# Dear Fellow
Stockholders

_Source: `DeepSeekOCR_Ardian_pruned_1k/real-estate-reit-mortgage/NASDAQ_AGNC_2019/NASDAQ_AGNC_2019.mmd` · pages 2-8_

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Dear Fellow
Stockholders

AGNC's very strong financial performance in the fourth quarter of 2019 capped a tremendous year for the company. AGNC's economic return of 9.6% in the fourth quarter represents AGNC's best quarter since the second quarter of 2014 and drove a total economic return of 18.7% for the year. AGNC's economic return of 18.7% in 2019 was comprised of \(2.00 of dividends per common share and a \)1.10 increase in tangible net book value per common share. Finally, AGNC's total stock return for the year, assuming reinvestment of dividends, was 13.3%.

Since inception, our goal at AGNC has been to generate best-in-class returns for our stockholders through a combination of attractive dividends and book value preservation. With the completion of another successful year in 2019, our cumulative total stock return since our initial public offering is +404%, significantly exceeding the S&P 500 Index (+194%), the Bloomberg Mortgage REIT Index (+138%), and the S&P 500 Financials Index (+83%) over the same time period, as illustrated below.

Total Stock Returns Since AGNC's May 2008 IPO \( ^{1} \) 

![](images/2_0.jpg)

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Annualized Total Stock Returns
Since AGNC's May 2008 IPO \( ^{2} \) 

![](images/3_0.jpg)

This cumulative performance represents a nearly 15% annualized total stock return, assuming reinvestment of dividends.

We have achieved these returns through a combination of prudent asset selection and risk management, coupled with our low-cost operating structure as an internally managed REIT.

Asset selection is a critical component of alpha generation for levered mortgage investors. Borrower prepayment activity ultimately determines the cash flows we receive on our mortgage investments and negatively impacts
returns if not managed appropriately. To protect against this risk, AGNC has historically maintained higher levels of "specified pools," which are backed by loan attributes that typically mitigate prepayment activity during declining or volatile interest rate environments. In 2019, our portfolio composition, a result of asset repositioning actions to increase our allocation of capital to prepay-protected specified pools and lower coupon securities, greatly enhanced our financial performance and lessened the impact of the volatile interest rate environment.

Active risk management has been a cornerstone of our investment strategy since inception. We strive to protect our portfolio against both prepayment risk and extension risk by carefully managing our duration gap across a wide range of scenarios. In 2019, we took several actions with respect to our hedge portfolio that ultimately benefited both our tangible Net Asset Value and our Net Spread and Dollar Roll Income. Specifically, we

• Shortened the duration of our hedge portfolio by terminating longer-term pay fixed swap and treasury-based hedges as interest rates declined in 2019;

• Increased our hedge ratio to effectively "lock in" anticipated Federal Reserve rate cuts; and

• Transitioned a material percentage of our swap portfolio from LIBOR-based swaps to OIS- and SOFR-indexed swaps, which provide lower pay rates and ultimately reduce our exposure to LIBOR.

Together, these actions provided a tailwind to our 2019 earnings and are expected to continue to benefit AGNC in 2020.

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Finally, our low-cost operating structure, a result of our internalization transaction in 2016, continues to provide a significant benefit relative to other mortgage REITs and other yield vehicles. Our aggregate operating costs are 0.80% of our total stockholders' equity, which is approximately 1.50% less than our Agency REIT Peer Group (2.23%) and 2.10% less than the Resi mREIT Universe (2.90%) and provides an intrinsic advantage relative to our higher-cost peers.

## Residential Mortgage REIT Operating Cost Structures \( ^{3} \) 

![](images/4_0.jpg)

While we are proud of our 2019 performance and our track record since our initial public offering, we remain focused on the future of AGNC. We are hopeful for another successful year in 2020, given our expectation for interest rates to remain at historically low levels and more favorable funding conditions. Unlike many sectors of the fixed-income and equity markets, valuations of Agency mortgage-backed securities are consistent with multiyear averages and should continue to provide an opportunity for attractive risk-adjusted returns. As a result, we are optimistic about AGNC's future as we begin 2020.

As always, we thank you for your continued support of AGNC.

Best regards,

![](images/4_1.jpg)

Gary Kain

Chief Executive Officer and Chief Investment Officer

March 6, 2020