管理層發言
Good morning, and welcome to the AGNC Investment Corp. Second Quarter 2025 Shareholder Call. Please note this event is being recorded. I would now like to turn the conference over to Katie Turlington in Investor Relations. Please go ahead.
Thank you all for joining AGNC Investment Corp. Second Quarter 2025 Earnings Call. Before we begin, I'd like to review the safe harbor statement. This conference call and corresponding slide presentation contain statements that, to the extent they are not recitations of historical fact, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All such forward-looking statements are intended to be subject to the safe harbor protection provided by the Reform Act. Actual outcomes and results could differ materially from those forecasts due to the impact of many factors beyond the control of AGNC. All forward-looking statements included in this presentation are made only as of the date of this presentation and are subject to change without notice. Certain factors that could cause actual results to differ materially from those contained in the forward-looking statements are included in AGNC's periodic reports filed with the Securities and Exchange Commission.
Copies are available on the SEC's website at sec.gov. We disclaim any obligation to update our forward-looking statements unless required by law. Participants on the call include Peter Federico, President, Chief Executive Officer and Chief Investment Officer; Bernie Bell, Executive Vice President and Chief Financial Officer; and Sean Reid, Executive Vice President, Strategy and Corporate Development. With that, I'll turn the call over to Peter Federico.
Good morning, and thank you all for joining our second quarter earnings call. Following the administration's tariff announcement in early April, elevated governmental policy risk caused investor sentiment to turn sharply negative and financial markets to reassess the macroeconomic and monetary policy outlook. After a sharp repricing in April, most markets retraced their early period losses and ended the quarter at better valuation levels. The performance of Agency mortgage-backed securities relative to benchmark interest rates, however, was notably weaker quarter-over-quarter. As a result of this underperformance, AGNC's economic return for the second quarter was negative 1%. During the first 3 weeks of April, when the financial market stress was most pronounced, the yield on the 10-year treasury fluctuated by more than 100 basis points and the S&P 500 Stock Index declined by 12%. This volatility and macroeconomic uncertainty adversely impacted Agency mortgage-backed securities, with spreads to treasury and swap rates widening meaningfully.
A primary focus of AGNC's risk management framework is maintaining sufficient liquidity to withstand episodes of significant financial market stress. One important measure of this capacity is the percentage of equity that we hold in unencumbered cash and Agency mortgage-backed securities, which are available to meet margin calls in the normal course of business. This focus enabled us to begin the second quarter with a strong liquidity position and to navigate the financial market volatility without issue and importantly, without selling assets. Moreover, we were able to take advantage of the wider MBS spread environment by raising accretive capital during the quarter and opportunistically deploying a portion of that capital in attractively priced assets. Over the last 2 months of the quarter, most financial markets retraced the April losses, and in some cases, set new record highs. For example, the S&P 500 Index rallied 25% from the April low and ended the quarter about 10% higher.
Investment-grade and high-yield debt also performed well, with spreads tightening 10 and 50 basis points, respectively. The one notable performance exception was Agency mortgage-backed securities, as the current coupon spread to a blend of treasury and swap benchmarks ended the quarter 7 and 14 basis points wider, respectively. Although the Fed and treasury have indicated that beneficial regulatory reforms are forthcoming, bank demand for MBS still appears to be constrained. Similarly, foreign investor demand may be hindered by U.S. dollar weakness and geopolitical risk. Looking ahead, we expect banks and foreign demand for Agency MBS to grow. In addition, as we enter the third quarter, the seasonal supply pattern for MBS issuance should improve. We expect the net supply of new MBS to be about $200 billion this year, at the low end of most forecasts. Since quarter end, MBS spreads have tightened slightly and are showing signs of stabilization.
As a levered and hedged investor in Agency mortgage-backed securities, AGNC's return profile is most favorable in environments in which mortgage spreads are wide and stable. Our favorable outlook for Agency MBS was further improved in the second quarter by the very positive message from key decision-makers related to the potential recapitalization and release from conservatorship of the GSEs. The White House, Treasury Department and FHFA affirmed the government's commitment to maintaining the implicit guarantee for Agency MBS and also indicated that they are taking a do-no-harm approach to GSE reform. Specifically, President Trump made an unprecedented statement in late May regarding the GSEs and the ongoing role of the government in the housing finance system. He said, 'Our great mortgage agencies, Fannie Mae and Freddie Mac, provide a vital service to our nation helping hard-working Americans reach the American dream of homeownership.
I am working on taking these amazing companies public, but I want to be clear the U.S. government will keep its implicit guarantees.' Treasury Secretary Bessent also made several important statements regarding the GSEs during the quarter. The one that stood out the most to us was when he said, 'The one requirement of this privatization is that they are privatized in such a way that mortgage spreads do not widen. And in fact, is there a way that we can make the spread between the risk-free rate and mortgages tighten as Freddie Mac and Fannie Mae are privatized.' Finally, Director Pulte weighed in with similar positive statements saying, 'Our #1 thing is to do no harm and keep the implicit guarantees intact. We cannot have any disruption to the mortgage market. There cannot be any upward pressure on the mortgage rate, and I am very confident that the mortgage market will be safer and sounder as a result of any option that the President takes.'
These statements individually and collectively clarify the administration's approach and more importantly, should provide investors greater confidence that the credit quality of the $8 trillion of outstanding Agency mortgage-backed securities as it is understood to be today, will not be impaired by actions associated with privatization. In fact, given the explicit statement of credit support made by the President of the United States that the implicit guarantee of Agency MBS will be preserved, investors could reasonably conclude that the credit quality of the outstanding stock of Agency mortgage-backed securities has never been stronger. These statements also make it clear that maintaining stability in the mortgage market and lowering mortgage costs are two important guiding principles of GSE reform. This is a very positive development that should lead to tighter mortgage spreads over time. With that, I'll now turn the call over to our Chief Financial Officer, Bernie Bell, to discuss our financial results in greater detail.
Thank you, Peter. For the second quarter, AGNC reported a comprehensive loss of $0.13 per common share. Our economic return on tangible common equity was negative 1%, consisting of $0.36 of dividends declared per common share and a $0.44 decline in tangible net book value per share as mortgage spreads ended the quarter moderately wider. As of late last week, our tangible net book value per common share was up about 1% for July after deducting our monthly dividend accrual. Quarter end leverage increased slightly to 7.6x tangible equity compared to 7.5x at the end of Q1. Average leverage for the quarter rose to 7.5x from 7.3x in the prior quarter. As of quarter end, our liquidity position totaled $6.4 billion in cash and unencumbered Agency MBS, representing 65% of tangible equity, up from 63% as of the prior quarter. As Peter noted, we were able to navigate the substantial financial market volatility in April with our portfolio intact as a result of our risk management positioning and ample liquidity entering that period.
Additionally, during the quarter, we opportunistically raised just under $800 million of common equity through our at-the-market offering program at a significant premium to tangible net book value. As of quarter end, we had deployed slightly less than half of the proceeds, and we have continued to deploy the remaining capital post quarter end. In utilizing the ATM, we attempt to maximize both the accretion benefit associated with the stock issuance premium and the investment returns on acquired assets. However, the optimal timing for stock issuances and capital deployment may not fully align. As a result, our investment of the new capital may lag the issuance as it did this quarter as we evaluate market conditions and wait for favorable entry points. Net spread and dollar roll income declined $0.06 to $0.38 per common share for the quarter, primarily due to the timing of deployment of the new capital raised over the quarter, with moderately higher swap costs also contributing to the decline.
Our net interest rate spread decreased 11 basis points to 201 basis points for the quarter, largely due to higher swap costs. Our treasury-based hedges contributed additional net spread income of approximately $0.01 per share for the quarter, which is not reflected in our reported net spread and dollar roll income. Lastly, the average projected life CPR of our portfolio declined to 7.8% at quarter end from 8.3% as of Q1, consistent with higher mortgage rates. Actual CPRs averaged 8.7% for the quarter, up from 7% in the prior quarter. And with that, I'll now turn the call back over to Peter for his concluding remarks.
Thank you, Bernie. I'll provide a brief review of our portfolio before taking your questions. Trade, fiscal and monetary policy uncertainty caused Agency MBS spreads to widen across the coupon stack, with higher coupon MBS performing slightly better than lower coupon MBS. MBS performance also varied considerably by hedge type and maturity as the yield curve steepened significantly during the quarter and swap spreads tightened 5 to 10 basis points. As a result, MBS hedged with longer-dated treasury-based hedges performed materially better than MBS hedged with short- and intermediate-term swap-based hedges. Our asset portfolio totaled $82 billion at quarter end, up about $3.5 billion from the prior quarter. The mortgages that we added were largely higher coupon specified pools with favorable prepayment characteristics. As a result, the percentage of our assets with some form of positive prepayment attribute increased to 81%.
Our aggregate TBA position remained relatively stable at about $8 billion, consistent with our preference for specified pools in the current environment. With both our pool and TBA activity concentrated in higher coupons, the weighted average coupon of our asset portfolio increased to 5.13% during the quarter. The notional balance of our hedge portfolio increased to $65.5 billion at quarter end. In duration dollar terms, our hedge portfolio consisted of 46% treasury-based hedges and 54% swap-based hedges. In summary, despite the second quarter volatility and elevated geopolitical and government policy risk that still remains, we continue to have a very positive outlook for Agency mortgage-backed securities. In fact, we believe the outlook actually improved in the second quarter due to four factors. First, MBS supply appears to be manageable as seasonality factors turn more favorable and the mortgage rate remains high.
Second, the demand for MBS appears poised to grow as a result of anticipated regulatory changes and relative value attractiveness. Third, agency spreads appear to be stabilizing at historically cheap levels. And lastly, key policymakers appear to be taking a cautious do-no-harm approach to GSE reform while reaffirming the government's ongoing role in the housing finance system. Collectively, we believe these positive developments create a very favorable investment outlook for Agency mortgage-backed securities as a fixed income asset class. With that, we'll now open the call up to your questions.
分析師問答
The first question comes from Doug Harter with UBS.
Just kind of digging into the last comments you made about the attractive environment. As you look at that environment and you look to continue to take advantage of that, do you think that comes in the form of looking to raise additional capital? Or is increasing leverage from kind of this area where you've been for the past couple of quarters a consideration as well?
Thank you for the question. Our outlook is quite positive as we enter the second half of the year, especially following some developments in the second quarter, particularly regarding the GSEs. This creates a strong environment for Agency mortgage-backed securities. Currently, we are observing some stabilization and expect spreads to gradually tighten, although there doesn't appear to be a significant catalyst for a sharp decline in the near term. This is important because, as Bernie mentioned, we have taken a patient and measured approach to deploying the capital we raised in the second quarter, having deployed just under half of it. This means we still have the capacity to invest those proceeds at very attractive levels; the current coupon on Agency mortgage-backed securities relative to a blend of swap rates stands at about 200 basis points, which is at the higher end of the range observed over the last four years.
If we have the capacity to raise additional accretive capital and invest those proceeds, we will certainly consider that, as it could generate more value for our shareholders. We believe we are in a good position to deploy capital at a careful pace. These opportunities should be available for a while, and we may also be able to operate with slightly higher leverage. Bernie's mention of our unencumbered cash position being $6.4 billion or 65% at the end of the quarter, which is 2% higher than at the end of the first quarter, highlights that despite the volatility and the growth of our portfolio by $3.5 billion, we have managed to increase our unencumbered cash as a percentage of our equity by the end of the second quarter. This places us in a strong position to execute the strategies you outlined. We will let the market influence our pace and decisions as we monitor the development of mortgage spreads.
Additionally, we hope to see some resolution to ongoing political uncertainties regarding government policy and tariffs in the coming weeks, along with some clarity on monetary policy within the next month or two. Therefore, we have considerable capacity and flexibility to be opportunistic in this environment.
The next question comes from Crispin Love with Piper Sandler.
Peter, can you speak to your views on the core earnings trajectory and what that means for the dividend level? Core returns are high, spreads are pretty wide, swaps continue to roll off. But curious what you view to be the run rate for earnings and core returns over the near to intermediate term?
Yes. We've discussed our net spread and dollar roll income for several quarters, noting that it has adjusted to be more aligned with the economics of our portfolio. There are many factors to consider regarding net spread and dollar roll income, particularly how accounting affects asset yields and hedge costs, and it does not necessarily reflect the long-term economic earnings capacity of our portfolio; it's more of a current earnings metric. With that context in mind, it has come down to align better with our portfolio's economics today. For instance, the $0.38 return on equity is in the 19.5% range. Although I can't pinpoint the exact number, it seems to be about 19% to 19.5%. This is relevant because, in today's mortgage valuations, the current coupon to treasury rates is about 160 basis points, and the current coupon to swap rates is around 200 basis points. This leads to an approximate return spread of 180 basis points in the current environment.
When we leverage our portfolio, this results in an approximately 19% return on equity for marginal investments. Given where spreads are now, I would estimate returns to be in the high teens, between 18% to 20%, which aligns with our net spread and dollar roll income. However, there will be volatility from period to period. Bernie mentioned that income decreased last quarter due to the slow deployment of capital proceeds we raised. As we deploy those, it should reduce the drag we experienced in the second quarter, although we will see a continued drag from our swap hedges rolling off. About $5 billion rolled off in the second quarter, and we replaced $2.3 billion. Thus, over time, our swap costs will increase. While I expect our repo costs to decrease, especially as the Fed eventually starts to ease, I also expect our asset yields to gradually rise since they remain below market. There are various factors at play here, but I anticipate our net spread and dollar roll income to remain generally in the mid- to high $0.30s to low to mid-$0.40s range. I provided a lot of information, and I hope this answers your question.
Absolutely. No, that was very helpful, Peter. And then just following up on Doug's issuance question and comments you've made about deployment. You raised accretive capital, deployed about 50% of that in the second quarter. I believe that was a comment or it might be 50% to date. But can you just share where you stand today? How much more have you deployed since quarter end? And then just where are the best opportunities, coupons, investments, et cetera? And then just given the outsized issuance in the second quarter, would you expect issuance in the third to come down versus historical levels?
I'll start with your first question and then circle back. You provided a lot of information. We're taking an opportunistic approach and feel that we can afford to be patient when it comes to raising capital. We're particularly pleased with the opportunities in the second quarter due to the high volatility, which allowed us to raise capital in a beneficial way. This has provided us with considerable liquidity to handle any potential disruptions and has also enabled us to use those funds. However, I wouldn’t consider the second quarter as a predictor for future quarters; we’ll need to evaluate each quarter as it comes. Could you please repeat the first part of your question?
Yes. So you talked about deploying 50% of the capital. Just the timing of that, was that in the second quarter or to date? And I'm just curious where you are right now...
Yes, according to Bernie, it was in the second quarter, but she mentioned that we have continued to deploy. We purchased about $1 billion worth of mortgages earlier this month. We still like the market and are deploying capital at a disciplined and measured pace. As I mentioned, we continue to favor the upper coupons, particularly in specified pools with higher coupons, in the 5% to 6% range, that have some favorable prepayment characteristics. We appreciate the yield profile and the prepayment protection we can obtain with certain characteristics.
The next question comes from Trevor Cranston with Citizens JMP.
Another question on the capital raising. Peter, obviously, for the last several quarters, you guys have been able to do a decent amount at pretty accretive levels. And obviously, there's a lot of benefits to being able to issue so accretively. I guess big picture, can you kind of give us an update on your thoughts as to how you think about the optimal size of the company and particularly if you continue to be able to issue accretively for the foreseeable future?
Yes, that's a great question and one we’ve discussed periodically. I want to clarify that we're not growing just for the sake of it; we're growing because we can raise capital in a way that benefits our existing shareholders while supporting our dividend. As long as we can keep doing that, we will continue to seize those opportunities. Additionally, there are significant advantages to our scale. In the last quarter, our operating costs were just 111 basis points, which makes us one of the lowest cost operators in the industry, a very compelling position. Another point is the strong liquidity of our stock, which is beneficial for shareholders. We have focused our portfolio on agency or agency-like securities, allowing investors to gain this exposure through our liquid stock. Our market cap exceeds $8 billion, providing ample liquidity for investors seeking fixed income exposure. On a positive note, as we grow and expand our market cap, we become more accessible to various indexes, which can add us as we increase in size.
However, we are also aware of market capacity constraints. The liquidity in the fixed income market today does not match what it was 10 to 15 years ago, before the Great Financial Crisis. Therefore, we are mindful of our asset portfolio size and the capability to conduct transactions in both the hedge and asset markets. We're trying to balance these factors carefully, recognizing the benefits of size, scale, and liquidity, while also understanding that there is a limit to how large we will become.
The next question comes from Bose George with KBW.
First, just given the level of swap spreads, how do you see the appropriate balance between swap hedges and treasury futures? And then when you gave the ROE number at 19% plus, is that kind of reflect the mix that you guys currently have in the portfolio?
When I calculated the return on equity, I arrived at 180 basis points using a 50-50 mix. This blend seems suitable for our long-term strategy, as it offers significant diversification benefits from having an equal distribution of treasuries and swaps. However, we are currently somewhat more invested in swaps, with about two-thirds of our hedges in swap-based options during the second quarter. As we move forward, I anticipate that we will slightly increase our allocation to swaps beyond the long-term average, given my expectation of stability in swap spreads and a widening trend, which would be advantageous for us as the changes to the supplemental leverage ratio are implemented, possibly by the fourth quarter or even the third quarter. The movements we observed in the swap market during the second quarter were crucial for mortgage performance, particularly the nearly 10 basis point reduction in long-term swap spreads, which underscored the existing balance sheet constraints in the market. We expect these pressures to lessen as bank regulations, especially the adjustments to the supplemental leverage ratio, take effect. I believe we will gain from our current higher allocation to swaps, but maintaining a 50-50 mix is likely the best approach for the long term.
Okay. Great. And then in terms of your CPR, so it looks like the lifetime CPR declined. Does that just reflect the market expectation on rates?
Exactly right. In the second quarter, we saw the yield curve steepening, but the 10-year rate remained almost unchanged, increasing only by 2 or 3 basis points. There was, however, a significant rally in the 2-year rate of 17 basis points. The main issue was with the back end of the yield curve, which negatively impacted the mortgage portfolio. I highlighted this in my remarks, noting that the 20- and 30-year rates increased, with the 30-year rising by 21 basis points. Mortgages are sensitive to these rate changes, and that movement led to higher forward mortgage rates in the second quarter. This influenced the lifetime CPR change, which is something to keep an eye on since most portfolios, including ours, typically do not hedge long cash flows in mortgages. We primarily hedge in the intermediate part of the curve, around 15 years. The back end is quite unpredictable and challenging to hedge from a mortgage standpoint. Therefore, our hedging is mainly focused on the 10-year part of the curve to manage that long duration. If the 10s-30s curve shifts significantly, it could drive mortgage performance.
The next question comes from Jason Weaver with Jones Trading.
Peter, I know we've been discussing MBS spreads for quite some time due to their wideness. Would it be accurate to say that spreads are now part of a larger long-term trend, especially considering the decrease in volatility, yet we're still at 200 over on swaps?
Yes, I believe we have established a new trading range. Looking back at mortgage spreads over the last four years, excluding the COVID event, we are currently at the high end of that range. Recently, we barely broke out of this range, reaching 220 basis points as a closing mark against swaps, but the range remains intact. For mortgages compared to swaps, the range likely sits between 160 and 200 basis points, while compared to treasuries, it's around 160 to maybe 120 basis points. This seems to be the new norm. Given the current environment filled with geopolitical, fiscal, and monetary policy uncertainty, I anticipate we will stay in the upper half of that range. There aren’t many catalysts suggesting we will break out of it. The significant tariff-related market stress we experienced is noteworthy. Another potential catalyst, GSE reform, had created uncertainty about its outcome, but key policymakers effectively communicated their thought processes and priorities, which likely alleviates some upward spread pressure. So yes, we are in a new range, but I think we are at the top of it. I do not expect a continuation upward; rather, I foresee it staying within this range and potentially decreasing.
Got it. That's helpful. And then just another one on the capital deployment progress in 2Q and even currently. How are you looking at relative value within the specified pool product just among the different sort of warehouses there?
I mentioned in my prepared remarks that approximately 81% of our portfolio exhibits some form of positive prepayment characteristics. In our presentation, we also highlighted high-quality specified pools, which make up around 41% of the total. We believe there are numerous attributes beyond the usual high-quality indicators, like low loan balances, that contribute to strong mortgage performance and stable cash flows. These attributes include factors such as credit scores, loan-to-value ratios, geographic locations, and property types, whether they are primary residences, second homes, or investment properties. We see a range of valuable characteristics, which is why we are inclined to include specified pools, especially those with higher coupons, as they provide a substantial yield benefit despite the additional convexity risk. Given the current market conditions, with house prices stabilizing or even declining in some regions, we find significant value in acquiring these specified pools.
Additionally, we've noticed in the second quarter that TBA positions, particularly in Ginnie Mae securities, offer some advantages in terms of implied financing levels for certain coupons within our long position. However, conventional TBA positions do not provide much benefit at this time, as they lack a funding advantage. Therefore, in the present environment, we prefer higher coupon specified pools over TBA positions.
The next question comes from Jason Stewart with Janney.
It seems to us that the curve steepener trade is quite crowded. We've discussed hedges, but could you elaborate more on the asset side? You began addressing Jason's question. In a post-steepener trade, how do you position the asset side of the balance sheet in terms of coupons and other factors to optimize returns moving forward?
Yes, there's a lot of flexibility. You can see us significantly adjusting our coupon position from quarter to quarter. We have ample liquidity and capacity to shift between TBAs and specified pools. The characteristics we discussed alter our profile, providing various ways to modify the asset side, especially if we hold a TBA position. We can transition from TBAs to pools and different coupons. As the yield curve evolves, we can adjust the asset side accordingly. As you mentioned, this will largely be dictated by the hedge location, which is crucial, and we have substantial capacity to manage that. Most of our hedges are concentrated in the 7- to 12-year range, with around 83% of our hedge duration exceeding 7 years. When considering our asset key rate duration profile alongside our hedge profile, given this concentration, it's reasonable to conclude that we have structured our overall portfolio to benefit when the yield curve steepens from 2 years to 10 years.
We expect to gain benefits and continue benefiting from this. If 2-year rates decline and 10-year rates remain stable or increase, our portfolio, considering our asset and hedge composition, would gain from that scenario. I anticipate the curve will continue to steepen, particularly with the current pressures related to the Fed. Currently, the 2-year to 10-year section of the curve is about 52 basis points, which is approximately 50 or 60 basis points flatter than the 25-year average. Therefore, I expect the 2-year to 10-year section to steepen over time, and I foresee our portfolio benefiting from that.
We have now completed the question-and-answer session. I'd like to turn the call back over to Peter Federico for concluding remarks.
Again, we appreciate everybody's time and participation on our call today, and we look forward to speaking to you all again at the end of the third quarter.
Thank you for joining the call. You may now disconnect.