AGNC(AGNC) - 2025 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - AGNC reported total comprehensive income of $0.12 per common share for Q1 2025, with an economic return on tangible common equity of 2.4% [15] - The net interest rate spread increased by 21 basis points to 2.12%, driven by higher asset yields and lower funding costs [17] - Quarter-end leverage increased to 7.5 times tangible equity, up from 7.2 times at year-end [15][16] Business Line Data and Key Metrics Changes - Net spread and dollar roll income increased by$ 0.07 to $0.44 per common share, attributed to a higher net interest rate spread and a larger asset base [16] - The average projected life CPR in the portfolio increased to 8.3% from 7.7% at year-end, while actual CPRs averaged 7% for the quarter, down from 9.6% in the previous quarter [18] Market Data and Key Metrics Changes - The agency MBS market experienced significant pressure, with the current coupon spread to a blend of 5- and 10-year treasury rates widening to 160 basis points [10] - The asset portfolio totaled$ 79 billion at quarter-end, up about $5 billion from the prior quarter, with 77% of assets having favorable prepayment characteristics [21][22] Company Strategy and Development Direction - The company believes that agency MBS provide compelling return opportunities, especially in light of the deteriorating economic outlook [13] - Regulatory relief is expected to lead to greater demand for agency MBS from banks, which could benefit the treasury and swap markets [23] Management's Comments on Operating Environment and Future Outlook - Management noted that macroeconomic uncertainty is likely to remain elevated in the near term, but the outlook for agency MBS is favorable [14][23] - The management emphasized the importance of maintaining a strong liquidity position to navigate market volatility [45] Other Important Information - The company raised$ 509 million of common equity through its at-the-market offering program at a premium to tangible net book value, generating meaningful accretion for shareholders [16] - The weighted average coupon of the portfolio remained steady at just over 5% [22] Q&A Session Summary Question: Update on book value - Management indicated that the book value was down in the range of 7.5% to 8% as of the end of last week due to further mortgage spread widening [29] Question: Comfort level with the dividend - Management stated that the total cost of capital has increased, but expected returns still align well with that cost [36][39] Question: Managing extreme rate volatility - Management highlighted that a strong liquidity position allowed them to navigate the volatility without changing asset composition [44][46] Question: Outlook on leverage and hedge ratio - Management expressed comfort with current leverage levels and indicated that spreads at current levels allow for attractive returns without excessive leverage [52][54] Question: Changes to hedge portfolio - Management confirmed that there have not been any substantial changes to the hedge portfolio post-quarter end [100] Question: Prepayment environment and convexity risk - Management noted that the portfolio has more call risk than extension risk, with a significant portion having embedded prepayment protection [120][123] Question: Impact of levered investors on mortgage spreads - Management did not see any force deleveraging impacting the current repricing in the mortgage market, attributing it to bond fund redemptions instead [126][129]