American Capital Agency Corp.
) -- a real estate investment trust (REIT) -- reported
disappointing first-quarter 2013 results with its net spread
income per share of 78 cents significantly lagging the Zacks
Consensus Estimate of $1.08.
Moreover, it compared unfavorably with the prior-quarter
figure of $1.42 cents per share. Hurt by lower pricing on its
mortgage-backed securities (MBS) portfolio, American Capital
Agency's book value suffered a considerable downfall during the
Net interest income came in at $407 million in the reported
quarter, which was above the Zacks Consensus Estimate of $380
million and marginally below $408 million recorded in the prior
Behind the Headline Numbers
American Capital Agency reported an economic loss on common
equity for the quarter of 4.6%, or 18.7% annualized. As of Mar
31, 2013, the company's investment portfolio comprised $76.3
billion of agency securities and $27.3 billion of net TBA
(to-be-announced) mortgage positions, at fair value.
As of that date, the company's agency securities included
$74.8 billion of fixed-rate securities, $0.8 billion of
adjustable-rate securities and $0.7 billion of collateralized
mortgage obligations (CMOs).
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American Capital Agency's fixed-rate investment portfolio
consisted of $22.6 billion less than or equal to 15-year
fixed-rate securities, $0.4 billion 20-year fixed-rate securities
and $51.8 billion 30-year fixed-rate securities. Net TBA mortgage
portfolio included $12.5 billion 15-year net TBA securities and
$14.8 billion 30-year net TBA securities, at fair value.
The investment portfolio of American Capital Agency was financed
with $67.1 billion of repurchase agreements and other debt,
resulting in a leverage ratio of 5.7x, including the net payable
for agency securities not yet settled, or 8.1x inclusive of
off-balance sheet TBA financing.
During the reported quarter, the company's average asset yield on
its agency security portfolio was 2.80% (down 2 basis points
sequentially) and its average cost of funds was 1.28% (up 9 bps
sequentially), resulting in a net interest rate spread of 1.52%
(a decline of 11 bps sequentially).
As of Mar 31, 2013, the company's net book value per common share
was $28.93, down from $31.64 as of Dec 31, 2012. This was due to
lower pricing on the company's MBS portfolio and lower "pay-ups"
(or price premiums) on specified pools of securities with
favorable prepayment attributes.
As of Mar 31, 2013, American Capital Agency had cash and cash
equivalents of $2.8 billion compared with $2.4 billion at
On Mar 7, 2013, the company declared a first quarter dividend on
its common stock of $1.25 per share. This was paid on Apr 26,
2013 to common stockholders of record as of Mar 20, 2013. As a
matter of fact, the company has paid a total of $3.3 billion in
common dividends, or $25.11 per common share, since its May 2008
initial public offering.
Though the lower-than-expected results during the first quarter
at American Capital Agency came as a disappointment, we note that
the company's exclusive focus on fixed-rate agency securities
guaranteed by the U.S. government limits its credit risks.
However, increased volatility and deterioration in the broader
residential mortgage and RMBS markets may restrict the upside
potential of the company going forward. The company is externally
managed and advised by American Capital AGNC Management, LLC, an
American Capital, Ltd.
American Capital Agency currently has a Zacks Rank #3 (Hold).
However, the other REIT stocks which are performing well and
worth a look include
iStar Financial Inc.
Western Asset Mortgage Capital Corp.
), both carrying a Zacks Rank #1 (Strong Buy).