AGNC Investment Corp.

AGNC Investment Corp. (AGNC) operates as a leading provider of private capital to the U.S. housing market, primarily investing in Agency residential mortgage-backed securities (Agency RMBS) on a leveraged basis. These investments are guaranteed by U.S. Government-sponsored enterprises (GSEs) like Fannie Mae and Freddie Mac, or by a U.S. Government agency such as Ginnie Mae, thereby enhancing liquidity in the residential real estate mortgage markets and facilitating home ownership in the U.S. The company also invests in Agency multifamily mortgage-backed securities (Agency multifamily MBS) and other non-Agency mortgage-related securities, including Credit Risk Transfer (CRT) securities, non-Agency residential mortgage-backed securities (Non-Agency RMBS), and Commercial Mortgage-Backed Securities (CMBS). AGNC is internally managed and operates to qualify as a real estate investment trust (REIT), requiring it to distribute annually 90% of its taxable income to stockholders to generally avoid U.S. federal or state corporate income tax.

The core business model revolves around generating income from the interest earned on its investments, net of associated borrowing and hedging costs, and net realized gains and losses from investment and hedging activities. The company funds its investments primarily through collateralized borrowings structured as repurchase agreements. AGNC employs an active management strategy, dynamically adjusting its portfolio composition, leverage, and hedging strategies based on market conditions, with the objective of delivering attractive risk-adjusted returns primarily through monthly dividend distributions, while managing various market risks and maintaining its REIT status and Investment Company Act exemption.

The investment portfolio is predominantly composed of Agency RMBS, which are pass-through certificates representing interests in pools of mortgage loans secured by residential real property. These securities are guaranteed for principal and interest payments by a GSE or U.S. Government agency. As of December 31, 2025, Agency RMBS, at fair value, totaled $81.003 billion ⁴, and Agency securities transferred to consolidated variable interest entities, at fair value, amounted to $85 million ⁵. The company also utilizes To-Be-Announced Forward Contracts (TBAs), which are forward contracts to purchase or sell Agency RMBS, and as of December 31, 2025, net TBA securities, at fair value, were $13.0 billion ⁶. Agency multifamily MBS are securities backed by mortgage loans secured by multifamily properties, also with a GSE guarantee.

Beyond Agency securities, AGNC invests in non-Agency securities. CRT securities are risk-sharing instruments that transfer credit risk from GSEs or third parties to private investors, with full principal repayment not guaranteed. As of December 31, 2025, CRT securities, at fair value, were $606 million ⁷. Non-Agency RMBS are structured securities backed by pools of residential mortgages issued by private institutions, carrying higher credit exposure. CMBS are securities backed by commercial property loans. As of December 31, 2025, Non-Agency securities, at fair value, and other mortgage credit investments totaled $95 million ⁸. The investment portfolio as of December 31, 2025, was $94.8 billion ⁹, an increase from $73.3 billion ¹⁰ as of December 31, 2024. Fixed-rate Agency RMBS and TBAs constituted 95% ¹¹ of the investment portfolio as of December 31, 2025.

For the fiscal year ended December 31, 2025, AGNC reported total assets of $115.077 billion ¹² and total liabilities of $102.684 billion ¹³. Total stockholders' equity was $12.393 billion ¹⁴. Interest income for 2025 was $3.523 billion ¹⁵, with interest expense of $2.848 billion ¹⁶, resulting in net interest income of $675 million ¹⁷. Other gain, net, was $1.122 billion ¹⁸. Net income for the year was $1.670 billion ¹⁹, and net income available to common stockholders was $1.509 billion ²⁰. Basic EPS was $1.48 ²¹, and diluted EPS was $1.47 ²². Comprehensive income for the year was $1.938 billion ²³, with comprehensive income available to common stockholders at $1.777 billion ²⁴. Dividends declared per common share were $1.44 ²⁵. The company's tangible net book value per common share was $8.88 ²⁶ as of December 31, 2025. Repurchase agreements and other debt totaled $85.342 billion ²⁷.

Comparing 2025 to 2024, total assets increased from $88.015 billion ²⁸ to $115.077 billion ¹². Net interest income significantly improved from $18 million ²⁹ in 2024 to $675 million ¹⁷ in 2025. Net income increased from $863 million ³⁰ in 2024 to $1.670 billion ¹⁹ in 2025. Diluted EPS rose from $0.93 ³¹ in 2024 to $1.47 ²² in 2025. The investment portfolio grew by $21.5 billion ³² to $94.8 billion ⁹. The weighted average coupon of the portfolio, excluding TBAs, increased to 5.19% ³³ from 5.03% ³⁴ in 2024. The portion of the fixed-rate investment portfolio with favorable prepayment attributes increased to 76% ³⁵ from 74% ³⁶. The average projected life Constant Prepayment Rate (CPR) for the portfolio increased to 9.6% ³⁷ from 7.7% ³⁸. The "at risk" leverage remained stable at 7.2x ³⁹ tangible equity.

During 2025, AGNC increased its receiver swaption position by $6.9 billion ⁴⁰ to provide additional protection in a declining rate environment. The company issued $345 million ⁴¹ of new preferred equity and $2.0 billion ⁴² of new common equity capital during the year. The hedge ratio, reflecting interest rate swap and U.S. Treasury hedges relative to total funding liabilities, decreased to 77% ⁴³ as of December 31, 2025, from 88% ⁴⁴ as of December 31, 2024. The average hedge ratio for 2025 was approximately 82% ⁴⁵, down from 93% ⁴⁶ in 2024.

AGNC anticipates a favorable backdrop for mortgage spreads as it enters 2026, supported by current market dynamics and the Administration's focus on housing affordability and mortgage market stability. The supply and demand outlook for Agency RMBS appears well balanced, with an expected net supply of new Agency RMBS in 2026 of approximately $200 billion ⁴⁷. This, combined with an anticipated $200 billion ⁴⁸ runoff of the Fed's Agency RMBS holdings, projects a total net supply of approximately $400 billion ⁴⁹ to be absorbed by the market in 2026, comparable to the prior two years. Demand for Agency RMBS is expected to remain robust, with GSE purchases potentially accounting for approximately half of the projected 2026 supply, and continued active purchasing from banks, money managers, foreign investors, and REITs.

The company expects net spread and dollar roll income to benefit from several factors in the upcoming period. These include lower funding costs resulting from the September, October, and December 2025 rate cuts totaling 75 basis points ⁵⁰, potential future rate cuts, and greater stability in funding markets. Additionally, a shift in the company's hedge mix toward a greater share of swap-based hedges in the fourth quarter of 2025 is expected to contribute positively. However, higher hedging costs due to the maturity of legacy lower pay-rate swaps, as well as reduced mortgage spreads, if they materialize in 2026, could offset some or all of these anticipated benefits.

Operationally, AGNC's strategy involves active portfolio management, which means its investment portfolio composition, leverage ratio, and hedge positions will fluctuate based on market conditions. The company increased its receiver swaption position by $6.9 billion ⁴⁰ during 2025 to provide additional protection in a declining rate environment, indicating a proactive approach to managing interest rate risk. The hedge ratio declined to 77% ⁴³ as of December 31, 2025, from 88% ⁴⁴ as of December 31, 2024, reflecting a strategic shift towards a more accommodative monetary policy environment and positioning the company to benefit from future rate cuts.

Regarding capital allocation, AGNC issued $345 million ⁴¹ of new preferred equity and $2.0 billion ⁴² of new common equity capital during 2025. As of December 31, 2025, $1.0 billion ⁵¹ remained authorized for common stock repurchases through December 31, 2026. The company intends to pay monthly dividends to its common stockholders in an amount that distributes all or substantially all of its taxable income to maintain its REIT status.

Management explicitly flagged several structural headwinds and execution risks. The decline in net spread and dollar roll income per diluted common share in 2025 to $1.50 ⁵² from $1.88 ⁵³ in 2024 was primarily driven by lower swap income due to the maturity of legacy interest rate swaps with low fixed pay rates, and a timing mismatch between the issuance and deployment of new equity capital. Higher hedging costs due to the maturity of legacy lower pay-rate swaps and reduced mortgage spreads are identified as potential offsets to future benefits. The company's reliance on predictive models for decision-making and risk management, which are based on historical correlations, may be impaired by unprecedented events, market dislocations, or changes in housing or mortgage-related policies. The use of artificial intelligence (AI) by the company or its third-party vendors also presents risks related to data quality, model accuracy, cybersecurity, bias, and intellectual property.

AGNC faces material risks across several categories. Macroeconomic risks include interest rate and spread volatility, which can significantly impact liquidity, increase costs, and reduce hedging effectiveness, potentially leading to margin calls and forced asset sales. The participation of the Federal Reserve and other government-related entities in the Agency mortgage market poses a risk, as changes in their asset purchase or sale policies could materially affect mortgage market conditions, supply, pricing, and returns, potentially lowering tangible net book value. Prepayment and extension risks are inherent to the investment portfolio, as actual prepayment rates differing from estimates can negatively impact net interest margins and require financing investments for longer periods at higher costs. Credit risk exists in CRT and non-Agency securities, where repayment of principal and interest is not guaranteed, exposing the company to potential losses from delinquency or foreclosure. Operational risks include heavy dependence on information systems and third-party service providers, making the company vulnerable to system failures or cybersecurity incidents, which could disrupt operations, lead to data breaches, regulatory fines, and reputational damage. The use of AI technologies, both internally and by vendors, introduces risks related to data quality, model accuracy, and potential biases. Legislative and regulatory risks are significant, particularly federal housing finance reform and potential changes to the conservatorship of Fannie Mae and Freddie Mac, which could alter the nature of credit support, modify their roles, or otherwise adversely impact the liquidity and value of Agency RMBS. Changes in U.S. fiscal policy, new regulatory requirements for banks, and SEC regulations mandating central clearing of U.S. Treasury and Agency RMBS transactions could also adversely affect financing terms, market liquidity, and demand for Agency RMBS. Failure to satisfy regulatory requirements for its captive broker-dealer subsidiary, Bethesda Securities, LLC, could result in the inability to access tri-party repo funding through the FICC's GCF Repo service, harming business operations. Furthermore, the company's REIT status is subject to complex Internal Revenue Code provisions, and failure to qualify would result in adverse tax consequences, including corporate income tax liabilities and reduced funds for distributions. The REIT distribution requirements may also limit the ability to retain earnings and replenish capital from operations, potentially forcing the company to borrow funds or sell investments at disadvantageous prices. The company's certificate of incorporation generally prohibits ownership of more than 9.8% ⁵⁴ of its common or capital stock, which could delay or prevent a change in control.

Management's message to shareholders conveys a positive outlook for 2026, emphasizing the favorable fundamental and technical backdrop for Agency RMBS, supported by the Administration's focus on housing affordability and mortgage market stability. They anticipate net spread and dollar roll income to benefit from lower funding costs due to the 75 basis point ⁵⁰ rate cuts in September, October, and December 2025, potential future rate cuts, and increased stability in funding markets. A strategic shift in the hedge mix towards a greater share of swap-based hedges in the fourth quarter of 2025 is also expected to contribute positively. However, management acknowledges potential offsets from higher hedging costs due to the maturity of legacy lower pay-rate swaps and reduced mortgage spreads. Key strategic priorities include maintaining an active management strategy that is dynamic and responsive to evolving market conditions, optimizing long-term risk-adjusted returns through continuous monitoring and adjustment of the hedge portfolio, net duration, and leverage, and ensuring sufficient liquidity and capital resources to fund operations and meet dividend distribution requirements. They also highlight the importance of human capital management, competitive compensation, and a robust cybersecurity risk management program as critical to the company's success.