AGNC Investment Corp.

Good morning and welcome to the AGMC Investment Corp. First Quarter 2020 Shareholder Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Katie Wisecarver in Investor Relations. Please go ahead.

Thank you for joining AGNC Investment Corp.'s first quarter 2020 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 forecast 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 the risk factors section of 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 Gary Kain, Chief Executive Officer, Bernie Bell, Senior Vice President and Chief Financial Officer, Chris Kuehl, Executive Vice President, Aaron Pas, Senior Vice President, and Peter Federico, President and Chief Operating Officer. With that, I'll turn the call over to Gary Kain.

Thanks, Katie, and thanks to all of you for your interest in AGNC. As you know, conditions were extremely challenging in March as the market reacted to the COVID-19 pandemic. The dislocations witnessed during mid-March were unprecedented in terms of both magnitude and speed, resulting in a significant decline in the valuation of agency MBS and other fixed income products. AGNC's financial performance, like almost all financial companies, was severely impacted by the market volatility, with AGNC posting an economic return for the quarter of negative 20%. While we were disappointed by this result, we are optimistic that the worst is behind us, and we believe that we are uniquely positioned to generate strong risk-adjusted returns as we look ahead to the remainder of 2020. In saying this, we fully recognize the significant uncertainty presented by the pandemic and its associated impact on the U.S. and global economies. To this point, I intend to dedicate the remainder of my prepared remarks to explaining the rationale behind our optimistic outlook. Importantly, the bold and decisive actions of the Federal Reserve stabilized the entire fixed income complex in late March. As was the case in QE1 and QE3, agency MBS were again a critical part of the Fed's actions. But this program has differed significantly from prior episodes in that the Fed purchased a larger amount of securities over a much more compressed timeframe than at any point in history. In just one and a half months, The Fed has purchased approximately $575 billion in agency MBS. This, coupled with the expectation of ongoing Fed purchases, should provide the necessary support and stability to the sector as the market contends with any future challenges associated with COVID-19. Against this backdrop, we believe that the financial markets are in the process of transitioning from a focus on liquidity to the next phase where performance will be driven primarily by actual fundamental factors. Fortunately, our portfolio is comprised almost entirely of agency MVS which enjoy the guarantee of timely interest and principle from the GSEs. As a result, we have very little credit exposure in our portfolio which is where the bulk of the future uncertainty lies. In contrast, prepayments, funding, and interest rate risk are the fundamental factors that will determine AGNC's ultimate performance. So with this in mind, let's briefly examine how these factors will be impacted by the current landscape. First, on the prepayment front, most models tell us that the record low levels of interest rates will increase prepayments substantially. However, these models are not designed to incorporate the unique circumstances associated with the current crisis. More specifically, some borrowers will opt to take forbearance on their existing mortgage while others will have difficulty refinancing due to a job loss, a reduction in compensation, a decline in self-employment income, or other adverse events. Social distancing may also reduce origination capacity and extend closing timelines. Purchase activity or housing turnover, as it is called in the mortgage industry, will likely be impacted to a greater degree as social distancing limits open houses and other showings. While every scenario is different, There are some similarities between the current environment and the one we witnessed between 2009 and 2012, where the impact of then record low interest rates on prepayments was also materially offset by credit considerations and changes to the mortgage origination landscape. If we move on from prepayments to funding, the benefits from the current environment are even more straightforward. The Fed cut the Fed Fund's target and the overnight repo rate to around 10 basis points, and they have offered virtually unlimited liquidity to keep government repo rates near the target. As such, our MBS repo rates, as Peter will discuss shortly, have generally ranged from single digits on overnights through our in-house broker dealer to around 30 basis points on three-month maturities in bilateral repo. The last element of the fundamental cash flow picture for AGMC is the current asymmetry in our exposure to changes in interest rates. Normally, hedging a levered position in agency MBS requires substantial tradeoffs as we seek to balance the risk of both significant declines and increases in interest rates on the duration of our assets. However, if you believe that substantially negative interest rates in the U.S. are unlikely in the near term, which is our opinion, then there is considerably less call risk or downside to being more fully hedged given today's record low swap rates. So to summarize, the fundamental landscape for agency MBS is favorable. Prepayments should remain contained Thank you for joining us today. despite the tremendous economic uncertainty that lies ahead. At this point, I will ask Bernie to review our financial results for the first quarter.