# DEAR FELLOW STOCKHOLDERS

_Source: `DeepSeekOCR_Ardian_pruned_1k/real-estate-reit-mortgage/NASDAQ_AGNC_2021/NASDAQ_AGNC_2021.mmd` · pages 2-8_

---

DEAR FELLOW STOCKHOLDERS,

In 2021, AGNC produced a 2.9% economic return, the highest economic return within our Agency REIT Peer Group \( ^{1} \)  and materially above the group's average economic return of -6.7%. Importantly, we achieved this performance despite significant volatility across financial markets and a dramatic shift in Federal Reserve ("Fed") policy. Financial market volatility has continued into 2022, and the Agency mortgage-backed securities ("Agency MBS") market in particular remains turbulent as mortgage spreads to benchmark interest rates adjust to the changing expectations regarding the Fed's normalization of monetary policy. Wider spreads on Agency MBS adversely impact our tangible net book value in the near term but are beneficial to our business over the longer term as they provide more favorable investment opportunities for well-positioned investors such as AGNC.

![](images/2_0.jpg)

Peter J. Federico
President and Chief Executive Officer

## 2021 IN REVIEW

The COVID-19 pandemic had a material impact on the domestic economy throughout 2021 as evidenced by ongoing labor market and supply chain disruptions. As the year progressed, economic growth improved, the labor market strengthened, and temporal supply chain issues ultimately drove a 7.0% year-over-year increase in the December consumer price index, its highest reading in 40 years. Against this backdrop, the Fed signaled a sharp reversal in its monetary policy stance late in the year. In November, the Fed began reducing its purchases of Treasuries and Agency MBS and stated that it intended to cease incremental purchases in March 2022. Further, with annual inflation measures well above the long-term target of 2%, the Fed also indicated that it may raise short-term rates aggressively and reduce its holdings of U.S. Treasury and Agency MBS sooner and more rapidly than previously anticipated.

The prospect of a more hawkish Fed and broad macroeconomic uncertainty had a meaningful impact on fixed income markets during the year. In anticipation of considerably tighter monetary policy, two-year Treasury rates rose over 60 basis points over the course of the year, with the majority of the increase occurring in the fourth quarter. 10-year Treasury rates also increased approximately 60 basis points in 2021 and closed the year at 1.51% after peaking at 1.74% in late March. Uncertainty about the timing and pace of interest rate hikes, combined with the prospect of elevated mortgage supply in 2022 and Fed balance sheet reductions, caused Agency MBS spreads to benchmark rates to widen during the year. As a result, Agency MBS underperformed, particularly in the second and fourth quarters, which negatively impacted AGNC's tangible net book value.

Despite the dual headwinds of increasing interest rates and widening mortgage spreads, AGNC generated a positive economic return on tangible common equity of 2.9% in 2021, comprised of our \(1.44 in dividends declared per common share and our \)0.96 decline in tangible net book value per common share during the year. As noted above, our 2.9% annual economic return on tangible common equity was the best economic return in our Agency REIT Peer Group \( ^{1} \)  and was significantly higher than the Agency REIT Peer Group \( ^{1} \)  average economic return of -6.7%. Finally, our total stock return of 5.2% for the year exceeded the Agency REIT Peer Group \( ^{1} \)  average total stock return of -0.6% by a wide margin.

During the year we also continued to make great progress in our Environmental, Social, and Governance ("ESG") disclosures and practices. As a leading provider of private capital to the U.S. housing market, our core

<--- Page Split --->

business serves a meaningful social purpose—facilitating homeownership, an accessible vehicle for wealth creation that promotes stable communities throughout the United States. In March 2021, we published our inaugural ESG Report, outlining our commitment to core ESG principles and our strategic management approach to key ESG matters, such as human capital management, diversity and inclusion, business ethics, risk management, corporate governance, and environmental stewardship. Our ESG Report also included disclosures aligned with the recommendations of the Sustainable Accounting Standards Board ("SASB"), which identifies the ESG factors most material to AGNC's business and operations. We look forward to sharing our second annual ESG Report with our stakeholders in the second quarter of 2022 and continuing to incorporate material ESG and sustainability factors into AGNC's strategy, business, and operations as we move forward.

We are also proud of the recognition we received in 2021 related to our ESG initiatives, including:

• Our certification as a Great Place to Work \( ^{®} \) ,

• Our receipt of the 2021 Nareit Gold Investor CARE Award,

• The nomination of our Board of Directors as a finalist for the 2021 NACD Diversity, Equity & Inclusion (DE&I) Awards, and

• Our recognition by the Women's Forum of New York for accelerating gender parity in the boardroom.

## LONG-TERM PERFORMANCE

Our primary financial objective is to generate attractive economic returns for our stockholders through a substantial dividend, while managing our book value within a reasonable range. AGNC's performance over longer time periods illustrates the durability of our business model and the benefit of being a long-term investor in AGNC. Notably, AGNC has generated returns well in excess of broad financial market indices over the more than thirteen years since our IPO, a period of time that included a wide range of market conditions and tumultuous events such as the Great Financial Crisis, the Taper Tantrum and the financial market dislocations associated with the COVID-19 pandemic.

TOTAL STOCK RETURNS SINCE AGNC'S MAY 2008 IPO \( ^{2} \) 

![](images/3_0.jpg)

While our returns are favorable on an absolute basis, our relative performance is also notable and illustrates our ability to create incremental returns for our stockholders through active and disciplined portfolio

<--- Page Split --->

management. As shown below, our one-, three- and five-year aggregate economic and total stock returns greatly outperformed our Agency REIT Peer Group \( ^{1} \)  averages:

ECONOMIC RETURN \( ^{3} \) 
AGNC AGENCY REIT PEER GROUP \( ^{1} \) 

![](images/4_0.jpg)

TOTAL STOCK RETURN \( ^{4} \) 
AGNC AGENCY REIT PEER GROUP \( ^{1} \) 

![](images/4_1.jpg)

Our dividend is the primary source of returns for our stockholders. Our dividend yield of 9.6% as of December 31, 2021 was extremely compelling in comparison to other yield investments. In addition, AGNC has also maintained the lowest operating cost structure of any residential mortgage REIT, which enhances our ability to generate attractive risk-adjusted returns for our stockholders.

DIVIDEND YIELD \( ^{5,6} \) 

![](images/4_2.jpg)

RESIDENTIAL MORTGAGE REIT OPERATING COST STRUCTURES \( ^{1,7} \) 

![](images/4_3.jpg)

## 2022 OUTLOOK

We expect that challenging market conditions will continue in 2022 as the Fed raises the federal funds rate and transitions from being the dominant buyer of Agency MBS to reducing its holdings of these assets. This dynamic, coupled with potentially robust mortgage supply, will likely drive mortgage spreads wider over the near-term. As such, we have positioned AGNC defensively as the market navigates this transition and broader macroeconomic uncertainty. As of December 31, 2021, our leverage was below our normal operating levels at 7.7x, and we maintained a limited duration gap (0.1 years as of year-end) and a substantial hedge ratio of over 100% of our funding liabilities.

<--- Page Split --->

Although widening Agency MBS spreads typically cause a decline in our tangible net book value, they also create a more favorable investment environment on a go-forward basis. In fact, the significant spread widening that occurred in 2021 and has continued in early 2022 has meaningfully improved the expected gross levered return potential on new investments. With our low leverage profile, we believe that we are positioned to benefit from this dynamic and to take advantage of attractive investment opportunities as they arise. Ultimately, as a levered investor in the MBS market, our business model benefits in the long run from wider spreads on our targeted investments.

Today, mortgage valuations are more in line with historical averages and offer attractive capital deployment opportunities on both an absolute and relative basis. Moreover, funding for Agency MBS remains readily available and is well supported by market participants and Fed policies. While we do expect some volatility in the near term, we remain confident in our ability to continue to generate strong risk-adjusted returns over the long-term with a significant dividend yield component for our stockholders.

We thank you for your continued support of AGNC.

Best regards,

![](images/5_0.jpg)

Peter J. Federico

President and Chief Executive Officer

February 23, 2022