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 a $0.60 increase in tangible net book value per share [12][5] - The full-year economic return was 22.7%, reflecting a total monthly dividend of $1.44 per common share and a $0.47 increase in tangible net book value per share [12][5] - As of late January, tangible net book value per common share was up about 4% for January, or 3% net of monthly dividend accrual [12] Business Line Data and Key Metrics Changes - Average leverage for Q4 was 7.4x, down from 7.5x in the previous quarter, with a leverage of 7.2x at the end of Q4 [12][13] - Net spread and dollar roll income remained unchanged at $0.35 per common share for the quarter [12][13] - The average projected life CPR of the portfolio increased to 9.6% at quarter end from 8.6% in the prior quarter, with actual CPRs averaging 9.7% for the quarter [12][15] 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 [7] - Agency MBS outperformed the Treasury Index by 2.3 percentage points, or 36% in 2025 [7][8] - The demand for Agency MBS is expected to remain strong, with GSE purchases potentially consuming about half of the year's supply [11] Company Strategy and Development Direction - AGNC is positioned to generate compelling, risk-adjusted returns with a substantial yield component for shareholders, focusing on the favorable macro themes for Agency mortgage-backed securities [11] - The company plans to maintain a greater share of swap-based hedges in its hedge mix, particularly as short-term rates approach the Fed's long-run neutral rate [17] - The strategy includes opportunistically shifting the hedge mix toward a greater proportion of interest rate swaps to benefit from additional rate cuts [14] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in a durable and attractive investment environment as mortgage spreads stabilize at historically attractive levels [6][9] - The favorable macroeconomic backdrop is expected to continue, with potential further actions by the administration to improve housing affordability [10] - Management highlighted the importance of spread stability for generating attractive returns and indicated that the current environment is more favorable compared to previous years [53] 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 [15] - The asset portfolio totaled $95 billion at quarter end, up about $4 billion from the prior quarter, with 76% of assets having favorable prepayment attributes [17] 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 110 basis points [22][24] Question: How do you think about the risk or potential benefit that could get you either 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 [38][40] Question: What would you do to address the affordability questions? - Management emphasized the importance of maintaining spread stability and suggested that the GSEs should focus on decisions based on the economics of the mortgage market [48][49] 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 current environment is more stable than in previous years [51][53] Question: Would you adjust any of the hedges if it looked like the refi market was really going to accelerate? - Management indicated that asset selection and the composition of the portfolio will be critical in a rising prepayment environment, and they would consider adjusting hedges accordingly [90][92]