What changed in this filing

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Item 1. Business

2021-02-26 compared with 2020-02-25 · 89 added, 25 removed, 143 unchanged (44% of the section changed)

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Our common stock is traded on The Nasdaq Global Select Market under the symbol "AGNC."

We are internally managed, and our principal objective is to provide our stockholders with attractive risk-adjusted returns through a combination of monthly dividends and tangible net book value accretion.

We generate income from the interest earned on our investments, net of associated borrowing and hedging costs, and net realized gains and losses on our investment and hedging activities.

We fund our investments primarily through borrowings structured as repurchase agreements.

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").

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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 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 agency, such as the Government National Mortgage Association ("Ginnie Mae").

We may also invest in other types of mortgage and mortgage-related residential and commercial mortgage-backed securities where repayment of principal and interest is not guaranteed by a GSE or U.S.

Government agency or in other investments in, or related to, the housing, mortgage or real estate markets.

We are an internally managed REIT with the principal objective of providing our stockholders with attractive risk-adjusted returns through a combination of monthly dividends and tangible net book value accretion.

We generate income from the interest earned on our investments, net of associated borrowing and hedging costs, and net realized gains and losses on our investment and hedging activities.

We fund our investments primarily through collateralized borrowings structured as repurchase agreements.

Investment Strategy

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• manage an investment portfolio consisting primarily of Agency securities;

invest a subset of the portfolio in credit risk-oriented mortgage assets;

• invest a subset of the portfolio in credit-oriented and other assets related to the housing, mortgage or real estate markets that are not guaranteed by a GSE or U.S.

Government agency;

• capitalize on discrepancies in the relative valuations in the Agency and non-Agency securities market;

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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.

Unlike Agency RMBS, full repayment of the original principal balance of CRT securities is not guaranteed by a GSE or other third-party;

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.

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We focus primarily on non-Agency securities where the underlying mortgages are secured by residential properties within the United States.

Residential non-Agency securities are backed by residential mortgages that can be comprised of prime mortgage or nonprime mortgage loans.

Residential non-Agency securities are backed by residential mortgages that can be comprised of prime, non-prime, qualified and non-qualified mortgage loans.

We may also purchase Agency and non-Agency multifamily securities where the collateral backing the securitization consists of loans for multi-unit housing properties.

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We diversify our funding exposure by entering into repurchase agreements with multiple counterparties.

We had master repurchase agreements with 46 financial institutions as of December 31, 2019.

The terms of our master repurchase agreements generally conform to the terms in the standard master repurchase agreement as published by the Securities Industry and Financial Markets Association ("SIFMA") as to repayment, margin requirements and the segregation of all securities sold under the repurchase transaction.

all securities sold under the repurchase transaction.

In addition, each lender may require that we include supplemental terms and conditions to the standard master repurchase agreement to address such matters as additional margin maintenance requirements, cross default and other provisions.

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We hedge a portion of our interest rate risk with respect to both the fixed income nature of our long-term assets and the short-term, variable rate nature of our financing.

A majority of our funding is in the form of repurchase agreements, and, as a result, our financing costs fluctuate based on short-term interest rate indices, such as the U.S.

federal funds rate and LIBOR.

A majority of our funding is in the form of repurchase agreements, and, as a result, our financing costs fluctuate based on short-term benchmark rates, such as the U.S.

federal funds rate, Secured Overnight Financing Rate ("SOFR"), and three-month London Interbank Offered Rate ("LIBOR").

Our investments are assets that primarily have fixed rates of interest with maturities up to 30 years, and the interest we earn on those assets generally does not move in tandem with the interest that we pay on our repurchase agreements.

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Extension risk generally increases when interest rates rise, and our financial results could be adversely affected as we may have to finance our investments at potentially higher costs without the ability to simultaneously reinvest principal repayments into higher yielding securities due to a lack of or slower than anticipated borrower prepayments.

• Spread Risk.

Because the market spread between the yield on our investments and the yield on benchmark interest rates, such as U.S.

Treasury rates and interest rate swap rates, may vary, we are exposed to spread risk.

When spreads widen,

we will typically experience a loss in our tangible net book value, conversely, when spreads tighten, we will typically experience a gain in our tangible net book value.

When spreads widen, we will typically experience a loss in our tangible net book value, conversely, when spreads tighten, we will typically experience a gain in our tangible net book value.

Spread movements can occur independent of interest rates and may relate to other factors impacting the mortgage and fixed income markets, such as actual or anticipated monetary policy actions by the U.S.

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Spread risk is an inherent risk we take as a levered investor in mortgage-backed securities and, as such, our strategies are generally not designed to protect our tangible net book value from adverse spread movements.

• Credit Risk.

We accept mortgage credit exposure related to our CRT and other non-Agency securities at levels we deem to be appropriate within the context of our overall investment strategy.

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Additionally, we may attempt to adjust our credit exposure and/or to improve the return profile of our investment portfolio by varying the mix of our Agency and non-Agency mortgage investments and adjusting our duration gap when we believe credit performance is inversely correlated with changes in interest rates.

The risk management actions we take 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.

Our risk management actions may lower our earnings and dividends in the short-term to further our objective of preserving our net book value and maintaining attractive levels of earnings and dividends over the long-term.

In addition, some of our hedges are intended to provide protection against larger rate moves and as a result may be relatively ineffective for smaller interest rate changes.

Our projections of exposures to interest rate, prepayment, extension and other risks are also based on models that are dependent on a number of assumptions and inputs, and actual results could differ materially from our projections.

As of December 31, 2019, we had 51 full-time employees.

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 regulated investment companies, which would significantly reduce our ability to use leverage.

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.

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Risk Factors" of this Form 10-K for further discussion of REIT qualification requirements and related items.

Corporate Information

Our executive offices are located at Two Bethesda Metro Center, 12 th Floor, Bethesda, MD 20814 and our telephone number is (301) 968-9315.

We make available our Annual Reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such reports as well as our Code of Ethics and Conduct on our internet website at www.AGNC.com as soon as reasonably practical after such material is electronically filed with or furnished to the SEC.

These reports are also available on the SEC internet website at www.sec.gov .

Human Capital Management

We believe our success as a company ultimately depends on the strength, wellness, and dedication of our workforce.

We pride ourselves on robust practices in the area of human capital management that are constantly evolving to meet the needs of our people.

As of December 31, 2020, our workforce consisted of 50 full-time employees.

We strive to provide each of our highly skilled employees an engaging, rewarding, supportive, and inclusive atmosphere in which to grow professionally.

Our competitive and comprehensive benefits package is carefully designed to attract and retain talented personnel.

We believe our low voluntary employee turnover and favorable employee survey results are a testament to the success of our human capital management initiatives.

Employee Turnover Metrics

Year January 1 Terminations 1

New Hires December 31

2020 51 -1 0 50

2019 56 -6 1 51

2018 56 -2 2 56

________________________________

Employee terminations include voluntary and involuntary terminations.

Terminations during 2018 and 2019 were primarily associated with the termination of MTGE Investment Corp.’s management services agreement with our subsidiary MTGE Management, LLC due to the sale of MTGE Investment Corp.

to a third party in 2018.

Employee Communications and Engagement

We recognize the importance of ongoing open communication and engagement with our employees, and we greatly value their input.

We regularly engage with our employees in a variety of ways through regular feedback with each member of our staff, anonymous employee surveys and frequent town hall meetings.

Our anonymous employee surveys are a key component of our employee engagement that provide a means of assessing job satisfaction and specific concerns of our employees.

To enhance the candor and comfort of our employees, we use an outside vendor that provides verbatim comments and analysis of engagement levels on an anonymous basis.

A recent anonymous employee survey indicated the Company had a satisfaction rating above 90% in many areas, including AGNC’s treatment of its employees, physical working conditions, commitment to integrity, and overall culture and environment.

Based on the results of our surveys, our Board and management have implemented various ideas and recommendations received from employees.

Workplace Culture and Ethics

Our corporate culture promotes open and honest communication, fair treatment, collegiality and high ethics and compliance standards.

Our Code of Ethics and Conduct ("Code of Conduct") applies to all directors, officers and employees and provides clear expectations and guidance to facilitate appropriate decisioning.

Our Code of Conduct covers topics such as compliance with securities laws, conflicts of interest, giving and receiving gifts, discrimination, harassment, privacy, appropriate use of Company assets, protecting confidential information, and reporting Code of Conduct violations (including through an anonymous hotline).

All employees are required to affirm their understanding of these standards on at least an annual basis.

Our executive officers and human resources department maintain "open door" policies and any form of retaliation for bona fide reporting of Code of Conduct violations is expressly prohibited.

Employee Development

We have a number of policies and programs to further the professional development of our employees, including our professional certification and continuing education policy.

This includes reimbursement for any supervisor-approved courses for our employees.

We also maintain a regular "Lunch and Learn" series and recently launched a formal mentoring program for employees to provide direct one-on-one career guidance and cross-functional experience across various operations.

These initiatives have advanced unique and professional skill sets throughout the organization.

Diversity and Inclusion

Central to our core values is that every individual deserves respect and equal treatment, regardless of gender, race, ethnicity, age, disability, sexual orientation, gender identity, cultural background or religious belief.

We strive to have a diverse workforce and an inclusive and welcoming work environment that is free from wrongful discrimination.

We have long maintained policies against discrimination and harassment in our workplace.

Although we have a relatively small workforce and low turnover rate, our recruitment and hiring practices attempt to ensure the diversity of applicant pools for posted job openings.

We also seek to engage our employees and provide them opportunities on a non-discriminatory and inclusive basis.

As of December 31, 2020, 43% of our employees were women and 33% were ethnically diverse.

Our Board also strives to maintain diversity and inclusion among its directors.

As of December 31, 2020, three of seven directors were women and one director was ethnically diverse.

Compensation and Benefits

We seek to attract and retain the most talented employees in our industry by offering competitive compensation and benefits.

Our pay-for-performance compensation philosophy is based on rewarding each employee’s individual contributions through a combination of fixed and variable pay elements.

Each employee receives a total compensation package that includes base salary, short-term incentives in the form of an annual cash bonus and long-term equity incentives.

The proportion of each employee’s variable incentive versus fixed-based elements of their compensation is directly correlated to the individual’s level of responsibility and role in the organization.

Generally, higher level employees have higher proportions of variable incentive-based compensation in their target mix.

Similarly, within the incentive-based elements, the proportion of long-term incentive-based elements generally increases with the individual’s level of responsibility in the organization.

As the success of our business is fundamentally connected to the well-being of our people, we offer benefits that support their physical, financial and emotional well-being.

We provide our employees with access to flexible, comprehensive and convenient medical coverage intended to meet their needs and the needs of their families.

In addition to standard medical coverage, we offer employees dental and vision coverage, health savings and flexible spending accounts, paid time off, employee assistance programs, voluntary short-term and long-term disability insurance, term life insurance and other benefits.

We also believe in the long-term financial wellness of our employees, and to foster maximum savings rates by our employees we offer a 401(k) Savings Plan and Company matching contributions of 100% up to 6% of each employee’s eligible compensation, subject to IRS limits.

COVID-19 and Workforce Safety

To protect the health and safety of our workforce, during the COVID-19 pandemic (the "Pandemic" or "COVID-19"), we shifted to a fully remote work-from home environment prior to any jurisdiction’s mandate to do so.

We also instituted a survey in mid-2020 to understand our employees' perspective during the extreme circumstances brought about by the Pandemic, including work-from-home environment and resource issues, employee mental health and wellbeing, child-care considerations and similar matters.

We used their feedback to inform decisions regarding matters such as implementing flexible work schedules, providing additional resources and equipment to improve our employees work from home experience, and demonstrating flexibility with respect to the timing and manner of eventual office re-openings.

Finally, we hosted town hall meetings on a frequent basis – including weekly during the early phases of the COVID-19 pandemic in March and April and on a monthly basis thereafter – to ensure sufficient company-wide communication with our workforce during this time.

Employee survey results indicated that 100% of our employees believe we responded to the COVID-19 outbreak very well or extremely well.

Our success depends, in large part, on our ability to acquire assets at favorable spreads over our borrowing costs.

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Additionally, our investment strategy is dependent on the amount of financing available to us through repurchase agreements and would be adversely impacted if we are not able to secure financing on favorable terms, if at all.

Corporate Information

Our executive offices are located at Two Bethesda Metro Center, 12 th Floor, Bethesda, MD 20814 and our telephone number is (301) 968-9315.

These reports are also available on the SEC internet website at www.sec.gov .

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business