# DEAR FELLOW STOCKHOLDERS

_Source: `DeepSeekOCR_Ardian_pruned_1k/real-estate-reit-mortgage/NASDAQ_AGNC_2018/NASDAQ_AGNC_2018.mmd` · pages 2-8_

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DEAR FELLOW STOCKHOLDERS:

2018 marked a significant milestone for AGNC Investment Corp.—our tenth anniversary as a public company, which we celebrated by ringing the Nasdaq opening bell on May 15, 2018.

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Pictured (left to right) AGNC's board of directors as of May 15, 2018; Paul Mullings, Larry Harvey, Gary Kain (Chief Executive Officer and Chief Investment Officer), Prue Larocca (Chair), Morris Davis. Not Pictured: Donna Blank, who became a director on December 3, 2018.

While we remain steadfastly focused on generating attractive long-term returns for our stockholders, this significant accomplishment provides an opportunity to reflect upon AGNC's achievements over the past decade:

• Industry-leading total stock and economic returns;

• Significant dividends paid to stockholders;

• Internalization of management structure;

• Remarkable growth in equity capital; and

• Successful navigation of challenging macroeconomic events, economic cycles, and interest rate environments.

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## INDUSTRY-LEADING TOTAL STOCK AND ECONOMIC RETURNS

Since AGNC's inception, our primary objective has been to provide our stockholders with attractive risk-adjusted returns, and we have had tremendous success in that regard on an absolute basis and relative to our peer group and the broader equity market. Since our IPO, we have generated a 345% total stock return, or 15% on an annualized basis, which is more than four times the total stock returns of our peer group and over 2.5 times the total stock return of the S&P 500 index over the same time period. In 2018, we continued our trend of outperformance, as our -2.5% total stock return, although negative, significantly outperformed our peer group and the S&P 500 at -13.4% and -4.4%, respectively, for the year.

TOTAL STOCK RETURNS SINCE AGNC'S MAY 2008 IPO \( ^{1} \) 

![](images/3_0.jpg)

Our total stock returns are driven in large part by our economic return, which measures the return on our portfolio derived from the sum of dividends declared and net book value growth (or loss). Similar to the relative performance of our total stock return, our economic return has also significantly outpaced our peer group. Since June 30, 2008, AGNC generated a 224% aggregate economic return, compared to 83% for our agency mortgage REIT ("mREIT") peer group. In 2018, our -4.9% economic loss was substantially better than the -8.5% economic loss of our peers.

## SIGNIFICANT DIVIDENDS PAID TO STOCKHOLDERS

As a yield vehicle, dividends are AGNC's predominant form of stockholder return. From our IPO through January 31, 2019, AGNC has paid over \(39.32 per share in common stock dividends—almost twice AGNC's IPO price of \)20.00 per share. In aggregate, AGNC has paid over \(8.5 billion in dividends on our common stock since our IPO. As of December 31, 2018, AGNC's dividend yield was 12.3%, which is more than three times the average dividend yield offered by the S&P 500 Utility Index of 3.5%. We implemented our monthly dividend policy in 2014 in response to strong investor demand.

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## INTERNALIZATION OF MANAGEMENT STRUCTURE

AGNC's internalization in July 2016 marked another significant milestone for the company. It created the largest internally-managed mREIT with the lowest operating cost structure in the industry. In 2018, AGNC's net operating costs were approximately 0.80% of total stockholders' equity. At that level, AGNC's cost structure is less than half of the average of our peers. Importantly, this internalization also further aligned management and stockholder interests, as the company's management team, unlike the managers of externally-managed REITs, is not compensated based upon the aggregate dollar amount of capital under management. Concurrent with our internalization, we also adopted a comprehensive compensation framework based substantially on performance that emphasizes the same measures that drive stockholder returns, including absolute and relative economic returns, and utilizes long-term equity grants as a critical component of overall compensation at every level of our organization.

## RESIDENTIAL MORTGAGE REIT OPERATING COST STRUCTURES \( ^{3} \) 

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## REMARKABLE GROWTH IN EQUITY CAPITAL

AGNC has grown its equity capital from \(300 million at the time of its IPO to nearly \)10 billion as of December 31, 2018, a nearly 40% compounded annual growth rate. Importantly, we have managed our equity growth to ensure that capital raises were accretive to our stockholders. In addition, as a result of our internal management structure and largely fixed cost infrastructure, incremental capital reduces our already best-in-class operating expense ratio. In 2018, we raised over $2.6 billion of common equity, the most of any mREIT by a wide margin. Our substantial equity base provides material benefits to our stockholders—significant share liquidity, the ability to pursue strategic initiatives such as our captive broker-dealer, and operational cost efficiency.

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## SUCCESSFUL NAVIGATION OF CHALLENGING MACROECONOMIC EVENTS, ECONOMIC CYCLES, AND INTEREST RATE ENVIRONMENTS

The last ten years have proven—across a myriad of macroeconomic events, economic cycles and interest rate environments—the durability of the AGNC business model. From the Great Recession through one of the longest bull markets in history, we have experienced virtually every relevant operating environment—rising and declining rates, steepening and flattening yield curves, and widening and tightening mortgage spreads. AGNC successfully navigated through these environments by rigidly adhering to one of the key elements of its value proposition—disciplined risk management—and in doing so, has been able to produce strong returns for stockholders.

## LOOKING AHEAD

As we anticipated in last year's letter, interest rate and equity market volatility increased dramatically in 2018, particularly in the fourth quarter, following a relatively benign interest rate environment in 2017. While the financial markets have stabilized somewhat in the first quarter of 2019, we expect that the global economic slowdown will ultimately impact the U.S. economy. We believe that inflation will remain anchored in this environment and U.S. economic growth will slow, in turn creating a more favorable interest rate environment. Indeed, against this backdrop, the Federal Reserve recently adopted a more symmetric policy stance, a significant change from its multi-year campaign of raising short-term rates. We are optimistic that this more favorable interest rate environment, coupled with materially wider spreads for Agency mortgage-backed securities, will support attractive returns for AGNC as we begin 2019.

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

Best regards,

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Gary Kain