AGNC Investment Corp. (AGNC) Earnings Call Transcript & Summary

Hello, and welcome to the Annual Meeting of Stockholders of AGNC Investment Corp. Please note that today's meeting is being recorded. Under the rules of conduct for this meeting, no recording, no transcription of this meeting is allowed. [Operator Instructions] It is now my pleasure to turn today's meeting over to Prue Larocca, Independent Director and Chair of Board of AGNC Investment Corp. Ms. Larocca, the floor is yours.

Thank you. Good morning. The meeting will now come to order. I'm Prue Larocca, the Chair of the Board of Directors of the company. On behalf of our Board of Directors, it is my pleasure to welcome you to the 2020 Annual Meeting of Stockholders of AGNC Investment Corp. I will serve as the Chair of today's meeting. To support the health and well-being of our stockholders, employees and communities, we are hosting this virtual meeting rather than meeting in-person in Bethesda, Maryland, to allow us to hear from and engage with our stockholders as our country and the world faces the coronavirus outbreak. If you wish to ask a question during the meeting, please do through -- do so through the meeting portal at any time. Please keep your statements and questions brief and if they relate to a matter to be voted on at today's meeting, please limit them to a single item up for discussion. I would like to remind you that our conversation today may include statements that constitute forward-looking statements. Such statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those -- from these forward-looking statements, and we assume no obligation to update them. A description of risks impacting our business can be found in the annual report on Form 10-K for the year ended December 31, 2019, which is available on our website, www.agnc.com, and on the SEC's website. I would like also to introduce our Board of Directors who are all in attendance today, Donna Blank; Morris Davis; John Fisk; Paul Mullings; Frances Spark; and Gary Kain, who is also our Chief Executive Officer and Chief Investment Officer. Also joining us today are Peter Federico, our President and Chief Operating Officer; Bernice Bell, our Senior Vice President and Chief Financial Officer; Derek Ligeikis, Shawn O'Brien and Tom Norcio representing Ernst & Young, the company's independent public accountants. And Jeff Seiders representing Computershare Trust Company, the company's stock transfer and dividend-paying agent and registrar. Computershare has also been appointed to serve as the tabulator and inspector of voting for this meeting and any postponement or adjournment of this meeting. I would like to introduce Kenneth Pollack, who is the Senior Vice President, General Counsel and Secretary of the company. Mr. Pollack will serve as Secretary of the meeting. Mr. Pollack is being assisted in certain matters related to the meeting by Kasey Reisman, Vice President and Assistant Secretary of the company. Sean Reid, Senior Vice President of Strategy and Corporate Development, will also assist in facilitating the question-and-answer session. Stockholders who are voting by proxy need not cast ballots in the voting today. I would now like to ask Mr. Pollack if the notice of the meeting and the proxy statement have been duly mailed or otherwise made available to all common stockholders in accordance with the company's bylaws.

Thank you, Prue. I have received a report from Computershare, who is noted as our stock transfer and dividend-paying agent and registrar as to the proper mailing to each common stockholder of record as of the close of business on February 24, 2020, of either a notice of Internet availability or 2019 annual report to stockholders, a proxy card, a business reply envelope, a notice of annual meeting of stockholders dated March 13, 2020, and a proxy statement also dated March 13, 2020. Only common stockholders of record at the close of business on February 24, 2020, are entitled to notice of and to vote at this meeting or any postponement or adjournment hereof. The list of stockholders of record -- the list of holders of record of the company's common stock at the close of business on February 24, 2020, is available for inspection during this meeting by stockholders who have logged on to the virtual meeting platform as a stockholder. A copy of this list of stockholders will be filed with the records of the company.

Thank you, Mr. Secretary. Our first order of business is to determine whether the shares represented at the meeting, either in person or by proxy, are sufficient to constitute a quorum for the purpose of transacting business. Mr. Federico and Mr. Pollack have been designated to act as proxies. The inspector of voting has indicated that there are present at this meeting, in person or by proxy, holders of at least 271 million shares of common stock entitled to vote, which constitutes a quorum. Because holders of a majority of the shares entitled to vote at this meeting are present in person or by proxy, I declare this meeting to be duly convened for purposes of transacting such business as may properly come before it. At this time, we could read the minutes of the last stockholders' meeting, but unless there is an objection, I will dispense with the reading of the minutes and deem them to have been ratified and approved.

There appears to be no objection.

We shall now proceed with the next business of the meeting, which is to vote on the matters set forth in the notice of annual meeting of stockholders dated March 13, 2020. When an item of business is before the meeting for consideration, questions or comments will be limited to the item. There will be an opportunity following the presentation to review general questions not related to a specific matter being voted on at the meeting. If you wish to make a statement or ask a question on an agenda item, please do so through the meeting portal. Please keep your statements and questions brief. And if they relate to a matter to be voted on at today's meeting, please limit them to a single item up for business or for discussion. The first proposal involves the election of directors. Will the secretary please present the nominations?

In accordance with the bylaws of the company, there are currently 7 nominees to the Board of Directors to serve terms expiring at the 2021 Annual Meeting or until their respective successors have been duly elected and qualified. The term of each existing director expires at this meeting of the stockholders and each of them has been nominated for election by vote of the Compensation and Corporate Governance Committee of the Board of Directors.

In accordance with the company's bylaws, nominations may be made only in advance of the meeting, and no nomination to the Board of Directors may be made at this meeting. Therefore, I declare the nominations closed. The vote will now be taken on the election of all of the director nominees to the Board of Directors. Voting through the virtual meeting portal shall close at the end of voting on all of the proposals. We will now move to proposal #2, which is a proposal to approve an amendment to the amended and restated certificate of incorporation to increase the total authorized number of shares. The Chair will now entertain a motion for the proposal to approve an amendment to the amended and restated certificate of incorporation to increase the total authorized number of shares.

I so move.

I second the motion.

We will now open proposal #2 to a discussion. Is there any discussion on the proposal?

There appears to be no discussion on the proposal.

I now declare the polls open for voting on this proposal. We will now move to proposal #3, which is the proposal to approve an advisory resolution on executive compensation. The Chair will now entertain a motion for the proposal to approve an advisory resolution on executive compensation.

I so move.

I second the motion.

We will now open proposal #3 to discussion. Is there any discussion on the proposal?

There appears to be no discussion on the proposal.

We will now move to proposal #4, which is the ratification of the appointment of Ernst & Young as the independent public accountant of the company for the calendar year 2020. Further information on our engagement of Ernst & Young appears in the proxy statement. The Chair will now entertain a motion for the proposal to ratify Ernst & Young as the company's independent public accountant for calendar year 2020.

I so move.

I second the motion.

We will now open proposal #4 to discussion. Is there any discussion on the proposal?

There appears to be no discussion on the proposal.

I now declare the polls open for voting on this proposal. Stockholders who have elected to vote during the meeting should submit their votes on all matters at this time. [Voting]

The polls will now close on all proposals. We now seem to have all the ballots and proxies at the meeting. And because all of those desiring to vote by ballot have done so, I hereby declare the polls closed. The ballots and proxies will be held in the possession of the inspector of voting, who will now count the votes. While the inspector is counting the votes, we would like to take this opportunity to provide you with a presentation on recent developments at the company. At the conclusion of the presentation, there will be an opportunity for stockholders to ask questions. I now invite Mr. Kain to make the presentation.

At this point of the meeting, I will provide a brief summary of our 2019 results, the year-to-date impact of the COVID-19 pandemic and the outlook for our business. At the conclusion of the presentation, I will address any questions that have been submitted through the proper channels during this virtual meeting. 2019 was an exceptional year for AGNC, despite what we thought at the time was a fairly volatile operating environment. Over the course of the year, the 10-year treasury rate declined over 125 basis points from 2.68% at the beginning of the year to a low of 1.42% before selling off and closing the year at 1.92%. In addition, mortgage spreads widened 10 to 20 basis points over the course of the year as the Fed continue to allow its Agency MBS portfolio to naturally run off. Despite these trends and a significant dislocation in funding markets in September, AGNC posted its highest economic return, 18.7%, in over 5 years. In addition, we maintained an operating expense ratio of around 80 basis points, which was the lowest in our industry by a fairly wide margin. We also closed over $1.1 billion in accretive equity transactions. Turning to Slide 5. The COVID-19 pandemic has had a significant impact on the U.S. economy. Recent GDP projections indicate that the U.S. is entering the deepest recession since the great depression. Unemployment is expected to spike to over 15% nationwide. Correspondingly, financial markets have declined precipitously and have exhibited significant liquidity and funding dislocations. While repo financing was relatively unaffected throughout the crisis, Agency MBS spreads did widen substantially during March as a result of indiscriminate selling by market participants seeking to raise cash during the liquidity crunch. Fortunately, for our business, the Fed did act quickly and decisively to stabilize Agency MBS assets, as shown on Slide 6. On Slide 7, we've provided a summary of the company update on AGNC's Q1 results that we announced on April 8, 2020. As we noted, while we experienced a material decline in our tangible net asset value per common share, we felt that the worst was behind us as an Agency MBS investor. And that, importantly, we have retained the vast majority of our specified pool holdings. In today's low-rate environment, we believe that our portfolio, including these specified pools, will be a meaningful driver of future returns for our stockholders. In addition, our liquidity position remains strong with over $3.5 billion of cash and unencumbered Agency MBS assets, $1.3 billion in capital and excess margin at our broker-dealer subsidiary and $300 million of unencumbered nonagency assets. While we reduced our monthly dividend to $0.12 per common share, we did note that we believe our portfolio should be able to generate earnings above that dividend level, which could be reinvested back into our business over time. Turning to Slide 8. We are optimistic about AGNC's outlook despite the current macroeconomic uncertainty. Our predominant asset class, Agency MBS, appears poised to produce favorable returns. Large-scale purchases by the Fed are expected to provide both liquidity support and provide a reasonable floor for valuations. Our retention of high-quality specified pools, coupled with the disruptions to the mortgage origination operations will likely mitigate the impact of lower rates on prepayments fees. Further, with borrowing rates near 0 and effectively one-sided interest rate exposure, AGNC can lock-in favorable net interest margins over time with limited risk. As a result, we believe the current environment is extremely favorable for AGNC from a risk-return perspective. Finally, I would like to thank all of our stockholders for your support. I know that these past few months have been challenging on a number of fronts for all of us, and we do not take our obligations to stakeholders lightly. Navigating through the depths of March was extremely difficult, but given the composition of our portfolio, things should be better for us going forward, even as the realities of the current recession begin to sink in. At this point, I'll open up the meeting to any questions that may have been submitted.

No questions have been submitted.

So the question-and-answer period has now concluded. For stockholders who have further questions or believe their question was not addressed, we invite you to contact our Investor Relations department at [email protected] or at (301) 968-9300.

I understand that the inspector has completed his count of the votes. Ms. Reisman will now read the reports.

With respect to proposal #1, relating to the election of 7 Directors, majority of the votes were cast in favor of the election of each of the nominated directors in proposal #1.

Based on the inspector's tabulation, I declare that each nominated director has been reelected. Congratulations. Will Ms. Reisman, please continue reading the report?

With regard to proposal #2, a majority of the votes of all shares of the company's common stock present or represented and entitled to vote were cast in favor of approving the proposal to approve an amendment to the amended and restated certificate of incorporation to increase the total authorized number of shares.

I declare that the amendment to the amended and restated certificate of incorporation to increase the total authorized number of shares is approved.

With regard to proposal #3, a majority of the votes of all shares of the company's common stock present or represented and entitled to vote were cast in favor of approving an advisory resolution on executive compensation.

I declare that the advisory resolution on executive compensation is approved.

With regard to proposal #4, a majority of the votes of all shares of the company's common stock present or represented and entitled to vote were cast in favor of ratifying the appointment of Ernst & Young as the company's independent public accountant for the calendar year 2020.

I declare that the appointment of Ernst & Young as the company's independent public accountant for the calendar year 2020 has been ratified. The report of the inspector of voting has been accepted, and the inspector is directed to deliver a certificate as to the final tabulation of the vote to the secretary for filing with the minutes of this meeting. At this time, I would like to express my appreciation to the stockholders who attended the meeting as well as to those who submitted their proxies but were unable -- were not able to be present in person. As there is no further business to come before the meeting, the meeting is adjourned. Thank you very much.

This concludes the meeting. You may now disconnect.