AGNC Investment Corp.

Good morning and welcome to the AGNC Investment Corp First Quarter 2022 Shareholders Call. All participants will be in listen-only mode. If you need assistance, please signal conference specialists 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 touch-tone phone. To withdraw your question, please press star then two. Please note that this event is being recorded. Now I'd like to turn the conference over to Ms. Katie Weiskarber in Investor Relations. Please go ahead.

Thank you all for joining AGNC Investment Corp's first quarter 2022 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 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, Non-Agency Portfolio Management, and Sean Reed, Executive Vice President, Strategy and Corporate Development. With that, I'll turn the call over to Peter Federico.

Thank you, Katie, and thanks to everyone for joining the call today. The investment environment was very challenging in the first quarter as the market faced increased geopolitical risk, growing inflation concerns, and the expectation of significantly tighter monetary policy. Interest rates ended the quarter materially higher with the yield on the two-year treasury increasing over 160 basis points. A rate move of that magnitude hasn't occurred in more than 30 years. This challenging environment led to a risk-off sentiment, pressured equity markets, and caused fixed income prices to decline. The Bloomberg Aggregate Bond Index posted its worst quarterly performance in more than 40 years with a price decline of almost six points. That index is now down nine points for the year. These extreme moves highlight how difficult market conditions were for all fixed income instruments. The agency MBS market was also adversely impacted by uncertainty associated with the Fed's balance sheet. As a result, agency MBS significantly underperformed swap and treasury hedges. The performance was weak across the coupon stack with higher coupon MBS experiencing the greatest underperformance and spread widening. Over the last 12 months, the agency MBS market has experienced a dramatic repricing as the Fed abruptly shifted monetary policy. We began the year with short-term rates near zero and the Fed growing its balance sheet. In contrast, today, the market now expects a very aggressive series of short-term rate increases and balance sheet runoff to begin later this month. At the March meeting, the Fed indicated that the initial runoff plan will include an agency MBS cap of $35 billion per month. Importantly, however, with the primary mortgage rate now nearing 5.5%, paydowns on the Fed portfolio will likely be well below the cap for the foreseeable future. Major monetary policy transitions are always challenging for the fixed income market. This is especially true for the agency MBS market, given the unique role it plays in monetary policy and in the economy. Agency MBS have remained under pressure in April with spreads widening about 10 basis points. As the Fed's balance sheet reduction phases in over the next several months and with the long-term runoff plans still not fully understood, further spread widening is possible. This difficult environment adversely impacted AGNC in the first quarter. On average, spreads on our portfolio widened about 25 basis points during the quarter, which was the primary driver of our negative economic return. Based on our fourth quarter disclosures, a 25 basis point spread widening event was expected to generate a book value loss of 13.5%. The remainder of our book value decline can be attributed to the increase in interest rates, which, as the numbers show, was a relatively small given the hedge position and inter-quarter rebalancing. As we discussed last quarter, we expected spreads between agency MBS and other benchmark rates to widen given the uncertainty associated with the Fed's monetary policy position. But the spread widening that occurred in the first quarter was materially faster and larger than anticipated. We started the quarter with a defensive position characterized by lower leverage and a high hedge ratio. We also took meaningful steps during the quarter to further reduce our aggregate risk profile. These steps included reducing our asset position, adjusting our coupon profile, and increasing our hedge portfolio. As the Fed aggressively raises short-term rates and ramps up its balance sheet runoff, we will likely remain defensive in our portfolio positioning. Despite this defensive positioning, we believe today's valuation levels reasonably compensate investors for the risks associated with the current environment. Levered returns on production coupon MBS are very attractive on both an absolute basis and relative to past cycles. As such, we believe further MBS weakness, if it occurs, will likely be characterized as an overreaction and will likely represent a compelling investment opportunity for AGNC. The mortgage market also benefits from a self-correcting mechanism in that higher mortgage rates will eventually lead to slower prepayment speeds, lower mortgage origination volume, and less runoff on the Fed's portfolio. In addition, structural changes to the repo market since 2019 have meaningfully improved agency MBS funding conditions, which is particularly beneficial to levered investors like AGNC. So, in conclusion, with asset valuations considerably more attractive now and funding conditions strong, we remain very optimistic about the outlook for our business. With that, I'll now turn the call over to Bernie to discuss our financial results in greater detail.