AGNC(AGNC) - 2025 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - AGNC reported a comprehensive loss of $0.13 per common share for Q2 2025, with an economic return on tangible common equity of negative 1% [14] - The tangible net book value per share declined by $0.44, while dividends declared per common share were $0.36 [14] - As of the end of July, the tangible net book value per common share increased by about 1% after accounting for monthly dividend accrual [14] - Quarter-end leverage increased slightly to 7.6x tangible equity from 7.5x at the end of Q1, with average leverage rising to 7.5x from 7.3x in the prior quarter [14][15] Business Line Data and Key Metrics Changes - The asset portfolio totaled $82 billion at quarter-end, up approximately $3.5 billion from the prior quarter, with a focus on higher coupon specified pools [19] - The weighted average coupon of the asset portfolio increased to 5.13% during the quarter [19] - The net spread and dollar roll income declined to $0.38 per common share, primarily due to the timing of capital deployment and higher swap costs [17] Market Data and Key Metrics Changes - Agency mortgage-backed securities (MBS) underperformed relative to benchmark interest rates, with spreads to treasury and swap rates widening [5][7] - The current coupon spread to a blend of treasury and swap benchmarks ended the quarter wider by 7 and 14 basis points, respectively [7] - The expected net supply of new MBS for the year is about $200 billion, at the low end of most forecasts [9] Company Strategy and Development Direction - AGNC's strategy focuses on maintaining sufficient liquidity to navigate financial market volatility and taking advantage of wider MBS spreads [6][9] - The company aims to deploy capital opportunistically in attractively priced assets while managing leverage [26][27] - The favorable outlook for agency MBS is supported by anticipated regulatory changes and a commitment from key policymakers to maintain implicit guarantees for agency MBS [9][12] Management's Comments on Operating Environment and Future Outlook - Management noted that the financial market stress in April led to a reassessment of macroeconomic and monetary policy outlooks, but most markets recovered by the end of the quarter [4][6] - The company expects bank and foreign demand for agency MBS to grow, with improved seasonal supply patterns for MBS issuance anticipated in Q3 [8][9] - Management expressed confidence in the stability of the mortgage market and the potential for tighter mortgage spreads over time due to supportive government policies [12][21] Other Important Information - The liquidity position totaled $6.4 billion in cash and unencumbered agency MBS, representing 65% of tangible equity, an increase from 63% in the prior quarter [15] - The average projected life CPR of the portfolio declined to 7.8% from 8.3% in Q1, while actual CPRs averaged 8.7% for the quarter, up from 7% in the prior quarter [17] Q&A Session Summary Question: Insights on the attractive environment and capital raising - Management indicated a favorable outlook for agency MBS and the potential for raising additional capital or increasing leverage as opportunities arise [23][26][27] Question: Core earnings trajectory and dividend levels - Management discussed the alignment of net spread and dollar roll income with portfolio economics, suggesting a return on equity in the high teens range [32][36] Question: Capital deployment status and opportunities - Management confirmed that approximately $1 billion worth of mortgages were purchased recently, with a focus on higher coupon specified pools [43][44] Question: Optimal size of the company and capital issuance - Management emphasized growth driven by accretive capital raising, highlighting the benefits of scale and liquidity for shareholders [50][53] Question: Balance between swap hedges and treasury futures - Management noted a preference for a balanced mix of swaps and treasuries, with a current overweight in swaps due to market conditions [58][60] Question: Impact of government budget deficit on the repo market - Management expressed confidence that treasury issuance would not materially impact the repo market, citing ample liquidity [90][92] Question: Changes in credit scoring and prepayment environment - Management acknowledged potential impacts from changes in credit scoring but deemed them not significantly impactful from an investor perspective [100][104] Question: Risks associated with prepayment protection - Management recognized the risk of increased prepayment speeds due to market efficiency but noted that significant rate drops would be necessary for widespread refinancing [106][112]