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Year-over-year tone shift - average net-tone change across Risk Factors and MD&A vs the prior 10-K. This filing is 0.08pp more bullish than last year's.
Why YoY instead of absolute: the LM lexicon has ~6.6× more negative words than positive (legal/risk-disclosure language is heavy on hedging), so every 10-K reads bearish on raw tone. Year-over-year change strips that bias and surfaces the actual shift in management's framing.
Tone shift by section
The two components the gauge averages: how Risk Factors and MD&A each shifted in net tone versus last year's 10-K. The headline above is their average, so a green needle over a soft section just means the other section carried it.
Risk Factors
-0.04pp
Flat
Net-tone change vs last year's 10-K.
MD&A
+0.21pp
Flat
Net-tone change vs last year's 10-K.
Per-snippet highlights
Sentence-level sentiment highlighting with category and subcategory filters is coming once the snippet-scoring pipeline lands. For now, dig into the actual section text on the Sections tab.
Language change vs prior 10-K
Risk Factors (Item 1A) - words with the biggest YoY frequency increase
Negative rising
adversely+7
volatility+2
decline+2
expose+2
adverse+1
Positive rising
stability+1
achieving+1
improve+1
Risk Factors (Item 1A)
13,009 words
Item 1A. Risk Factors
You should carefully consider the risks described below and all other information contained in this Annual Report on Form 10-K, including our annual consolidated financial statements and the related notes thereto before deciding to purchase our securities. Any of the following risks could materially affect our business, financial condition or results of operations. If that happens, the trading price of our securities could decline, and you may lose all or part of your investment. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties not presently known to us, or not presently deemed material by us, may also impair our operations and performance. Our risk factors discussed below are classified among:
• risks related to our investment and portfolio management activities;
• risks related to our financing and hedging activities;
• risks related to our business operations;
• legislative and regulatory risks; and
• risks related to our common stock.
Risks Related to Our Investment and Portfolio Management Activities
Spread risk is inherent to our business as a levered investor in Agency RMBS.
When the differential (or "spread") between the market yield on our assets and our interest rate hedges widens, our tangible net book value will typically , a dynamic we refer to as "spread risk." As a levered investor primarily in fixed-rate Agency RMBS, spread risk is an inherent component of our business. Although we use hedging instruments in an effort to protect moves in interest rates, our hedges will typically not protect us spread risk. Spreads may widen due to
Language change vs prior 10-K
MD&A (Item 7) - words with the biggest YoY frequency increase
Negative rising
decline+4
default+3
volatility+2
losses+1
declined+1
Positive rising
favorable+6
benefit+3
greater+3
stability+3
outperformed+2
MD&A (Item 7)
11,893 words
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is designed to provide a reader of AGNC Investment Corp.'s consolidated financial statements with a narrative from the perspective of management and should be read in conjunction with the consolidated financial statements and accompanying notes included in this Annual Report on Form 10-K. Our MD&A is presented in the following sections:
• Executive Overview
• Financial Condition
• Summary of Critical Accounting Estimates
• Results of Operations
• Liquidity and Capital Resources
• Off-Balance Sheet Arrangements
• Forward-Looking Statements
• Website and Social Media Disclosure
EXECUTIVE OVERVIEW
We are a leading provider of private capital to the U.S. housing market, enhancing liquidity in the residential real estate mortgage markets and, in turn, facilitating home ownership in the U.S. We invest primarily in Agency RMBS on a leveraged basis. These investments consist of residential mortgage pass-through securities and collateralized mortgage obligations for which the principal and interest payments are guaranteed by a U.S. Government-sponsored enterprise, such as Fannie Mae and Freddie Mac, or by a U.S. Government agency, such as Ginnie Mae. We may also invest in Agency multifamily MBS that are similarly guaranteed by a GSE and in other assets related to the housing, mortgage or real estate markets that are not guaranteed by a GSE or U.S. Government agency.
numerous factors, including actual or expected monetary policy actions by U.S. and foreign central banks; legislative, regulatory or other administrative actions affecting the Agency RMBS market; changes in fiscal policy and rising federal budget deficits; increased market volatility; reduced market liquidity; higher Agency RMBS supply; and shifts in investor return requirements and sentiment.
Interest rate and spread volatility represent significant risks to our business, potentially affecting our liquidity, increasing our costs, and impacting our ability to manage risks effectively.
Interest rate and spread volatility can materially and adversely impact our business, financial condition, and operating results. Elevated volatility amplifies market risks that affect the value of our assets and liabilities and can reduce earnings stability. Increased volatility also heightens our exposure to margin calls, including higher risk-based margin requirements, which may require us to post additional collateral, thereby reducing our unencumbered cash and other liquid assets (or “unencumbered liquidity”) and thus limiting resources available for operational needs and further margin obligations.
Volatility further increases the complexity and cost of hedging against interest rate fluctuations, which can adversely affect our profitability. In addition, heightened volatility may reduce liquidity in the mortgage market as investors scale back exposure to mitigate risk, making it more difficult to buy or sell assets without significantly impacting market prices. Volatility may also diminish the effectiveness and accuracy of the predictive models we rely on for decision-making and risk management.
Sustained interest rate and spread volatility has the potential to materially impact our unencumbered liquidity, increase our costs, and impair our ability to manage risk effectively. While we actively monitor market conditions and adjust our strategies in response, there is no assurance that these measures will be sufficient to offset the negative effects of volatility on our business, operations, and financial results.
The participation of the Fed and other government-related entities in the Agency mortgage market could have an adverse effect on our Agency RMBS investments.
Participation by the Federal Reserve (the "Fed") or other government-related entities in the Agency RMBS market can materially impact mortgage market conditions, affecting supply, pricing, and returns. Asset purchases, particularly when undertaken on an uneconomic basis, by the Fed or other government-related entities generally would be expected to tighten mortgage spreads and thus drive Agency RMBS values higher, which would increase our tangible net book value but reduce the return potential on new investments. Conversely, actual or anticipated reductions in Agency RMBS holdings by such entities would be expected to lead to lower values and wider spreads, thereby lowering our tangible net book value while improving the return potential on new investments.
The Fed first implemented large-scale asset purchases, known as quantitative easing ("QE"), during the 2008-2009 financial crisis to stabilize financial markets and support economic recovery. In response to the COVID-19 financial crisis, the Fed's balance sheet more than doubled from $4.2 trillion in March 2020 to $8.9 trillion in May 2022, with its Agency RMBS holdings rising to over $2.7 trillion, or nearly one-third of all Agency RMBS outstanding at the time. Since 2022, the Fed has reduced its Agency RMBS holdings through prepayment runoff to approximately $2.1 trillion as of December 31, 2025. While the Fed currently favors a gradual reduction of its balance sheet through prepayment runoff, there is no assurance that it will not alter its approach, including by undertaking asset sales. A faster-than-expected reduction in the Fed's Agency RMBS holdings could increase market volatility, reduce liquidity, and widen RMBS spreads, which could materially adversely impact our tangible net book value and financial condition.
In addition, other government-related entities, including GSEs and U.S. government agencies, may be significant participants in the Agency RMBS market. In January 2026, President Trump announced he had instructed the GSEs to invest $200 billion in Agency RMBS; however, the pace, nature, scope and duration of this initiative are not known. Government entities may purchase or sell Agency RMBS for a variety of purposes, including implementing housing policy or other public policy objectives, supporting market liquidity, earning profits, responding to conditions in Agency RMBS markets or changes in public policy. The GSEs have also provided repo financing to Agency RMBS investors, and a reallocation of capital towards increased Agency RMBS purchases could reduce the availability of such financing and contribute to higher repo rates. Changes in the investment or lending activities of these entities, including increased sales, reduced purchases or funding, or other shifts in demand, could materially affect Agency RMBS prices, spreads, and market liquidity, and could adversely affect our tangible net book value, results of operations, liquidity, and financial condition.
Our active portfolio management strategy may expose us to greaterlosses and lower returns than compared to passive strategies.
We employ an active management strategy, meaning our investment portfolio composition, leverage ratio, and hedge positions will fluctuate based on our assessment of market conditions. We may realize significant gains or losses when selling investments or adjusting hedge positions that we no longer believe offer attractive risk-adjusted returns or when reallocating to perceived betteropportunities. However, our market assessments may be incorrect, leading to portfolio, leverage, or hedge decisions that underperform a more static strategy. Additionally, due to our active approach, investors may not be able to assess changes in our financial position solely by tracking changes in the mortgage market.
A decline in the fair value of our assets may adversely affect our financial condition and make it costlier to finance our assets.
Our investment securities are reported at fair value on our consolidated balance sheet, with changes in fair value reported in net income or other comprehensive income. Therefore, a decline in the fair value of our assets reduces our total comprehensive income and adversely affects our financial position. We use our investments as collateral for our financing arrangements and certain hedge transactions; consequently, a decline in fair value or perceived market uncertainty about the value of our assets could reduce the amount of our unencumbered assets, subject us to margin calls or make it more difficult for us to maintain our compliance with the terms of our financing agreements. It could also reduce our ability to purchase additional investments or to renew or replace our existing borrowings as they mature. As a result, we could be required to sell assets at adverse prices and our ability to maintain or grow our total comprehensive income could be reduced.
The value of our assets is influenced by multiple factors. In particular, the value of our long-term fixed-rate securities is highly sensitive to fluctuations in longer-term interest rates. Additionally, the amount of market liquidity can significantly impact asset values, as reduced liquidity may lead to wider mortgage spreads, price declines and increased volatility. Several factors can negatively impact market liquidity, including shifts in macro-economic conditions, market uncertainties, changes in investor sentiment, reduced or negative global money flows into U.S. fixed income markets, and regulatory capital requirements that constrain the market-making or funding capacity of banks and financial institutions. Liquidity could also be affected by the Fed's monetary policy, particularly if balance sheet reduction occurs more rapidly than expected, as well as by legislative, regulatory or other administrative actions that affect the Agency RMBS market, government entity participation in Agency RMBS or funding markets, or changes in fiscal policy that increase the federal budget deficit.
Changes in prepayment rates may adversely affect the return on our investments.
Our investment portfolio largely consists of securities backed by pools of mortgage loans that receive payments related to the underlying mortgage loans. When borrowers prepay their mortgage loans at rates faster or slower than anticipated, we are exposed to prepayment or extension risk. Generally, prepayments increase during periods of falling mortgage interest rates and decrease during periods of rising mortgage interest rates; however, other factors can also affect prepayment rates, including loan age and size, loan-to-value ratios, housing price trends, general economic conditions, government policies that promote housing turnover or refinancings, and GSE buyouts of delinquent loans. If our assets prepay at a faster rate than anticipated, we may be unable to reinvest the resulting repayments at acceptable yields. If the proceeds are reinvested at lower yields than our existing assets, our net interest margins would be negatively impacted. We also amortize or accrete into interest income any premiums and discounts we pay or receive at purchase relative to the stated principal of our assets over their projected lives using the effective interest method. If the actual and estimated future prepayment experience differs from our prior estimates, we are required to record a current period adjustment to interest income for the impact of the cumulative difference in the effective yield, which could negatively affect our interest income.
If our assets prepay at a slower rate than anticipated, they may extend beyond their expected maturity, and we may be required to finance our investments for longer periods at potentially higher costs, without the ability to reinvest principal into higher-yielding securities. Additionally, if prepayment rates decline more than expected due to a rising interest rate environment, the average life or duration of our fixed-rate assets would extend, while the maturities of our interest rate swaps would remain unchanged and, therefore, hedge a smaller portion of our funding exposure. At the same time, the market value of our assets could decline, and our hedging instruments may not generate sufficient offsetting gains to fully mitigate the decline in asset values.
To the extent actual prepayment rates differ from our expectations, our operating results could be adversely affected, and we could be forced to sell assets to maintain adequate liquidity, which could cause us to incur realized losses. In addition, should significant prepayments occur, there is no certainty that we will be able to identify acceptable new investments, which could reduce our invested capital or result in us making less favorable investments.
Prepayment rates are difficult to predict, and market conditions and other factors impacting mortgage origination channels may disrupt the historical correlation between interest rate changes and prepayment trends.
Our success depends in part on our ability to predict prepayment behavior over a variety of economic conditions. As part of our overall portfolio risk management, we analyze interest rate changes and prepayment trends to assess their effects on our investment portfolio. Our analysis is largely based on predictive models that rely on historical correlations between interest rates and other factors that influence prepayment rates. However, unprecedented events, market dislocations, changes in housing or mortgage-related policies, advances in origination channel technologies, and other factors may impair the usefulness of these historical correlations or render them invalid, reducing our ability to accurately predict future prepayment activity. Other factors beyond interest rates also impact the rate of prepayments and may be difficult to predict, such as housing turnover, lending conditions, the availability of credit to homeowners, government or GSE policy actions, and GSE buyouts of delinquent loans from the underlying mortgage pool.
The analytical models and third-party data that we rely on to manage our portfolio and conduct our business objectives may be incorrect, misleading or incomplete.
We use analytical models, data and other information to value our assets and assess potential investment opportunities in connection with our risk management and hedging activities. We may source our models and data from third-parties or develop them internally. Models are dependent on multiple assumptions and inputs. Models typically also assume a static portfolio. If either the models, their underlying assumptions or data inputs prove to be incorrect, misleading or incomplete, any decisions we make in reliance on such information may be faulty and expose us to potential risks.
Many of the analytical models we use are predictive in nature, such as mortgage prepayment and default models. The use of predictive models has inherent risks and may incorrectly forecast future behavior, leading to potential losses. Furthermore, since predictive models are typically constructed based on historical trends using data supplied by third parties, the success of relying on such models depends heavily on the accuracy and reliability of the underlying historical data. Additionally, multiple factors could disrupt the relationships between data and historical trends, reducing the ability of our models to predict future outcomes or rendering them invalid. We are at greater risk of this occurring during periods of high volatility or during unanticipated or unprecedented financial or economic events, including any actual or anticipated shifts in monetary or fiscal policy resulting from these events. Further, the use of artificial intelligence ("AI")–based techniques associated with analytical models and third-party data may heighten these risks due to the rapidly evolving nature of AI technologies, including risks related to data quality or completeness, model accuracy, and bias. Consequently, actual results could differ materially from our projections. Moreover, the use of different models could result in materially different projections.
Analytical models and third-party data used to analyze credit sensitive assets also expose us to the risk that the (i) collateral cash flows and/or liability structures may be incorrectly modeled, or may be modeled based on simplifying assumptions that lead to errors; (ii) information about collateral may be incorrect, incomplete or misleading; (iii) collateral or bond historical performance (such as historical prepayments, defaults, cash flows, etc.) may be incorrectly reported, or subject to interpretation (e.g., different issuers may report delinquency statistics based on different definitions of what constitutes a delinquent loan); or (iv) collateral or bond information may be outdated, in which case the models may contain incorrect assumptions as to what has occurred since the date information was last updated.
The fair value of our investments may not be readily determinable or may be materially different from the value that we ultimately realize upon their disposal.
We measure the fair value of our investments in accordance with guidance set forth in Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosures . Fair value is only an estimate based on good faith judgment of the price at which an investment can be sold since market prices of investments can only be determined by negotiation between a willing buyer and seller. Our determination of the fair value of our investments includes inputs from pricing services and third-party dealers. Valuations of certain investments may be difficult to obtain or unreliable. In general, pricing services and dealers disclaim responsibility for the accuracy, completeness or usefulness of their valuations and we do not have recourse against them in the event of inaccurate price quotes or other inputs used to determine the fair value of our investments. Depending on the complexity and illiquidity of a security, valuations can vary substantially from one pricing source to another. Moreover, values can fluctuate significantly, even over short periods of time. As a result, the fair value at which our investments are recorded may not be an accurate indication of their realizable value. The ultimate realization of the value of an asset depends on economic and other conditions that are beyond our control. Consequently, if we were to sell an asset, particularly in a forcedliquidation, the realized value may be less than the amount at which the asset is recorded, which would negatively affect our results of operations and financial condition.
The mortgage loans referenced by our CRT securities or that underlie our non-Agency securities may be or could become subject to delinquency or foreclosure, which could result in investment losses.
Investments in credit-oriented securities, such as CRT securities and non-Agency MBS, for which repayment of principal and interest is not guaranteed by a GSE or U.S. Government agency, expose us to the potential risk of loss of principal and/or interest due to delinquency, foreclosure and related losses on the underlying mortgage loans.
CRT securities are risk sharing instruments issued by Fannie Mae and Freddie Mac and similarly structured transactions arranged by third-party market participants that are designed to synthetically transfer mortgage credit risk from the issuing entity to private investors. The transactions are structured as unguaranteed bonds whose principal payments are determined by the delinquency and prepayment experience of a reference pool of mortgages guaranteed by Fannie Mae or Freddie Mac. An investor in CRT securities bears the risk that the borrowers in the reference pool of loans may default on their obligations to make full and timely payments of principal and interest.
Non-Agency RMBS are backed by residential mortgage loans, which carry the risk of delinquency, foreclosure and loss based on the borrower's ability to repay. The ability to repay is primarily influenced by the borrower's income and assets. Factors such as loss of employment, divorce, illness, acts of God, acts of war or terrorism, adverse changes in economic and market conditions, declining home values, changes in laws and regulations, changes in fiscal policies and zoning ordinances, environmental hazards such as mold, and property losses (insured or not) can impede repayment.
CMBS are backed by commercial loans, secured by multifamily or other commercial properties. These loans typically face higher risks of delinquency and loss compared to residential loans. Repayment largely depends on the operational performance of the underlying properties. Factors affecting a property's net operating income, such as occupancy rates, tenant mix, the success of tenant businesses, property management, location, condition, and economic conditions, can influence the borrower's repayment capacity.
Geographic concentration of our assets can heighten the risk of default and loss. Both borrower repayment and the market value of the assets underlying our investments are affected by national, local and regional economic conditions. As a result, concentrations of investments tied to geographic regions increase the risk that adverse conditions affecting a region could increase the frequency and severity of losses on our investments. Additionally, assets in certain regional areas may be more susceptible to certain environmental hazards (such as earthquakes, widespread fires, rising sea levels, disease, floods, drought, hurricanes and certain climate risks) than properties in other areas; for example, assets located in coastal states may be more susceptible to hurricanes or sea level rise than properties in other parts of the country. Areas affected by these types of events often experience disruptions in travel, transportation and tourism, loss of jobs, a decrease in consumer activity, and a decline in real estate-related investments, and their economies may not recover sufficiently to support income producing real estate at pre-event levels. These types of occurrences may increase over time or become more severe due to changes in weather patterns and other climate changes.
Private mortgage insurance may not cover losses on loans referenced by our CRT securities and underlying our non-Agency RMBS.
Certain mortgage loans referenced by our CRT securities or underlying our non-Agency RMBS may have private mortgage insurance; however, coverage is not guaranteed. Insurance may not fully protect againstlosses in the event of a loan default due to several factors, including coverage limits that absorb only a portion of the loss, the insurer rescinding or denying a claim, or the insurer failing to meet its obligations—whether due to breach of contract or insolvency. As a result, we may still incur lossesdespite the presence of mortgage insurance.
Changes in credit spreads may adversely affect our profitability.
A significant portion of the fair value of CRT and non-Agency securities, as well as other credit risk-oriented investments, is typically driven by the credit spread—the difference between the value of a credit instrument and a comparable financial instrument with similar interest rate exposure but no credit risk, such as a U.S. Treasury note. Credit spreads fluctuate due to changes in economic conditions, liquidity, investor demand and other factors and can be highly volatile.
Credit spreads typically widen during periods of market uncertainty or actual or anticipated economic deterioration. They may also widen due to actual or anticipated rating downgrades of the securities or similar instruments. Hedging fair value changes related to credit spreads is often inefficient, and our hedging strategies are generally not designed to mitigate credit spread risk. As a result, fluctuations in credit spreads could negatively impact our profitability and financial condition.
We may be unable to acquire desirable investments due to competition, a reduction in the supply of new production Agency RMBS having the specific attributes we seek, and other factors.
Our profitability depends on our ability to acquire our target assets at attractive prices. We may seek assets with specific attributes that influence their prepayment behavior under certain market conditions or that enable us to satisfy asset test requirements to maintain our REIT qualification status or exemption from regulation under the Investment Company Act (such as "whole pool" Agency RMBS). The supply of our target assets may be impacted by policies and procedures adopted by the GSEs, their regulator—the Federal Housing Finance Administration ("FHFA")—or other governmental agencies, such as policies impacting origination and pooling practices, as well as by legislative, regulatory or other administrative actions related to the GSEs' government-like status or changes to their federal conservatorships. As a result, our target assets may not be available in sufficient supply or at attractive prices. We may also compete for these assets with a variety of other investors, including other REITs, specialty finance companies, public and private funds, government entities, banks, insurance companies and other financial institutions, which may have a lower cost of funds, access to funding sources not available to us, or other competitive advantages over us. If we are unable to acquire a sufficient amount of target assets, we may be unable to achieve our investment objectives or maintain our REIT qualification status or exemption from regulation under the Investment Company Act.
We may change our targeted investments, investment guidelines and other operational policies without stockholder consent.
We may change our targeted investments and investment guidelines at any time without the consent of our stockholders, which could result in our making investments that are different from, and possibly riskier than, those described in this Annual Report or under our current guidelines. We may also amend or revise our other operational policies, including our policies with respect to our REIT qualification, acquisitions, dispositions, operations, indebtedness and distributions without a vote of, or notice to, our stockholders. Any such change may increase our exposure to risks described herein or expose us to new risks that are not currently contemplated, which could materially impair our operations and financial performance.
Risks Related to Our Financing and Hedging Activities
Our strategy involves the use of significant leverage, which increases the risk that we may incur substantial losses.
We expect our leverage to vary with market conditions and our assessment of the tradeoffs between risk and return on investments. We generally expect to maintain our leverage between six to ten times the amount of our tangible stockholders' equity, but we may operate at levels outside of this range for extended periods. We incur this leverage by borrowing against a substantial portion of the market value of our assets. Leverage, which is fundamental to our investment strategy, creates significant risks and amplifies our risk exposure to higher borrowing costs, changes in underlying asset values, changes in mortgage spreads, and other market factors. Leverage also exposes us to the risk of margin calls and defaults under our funding agreements, which may result in forced sales of assets under adverse market conditions. The risks associated with leverage are more acute during volatile market environments and periods of reduced market liquidity. Because of our leverage, we may incur substantial losses.
We may be unable to procure or renew funding on favorable terms, or at all.
We rely primarily on short-term borrowings to finance our mortgage investments. Consequently, our ability to achieve our investment objectives depends not only on our ability to borrow sufficient amounts on favorable terms, but also on our ability to renew or replace our maturing short-term borrowings on a continuous basis. A variety of factors could prevent us from achieving our intended borrowing and leverage objectives, including:
• disruptions in the repo market generally or the infrastructure that supports it;
• higher short-term interest rates;
• a decline in the market value of our investments available to collateralize borrowings;
• increases in the "haircut" lenders require on the value of our assets under repurchase agreements, resulting in higher collateral requirements;
• increases in member-specific margin requirements assessed by the FICC for tri-party repo accessed by our wholly-owned captive broker-dealer subsidiary, BES, through the FICC's GCF Repo service;
• regulatory capital requirements or other limitations imposed on our lenders that negatively impact their ability or willingness to lend to us;
• an exit by lenders from the market;
• circumstances that could result in our failure to satisfy covenants, leverage limits, or other requirements imposed by our lenders, as a result of which our lenders may terminate and cease entering into repurchase transactions with us; and
• the inability of BES to continually meet FINRA and FICC regulatory and membership requirements, which may change over time.
Because of these and other factors, there is no assurance that we will be able to secure financing on terms that are acceptable to us. If we cannot obtain sufficient funding on acceptable terms, we may have to sell assets under adverse market conditions, and our ability to grow or execute our business strategy could be adversely affected.
Our borrowing costs may increase at a faster pace than the yield on our investments.
Our borrowing costs are particularly sensitive to changes in short-term interest rates, as well as overall funding availability and market liquidity, whereas the yield on our fixed rate assets is largely influenced by longer-term rates and conditions in the mortgage market. Consequently, our borrowing costs may rise at a faster pace or decline at a slower pace than the yield on our assets, negatively impacting our net interest margin.
It may be uneconomical to roll our TBA dollar roll transactions, which could require us to take physical delivery of the underlying securities and fund our obligations with cash or other financing sources.
We utilize TBA dollar roll transactions as an alternative means of investing in and financing Agency RMBS. These transactions represent a form of off-balance sheet financing, increase our "at risk" leverage, and subject us to margin requirements. Market conditions, including changes in the pace or manner of the Fed's runoff of its Agency RMBS portfolio or, if they occur, the Fed's, GSE's or other government-entity purchases or sales of Agency RMBS in the TBA market, may make it uneconomical for us to roll our TBA positions prior to their settlement dates. Because TBA dollar roll transactions include a deferred purchase price obligation, an inability or decision not to continue rolling forward our positions have effects similar to a termination of financing. In such circumstances, we would be required to settle our obligations in cash and take physical delivery of the underlying Agency RMBS. We may not have sufficient funds or alternative financing available to do so. Additionally, upon settlement, we would generally receive the "cheapest to deliver" securities that satisfy the TBA contract. "Cheapest to deliver" securities typically have the least favorable prepayment attributes and may include few, if any, "whole pool" securities. As a result, taking delivery could adversely affect our returns and could limit our ability to remain exempt from regulation as an investment company under the Investment Company Act (see " Loss of our exemption from regulation pursuant to the Investment Company Act would adversely affect us " below). Our inability to roll TBA positions, obtain adequate financing to settle our obligations, or meet margin calls could force us to sell assets under adverse market conditions, resulting in significant losses.
Our funding and derivative agreements subject us to margin calls that could result in defaults and force us to sell assets under adverse market conditions or through foreclosure.
Our funding and derivative agreements require that we maintain certain levels of collateral with our counterparties and may result in margin calls initiated against us if, for example, the value of our collateral declines. A margin call means that the counterparty requires us to pledge additional collateral to re-establish the required collateral level to protect it from loss in the event we default on our obligations. The requirement to meet margin calls can create liquidity risks. In the event of a margin call, we must generally provide additional collateral on the same business day. If we fail to meet the margin call, we would be in default, and our counterparty could terminate outstanding transactions, require us to settle our entire obligation under the agreement, and enforce their interests against existing collateral. Furthermore, we may also be subject to certain cross-default and acceleration rights, such that if we were to fail to meet a margin call under one agreement that failure could also lead to defaults, accelerations, or other adverse events under other agreements. The threat or occurrence of margin calls or the accelerated settlement of our obligations under our agreements could force us to sell our investments under adverse market conditions and result in substantial losses.
Our fixed-rate collateral is generally more susceptible to margin calls due to its price sensitivity to changes in interest rates. In addition, some collateral may be less liquid than other instruments, which could cause it to be more susceptible to margin calls during periods of heightened volatility. Furthermore, faster rates of prepayment may increase the magnitude of potential margin calls as there is a time lag between the effective date of the prepayment and the date we receive the principal payment.
Our derivative agreements also subject us to margin calls. Collateral requirements under our derivative agreements are typically dictated by contract or clearinghouse rules and regulations adopted by the U.S. Commodity Futures Trading Commission ("CFTC") and regulators of other countries. Thus, changes in clearinghouse rules and other regulations can increase our margin requirements and the cost of our hedges. Our counterparties typically have the sole discretion to determine eligible collateral, the value of our collateral and, in the case of our derivative counterparties, the value of our derivative
instruments. Additionally, for cleared swaps and futures, the futures commission merchant, or FCM, that we transact through typically has the right to require more collateral than the clearinghouse requires.
Changes to FICC margin requirements could limit our ability to enter tri-party repo transactions with the FICC's GCF Repo service and TBA transactions with the FICC's MBSD
We finance a significant portion of our investments and execute TBA transactions through our wholly-owned captive broker-dealer subsidiary, BES. As an eligible institution, BES accesses repo funding through the FICC's GCF Repo service and central clearing in the TBA market through the FICC's Mortgage-Backed Securities Division (MBSD).
The FICC continually assesses potential changes to rules governing the calculation of margin and minimum margin requirements. The FICC may also levy member specific margin requirements, including requirements related to a member's specific portfolio risk factors as a ratio to that member's net capital, requirements related to "back-testing" failures of collected FICC margin requirements to cover losses from a simulated liquidation of a member's portfolio, and other charges that the FICC has the ability to implement, in some cases without a significant notice period.
Increases in FICC margin requirements would have the effect of reducing our unencumbered assets and could potentially limit our ability to utilize tri-party repo funding through the FICC's GCF Repo service and engage in centrally-cleared TBA transactions through the FICC's MBSD. Furthermore, BES's inability to meet FICC margin requirements may result in the FICC declaring an event of default and ceasing to act for BES as a member along with a liquidation of any margin collateral and the portfolio of outstanding transactions for which the FICC serves as BES's central counterparty, potentially in adverse market conditions. If BES were to fail to continually meet FICC margin requirements and default on its obligations to the FICC it could have a material financial impact on our financial position.
Our repurchase agreements and agreements governing certain derivative instruments may contain financial and non-financial covenants subjecting us to the risk of default.
A number of our bilateral repurchase agreements and derivative agreements require that we comply with certain financial and non-financial covenants. These financial covenants typically limit declines in our stockholders' equity for any given quarter, calendar year, or 12-month period and limit our leverage to a maximum amount. Compliance with these covenants depends on market factors and the strength of our business and operating results. In addition, a number of these agreements require, among other things, that we maintain our status as a publicly listed REIT and remain exempt from the provisions of the 1940 Act. Various risks, uncertainties and events beyond our control, including significant fluctuations in interest rates, market volatility and changes in market conditions, could affect our ability to comply with these covenants. Unless we were able to negotiate a waiver or forbearance of such covenants, failure to comply with them could result in an event of default and generally would give the counterparty the right to exercise certain other remedies under the agreement, including termination of one or more repo or hedging transactions, acceleration of all amounts owed under an agreement, and the right to sell the collateral held by that counterparty. Any waiver or forbearance, if granted, could carry additional conditions that may be unfavorable to us. Additionally, certain of our agreements contain cross-default, cross-acceleration or similar provisions, such that if we were to violate a covenant under one agreement, that violation could lead to defaults, accelerations, or other adverse events under other agreements.
Our rights under repurchase and derivative agreements in the event of bankruptcy or insolvency may be limited.
In the event of our bankruptcy or insolvency, our repurchase agreements and hedging arrangements may qualify for special treatment under the U.S. Bankruptcy Code, the effect of which, among other things, would be to allow the counterparty under the applicable agreement to be exempt from the automatic stay provisions of the U.S. Bankruptcy Code and to foreclose on the collateral without delay. In the event of the insolvency or bankruptcy of one of our repurchase agreement or derivative counterparties, the counterparty may be permitted, under applicable insolvency laws, to repudiate the contract with us, and our claim against the counterparty for damages may be treated as unsecured. In addition, if the counterparty is a broker or dealer subject to the Securities Investor Protection Act of 1970, or an insured depository institution subject to the Federal Deposit Insurance Act, our ability to recover assets under our agreements or to be compensated for damages resulting from the counterparty's insolvency may be further limited by those statutes. Any recoveries on such claims could be subject to significant delay and, if received, could be substantially less than the damages incurred.
Our funding and derivative agreement counterparties may not fulfill their obligations to us when due.
If a repurchase agreement counterparty defaults on its obligation to resell collateral to us, we could incur a loss on the transaction equal to the difference between the value of our collateral and the amount of our borrowing. Similarly, if a derivative agreement counterparty fails to return collateral to us at the conclusion of the derivative transaction or fails to pledge
collateral to us or to make other payments we are entitled to under the terms of our agreement when due, we could incur a loss equal to the value of our collateral and other amounts due to us.
We attempt to limit our counterparty exposure by diversifying our funding across multiple counterparties and limiting our counterparties to registered central clearing exchanges and major financial institutions with acceptable credit ratings. However, these measures may not sufficiently reduce our risk of loss. Central clearing exchanges typically attempt to reduce the risk of default by requiring initial and daily variation margin from their clearinghouse members and maintaining guarantee funds and other resources that are available in the event of default. Nonetheless, we could be exposed to the risk of loss if an exchange or one or more of its clearing members defaults on their obligations. Most of the swaps and futures transactions that we enter into must be cleared by a Derivatives Clearing Organization, or DCO. DCOs are subject to regulatory oversight, use extensive risk management processes, and might receive "too big to fail" support from the government in the case of insolvency. We access the DCO through several FCMs, which may establish their own collateral requirements beyond those of the DCO. Consequently, for any cleared swap or futures transaction, we bear the credit risk of both the DCO and the relevant FCM as to obligations under our swap and futures agreements. The enforceability of our derivative and repurchase agreements may also depend on compliance with applicable statutory, commodity and other regulatory requirements and, depending on the domicile of the counterparty, applicable international requirements.
Our hedging strategies may be ineffective.
We attempt to limit, or hedge against, the adverse effect of changes in interest rates on the value of our assets and financing costs, subject to complying with REIT tax requirements. Hedging strategies are complex and do not fully protect againstadverse changes under all circumstances. Our business model also calls for accepting certain amounts of risk. Consequently, our hedging activities are generally designed to limit interest rate exposure, but not to eliminate it, and they are generally not designed to hedge against spread risk and other risks inherent to our business model.
Our hedging strategies may vary in scope based on our portfolio composition, liabilities and our assessment of the level and volatility of interest rates, expected prepayments, credit and other market conditions, and they are expected to change over time. We could inaccurately assess a risk or fail to recognize a risk entirely, leaving us exposed to losses without the benefit of any offsetting hedges. Furthermore, the techniques and derivative instruments we select may not have the effect of reducing our risk. Poorly designed hedging strategies or improperly executed transactions could increase our risk of loss. Hedging activities could also result in losses if the hedged event does not occur. Numerous other factors can impact the effectiveness of our hedging strategies, including the following:
• the cost of interest rate hedges;
• the degree to which the interest rate hedge benchmark rate correlates with the interest rate risk being hedged;
• the degree to which the duration of the hedge matches that of the related asset or liability, particularly as interest rates change;
• the amount of income that a REIT may earn from hedging transactions that do not satisfy certain requirements of the Internal Revenue Code and that are not conducted through a TRS; and
• the degree to which the value of our interest rate hedges changes relative to our assets as a result of fluctuations in interest rates, the passage of time, or other factors.
Additionally, regulations adopted by the CFTC and regulators of other countries could adversely affect our ability to engage in derivative transactions or impose increased margin requirements and result in additional operational and compliance costs. Consequently, our hedging strategies may fail to protect us from loss and could even result in greaterlosses than if we had not entered into the hedge transaction.
Risks Related to Our Business Operations
Our executive officers and other key personnel are critical to our success and the loss of any executive officer or key employee may materially adversely affect our business.
We operate in a highly specialized industry and our success is dependent upon the efforts, experience, diligence, skill and network of business contacts of our executive officers and key personnel. The departure of any of our executive officers and/or key personnel could have a material adverse effect on our operations and performance.
We are highly dependent on information systems and third-party service providers to conduct our operations, and system failures, cybersecurity incidents or failure of our providers to fulfill their obligations to us could significantly disrupt our ability to operate our business.
Our business heavily depends on information and communication systems, including services provided by third parties and cloud-based platforms. A failure in these systems, or a failure by a third-party provider, could significantly disrupt our operations. These systems may be subject to damage or interruption from, among other things, natural disasters, public health issues such as pandemics or epidemics, terrorist attacks, rogue employees, power loss, telecommunications failures, internet disruptions, and other interruptions beyond our control. Additionally, our reliance on these systems exposes us to risks of disruption or damage from cybersecurity risks, such as malware, viruses, hacking, denial of service, ransomware, physical or electronic break-ins, insider threats, and phishing attacks, all of which are increasingly sophisticated and prevalent. Our systems may be misconfigured or configured in a way that exacerbates our exposure to these risks. Despite having no significant breaches detected to date, we regularly are targeted by threat actors, and completely preventing or detecting such incidents promptly is increasingly challenging.
The complex nature of cybersecurity threats means a breach could go undetected for a long time, if ever, and responding to such incidents may not always be immediate or sufficient. Moreover, we depend on third-party vendors to implement security programs commensurate with their own risk. Such vendors may not be successful at defendingagainst or detecting cybersecurity threats, and they may not be obligated to inform us of such incidents. The consequences of a cyber-attack may include operational disruption, unauthorized access to sensitive data, regulatory fines, reputational damage, liability to third parties, and financial losses.
The impact of cybersecurity incidents is difficult to predict, and legal and regulatory requirements around data privacy and security could lead to increased costs and stricter compliance requirements. During an investigation of a cybersecurity incident, or a series of events, it is possible we may not know the extent of the harm or how to remediate it, which could further adversely impact us, and we may be compelled to disclose information about a material cybersecurity incident before it has been mitigated or resolved, or even fully investigated. Furthermore, whether a single cyber event or series of events is material is often a matter of judgment rather than quantitative measures and might only be determinable well after the fact. Despite our efforts to enhance our cybersecurity defenses, we cannot assure complete protection against all cybersecurity threats. A cybersecurity incident, if one were to occur, could adversely affect our business, results of operations, or financial condition.
The use of artificial intelligence by us or our third-party vendors could expose us to additional risks.
We currently make limited use of AI technologies in our operations; however, we may expand our use of AI over time, and certain third-party service providers on which we rely may also utilize AI in providing services to us. AI technologies are rapidly evolving and may present risks related to data quality or completeness, model accuracy, cybersecurity, bias, explainability, intellectual property, and other operational, legal and business risks. Increased use of AI, whether by us or our vendors, could require additional governance, controls, and oversight and may increase our reliance on third-party data and technology.
If AI-driven tools, models, or outputs are inaccurate, unreliable, misconfigured, or misused, or if we fail to appropriately manage risks associated with the use of AI by us or our vendors, our operations, results of operations, or financial condition could be adversely affected.
Risks Related to Our Taxation as a REIT
Our failure to qualify as a REIT would have adverse tax consequences.
We believe we qualify as a REIT for U.S. federal income tax purposes under Sections 856–860 of the Internal Revenue Code of 1986, as amended, and related Treasury Regulations, and we intend to maintain our REIT status. The determination that we are a REIT requires an analysis of various factual matters and circumstances that may not be entirely within our control. Qualification and taxation as a REIT also depend on our ability to continually meet requirements imposed on REITs by the Internal Revenue Code, including satisfying certain organizational requirements, an annual distribution requirement, and quarterly asset and annual income tests. These tests depend on our ability to effectively manage the composition of our income and assets on an ongoing basis. At least 75% of our gross income must come from real estate sources, and 95% must come from real estate and certain other qualifying sources. Our ability to satisfy the asset tests depends on determining the characterization and fair market value of our assets, which may not be precisely measurable or may lack independent appraisals. Additionally, the classification of certain instruments as debt or equity for tax purposes may be uncertain, which could adversely impact the application of the REIT asset requirements. The distribution requirement mandates that we distribute at least 90% of our REIT taxable income to stockholders annually, determined without regard to the dividends paid deduction and excluding net capital gains.
Failure to qualify as a REIT would have significant consequences. We would lose the ability to deduct dividends paid to stockholders when computing our taxable income and would be subject to U.S. federal and state corporate income tax as a regular C corporation for any taxable year for which we did not qualify. This could result in substantial tax liabilities and reduce funds available for investments and distributions, likely adversely impacting our stock price. Additionally, we would no longer be required to make stockholder distributions. Unless the IRS granted us relief under certain statutory provisions, we would remain disqualified as a REIT for four years following the year in which we first fail to qualify.
Relief provisions may be available if we fail to meet the REIT requirements, provided the failure was due to reasonable cause, not willful neglect, and we satisfy other requirements, including the timely completion of applicable IRS filings. It is not possible to predict whether we would be entitled to benefit from such provisions. Even if we were to qualify for relief, we may still incur penalty taxes. The penalty for failing an asset test is the greater of $50,000 per failure or the net income from non-qualifying assets that resulted in the failure multiplied by the highest U.S. federal corporate tax rate. For failing one or both gross income tests, the penalty equals 100% of the net profit from non-qualifying income that resulted in the failure, as determined under the Internal Revenue Code.
REIT distribution requirements could adversely affect our ability to execute our business plan.
We generally must distribute annually at least 90% of our taxable income, subject to certain adjustments and excluding any net capital gain, for U.S. federal and state corporate income tax not to apply to earnings that we distribute and to retain our REIT status. Distributions of our taxable income must generally occur in the taxable year to which they relate, or in the following taxable year if declared before we timely file our tax return for the year and -paid with or before the first regular dividend payment after such declaration. We may also elect to retain, rather than distribute, our net long-term capital gains and pay tax on such gains if required, in which case, we could designate for our stockholders to include their proportionate share of such undistributed long-term capital gains in income, and to receive a corresponding credit for their share of the tax that we paid. Our stockholders would then increase the adjusted basis of their stock by the difference between (a) the amounts of capital gain dividends that we designated and that they include in their taxable income, minus (b) the tax that we paid on their behalf with respect to that income. We intend to make distributions to our stockholders to comply with the REIT qualification requirements of the Internal Revenue Code, which limits our ability to retain earnings and thereby replenish or increase capital from operations.
To the extent that we satisfy this distribution requirement, but distribute less than 100% of our taxable income, we will be subject to U.S. federal and state corporate income tax on our undistributed taxable income. Furthermore, if we failed to distribute during each calendar year at least the sum of (a) 85% of our REIT ordinary income for such year, (b) 95% of our REIT capital gain net income for such year, and (c) any undistributed taxable income from prior periods, we would be subject to a non-deductible 4% excise tax on the excess of such required distribution over the sum of (x) the amounts actually distributed, (y) the amounts of income we retained and on which we have paid corporate income tax and (z) any excess distributions from prior periods.
Our taxable income will typically differ from income prepared in accordance with GAAP due to temporary and permanent differences. For example, realized gains and losses on our hedging instruments, such as interest rate swaps, may be deferred for income tax purposes and amortized into taxable income over the remaining contract term of the instrument even if we have exited the instrument and settled such gains or losses for cash. We are also not allowed to reduce our taxable income for net capital losses incurred; instead, the capital losses may be carried forward for a period of up to five years and applied against future capital gains subject to our ability to generate sufficient capital gains, which cannot be assured. Therefore, it is possible that our taxable income could be in excess of the net cash generated from our operations. If we do not have funds available in these situations to meet our REIT distribution requirements or to avoid corporate and excise taxes altogether, we could be required to borrow funds on unfavorable terms, sell investments at disadvantageous prices or distribute amounts that would otherwise be invested in future acquisitions.
We may choose to pay dividends in our own stock, in which case stockholders may be required to pay income taxes in excess of cash dividends received.
We may in the future distribute taxable dividends that are payable at least in part in shares of our common stock. Taxable stockholders receiving such dividends would be required to include the full amount of the distribution as income to the extent of our current and accumulated earnings and profits for U.S. federal income tax purposes. As a result, stockholders may be required to pay income taxes with respect to such dividends in excess of the cash dividends received. If a U.S. stockholder sells the stock received as a dividend to pay these taxes, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our stock at the time of sale. Furthermore, with respect to certain non-U.S. stockholders, we may be required to withhold U.S. tax on such dividends, including on all or a portion of any dividend that is payable in stock.
Even if we remain qualified as a REIT, we may face other tax liabilities that reduce our cash flow.
Even if we remain qualified for taxation as a REIT, we may nonetheless be subject to certain federal, state and local taxes on our income and assets, including the following items. Any of these or other taxes we may incur would decrease cash available for distribution to our stockholders.
• Regular U.S. federal and state corporate income taxes on any undistributed taxable income, including undistributed net capital gains.
• A non-deductible 4% excise tax if the amount distributed to our stockholders in a calendar year is less than the required amount specified under federal tax law.
• Corporate income taxes on the earnings of subsidiaries, to the extent that such subsidiaries are subchapter C corporations and are not qualified REIT subsidiaries or other disregarded entities for federal income tax purposes.
• A 100% tax on certain transactions between us and our TRSs that do not reflect arm's-length terms.
• If we acquire appreciated assets from a corporation that is not a REIT (i.e., a corporation taxable under subchapter C of the Internal Revenue Code) in a nontaxable transaction, we may be subject to tax on such appreciation at the highest applicable corporate income tax rate if we were to dispose of the assets in a taxable transaction during the five-year period following the acquisition.
• A 100% tax on net income and gains from "prohibited transactions."
• Penalty taxes and other fines for failure to satisfy one or more requirements for REIT qualification.
Complying with REIT requirements may cause us to liquidate or forgo attractive investment opportunities.
To remain qualified as a REIT, we must ensure that, at the end of each calendar quarter, at least 75% of the value of our assets consists of cash, cash items, government securities, and qualified real estate assets. The remainder of our investments in securities (other than government securities and qualified real estate assets) generally cannot include securities possessing more than 10% of the outstanding voting power of any one issuer or having a value of more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our assets (other than government securities and qualified real estate assets) can consist of the securities of any one issuer, and no more than 25% of the value of our total assets can be represented by securities of one or more TRSs. If we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and sufferingadverse tax consequences. We must also satisfy tests concerning the sources of our income and the amounts that we distribute to our stockholders. Complying with these requirements may prevent us from acquiring certain attractive investments or may require us to sell otherwise attractive investments. Thus, the potential returns on our investment portfolio may be lower than they would be if we were not subject to such requirements. Additionally, if we must liquidate our investments to repay our lenders or to satisfy other obligations, we may be unable to comply with these requirements, potentially jeopardizing our qualification as a REIT.
Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities.
The REIT provisions of the Internal Revenue Code could substantially limit our ability to hedge our risks. Any income from a properly designated hedging transaction to manage the risk of interest rate changes with respect to borrowings made or to be made, or ordinary obligations incurred or to be incurred, to acquire or carry real estate assets generally does not constitute "gross income" for purposes of the 75% or 95% gross income tests ("qualified hedges"). To the extent that we enter into other types of hedging transactions, or fail to properly designate qualified hedges, the income from those transactions is likely to be treated as non-qualifying income for purposes of both gross income tests. As such, we may have to limit our use of advantageous hedging techniques or implement those hedges through a TRS. This could increase the cost of our hedging activities as our TRS would be subject to tax on gains or expose us to greater risks than we would otherwise want to bear. In addition, losses in a TRS will generally not provide any tax benefit, except for being carried forward against future taxable income in the TRS.
Uncertainty exists with respect to the treatment of our TBAs for purposes of the REIT asset and income tests.
There is no direct authority with respect to the qualification of TBAs as real estate assets or U.S. Government securities for purposes of the 75% asset test or the qualification of income or gains from dispositions of TBAs as gains from the sale of real property or other qualifying income for purposes of the 75% gross income test. However, we treat our TBAs as qualifying assets for purposes of the REIT 75% asset test, and we treat income and gains from our TBAs as qualifying income for purposes of the 75% gross income test, based on a legal opinion of Skadden, Arps, Slate, Meagher & Flom LLP ("Skadden") substantially to the effect that (i) for purposes of the REIT asset tests, our ownership of a TBA should be treated as ownership
of the underlying Agency RMBS (i.e., real estate assets), and (ii) for purposes of the 75% REIT gross income test, any gain recognized by us in connection with the settlement of our TBAs should be treated as gain from the sale or disposition of the underlying Agency RMBS. Opinions of counsel are not binding on the IRS, and no assurance can be given that the IRS will not successfullychallenge the conclusions set forth in such opinions. In addition, it must be emphasized that Skadden's opinion is based on various assumptions relating to our TBAs and is conditioned upon fact-based representations and covenants made by our management regarding our TBAs. Accordingly, no assurance can be given that the IRS would not assert that such assets or income are not qualifying assets or income. If the IRS were to successfullychallenge Skadden's opinion, we could be subject to a penalty tax or we could fail to remain qualified as a REIT if a sufficient portion of our assets consists of TBAs or a sufficient portion of our income consists of income or gains from the disposition of TBAs.
Qualifying as a REIT involves highly technical and complex provisions of the Internal Revenue Code.
Qualification as a REIT involves the application of highly technical and complex Internal Revenue Code provisions on a continuous basis for which only limited judicial and administrative authorities exist. Our application of such provisions may be dependent on interpretations of the provisions by the Internal Revenue Service, which may change over time. Even a technical or inadvertentviolation of the Internal Revenue Code provisions could jeopardize our REIT qualification.
The tax on prohibited transactions could limit our ability to engage in certain transactions.
Net income that we derive from a "prohibited transaction" is subject to a 100% tax. The term "prohibited transaction" generally includes a sale or other disposition of property that is held primarily for sale to customers in the ordinary course of a trade or business by us or by a borrower that has issued a shared appreciation mortgage or similar debt instrument to us. We could be subject to this tax if we were to dispose of assets or structure transactions in a manner that is treated as a prohibited transaction for federal income tax purposes.
We intend to structure our activities to avoid classification as prohibited transactions. As a result, we may choose not to engage in certain transactions at the REIT level that might otherwise be beneficial to us. In addition, whether property is held "primarily for sale to customers in the ordinary course of a trade or business" depends on the particular facts and circumstances. Thus, no assurance can be given that any property that we sell will not be treated as such or that we can comply with certain safe-harbor provisions of the Internal Revenue Code that would prevent such treatment. The 100% tax does not apply to gains from the sale of property that is held through a TRS or other taxable corporation, although such income will be subject to tax at the entity's regular corporate rates.
Distributions to tax-exempt investors may be classified as unrelated business taxable income.
Although distributions with respect to our common stock generally do not constitute unrelated business taxable income, there are some circumstances where they may. If (i) we generate "excess inclusion income" as a result of all or a portion of our assets being subject to rules relating to "taxable mortgage pools" or as a result of holding residual interests in a REMIC or (ii) we become a "pension held REIT," then a portion of the distributions to tax exempt investors may be subject to U.S. federal income tax as unrelated business taxable income under the Internal Revenue Code.
Legislative and Regulatory Risks
Federal housing finance reform and potential changes to the Federal conservatorship of Fannie Mae and Freddie Mac or to laws or regulations affecting the relationship between the GSEs and the U.S. Government may adversely affect our business.
The payments of principal and interest we receive on our Agency RMBS are guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae. The guarantees on Agency securities created by Ginnie Mae are explicitly backed by the full faith and credit of the U.S. Government, whereas the guarantees on Agency securities created by Fannie Mae and Freddie Mac are not.
In September 2008, Fannie Mae and Freddie Mac were placed into conservatorship under the FHFA. In addition, the U.S. Treasury Department provided a liquidity backstop to ensure their financial stability. Over time, efforts to end the conservatorships and modify the existing guarantee-payment structure have garnered attention from U.S. Government policymakers. During the final year of the first Trump Administration, FHFA established new regulatory capital requirements for an exit from conservatorship, and the Treasury Department amended the terms of its liquidity backstop to enable Fannie Mae and Freddie Mac to retain additional capital to meet these requirements, subject to certain conditions. In late 2020 and early 2021, the Director of the FHFA was reported to have considered various actions to bring a prompt end to the conservatorships. The Biden Administration and the FHFA delayed implementation or reversed many of these initiatives and took steps intended to advance other housing finance policy objectives. In the final month of the Biden Administration, the FHFA and the Treasury Department further amended the liquidity backstop, among other things, to require the written consent of the Treasury Department after a period of public notice and opportunity to comment prior to terminating the conservatorships
(other than through receivership) and to require that Fannie Mae and Freddie Mac achieve sufficient capital levels prior to being released from conservatorship. During 2025, the Trump Administration indicated that it was actively considering the capital structure and status of the GSEs, which could include stock offerings, a recapitalization, or a re-listing of their common stock, and expressed a desire to end the conservatorships at some time in the future. Nonetheless, Administration officials have stated that any such actions would be pursued in a manner intended to preserve mortgage market stability and not lead to higher mortgage rates. It is unclear what actions, if any, may be taken, or the form, nature, scope, timing, or the effects of any such actions.
Administrative or legislative actions affecting the GSEs or the housing finance system could alter the amount or nature of the credit support provided by the U.S. Treasury to Fannie Mae and Freddie Mac, modify their roles in housing finance or otherwise affect the value or relative fungibility of Agency RMBS issued by each GSE. Such actions could create market uncertainty, reduce the actual or perceived credit quality of GSE securities, limit the ability of banks, foreign investors, mutual funds or others to own Agency RMBS, or otherwise adversely impact the liquidity, size and scope of the Agency RMBS market. Actions that terminate the conservatorships without providing sufficiently robust U.S. government support to preserve their government-like status or otherwise retain the functionality, scale, or efficiency of the primary and secondary mortgage markets as they exist today could redefine what constitutes an Agency security. Such actions could subject Agency RMBS to greater credit risk, make them more difficult to finance or less liquid, and cause their values to decline, all of which could have broad adverse implications for primary and secondary mortgage markets and our business.
Actions of the U.S. Government, including the U.S. Congress, Fed, U.S. Treasury, FHFA and other governmental and regulatory bodies may adversely affect our business.
U.S. Government legislative and administrative actions may have an adverse impact on financial markets for Agency RMBS. To the extent the markets do not respond favorably to any such actions or such actions do not function as intended, they could have broad and adverse market implications and could negatively impact our financial condition and results of operations.
In recent years, the U.S. Government has sought to advance housing policy objectives through the GSEs. In 2025, the Trump Administration increased its focus on housing affordability, including the cost of home mortgages. In January 2026, President Trump stated that he had instructed the GSEs to acquire approximately $200 billion of Agency MBS to lower mortgage rates and improve housing affordability. The Administration has also solicited input from industry groups, think tanks, and other market participants regarding potential measures to reduce the cost of homeownership. A number of these proposals would be expected to have a benign or only modest effect on the Agency RMBS market or on our business, financial condition, or results of operations. However, certain of these proposals (or other future proposals), if implemented, could have broad adverse implications for Agency RMBS markets and our business by significantly changing prepayment speeds, artificially altering mortgage spreads on an unsustainable basis, or purporting to modify the terms of existing mortgages and existing Agency RMBS in a manner unfavorable to holders of Agency RMBS. Such proposals (or other future proposals), if adopted, could lead to reduced investor interest in Agency RMBS, lower market liquidity, increased Agency RMBS volatility, wider mortgage spreads, and as a result higher mortgage lending rates for homeowners. It is unclear whether the Trump Administration or Congress will seek to implement any of these or any other proposals or what the form, nature, scope, implementation timeline or effects of such actions could be.
Actual or anticipated actions or inaction on U.S. fiscal policy matters, including the amount and tenor of U.S. Treasury debt required to fund the government and the U.S. debt ceiling, could result in a wide range of negative economic effects, including increased financial market and interest rate volatility and wider mortgage spreads.
Additionally, new regulatory requirements, including changes to the manner and timing of clearing U.S. Treasury and Agency RMBS transactions or the imposition of greater regulatory constraints on banks, could adversely affect the availability or terms of financing from our lending counterparties, reduce market liquidity or demand for Agency RMBS, restrict the origination of residential mortgage loans and the formation of new issuances of mortgage-backed securities, or limit the trading activities of certain banking entities and other systemically significant organizations that are important to our business. In 2023, the FDIC and Fed proposed revisions to bank capital rules that would have applied risk weights (and costs) to Agency RMBS that, if adopted, might have impacted the source, pricing, volume, financing, and nature of Agency RMBS. Although these proposals are not expected to be finally adopted in their original form, they have not yet been withdrawn, and aspects of them may be re-proposed or adopted in the future. In addition, SEC regulations that mandate the central clearing of U.S. Treasury and U.S. Treasury repurchase agreement ("U.S. Treasury Repo") transactions will necessitate significant changes to trading operations and have the potential to adversely impact liquidity, funding and efficiency of these markets. Such changes could adversely affect the cost and other terms or availability of financing and hedging arrangements for our business. Together or individually new regulatory requirements could materially affect our financial condition or results of operations in adverse ways.
Failure to satisfy regulatory requirements of our captive broker-dealer subsidiary could result in our inability to access tri-party repo funding through the FICC's GCF Repo service and could be harmful to our business operations.
BES is subject to ongoing membership and regulatory requirements as a member of the FICC and FINRA and as an SEC registered broker-dealer that include but are not limited to trade practices, use and safekeeping of funds and securities, capital structure, recordkeeping and conduct of directors, officers and employees. Additionally, as a self-clearing, registered broker-dealer, BES is subject to minimum net capital requirements. Our ability to access tri-party repo funding through the FICC's GCF Repo service, which represents a significant portion of our total borrowing capacity, and our ability to conduct self-clearing of our investment and funding activity through BES are reliant on BES's ability to continually meet these regulatory and membership requirements. If BES were to lose its memberships in FICC and FINRA or its status as a self-clearing registered broker-dealer, we may be unable to find alternative sources of financing on favorable terms and we may experience business interruptions as we attempt to transfer custody and clearing activities to alternative providers that would be harmful to our business.
Loss of our exemption from regulation pursuant to the Investment Company Act would adversely affect us.
We conduct our business so as not to become regulated as an investment company under the Investment Company Act in reliance on the exemption provided by Section 3(c)(5)(C) of the Investment Company Act. Section 3(c)(5)(C), as interpreted by the staff of the SEC, requires that: (i) at least 55% of our investment portfolio consists of "mortgages and other liens on and interest in real estate," or "qualifying real estate interests," and (ii) at least 80% of our investment portfolio consists of qualifying real estate interests plus "real estate-related assets."
The specific real estate related assets that we acquire are limited by the provisions of the Investment Company Act and the rules and regulations promulgated thereunder. In satisfying the 55% requirement, we treat Agency RMBS issued with respect to an underlying pool of mortgage loans in which we directly or indirectly hold all the certificates issued by the pool ("whole pool" securities) as qualifying real estate interests based on pronouncements of the SEC staff. We treat partial pool securities, CRT and other mortgage related securities as real estate-related assets. Consequently, our ability to satisfy the exemption under the Investment Company Act is dependent upon our ability to acquire and hold on a continuous basis a sufficient amount of whole pool securities. The availability of whole pool securities may be adversely impacted by a variety of factors, including GSE pooling practices, which can change over time, housing finance reform initiatives and competition for whole pool securities with other mortgage REITs.
Additionally, if the SEC determines that any of our securities are not qualifying interests in real estate or real estate-related assets, otherwise believes we do not satisfy the above exceptions or changes its interpretation with respect to these securities or the above exceptions, we could be required to restructure our activities or sell certain of our assets. As such, we cannot guarantee that we will be able to acquire or hold enough whole pool securities to maintain our exemption under the Investment Company Act, and our compliance with these requirements may at times lead us to adopt less efficient methods of investing in certain securities or to forego acquiring more desirable securities. Importantly, if we fail to qualify for this exemption, our ability to use leverage would be substantially reduced and we would be unable to conduct our business as we currently conduct it, which could materially and adversely affect our business.
New legislation or administrative or judicial action could make it more difficult or impossible for us to remain qualified as a REIT or it could otherwise adversely affect REITs and their stockholders.
The present U.S. federal income tax treatment of REITs may be modified, possibly with retroactive effect, by legislative, judicial or administrative action at any time, which could affect our ability to maintain our REIT status and/or the federal income tax treatment of an investment in us. The federal income tax rules dealing with REITs constantly are under review by persons involved in the legislative process, the IRS and the U.S. Treasury Department, which results in statutory changes as well as frequent revisions to regulations and interpretations. Revisions in Federal tax laws and interpretations thereof could affect or cause us to change our investments and affect the tax considerations of an investment in us.
Risks Related to Our Common Stock
The market price and trading volume of our common stock may be volatile.
The market price and trading volume of our common stock may be highly volatile and subject to wide fluctuations. If the market price of our common stock declines significantly, stockholders may be unable to resell shares at a gain. Furthermore, fluctuations in the trading price of our common stock may adversely affect the liquidity of our common stock and our ability to raise additional equity capital. Price fluctuations may result in our stock trading below our reported net tangible book value per share for extended periods of time. Variations in the price of our common stock can be affected by any one of the risk factors described herein. Variations may also occur due to a variety of factors unrelated to our financial performance, such as:
• general market and economic conditions, including actual and anticipated changes in interest rates and mortgage spreads;
• changes in government policy, rules and regulations applicable to mortgage REITs, including tax laws, financial accounting and reporting standards, and exemptions from the Investment Company Act of 1940, as amended;
• actual or anticipated variations in our quarterly operating results as well as relative to levels expected by securities analysts;
• issuance of shares of common stock or securities convertible into common stock, which may be issued at a price below tangible net book value per share of common stock;
• changes in market valuations of similar companies;
• adverse market reaction to any increased indebtedness we incur in the future or issuance of preferred stock senior in priority to our common stock;
• actions by stockholders, individually or collectively;
• additions or departures of key management personnel;
• speculation in the press or investment community;
• actual or anticipated changes in our dividend policy; and
• changes to our targeted investments or investment guidelines.
We have not established a minimum dividend payment level and may be unable to pay dividends in the future.
We intend to pay monthly dividends to our common stockholders in an amount that all or substantially all our taxable income is distributed within the limits prescribed by the Internal Revenue Code. However, we have not established a minimum dividend payment level and the amount of our dividend may fluctuate. Our ability to pay dividends may be adversely affected by the risk factors described herein. All distributions will be made at the discretion of our Board and will depend on our earnings and financial condition, the requirements for REIT qualification and such other factors as our Board deems relevant from time to time. Additionally, our preferred stock has a preference on dividend payments and liquidating distributions that could limit our ability to pay dividends to the holders of our common stock. Therefore, we may not be able to make distributions in the future or our Board may change our dividend policy.
Our certificate of incorporation generally does not permit ownership of more than 9.8% of our common or capital stock and attempts to acquire amounts above this limit will be ineffective unless an exemption is granted by our Board of Directors.
For the purpose of complying with REIT ownership limitations under the Internal Revenue Code, our amended and restated certificate of incorporation generally prohibits beneficial or constructive ownership by any person of more than 9.8% of our common or capital stock (by value or by number of shares, whichever is more restrictive), unless such person is exempted by our Board. Such constructive ownership rules are complex and may cause the outstanding stock owned by a group of related individuals or entities to be deemed to be constructively owned by one individual or entity. As a result, the acquisition of 9.8% or less of the outstanding stock by an individual, entity or group could result in constructive ownership greater than 9.8% and thus be subject to our amended and restated certificate of incorporation's ownership limit. Any attempt to own or transfer shares of our common or preferred stock more than the ownership limit without the consent of the Board will result in the shares being automatically transferred to a charitable trust or, if the transfer to a charitable trust would not be effective, the transfer will be treated as invalid from the outset. This ownership limit could also delay or prevent a transaction or a change in our control that might involve a premium price for our common stock or otherwise be in the best interest of our stockholders.
We are internally managed with the principal objective of generating favorable long-term stockholder returns with a substantial yield component. 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. We fund our investments primarily through collateralized borrowings structured as repurchase agreements. We operate in a manner to qualify to be taxed as a REIT under the Internal Revenue Code.
We employ an active management strategy that is dynamic and responsive to evolving market conditions. The composition of our portfolio and our investment, funding, and hedging strategies are tailored to reflect our analysis of market conditions and the relative values of available options. Market conditions are influenced by a variety of factors, including interest rates, prepayment expectations, liquidity, housing prices, unemployment rates, general economic conditions, government participation in the mortgage market, regulations and relative returns on other assets.
Trends and Recent Market Impacts
Market Trends
Agency RMBS outperformed domestic fixed income alternatives in 2025, and this favorable asset class performance, coupled with AGNC's active portfolio management strategies, drove AGNC's best-in-class economic return for the year. 1 In 2025, the Bloomberg US Mortgage Backed Securities Index (the "Agency MBS Index"), which represents the entire Agency RMBS market, generated a total return of 8.6% for the year, its best annual performance since 2002. Also notable, given the similar credit profile, the Agency MBS Index outperformed the Bloomberg US Treasury Index by 2.3 percentage points, or 36%.
A number of factors that materialized over the course of the year catalyzed the strong performance of Agency RMBS, including:
• The Federal Reserve (the "Fed") shifted monetary policy toward lower short-term interest rates and greater accommodation, which contributed to the positive performance of all domestic fixed income asset classes.
• Greater fiscal policy clarity and the stable supply outlook for U.S. Treasury securities contributed to reduced interest rate volatility.
• Improved conditions in short-term funding markets, particularly late in the year, benefited Agency RMBS, as the Fed announced an expansion of its balance sheet through reserve management purchases of short-term Treasury bills, as well as other actions that improved the functionality and accessibility of its Standing Repo Program.
• The Administration articulated a framework for GSE reform that focused on reducing Agency mortgage spreads, maintaining mortgage market stability, and improving housing affordability.
Collectively, these factors—along with sizable Agency MBS purchases by the GSEs later in the year—led to lower Agency RMBS spread volatility, tighter mortgage spreads to benchmark rates, and the outperformance of Agency RMBS relative to other fixed income asset classes.
As we enter 2026, many of these favorable dynamics remain in place, and the Administration's focus on housing affordability and maintaining mortgage market stability provide a favorable backdrop for mortgage spreads. Looking ahead, the supply and demand outlook for Agency RMBS appears well balanced. At current interest rate levels, the net supply of new Agency RMBS in 2026 is expected to be approximately $200 billion, which, when coupled with $200 billion of anticipated runoff of the Fed's Agency RMBS holdings, yields approximately $400 billion of total net supply to be absorbed by the market in 2026, an amount comparable to the prior two years. Offsetting this supply, demand for Agency RMBS should remain robust, assuming conditions remain generally consistent with current expectations. GSE purchases have the potential to account for approximately half of the projected 2026 supply, and banks, money managers, foreign investors, and REITs are expected to continue to be active purchasers of Agency RMBS.
Taken together, this favorable fundamental and technical backdrop for Agency RMBS is supportive of our positive outlook.
Portfolio and Summary Financial Highlights
For 2025, AGNC generated total comprehensive income of $1.74 per diluted common share and an economic return of 22.7% on tangible common equity, comprised of $1.44 in dividends declared and a $0.47 increase in tangible net book value per common share. This compares to total comprehensive income of $0.84 per diluted common share and an economic return of 13.2% for 2024, comprised of $1.44 in dividends and a $0.29 decline in tangible net book value per common share.
Net spread and dollar roll income (a non-GAAP measure) per diluted common share decreased to $1.50 in 2025 from $1.88 in 2024. The decline was primarily driven by lower swap income resulting from the maturity of legacy interest rate swaps with low fixed pay rates, as well as a timing mismatch between the issuance and deployment of $345 million and $2.0 billion of new preferred and common equity capital, respectively, during the year.
Another driver of net spread and dollar roll income in 2025 was the level of unhedged short-term debt in our funding mix. As of December 31, 2025, our hedge ratio was 77%, reflecting the level of interest rate swap and U.S. Treasury hedges (excluding option based-hedges) relative to total funding liabilities, compared to 88% as of December 31, 2024. Our average hedge ratio for 2025 (excluding option based-hedges) was approximately 82%, compared to 93% for 2024. This decline reflects the shift toward a more accommodative monetary policy environment and moderately reduced our net spread and dollar roll income in the near term, while positioning AGNC's earnings profile to benefit from rate cuts as they occur.
Our investment portfolio totaled $94.8 billion as of December 31, 2025, an increase of $21.5 billion for the year, including a $6.1 billion increase in our TBA position to $13.0 billion. As of December 31, 2025, 30-year fixed-rate Agency RMBS and TBAs represented 95% of our investment portfolio, largely unchanged from December 31, 2024.
The weighted average coupon of our portfolio, excluding TBAs, increased to 5.19% as of December 31, 2025, compared to 5.03% as of December 31, 2024. Including TBAs, the weighted average coupon of our fixed-rate portfolio increased to 5.12%, compared to 5.02% as of December 31, 2024. At the same time, the portion of our fixed-rate investment portfolio, including TBAs, with favorable prepayment attributes 2 increased to 76% as of December 31, 2025, compared to 74% as of December 31, 2024.
The average projected life Constant Prepayment Rate ("CPR") for our portfolio increased to 9.6% as of December 31, 2025, from 7.7% as of December 31, 2024, largely reflecting a 70 basis point decline in the average 30-year mortgage rate, which was 6.16% at year end. Actual CPRs averaged 8.4% for the year, compared to 7.5% for the prior year.
As of December 31, 2025, our "at risk" leverage was 7.2x tangible equity, unchanged from December 31, 2024. Average leverage for the year was 7.4x, compared to 7.2x for the prior year. We ended the year with a large liquidity position of $7.6 billion in unencumbered cash and Agency RMBS, representing 64% of tangible equity, compared to $6.1 billion and 66%, respectively, as of December 31, 2024.
Lastly, given the convexity profile of our assets and the significant decline in interest rate volatility, we increased our receiver swaption position by $6.9 billion during the year to provide additional protection in a declining rate environment. Our duration gap, which measures the estimated difference between the interest rate sensitivity of our assets and liabilities including hedges, extended slightly to 0.4 years as of year end, compared to 0.3 years as of December 31, 2024.
Looking ahead, in addition to the favorable fundamental and technical backdrop for Agency RMBS, we expect net spread and dollar roll income to benefit from several factors, including lower funding costs resulting from the September, October and December 2025 rate cuts totaling 75 basis points, potential future rate cuts, greaterstability in funding markets, and a shift in our hedge mix toward a greater share of swap-based hedges in the fourth quarter of 2025. Notwithstanding these favorable factors, higher hedging costs due to the maturity of legacy lower pay-rate swaps, as well as reduced mortgage spreads, if they materialize in 2026, could offset some or all of these benefits.
For information regarding non-GAAP financial measures, including reconciliations to the most comparable GAAP measure, please refer to Results of Operations included in this MD&A below. For information regarding the sensitivity of our tangible net book value per common share to changes in interest rates and mortgage spreads, please refer to Item 7A. Quantitative and Qualitative Disclosures about Market Risk in this form 10-K .
1. Economic return represents the sum of the change in tangible net book value per common share and dividends declared per share of common stock during the period over beginning tangible net book value per common share. Peer group includes Annaly Capital Management, Inc. ("NLY"), ARMOUR Residential REIT, Inc. ("ARR"), Dynex Capital, Inc. ("DX"), Invesco Mortgage Capital Inc. ("IVR"), Orchid Island Capital, Inc. ("ORC"), and Two Harbors Investment Corp. ("TWO")
2. Agency RMBS with favorable prepayment attributes include: (i) specified pools backed by lower balance loans with original loan balances of up to $200K, HARP pools (defined as pools that were issued between May 2009 and December 2018 and backed by 100% refinance loans with original LTVs ≥ 80%), and pools backed by loans 100% originated in New York and Puerto Rico and (ii) other pools backed by loans with credit, loan balances, geographies, occupancy types, and other characteristics that exhibit favorable prepayment behavior.
Market Information
The following table summarizes benchmark interest rates and prices of generic fixed rate Agency RMBS as of each date presented below:
Interest Rate/Security Price 1
Dec. 31, 2024
Mar. 31, 2025
June 30, 2025
Sept. 30, 2025
Dec. 31, 2025
Dec. 31, 2025
Dec. 31, 2024
Target Federal Funds Rate:
Target Federal Funds Rate - Upper Band
bps
SOFR:
SOFR Rate
bps
SOFR Interest Rate Swap Rate:
2-Year Swap
bps
5-Year Swap
bps
10-Year Swap
bps
30-Year Swap
bps
U.S. Treasury Security Rate:
2-Year U.S. Treasury
bps
5-Year U.S. Treasury
bps
10-Year U.S. Treasury
bps
30-Year U.S. Treasury
bps
30-Year Fixed Rate Agency Price:
15-Year Fixed Rate Agency Price:
1. Price information is for generic instruments only and is not reflective of our specific portfolio holdings. Price information is as of 3:00 p.m. (EST) on such date and can vary by source. Price information is sourced from Barclays. Interest rate information is sourced from Bloomberg.
The following table summarizes mortgage and credit spreads as of each date presented below:
Mortgage Rate/Credit Spread
Dec. 31, 2024
Mar. 31, 2025
June 30, 2025
Sept. 30, 2025
Dec. 31, 2025
Dec. 31, 2025
Dec. 31, 2024
Mortgage Rate: 1
30-Year Agency Current Coupon Yield to 5-Year U.S. Treasury Spread
30-Year Agency Current Coupon Yield to 10-Year U.S. Treasury Spread
30-Year Agency Current Coupon Yield to 5/10-Year U.S. Treasury Spread
30-Year Agency Current Coupon Yield to 5/10-Year Swap Spread
30-Year Agency Current Coupon Yield to 3/5/10-Year U.S. Treasury Spread
30-Year Agency Current Coupon Yield to 3/5/10-Year Swap Spread
30-Year Agency Current Coupon Yield
bps
30-Year Mortgage Rate
bps
Credit Spread (in bps): 2
CRT M2
CMBS AAA
CDX IG
CDX HY
1. 30-Year Current Coupon Yield represents the yield on new production Agency RMBS. 30-Year Current Coupon Yields are sourced from Bloomberg and 30-Year Mortgage Rates are sourced from Clear Blue.
2. CRT and CDX spreads sourced from JP Morgan. CMBS spreads are the average of spreads sourced from Bank of America, JP Morgan and Wells Fargo.
FINANCIAL CONDITION
As of December 31, 2025 and 2024, our investment portfolio totaled $94.8 billion and $73.3 billion, respectively, consisting of: $81.1 billion and $65.5 billion Agency RMBS, at fair value, respectively; $13.0 billion and $6.9 billion net TBA securities, at fair value, respectively; $0.6 billion and $0.9 billion CRT, non-Agency RMBS and CMBS, at fair value, respectively; and other mortgage credit investments of $70 million and $64 million, respectively, which we account for under the equity method of accounting. The following table is a summary of our investment securities (including TBA securities) as of December 31, 2025 and 2024 (dollars in millions):
December 31, 2025
December 31, 2024
Investment Securities (Includes TBAs) 1
Amortized Cost
Fair Value
Average Coupon
Amortized Cost
Fair Value
Average Coupon
Fixed rate Agency RMBS and TBA securities:
≤ 15-year:
≤ 15-year RMBS
15-year TBA securities
Total ≤ 15-year
20-year RMBS
30-year:
30-year RMBS
30-year TBA securities, net 2
Total 30-year
Total fixed rate Agency RMBS and TBA securities
Adjustable rate Agency RMBS
Multifamily
CMO Agency RMBS:
CMO
Interest-only strips
Principal-only strips
Total CMO Agency RMBS 3
Total Agency RMBS and TBA securities 3
Non-Agency RMBS 1,3
CMBS 3
CRT
Total investment securities 3
1. Table excludes other mortgage credit investments of $70 million and $64 million as of December 31, 2025 and 2024, respectively.
2. TBA securities are presented net of long and short positions. For further details of our TBA securities refer to Note 5 of our Consolidated Financial Statements in this Form 10-K
3. Average coupon excludes interest-only and principal-only securities.
TBA securities are recorded as derivative instruments in our accompanying consolidated financial statements, and our TBA dollar roll transactions represent a form of off-balance sheet financing. As of December 31, 2025 and 2024, our TBA securities had a net carrying value of $71 million and $(26) million, respectively, reported in derivative assets/(liabilities) on our accompanying consolidated balance sheets. The net carrying value represents the difference between the fair value of the underlying security in the TBA contract and the price to be paid or received for the underlying security.
As of December 31, 2025 and 2024, the weighted average yield on our investment securities (excluding TBA and forward settling securities) was 4.93% and 4.77%, respectively.
The following tables summarize certain characteristics of our fixed rate Agency RMBS portfolio, inclusive of TBA securities, as of December 31, 2025 and 2024 (dollars in millions):
December 31, 2025
Includes Net TBA Position
Excludes Net TBA Position
Fixed Rate Agency RMBS and TBA Securities
Par Value
Amortized
Cost
Fair Value
Specified Pool % 1
Weighted Average Coupon
Amortized
Cost Basis
Weighted Average
Projected
CPR 2
Yield 2
Age (Months)
Fixed rate
≤ 15-year:
Total ≤ 15-year
20-year:
Total 20-year:
30-year:
Total 30-year
Total fixed rate
1. Specified pools include pools backed by lower balance loans with original loan balances of up to $200K, HARP pools (defined as pools that were issued between May 2009 and December 2018 and backed by 100% refinance loans with original LTVs ≥ 80%), and pools backed by loans 100% originated in New York and Puerto Rico. As of December 31, 2025, lower balance specified pools had a weighted average original loan balance of $181,000 and $142,000 for 15-year and 30-year securities, respectively, and HARP pools had a weighted average original LTV of 128% and 142% for 15-year and 30-year securities, respectively.
2. Portfolio yield incorporates a projected life CPR based on forward rate assumptions as of December 31, 2025.
December 31, 2024
Includes Net TBA Position
Excludes Net TBA Position
Fixed Rate Agency RMBS and TBA Securities
Par Value
Amortized
Cost
Fair Value
Specified Pool % 1
Weighted Average Coupon
Amortized
Cost Basis
Weighted Average
Projected
CPR 2
Yield 2
Age (Months)
Fixed rate
≤ 15-year:
Total ≤ 15-year
20-year:
Total 20-year:
30-year:
Total 30-year
Total fixed rate
1. See Note 1 of the preceding table for specified pool composition. As of December 31, 2024, lower balance specified pools had a weighted average original loan balance of $188,000 and $148,000 for 15-year and 30-year securities, respectively, and HARP pools had a weighted average original LTV of 128% and 141% for 15-year and 30-year securities, respectively.
2. Portfolio yield incorporates a projected life CPR based on forward rate assumptions as of December 31, 2024.
For additional details regarding our CRT and non-Agency securities, including credit ratings, as of December 31, 2025 and 2024, please refer to Note 3 of our Consolidated Financial Statements included under Item 8 of this Form 10-K.
SUMMARY OF CRITICAL ACCOUNTING ESTIMATES
Our critical accounting estimates involve estimates that require management to make judgments that are subjective in nature. We rely on our experience and analysis of historical and current market data to arrive at what we believe to be reasonable estimates. Under different conditions, we could report materially different amounts based on such estimates. For additional information regarding our significant accounting policies please refer to Note 2 of our Consolidated Financial Statements included under Item 8 of this Form 10-K.
Interest Income
The effective yield on our Agency RMBS and non-Agency securities of high credit quality is highly impacted by our estimate of future prepayments. We accrue interest income based on the outstanding principal amount and contractual terms of these securities, and we amortize or accrete premiums and discounts associated with our purchase of these securities into interest income over their projected lives, incorporating scheduled contractual payments and estimated prepayments, using the effective interest method. The weighted average cost basis of our securities as of December 31, 2025 was 101.2% of par value and may vary materially across different securities; therefore, changes in our actual or projected prepayments can significantly alter the effective yield on our assets.
Future prepayment rates are difficult to predict, and we rely on a third-party service provider and our experience and analysis of historical and current market data to arrive at what we believe to be reasonable estimates. Our third-party service provider estimates prepayment rates over the remaining life of our securities using models that incorporate the forward yield curve, current mortgage rates, mortgage rates on the outstanding loans, age and size of the outstanding loans, loan-to-value ratios, interest rate volatility and other factors. We review the estimated prepayment rates for reasonableness, giving consideration to historical prepayment rates, current market conditions and other factors we believe are likely to impact the rate of prepayments on our portfolio, and based on our judgment we may adjust the third-party estimates.
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 prepayment estimates and (ii) actual prepayments to date and current estimates of future prepayments. When the actual and estimated future prepayment experience differs from our prior estimates, we are required to record a current-period adjustment to the amortization or accretion of premiums and discounts for the cumulative difference in the effective yield from inception through the reporting date. We commonly refer to this adjustment as "catch-up" premium amortization cost/benefit.
The most significant factor impacting prepayment rates on our securities is changes to long-term interest rates. Prepayment rates generally increase when interest rates fall and decrease when interest rates rise. Item 7A. Quantitative and Qualitative Disclosures About Market Risk in this Form 10-K includes the estimated weighted average projected CPR of our investments and the corresponding weighted average yield on our investments should interest rates instantaneously go up or down by 25, 50, and 75 basis points. However, there are a variety of other factors that may impact the rate of prepayments on our securities. Consequently, our actual experience and future estimates of prepayments could differ materially from our estimates.
At the time we purchase CRT and non-Agency securities that are not of high credit quality, we determine an effective interest rate based on our estimate of the timing and amount of cash flows and our cost basis. On at least a quarterly basis, we review the estimated cash flows and make appropriate adjustments based on input and analysis received from external sources, internal models, our judgment about interest rates, prepayment rates, including collateral call provisions, timing and amount of estimated credit losses, and other factors. Any resulting changes in effective yield are recognized prospectively based on the current amortized cost of the investment as adjusted for credit impairment, if any.
RESULTS OF OPERATIONS
Non-GAAP Financial Measures
In addition to the results presented in accordance with GAAP, our results of operations discussed below include certain non-GAAP financial information, including "economic interest income," "economic interest expense," and "net spread and dollar roll income available to common stockholders" and the related per common share measures and certain financial metrics derived from such non-GAAP information.
"Economic interest income" is measured as interest income (GAAP measure), adjusted to (i) exclude retrospective "catch-up" adjustments to premium amortization cost associated with changes in projected CPR estimates and (ii) include TBA dollar roll implied interest income. "Economic interest expense" is measured as interest expense (GAAP measure) adjusted to include TBA dollar roll implied interest expense/benefit and interest rate swap periodic cost/income. "Net spread and dollar roll income available to common stockholders" is measured as comprehensive income (loss) available (attributable) to common stockholders (GAAP measure) adjusted to: (i) exclude gains/losses on investment securities recognized through net income and other comprehensive income and gains/losses on derivative instruments and other securities (GAAP measures); (ii) exclude retrospective "catch-up" adjustments to premium amortization cost associated with changes in projected CPR estimates; and (iii) include interest rate swap periodic income/cost, TBA dollar roll income and other interest income/expense. As defined, "Net spread and dollar roll income available to common stockholders" includes (i) the components of "economic interest income" and "economic interest expense", plus (ii) other interest income/expense, and less (iii) total operating expenses and dividends on preferred stock (GAAP measures).
By providing such measures, in addition to the related GAAP measures, we believe we give greatertransparency into the information used by our management in its financial and operational decision-making. We also believe it is important for users of our financial information to consider information related to our current financial performance without the effects of certain measures and one-time events that are not necessarily indicative of our current investment portfolio performance and operations.
Specifically, with respect to "net spread and dollar roll income available to common stockholders" and its components, "economic interest income" and "economic interest expense," we believe the inclusion of TBA dollar roll income is meaningful because TBAs, which are accounted for under GAAP as derivative instruments with gains and losses recognized in other gain
(loss) in our consolidated statement of comprehensive income, are economically equivalent to holding and financing generic Agency RMBS using short-term repurchase agreements. Similarly, we believe that the inclusion of periodic interest rate swap settlements is meaningful because interest rate swaps are the primary instruments we use to economically hedge against fluctuations in our borrowing costs, and their inclusion is more indicative of our total cost of funds than interest expense alone. Additionally, we believe the exclusion of "catch-up" premium amortization adjustments is meaningful because it excludes the cumulative effect from prior reporting periods due to current changes in future prepayment expectations and, therefore, is more indicative of the current earnings potential of our investment portfolio.
However, because such measures are incomplete measures of our financial performance and involve differences from results computed in accordance with GAAP, they should be considered as supplementary to, and not as a substitute for, results computed in accordance with GAAP. In addition, because not all companies use identical calculations, our presentation of such non-GAAP measures may not be comparable to other similarly titled measures of other companies.
Selected Financial Data
The following selected financial data is derived from our annual financial statements for the three years ended December 31, 2025. The selected financial data should be read in conjunction with the more detailed information contained in Item 8. Financial Statements and in this Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (in millions, except per share amounts):
December 31,
Balance Sheet Data
Investment securities, at fair value of $81,719, $66,348 and 54,824, respectively, and other mortgage credit investments
Total assets
Repurchase agreements and other debt
Total liabilities
Total stockholders' equity
Net book value per common share 1
Tangible net book value per common share 2
Fiscal Year
Statement of Comprehensive Income Data
Interest income
Interest expense
Net interest income (expense)
Other gain, net
Operating expenses
Net income
Dividends on preferred stock
Net income available to common stockholders
Net income
Other comprehensive income (loss), net
Comprehensive income
Dividends on preferred stock
Comprehensive income available to common stockholders
Weighted average number of common shares outstanding - basic
Weighted average number of common shares outstanding - diluted
Net income per common share - basic
Net income per common share - diluted
Comprehensive income per common share - basic
Comprehensive income per common share - diluted
Dividends declared per common share
Fiscal Year
Other Data (Unaudited) *
Average investment securities - at par
Average investment securities - at cost
Net TBA portfolio - at par (as of period end) 3
Net TBA portfolio - at cost (as of period end) 3
Net TBA portfolio - at market value (as of period end) 3
Net TBA portfolio - at carrying value (as of period end) 3,4
Average net TBA dollar roll position - at cost
Average total assets - at fair value
Average repurchase agreements and other debt outstanding 5
Average stockholders' equity 6
Average tangible net book value "at risk" leverage 7
Tangible net book value "at risk" leverage (as of period end) 8
Economic return on tangible common equity 9
Expenses % of average total assets
Expenses % of average assets, including average net TBA position
Expenses % of average stockholders' equity
* Except as noted below, average numbers for each period are weighted based on days on our books and records.
1. Net book value per common share is calculated as total stockholders' equity, less preferred stock liquidation preference, divided by number of common shares outstanding as of period end.
2. Tangible net book value per common share excludes goodwill.
3. Includes net TBA dollar roll position and, if applicable, forward settling securities.
4. The carrying value of our net TBA position represents the difference between the market value and the cost basis of the TBA contract as of period-end and is reported in derivative assets/(liabilities), at fair value on our accompanying consolidated balances sheets.
5. Amount represents the daily weighted average repurchase agreements outstanding for the period used to fund our investment securities and other debt. Amount excludes U.S. Treasury repurchase agreements and TBA contracts. Other debt includes debt of consolidated VIEs.
6. Average stockholders' equity calculated as average month-ended stockholders' equity during the period.
7. Average tangible net book value "at risk" leverage is calculated by dividing the sum of daily weighted average repurchase agreements used to fund our investment securities, other debt, and TBA and forward settling securities (at cost) (collectively "mortgage borrowings") outstanding for the period by the sum of average stockholders' equity adjusted to exclude goodwill for the period. Leverage excludes U.S. Treasury repurchase agreements.
8. Tangible net book value "at risk" leverage as of period end is calculated by dividing the sum of mortgage borrowings outstanding and receivable/payable for unsettled investment securities as of period end by the sum of total stockholders' equity adjusted to exclude goodwill as of period end. Leverage excludes U.S. Treasury repurchase agreements.
9. Economic return on tangible common equity represents the sum of the change in tangible net book value per common share and dividends declared per share of common stock during the period over beginning tangible net book value per common share.
Economic Interest Income and Asset Yields
The following table summarizes our economic interest income (a non-GAAP measure) for fiscal years 2025, 2024 and 2023, which includes the combination of interest income (a GAAP measure) on our holdings reported as investment securities on our consolidated balance sheets, adjusted to exclude estimated "catch-up" premium amortization adjustments for the cumulative effect from prior reporting periods due to changes in our CPR forecast, and implied interest income on our TBA securities (dollars in millions):
Fiscal Year
Amount
Yield
Amount
Yield
Amount
Yield
Interest income:
Cash/coupon interest income
Net premium amortization benefit (cost)
Interest income (GAAP measure)
Estimated "catch-up" premium amortization cost (benefit) due to change in CPR forecast
TBA dollar roll income - implied interest income 1,2
Economic interest income (non-GAAP measure) 3
Weighted average actual portfolio CPR for investment securities held during the period
Weighted average projected CPR for the remaining life of investment securities held as of period end
30-year fixed rate mortgage rate as of period end 4
10-year U.S. Treasury rate as of period end 4
1. Reported in gain (loss) on derivatives instruments and other securities, net in the accompanying consolidated statements of operations.
2. Implied interest income from TBA dollar roll transactions is computed as the sum of (i) TBA dollar roll income and (ii) estimated TBA implied funding cost (see Economic Interest Expense and Aggregate Cost of Funds below). TBA dollar roll income represents the price differential, or "price drop," between the TBA price for current month settlement versus the TBA price for forward month settlement and is the economic equivalent to interest income on the underlying Agency securities, less an implied funding cost, over the forward settlement period. Amount is net of TBAs used for hedging purposes. Amount excludes TBA mark-to-market adjustments.
3. The combined asset yield is calculated on a weighted average basis based on our average investment and TBA balances outstanding during the period and their respective yields.
4. 30-year fixed rate mortgage rates are sourced from Optimal Blue. 10-year U.S. Treasury rates are sourced from Bloomberg.
The principal elements impacting our economic interest income are the average size of our investment portfolio and the average yield on our securities. The following table includes a summary of the estimated impact of each of these elements on our economic interest income for fiscal years 2025 and 2024 compared to the prior year period (in millions):
Impact of Changes in the Principal Elements Impacting Economic Interest Income
Due to Change in Average
Fiscal Year 2025 vs 2024
Total Increase /
(Decrease)
Portfolio
Size
Asset
Yield
Interest Income (GAAP measure)
Estimated "catch-up" premium amortization due to change in CPR forecast
Our average investment portfolio (at cost), inclusive of TBAs, increased 23% and 9% for fiscal years 2025 and 2024, respectively, primarily due to an increase in our capital base. The average yield on our investment portfolio, including TBA implied asset yields and excluding "catch-up" premium amortization, increased 20 and 59 basis points for fiscal years 2025 and 2024, respectively, largely as a result of shifting our asset portfolio from lower coupon holdings toward a greater share of higher coupon, specified pools.
Leverage
Our primary measure of leverage is our tangible net book value "at risk" leverage ratio, which is measured as the sum of our repurchase agreements and other debt used to fund our investment securities and net TBA and forward settling securities position (at cost) (together referred to as "mortgage borrowings") and our net receivable/payable for unsettled investment securities, divided by our total stockholders' equity adjusted to exclude goodwill.
We include our net TBA position in our measure of leverage because a forward contract to acquire Agency RMBS in the TBA market carries similar risks to Agency RMBS purchased in the cash market and funded with on-balance sheet liabilities. Similarly, a TBA contract for the forward sale of Agency securities has substantially the same effect as selling the underlying Agency RMBS and reducing our on-balance sheet funding commitments. (Refer to Liquidity and Capital Resources in this Form 10-K for further discussion of TBA securities and dollar roll transactions). Repurchase agreements used to fund short-term investments in U.S. Treasury securities ("U.S. Treasury Repo") are excluded from our measure of leverage due to the temporary and highly liquid nature of these investments. The following table presents a summary of our leverage ratios for the periods listed (dollars in millions):
Investment Securities Repurchase Agreements and Other Debt 1
Net TBA Position
Long/(Short) 2
Average Tangible Net Book Value
"At Risk" Leverage during the Period 3
Tangible Net Book Value "At Risk" Leverage
Period End 4
Quarter Ended
Average Daily
Amount
Maximum
Daily Amount
Ending
Amount
Average Daily
Amount
Ending
Amount
December 31, 2025
September 30, 2025
June 30, 2025
March 31, 2025
December 31, 2024
September 30, 2024
June 30, 2024
March 31, 2024
December 31, 2023
September 30, 2023
June 30, 2023
March 31, 2023
1. Other debt includes debt of consolidated VIEs. Amounts exclude U.S. Treasury Repo agreements.
2. Daily average and ending net TBA position outstanding measured at cost. Includes forward settling non-Agency securities.
3. Average tangible net book value "at risk" leverage during the period represents the sum of our daily weighted average repurchase agreements and other debt used to fund acquisitions of investment securities and net TBA and forward settling securities position outstanding, divided by the sum of our average month-ended stockholders' equity, adjusted to exclude goodwill.
4. Tangible net book value "at risk" leverage as of period end represents the sum of our repurchase agreements and other debt used to fund acquisitions of investments securities, net TBA and forward settling securities position (at cost), and net receivable/payable for unsettled investment securities outstanding as of period end, divided by total stockholders' equity, adjusted to exclude goodwill as of period end.
Economic Interest Expense and Aggregate Cost of Funds
The following table summarizes our economic interest expense and aggregate cost of funds (non-GAAP measures) for fiscal years 2025, 2024 and 2023 (dollars in millions), which includes the combination of interest expense on repurchase agreements and other debt used to fund acquisitions of investment securities (GAAP measure), implied financing cost of our TBA securities and interest rate swap periodic income:
Fiscal Year
Economic Interest Expense and Aggregate Cost of Funds 1
Amount
Cost of Funds
Amount
Cost of Funds
Amount
Cost of Funds
Investment securities repurchase agreement and other debt - interest expense (GAAP measure)
TBA dollar roll income - implied interest expense 2,3
Economic interest expense - before interest rate swap periodic income, net 4
Interest rate swap periodic income, net 2,5
Total economic interest expense (non-GAAP measure)
1. Amounts exclude interest rate swap termination fees and variation margin settlements paid or received, forward starting swaps and the impact of other supplemental hedges, such as swaptions and U.S. Treasury positions.
2. Reported in gain (loss) on derivative instruments and other securities, net in our consolidated statements of comprehensive income.
3. The implied funding cost (benefit) of TBA dollar roll transactions is determined using the price differential, or "price drop," between the TBA price for current month settlement versus the TBA price for forward month settlement and market based assumptions regarding the "cheapest-to-deliver" collateral that can be delivered to satisfy the TBA contract, such as the anticipated collateral's weighted average coupon, weighted average maturity and projected 1-month CPR. The average implied funding cost (benefit) for all TBA transactions is weighted based on our daily average TBA balance outstanding for the period.
4. The combined cost of funds for total mortgage borrowings outstanding, before interest rate swap periodic income, is calculated on a weighted average basis based on average investment securities repurchase agreements, other debt and TBA securities outstanding during the period and their respective cost of funds.
5. Interest rate swap periodic income is measured as a percent of average mortgage borrowings outstanding for the period.
The principal elements impacting our economic interest expense are (i) the size of our average mortgage borrowings and interest rate swap portfolio outstanding during the period, (ii) the average interest rate on our mortgage borrowings and (iii) the average net interest rate paid/received on our interest rate swaps. The following table includes a summary of the estimated impact of these elements on our economic interest expense for fiscal years 2025 and 2024 compared to the prior year period (in millions):
Impact of Changes in the Principal Elements of Economic Interest Expense
Due to Change in Average
Fiscal Year 2025 vs 2024
Total Increase / (Decrease)
Borrowing / Swap Balance
Borrowing / Swap Rate
Investment securities repurchase agreement and other debt interest expense
TBA dollar roll income - implied interest expense
Interest rate swap periodic income/cost
Total change in economic interest expense
Due to Change in Average
Fiscal Year 2024 vs 2023
Total Increase / (Decrease)
Borrowing / Swap Balance
Borrowing / Swap Rate
Investment securities repurchase agreement and other debt interest expense
TBA dollar roll income - implied interest benefit/expense
Interest rate swap periodic income/cost
Total change in economic interest benefit/expense
Our average mortgage borrowings, inclusive of TBAs, increased 25% and 11% for fiscal years 2025 and 2024, respectively, consistent with the increase to our average investment portfolio. The average interest rate on our mortgage borrowings, excluding the impact of interest rate swap periodic income, decreased 91 and increased 18 basis points for fiscal years 2025 and 2024, respectively, due to changes in short-term interest rates.
Interest rate swap periodic income declined for fiscal years 2025 and 2024, primarily due to higher pay rates on our pay-fixed swaps, largely reflecting the maturity of lower-cost legacy swaps, and lower receive rates. The ratio of interest rate swaps outstanding to mortgage borrowings also declined, reflecting a reduction in the Company's total hedge ratio and shifts in hedge composition. The following table summarizes our interest rate swaps outstanding during fiscal years 2025, 2024 and 2023 (dollars in millions). Amounts exclude forward starting swaps not yet in effect.
Fiscal Year
Average Ratio of Interest Rate Swaps (Excluding Forward Starting Swaps) to Mortgage Borrowings Outstanding
Average investment securities repo and other debt outstanding
Average net TBA dollar roll position outstanding - at cost
Average mortgage borrowings outstanding
Average notional amount of interest rate swaps outstanding (excluding forward starting swaps), net
Ratio of average interest rate swaps to mortgage borrowings outstanding
Average interest rate swap pay-fixed rate (excluding forward starting swaps)
Average interest rate swap receive-floating rate
Average interest rate swap net pay/(receive) rate
For fiscal years 2025, 2024 and 2023, we had an average forward starting net pay-fixed rate swap balance of $469 million, $672 million and $43 million, respectively. Forward starting interest rate swaps do not impact our economic interest expense and aggregate cost of funds until they commence accruing net interest settlements on their forward start dates.
Net Interest Spread
The following table presents a summary of our net interest spread (including the impact of TBA dollar roll income, interest rate swaps and excluding "catch-up" premium amortization) for fiscal years 2025, 2024 and 2023:
Fiscal Year
Investment and TBA Securities - Net Interest Spread
Average asset yield
Average aggregate cost of funds
Average net interest spread
Net Spread and Dollar Roll Income
The following table presents a reconciliation of net spread and dollar roll income available to common stockholders (non-GAAP measure) from comprehensive income (loss) available (attributable) to common stockholders (the most comparable GAAP financial measure) for fiscal years 2025, 2024 and 2023 (dollars in millions):
Fiscal Year
Comprehensive income available to common stockholders
Adjustments to exclude realized and unrealized (gains) losses reported through net income:
Realized loss on sale of investment securities, net
Unrealized (gain) loss on investment securities measured at fair value through net income, net
(Gain) loss on derivative instruments and other securities, net
Adjustment to exclude unrealized (gain) loss reported through other comprehensive income:
Unrealized (gain) loss on available-for-sale securities measure at fair value through other comprehensive income, net
Other adjustments:
Estimated "catch-up" premium amortization cost (benefit) due to change in CPR forecast 1
TBA dollar roll income, net 2
Interest rate swap periodic income, net 2
Other interest income (expense), net 2,3
Net spread and dollar roll income available to common stockholders (non-GAAP measure)
Weighted average number of common shares outstanding - basic
Weighted average number of common shares outstanding - diluted
Net spread and dollar roll income per common share - basic
Net spread and dollar roll income per common share - diluted
1. Reported in interest income in our consolidated statements of comprehensive income.
2. Reported in gain (loss) on derivative instruments and other securities, net in our consolidated statements of comprehensive income.
3. Other interest income (expense), net includes interest income on cash and cash equivalents; price alignment interest income (expense) ("PAI") on interest rate swap margin deposits posted by or (to) the Company; and other miscellaneous interest income (expense).
Gain (Loss) on Investment Securities, Net
The following table is a summary of our net gain (loss) on investment securities for fiscal years 2025, 2024 and 2023 (in millions):
Fiscal Year
Gain (Loss) on Investment Securities, Net 1
Loss on sale of investment securities, net
Unrealized gain (loss) on investment securities measured at fair value through net income, net 2
Unrealized gain (loss) on investment securities measured at fair value through other comprehensive income, net
Total gain (loss) on investment securities, net
1. Amounts exclude gain (loss) on TBA securities, which is reported in gain (loss) on derivative instruments and other securities, net in our Consolidated Statements of Comprehensive Income.
2. Investment securities acquired after fiscal year 2016 are measured at fair value through net income (see Note 2 of our Consolidated Financial Statements in this Form 10-K).
Gain (Loss) on Derivative Instruments and Other Securities, Net
The following table is a summary of our gain (loss) on derivative instruments and other securities, net for fiscal years 2025, 2024 and 2023 (in millions):
Fiscal Year
TBA securities, dollar roll income
TBA securities, mark-to-market gain (loss)
Interest rate swaps, periodic income
Interest rate swaps, mark-to-market gain (loss)
Credit default swaps - buy protection
Payer swaptions
Receiver swaptions
U.S. Treasury securities
U.S. Treasury futures contracts
SOFR futures contracts - long position
Other interest income (expense)
Other gain (loss)
Total gain (loss) on derivative instruments and other securities, net
For further details regarding our use of derivative instruments and related activity refer to Notes 2 and 5 of our Consolidated Financial Statements in this Form 10-K.
LIQUIDITY AND CAPITAL RESOURCES
Our business is dependent on our ability to maintain adequate levels of liquidity and capital resources to fund day-to-day operations, fulfill collateral requirements under our funding and derivative agreements, and to satisfy our dividend distribution requirement of at least 90% of our taxable income to maintain our qualification as a REIT. Our primary sources of liquidity are unencumbered cash and securities, borrowings available under repurchase agreements, TBA dollar roll financing and monthly receipts of principal and interest payments. We may also conduct asset sales, change our asset or funding mix, issue equity or undertake other capital enhancing actions to maintain adequate levels of liquidity and capital resources. There are various risks and uncertainties that can impact our liquidity, such as those described in Item 1A. Risk Factors and Item 7A. Quantitative and Qualitative Disclosures of Market Risks in this Form 10-K. In assessing our liquidity, we consider a number of factors, including our current leverage, collateral levels, access to capital markets, overall market conditions, and the sensitivity of our tangible net book value over a range of scenarios. We believe that we have sufficient liquidity and capital resources available to meet our obligations and execute our business strategy.
Leverage and Financing Sources
Our leverage will vary depending on market conditions and our assessment of relative risks and returns, but we generally expect our leverage to be between six and ten times the amount of our tangible stockholders' equity, measured as the sum of our total mortgage borrowings and net payable / (receivable) for unsettled investment securities, divided by the sum of our total stockholders' equity adjusted to exclude goodwill. Our tangible net book value "at risk" leverage ratio was 7.2x as of December 31, 2025 and 2024. The following table includes a summary of our mortgage borrowings outstanding as of December 31, 2025 and 2024 (dollars in millions). For additional details of our mortgage borrowings refer to Notes 2, 4 and 5 to our Consolidated Financial Statements in this Form 10-K.
December 31, 2025
December 31, 2024
Mortgage Borrowings
Amount
Amount
Investment securities repurchase agreements 1,2
Debt of consolidated variable interest entities, at fair value
Total debt
TBA and forward settling non-Agency securities, at cost
Total mortgage borrowings
1. Includes Agency RMBS, CRT and non-Agency MBS repurchase agreements. E xcludes U.S. Treasury repurchase agreements totaling $12.3 billion and $1.4 billion as of December 31, 2025 and 2024, respectively.
2. As of December 31, 2025 and 2024, 44% and 47%, respectively, of our total repurchase agreements, including 51% and 49% or our investment securities repurchase agreements, respectively, were funded through the Fixed Income Clearing Corporation's GCF Repo service.
We primarily finance our assets through collateralized borrowings structured as repurchase agreements ("repo"). We enter into these agreements on a bilateral basis with financial institutions and independent dealers, as well as through tri-party and centrally cleared repo platforms—such as the FICC's GCF Repo service—accessed through our wholly owned, registered broker-dealer subsidiary, Bethesda Securities, LLC. We manage our repo funding through counterparty diversification, maintaining a suitable maturity profile, interest rate hedging, and other strategies. In addition to repo, we also utilize TBA dollar roll transactions to synthetically finance Agency RMBS.
The terms of bilateral repurchase agreements are established on a transaction-by-transaction basis at the time each borrowing is initiated or renewed and are governed by the provisions of a Master Repurchase Agreement. For GCF Repo transactions, the terms and conditions are set by the FICC's clearing rules and applicable operating procedures. Each of our repurchase agreements requires that borrowed amounts be subject to collateralization requirements, and interest rates are generally fixed and reflect prevailing market rates for the specified borrowing term and collateral type. Our repurchase agreement counterparties are not obligated to renew or enter into new borrowings upon the maturity of existing agreements.
TBA dollar roll transactions enhance our funding diversification, expand our available pool of assets, and improve our liquidity position by typically requiring less collateral than Agency RMBS financed with repo. These transactions may also benefit from lower implied costs, or "specialness." However, if rolling TBA contracts into future months becomes uneconomical, we may need to take physical delivery of the underlying securities and fund those securities with other sources, potentially reducing our liquidity position.
Collateral Requirements and Unencumbered Assets
Borrowing capacity under our repurchase agreements is influenced by counterparty margin requirements, collateral values, interest rates, risk limits, and counterparties' willingness and ability to lend. These factors may change over time in response to interest rate movements, overall market liquidity, shifts in credit quality and changes in bank regulatory requirements. Centrally cleared repo capacity also depends on Bethesda Securities continued compliance with regulatory and FICC membership requirements and maintaining its risk exposure within limits established by the FICC.
Haircuts for bilateral repurchase agreements are determined on a transaction-specific basis. A haircut is a discount applied to the market value of pledged collateral to protect the counterparty against potential declines in its value and potential costs of selling collateral after a default. When collateral values decline, counterparties typically issue a margin call requiring us to post additional collateral to restore the required collateralization level. Conversely, if the value of pledged securities rises, we may request the return of excess collateral. Collateral values are determined by our counterparties, who are required to act in good faith.
For centrally cleared GCF repo transactions, margin requirements are set by the FICC. These include an initial margin requirement, calculated daily using a Value-at-Risk ("VaR") model, which evaluates Bethesda Securities' net exposure to the FICC, taking into account the offsetting risk sensitivities of positions such as repos and reverse repos. Initial margin is designed to protect the FICC against potential future exposure from a member default and may also be used to cover losses arising from the default of other clearing members, subject to assessments from the loss mutualization waterfall and applicable caps and withdrawal provisions set pursuant to FICC rules. The FICC also imposes daily variation margin, based on amounts borrowed plus accrued interest, adjusted for fluctuations in collateral value, and is intended to cover the current exposure associated with the repo transaction.
Margin thresholds may increase during periods of elevated market volatility, which could adversely affect our liquidity position. In addition, repo counterparties typically reduce the collateral values assigned to Agency RMBS each month to reflect principal repayments. Bilateral repo counterparties make this adjustment upon the publication of the pay-down factor by Fannie Mae, Freddie Mac or Ginnie Mae on the fifth business day following month-end, even though principal payments are generally not received until the 25 th calendar day following month-end. The FICC assesses margin on the last business day of each month—prior to the factor release—using internally projected pay-down rates and subsequently adjusts collateral requirements to reflect the actual factor data when released.
The timing difference between margin calls related to principal pay-downs and our receipt of the corresponding cash flows temporarily reduces our available liquidity each month. We manage this liquidity risk by monitoring factors that influence prepayment activity and through disciplined asset selection. As of December 31, 2025, approximately 14% of our investment portfolio consisted of TBA securities, which are not subject to monthly principal pay-downs. The remainder of our portfolio, primarily consisting of Agency RMBS, had an average one-year CPR forecast of 12%.
Collateral requirements under our derivative agreements are typically subject to initial and variation margin requirements, similar to those for centrally cleared repo transactions, and may be adjusted based on changes in the value of the derivative agreements, collateral values, market volatility, and other factors. Collateral requirements for our TBA contracts are governed by the Mortgage-Backed Securities Division ("MBSD") of the FICC. Collateral levels for interest rate swap agreements are established by the central clearing exchange and the associated futures commission merchants ("FCMs"), which may impose margin requirements in excess of those required by the clearing exchange. Collateral requirements for non-centrally cleared derivatives are set by the counterparty financial institution.
Haircut levels and initial or additional minimum margin requirements reduce the amount of our unencumbered assets and limit our borrowing capacity. Margin calls for repo and TBA transactions are typically due on the same business day, while margin calls for interest rate swaps and other derivative transactions are typically due on the next business day, subject to notice provisions. During fiscal year 2025, haircuts and initial margin requirements on our repo funding arrangements remained stable. As of December 31, 2025, the weighted average haircut and initial margin on our repurchase agreements were approximately 3.1% of the value of our collateral, compared to 3.2% as of December 31, 2024. We were in compliance with all margin requirements as of December 31, 2025.
To mitigate the risk of margin calls, we seek to maintain excess liquidity by holding unencumbered liquid assets that can be used to satisfy collateral requirements, collateralize additional borrowings or be sold for cash. As of December 31, 2025, our unencumbered assets totaled approximately $7.7 billion, or 65% of tangible equity, consisting of $7.6 billion of cash and unencumbered Agency RMBS and $0.1 billion of unencumbered credit assets. This compares to $6.2 billion of unencumbered assets, or 67% of tangible equity, as of December 31, 2024, consisting of $6.1 billion of cash and unencumbered Agency RMBS and $0.1 billion of unencumbered credit assets.
For additional details regarding assets pledged under our repo and derivative agreements refer to Note 6 to our Consolidated Financial Statements in this Form 10-K.
Counterparty Risk
Collateral requirements imposed by counterparties subject us to the risk that pledged assets may not be returned to us as and when required. We attempt to manage this risk by actively monitoring our collateral positions and limiting our counterparties to registered clearinghouses and regulated financial institutions, including banks and broker-dealers (both bank affiliated and independent) with acceptable credit ratings. We also diversify our funding sources across multiple counterparties and geographic region.
As of December 31, 2025, our maximum amount at risk (or the excess/shortfall of the value of collateral pledged/received over our repurchase agreement liabilities/reverse repurchase agreement receivables) with any of our repurchase agreement counterparties, excluding the FICC, was less than 2% of our tangible stockholders' equity, with our top five repo counterparties, excluding the FICC, representing less than 5% of our tangible stockholders' equity. As of December 31, 2025, less than 10% of our tangible stockholders' equity was at risk with the FICC. Excluding central clearing exchanges, as of December 31, 2025, our amount at risk with any counterparty to our derivative agreements was less than 1% of our stockholders' equity.
Asset Sales
Agency RMBS securities are among the most liquid fixed income securities, and the TBA market is the second most liquid market (after the U.S. Treasury market). Although market conditions fluctuate, the vitality of these markets enables us to sell assets under most conditions to generate liquidity through direct sales or delivery into TBA contracts, subject to "good delivery" provisions promulgated by the Securities Industry and Financial Markets Association ("SIFMA"). Under certain market conditions, however, we may be unable to realize the full carrying value of our securities. We attempt to manage this risk by maintaining at least a minimum level of securities that trade at or near TBA values that in our estimation enhances our portfolio liquidity across a wide range of market conditions. Please refer to Trends and Recent Market Impacts of this Management Discussion and Analysis for further information regarding Agency RMBS and TBA market conditions.
Capital Markets
Equity capital markets serve as a source of capital to grow our business and to meet potential liquidity needs. The availability of equity capital is dependent on market conditions and investor demand for our common and preferred stock. We will typically not issue common stock at times when we believe the capital raised will not be accretive to our tangible net book value or earnings, and we will typically not issue preferred equity when its cost exceeds acceptable hurdle rates of return on our equity. We may also be unable to raise additional equity capital at suitable times or on favorable terms. Furthermore, when the trading price of our common stock is less than our then-current estimate of our tangible net book value per common share, among other conditions, we may repurchase shares of our common stock pursuant to the stock repurchase plan authorized by our Board. As of December 31, 2025, $1.0 billion remained authorized to repurchase shares of our common stock through December 31, 2026. Please refer to Note 9 of our Consolidated Financial Statements in this Form 10-K for further details regarding our recent equity capital transactions.
OFF-BALANCE SHEET ARRANGEMENTS
As of December 31, 2025, we did not maintain relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance, or special purpose or variable interest entities, established to facilitate off-balance sheet arrangements or other contractually narrow or limited purposes. Additionally, as of December 31, 2025, we had not guaranteed obligations of unconsolidated entities or entered into a commitment or intent to provide funding to such entities.
FORWARD-LOOKING STATEMENTS
The statements contained in this Annual Report that are not historical facts, including estimates, projections, beliefs, expectations concerning conditions, events, or the outlook for our business, strategy, performance, operations or the markets or industries in which we operate, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Forward-looking statements are typically identified by words such as "believe," "plan," "expect," "anticipate," "see," "intend," "outlook," "potential," "forecast," "estimate," "will," "could," "should" "likely" and other similar, correlative or comparable words and expressions.
Forward-looking statements are based on management's assumptions, projections and beliefs as of the date of this Annual Report, but they involve a number of risks and uncertainties. Actual results may differ materially from those anticipated in
forward-looking statements, as well as from historical performance. Factors that could cause actual results to vary from our forward-looking statements include, but are not limited to, the following:
• the level, degree and extent of volatility in interest rates or the yield on our assets relative to interest rate benchmarks;
• fluctuations in mortgage prepayment rates on the loans underlying our Agency RMBS;
• the availability and terms of our financing and hedge positions;
• changes in the market value of our assets, including from changes in net interest spreads, market liquidity or depth, and changes in our "at risk" leverage or hedge positions;
• fluctuations in the yield curve;
• the effectiveness of our risk mitigation strategies;
• conditions in the market for Agency RMBS and other mortgage securities, including changes in the available supply of such securities or investor appetite therefor;
• changes in U.S. monetary policy or interest rates, including actions taken by the Federal Reserve to adjust the size or composition of its U.S. Treasury and Agency RMBS bond portfolio or to influence funding markets;
• changes in U.S. government entity purchases or dispositions of Agency RMBS or other actions that directly or indirectly increase demand or supply of Agency RMBS or affect prepayment speeds;
• the direct or indirect effects of actions by the federal, state, or local governments that affect the economy, the housing sector or financial markets, including actions relating to fiscal policy;
• the direct or indirect effects of geopolitical events, including war, terrorism, civil discord, embargos, trade or other disputes, or natural disasters, on conditions in the markets for Agency RMBS or other mortgage securities, the terms or availability of funding for our business, or our ongoing business operations;
• the availability of personnel, operational resources, information technology and other systems to conduct our operations;
• changes to laws, regulations, rules or policies that affect the GSE's, the primary or secondary mortgage markets in which we participate or U.S. housing finance activity, including actions that would end or alter the conservatorships of Fannie Mae or Freddie Mac or their quasi-governmental status; and
• legislative or regulatory actions that affect our status as a REIT or our exemption from the Investment Company Act of 1940.
Forward-looking statements speak only as of the date made, and we do not assume any duty and do not undertake to update forward-looking statements. A further discussion of risks and uncertainties that could cause actual results to differ from any of our forward-looking statements is included under Item 1A. Risk Factors in Part I of this document. We caution readers not to place undue reliance on our forward-looking statements.
WEBSITE AND SOCIAL MEDIA DISCLOSURE
We use our website (www.AGNC.com) and AGNC's LinkedIn (www.linkedin.com/company/agnc-investment-corp/) and X (www.x.com/AGNCInvestment) accounts to distribute information about the Company. Investors should monitor these channels in addition to our press releases, filings with the U.S. Securities and Exchange Commission ("SEC"), public conference calls and webcasts, as information posted through them may be deemed material. Our website, alerts and social media channels are not incorporated by reference into, and are not a part of, this or any other report filed with or furnished to the SEC. Investors and others may automatically receive emails and information about AGNC when they sign up for investor alerts on the "Investor Resources" tab of the Investor Relations section of our website.
