AGNC Investment Corp.

Good day and welcome to the AGNC Investment Corp fourth quarter 2021 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 a touch-tone phone. 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 fourth quarter 2021 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 factor 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 Peter Federico, Director, President, and Chief Executive Officer. Bernie Bell, Executive Vice President and Chief Financial Officer. Chris Kuehl, Executive Vice President and Chief Investment Officer. Aaron Pass, Senior Vice President of Non-Agency Portfolio Management. And Sean Reed, Executive Vice President of Strategy and Corporate Development. With that, I'll turn the call over to Peter Federico.

Thank you, Katie, and welcome to everyone on the call today. Investor sentiment turned negative in the fourth quarter as the Fed signaled a significant shift in monetary policy. With inflation running well above its long-run target and the labor market nearing full employment, the Fed accelerated the pace of asset tapering. signaled an aggressive series of short-term interest rate increases and discussed more rapid balance sheet runoff. This abrupt shift by the Fed led to an uptick in interest rate volatility amid greater monetary policy uncertainty. The risk of materially higher short-term rates caused the yield curve to flatten significantly, with short-term rates increasing meaningfully and longer-term rates remaining relatively unchanged. Against this backdrop, agency MBS underperformed in the fourth quarter as spreads to benchmark rates widened. Most of that spread widening occurred in November and led to our negative economic return for the quarter. Our economic return for the year, however, was positive 2.9% and represents the combination of our 9.6% annual dividend yield and a decline in book value due to wider agency MBS spreads. We will likely continue to face some challenging market conditions as the Fed pivots from near zero short-term rates and quantitative easing to higher rates and quantitative tightening in 2022. The Fed also communicated the possibility of starting the balance sheet reduction sooner and more rapidly than previously anticipated. The amount and timing of this balance sheet reduction will be an important driver of agency MBS spreads going forward. Accordingly, we will continue to operate with a more defensive position characterized by lower leverage and significant hedge protection. We will also continue to be patient and opportunistic in our investment decisions. In 2021, wider spreads led to a decline in our book value. This trend continued in January with current coupon MBS spreads widening an additional 20 basis points. As a result, our book value was down about 6% in January through last Friday. Importantly, despite the significant move in January, our leverage today is at 7.5 times and our duration gap is at a half a year. This positioning gives us the capacity and flexibility to take advantage of attractive investment opportunities as they arise. Today, the expected return on the production coupon 30-year MBS is in the 10% to 12% range, before including the incremental benefit associated with favorable TBA dollar roll funding. Wider mortgage spreads adversely impact our book value in the short run, but benefit our business over the longer run. The net present value of our business can be thought of as the expected return on our existing portfolio, combined with the expected return on the new investments that we add over time. If an agency MBS investor is well positioned and enters a period of spread widening with lower leverage as we have, our business benefits in two ways. First, with respect to our existing portfolio, wider mortgage spreads can improve the cash flows on higher coupon specified pools through slower prepayment speeds and reduced premium amortization expense. Second, With respect to our future portfolio, wider spreads obviously improve the return on new investments. For example, a 25 basis point widening in spreads levered eight times improves the ROE on new investments by two and a quarter percent. So to summarize, we are well positioned for the current environment. And while challenging in the short run, Wider spreads are good for our business over the long run as they lead to stronger earnings and greater franchise value. Looking at AGNC's performance over a multi-year period illustrates the value of being a long-term investor and the durability of our business model across a wide range of market conditions. Over the last three years, AGNC generated a total economic return of 25%. During that period, we had to navigate unprecedented volatility and broad financial market dislocations due to the pandemic. The growth of the Fed's balance sheet to close to $9 trillion and now uncertainty as the Fed tightens monetary policy. Yet despite these challenges, over that time period, AGNC paid shareholders an average annual dividend of over 10% per year while experiencing a relatively small decline in book value. With that, I will now turn the call over to Bernie to discuss our financial results.