AGNC Investment Corp. 10-K

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, 2021 and 2020 and fiscal years 2021, 2020 and 2019 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 audit. 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, 2021, 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, 2021. The effectiveness of our internal control over financial reporting as of December 31, 2021 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 The Board of Directors and Stockholders 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, 2021, 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. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, 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 AGNC Investment Corp. as of December 31, 2021 and 2020, and the related consolidated statements of comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2021, and the related notes, and our report dated February 23, 2022 expressed an unqualified opinion thereon. Basis for Opinion AGNC Investment Corp.’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 AGNC Investment Corp.’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 AGNC Investment Corp. 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 23, 2022 48 Report of Independent Registered Public Accounting Firm The Board of Directors and Stockholders 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, 2021 and 2020, and the related consolidated statements of comprehensive income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2021, 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 AGNC Investment Corp. at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, 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), AGNC Investment Corp.’s internal control over financial reporting as of December 31, 2021, 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 23, 2022 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of AGNC Investment Corp.'s management. Our responsibility is to express an opinion on these 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 AGNC Investment Corp. 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 Public Company Accounting Oversight Board (United States). 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 financial statement presentation. 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, 2021, the Company’s investment securities had a net unamortized premium balance of $1.8 billion, including interest and principal-only securities, and it recorded $0.4 billion 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 models that incorporate 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 AGNC Investment Corp.’s auditor since 2008. Tysons, Virginia February 23, 2022 50 AGNC INVESTMENT CORP. CONSOLIDATED BALANCE SHEETS (in millions, except per share data) December 31, 2021 2020 Assets: Agency securities, at fair value (including pledged securities of $ 47,601 and $ 53,698 , respectively) $ 52,396 $ 64,836 Agency securities transferred to consolidated variable interest entities, at fair value (pledged securities) 208 295 Credit risk transfer securities, at fair value (including pledged securities of $ 510 and $ 455 , respectively) 974 737 Non-Agency securities, at fair value (including pledged securities of $ 571 and $ 458 , respectively) 843 546 U.S. Treasury securities, at fair value (including pledged securities of $ 471 and $ 0 , respectively) 471 — Cash and cash equivalents 998 1,017 Restricted cash 527 1,307 Derivative assets, at fair value 317 391 Receivable for investment securities sold (including pledged securities of $0 and $ 207 , respectively) — 210 Receivable under reverse repurchase agreements 10,475 11,748 Goodwill 526 526 Other assets 414 204 Total assets $ 68,149 $ 81,817 Liabilities: Repurchase agreements $ 47,381 $ 52,366 Debt of consolidated variable interest entities, at fair value 126 177 Payable for investment securities purchased 80 6,157 Derivative liabilities, at fair value 86 2 Dividends payable 88 90 Obligation to return securities borrowed under reverse repurchase agreements, at fair value 9,697 11,727 Accounts payable and other liabilities 400 219 Total liabilities 57,858 70,738 Stockholders' equity: Preferred Stock - aggregate liquidation preference of $ 1,538 1,489 1,489 Common stock - $ 0.01 par value; 1,500 shares authorized; 522.2 and 539.5 shares issued and outstanding, respectively 5 5 Additional paid-in capital 13,710 13,972 Retained deficit ( 5,214 ) ( 5,106 ) Accumulated other comprehensive income 301 719 Total stockholders' equity 10,291 11,079 Total liabilities and stockholders' equity $ 68,149 $ 81,817 See accompanying notes to consolidated financial statements. 51 AGNC INVESTMENT CORP. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in millions, except per share data) For the year ended December 31, 2021 2020 2019 Interest income: Interest income $ 1,361 $ 1,519 $ 2,842 Interest expense 75 674 2,149 Net interest income 1,286 845 693 Other gain (loss), net: Gain (loss) on sale of investment securities, net ( 57 ) 1,126 388 Unrealized gain (loss) on investment securities measured at fair value through net income, net ( 1,502 ) 319 2,014 Gain (loss) on derivative instruments and other securities, net 1,110 ( 2,463 ) ( 2,324 ) Total other gain (loss), net: ( 449 ) ( 1,018 ) 78 Expenses: Compensation and benefits 54 56 47 Other operating expense 34 37 36 Total operating expense 88 93 83 Net income (loss) 749 ( 266 ) 688 Dividends on preferred stock 100 96 54 Issuance costs of redeemed preferred stock — — 6 Net income (loss) available (attributable) to common stockholders $ 649 $ ( 362 ) $ 628 Net income (loss) $ 749 $ ( 266 ) $ 688 Unrealized gain (loss) on investment securities measured at fair value through other comprehensive income (loss), net ( 418 ) 622 1,040 Comprehensive income 331 356 1,728 Dividends on preferred stock 100 96 54 Issuance costs of redeemed preferred stock — — 6 Comprehensive income available to common stockholders $ 231 $ 260 $ 1,668 Weighted average number of common shares outstanding - basic 528.1 551.6 540.6 Weighted average number of common shares outstanding - diluted 530.0 551.6 541.4 Net income (loss) per common share - basic $ 1.23 $ ( 0.66 ) $ 1.16 Net income (loss) per common share - diluted $ 1.22 $ ( 0.66 ) $ 1.16 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, 2018 $ 484 536.3 $ 5 $ 13,793 $ ( 3,433 ) $ ( 943 ) $ 9,906 Net income — — — — 688 — 688 Other comprehensive income: Unrealized gain on available-for-sale securities, net — — — — — 1,040 1,040 Stock-based compensation, net — 0.1 — 13 — — 13 Issuance of preferred stock, net of offering cost 617 — — — — — 617 Redemption of preferred stock ( 169 ) — — — ( 6 ) — ( 175 ) Issuance of common stock, net of offering cost — 11.4 — 190 — — 190 Repurchase of common stock — ( 6.9 ) — ( 103 ) — — ( 103 ) Preferred dividends declared — — — — ( 54 ) — ( 54 ) Common dividends declared — — — — ( 1,081 ) — ( 1,081 ) Balance, December 31, 2019 $ 932 540.9 $ 5 $ 13,893 $ ( 3,886 ) $ 97 $ 11,041 Net loss — — — — ( 266 ) — ( 266 ) Other comprehensive income: Unrealized gain on available-for-sale securities, net — — — — — 622 622 Stock-based compensation, net — 0.1 — 18 — — 18 Issuance of preferred stock, net of offering cost 557 — — — — — 557 Issuance of common stock, net of offering cost — 26.7 1 438 — — 439 Repurchase of common stock — ( 28.2 ) ( 1 ) ( 377 ) — — ( 378 ) Preferred dividends declared — — — — ( 96 ) — ( 96 ) Common dividends declared — — — — ( 858 ) — ( 858 ) Balance, December 31, 2020 $ 1,489 539.5 $ 5 $ 13,972 $ ( 5,106 ) $ 719 $ 11,079 Net income — — — — 749 — 749 Other comprehensive loss: Unrealized loss on available-for-sale securities, net — — — — — ( 418 ) ( 418 ) Stock-based compensation, net — 0.4 — 19 — — 19 Repurchase of common stock — ( 17.7 ) — ( 281 ) — — ( 281 ) Preferred dividends declared — — — — ( 100 ) — ( 100 ) Common dividends declared — — — — ( 757 ) — ( 757 ) Balance, December 31, 2021 $ 1,489 522.2 $ 5 $ 13,710 $ ( 5,214 ) $ 301 $ 10,291 See accompanying notes to consolidated financial statements. 53 AGNC INVESTMENT CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions) For the year ended December 31, 2021 2020 2019 Operating activities: Net income (loss) $ 749 $ ( 266 ) $ 688 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Amortization of premiums and discounts on mortgage-backed securities, net 369 1,082 601 Stock-based compensation, net 19 18 13 (Gain) loss on sale of investment securities, net 57 ( 1,126 ) ( 388 ) Unrealized (gain) loss on investment securities measured at fair value through net income, net 1,502 ( 319 ) ( 2,014 ) (Gain) loss on derivative instruments and other securities, net ( 1,110 ) 2,463 2,324 (Increase) decrease in other assets ( 29 ) 119 ( 35 ) Decrease in accounts payable and other accrued liabilities ( 17 ) ( 224 ) ( 9 ) Net cash provided by operating activities 1,540 1,747 1,180 Investing activities: Purchases of Agency mortgage-backed securities ( 45,345 ) ( 56,521 ) ( 47,548 ) Purchases of credit risk transfer and non-Agency securities ( 2,031 ) ( 765 ) ( 1,406 ) Proceeds from sale of Agency mortgage-backed securities 34,595 77,294 23,212 Proceeds from sale of credit risk transfer and non-Agency securities 1,434 896 1,437 Principal collections on Agency mortgage-backed securities 15,042 17,373 12,810 Principal collections on credit risk transfer and non-Agency securities 84 131 20 Payments on U.S. Treasury securities ( 22,055 ) ( 24,497 ) ( 26,823 ) Proceeds from U.S. Treasury securities 19,795 25,978 13,555 Net proceeds from (payments on) reverse repurchase agreements 1,272 ( 1,530 ) 11,962 Net proceeds from (payments on) derivative instruments 1,045 ( 1,834 ) ( 1,437 ) Net cash provided by investing activities 3,836 36,525 ( 14,218 ) Financing activities: Proceeds from repurchase arrangements 2,189,555 3,133,008 4,234,972 Payments on repurchase agreements ( 2,194,540 ) ( 3,169,824 ) ( 4,221,507 ) Payments on debt of consolidated variable interest entities ( 49 ) ( 62 ) ( 55 ) Net proceeds from preferred stock issuances — 557 617 Payments for preferred stock repurchases — — ( 175 ) Net proceeds from common stock issuances — 439 190 Payments for common stock repurchases ( 281 ) ( 378 ) ( 103 ) Cash dividends paid ( 860 ) ( 970 ) ( 1,139 ) Net cash (used in) provided by financing activities ( 6,175 ) ( 37,230 ) 12,800 Net change in cash, cash equivalents and restricted cash ( 799 ) 1,042 ( 238 ) Cash, cash equivalents and restricted cash at beginning of period 2,324 1,282 1,520 Cash, cash equivalents and restricted cash at end of period $ 1,525 $ 2,324 $ 1,282 Supplemental disclosure to cash flow information: Interest paid $ 89 $ 866 $ 2,097 See accompanying notes to consolidated financial statements. 54 AGNC INVESTMENT CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 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 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 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. 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). 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, such as during periods of elevated market uncertainty or unique market conditions, 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, including 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 financial institutions. Repurchase arrangements involve the sale and a simultaneous agreement to repurchase the transferred assets at a future date. We maintain a beneficial interest in the specific securities pledged during the term of each repurchase arrangement 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 56 (cost), plus accrued interest. Our repurchase agreements typically have maturities of less than one year but may extend up to five years or more. 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. Cash receipts and payments related to 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 but may extend up to 20 years or more. 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, which is generally intended to be set at a level sufficient to protect the exchange from the interest rate swap's maximum estimated single-day price movement. 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 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. 57 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 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 borrow U.S. Treasury securities under reverse repurchase agreements to cover short sales of U.S. Treasury securities. 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. 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, 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 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 securities and derivative instruments to those actively traded enable our pricing sources and us to observe quoted prices in the market and utilize those 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 forward contracts in the Agency RMBS "to-be-announced" market ("TBA securities") of 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, 2021 and 2020, 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, 2021 and 2020, 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 59 impairment, a quantitative analysis is performed. The quantitative analysis requires that we compare the carrying value of the identified reporting unit comprising the goodwill to the reporting unit's fair value. If the reporting units' 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 each of the three fiscal years ended December 31, 2021, 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. In the case of 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 on the vesting dates, or later if distribution of such shares has been deferred beyond the vesting date, net of shares withheld for minimum statutory tax withholdings to be paid by us on behalf of our employees. As a result, the actual number of shares issued will be fewer than the actual number of awards outstanding. When shares are withheld for statutory tax withholdings, we record a liability for tax withholding amounts to be paid by us 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, 2021 and 2020, our investment portfolio consisted of: $ 54.4 billion and $ 66.4 billion investment securities, at fair value, respectively; $ 27.1 billion and $ 31.5 billion net TBA securities, at fair value, respectively; and $ 0.4 billion and zero forward settling non-Agency securities, at fair value, respectively. Our net TBA position and forward settling non-Agency securities are reported at their net carrying value totaling $( 44 ) million and $ 275 million as of December 31, 2021 and 2020, respectively, in derivative assets / (liabilities) on our accompanying consolidated balance sheets. The net carrying value of our TBA position and forward settling non-Agency securities 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, 2021 and 2020, our investment securities had a net unamortized premium balance of $ 1.8 billion and $ 2.4 billion, respectively. 60 The following tables summarize our investment securities as of December 31, 2021 and 2020, excluding TBA and forward settling securities, (dollars in millions). Details of our TBA and forward settling securities as of each of the respective dates are included in Note 5. December 31, 2021 December 31, 2020 Investment Securities Amortized Cost Fair Value Amortized Cost Fair Value Agency RMBS: Fixed rate $ 51,546 $ 52,289 $ 61,977 $ 64,615 Adjustable rate 45 47 69 70 CMO 182 188 289 301 Interest-only and principal-only strips 70 80 105 126 Multifamily — — 17 19 Total Agency RMBS 51,843 52,604 62,457 65,131 Non-Agency RMBS 325 329 178 188 CMBS 505 514 333 358 CRT securities 955 974 733 737 Total investment securities $ 53,628 $ 54,421 $ 63,701 $ 66,414 December 31, 2021 Agency RMBS Non-Agency Investment Securities Fannie Mae Freddie Mac Ginnie Mae RMBS CMBS CRT Total Available-for-sale securities: Par value $ 6,345 $ 2,111 $ 2 $ — $ — $ — $ 8,458 Unamortized discount ( 3 ) ( 1 ) — — — — ( 4 ) Unamortized premium 299 105 — — — — 404 Amortized cost 6,641 2,215 2 — — — 8,858 Gross unrealized gains 234 67 — — — — 301 Gross unrealized losses — — — — — — — Total available-for-sale securities, at fair value 6,875 2,282 2 — — — 9,159 Securities remeasured at fair value through earnings: Par value 27,952 13,680 3 327 508 950 43,420 Unamortized discount ( 14 ) ( 4 ) — ( 6 ) ( 6 ) ( 7 ) ( 37 ) Unamortized premium 924 444 — 4 3 12 1,387 Amortized cost 28,862 14,120 3 325 505 955 44,770 Gross unrealized gains 517 213 — 6 11 21 768 Gross unrealized losses ( 181 ) ( 89 ) — ( 2 ) ( 2 ) ( 2 ) ( 276 ) Total securities remeasured at fair value through earnings 29,198 14,244 3 329 514 974 45,262 Total securities, at fair value $ 36,073 $ 16,526 $ 5 $ 329 $ 514 $ 974 $ 54,421 Weighted average coupon as of December 31, 2021 3.09 % 2.98 % 4.69 % 3.33 % 3.60 % 3.74 % 3.08 % Weighted average yield as of December 31, 2021 1 2.38 % 2.29 % 2.54 % 5.68 % 4.28 % 4.47 % 2.43 % ________________________________ 1. Incorporates a weighted average future constant prepayment rate assumption of 10.9 % based on forward rates as of December 31, 2021. 61 December 31, 2020 Agency RMBS Non-Agency Investment Securities Fannie Mae Freddie Mac Ginnie Mae RMBS CMBS CRT Total Available-for-sale securities: Par value $ 9,325 $ 3,416 $ 2 $ — $ — $ — $ 12,743 Unamortized discount ( 4 ) ( 1 ) — — — — ( 5 ) Unamortized premium 389 152 — — — — 541 Amortized cost 9,710 3,567 2 — — — 13,279 Gross unrealized gains 539 180 — — — — 719 Gross unrealized losses — — — — — — — Total available-for-sale securities, at fair value 10,249 3,747 2 — — — 13,998 Securities remeasured at fair value through earnings: Par value 32,824 14,447 3 187 331 735 48,527 Unamortized discount ( 18 ) ( 1 ) — ( 12 ) ( 3 ) ( 12 ) ( 46 ) Unamortized premium 1,314 607 — 4 6 10 1,941 Amortized cost 34,120 15,053 3 179 334 733 50,422 Gross unrealized gains 1,280 683 — 11 28 12 2,014 Gross unrealized losses ( 5 ) ( 1 ) — ( 2 ) ( 4 ) ( 8 ) ( 20 ) Total securities remeasured at fair value through earnings 35,395 15,735 3 188 358 737 52,416 Total securities, at fair value $ 45,644 $ 19,482 $ 5 $ 188 $ 358 $ 737 $ 66,414 Weighted average coupon as of December 31, 2020 3.30 % 3.56 % 4.73 % 4.28 % 4.13 % 3.43 % 3.39 % Weighted average yield as of December 31, 2020 1 2.25 % 2.39 % 2.46 % 4.33 % 4.29 % 3.71 % 2.33 % ________________________________ 1. Incorporates a weighted average future constant prepayment rate assumption of 17.6 % based on forward rates as of December 31, 2020. As of December 31, 2021 and 2020, our investments in CRT and non-Agency securities had the following credit ratings (in millions): December 31, 2021 December 31, 2020 CRT and Non-Agency Security Credit Ratings 1 CRT RMBS CMBS CRT RMBS CMBS AAA $ — $ 164 $ 10 $ — $ — $ 35 AA — 21 111 — 20 190 A 17 28 45 — 32 28 BBB 75 51 85 28 83 55 BB 126 43 126 167 36 43 B 327 7 117 304 6 7 Not Rated 429 15 20 238 11 — Total $ 974 $ 329 $ 514 $ 737 $ 188 $ 358 ________________________________ 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. 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, 2021 and 2020, 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 10.9 % and 17.6 %, 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, 2021 and 2020 according to their estimated weighted average life classification (dollars in millions): 62 December 31, 2021 December 31, 2020 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 $ 1,677 $ 1,642 3.64 % 3.69 % $ 3,642 $ 3,569 3.56 % 2.15 % > 3 years and ≤ 5 years 11,214 10,868 3.97 % 2.74 % 47,740 45,578 3.54 % 2.42 % > 5 years and ≤10 years 36,936 36,490 2.87 % 2.32 % 15,019 14,541 2.87 % 2.08 % > 10 years 4,594 4,628 2.48 % 2.09 % 13 13 5.56 % 3.59 % Total $ 54,421 $ 53,628 3.08 % 2.43 % $ 66,414 $ 63,701 3.39 % 2.33 % 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 2021, 2020 and 2019 by investment classification of accounting (in millions): Fiscal Year 2021 Fiscal Year 2020 Fiscal Year 2019 Investment Securities Available-for-Sale Securities 2 Fair Value Option Securities Total Available-for-Sale Securities 2 Fair Value Option Securities Total Available-for-Sale Securities 2 Fair Value Option Securities Total Investment securities sold, at cost $ ( 4,972 ) $ ( 30,903 ) $ ( 35,875 ) $ ( 2,310 ) $ ( 74,964 ) $ ( 77,274 ) $ ( 732 ) $ ( 23,040 ) $ ( 23,772 ) Proceeds from investment securities sold 1 5,008 30,810 35,818 2,391 76,009 78,400 723 23,437 24,160 Net gain (loss) on sale of investment securities $ 36 $ ( 93 ) $ ( 57 ) $ 81 $ 1,045 $ 1,126 $ ( 9 ) $ 397 $ 388 Gross gain on sale of investment securities $ 36 $ 176 $ 212 $ 81 $ 1,149 $ 1,230 $ — $ 401 $ 401 Gross loss on sale of investment securities — ( 269 ) ( 269 ) — ( 104 ) ( 104 ) ( 9 ) ( 4 ) ( 13 ) Net gain (loss) on sale of investment securities $ 36 $ ( 93 ) $ ( 57 ) $ 81 $ 1,045 $ 1,126 $ ( 9 ) $ 397 $ 388 ________________________________ 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. 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, 2021, we had met all margin call requirements. For additional information regarding our pledged assets, please refer to Note 6. As of December 31, 2021 and 2020, we had $ 47.4 billion and $ 52.4 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. Our repurchase agreements with original maturities greater than one year may have floating interest rates based on an index plus or minus a fixed spread. The following table summarizes our borrowings under repurchase agreements by their remaining maturities as of December 31, 2021 and 2020 (dollars in millions): 63 December 31, 2021 December 31, 2020 Remaining Maturity Repurchase Agreements Weighted Average Interest Rate Weighted Average Days to Maturity Repurchase Agreements Weighted Average Interest Rate Weighted Average Days to Maturity Agency repo: ≤ 1 month $ 23,747 0.14 % 13 $ 29,505 0.22 % 12 > 1 to ≤ 3 months 14,781 0.15 % 61 13,434 0.27 % 57 > 3 to ≤ 6 months 4,576 0.19 % 154 7,317 0.28 % 142 > 6 to ≤ 9 months 2,445 0.21 % 264 660 0.24 % 208 > 9 to ≤ 12 months 1,362 0.23 % 307 1,450 0.15 % 354 Total Agency repo 46,911 0.15 % 63 52,366 0.24 % 54 U.S. Treasury repo: > 1 day to ≤ 1 month 470 ( 0.05 ) % 4 — — % — Total $ 47,381 0.15 % 63 $ 52,366 0.24 % 54 As of December 31, 2021 and 2020, $ 0.8 billion and $ 11.2 billion, respectively, of our repurchase agreements had an overnight maturity of one business day and none of our repurchase agreements were due on demand. As of December 31, 2021, we had $ 9.8 billion of forward commitments to enter into repurchase agreements with a weighted average forward start date of 3 days and a weighted average interest rate of 0.08 %. As of December 31, 2020, we had $ 2.9 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 0.12 %. As of December 31, 2021 and 2020, 43 % and 47 %, 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 42 % and 46 % of our repurchase agreement funding outstanding as of December 31, 2021 and 2020, respectively. During fiscal year 2020, we terminated $ 3.7 billion of repurchase agreements with a weighted average interest rate of 2.11 % and a weighted average remaining maturity of 2.2 years. The terminated agreements were replaced with shorter duration repurchase agreements at lower prevailing market rates. We recognized losses on debt extinguishment of $ 146 million in other gain (loss), net for fiscal year 2020 associated with the terminated repurchase agreements. We did not terminate any repurchase agreements during fiscal years 2021 and 2019. Reverse Repurchase Agreements As of December 31, 2021 and 2020, we had $10.5 billion and $11.7 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 $9.7 billion and $11.7 billion, respectively. As of December 31, 2021 and 2020, $ 3.0 billion and $ 3.6 billion, respectively, of our reverse repurchase agreements were with the FICC sourced through BES. Note 5. Derivative and Other Hedging Instruments We hedge a portion of our interest rate risk primarily utilizing interest rate swaps, interest rate swaptions, U.S. Treasury securities and U.S. Treasury futures contracts. We utilize TBA securities primarily as a means of investing in the Agency securities market. 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, 2021 and 2020 (in millions): December 31, Derivative and Other Hedging Instruments Balance Sheet Location 2021 2020 Interest rate swaps 1 Derivative assets, at fair value $ — $ — Swaptions Derivative assets, at fair value 290 116 TBA and forward settling non-Agency securities Derivative assets, at fair value 27 275 Total derivative assets, at fair value $ 317 $ 391 Interest rate swaps 1 Derivative liabilities, at fair value $ — $ — TBA and forward settling non-Agency securities Derivative liabilities, at fair value ( 71 ) — U.S. Treasury futures - short Derivative liabilities, at fair value ( 15 ) ( 2 ) Total derivative liabilities, at fair value $ ( 86 ) $ ( 2 ) U.S. Treasury securities - long U.S. Treasury securities, at fair value $ 471 $ — U.S. Treasury securities - short Obligation to return securities borrowed under reverse repurchase agreements, at fair value ( 9,697 ) ( 11,727 ) Total U.S. Treasury securities, net at fair value $ ( 9,226 ) $ ( 11,727 ) ________________________________ 1. As of December 31, 2021 and 2020, 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 $ 1.6 billion and $ 0.4 billion respectively. The following tables summarize certain characteristics of our derivative and other hedging instruments outstanding as of December 31, 2021 and 2020 (dollars in millions): December 31, 2021 December 31, 2020 Pay Fixed / Receive Variable Interest Rate Swaps Notional Amount Average Fixed Pay Rate Average Receive Rate Average Maturity (Years) Notional Amount Average Fixed Pay Rate Average Receive Rate Average Maturity (Years) ≤ 3 years $ 22,500 0.10 % 0.05 % 2.0 $ 8,750 0.04 % 0.08 % 2.4 > 3 to ≤ 5 years 16,800 0.22 % 0.06 % 4.0 17,000 0.10 % 0.08 % 4.1 > 5 to ≤ 7 years 6,050 0.29 % 0.05 % 6.0 9,800 0.21 % 0.08 % 5.8 > 7 to ≤ 10 years 4,400 0.46 % 0.05 % 8.5 6,200 0.28 % 0.07 % 8.5 > 10 years 1,475 0.47 % 0.05 % 13.2 1,475 0.47 % 0.07 % 14.2 Total $ 51,225 0.20 % 0.05 % 4.0 $ 43,225 0.15 % 0.08 % 5.1 Pay Fixed / Receive Variable Interest Rate Swaps by Receive Index (% of Notional Amount) December 31, 2021 December 31, 2020 SOFR 75 % 71 % OIS 25 % 29 % Total 100 % 100 % 65 Swaptions Option Underlying Payer Swap Current Option Expiration Date Cost Basis Fair Value Average Months to Current Option Expiration Date 1 Notional Amount Average Fixed Pay Rate 2 Average Term (Years) December 31, 2021 ≤ 1 year $ 101 $ 64 6 $ 3,800 1.81 % 8.5 > 1 year ≤ 2 years 128 147 20 5,150 1.69 % 10.0 > 2 year ≤ 3 years 99 79 28 4,050 2.35 % 10.0 Total $ 328 $ 290 18 $ 13,000 1.93 % 9.6 December 31, 2020 ≤ 1 year $ 123 $ 15 5 $ 5,900 2.17 % 9.2 > 1 year ≤ 2 years 41 33 20 2,000 1.38 % 10.0 > 2 year ≤ 3 years 65 60 33 2,250 1.40 % 10.0 > 3 year ≤ 4 years 8 8 40 250 1.43 % 10.0 Total $ 237 $ 116 15 $ 10,400 1.84 % 9.5 ________________________________ 1. As of December 31, 2021 and 2020, ≤ 1 year notional amount includes $ 700 million of Bermudan swaptions where the options may be exercised on predetermined dates up to their final exercise date, which is six months prior to the underlying swaps' maturity date. 2. As of December 31, 2021, 95% and 5% of the underlying swap receive rates were tied to SOFR and 3-Month LIBOR, respectively. As of December 31, 2020, 67% and 33% of the underlying swap receive rates were tied to SOFR and 3-Month LIBOR, respectively. U.S. Treasury Securities December 31, 2021 December 31, 2020 Maturity Face Amount Long/(Short) Cost Basis 1 Fair Value Face Amount Long/(Short) Cost Basis 1 Fair Value 5 years $ ( 310 ) $ ( 306 ) $ ( 293 ) $ ( 425 ) $ ( 425 ) $ ( 425 ) 7 years ( 1,218 ) ( 1,218 ) ( 1,206 ) ( 1,083 ) ( 1,081 ) ( 1,089 ) 10 years ( 7,590 ) ( 7,593 ) ( 7,727 ) ( 9,780 ) ( 9,862 ) ( 10,213 ) Total U.S. Treasury securities $ ( 9,118 ) $ ( 9,117 ) $ ( 9,226 ) $ ( 11,288 ) $ ( 11,368 ) $ ( 11,727 ) ________________________________ 1. As of December 31, 2021 and 2020, short U.S. Treasury securities totaling $(9.7) billion and $(11.7) billion, at fair value, respectively, had a weighted average yield of 1.56 % and 1.20 %, respectively, and, as of December 31, 2021, long U.S. Treasury securities totaling $ 0.5 billion, at fair value, had a weighted average yield of 1.18 % as of December 31, 2021. U.S. Treasury Futures December 31, 2021 December 31, 2020 Maturity Notional Amount Long (Short) Cost Basis Fair Value Net Carrying Value 1 Notional Amount Long (Short) Cost Basis Fair Value Net Carrying Value 1 10 years $ ( 1,500 ) $ ( 1,942 ) $ ( 1,957 ) $ ( 15 ) $ ( 1,000 ) $ ( 1,379 ) $ ( 1,381 ) $ ( 2 ) ________________________________ 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. 66 December 31, 2021 December 31, 2020 TBA Securities by Coupon 2 Notional Amount Long (Short) Cost Basis Fair Value Net Carrying Value 1 Notional Amount Long (Short) Cost Basis Fair Value Net Carrying Value 1 15-Year TBA securities: ≤ 2.0% $ 2,039 $ 2,056 $ 2,059 3 $ 6,540 $ 6,708 $ 6,771 $ 63 2.5% — — — — 200 208 209 1 Total 15-Year TBA securities 2,039 2,056 2,059 3 6,740 6,916 6,980 64 30-Year TBA securities: ≤ 2.0% 2,892 2,872 2,874 2 19,805 20,314 20,480 166 2.5% 17,602 17,953 17,914 ( 39 ) 3,167 3,291 3,335 44 3.0% 3,559 3,692 3,682 ( 10 ) 528 552 553 1 3.5% 581 611 611 — 124 131 131 — Total 30-Year TBA securities, net 24,634 25,128 25,081 ( 47 ) 23,624 24,288 24,499 211 Total TBA securities, net $ 26,673 $ 27,184 $ 27,140 $ ( 44 ) $ 30,364 $ 31,204 $ 31,479 $ 275 ________________________________ 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. 2. Table excludes forward settling non-Agency securities totaling $ 0.4 billion market value and $ 0.2 million net carrying value as of December 31, 2021. 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 2021, 2020 and 2019 (in millions): 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 1 Fiscal Year 2021: TBA securities, net $ 30,364 352,658 ( 356,349 ) $ 26,673 $ ( 552 ) Forward settling non-Agency securities $ — 1,800 ( 1,350 ) $ 450 5 Interest rate swaps - payer $ 43,225 9,000 ( 1,000 ) $ 51,225 1,117 Payer swaptions $ 10,400 8,050 ( 5,450 ) $ 13,000 23 U.S. Treasury securities - short position $ ( 11,287 ) ( 12,691 ) 14,388 $ ( 9,590 ) 444 U.S. Treasury securities - long position $ — 7,618 ( 7,146 ) $ 472 ( 25 ) U.S. Treasury futures contracts - short position $ ( 1,000 ) ( 6,000 ) 5,500 $ ( 1,500 ) 42 $ 1,054 Fiscal Year 2020: TBA securities, net $ 7,322 286,586 ( 263,544 ) $ 30,364 $ 1,497 Interest rate swaps - payer $ 79,075 101,950 ( 137,800 ) $ 43,225 ( 2,766 ) Payer swaptions $ 8,850 7,000 ( 5,450 ) $ 10,400 ( 156 ) U.S. Treasury securities - short position $ ( 9,224 ) ( 18,912 ) 16,849 $ ( 11,287 ) ( 905 ) U.S. Treasury securities - long position $ 95 7,011 ( 7,106 ) $ — 102 U.S. Treasury futures contracts - short position $ ( 1,000 ) ( 4,000 ) 4,000 $ ( 1,000 ) ( 106 ) $ ( 2,334 ) 67 Fiscal Year 2019: TBA securities, net $ 7,152 95,169 ( 94,999 ) $ 7,322 $ 411 Interest rate swaps - payer $ 51,625 166,975 ( 139,525 ) $ 79,075 ( 1,645 ) Interest rate swaps - receiver $ — ( 175 ) 175 $ — — Payer swaptions $ 3,500 7,650 ( 2,300 ) $ 8,850 ( 26 ) U.S. Treasury securities - short position $ ( 21,345 ) ( 12,601 ) 24,722 $ ( 9,224 ) ( 967 ) U.S. Treasury securities - long position $ 45 1,776 ( 1,726 ) $ 95 11 U.S. Treasury futures contracts - short position $ ( 1,650 ) ( 5,300 ) 5,950 $ ( 1,000 ) ( 109 ) $ ( 2,325 ) ________________________________ 1. Amounts exclude other miscellaneous gains and losses recognized in gain (loss) on derivative instruments and other securities, net in our consolidated statements of comprehensive income. Amounts for fiscal year 2020 exclude $146 million of losses on debt extinguishment (see Note 4). 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 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, 2021, 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, 2021, approximately 7 % of our tangible stockholder's equity was at risk with the Fixed Income Clearing Corporation. 68 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, 2021 and 2020 (in millions): December 31, 2021 Assets Pledged to Counterparties 1 Repurchase Agreements 2 Debt of Consolidated VIEs Derivative Agreements and Other 3 Total Agency RMBS - fair value $ 46,943 $ 208 $ 739 $ 47,890 CRT - fair value 510 — — 510 Non-Agency - fair value 571 — — 571 U.S. Treasury securities - fair value 1,084 — 208 1,292 Accrued interest on pledged securities 117 1 2 120 Restricted cash 15 — 512 527 Total $ 49,240 $ 209 $ 1,461 $ 50,910 December 31, 2020 Assets Pledged to Counterparties 1 Repurchase Agreements 2 Debt of Consolidated VIEs Derivative Agreements and Other 3 Total Agency RMBS - fair value $ 53,401 $ 295 $ 623 $ 54,319 CRT - fair value 455 — — 455 Non-Agency - fair value 458 — — 458 Accrued interest on pledged securities 147 1 2 150 Restricted cash 417 — 890 1,307 Total $ 54,878 $ 296 $ 1,515 $ 56,689 ________________________________ 1. Includes repledged assets received as collateral from counterparties and securities sold but not yet settled. 2. Includes $ 81 million and $ 119 million of retained interests in our consolidated VIEs pledged as collateral under repurchase agreements as of December 31, 2021 and 2020, respectively. 3. Includes deposits under brokerage and clearing agreements. 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, 2021 and 2020 (in millions). For the corresponding borrowings associated with the following amounts and the interest rates thereon, refer to Note 4 . December 31, 2021 December 31, 2020 Securities Pledged by Remaining Maturity of Repurchase Agreements 1,2 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 ≤ 30 days $ 24,548 $ 24,075 $ 61 $ 29,674 $ 28,208 $ 82 > 30 and ≤ 60 days 7,869 7,735 19 8,438 8,013 23 > 60 and ≤ 90 days 7,006 6,906 16 5,782 5,495 16 > 90 days 9,073 9,036 21 10,420 10,068 26 Total $ 48,496 $ 47,752 $ 117 $ 54,314 $ 51,784 $ 147 ________________________________ 1. Includes $ 81 million and $ 119 million of retained interests in our consolidated VIEs pledged as collateral under repurchase agreements as of December 31, 2021 and 2020, respectively. 2. Excludes $ 0.6 billion of repledged U.S. Treasury securities received as collateral from counterparties as of December 31, 2021. Assets Pledged from Counterparties As of December 31, 2021 and 2020, we had assets pledged to us from counterparties as collateral under our reverse repurchase and derivative agreements summarized in the tables below (in millions). 69 December 31, 2021 December 31, 2020 Assets Pledged to AGNC Reverse Repurchase Agreements Derivative Agreements Repurchase Agreements Total Reverse Repurchase Agreements Derivative Agreements Repurchase Agreements Total U.S. Treasury securities - fair value 1 $ 10,420 $ — $ 11 $ 10,431 $ 11,727 $ — $ 13 $ 11,740 Cash — 303 7 310 — 107 3 110 Total $ 10,420 $ 303 $ 18 $ 10,741 $ 11,727 $ 107 $ 16 $ 11,850 ________________________________ 1. As of December 31, 2021 and 2020, amounts include $9.7 billion and $11.7 billion, respectively, of U.S. Treasury securities received from counterparties that were used to cover short sales of U.S. Treasury securities. 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, 2021 and 2020 (in millions): 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 2 December 31, 2021 Interest rate swap and swaption agreements, at fair value 1 $ 290 $ — $ 290 $ — $ ( 290 ) $ — TBA and forward settling non-Agency securities, at fair value 27 — 27 ( 27 ) — — Receivable under reverse repurchase agreements 10,475 — 10,475 ( 6,087 ) ( 4,381 ) 7 Total $ 10,792 $ — $ 10,792 $ ( 6,114 ) $ ( 4,671 ) $ 7 December 31, 2020 Interest rate swap and swaption agreements, at fair value 1 $ 116 $ — $ 116 $ — $ ( 105 ) $ 11 TBA securities, at fair value 275 — 275 — — 275 Receivable under reverse repurchase agreements 11,748 — 11,748 ( 6,522 ) ( 5,223 ) 3 Total $ 12,139 $ — $ 12,139 $ ( 6,522 ) $ ( 5,328 ) $ 289 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 2 December 31, 2021 TBA and forward settling non-Agency securities, at fair value $ 71 $ — $ 71 $ ( 27 ) $ ( 44 ) $ — Repurchase agreements 47,381 — 47,381 ( 6,087 ) ( 41,294 ) — Total $ 47,452 $ — $ 47,452 $ ( 6,114 ) $ ( 41,338 ) $ — December 31, 2020 Repurchase agreements $ 52,366 $ — $ 52,366 $ ( 6,522 ) $ ( 45,844 ) $ — Total $ 52,366 $ — $ 52,366 $ ( 6,522 ) $ ( 45,844 ) $ — ________________________________ 70 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, 2021 and 2020, 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. December 31, 2021 December 31, 2020 Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 Assets: Agency securities $ — $ 52,396 $ — $ — $ 64,836 $ — Agency securities transferred to consolidated VIEs — 208 — — 295 — Credit risk transfer securities — 974 — — 737 — Non-Agency securities — 843 — — 546 — U.S. Treasury securities 471 — — — — — Interest rate swaps 1 — — — — — — Swaptions — 290 — — 116 — TBA and forward settling securities — 27 — — 275 — Total $ 471 $ 54,738 $ — $ — $ 66,805 $ — Liabilities: Debt of consolidated VIEs $ — $ 126 $ — $ — $ 177 $ — Obligation to return U.S. Treasury securities borrowed under reverse repurchase agreements 9,697 — — 11,727 — — Interest rate swaps 1 — — — — — — TBA and forward settling securities — 71 — — — — U.S. Treasury futures 15 — — 2 — — Total $ 9,712 $ 197 $ — $ 11,729 $ 177 $ — ________________________________ 1. As of December 31, 2021 and 2020, 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 $ 1.6 billion and $ 0.4 billion, respectively, based on "Level 2" inputs. See Note 2 for additional details. Excluded from the table above are financial instruments presented in our consolidated financial statements at cost. The fair value of our repurchase agreements approximated cost as of December 31, 2021 and 2020, as 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. 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") outstanding for the period granted under our long-term incentive program to employees and non-employee Board of Directors. Diluted net income (loss) per common share assumes the issuance of all potential common stock equivalents unless the effect is to reduce a loss or increase the 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): 71 Fiscal Year 2021 2020 2019 Weighted average number of common shares issued and outstanding 526.5 550.6 540.2 Weighted average number of fully vested restricted stock units outstanding 1.6 1.0 0.4 Weighted average number of common shares outstanding - basic 528.1 551.6 540.6 Weighted average number of dilutive unvested restricted stock units outstanding 1.9 — 0.8 Weighted average number of common shares outstanding - diluted 530.0 551.6 541.4 Net income (loss) available (attributable) to common stockholders $ 649 $ ( 362 ) $ 628 Net income (loss) per common share - basic $ 1.23 $ ( 0.66 ) $ 1.16 Net income (loss) per common share - diluted $ 1.22 $ ( 0.66 ) $ 1.16 For fiscal year 2020 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 to do so 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, 2021 and 2020, 13,800 , 10,350 , 16,100 and 23,000 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 and 6.125 % Series F Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, respectively, (referred to as "Series C, D, E and F Preferred Stock", respectively). As of December 31, 2021 and 2020, 13,000 , 9,400 , 16,100 and 23,000 shares of Series C, D, E and F 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, 2021 (dollars and shares in millions): Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock 1 Issuance Date Depositary Shares Issued and Outstanding Carrying Value Aggregate Liquidation Preference Fixed Rate Optional Redemption Date 2 Fixed-to-Floating Rate Conversion Date Floating Annual Rate Series C August 22, 2017 13.0 315 325 7.000 % October 15, 2022 October 15, 2022 3M LIBOR + 5.111% Series D March 6, 2019 9.4 227 235 6.875 % April 15, 2024 April 15, 2024 3M LIBOR + 4.332% Series E October 3, 2019 16.1 390 403 6.500 % October 15, 2024 October 15, 2024 3M LIBOR + 4.993% Series F February 11, 2020 23.0 557 575 6.125 % April 15, 2025 April 15, 2025 3M LIBOR + 4.697% Total 61.5 $ 1,489 $ 1,538 ________________________________ 1. Fixed-to-floating rate redeemable preferred stock accrue dividends at an 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 conversion date; thereafter, dividends will accrue on a floating rate basis equal to 3-month LIBOR plus a fixed spread. 2. 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 of Directors to enter into agreements with sales agents to publicly offer and sell shares of 72 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 such sales agreements during fiscal years 2020 and 2019 (in millions, except for per share data). During fiscal year 2021, we did not issue shares under this program. As of December 31, 2021, shares of our common stock with an aggregate offering price of $ 1.25 billion remained authorized for issuance under this program through June 11, 2024. ATM Offerings Average Price Received Per Share, Net Shares Net Proceeds Fiscal Year 2020 $ 16.46 26.7 $ 439 Fiscal Year 2019 $ 16.67 11.4 $ 190 Common Stock Repurchase Program We are authorized by our Board of Directors to repurchase shares of our common stock in open market or 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 "Exchange Act"). The following table includes a summary of shares of our common stock repurchased during fiscal years 2021, 2020 and 2019 (in millions, except for per share data). As of December 31, 2021, shares of our common stock with an aggregate repurchase price of $ 958 million remained authorized for repurchase through December 31, 2022. Common Stock Repurchases Average Price Paid Per Share 1 Shares Net Cost Fiscal Year 2021 2 $ 15.96 17.7 $ 281 Fiscal Year 2020 $ 13.33 28.2 $ 378 Fiscal Year 2019 $ 14.90 6.9 $ 103 ________________________________ 1. Average price paid per share includes transaction costs. 2. Includes December 2020 share repurchases that settled in January 2021 totaling $ 24 million, or 1.6 million shares. 73 Distributions to Stockholders The following table summarizes dividends declared during fiscal years 2021, 2020 and 2019 (in millions, except per share amounts): Dividends Declared Dividends Declared Per Share 1 Series B Preferred Stock Fiscal year 2019 $ 12 $ 1.673785 Series C Preferred Stock Fiscal year 2021 $ 23 $ 1.750000 Fiscal year 2020 $ 23 $ 1.750000 Fiscal year 2019 $ 23 $ 1.750000 Series D Preferred Stock Fiscal year 2021 $ 16 $ 1.718750 Fiscal year 2020 $ 16 $ 1.718750 Fiscal year 2019 $ 14 $ 1.475263 Series E Preferred Stock Fiscal year 2021 $ 26 $ 1.625000 Fiscal year 2020 $ 26 $ 1.625000 Fiscal year 2019 $ 7 $ 0.460420 Series F Preferred Stock Fiscal year 2021 $ 35 $ 1.531250 Fiscal year 2020 $ 33 $ 1.420658 Common Stock Fiscal year 2021 $ 757 $ 1.440000 Fiscal year 2020 $ 858 $ 1.560000 Fiscal year 2019 $ 1,081 $ 2.000000 ________________________________ 1. Preferred stock per share amounts are per depositary share. 74 The following table summarizes our tax characterization of distributions to stockholders for fiscal years 2021, 2020 and 2019. 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 1 Fiscal Tax Year Distribution Rate 1 Ordinary Dividend Per Share Qualified Dividends Capital Gain Dividend Per Share Non-Dividend Distributions Section 199A Dividend Series B Preferred Stock Fiscal year 2019 $ 2.158160 $ 2.158160 $ — $ — $ — $ 2.158160 Series C Preferred Stock Fiscal year 2021 $ 1.750000 $ 0.341718 $ — $ 0.095782 $ 1.312500 $ 0.341718 Fiscal year 2020 $ 1.750000 $ 0.570268 $ — $ 1.179732 $ — $ 0.570268 Fiscal year 2019 $ 1.750000 $ 1.750000 $ — $ — $ — $ 1.750000 Series D Preferred Stock Fiscal year 2021 $ 1.718750 $ 0.335616 $ — $ 0.094072 $ 1.289063 $ 0.335616 Fiscal year 2020 $ 1.718750 $ 0.560086 $ — $ 1.158664 $ — $ 0.560086 Fiscal year 2019 $ 1.045575 $ 1.045575 $ — $ — $ — $ 1.045575 Series E Preferred Stock Fiscal year 2021 $ 1.625000 $ 0.317310 $ — $ 0.088940 $ 1.218750 $ 0.317310 Fiscal year 2020 $ 1.679170 $ 0.547188 $ — $ 1.131982 $ — $ 0.547188 Series F Preferred Stock Fiscal year 2021 $ 1.531250 $ 0.299004 $ — $ 0.083809 $ 1.148438 $ 0.299004 Fiscal year 2020 $ 1.037845 $ 0.338201 $ — $ 0.699644 $ — $ 0.338201 Common Stock Fiscal year 2021 $ 1.320000 $ 0.095930 $ — $ 0.026889 $ 1.197181 $ 0.095930 Fiscal year 2020 $ 1.720000 $ 0.560492 $ — $ 1.159508 $ — $ 0.560492 Fiscal year 2019 $ 2.020000 $ 1.159504 $ — $ — $ 0.860496 $ 1.159504 ________________________________ 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 2021, 2020 and 2019 (in millions): Fiscal Year Accumulated Other Comprehensive Income (Loss) 2021 2020 2019 Beginning Balance $ 719 $ 97 $ ( 943 ) OCI before reclassifications ( 382 ) 703 1,031 Net loss amounts for available-for-sale securities reclassified from accumulated OCI to realized gain (loss) on sale of investment securities, net ( 36 ) ( 81 ) 9 Ending Balance $ 301 $ 719 $ 97 Note 10. Stock-Based Compensation During fiscal years 2021, 2020 and 2019, we granted RSU awards to employees with a grant date fair value of $ 8 million, $ 7 million and $ 7 million, respectively, which generally vest annually over a three-year period, and we granted RSU awards to independent directors of $ 0.9 million, $ 0.8 million and $ 0.5 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 75 and relative to a select group of our peers. The fair value of the PSU awards granted during fiscal years 2021, 2020 and 2019 as of the grant date was $ 10 million, $ 10 million and $ 9 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, 2021, 33.1 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, 2021. Unvested PSU awards assume the maximum potential payout under the terms of the award. As of December 31, 2021, 1.6 million of deferred awards, including accrued dividend equivalents, were outstanding. During fiscal years 2021, 2020 and 2019, we recognized compensation expense of $ 21.4 million, $ 20.6 million and $ 13.7 million, respectively, for stock-based awards to employees and we recognized other operating expense of $ 0.8 million, $ 0.7 million and $ 0.5 million, respectively, for stock-based awards to independent directors. As of December 31, 2021, we had unrecognized expense related to stock-based awards of approximately $ 13 million, which is expected to be recognized over a weighted average period of 1.8 years. The following tables summarizes awards under our 2016 Equity Plan for fiscal years 2021, 2020 and 2019: RSU Awards RSU Awards Weighted Average Grant Date Fair Value 1 Weighted Average Vest Date Fair Value Unvested balance as of December 31, 2018 501,913 $ 16.08 $ — Granted 432,149 $ 17.59 $ — Accrued RSU dividend equivalents 83,355 $ — $ — Vested ( 252,375 ) $ 15.30 $ 17.91 Forfeitures ( 6,812 ) $ 16.00 $ — Unvested balance as of December 31, 2019 758,230 $ 15.44 $ — Granted 433,414 $ 18.60 $ — Accrued RSU dividend equivalents 95,809 $ — $ — Vested ( 377,244 ) $ 14.82 $ 11.82 Forfeitures ( 1,225 ) $ 17.87 $ — Unvested balance as of December 31, 2020 908,984 $ 15.57 $ — Granted 567,426 $ 16.10 $ — Accrued RSU dividend equivalents 84,976 $ — $ — Vested ( 483,601 ) $ 14.31 $ 16.64 Forfeitures ( 27,758 ) $ 15.98 $ — Unvested balance as of December 31, 2021 1,050,027 $ 15.15 $ — ________________________________ 1. Accrued RSU award dividend equivalents have a weighted average grant date fair value of $0. 76 PSU Awards PSUs at Target Performance Level Weighted Average Grant Date Fair Value 1 Weighted Average Vest Date Fair Value 1 Unvested balance as of December 31, 2018 606,775 $ 16.08 $ — Granted 494,016 $ 17.56 $ — Accrued PSU dividend equivalents 123,594 $ — $ — Performance adjustment - Granted 95,427 $ 19.39 $ — Performance adjustment - Accrued PSU dividend equivalents 35,825 $ — $ — Vested — $ — $ — Forfeitures ( 4,224 ) $ 15.84 $ — Unvested balance as of December 31, 2019 1,351,413 $ 14.96 $ — Granted 508,757 $ 19.62 $ — Accrued PSU dividend equivalents 160,442 $ — $ — Performance adjustment - Granted 62,796 $ 17.98 $ — Performance adjustment - Accrued PSU dividend equivalents 26,183 $ — $ — Vested ( 482,806 ) $ 13.84 $ 11.81 Forfeitures — $ — $ — Unvested balance as of December 31, 2020 1,626,785 $ 15.15 $ — Granted 630,886 $ 15.96 $ — Accrued PSU dividend equivalents 157,539 $ — $ — Performance adjustment - Granted 206,547 $ 17.56 $ — Performance adjustment - Accrued PSU dividend equivalents 70,953 $ — $ — Vested ( 466,224 ) $ 12.86 $ 16.52 Forfeitures ( 13,826 ) $ 15.54 $ — Unvested balance as of December 31, 2021 2,212,660 $ 14.52 $ — _______________________ 1. Accrued PSU award dividend equivalents have a weighted average grant date fair value of $0. Note 11. Income Taxes We did not incur a tax liability for fiscal years ended 2020 and 2019 and we do not expect to incur an income tax liability for fiscal year 2021. 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 740 as of December 31, 2021 or prior periods. Our tax returns for tax years 2018 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.