Release Date: July 22, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- AGNC Investment Corp (AGNC, Financial) maintained a strong liquidity position, with $6.4 billion in cash and unencumbered agency MBS, representing 65% of tangible equity.
- The company successfully raised nearly $800 million of common equity at a significant premium to tangible net book value, providing additional capital for strategic deployment.
- AGNC Investment Corp (AGNC) was able to navigate significant financial market volatility without selling assets, preserving the portfolio's value.
- The company expects favorable conditions for agency mortgage-backed securities (MBS) due to anticipated regulatory changes and a stable supply environment.
- Key policymakers have reaffirmed the government's commitment to maintaining the implicit guarantee for agency MBS, which is expected to support tighter mortgage spreads over time.
Negative Points
- AGNC Investment Corp (AGNC) reported a comprehensive loss of $0.13 per common share for the second quarter, with an economic return on tangible common equity of negative 1%.
- The performance of agency mortgage-backed securities was notably weaker quarter-over-quarter, with spreads to treasury and swap rates widening.
- Net spread and dollar roll income declined by $0.06 to $0.38 per common share, primarily due to the timing of capital deployment and higher swap costs.
- The company's leverage increased slightly to 7.6 times tangible equity, up from 7.5 times at the end of Q1, indicating higher financial risk.
- Foreign investor demand for MBS may be hindered by US dollar weakness and geopolitical risk, potentially impacting future performance.
Q & A Highlights
Q: Given the attractive environment for agency mortgage-backed securities, do you plan to raise additional capital or increase leverage?
A: Peter Federico, President, CEO, and CIO, explained that AGNC's outlook is favorable, and they have capacity to deploy capital at attractive levels. They are in a good position to be patient and measured in capital deployment and may consider raising accretive capital or increasing leverage if market conditions are favorable.
Q: What is your view on the core earnings trajectory and its impact on dividend levels?
A: Peter Federico noted that net spread and dollar roll income has aligned more with the portfolio's economics. The current environment supports high teens to 20% returns, aligning with their income. While there will be period-to-period volatility, they expect net spread and dollar roll income to remain in the mid-to-high 30s to low-to-mid 40s cent range.
Q: How do you view the optimal size of the company, especially if you continue to issue accretively?
A: Peter Federico emphasized that AGNC is not growing for growth's sake but to benefit shareholders by raising capital accretively and deploying it to support dividends. Benefits of scale include low operating costs, liquidity in stock, and potential inclusion in more indices. However, they are mindful of market capacity constraints.
Q: How do you balance swap hedges and treasury futures given current swap spreads?
A: Peter Federico stated that AGNC favors a slightly higher percentage of swaps over the long-term 50-50 average due to expected stability and potential widening of swap spreads. This positioning is beneficial as regulatory changes are anticipated to ease balance sheet constraints.
Q: Do you see the government budget deficit impacting the repo market, and does this support higher leverage?
A: Peter Federico does not expect the deficit to impact the repo market significantly. The Fed's positive changes to the repo market, including potential joining of the FICC, enhance liquidity. This environment supports confidence in funding and does not necessitate lower leverage.
Q: How do you manage leverage in light of market volatility and spread uncertainty?
A: Peter Federico highlighted that AGNC navigated market volatility without selling assets, maintaining capacity to withstand spread moves. Confidence in the current environment allows for potential higher leverage, but they aim to optimize returns while maintaining liquidity and risk management capacity.
Q: How do changes in credit scoring at the GSEs affect prepayment environments?
A: Peter Federico mentioned that while changes might lead to higher credit scores and potentially higher prepayments, the impact is not significant from an investor perspective. They will adjust for differences in speeds once sufficient data is available.
Q: Is there a risk that prepayment protection may not be as effective due to market changes?
A: Peter Federico acknowledged the risk but noted that the current mortgage rate environment limits refinance incentives. Significant rate drops would be needed for widespread refinancing. They monitor GSE changes and regional house price variations that could affect refinance capacity.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
