# DEAR FELLOW STOCKHOLDERS

_Source: `DeepSeekOCR_Ardian_pruned_1k/real-estate-reit-mortgage/NASDAQ_AGNC_2020/NASDAQ_AGNC_2020.mmd` · pages 2-8_

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DEAR FELLOW STOCKHOLDERS

As we enter 2021, I am proud to state that AGNC has emerged from 2020 a stronger company, and our performance in 2020 provides further validation of the durability of our business model and investment philosophy across a wide range of macroeconomic environments. In March, the COVID-19 pandemic created the most adverse market and operating conditions that AGNC and modern U.S. financial markets have ever experienced. Despite these significant and historical challenges, AGNC successfully navigated the instability of the first quarter and, importantly, was able to maintain substantially all of our asset portfolio. As a result, AGNC was able to recover from the crisis in March and generated a positive annual economic return of 3.5% for our stockholders, consisting of \(1.56 in cash dividends and a \)0.95 decline in tangible net book value per share of common stock.

Our success in preserving our net book value during this volatility further extended AGNC's track record of producing economic returns significantly in excess of our peer group average:

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Looking ahead, we continue to believe that AGNC is positioned to provide attractive risk-adjusted returns for our stockholders over the long-term. The three primary levers that we utilize to generate returns—our Agency residential mortgage-backed securities ("RMBS")-focused portfolio, our funding through repurchase agreements ("repo"), and our risk management strategies—all benefit from favorable technical factors. In addition, AGNC has maintained the lowest cost structure as a percentage of stockholders' equity among residential mortgage REITs despite the operational challenges resulting from the COVID-19 pandemic, which provides further support to AGNC's earnings profile relative to the mortgage REIT sector.

## ASSETS: AGENCY RMBS

The experience of 2020 clearly illustrates the unique value of AGNC's predominantly Agency RMBS portfolio. In times of significant market stress, the Federal Reserve (the "Fed") has repeatedly shown a commitment to supporting and stabilizing the U.S. housing finance system because of the significant impact this market

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has on both the U.S. financial markets and the broader social and economic well-being of the country. 2020 was no exception, as the Fed purchased $1.5 trillion of Agency RMBS during the year and held approximately 30% of all outstanding Agency RMBS at year-end. Our active portfolio management throughout the year, coupled with the Fed's continued support of the Agency RMBS market, ultimately facilitated AGNC's recovery of substantially all of the tangible net book value decline experienced in the first quarter.

Looking ahead, the Fed has signaled its intention to maintain its accommodative monetary policy stance until its objectives of maximum employment and long-term average inflation targets are achieved. The Fed has further indicated that it expects to continue to purchase U.S. Treasury securities and Agency RMBS until substantial further progress has been made toward achieving these goals. This ongoing commitment by the Fed should ensure that AGNC's primary asset class, Agency RMBS, remains well-supported for the foreseeable future.

## FUNDING: AGENCY RMBS REPO

AGNC's funding also benefits from significant Fed involvement to ensure properly functioning government repo markets, which include both Treasury and Agency RMBS repo. The Fed's recent support for these markets predates the March COVID-19 disruption, as period-end funding pressures in 2019 served as a catalyst for the Fed to initiate open market operations to inject liquidity into government repo markets. As a result, funding liquidity remained strong for levered Agency RMBS investors even during the tumultuous first quarter. The Fed also quickly lowered short-term interest rates to near-zero. Our borrowing rates fell sharply and led to AGNC's net interest margin improvement, driving our net spread and dollar roll income per share to levels not seen in over five years. We expect this favorable funding environment to continue over the near to intermediate term, consistent with the Fed's guidance.

## RISK MANAGEMENT

AGNC's disciplined risk management has been a meaningful differentiator for AGNC over the years. Despite the significant widening of mortgage spreads to benchmark rates and extreme volatility in interest rates in early 2020, AGNC's active and disciplined portfolio management allowed us to outperform relative to our sensitivity models at the start of the crisis. As the markets stabilized and benchmark interest rates remained at low absolute levels, we were able to take advantage of the essentially one-way rate exposure by adding hedges to our portfolio at attractive levels, which provide incremental protection against increasing interest rates.

## OPERATIONS

The global COVID-19 pandemic, resulting "stay at home" orders, and massive societal and economic disruptions presented a significant business interruption risk for AGNC in 2020. We implemented our business continuity and contingency planning for our operations in February and mobilized to fully remote operations in mid-March, in advance of any state or local governmental mandates and without any business disruption. Managing through these events was critical in March and early April, as the dislocations in the financial markets required elevated levels of trading and portfolio management actions in a compressed timeframe. We took steps to ensure AGNC's continuous and uninterrupted operations, while simultaneously prioritizing the health, safety, and welfare of our employees.

Based upon our experiences in 2020, we have implemented a number of incremental operational processes that collectively improve our robust operational infrastructure. We also significantly enhanced our IT security architecture and governance to adapt to our newly remote workforce. In aggregate, these actions position us more favorably for future adverse environments without compromising AGNC's low operating cost infrastructure.

## LONG-TERM PERFORMANCE

While we are proud of our performance in 2020 and our positioning as we enter 2021, we continue to manage our company for long-term results. From our May 2008 IPO through December 31, 2020, AGNC has exceeded

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the S&P 500 Index (+148%), the Bloomberg Mortgage REIT Index (+311%), and the S&P 500 Financials Index (+316%) over the same time period on a total stock return basis. We have achieved these results across a time horizon that has included a myriad of financial environments—rising and falling rates, bull and bear markets, historically high and low unemployment—and a number of exogenous market shock events—the Great Financial Crisis, the Taper Tantrum, Brexit, the 2016 U.S. presidential election, the COVID-19 pandemic, and the domestic political unrest in 2020.

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This cumulative performance represents a 13.5% annualized total stock return, assuming reinvestment of dividends. One of the primary drivers of our total stock return has been our strong dividend yield over the years, which is particularly notable at present considering the lack of yield alternatives as asset prices have rebounded to pre-COVID-19 levels.

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As always, we remain focused on the future of AGNC. Substantial Fed support of Agency RMBS and low borrowing rates provide reason for optimism for continued stability in AGNC's asset values and funding costs and availability. While projected returns on equity have declined as mortgage spreads to benchmark rates have tightened, we continue to see favorable relative value investments through both specified pool assets and dollar roll opportunities. These factors, coupled with significant fiscal stimulus packages and a burgeoning likelihood of a broader macroeconomic reopening as the global population is vaccinated, will hopefully provide for a less volatile 2021 and a more favorable backdrop for AGNC to generate economic and total stock returns consistent with longer-term performance.

We thank you for your continued support of AGNC.

Best regards,

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Gary Kain

Chief Executive Officer and Chief Investment Officer