Mortgage real estate investment trust (commonly known as
American Capital Agency Corp.
) - reported encouraging first-quarter 2014 results with its
adjusted net spread income per share of 71 cents (excluding
"catch-up" premium amortization), comfortably exceeding the Zacks
Consensus Estimate of 68 cents.
Results also compared favorably with the prior-quarter figure of
67 cents per share. The company's concerted efforts toward
portfolio repositioning and shrinking its capital base by share
repurchases helped it to post encouraging results this quarter.
American Capital Agency reported net interest income of $291
million in the quarter under review, reflecting a decline from
the prior-quarter figure of $422 million as well as the Zacks
Consensus Estimate of $327 million.
Behind the Headline Numbers
American Capital Agency reported a 5.1% economic return on common
equity for the quarter, or 20.5% annualized, and this comprised
65 cents dividend per share and 56 cents rise in net book value
per common share. As of Mar 31, 2014, the company's net book
value per share was $24.49, reflecting a 2.3% rise from $23.93
per share as of Dec 31, 2013.
As of Mar 31, 2014, the company's investment portfolio aggregated
$70.5 billion of agency mortgage backed securities (MBS). This
included $14.1 billion of net long TBA (to-be-announced) mortgage
positions, at fair value.
The company's adjusted average net spread and dollar roll income
for the quarter was 1.59%. This reflected a rise of 17 bps from
1.42% in the prior quarter. During the first quarter, the actual
CPR (constant prepayment rates) for the company's investment
portfolio was 7%, compared to 8% for the prior quarter.
As of that date, the company had $352 million investment in
mortgage REIT equity securities and realized $49 million or 14
cents per share of dividends and gains from it during the
quarter. Including the net TBA position, the company's "at risk"
leverage ratio as of Mar 31, 2014 was 7.6x, marginally above 7.5x
as of Dec 31, 2013. Moreover, as of Mar 31, 2014, American
Capital Agency had cash and cash equivalents of $1.7 billion,
down from $2.1 billion at the end of the prior quarter.
On Mar 20, 2014, the company declared a first quarter dividend on
its common stock of 65 cents per share, unchanged from the prior
quarter. This was paid on Apr 28, 2014 to common stockholders of
record as of Mar 31, 2014. As a matter of fact, the company paid
a total of $4.4 billion in common dividends, or $28.26 per common
share, since its initial public offering in May 2008.
In first-quarter 2014, American Capital Agency repurchased
approximately 3.4 million shares of its common stock,
representing 1% of its outstanding shares as of Dec 31, 2013, at
an average price of $22.10 per share, including expenses, and
aggregating around $74 million.
With this, around 46.3 million shares have been bought back for
approximately $1.0 billion since the beginning of the buyback
program in the fourth quarter of 2012. The company further has
$1.0 billion remaining available under its current share
repurchase authorization through Dec 31, 2014.
American Capital Agency has taken measures to reposition its
portfolio to meet the current interest rate environment. The
company is also witnessing a recovery in book value and remains
positive on the outlook for agency MBS market.
American Capital Agency currently has a Zacks Rank #3 (Hold). The
company is externally managed and advised by American Capital
AGNC Management, LLC, an affiliate of
American Capital, Ltd.
Investors interested in the mREIT industry may also consider
AG Mortgage Investment Trust, Inc.
Cherry Hill Mortgage Investment Corporation
). Both these stocks carry a Zacks Rank #2 (Buy).
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