AGNC Investment Corp. Q1 FY2023 Earnings Call

Good morning, and welcome to the AGNC Investment Corporation First Quarter 2023 Shareholder Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. I would now like to turn the conference over to Katie Wisecarver, Investor Relations. Please go ahead.

Thank you all for joining AGNC Investment Corp.'s first quarter 2023 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 facts, 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 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 Pas, Senior Vice President, Non-Agency Portfolio Management; and Sean Reid, Executive Vice President, Strategy and Corporate Development. With that, I'll turn the call over to Peter Federico.

Thank you, Katie. The performance of Agency mortgage-backed securities in the first half of the quarter was very strong, continuing the positive momentum that began last November. This led to a notable increase in our net asset value through mid-February. These favorable conditions, however, gave way to a more challenging investment environment in the second half of the quarter, as regional bank instability dramatically altered the macroeconomic and monetary policy outlook, and led to a material increase in interest rate volatility and rapid repositioning of fixed income portfolios. As a result, the strong improvement in our net asset value early in the quarter turned into a modest decline by quarter-end. Following stronger-than-expected economic data in January, the Fed raised the federal funds rate by 25 basis points at the February 1 meeting and indicated more hikes were likely and that short-term rates would remain higher for longer. By early March, the terminal fed funds rate implied by the futures market approached 6%, indicating that another 100 basis points of tightening was likely. Against this backdrop, the yield curve became meaningfully inverted with the 2-year to 10-year treasury yield differential reaching negative 108 basis points in early March. This sharply inverted yield curve and more aggressive monetary policy outlook raise serious questions about bank earnings and unrealized losses on their asset portfolio. These concerns ultimately led to the abrupt failure of Silicon Valley Bank and drove a dramatic repricing and monetary policy expectations. At the peak of the banking uncertainty, meaningful rate cuts were expected over the remainder of the year rather than rate increases, as previously indicated by the Fed. In this highly uncertain environment, interest rate volatility increased to crisis levels. As an example, the MOVE index, which measures treasury market volatility, reached a 15-year high. Short-term interest rates experienced the greatest volatility, with the yield on the 2-year treasury dropping 61 basis points in a single day, unmatched by any day during the great financial crisis. Longer-term treasury rates were also volatile with the yield on the 10-year treasury increasing 60 basis points in February and falling by a similar amount in March. Predictably, this volatility adversely impacted Agency MBS. The possibility of bank selling, which became a reality with Silicon Valley Bank, also weighed on Agency MBS performance late in the quarter. Given these banking issues, the supply and demand outlook for Agency MBS is now more uncertain. Over the near term, it is likely that banks will not be meaningful buyers of MBS and, in some cases, could be sellers. Over the last two years, the fixed income markets experienced a significant repricing as the Fed tightened monetary policy at a historic pace. Agency MBS have been uniquely impacted with the spread between the current coupon MBS and the 10-year treasury, widening 135 basis points since April 2021. Importantly, we believe this repricing is in the late stages and that a new trading range is emerging. More specifically, we think spreads could remain at these compelling levels until this tightening cycle is well behind us. Such spread levels provide investors with meaningful incremental return and are about double the average of the last 10 years. We also believe agency MBS are attractively priced and adequately compensate investors for the volatility and uncertainty that characterized the U.S. treasury and Agency MBS markets today. In addition for investors seeking the highest credit quality and incremental return, Agency MBS provide a compelling alternative to U.S. treasuries. As we mentioned last quarter, the path to stability is not a straight line and the first quarter is a good reminder of that. But despite the headwinds that we encountered in March, our outlook continues to be very positive. A key driver of this optimism is our belief that our portfolio can generate mid-teen returns at current valuation levels and without spread tightening. For much of the last 15 years, we have competed with the world's largest and most price-sensitive buyer of Agency MBS. As the Fed and now banks repositioned their balance sheets, we find ourselves in the favorable position of being one of the few permanent capital vehicles dedicated to Agency MBS at a time when valuations are historically attractive and appear poised to remain that way for some time. Also important, unlike banks, our interest rate exposure is conservatively hedged and our portfolio is fully marked to market. As such, when you invest in AGNC today, you are buying into a leveraged and hedged portfolio priced at today's historically attractive valuation levels, making this opportunity very similar to 2009, which was one of AGNC's most favorable periods. With that, I will now turn the call over to Bernie Bell to discuss our financial results in greater detail.

Thank you, Peter. For the first quarter, AGNC had a comprehensive loss of $0.07 per share. Economic return on tangible common equity was negative 0.7% for the quarter, comprised of a decrease in our tangible net book value of $0.43 per share and $0.36 of dividends declared per common share. As of last Friday, tangible net book value was down about 1% for April. Leverage at the end of the quarter was 7.2 times tangible equity, down from 7.4 times as of the fourth quarter, driven by a reduction in our asset balance and the addition of $171 million of common equity raised through our at-the-market offering program. This issuance occurred opportunistically during the quarter at levels that were meaningfully accretive to book value. Our average leverage for the quarter was 7.7 times tangible equity compared to 7.8 times for the fourth quarter. As of quarter-end, we had cash and unencumbered Agency MBS totaling $4.1 billion or 57% of our tangible equity, and $70 million of unencumbered credit securities. Net spread and dollar roll income excluding catch-up amortization was $0.70 per share for the quarter, a decline of $0.04 per share from the fourth quarter due primarily to somewhat higher funding costs and the addition of new longer-term pay-fixed swap hedges. Lastly, the average projected life CPR in our portfolio at the end of the quarter increased to 10% from 7.4% as of the prior quarter-end, consistent with moderately lower forward mortgage rates and a higher average coupon in our portfolio. Actual CPRs for the quarter declined to 5.2%. I'll now turn the call over to Chris Kuehl to discuss the Agency mortgage market.

Thanks, Bernie. The first quarter was marked by extreme rate volatility. The tailwind of a growing consensus around the outlook for Fed policy and expectations for lower rate volatility carried over from year-end through the month of January, leading to one of the strongest months on record for Agency MBS performance. But that tailwind abruptly ended in February with the release of much stronger-than-anticipated economic data, and in turn, material repricing of expectations for further Fed policy tightening. Against this more challenging backdrop, Agency MBS materially underperformed hedges in the second half of the quarter. Performance across the coupon stack varied considerably with 3.5% through 4.5%, outperforming production coupons early in the quarter and lower coupons materially underperforming in March as the market priced the impending supply shock following the failures of Silicon Valley Bank and Signature Bank. Higher coupons widened as well in sympathy with lower coupons, although to a lesser degree. In total, interest rates rallied approximately 40 basis points and 2s through 10s. From this perspective, the quarter appears much more benign than what actually occurred. Given the extreme intraday rate volatility and stress in the regional banking system, it is not surprising that mortgages underperformed. Since quarter-end, rate volatility has declined materially as contagion concerns in the banking system have subsided somewhat and economic data appears supportive of a Fed policy nearing the terminal level for rates. Despite relatively common markets, the overhang of supply from the FDIC and related bank failures has driven Agency par coupon spreads 10 basis points wider since quarter-end to approximately 163 basis points to a blend of 5- and 10-year treasuries. Our Agency MBS portfolio declined to $56.8 billion as of March 31, down from $59.5 billion at the start of the year as we adjusted leverage lower to enhance flexibility to add Agency MBS as a result of the highly volatile market environment. Despite relatively weak roll implied financing levels during the quarter, specified pool performance generally lagged TBA performance. We took advantage of these weaker specified pool valuations by increasing AGNC's holdings by a little over $5 billion while reducing our TBA position by approximately $8 billion. With respect to our coupon positioning, we continued to gradually move up in coupon with the weighted average coupon of the portfolio increasing approximately 10 basis points during the quarter. As of March 31, the hedge portfolio totaled $59.7 billion and our duration gap was 0.2 years. Our hedge ratio declined to 114%, consistent with the expectation that we are nearing the terminal stage of the Fed tightening cycle. And as we have discussed, we expect to gradually shift the composition of our hedge portfolio towards a greater share of longer-dated hedges to address the risk of a yield curve steepening. This effort continued in the first quarter and was most pronounced in our treasury holdings where we added intermediate term treasuries while maintaining a short position in longer-term treasury-based hedges. Looking ahead, the combination of wide spreads, low prepayment risk and robust funding markets for Agency MBS creates what we believe to be an extraordinarily attractive and durable earnings environment. I'll now turn the call over to Aaron to discuss the non-Agency markets.

Thanks, Chris. Considering the significant interest rate volatility, the shifting inflation and economic outlook as well as two large bank failures, credit spreads were, on the whole, fairly well behaved. To put the performance in perspective, in the days following the failure of SVB, the CDX investment grade and high yield indices widened to 91 and 533 basis points, respectively. These levels were significantly tighter than what occurred during the U.K. liability-driven investment crisis late in the third quarter. In addition, both were tighter at the end of March as compared to year-end. Post SVB, falling rates or rising bond prices for benchmark bonds provided support for the spread product complex. Unlike in September, when spreads and rates both drove bond prices lower, the large rally across the curve toward the end of the first quarter helped dampen credit spread widening. This likely contributed to better performance with reduced forced selling and deleveraging and bolstering credit spread performance. Consistent with these themes, residential credit spreads performed well in the first quarter. On the run, CRT closed largely unchanged to slightly tighter over the prior quarter, while pockets of seasoned CRT tightened more meaningfully. The residential credit space likely will be a favorite asset class in the near term as credit concerns play out in other asset classes. The residential space as a whole is still supported by low mark-to-market LTVs and conservative underwriting. This results in reduced sensitivity to even moderate housing shocks or a small increase in unemployment. Turning to our holdings, our non-Agency portfolio ended the quarter at $1.3 billion, a decline of approximately $100 million from year-end. The majority of the decline was driven by sales of AAA CMBS. With wide Agency MBS valuations, and a stronger relative funding outlook, surrogate investments for Agency MBS such as high-grade residential and commercial-backed cash flows have become less attractive for us to hold. Our CRT portfolio was little changed in the first quarter and performed well due to the composition of our holdings. We continue to maintain a high allocation of bonds that provide little to no capital relief to the GSEs. As such, our expectation is for the GSEs to attempt to extinguish this protection over time by tendering the securities at above prevailing market levels. In fact, just yesterday, Fannie Mae announced the tender for seasoned CRT. We expect these tenders to drive favorable total returns for this portion of our holdings. With that, I'll turn the call back over to Peter.

Thank you, Aaron. With that, we'll now open the call up to your questions.

We will now begin the question-and-answer session. And our first question here will come from Rick Shane with J.P. Morgan. Please go ahead with your question.

Good morning, everybody, and thanks for taking my question. Look, we're obviously at a really confusing crossroads right now in terms of rates. I suspect a lot easier to manage the portfolio when there's a clear direction. Can you talk a little bit about how you balance leveraging up in this environment, the hedge strategy and what the signals you will look for to weigh in more aggressively once you see the market taking a direction?

Thank you for the question, Rick. It's an important topic to discuss. There are many factors involved, so if I overlook anything, please feel free to ask more. To begin, I want to address the issue of leverage that you mentioned. We are currently in a challenging environment, which is somewhat expected as we approach the conclusion of the Fed's tightening cycle. I believe that the cycle will wrap up at the next meeting, regardless of whether they choose to raise rates by 25 basis points or pause altogether. It's not surprising that the market is particularly sensitive right now. Reflecting on last September, the main concern that destabilized the market was the fear that the Fed would overstep, potentially disrupting the financial system. This concern did manifest in March. Moving forward, I believe the Fed recognizes this reality, and they have indicated that the instability witnessed in the banking system will significantly affect credit availability, thus slowing the economy and effectively tightening monetary policy. I think we are nearing the end of this process. Additionally, as Chris pointed out in his remarks, we are beginning to see some stabilization in the banking system, which is encouraging. We previously navigated through instability and uncertainty in March, which is why we opted for a defensive leverage stance. We sold some assets net during the quarter and used our ATM accretively to manage our leverage position, which has proven beneficial for our shareholders. Importantly, we have positioned ourselves to have significant flexibility, allowing us to seize opportunities in the mortgage market, especially given our liquidity and leverage positions. A critical point to highlight is that we do not feel any rush to make significant shifts to our leverage profile, as we anticipate spreads to remain stable. I believe that spreads are likely to stay at current levels, which are attractive by any measure across the curve. This stability allows us to be patient and gradually adjust our portfolio. In the meantime, our portfolio can generate solid returns. We are at the end of the repricing process and expect to maintain this position for a significant period, providing us with considerable flexibility. Regarding our hedging strategy, we began to adjust our hedge portfolio, as reflected in our numbers, aligning with the Fed's approach to concluding the tightening cycle. As the Fed transitioned into a tightening mode, we increased our hedges in the front part of the curve, anticipating an inverted yield curve, which indeed occurred. Now, as the Fed nears the end of its tightening cycle, we expect the yield curve to steepen, allowing the front end of the market to rally. Consequently, we will probably operate with a lower hedge ratio. Chris noted it has decreased to 114%, and currently, it’s below 100%. We will likely increase the share of our longer-term hedges to gain more exposure to the yield curve steepening, which would benefit our hedge portfolio. I’ll stop here and welcome any follow-up questions you may have.

No, great answer, very helpful, and I will pass the baton.

All right. Appreciate it, Rick.

Our next question will come from Trevor Cranston with JMP Securities. Please go ahead with your question.

Hey, thanks. Good morning.

Good morning, Trevor.

Can you provide an update on the sales of the failed banks portfolio coming to market? How much of this is already factored into prices and what additional price changes might we see once these sales occur? Also, who do you consider the main buyers and how much capacity do they currently have to take on this? Thank you.

Yes, let me just start and then I'll pass it over to Chris. I think the market has had enough time to digest that information. It's now pretty well understood what exactly they're selling and it was a little bit different than the expectations initially, and Chris can talk about the composition that will ultimately come to market. But I think the FDIC essentially has done a good job in working with BlackRock to really make it clear that they are going to tread lightly, if you will, with respect to how they dispose of these assets. It's important that they maximize value, and doing so, that's going to take them a long time. I suspect this is going to take the better part of the year. And they'll adjust according to market conditions and as liquidity and demand shows up. But I think there could be some opportunities in that portfolio, and Chris can talk a little bit about that.

The only thing I'd add, I mean, what we learned last week was the composition and the likely pace for liquidation by asset class. And as Peter said, the pace of sales is a bit longer than maybe what the market feared or at least some had feared. There's $60 billion in pass-throughs that are expected to be sold at a pace of around $6 billion to $7 billion per month, and so, roughly eight to nine months. $22 billion in CMOs that are expected to be sold at a pace of around $1.6 billion per month. So that's a little over a year. And then, there's $14 billion of CMBS and $7 billion in munis. Lower coupons widened materially up to this event. And so, I would say, I would expect the generic sort of 30-year pass-throughs to trade pretty well. I think there are a few categories within the pass-through position that trade with pay-ups that could trade at very wide spreads. There are few categories within the CMO holdings that could also trade at very wide levels. We'll have to see. We'll certainly be engaged on the list as they come out. The first round of list last week traded well. We'll have to see how things go. But with the disclosure, as Peter said, they also had some market-friendly language that suggested that the FDIC does want to minimize adverse impacts on market functioning and they're going to consider trading conditions and liquidity on any given day. But there should be some opportunities in some of the less liquid sectors for us.

And Trevor, just to add, you asked about the marginal buyer activity. Obviously, the key marginal buyer in this environment is going to continue to be money managers. The Silicon Valley Bank portfolios, low coupons and more than 50% of the mortgage index is made up of these low coupons. So, the money managers are going to be the key buyers of mortgages going forward at the margin. I think large banks could, at some point, come back into the market. But more importantly, I think there's going to continue to be a rotation out of treasuries into Agency mortgage-backed securities. And I think we started to see some of that over the last several months. I think there's demand on an absolute unlevered basis for Agency MBS that is growing. I think you see that in the formation of the ETFs that have occurred. BlackRock ETF has gained a lot of asset value over the last six months. DoubleLine initiated an agency ETF. So, I think there's going to be demand that will continue to make its way into the Agency MBS market, but it's just going to take time, but I think that sets up for a positive dynamic.

Yeah, that makes sense. Okay. Thank you, guys.

Thank you, Trevor.

And our next question will come from Doug Harter with Credit Suisse. Please go ahead with your question.

Thanks. In your prepared remarks, you mentioned kind of favorable funding markets. Can you just talk about how you're thinking about the debt ceiling and kind of how you're seeing funding markets around that time?

Sure. Thanks for the question, Doug. Good morning. We really haven't seen any disruptions in the Agency funding market. And that's one of the things that obviously makes Agency MBS so compelling on a relative value basis. Chris mentioned that in his prepared remarks that spreads are materially wider and the funding is still uniquely positive for Agency MBS. So that's a really positive long-term factor for us. Looking back at the first quarter, there was really very little disruption in the Agency mortgage market. There's still a lot of liquidity. I don't expect the debt ceiling to have any impact on the repo market for Agency MBS or for U.S. treasuries for that matter. The amount of money in the money markets system, the amount of money at the reverse repo facility at the Fed sort of signals to me that there's plenty of liquidity in the funding markets. I don't expect that the debt ceiling to be an issue in the repo markets. It may be an issue in interest rate volatility with respect to treasuries, but that's one of the reasons why we're operating with a relatively small duration gap. We'll continue to keep our interest rate exposure low. And ultimately this debt ceiling issue will get resolved. I think the market is mature enough and has gone through this enough times to know that a solution will be found. Hopefully, it can be found quickly. But if it's not, I think the market ultimately will price in the fact that it will be resolved.

Great. Thank you.

Sure. Thanks for the question.

And our next question will come from Bose George with KBW. Please go ahead with your question.

Hey guys, good morning.

Good morning, Bose.

Peter, in your comments, you noted a new trading range in Agency MBS. Can you talk a little more about that sort of in terms of nominal spreads where you think things could end up?

Sure. It's interesting to note that the spreads on Agency MBS can vary significantly depending on where you look on the curve. Depending on whether you're using treasuries or swap hedges, or comparing 10-year to 3-year hedges, you'll see meaningful differences. Currently, Agency MBS are relatively cheap. For instance, in the treasury market, the spreads between 10-year and 3-year are between 125 and 175 basis points. When looking at mortgages against the SOFR market for the same durations, the spreads range from 150 to 200 basis points. This indicates that the mortgage market is likely in the 160 to 175 basis points range. I believe that spreads will tighten from this point but may hover around 150 basis points for a while. This figure is notable as it's roughly double the spreads we've experienced over the past decade. While wider than historical averages, it provides significant compensation for the same credit quality as U.S. treasuries. For example, if the 10-year treasury is at 3.5%, and you can earn 5.25% for a shorter duration with the same credit quality, that's appealing. In this environment, investors are looking for higher returns, which aligns with the prevailing monetary and economic policy uncertainties. The market will likely respond sensitively to economic data in the coming months until more clarity emerges about the Fed's approach during this pause period. While I expect spreads to narrow over the next year, they will likely remain wider than historical averages.

Okay, great. Thanks. That makes sense. And then...

Sure. I think the key point is that this really sets up for a very good earnings environment. Please, go ahead.

Yeah, that makes sense. Thanks. The other question I had, which I believe you referred to briefly, is what drove the long treasury position that you established at the end of the quarter?

During the quarter, we focused on repositioning our hedges from a yield curve perspective as conditions changed rapidly. Our goal was to maintain a positive duration gap due to the rally that was happening late in the quarter. To achieve this, we rebalanced by increasing duration, which allowed us to benefit from the rally and gain more protection against widening mortgage spreads during that environment. Simultaneously, we aimed to reduce our shorter-term hedges, specifically those within the 5-year range and shorter, while keeping our longer-term hedges intact. To meet these objectives, we purchased 5-year treasuries while holding onto our short position in 10-year treasuries, giving us exposure to a steepening yield curve. We plan to continually adjust our overall hedge position moving forward, but that was the rationale behind our actions.

Okay, great. Thanks a lot.

Sure.

And our next question will come from Eric Hagen with BTIG. Please go ahead with your question.

Hey, thanks. Good morning, guys. Quick follow-up, I think, on the hedges. It looks like mortgages could be cheap versus interest rates, but also other fixed income assets like corporate bonds. And in the past, you guys have explored opportunities to extract value from those conditions. Is there any appetite to reintroduce those types of hedges, diversify your hedging?

Yeah, Eric, there is. We actually have a small position on in that hedge right now that IG CDX exposure, it's not particularly meaningful, it's a little less than $500 million, but there could be an opportunity to do more of that, particularly given what Chris and Aaron both talked about, which is the fact that agencies really have widened considerably relative to other fixed income spread product. And that's one of the things that makes us so compelling. That's one of the reasons we've reduced our non-Agency portfolio and increased our allocation to the Agency market. So, there could be some opportunities there.

Yes, it's encouraging to hear that. With the current wide spreads, the uncertainty in the market raises questions. Do you think this creates limitations on operating with more leverage compared to when spreads were tighter? Additionally, do you have an estimate of how much liquidity or margin might be required for a particular shift in spreads?

Sure. I understand your point that we are operating close to what could be considered the peak of financial spreads, and there is a risk that they could widen significantly. One positive aspect I see is that the market appears to be establishing a new range. Looking back from September to now, after five or six months, we have seen that the upper limit reached multiple times is enough to draw fixed income buyers into the Agency MBS market. This is crucial. We've observed a broader trend in fixed income, especially a shift towards Agency MBS, reflected in bond fund inflows that approached $60 billion in January and February. While those inflows have slowed, they remain positive in March and are expected to continue, which should help stabilize spreads at these levels. This provides a considerable amount of incremental income. We have to prepare for that risk and proceed carefully regarding our liquidity and leverage position. Each turn of leverage corresponds to approximately 6% of our unencumbered capacity. So, from that perspective, we have significant capacity. If we were to operate with one turn higher in leverage, our unencumbered capacity would only decrease by about 6%, leaving us with roughly 50% of capacity to absorb any further spread shifts.

That is really helpful detail. Thank you, guys. Thank you very much.

All righty.

And our last question will come from Vilas Abraham with UBS. Please go ahead with your question.

Hey, everyone. Thanks for taking the question. It looks like specialness has all but disappeared. I just wanted to get your thoughts on your outlook there. And just on the quarter, in Q1, on the cadence of how you manage the TBA book, just curious there because you did see that the end of period was a bit lower than the average.

Yes. So, your question was regarding the specialness of TBA in relation to the size of the TBA book?

Yes.

Okay, great. Chris?

So, rolls generally performed weakly in the first quarter, which is not surprising due to the absence of a strong bid, reduced REMIC activity, and what seems to be a relatively small short base in Agency MBS given the wide spreads compared to other asset classes. Implied financing rates will vary based on tactical conditions, and our rolls did not provide much value compared to repo in Q1. They performed adequately. I believe that over the long term, they'll average between 5 to 10 basis points through repo, which aligns with historical trends. Therefore, it's likely that we'll maintain a significant TBA position, but it will be smaller than what we've averaged in the past couple of years considering the current levels of specialness. During the quarter, we had good opportunities to add specified pools compared to our TBA position, and we added just over $5 billion. In a volatile quarter like the first, investor activity and participation in origination lists tend to decrease, causing specified pool pay-ups to generally trade weaker than their expected duration values. We capitalized on this and acquired pools with favorable convexity characteristics relative to TBA. The size of the TBA position is opportunistic and hard to predict, but I hope this provides some insight into the trade-offs we consider.

That's helpful. Thanks. And then, just one more. So, you guys are constructive on the return opportunity here. I think spreads could kind of remain at these levels for a little while, giving you a sustained opportunity. And your stock multiple is favorable right now obviously above book. So, as you think about your appetite for just equity raising, how do you think about that here? And why not be more aggressive than less given that valuation of your stock is probably a little bit more unpredictable than where other dynamic spread and that kind of thing may go? So, just any thoughts there would be helpful.

You bring up an important point. We have consistently traded above our book value, and I see that trend continuing due to the current strong earnings environment. When considering our portfolio moving forward, if you invest in it today, you're entering at a market-valued portfolio with very appealing valuations. The earnings outlook for the portfolio remains robust, estimated in the mid-teens, which supports our dividend and is encouraging from a price-to-book standpoint. Regarding our approach to capital, I want to reiterate the principles I previously mentioned. Our goal isn't to raise capital just to expand our size. We believe we have significant scale and operational efficiency, and we don't want to sacrifice our flexibility by growing too large. However, we also aim to be strategic in using the capital markets if we're able to raise funds in a way that adds value and aligns with our desired leverage profile. We employed this approach in managing our leverage during the first quarter. If raising capital aligns with these goals, we will consider it. We don't intend to raise capital merely to acquire more assets for the sake of expansion, but we'll look for opportunistic uses of capital that benefit our existing shareholders.

Got it. Thank you.

Sure.

And we do have another question from Bose George with KBW. Please go ahead with your follow-up.

Hey, guys. Actually my question was answered. I was going to ask about the dividend, but then Peter, you noted that it's well covered. So, I'm all set. Thanks.

Yeah, that's really the key is that the economic go-forward earnings is really consistent with our dividends, so we're very comfortable there.

Great. Thanks a lot, guys.

Sure.

And that will conclude our question-and-answer session. I'd now like to turn the call back over to Peter Federico for closing remarks.

Well, we appreciate everybody's participation today, and we look forward to talking to you again next quarter.

Thank you for joining the call today. You may now disconnect your lines.