AGNC Investment Corp. Q2 2026 earnings call

Thank you all for joining AGNC Investment Corp's second quarter 2026 earnings call. Before we begin, I'd like to review the safe harbor statement. This conference call and corresponding slide presentation contains 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, Bernice 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, thank you all for joining our second quarter earnings conference call. The investment environment in the second quarter continued to be challenging as escalating rhetoric and hostilities between the United States and Iran largely dictated financial market performance. With ship traffic through the Strait of Hormuz severely constrained, elevated energy prices and supply chain disruptions were the dominant macroeconomic concerns for the quarter. These concerns caused Treasury yields to increase, the yield curve to flatten, and the market's outlook for monetary policy to pivot from rate cuts to rate hikes by year-end. Despite the elevated geopolitical and macroeconomic uncertainty and the bearish shift in fixed income sentiment during the quarter, AGNC generated a strong economic return of 6.7%, comprised of our attractive monthly dividend and improvement in our tangible book value per common share.

Also notable, the monthly common stock dividend that we paid at the beginning of this month marked the 75th consecutive monthly dividend payment of $0.12 per share, a track record of performance that we believe illustrates the value of AGNC's disciplined approach to risk management and portfolio construction over a wide range of investment environments. The improvement in our tangible book value was driven by the solid performance of agency MBS, which generated a positive excess return to U.S. Treasuries for the fifth consecutive quarter. This five-quarter track record of outperformance is unusual and particularly noteworthy given the similar credit quality of these two asset classes. The catalyst for the favorable performance of agency MBS was improving technical factors.

With the primary mortgage rate continuing to be above 6.5%, the net new supply of agency MBS this year will likely drop to about $150 billion, materially lower than the supply estimates at the beginning of the year. Elevated mortgage rates have also caused prepayment speeds to slow. As a result, MBS runoff from the Fed's portfolio will be lower than expected this year. Against the backdrop of falling supply, the demand for agency mortgage-backed securities has remained strong. Through the first six months of the year, bond fund inflows have totaled more than $400 billion and are running about double the pace of last year. A significant portion of these inflows get invested in agency mortgage-backed securities and are an important source of demand.

Banks, foreign investors, and REITs should also all continue to be net purchasers of agency MBS over the remainder of the year. Lastly, with the outlook for private credit deteriorating and equity valuation stretched by many measures, the demand for high-quality fixed income assets should remain strong or perhaps even increase over the near term. We expect these favorable supply and demand dynamics to become more apparent over time and to benefit agency MBS performance in the H2 of the year. Another important consideration that shapes the outlook for agency MBS is the compelling value that this asset class offers relative to corporate bonds.

In the second quarter, corporate bonds were the best performing fixed income sector by a wide margin, significantly outperforming both U.S. Treasuries and agency MBS. The Bloomberg Investment Grade Corporate Index and the Bloomberg U.S. High Yield Index ended the second quarter at spreads to U.S. Treasuries of 75 and 290 basis points, respectively, levels that were among the lowest on record. Surprisingly, these historically tight spread levels come at a time when corporate issuance this year is expected to exceed $1.1 trillion, making 2026 the largest corporate debt issuance year ever. In light of the approved technical backdrop, and despite elevated geopolitical risk, our outlook for agency MBS remains encouraging. Agency MBS spreads have moved little this year and continue to be wide by historical standards, despite supply being lower than expected and demand being greater than expected.

Corporate spreads, on the other hand, have narrowed through the first half of the year and are tight by historical standards despite record issuance and rising credit concerns. Once the current elevated level of geopolitical and monetary policy uncertainty subsides, we believe these constructive dynamics will become more apparent and over time drive favorable agency MBS performance. Moreover, we believe AGNC is well-positioned to continue to deliver strong risk-adjusted returns for our shareholders in this environment. With that, I'll now turn the call over to Bernice Bell, our Chief Financial Officer, to discuss our financial results in greater detail.

Thank you, Peter. For the second quarter, AGNC reported comprehensive income of $0.52 per common share. Our economic return on tangible common equity was 6.7% for the quarter, consisting of $0.36 of dividends declared per common share and a $0.20 increase in tangible net book value per share due to mortgage outperformance relative to our interest rate hedges. Our total stock return for the quarter was even more favorable at 12.3% with dividends reinvested, which brings our one-year total stock return to 36.1%. As of late last week, our tangible net book value per common share was down about 1% or a little less than 2% net of our monthly dividend accrual for July. Both ending and average leverage were unchanged at 7.4 times tangible equity for the quarter.

We ended the period with $7.5 billion of unencumbered cash and agency MBS, representing 62% of tangible equity. Net spread and dollar roll income totaled $0.40 per common share for the quarter, down $0.02 from the first quarter. The decrease primarily reflects a 6 basis point decline in our net interest spread, driven by lower asset yields from portfolio repositioning, partly offset by modestly lower funding costs. The average projected life CPR of our portfolio decreased by 170 basis points to 8.6% at quarter end due to coupon and TBA versus specified pool repositioning. Actual CPRs were largely unchanged at 13% for the quarter.

Lastly, during the second quarter, we continued to actively manage our capital for the benefit of existing stockholders, issuing $167 million of common equity through our at the market offering program at a significant premium to tangible net book value per share, while maintaining a disciplined and opportunistic approach to capital issuance. With that, I will now turn the call back over to Peter to discuss our portfolio in greater detail.

Thank you, Bernie. In aggregate, agency MBS in the second quarter outperformed both Treasury and swap-based hedges, but the magnitude of the outperformance did vary considerably by coupon. Higher coupon and production coupon MBS experienced the greatest outperformance as the increase in interest rates curtailed both supply and prepayment concerns. The outperformance of higher coupons relative to lower coupons was also a reversal of the coupon performance in the first quarter. With swap spreads widening in the second quarter, MBS hedged with swaps also performed better than MBS hedged with Treasury securities. At quarter end, the spread differential between a current coupon mortgage-backed security and a blend of hedges across the swap curve was about 145 basis points. At this spread level, agency MBS are trading near the middle of our expected range of 120 to 160 basis points.

At quarter end, the market value of our asset portfolio totaled $97 billion. During the quarter, we purchased $2.2 billion of primarily intermediate coupon specified pools. Early in the quarter, we also sold some lower coupon MBS and bought higher coupon MBS to lock in gains from the strong performance of low coupons in the first quarter and to capture the yield benefit associated with higher coupon, given the expectations for a more benign prepayment environment. As a result, the weighted average coupon on our portfolio increased to 5.04%. The percentage of assets with favorable prepayment characteristics also increased slightly to 79%. The notional balance of our hedge portfolio totaled $66 billion at quarter end, up slightly from the prior quarter due to the addition of intermediate and longer-term Treasury-based hedges.

With the maturity of $3 billion of swap hedges and the additional Treasury-based hedges, our overall portfolio allocation to swap-based hedges declined to 66% at quarter end. Lastly, we ended the quarter with a duration gap of 0.7 years, unchanged from the prior quarter. We continue to favor operating with a positive duration gap, given the current level of interest rates, the convexity profile of our portfolio, and the expected correlation between mortgage spreads and interest rates. With that, we'll now open the call up to your questions.