AGNC INVT(AGNCL) - 2024 Q4 - Annual Report

Part I Business AGNC Investment Corp. is a REIT primarily investing in leveraged Agency RMBS, aiming for stockholder returns through dividends from net interest spread - The company's core business is investing in Agency RMBS, where principal and interest are guaranteed by U.S. Government-sponsored enterprises (GSEs) like Fannie Mae and Freddie Mac, or a U.S. Government agency like Ginnie Mae[12] - AGNC operates as a REIT, requiring it to distribute at least 90% of its annual taxable income to stockholders, which generally exempts it from corporate income tax[13] - The primary funding source for its investments is collateralized borrowings structured as repurchase agreements (repo), which are typically short-term[14][21][22] - The company generally targets a leverage ratio of six to twelve times its tangible stockholders' equity, though this can vary with market conditions[23] - As of December 31, 2024, the company had 53 full-time employees, with a workforce composition of 40% women and 32% ethnically diverse individuals[37][43] Risk Factors The company faces significant risks including spread, interest rate, and prepayment volatility, financing and operational challenges, and regulatory compliance issues Risks Related to Our Investment and Portfolio Management Activities This section details risks associated with investment and portfolio management, including spread risk, Federal Reserve actions, prepayment rates, and model reliance - As a levered investor in Agency RMBS, the company is inherently exposed to "spread risk," where a widening differential between asset yields and hedging benchmarks can cause tangible net book value to decline[49] - The Federal Reserve's actions in the Agency RMBS market, such as asset purchases (QE) or reductions (QT), can materially impact mortgage market conditions, pricing, and returns, affecting the company's tangible net book value[55][56] - Changes in mortgage prepayment rates, which are difficult to predict, can adversely affect investment returns; faster prepayments may lead to reinvestment at lower yields, while slower prepayments (extension risk) can increase financing costs[60][62][64] - The company relies on analytical models and third-party data for valuation, risk management, and hedging, which may be incorrect, misleading, or incomplete, leading to faulty decisions and potential losses[65][66] Risks Related to Our Financing and Hedging Activities This section covers risks from significant leverage, reliance on short-term funding, margin calls, and the potential ineffectiveness of hedging strategies - The company's strategy involves significant leverage, typically 6x to 12x tangible equity, which amplifies risks from higher borrowing costs, asset value changes, and margin calls[80] - Reliance on short-term borrowings (repurchase agreements) creates a continuous need to renew or replace funding, which may not be available on favorable terms, or at all[81] - Funding and derivative agreements subject the company to margin calls if collateral values decline; failure to meet a margin call could result in default and forced asset sales under adverse market conditions[85][87] - Hedging strategies are complex, may be ineffective, and are not designed to protect against all risks, such as spread risk; poorly designed or executed hedges could increase the risk of loss[97][98] Risks Related to Our Business Operations This section addresses operational risks, including dependence on key personnel and vulnerabilities related to information systems and cybersecurity threats - The company's success is highly dependent on its executive officers and key personnel; the departure of any could materially harm operations[100] - Business operations are heavily reliant on information systems and third-party providers, exposing the company to disruptions from system failures or cybersecurity incidents like hacking, ransomware, and phishing attacks[101][102] Risks Related to Our Taxation as a REIT This section details risks concerning the company's REIT tax status, including adverse tax consequences from non-compliance and limitations on capital retention - Failure to maintain qualification as a REIT would result in significant adverse tax consequences, including being subject to corporate income tax and losing the ability to deduct dividends paid[104][105] - The requirement to distribute at least 90% of taxable income annually limits the company's ability to retain earnings and replenish capital from operations[107] - Compliance with REIT asset and income tests may cause the company to liquidate or forgo otherwise attractive investment opportunities and can limit its ability to hedge effectively[112][113] Legislative and Regulatory Risks This section outlines risks from potential federal housing finance reform, loss of Investment Company Act exemption, and regulatory compliance for its broker-dealer subsidiary - Potential federal housing finance reform, especially changes to the conservatorship of Fannie Mae and Freddie Mac, could adversely affect the value and liquidity of Agency RMBS and harm the business[121][124] - Losing the exemption from regulation under the Investment Company Act would substantially reduce the company's ability to use leverage and force a restructuring of its business[128][129] - Failure of the company's captive broker-dealer subsidiary (BES) to meet regulatory requirements could result in the inability to access significant tri-party repo funding through the FICC's GCF Repo service[127] Risks Related to Our Common Stock This section addresses risks related to the company's common stock, including market price volatility, dividend uncertainty, and ownership limitations - The market price and trading volume of the company's common stock may be highly volatile and subject to wide fluctuations[131] - The company has not established a minimum dividend payment level and may be unable to pay dividends in the future, as distributions are at the discretion of the Board[132] - To comply with REIT rules, the company's certificate of incorporation generally prohibits any person from owning more than 9.8% of its common or capital stock[133] Unresolved Staff Comments The company reports no unresolved staff comments from the Securities and Exchange Commission - None[134] Cybersecurity AGNC maintains a NIST-aligned cybersecurity program with Board oversight, reporting no material incidents affecting operations or financial condition to date - The company's cybersecurity program is aligned with the NIST Cybersecurity Framework and is subject to regular reviews and testing[135] - The Audit Committee of the Board of Directors is responsible for overseeing management's strategy to address cybersecurity risks, receiving quarterly reports on the matter[140] - To date, the company has not identified any cybersecurity incidents that have materially affected, or are reasonably likely to materially affect, its operations, business strategy, or financial condition[137] Properties The company reports that it does not own any properties - None[142] Legal Proceedings The company is not currently subject to any material litigation or threatened proceedings beyond routine business matters - The company is not currently subject to any material litigation[143] Mine Safety Disclosures This item is not applicable to the company - Not applicable[144] Part II Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities AGNC common stock trades on Nasdaq, with monthly dividends planned, and its performance graph shows outperformance against the mortgage REIT index but underperformance against the S&P 500 - As of January 31, 2025, there were 900,421,216 shares of common stock outstanding[146] Performance Graph (Cumulative Total Return of $100 Investment) | | 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 table reflects the cumulative total return of a $100 investment made on December 31, 2019, including dividend reinvestment[151][154] Selected Financial Data This item is reserved and contains no information - Item 6 is noted as [Reserved][156] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, noting a 13.2% economic return in 2024, portfolio growth to $73.3 billion, and a decrease in net spread income per share due to higher hedging costs Executive Overview This overview highlights the company's 13.2% economic return in 2024, changes in comprehensive and net spread income, and its leverage ratio and capital raising activities - In 2024, AGNC generated a positive economic return of 13.2%, consisting of $1.44 per share in dividends and a $0.29 per share decline in tangible net book value[161] Key Financial Metrics | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Total Comprehensive Income per Share | $0.84 | $0.30 | | Net Spread and Dollar Roll Income per Share | $1.88 | $2.61 | | Average Net Interest Rate Spread | 2.42% | 3.06% | - The company's average and ending "at risk" leverage for 2024 was 7.2x tangible stockholders' equity[170] - During 2024, AGNC raised $2.0 billion of common stock through its at-the-market (ATM) offering program[171] Financial Condition This section details the company's investment portfolio composition and growth, including Agency RMBS, TBA securities, and other investments, along with changes in weighted average coupon rates Investment Portfolio (in billions) | Investment Portfolio (in billions) | Dec 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total Investment Portfolio | $73.3 | $60.2 | | Agency RMBS (fair value) | $65.5 | $53.8 | | Net TBA securities (fair value) | $6.9 | $5.4 | | CRT, non-Agency & CMBS (fair value) | $0.9 | $1.0 | - The weighted average coupon on the company's fixed-rate Agency RMBS and TBA securities increased from 4.83% at year-end 2023 to 5.02% at year-end 2024[178] Results of Operations This section presents key financial results, including total assets, stockholders' equity, comprehensive income, dividends, and non-GAAP metrics like net interest spread and economic return Selected Financial Data (in millions, except per share) | Selected Financial Data (in millions, except per share) | 2024 | 2023 | | :--- | :--- | :--- | | Total Assets | $88,015 | $71,596 | | Total Stockholders' Equity | $9,762 | $8,257 | | Tangible Net Book Value per Common Share | $8.41 | $8.70 | | Comprehensive Income per Common Share | $0.84 | $0.30 | | Dividends Declared per Common Share | $1.44 | $1.44 | Non-GAAP Metrics | Non-GAAP Metrics | 2024 | 2023 | | :--- | :--- | :--- | | Average Net Interest Spread | 2.42% | 3.06% | | Net Spread and Dollar Roll Income per Share | $1.88 | $2.61 | | Economic Return on Tangible Common Equity | 13.2% | 3.0% | - The average tangible net book value "at risk" leverage ratio was 7.2:1 for 2024, compared to 7.4:1 for 2023[201][205] Liquidity and Capital Resources This section describes the company's liquidity sources, including unencumbered assets and repurchase agreements, and details its leverage ratio and funding through FICC's GCF Repo service - Primary sources of liquidity include unencumbered cash and securities, repurchase agreements, and TBA dollar roll financing[238] Liquidity & Leverage | Liquidity & Leverage | Dec 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Tangible Net Book Value "At Risk" Leverage | 7.2x | 7.0x | | Unencumbered Assets | $6.2 billion | $5.2 billion | | Unencumbered Assets as % of Tangible Equity | 67% | 67% | - As of December 31, 2024, 47% of total repurchase agreements were funded through the Fixed Income Clearing Corporation's (FICC) GCF Repo service[241] Quantitative and Qualitative Disclosures About Market Risk This section details the company's market risks, including interest rate, prepayment, and spread risks, providing sensitivity analyses on tangible net book value for hypothetical changes in rates and spreads - The company's estimated duration gap, a measure of interest rate sensitivity, was 0.3 years as of December 31, 2024, an increase from -0.5 years at the end of 2023[267] Interest Rate Sensitivity Analysis (as of Dec 31, 2024) | Change in Interest Rate | Estimated Change in Tangible Net Book Value Per Common Share | | :--- | :--- | | -75 Basis Points | -0.9% | | +25 Basis Points | -1.1% | | +75 Basis Points | -4.8% | Spread Sensitivity Analysis (as of Dec 31, 2024) | Change in MBS Spread | Estimated Change in Tangible Net Book Value Per Common Share | | :--- | :--- | | -25 Basis Points | +12.3% | | +25 Basis Points | -12.3% | | +50 Basis Points | -24.5% | Financial Statements This section presents management's assertion of effective internal controls, the independent auditor's unqualified opinion, and the consolidated financial statements with accompanying notes Management's Report on Internal Control over Financial Reporting Management assessed the company's internal control over financial reporting as effective based on the COSO framework as of December 31, 2024 - Management assessed the company's internal control over financial reporting as effective as of December 31, 2024, based on the COSO framework[292] Report of Independent Registered Public Accounting Firm Ernst & Young LLP issued an unqualified opinion on the consolidated financial statements and identified the estimation of long-term prepayment speeds as a critical audit matter - Ernst & Young LLP issued an unqualified opinion on the consolidated financial statements for the year ended December 31, 2024[305] - The auditor identified the estimation of long-term prepayment speeds for the amortization of premiums on mortgage-backed securities as a critical audit matter due to the significant judgments involved[309][310] Consolidated Financial Statements This section presents the company's Consolidated Balance Sheets and Income Statements, highlighting key financial figures for assets, liabilities, equity, and comprehensive income Consolidated Balance Sheet Highlights (in millions) | | Dec 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total Assets | $88,015 | $71,596 | | Total Liabilities | $78,253 | $63,339 | | Total Stockholders' Equity | $9,762 | $8,257 | Consolidated Income Statement Highlights (in millions) | | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Net Interest Income (Expense) | $18 | $(246) | $965 | | Net Income (Loss) | $863 | $155 | $(1,190) | | Comprehensive Income (Loss) | $789 | $310 | $(2,163) | Notes to Consolidated Financial Statements This section provides detailed notes to the consolidated financial statements, covering investment portfolio composition, repurchase agreements, hedging instruments, and common stock issuances - As of December 31, 2024, the investment portfolio consisted of $66.3 billion in investment securities and $6.9 billion in net TBA securities[367] - The company had $60.8 billion in repurchase agreements outstanding as of December 31, 2024, with a weighted average interest rate of 4.76% and a weighted average of 11 days to maturity[382][384] - As of December 31, 2024, the company held interest rate swaps with a total notional amount of $39.6 billion to hedge its interest rate risk[388] - During fiscal year 2024, the company issued 202.1 million shares of common stock under its at-the-market (ATM) program, raising net proceeds of $1.967 billion[432][433] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[456] Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of December 31, 2024, with no material changes in internal control - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2024[458] - There were no changes in internal control over financial reporting during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, internal controls[459] Other Information The company reports no directors or officers adopted or terminated Rule 10b5-1 trading arrangements during the fourth quarter of 2024 - No directors or officers adopted or terminated a Rule 10b5-1 trading arrangement during the quarter ended December 31, 2024[460] Part III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2025 Proxy Statement - Information for this item is incorporated by reference from the Registrant's definitive proxy statement for the 2025 Annual Meeting of Stockholders[462] Executive Compensation Information regarding executive compensation is incorporated by reference from the 2025 Proxy Statement - Information for this item is incorporated by reference from the 2025 Proxy Statement[463] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership is incorporated by reference from the 2025 Proxy Statement - Information for this item is incorporated by reference from the 2025 Proxy Statement[463] Certain Relationships and Related Transactions, and Director Independence Information regarding related party transactions and director independence is incorporated by reference from the 2025 Proxy Statement - Information for this item is incorporated by reference from the 2025 Proxy Statement[464] Principal Accounting Fees and Services Information regarding principal accounting fees and services is incorporated by reference from the 2025 Proxy Statement - Information for this item is incorporated by reference from the 2025 Proxy Statement[464] Part IV Exhibits and Financial Statement Schedules This section lists all financial statements and exhibits filed with the Form 10-K, including corporate governance documents, material contracts, and certifications - This section lists all financial statements and exhibits filed with the Form 10-K, including consents of experts and certifications by the CEO and CFO[466][467]