Yahoo Finance AGNC Investment Corp (AGNC) Q1 2024 Earnings Call Transcript Highlights: Key Financial Metrics ...
Economic Return: 5.7% for the first quarter.
Comprehensive Income: $0.48 per share.
Dividends: $0.36 declared per common share.
Tangible Net Book Value Increase: $0.14 per share.
Leverage: Increased to 7.1x tangible equity from 7x in Q4.
Net Spread and Dollar Roll Income: $0.58 per share.
Net Interest Spread: Decreased by 10 basis points to just under 300 basis points.
Portfolio CPR: Average projected life CPR decreased 100 basis points to 10.4%.
Equity Raised: Approximately $240 million through aftermarket offering program.
Liquidity: Unencumbered cash and Agency MBS of $5.4 billion, 67% of tangible equity.
Portfolio Value: Increased to $63.3 billion by end of Q1.
Non-Agency Portfolio Value: Stable at $1 billion.
Release Date: April 23, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Q & A Highlights
Q: Can you discuss the level of current spreads and what that implies in terms of incremental ROEs? A: Peter J. Federico, President, CEO & Director of AGNC, noted that mortgage spreads widened by 10 to 15 basis points in April, particularly in the middle coupons. He highlighted that current coupon spreads to 5- and 10-year treasuries are in the low 150 range, and against swaps, it's about 185 basis points. Given AGNC's typical leverage in the low to mid-7s, this translates to an expected ROE of between 16% and 18%, indicating that mortgages are more attractive now than at the end of the last quarter.
Q: What is your comfort level on the dividend, considering the breakeven ROE now? A: Peter J. Federico explained that the dividend yield on common equity translates to a 17% ROE, aligning with AGNC's cost structure. He emphasized the importance of considering the total cost of capital, including dividends paid on preferred and common shares and operating costs, which was around 15.7% at the end of the last quarter. Federico believes that the current dividend level and total cost of capital are well aligned.
Q: Over the next several months, you have $8.5 billion notional of swaps rolling off, which contribute significantly to your spread income. How do you plan to replace this runoff? A: Peter J. Federico mentioned that as these swaps mature, AGNC's net interest margin is expected to align more closely with the business's economic fundamentals, which are in the mid- to high teens ROE. He noted that new swaps with positive carry would be added, and as the asset yield increases, it should offset the impact of the maturing swaps.
Q: Given the recent volatility, what gives you confidence that it will be short-lived? A: Peter J. Federico discussed that the recent market conditions, despite significant repricing of short-term rate moves, did not indicate a shift in monetary policy paradigms. He expects that inflation will align with the Fed's targets and that the current 10-year treasury rates are at a healthy level, suggesting that the recent repricing is largely over.
Q: How are you thinking about continued capital raises and the attractiveness of that opportunity? A: Peter J. Federico stated that AGNC evaluates capital raises through the lens of existing shareholder value. He highlighted that capital raised in the first quarter was deployed effectively and immediately into the mortgage market, which was accretive to book value and beneficial for shareholders. AGNC will continue to look for such accretive opportunities.
Q: Can you provide insights into your outlook for prepayment speeds and their potential impact on earnings or economic return? A: Christopher J. Kuehl, Executive VP & CIO, explained that slower prepayment speeds observed recently are favorable for AGNC's position, particularly in higher coupon securities. He noted that the prepayment behavior has been more favorable than expected, which is beneficial for the portfolio's performance.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
