Series G Preferred Stock will not be redeemable by us prior to October 15, 2027, except under circumstances intended to
preserve our qualification as a REIT for federal income tax purposes and except upon the occurrence of a Change of Control (as defined in the
Series G Certificate of Designations). On or after October 15, 2027, we may, at our option, redeem any or all of the shares of the Series G
Preferred Stock at $25,000 per share ($25.00 per depositary share) plus any accumulated and unpaid dividends to, but not including, the
redemption date. In addition, upon the occurrence of a Change of Control, we may, at our option, redeem any or all of the shares of Series G
Preferred Stock within 120 days after the first date on which such Change of Control occurred at $25,000 per share ($25.00 per depositary share)
plus any accumulated and unpaid dividends to, but not including, the redemption date.
Maturity. The Series G Preferred Stock has no stated maturity, is not subject to any sinking fund or mandatory redemption and will remain
outstanding indefinitely unless repurchased or redeemed by us or converted into our common stock in connection with a Change of Control by the
holders of Series G Preferred Stock.
Voting Rights. Holders of Series G Preferred Stock will generally have no voting rights. However, if we do not pay dividends on the Series G
Preferred Stock for six or more quarterly dividend periods (whether or not consecutive), the holders of the Series G Preferred Stock (voting
separately as a class with the holders of all other classes or series of our preferred stock we may issue upon which like voting rights have been
conferred and are exercisable and which are entitled to vote as a class with the Series G Preferred Stock in the election referred to below) will be
entitled to vote for the election of two additional directors to serve on our Board of Directors until we pay, or declare and set aside funds for the
payment of, all dividends that we owe on the Series G Preferred Stock, subject to certain limitations. In addition, the affirmative vote of the
holders of at least two-thirds of the outstanding shares of Series G Preferred Stock is required for us to authorize or issue any class or series of
stock ranking senior to the
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Series G Preferred Stock with respect to the payment of dividends or the distribution of assets on liquidation, dissolution or winding up, to amend
any provision of our Charter so as to materially and adversely affect any rights of the Series G Preferred Stock or to take certain other actions.
Conversion. Upon the occurrence of a Change of Control, each holder of Series G Preferred Stock will have the right (subject to our election to
redeem the Series G Preferred Stock in whole or in part, as described above, prior to the Change of Control Conversion Date (as defined in the
Series G Certificate of Designations)) to convert some or all of the Series G Preferred Stock held by such holder on the Change of Control
Conversion Date into a number of shares of our common stock per share of Series G Preferred Stock determined by a formula, in each case, on
the terms and subject to the conditions described in the Series G Certificate of Designations, including provisions for the receipt, under specified
circumstances, of alternative consideration.
Restrictions on Ownership and Transfer of Our Capital Stock
In order to qualify as a REIT under the Internal Revenue Code, our shares of capital stock must be beneficially owned by 100 or more persons
during at least 335 days of a taxable year of 12 months or during a proportionate part of a shorter taxable year. Also, no more than 50% of the
value of our outstanding shares of capital stock may be owned, directly or constructively, by five or fewer individuals (as defined in the Internal
Revenue Code to include certain entities) during the second half of any calendar year.
Our Charter, subject to certain exceptions, contains restrictions on the number of shares of our common stock and our capital stock that a person
may own and may prohibit certain entities from owning our shares. Our Charter provides that (subject to certain exceptions described below) no
person may beneficially or constructively own, or be deemed to own by virtue of the attribution provisions of the Internal Revenue Code, more
than 9.8% in value or in number of shares, whichever is more restrictive, of either our common stock or our capital stock. Pursuant to our Charter,
our Board of Directors has the power to increase or decrease the percentage of our common stock and our capital stock that a person may
beneficially or constructively own. However, any decreased stock ownership limit will not apply to any person whose percentage ownership of
our common stock or our capital stock, as the case may be, is in excess of such decreased stock ownership limit until that person’s percentage
ownership of our common stock or our capital stock, as the case may be, equals or falls below the decreased stock ownership limit. Until such a
person’s percentage ownership of our common stock or our capital stock, as the case may be, falls below such decreased stock ownership limit,
any further acquisition of common stock will be in violation of the decreased stock ownership limit. If our Board of Directors changes the stock
ownership limit, it will (i) notify each stockholder of record of any such change, and (ii) publicly announce any such change, in each case at least
30 days prior to the effective date of such change.
Our Charter also prohibits any person from beneficially or constructively owning shares of our capital stock that would result in our being
“closely held” under Section 856(h) of the Internal Revenue Code or otherwise cause us to fail to qualify as a REIT and from transferring shares
of our capital stock if the transfer would result in our capital stock being beneficially owned by fewer than 100 persons. In addition, no such
person may own an interest in any tenant that would cause us to own, actually or constructively, more than a 9.9% interest in such tenant. Any
person who acquires or attempts or intends to acquire beneficial or constructive ownership of shares of our capital stock that will or may violate
any of the foregoing restrictions on transferability and ownership, or who is the intended transferee of shares of our capital stock that are
transferred to the trust (as described below), is required to give written notice immediately to us and provide us with such other information as we
may request in order to determine the effect of such transfer on our qualification as a REIT. The foregoing restrictions on transferability and
ownership will not apply if our Board of Directors determines that it is no longer in our best interests to attempt to qualify, or to continue to
qualify, as a REIT.
Our Board of Directors, in its sole discretion, may exempt a person from the foregoing restrictions. The person seeking an exemption must
provide to our Board of Directors such conditions, representations and undertakings as our Board of Directors may deem reasonably necessary to
conclude that granting the exemption will not cause us to lose our qualification as a REIT. Our Board of Directors may also require a ruling from
the Internal Revenue Service (the “IRS”) or an opinion of counsel in order to determine or ensure our qualification as a REIT in the context of
granting such exemptions.
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Any attempted transfer of our capital stock which, if effective, would result in a violation of the foregoing restrictions will cause the number of
shares causing the violation (rounded up to the nearest whole share) to be automatically transferred to a trust for the exclusive benefit of one or
more charitable beneficiaries, and the proposed transferee will not acquire any rights in such shares. The automatic transfer will be deemed to be
effective as of the close of business on the business day (as defined in our Charter) prior to the date of the transfer. If, for any reason, the transfer
to the trust does not occur or would not prevent a violation of the restrictions on ownership contained in our Charter, our Charter provides that the
purported transfer will be void ab initio. Shares of our capital stock held in the trust will be issued and outstanding shares. The proposed transferee
will not benefit economically from ownership of any shares of our capital stock held in the trust, will have no rights to dividends and no rights to
vote or other rights attributable to the shares of capital stock held in the trust. The trustee of the trust will have all voting rights and rights to
dividends or other distributions with respect to shares held in the trust. These rights will be exercised for the exclusive benefit of the charitable
beneficiary. Any dividend or other distribution paid prior to our discovery that shares of capital stock have been transferred to the trust will be
paid by the recipient to the trustee upon demand. Any dividend or other distribution authorized but unpaid will be paid when due to the trustee.
Any dividend or distribution paid to the trustee will be held in trust for the charitable beneficiary. Subject to Delaware law, the trustee will have
the authority to rescind as void any vote cast by the proposed transferee prior to our discovery that the shares have been transferred to the trust and
to recast the vote in accordance with the desires of the trustee acting for the benefit of the charitable beneficiary. However, if we have already
taken irreversible corporate action, then the trustee will not have the authority to rescind and recast the vote.
Within 20 days of receiving notice from us that shares of our capital stock have been transferred to the trust, the trustee will sell the shares to a
person designated by the trustee, whose ownership of the shares will not violate the above ownership limitations. Upon such sale, the interest of
the charitable beneficiary in the shares sold will terminate and the trustee will distribute the net proceeds of the sale to the proposed transferee and
to the charitable beneficiary as follows: the proposed transferee will receive the lesser of (1) the price paid by the proposed transferee for the
shares or, if the proposed transferee did not give value for the shares in connection with the event causing the shares to be held in the trust (e.g., a
gift, devise or other similar transaction), the market price (as defined in our Charter) of the shares on the day of the event causing the shares to be
held in the trust and (2) the price received by the trustee from the sale or other disposition of the shares. Any net sale proceeds in excess of the
amount payable to the proposed transferee will be paid immediately to the charitable beneficiary. If, prior to our discovery that shares of our
capital stock have been transferred to the trust, the shares are sold by the proposed transferee, then (1) the shares shall be deemed to have been
sold on behalf of the trust and (2) to the extent that the proposed transferee received an amount for the shares that exceeds the amount the
proposed transferee was entitled to receive, the excess shall be paid to the trustee upon demand.
In addition, shares of our capital stock held in the trust will be deemed to have been offered for sale to us, or our designee, at a price per share
equal to the lesser of the price per share in the transaction that resulted in the transfer to the trust (or, in the case of a devise or gift, the market
price at the time of the devise or gift) and the market price on the date we, or our designee, accept the offer. We will have the right to accept the
offer until the trustee has sold the shares. Upon a sale to us, the interest of the charitable beneficiary in the shares sold will terminate and the
trustee will distribute the net proceeds of the sale to the proposed transferee.
Every owner of more than 5% (or such lower percentage as required by the Internal Revenue Code or the regulations promulgated thereunder) in
number or in value of all classes or series of our capital stock, including shares of our common stock, within 30 days after the end of each taxable
year, will be required to give written notice to us stating the name and address of such owner, the number of shares of each class and series of
shares of our capital stock that the owner beneficially owns and a description of the manner in which the shares are held. Each owner shall
provide to us such additional information as we may request to determine the effect, if any, of the beneficial ownership on our qualification as a
REIT and to ensure compliance with the ownership limitations. In addition, each such owner shall, upon demand, be required to provide to us
such information as we may request, in good faith, to determine our qualification as a REIT and to comply with the requirements of any taxing
authority or governmental authority or to determine such compliance and to ensure compliance with the 9.8% ownership limitations in our
Charter.
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These ownership limitations could delay, defer or prevent a transaction or a change in control that might involve a premium price for our common
stock or might otherwise be in the best interests of our stockholders.
Anti-Takeover Effects of Delaware Law and Our Charter and Bylaws
Our Charter and Bylaws contain provisions that are intended to enhance the likelihood of continuity and stability in the composition of the Board
of Directors and that may have the effect of delaying, deferring or preventing a future takeover or change in control of our Company unless the
takeover or change in control is approved by our Board of Directors. In addition to the above-described restrictions regarding the transfer and
ownership of our capital stock, these provisions include the following:
Stockholder Action by Written Consent
Our Charter provides that stockholder action may not be taken by written consent in lieu of a meeting and that stockholder action may be taken
only at an annual or special meeting of stockholders.
Elimination of the Ability to Call Special Meetings
Our Bylaws provide that, except as otherwise required by law, special meetings of our stockholders can only be called by our chief executive
officer, pursuant to a resolution adopted by a majority of our Board of Directors or a committee of the Board of Directors that has been duly
designated by the Board of Directors and whose powers and authority include the power to call such meetings, or by the chair of our Board of
Directors. Stockholders are not permitted to call a special meeting or to require our Board of Directors to call a special meeting.
Removal of Directors; Board of Directors Vacancies
Our Charter provides that members of our Board of Directors may be removed at any time with or without cause, with the affirmative vote of the
holders of at least 66% of the combined voting power of all the shares of all classes of our capital stock entitled to vote generally in the election of
directors. Our Bylaws provide that only our Board of Directors may fill vacant directorships. These provisions would prevent a stockholder from
gaining control of our Board of Directors by removing incumbent directors and filling the resulting vacancies with such stockholder’s own
nominees.
Amendment of Certificate of Incorporation and By-laws
The General Corporation Law of the State of Delaware, or DGCL, provides generally that the affirmative vote of a majority of the outstanding
shares entitled to vote is required to amend or repeal a corporation’s certificate of incorporation or by-laws, unless the certificate of incorporation
requires a greater percentage. Our Charter generally requires the approval of both a majority of the combined voting power of all the classes of
shares of our capital stock entitled to vote generally in the election of directors and a majority of the members of our Board of Directors to amend
any provisions of our Charter except that provisions of our Charter relating to the powers, numbers, classes, elections, terms and removal of our
directors, the ability to fill vacancies on our Board of Directors and our election to qualify as a REIT requires the affirmative vote of at least 66%
of the combined voting power of all the shares of all classes of our capital stock entitled to vote generally in the election of directors. In addition,
our Charter (i) grants our Board of Directors the authority to amend and repeal our Bylaws without a stockholder vote in any manner not
inconsistent with the DGCL and (ii) requires that stockholders may only amend our Bylaws with the affirmative vote of 66% of the combined
voting power of all the shares of all classes of our capital stock entitled to vote generally in the election of directors.
The foregoing provisions of our Charter and Bylaws could discourage potential acquisition proposals and could delay or prevent a change in
control. These provisions are intended to enhance the likelihood of continuity and stability in the composition of our Board of Directors and in the
policies formulated by our Board of Directors and to discourage certain types of transactions that may involve an actual or threatened change of
control. These provisions are designed to reduce our vulnerability to an unsolicited acquisition proposal. The provisions also are intended to
discourage certain tactics that may be used in proxy fights. However, such provisions could have the effect of discouraging others from making
tender offers for our shares and, as a consequence, they also may inhibit fluctuations in the market price of our common stock that could result
from actual or rumored takeover attempts. Such provisions also may have the effect of preventing changes in our management or delaying or
preventing a transaction that might benefit you or other minority stockholders.
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Section 203 of the DGCL
We will not be subject to Section 203 of the DGCL, an anti-takeover law. In general, Section 203 prohibits a publicly- held Delaware corporation
from engaging in a “business combination” with an “interested stockholder” for a period of three years following the date the person became an
interested stockholder, unless (with certain exceptions) the “business combination” or the transaction in which the person became an interested
stockholder is approved in a prescribed manner. Generally, a “business combination” includes a merger, asset or stock sale, or other transaction
resulting in a financial benefit to the interested stockholder. Generally, an “interested stockholder” is a person who, together with affiliates and
associates, owns (or within three years prior to the determination of interested stockholder status, did own) 15% or more of a corporation’s voting
stock. In our original certificate of incorporation, we elected not to be bound by Section 203.
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Exhibit 19
AGNC Investment Corp. Policy on Insider Trading
AGNC Investment Corp. (“AGNC”) has adopted this Insider Trading Policy (the “Policy”) to describe the standards of AGNC
(together with its wholly-owned subsidiaries, the “Company”) on trading, and causing the trading of, the Company’s securities or
securities of certain other publicly traded companies while in possession of material information about the Company or other entities
that is not available to the investing public (referenced herein as “material nonpublic information,” as explained in this Policy under
Part I, Section 3 below).
This Policy is divided into two parts. The first part prohibits trading securities of the Company or certain other publicly traded
companies in certain circumstances and applies to all directors, officers, employees and independent contractors of the Company
(collectively, “AGNC People” or each an “AGNC Person”) and their respective immediate family members, such as spouses, minor
children, adult family members who share the same household, and any other person or entity whose securities trading decisions are
influenced or controlled by the AGNC Person (collectively, “Related Persons”). The second part imposes additional trading
restrictions on all (i) directors of the Company, (ii) executive officers of the Company (together with the directors, “Company
Insiders”), (iii) certain other employees that the Company may designate from time to time as a result of their position,
responsibilities, or their actual or potential access to material nonpublic information (together with Company Insiders, “Covered
Persons”), and (iv) such Covered Persons’ Related Persons.
One of the principal purposes of the federal securities laws is to prohibit so-called “insider trading.” Simply stated, insider trading
occurs when a person uses material nonpublic information obtained through involvement with the Company to make decisions to
purchase, sell, give away, or otherwise trade the Company’s securities or the securities of other companies or to provide that
information to others outside the Company. The prohibitions against insider trading apply to trades, tips, and recommendations by all
AGNC People and their Related Persons. It is also the policy of the Company that the Company will not engage in transactions in
Company securities while aware of material nonpublic information relating to the Company or Company securities.
PART I
1. Applicability
This Policy applies to transactions in the Company’s securities, including common stock, preferred stock, options, and any other
securities that the Company may issue, such as notes, bonds, and convertible securities, as well as derivative securities relating to any
of the Company’s securities, whether or not issued by the Company. This Policy also prohibits trading in securities of certain other
companies, as explained below in Section 2(c).
This Policy applies to all AGNC People and their respective Related Persons.
2. General Policy: No Trading or Causing Trading While in Possession of Material Nonpublic Information
(a) No AGNC Person or any of his or her Related Persons may purchase or sell, offer to purchase or sell, or gift or donate any
Company security while in possession of material nonpublic information about the Company.
(b) No AGNC Person or any of his or her Related Persons who are in possession of any material nonpublic information about
the Company may communicate that information to, or tip, any other person, including family members and friends, or otherwise
disclose such information without the Company’s authorization. You should only disclose or discuss material nonpublic information
with other AGNC Persons who need to know, or use, the information as part of their employment or service for the Company. You
should discuss with your supervisor or the Compliance Officer any questions you may have about sharing information within or
outside the Company.
(c) In addition, no AGNC Person or any of his or her Related Persons may purchase or sell any security of any other company
with which the Company does business or is involved in a potential transaction or business relationship with the Company, while in
possession of material nonpublic information relevant to such other company that was obtained in the course of the AGNC Person’s
employment or service with the Company. No AGNC Person or any of his or her Related Persons who is in possession of any such
material nonpublic information may communicate that information to, or tip, any other person, including family members and friends,
or otherwise disclose such information without the Company’s prior written authorization.
(d) For compliance purposes, no AGNC Person or any of his or her Related Persons should ever trade, tip, or recommend
securities (or otherwise cause the purchase or sale of securities) of the Company or any other company as described in Section 1
above while in possession of information that the AGNC Person or Related Person has reason to believe is material and nonpublic
unless the AGNC Person first consults with, and obtains the advance approval of, the Compliance Officer.
(e) Covered Persons must “pre-clear” all trading in securities of the Company in accordance with the procedures set forth in
Part II, Section 2 below.
3. Definitions
(a) Material. Insider trading restrictions come into play only if the information you possess is “material.” Information is
generally regarded as “material” if there is a substantial likelihood that a reasonable investor would consider it important in making a
decision to buy, sell, or hold a security or where the fact is likely to have a significant effect on the market price of the security. Both
positive and negative information may be material.
Possible information or events that may be material include, but are not limited to:
• Earnings information and quarterly results;
• Guidance/statements on earnings estimates, including confirmation or any update as to whether performance will be higher,
lower or the same as any guidance or estimates;
• Portfolio performance;
• Mergers, acquisitions, tender offers, joint ventures, or significant changes in assets;
• Significant new business lines, contracts or arrangements;
• Significant changes to the Company’s leverage levels or risk position;
• Changes in executive officers or management of the Company;
• Changes in auditors or auditor notification that the issuer may no longer rely on an audit report;
• Cybersecurity risks and incidents;
• Events regarding the Company’s securities (such as calls of securities for redemption, repurchase plans, stock splits or changes
in dividends, changes to the rights of securityholders, public or private sales of additional securities, defaults on senior
securities, or information related to any additional funding);
• Bankruptcies or receiverships;
• Investigations, litigation or similar proceedings; and
• Regulatory approvals or changes in regulations and any analysis of how they affect the Company.
Material information is not limited to historical facts but may also include projections and forecasts. With respect to a future event,
such as a merger or acquisition the point at which negotiations are determined to be material is determined by balancing the
probability that the event will occur against the magnitude of the effect the event would have on a company’s operations or stock
price should it occur. Thus, information concerning an event that would have a large effect on stock price, such as a merger, may be
material even if the possibility that the event will occur is relatively small. When in doubt about whether particular nonpublic
information is material, you should presume it is material.
(b) Nonpublic. Insider trading prohibitions come into play only when you possess information that is material and
“nonpublic.” To be “public” the information must have been disseminated in a manner designed to reach investors generally, and
sufficient time must have passed for the investors to absorb the information. You should presume that information about the Company
is nonpublic, unless you can point to the official public release of that information by the Company in publicly available filings with
the Securities and Exchange Commission or any other disclosure method that complies with Securities and Exchange Commission
Regulation FD. These methods include (i) press releases made via major newswire such as PRNewswire, Dow Jones, or Reuters and
(ii) any investor presentation (in written or other form of media as presented), provided that the Company has publicly announced the
presentation via major newswire, including the date and time of such presentation and the availability on the Company’s website of
any presentation materials and any recording of such presentation. Other forms of disclosure may not make information public, and
you should consult with the Company’s Legal Department if you have any question whether information is public or nonpublic.
Nonpublic information may include:
(i) undisclosed facts that are the subject of rumors, even if the rumors are widely circulated; and
(ii) information that has been entrusted to the Company on a confidential basis until a public announcement of the information
has been made and enough time has elapsed for the market to respond to a public announcement of the information
(normally one trading day).
Even after public disclosure of information about the Company, you must wait until the close of business on the first full trading day
after the information was publicly disclosed before you can treat the information as public.
As with questions of materiality, if you are not sure whether information is considered public, you should either consult with
the Compliance Officer or assume that the information is nonpublic and treat it as confidential.
4. Prohibited Transactions
All AGNC Persons and their Related Persons may not engage in the following transactions due to the heightened legal risk associated
with them:
(a) Short Sales. You may not sell the Company’s securities short.
(b) Derivative Transactions. You may not trade in any options, warrants, puts, calls, collars, forwards, futures, swaps, or
similar instruments on Company securities.
(c) Trading on Margin or Pledging. You may not hold Company securities in a margin account or pledge Company securities
as collateral for a loan.
(d) Hedging. You may not enter into hedging or monetization transactions or similar arrangements that hedge or offset, or are
designed to hedge or offset, any decrease in the market value of Company securities.
(e) Standing and Limit Orders. Unless executed as part of an Approved 10b5-1 Plan, you may not place limit orders to be in
effect for longer than five business days or, if shorter, the remaining term of an applicable pre-clearance or trading window.
“Standing” orders outside of an Approved 10b5-1 Plan are not permitted.
5. Exceptions
The trading restrictions of this Policy do not apply to the delivery of shares of restricted stock units upon vesting or the withholding of
shares for tax liabilities related to the distribution of restricted stock units under AGNC’s Amended and Restated 2016 Equity and
Incentive Compensation Plan. Transactions completed under an Approved 10b5-1 Plan are also exempt as discussed further herein.
6. Post-Termination Transactions
This Policy continues to apply to transactions in Company securities even after an AGNC Person’s service with the Company ends. If
an AGNC Person is in possession of material nonpublic information when his or her service terminates, that individual may not trade
in Company securities until that information has become public or is no longer material. Although the pre-clearance procedures
specified below in Part II, Section 2 will cease to apply upon termination of service, individuals subject to a quarterly blackout period
at the time of termination of service may not trade in Company securities until after the end of the blackout period.
7. Violations of Insider Trading Laws
Penalties for trading on or communicating material nonpublic information can be severe, both for individuals involved in such
unlawful conduct and their employers and supervisors, and may include jail terms, criminal fines, civil penalties of up to three times
the amount of profits gained or losses avoided, and civil enforcement injunctions. A person who tips others may be subject to
penalties and sanctions for transactions by the tippees. Given the severity of the potential penalties, compliance with this Policy is
mandatory.
Employees who violate this Policy may be subject to disciplinary action by the Company, including dismissal for cause. Any
exceptions to the Policy, if permitted, may only be granted by the Compliance Officer and must be provided before any activity
contrary to the above requirements takes place.
8. Administration of This Policy
(a) Compliance Officer. The Company has appointed AGNC’s Chief Compliance Officer as the Compliance Officer for this
Policy, who shall have authority to implement, administer and enforce this policy, including without limitation oversight of a process
for pre-clearing trading in Company securities by Covered Persons in accordance with the procedures set forth in Part II, Section 2
below, designation of any blackout periods, and providing approvals when required on the part of the Company hereunder with
respect to Rule 10b5-1 trading plans. All determinations and interpretations by the Compliance Officer are final and not subject to
further review. Approval of any transaction submitted for pre-clearance does not constitute legal advice or confirmation that you do
not possess material nonpublic information and does not relieve you of any of your legal obligations.
(b) Ongoing Review and Compliance. The Company requires all AGNC People to comply with this Policy. Upon your receipt
of this Policy, and also from time to time as we deem to be necessary, we may require you to sign an acknowledgement or
certification confirming that you have read and understood this Policy and agree to comply with its provisions. We reserve the right to
monitor your continuing compliance with the provisions of this Policy and to investigate any suspected violations. If substantiated,
these violations could result in disciplinary action, up to and including termination of your employment without warning and referral
for criminal prosecution and fines.
(c) Reporting of Suspected Violations. You must bring to the attention of the Compliance Officer (or any people that the
Compliance Officer designates) information about suspected violations of this Policy by any AGNC Person as promptly as
practicable. The Company also maintains a third-party hotline to which AGNC Persons may report information about suspected
violations of the Policy anonymously. You should feel safe in reporting this information, without regard to the identity or position of
the suspected offender. The Company will treat the information in a confidential manner (consistent with appropriate evaluation and
investigation) and will not take any acts of retribution or retaliation against you for making a report in good faith. Because failure to
report criminal activity can itself be understood to condone the crime, we emphasize the importance of prompt reporting. For both
criminal activity and other violations of this Policy, failure to report knowledge of wrongdoing may result in disciplinary action
against those who fail to report.
9. Inquiries
If you have any questions regarding any of the provisions of this Policy, please contact the Compliance Officer.
PART II
1. Blackout Periods
All Covered Persons and their Related Persons are prohibited from trading in the Company’s securities during blackout periods made
applicable to them. The Company regularly establishes blackout periods in connection with its quarterly reporting cycle. The
Company may also establish additional blackout periods in connection with other non-routine events, including, but not limited to, the
negotiation of mergers or acquisitions or stock offerings. The Company will notify Covered Persons of the start and end of applicable
blackout periods via email. In addition, employees may confirm the status of the trading window in the Company’s electronic system
for preclearing trades.
Subjection to Section 2 below, Covered Persons are permitted to trade in the Company’s securities when no applicable blackout
period is in effect. However, even during this open trading window period, a
Covered Person who is in possession of any material nonpublic information may not trade in the Company’s securities until the
information has been made publicly available or is no longer material.
(a) Exception. These trading restrictions do not apply to transactions under a pre-existing written plan, contract, instruction, or
arrangement under Rule 10b5-1 under the Securities Exchange Act of 1934 that (i) meets the requirements of Rule 10b5-1, including
applicable waiting periods, (ii) complies with the Company’s guidelines for trading plans, and (iii) has been reviewed and approved
by the Company’s Legal Department (an “Approved 10b5‑1 Plan”).
AGNC Persons may not adopt a trading plan during a blackout period or while in possession of material nonpublic information about
the Company or its securities.
If you are considering entering into, modifying or terminating an Approved 10b5-1 Plan or have any questions regarding Approved
Rule 10b5-1 Plans, please contact the Compliance Officer. Company Insiders must notify the Company’s Legal Department at least
two business days in advance of any planned amendment or termination of an Approved 10b5-1 Plan. You should consult your own
legal and tax advisors before entering into, modifying, or terminating, an Approved 10b5-1 Plan. A trading plan, contract, instruction,
or arrangement will not qualify as an Approved 10b5-1 Plan without prior review and approval by the Company’s Legal Department.
2. Pre-Clearance of Securities Transactions
The Company requires all Covered Persons to pre-clear all transactions in the Company’s securities by contacting the Compliance
Officer, by utilizing the Company’s electronic system for pre-clearance, or such other methods as the Compliance Officer shall
establish. In addition, because they may be in possession of material nonpublic information on a regular basis, Company Insiders
must also directly notify the Compliance Officer prior to purchasing or selling directly or indirectly (or otherwise making any transfer
or gift) any Company security. These procedures also apply to transactions by such person’s Related Persons.
A pre-clearance will normally remain valid until the close of trading five business days following the day on which it was granted. If
the transaction does not occur during the five-day period, pre-clearance of the transaction must be re-requested. However, all pre-
clearances are invalidated if the Compliance Officer notifies Covered Persons that a blackout period has commenced or the Covered
Person otherwise comes into possession of material nonpublic information. If a request for pre-clearance is denied, the fact of such
denial must be kept confidential by the person requesting such pre-clearance. Other than those executed pursuant to an Approved
10b5-1 Plan, limit orders for the sale or purchase of Company securities may not be in effect for longer than the pre-clearance period
applicable to the transaction.
Pre-clearance is not required for purchases and sales of securities pursuant to an Approved 10b5‑1 Plan.
Adopted: July 18, 2024
Exhibit 23
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the following Registration Statements:
(1) Form S-8 (No. 333-151027),
(2) Form S-8 (No. 333-216282),
(3) Form S-8 (No. 333-255904), and
(4) Form S-3 (No. 333-279249);
of our reports dated February 21, 2025, with respect to the consolidated financial statements of AGNC Investment Corp., and the effectiveness of internal
control over financial reporting of AGNC Investment Corp., included in this Annual Report (Form 10-K) of AGNC Investment Corp. for the year ended
December 31, 2024.
/s/ Ernst & Young LLP
Tysons, Virginia
February 21, 2025
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned directors and officers of AGNC Investment Corp., a corporation
organized under the laws of the state of Delaware (the “Corporation”), hereby constitute and appoint Bernice Bell, Kenneth Pollack
and Kasey Reisman and each of them (with full power to each of them to act alone), his/her true and lawful attorneys‑in‑fact and
agents for him/her and on his/her behalf and in his/her name, place and stead, in all cases with full power of substitution and
resubstitution, in any hand and all capacities, to sign, execute and affix his/her seal to and file with the Securities and Exchange
Commission (or any other governmental or regulatory authority) the Corporation’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2024, and all amendments or supplements thereto with all exhibits and any and all documents required to be
filed with respect thereto, and grants to each of them full power and authority to do and to perform each and every act and thing
requisite and necessary to be done in and about the premises in order to effectuate the same as fully and to all intents and purposes as
he/she might or could do if personally present, hereby ratifying and confirming all that said attorneys‑in‑fact and agents, or any of
them, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned directors and/or officers has hereunto set his/her hand and seal, as of the date
specified.
AGNC INVESTMENT CORP.
Dated: January 23, 2025 /s/ Peter J. Federico
Peter J. Federico
President and Chief Executive Officer
Signature
Title
Date
/s/ Donna J. Blank
Donna J. Blank
Director
January 23, 2025
/s/ Morris A. Davis
Morris A. Davis
Director
January 23, 2025
/s/ Peter J. Federico
Peter J. Federico
Director, President and Chief Executive
Officer
January 23, 2025
/s/ John D. Fisk
John D. Fisk
Director
January 23, 2025
/s/ Andrew A. Johnson, Jr.
Andrew A Johnson, Jr.
Director
January 23, 2025
/s/ Gary D. Kain
Gary D. Kain
Director, Executive Chair
January 23, 2025
/s/ Prue B. Larocca
Prue B. Larocca
Director
January 23, 2025
/s/ Paul E. Mullings
Paul E. Mullings
Director
January 23, 2025
/s/ Frances R. Spark
Frances R. Spark
Director
January 23, 2025
Exhibit 31.1
AGNC Investment Corp.
Certification Pursuant to Section 302(a)
of the Sarbanes-Oxley Act of 2002
I, Peter J. Federico, certify that:
1. I have reviewed this Annual Report on Form 10-K of AGNC Investment Corp.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, 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;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an Annual Report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of directors:
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal
control over financial reporting.
Date:
February 21, 2025
/s/ PETER J. FEDERICO
Peter J. Federico
President and Chief Executive Officer (Principal
Executive Officer)
Exhibit 31.2
AGNC Investment Corp.
Certification Pursuant to Section 302(a)
of the Sarbanes-Oxley Act of 2002
I, Bernice E. Bell, certify that:
1. I have reviewed this Annual Report on Form 10-K of AGNC Investment Corp;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entitles, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, 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;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an Annual Report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of directors:
(a) All significant deficiencies and material weakness in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal
control over financial reporting.
Date:
February 21, 2025
/s/ BERNICE E. BELL
Bernice E. Bell
Executive Vice President and Chief Financial
Officer (Principal Financial Officer)
Exhibit 32
AGNC Investment Corp.
Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
We, Peter J. Federico, President and Chief Executive Officer, and Bernice E. Bell, Executive Vice President and Chief Financial Officer of AGNC
Investment Corp. (the “Company”), certify pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 that:
1.
The Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 2024 (the “Report”) fully complies with the requirements of
Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and
2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ PETER J. FEDERICO
Name:
Peter J. Federico
Title:
President and
Chief Executive Officer (Principal Executive Officer)
Date:
February 21, 2025
/s/ BERNICE E. BELL
Name:
Bernice E. Bell
Title:
Executive Vice President and
Chief Financial Officer (Principal Financial Officer)
Date:
February 21, 2025
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the
Securities and Exchange Commission or its staff upon request.