AGNC Investment Corp. Q2 FY2025 earnings call

• Following tariff announcements in April, market volatility and macroeconomic uncertainty impacted Agency mortgage-backed securities, leading to negative economic return. - AGNC maintained strong liquidity, with 65% of tangible equity in unencumbered cash and MBS, enabling navigation of volatility without selling assets. - Raised ~$800 million of common equity at a premium and deployed part of it in attractively priced assets. - Portfolio totaled $82 billion at quarter end, with weighted average coupon increasing to 5.13%, and 81% of assets having positive prepayment attributes. - Unencumbered cash position was $6.4 billion, 65% of tangible equity, higher than Q1.

AGNC's economic return for the second quarter was negative 1%. For the second quarter, AGNC reported a comprehensive loss of $0.13 per common share. Tangible net book value per share declined by $0.44, but as of late last week, it was up about 1% for July after deducting the monthly dividend accrual. Quarter end leverage increased slightly to 7.6x tangible equity compared to 7.5x at the end of Q1. Average leverage for the quarter rose to 7.5x from 7.3x in the prior quarter. Liquidity position totaled $6.4 billion in cash and unencumbered Agency MBS, representing 65% of tangible equity, up from 63% as of the prior quarter. The net spread and dollar roll income declined $0.06 to $0.38 per common share for the quarter.

• Favorable outlook for Agency mortgage-backed securities due to manageable MBS supply, growing demand, stabilizing spreads, and GSE reform. - Net spread and dollar roll income expected to stay in mid to high $0.30s to low $0.40s range. - Expect spreads to gradually tighten over time as macroeconomic and policy uncertainties resolve.

• Elevated governmental policy risk in April caused market volatility and negatively impacted Agency MBS. - Geopolitical and monetary policy uncertainty posing risks to mortgage spreads. - Potential impact of GSE reform on mortgage market stability. - Repo market risks related to treasury issuance and Fed actions. - Risk of prepayment speeds being higher than expected with lower mortgage rates.

Q: Doug Harter asked about capital raising and deployment.

A: Peter Federico said they have capacity to deploy capital at a patient pace, with Agency mortgage-backed securities current coupon to swap rates at ~200 basis points, and can raise accretive capital and deploy proceeds as opportunities arise.

Q: Crispin Love asked about core earnings and deployment.

A: Peter Federico discussed net spread and dollar roll income, noting it's a current period measure, with expected range in mid to high $0.30s to low $0.40s, and deployment of capital proceeds being gradual.

Q: Trevor Cranston asked about optimal company size.

A: Peter Federico mentioned benefits of scale like low operating costs, liquid stock, and accessibility to indices, but also noted market capacity constraints.

Q: Bose George asked about swap vs treasury hedges and CPR.

A: Peter Federico said ROE calculation aligns with mix, currently overweight in swaps, and CPR decline reflects yield curve steepening and market rate expectations.

Q: Jason Weaver asked about relative value in specified pools.

A: Peter Federico said 81% of portfolio has positive prepayment attributes, favoring higher coupon specified pools with favorable characteristics over TBA positions.

Q: Jason Stewart asked about steepener trades and book value.

A: Peter Federico said portfolio is positioned to benefit from yield curve steepening, and book value was up ~1% at end of last week.

Q: Eric Hagen asked about repo market and leverage.

A: Peter Federico said treasury issuance and Fed actions don't pose material repo market risks, and Fed support for repo market supports leverage capacity.

Q: Richard Shane asked about prepayment risk.

A: Peter Federico acknowledged risk of higher prepayment speeds with lower rates, but noted current mortgage rate and portfolio characteristics limit immediate significant prepayment risk.

Q: Harsh Hemnani asked about leverage.

A: Peter Federico discussed leverage rebalancing through capital raising and deployment, and greater confidence in leverage due to favorable outlook and risk management.