AGNC(AGNC) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - AGNC reported comprehensive income of $0.89 per common share for Q4 2025, with an economic return on tangible common equity of 11.6% for the quarter, driven by lower interest rate volatility and tighter mortgage spreads [11] - The full-year economic return was 22.7%, reflecting a monthly dividend totaling $1.44 per common share and a $0.47 increase in tangible net book value per share [11] - As of late January, tangible net book value per common share was up about 4% for January, or 3% net of monthly dividend accrual [11] - The company ended Q4 with leverage of 7.2x tangible equity, down from 7.6x at the end of Q3 [11] Business Line Data and Key Metrics Changes - Average leverage for Q4 was 7.4 times, compared to 7.5 times in Q3 [12] - Net spread and dollar roll income remained unchanged at $0.35 per common share, which includes a penny per share of expense related to year-end incentive compensation accrual adjustments [12] - The average projected life CPR of the portfolio increased 100 basis points to 9.6% at quarter end from 8.6% in the prior quarter [14] Market Data and Key Metrics Changes - The Bloomberg Aggregate Agency Index was the best-performing fixed income sector in Q4, producing a total return of 8.6% for the year [6] - Agency MBS outperformed the Treasury Index by 2.3 percentage points, or 36% in 2025 [7] - The funding market for Agency MBS improved in response to the Fed increasing the size of its balance sheet and improving the functionality of its standing repo program [9] Company Strategy and Development Direction - AGNC is positioned to generate compelling, risk-adjusted returns with a substantial yield component for shareholders, leveraging favorable macro themes and a well-balanced supply and demand outlook for Agency MBS [10] - The company shifted its hedge mix toward a greater proportion of interest rate swaps, which is consistent with the current more accommodative monetary policy environment [13] - The company plans to operate with a greater share of swap-based hedges, particularly as short-term rates near the Fed's long-run neutral rate [16] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in a durable and attractive investment environment as mortgage spreads began to stabilize at historically attractive return levels [5] - The favorable performance of Agency MBS was attributed to the Fed's shift in monetary policy, lower interest rate volatility, and the resolution of uncertainties regarding GSE reform [8] - Management anticipates that the underlying fundamental and technical backdrop for Agency mortgage-backed securities will remain favorable and supportive of a positive outlook [10] Other Important Information - The company issued $356 million of common equity through its at-the-market offering program at a significant premium to tangible book value per share, bringing total accretive common equity issuances for the year to approximately $2 billion [14] - The asset portfolio totaled $95 billion at quarter end, up about $4 billion from the prior quarter [16] Q&A Session Summary Question: Can you talk about where you see spreads currently versus where you saw it in the fourth quarter? - Management indicated that mortgage spreads have entered a new range, with current coupon spreads to swaps in the 120-160 basis point range, and current coupon to Treasuries around 90-130 basis points [22][23] Question: How do you think about the risk or potential benefit that could get you to the high end or low end of those ranges? - Management noted that actions from the GSEs and potential changes in the Fed's balance sheet could positively impact spreads, while certain proposals could have negative consequences [39][40] Question: What would you do to address the affordability questions? - Management acknowledged the administration's efforts and suggested that maintaining spread stability is crucial for market participation [48] Question: How do you gauge your positivity on the investing environment right now for agency MBS? - Management expressed that while spreads are lower, they remain attractive by historical standards, and the upper end of the spread range is more certain than in previous years [52] Question: Would you adjust any of the hedges if the refi market was really going to accelerate? - Management indicated that asset selection and coupon composition will be critical in a rising prepayment environment, and they have strategies in place to manage prepayment risk [90][93]