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 U.S. Government agencies 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-backed securities (non-Agency MBS) and commercial mortgage-backed securities (CMBS), as well as Credit Risk Transfer (CRT) securities. AGNC is internally managed and operates to qualify as a real estate investment trust (REIT), requiring it to distribute at least 90% of its taxable income annually to avoid corporate income tax.

The core business model revolves around generating income from the net interest earned on its investments, after accounting for 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 (repo). A significant portion of its funding is diversified through its wholly-owned captive broker-dealer subsidiary, Bethesda Securities, LLC (BES), which is a member of the Fixed Income Clearing Corporation (FICC) and has direct access to bilateral and tri-party repo funding, including the General Collateral Finance (GCF) Repo service. AGNC also utilizes To-Be-Announced (TBA) forward contracts as a form of off-balance sheet financing, generating "TBA dollar roll income" from the price differential between current and forward month settlement dates.

As of December 31, 2025, AGNC's investment portfolio totaled $94.8 billion ¹, an increase of $21.5 billion ² from the prior year. This portfolio primarily consisted of $81.1 billion ³ in Agency RMBS at fair value, $13.0 billion ⁴ in net TBA securities at fair value, $0.6 billion ⁵ in CRT, non-Agency RMBS, and CMBS at fair value, and $70 million ⁶ in other mortgage credit investments accounted for under the equity method. The 30-year fixed-rate Agency RMBS and TBAs constituted 95% ⁷ of the investment portfolio, largely consistent with the previous year. The weighted average coupon of the portfolio, excluding TBAs, increased to 5.19% ⁸ as of December 31, 2025, from 5.03% ⁹ as of December 31, 2024. Including TBAs, the weighted average coupon of the fixed-rate portfolio rose to 5.12% ¹⁰ from 5.02% ¹¹. The portion of the fixed-rate investment portfolio with favorable prepayment attributes increased to 76% ¹² from 74% ¹³.

For the fiscal year ended December 31, 2025, AGNC reported total assets of $115,077 million ¹⁴, total liabilities of $102,684 million ¹⁵, and total stockholders' equity of $12,393 million ¹⁶. Net income for the year was $1,670 million ¹⁷, with net income available to common stockholders at $1,509 million ¹⁸. Basic earnings per share (EPS) was $1.48 ¹⁹, and diluted EPS was $1.47 ²⁰. Comprehensive income available to common stockholders was $1,777 million ²¹, resulting in a diluted comprehensive income per common share of $1.74 ²². The company declared common dividends of $1.44 ²³ per share. Repurchase agreements and other debt totaled $85,342 million ²⁴. Cash and cash equivalents were $450 million ²⁵, and restricted cash was $1,292 million ²⁶.

Comparing fiscal year 2025 to 2024, interest income increased to $3,523 million ²⁷ from $2,949 million ²⁸, while interest expense decreased to $2,848 million ²⁹ from $2,931 million ³⁰. This resulted in a significant improvement in net interest income to $675 million ³¹ in 2025 from $18 million ³² in 2024. Total other gain, net, increased to $1,122 million ³³ from $955 million ³⁴. Operating expenses rose to $127 million ³⁵ from $110 million ³⁶. The average investment portfolio (at cost), inclusive of TBAs, increased by 23% ³⁷ in 2025, following a 9% ³⁸ increase in 2024, primarily due to an expanded capital base. The average yield on the investment portfolio, including TBA implied asset yields and excluding "catch-up" premium amortization, increased by 20 basis points ³⁹ in 2025 and 59 basis points ⁴⁰ in 2024, driven by a shift towards higher coupon, specified pools.

During 2025, AGNC generated an economic return of 22.7% ⁴¹ on tangible common equity, comprising $1.44 ⁴² in dividends declared and a $0.47 ⁴³ increase in tangible net book value per common share. This compares to an economic return of 13.2% ⁴⁴ in 2024. Net spread and dollar roll income per diluted common share decreased to $1.50 ⁴⁵ in 2025 from $1.88 ⁴⁶ in 2024, primarily due to lower swap income from the maturity of legacy interest rate swaps with low fixed pay rates and a timing mismatch in the deployment of new equity capital. The company issued $345 million ⁴⁷ in new preferred equity and $2.0 billion ⁴⁸ in new common equity capital during the year. The hedge ratio decreased to 77% ⁴⁹ as of December 31, 2025, from 88% ⁵⁰ as of December 31, 2024, reflecting a shift towards a more accommodative monetary policy. AGNC increased its receiver swaption position by $6.9 billion ⁵¹ during the year to provide additional protection in a declining rate environment. The "at risk" leverage remained stable at 7.2x ⁵² tangible equity as of December 31, 2025, unchanged from December 31, 2024.

AGNC anticipates a favorable backdrop for mortgage spreads as it enters 2026, supported by the Administration's continued focus on housing affordability and maintaining mortgage market stability. The supply and demand outlook for Agency RMBS appears well balanced, with an expected net supply of new Agency RMBS of approximately $200 billion ⁵³ in 2026. This, combined with an anticipated $200 billion ⁵⁴ runoff of the Fed's Agency RMBS holdings, projects a total net supply of approximately $400 billion ⁵⁵ to be absorbed by the market in 2026, a level 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 participation 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 ⁵⁶, potential future rate cuts, and greater stability in funding markets. Additionally, a strategic shift in AGNC's hedge mix towards a greater share of swap-based hedges in the fourth quarter of 2025 is expected to contribute positively. However, management also notes that 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.

AGNC's operational outlook includes maintaining its leverage between six to ten times the amount of its tangible stockholders' equity, although it may operate outside this range for extended periods depending on market conditions and risk-return assessments. The company's hedge ratio, which was 77% ⁵⁷ as of December 31, 2025, reflects a strategic adjustment to a more accommodative monetary policy environment, positioning AGNC's earnings profile to benefit from future rate cuts. The company's risk management strategy involves continuous monitoring and adjustment of its hedge portfolio, net duration, and leverage to optimize long-term risk-adjusted returns.

Planned capital allocation includes maintaining a strong liquidity position. As of December 31, 2025, AGNC held $7.7 billion ⁵⁸ in unencumbered assets, representing 65% ⁵⁹ of tangible equity, comprising $7.6 billion ⁶⁰ of cash and unencumbered Agency RMBS and $0.1 billion ⁶¹ of unencumbered credit assets. The company has an authorized stock repurchase plan, with $1.0 billion ⁶² remaining authorized for repurchases through December 31, 2026. AGNC intends to pay monthly dividends to its common stockholders to comply with REIT qualification requirements, distributing all or substantially all of its taxable income.

Management has explicitly flagged several structural headwinds and execution risks. These include the potential for higher hedging costs due to the maturity of legacy lower pay-rate swaps and the possibility of reduced mortgage spreads in 2026. The company's ability to secure financing on acceptable terms is crucial, and disruptions in the repo market, higher short-term interest rates, declines in asset market value, increases in "haircut" requirements, or changes in regulatory capital requirements for lenders could adversely affect funding. The enforceability of derivative and repurchase agreements also depends on compliance with statutory and regulatory requirements, and counterparty defaults pose a risk.

Geographic, regulatory, and macro factors identified as constraints include the potential for changes in the Fed's monetary policy, particularly regarding its Agency RMBS holdings, which could impact market volatility, liquidity, and spreads. Actions by other government-related entities, including GSEs, could also affect Agency RMBS prices and market liquidity. Federal housing finance reform and potential changes to the conservatorship of Fannie Mae and Freddie Mac, or to laws affecting their relationship with the U.S. Government, could alter credit support, modify their roles, or affect the value and liquidity of Agency RMBS. New regulatory requirements, such as proposed revisions to bank capital rules or mandates for central clearing of U.S. Treasury and Agency RMBS transactions, could adversely affect financing terms, market liquidity, or demand for Agency RMBS. The company's ability to maintain its REIT status and exemption from the Investment Company Act is subject to complex and technical provisions of the Internal Revenue Code and SEC interpretations, which could limit investment opportunities or hedging effectiveness.

AGNC faces material risks including spread risk, which is inherent to its business as a levered investor in Agency RMBS, where widening spreads between asset yields and interest rate hedges can reduce tangible net book value, and which is generally not protected by hedging instruments. Interest rate and spread volatility pose significant risks, potentially affecting liquidity, increasing costs, and impairing risk management effectiveness, with elevated volatility amplifying exposure to margin calls and potentially forcing asset sales under adverse conditions. The participation of the Fed and other government entities in the Agency mortgage market can materially impact market conditions, with actual or anticipated reductions in Agency RMBS holdings by the Fed potentially leading to lower values, wider spreads, and adverse impacts on tangible net book value and financial condition. Changes in prepayment rates, which are difficult to predict and can be influenced by various factors beyond interest rates, may adversely affect investment returns by requiring reinvestment at lower yields or extending asset maturities, thereby increasing financing costs. The reliance on analytical models and third-party data for valuation and risk management carries the risk of incorrect, misleading, or incomplete information, especially during periods of high volatility or unprecedented events, potentially leading to faulty decisions and losses. The fair value of investments may not be readily determinable or realizable, particularly in forced liquidations, negatively affecting financial results. Credit-oriented securities, such as CRT and non-Agency MBS, expose the company to potential losses from delinquency or foreclosure on underlying mortgage loans, with private mortgage insurance not guaranteeing full coverage. Geographic concentration of assets can heighten default and loss risks due to regional economic conditions or environmental hazards. The company's significant leverage, generally expected to be between six to ten times ⁶³ tangible stockholders' equity, amplifies exposure to higher borrowing costs, changes in asset values, and margin calls, increasing the risk of substantial losses. Inability to procure or renew funding on favorable terms, or at all, could force asset sales under adverse market conditions. Borrowing costs may increase faster than asset yields, negatively impacting net interest margin. The FICC's margin requirements, which can increase without significant notice, could limit access to tri-party repo funding and centrally-cleared TBA transactions, potentially leading to default and liquidation of collateral. Repurchase and derivative agreements contain financial and non-financial covenants, and failure to comply could result in defaults, acceleration of obligations, and forced asset sales. The enforceability of these agreements in bankruptcy or insolvency may be limited, and counterparties may not fulfill their obligations, leading to losses. Hedging strategies may be ineffective due to complexity, inherent business risks, inaccurate risk assessment, or regulatory changes, potentially resulting in greater losses. Operational risks include dependence on information systems and third-party service providers, with system failures or cybersecurity incidents potentially disrupting operations, and the use of AI technologies by the company or its vendors could introduce additional risks related to data quality, model accuracy, and bias. Failure to qualify as a REIT would result in substantial tax liabilities and reduced funds for investments and distributions, and REIT distribution requirements may limit capital retention. Uncertainty exists regarding the tax treatment of TBAs for REIT asset and income tests, and the 100% tax on prohibited transactions could limit beneficial activities. Legislative and regulatory changes, including federal housing finance reform or actions by the U.S. Government, could adversely affect the Agency RMBS market, funding availability, and the company's business. Loss of the Investment Company Act exemption would substantially reduce leverage capacity.

Management's message to shareholders conveys a tone of cautious optimism, highlighting AGNC's strong performance in 2025 and a favorable outlook for 2026, while acknowledging potential headwinds. The company achieved a best-in-class economic return of 22.7% ⁶⁴ on tangible common equity for 2025, driven by favorable Agency RMBS performance and active portfolio management. Management emphasizes that the Administration's focus on housing affordability and mortgage market stability provides a favorable backdrop for mortgage spreads. For 2026, the net supply of new Agency RMBS is expected to be approximately $200 billion ⁶⁵, with an additional $200 billion ⁶⁶ from the Fed's runoff, totaling around $400 billion ⁶⁷ of net supply, which is anticipated to be met by robust demand, including significant GSE purchases. Management expects net spread and dollar roll income to benefit from the 75 basis point ⁶⁸ rate cuts in September, October, and December 2025, potential future rate cuts, and increased stability in funding markets, alongside a strategic shift towards more swap-based hedges in Q4 2025. However, they explicitly flag that higher hedging costs due to maturing legacy lower pay-rate swaps and potential reduced mortgage spreads in 2026 could offset these benefits. The three strategic priorities emphasized are active portfolio management to optimize risk-adjusted returns, maintaining a strong liquidity position, and ensuring compliance with REIT and Investment Company Act requirements.